September 2012

Da-un, JeongDeputy director, Public Contract and Procurement Policy Division

Ministry of Strategy and Finance, the Republic of Korea

Centralized Government Procure-ment

& Procurement Agency : the Korean Model

Coverage

1. Authorities Responsible for Public Procurement

2. Regulatory Framework

3. Liberalization of Gov-ernment Procurement Market

4. Public Procurement Ser-vice

5. Volume of Korean Gov-ernment Procurement Market

6. G.P. Process overview

7. Merits and Demerits of Centralized Procure-ment

Authorities Responsible for Public Procurement

Legal and regulatory framework for central government procurement

Ministry of Strategy and Finance (MOSF)

Executive agency under MOSF

Public Procurement Service (PPS)

Oversees public procurement policies and strategies

Procures goods, services and construction works for central government entities

Legal and regulatory framework for local government procurement

Ministry of Public Administration and Security (MOPAS)

Provides procurement services for local government entities and public enterprises upon request

Legislation of Korean Government Procurement

Regulatory Framework

Act on Procurement to Which the State is a Party

• Guideline on bidding and contracting for the cen-tral government : method of contracting and awarding

Act on Procurement to Which a Local Government is a Party

• Guideline on bidding and contracting for local

governments

Act on the Management of Government-invested Institu-

tions

• Guideline on bidding and contracting for public

enterprises and other government-invested

orgs.

Public Procurement Act• Mandates the establishment of central govern-

ment procurement agency (PPS) and its re-sponsibilities

Act relating to the Contract to which the State is a Party

Presidential Decree of Act relating to the Contract to which the State is a Party

Enforcement rule of Act relating to the Contract to which the State is a Party

Domestic

Bidding

International Bidding

Regulatory Framework

「 Special Decree of Act and Special enforcement rule of Act relating to the specific contract to which the State is a party 」 for International Bidding

Liberalization of Korean G.P. Market

Acceded to the 1994 Government Procurement Agreement (GPA) under the WTO

Bilateral Free Trade Agreement

- Korea- Chile FTA , Korea-Singapore FTA, Korea-US FTA,

Korea-EU FTA, Korea-Peru FTA, Korea-EFTA FTA etc.

Category Thresholds of Central Government

Goods130,000 SDR

(≒ US$ 2,200,000)

Services130,000 SDR

(≒ US$ 2,200,000 )

Construction Contracts5,000,000 SDR

(≒ US$ 8,500,000)

l Buys goods and services

l Contracts for construction services

l Stockpiles raw materials such as aluminum, copper, etc.

l Manages government-owned properties

Public Procurement Service

l Operates Korea on-line e-Procurement System (KONEPS)

- - Foreign aid materials management

Established as Office of Foreign Supply (1949)

History

Public Procurement Service

Developed into central government procurement agency

- Became responsible for domestic and foreign procurement, and contracting for public construction projects (1961)

- Management of government-owned goods (1971)

- - Procurement of goods and services from abroad

- Operation of the government e-Procurement system (2002)

Public Procurement Service

Organization

AdministratorAdministrator

Deputy AdministratorDeputy Administrator

Audit and Inspection OfficerAudit and Inspection Officer General Services DivisionGeneral Services Division

Office of Planning & Coordination

Office of Planning & Coordination

e-ProcurementService Bureaue-ProcurementService Bureau

International Goods BureauInternational Goods Bureau

ProcurementService BureauProcurement

Service BureauConstruction

Works Bureau Construction

Works Bureau

Quality Management Office

Quality Management Office 11 Regional Offices11 Regional Offices Overseas Procurement Attachés in

Chicago, London, BeijingOverseas Procurement Attachés in

Chicago, London, Beijing

Vice-ministerial level organization945 Staff

Korean Government Procurement

Combination of Centralized and Decentralized Procurement

Central government entities

Construction WorksAbove US$ 100,000

Above US$ 3,000,000Goods & Services

- Centralized procurement

Local government entities and public enterprises- Decentralized (autonomous) procurement

- Legally required to procure through Public Procurement Service (central procurement agency) for requirements above threshold

[ thresholds for centralized procurement]

The Volume of Korean G.P.

Centralized33%

Decentralized67%

- Centralized : US$ 33 billion

- Decentralized : US$ 67 billion

Public Procurement Total (2011) : US$ 100 billion (10% of GDP)

Public Procurement Service (PPS)

PPS recovers its operational costs from procurement service fees from public entities

PPSPPS

Public EntitiesPublic Entities SuppliersSuppliers

•Contracting•Payment

Supply of Goods & Services

• Procurement Request• Payment Reimburse-

ment• Procurement Service

Fee

Operation

PPS offers its procurement services upon receiving procurement requests

Procurement Workflow (Goods & Services)

Public Procurement Service (PPS)

PPS

Public Buyer

2. Public disclosure of PR Details

3. Review of Requirements

4. Determining Procurement Method

5. Tender Notice

6. Preparation of Estimated Value

7. Bid Evaluation and Awarding

13. Contract Closure

1. Purchase Request (PR)

Contractor

12. Reimbursement 11. Payment

9. Contract Delivery

8. Notification of Contract

10. Inspection

Determining the most suitable contract and award method, considering the

purpose, characteristics and size of the contract.

Limited Tendering

Selective Tendering

SingleTendering

LOW

Competitiveness

HIGH

Open Tendering

l Tendering Methods

l Awarding Methods

Lowest Price Awarding

Lowest Price Awarding

Qualification Evaluation

Qualification Evaluation

Contract by Negotiation Contract by Negotiation

Public Procurement Service (PPS)

43,000 Public Entities 223,000 Suppliers

Local gov’tLocal gov’t

Gov’t CorpGov’t Corp

2%

Educational institute

Educational institute

29%

Independent org

Independent org

38%

Central gov’t

Central gov’t

13%

ServicesServices21%

ConstructionConstruction38%

GoodsGoods39%

ForeignProcurement

ForeignProcurement

2%

User of PPS’s Procurement Services

Public Procurement Service (PPS)

Merits Demerits

Centralized Pro-curement

• Volume purchasing• Accumulated know-

how• Closer monitoring for

transparency• Effectively utilizes

GP as economic pol-icy tool

• Complex and longer procurement process

• Limited choice for the procuring entity

Decentralized Procurement

• Freer choices for the procuring entity

• Urgent procurement

• Tend to be more ex-pensive

• Difficulties in stan-dardization and qual-ity monitoring

• Loose monitoring – risk of moral hazard

Complemented with e-Procurement:

• Reduced lead time via e-Processing

• Convenient e-Ordering for

commercial goods

Merits & Demerits of Centralized Procurement

Da-un, Jeong e-mail: leina@mosf.go.kr