Innovating Public Procurement through Korea ON-line E-Procurement System April 2011 Good morning (afternoon). I am Jae-ho Kim. I am Director General of e-Procurement Bureau of Public Procurement Service of Korea. Before my presentation, I would like to thank the World Bank for preparing this event. Today, I am here to introduce to you Korea On-line e-Procurement System, or KONEPS in short. I will focus on the main functions of KONEPS and its impact on Korea’s public procurement. Kang-il Seo International Cooperation Division Public Procurement Service (PPS) The Republic of Korea

Contents Korea ON-line E-Procurement System (KONEPS) Impacts of KONEPS Implementation Experiences Recommendations I will begin with the overview of KONEPS. Then I will talk about the impact of KONEPS in Korea’s public procurement. At the end, I will also make a few recommendations for countries interested in adopting e-Procurement.

1. Korea ON-line E-Procurement System (KONEPS)

Foreword: Korea’s e-Government Project The Korean Government initiated 11 e-Government projects to enhance national competitiveness utilizing information technology e-Government Innovation in Services Administrative Productivity 1 5 National Finance system Government-wide e-Procurement System Integrated Administration System for Local Governments 6 2 Single Window for Civil Services 7 Nation-wide Educational Administration System 3 Integrated Social Security Information System 8 Standardized HR Management System First of all, let me give you some background information. Around 2001, the Korean government took 11 e-Government projects. One of the important projects was the Government-wide e-Procurement System, which became KONEPS. There are also some other projects related to KONEPS. Because public procurement is an important part of the government’s spending, KONEPS is connected to Number 5, the National Finance System. Number 10, e-Authentication and e-Signature, and Number 9, Consolidation of e-Documents and e-Reporting are also important for e-Procurement. 4 Consolidation of e-Document Exchange and e-Reporting Internet-based National Taxation System 9 INFRASTRUCTURE 10 11 e-Authentication and e-Signature System Government-wide IT-governance Environment

Public Procurement System in Korea Combination of Centralized and Decentralized Procurement Medium to large scale procurement for central government agencies : handled by Public Procurement Service (PPS) Small scale procurement: handled by each government agency Local governments and public enterprises: autonomous procurement Increasing SME’s Market Opportunities Public Procurement Service (PPS) PPS is the central government procurement agency of Korea under the Ministry of Strategy and Finance Total procurement volume of 38 billion USD in 2010 (30% of Korea’s total public procurement) PPS operates KONEPS, Korea’s public e-Procurement system To help your understanding, let me also briefly talk about my organization, PPS. PPS is the central government procurement agency of Korea. Our job is to procure goods, services and construction works on behalf of Korea’s central government agencies. To be effective, we cover medium to large scale procurement, and small procurements are made by each agency. Local governments and public enterprises can make procurement on their own, but they often choose to use our procurement services because of our expertise and long experiences. In 2010, we covered about 30% of Korea’s total public procurement.

KONEPS Korea ON-line E-Procurement System (KONEPS) KONEPS Government-wide e-Procurement System Developed and operated by PPS Commonly used by all public agencies for procuring goods and construction works International standards to ensure inter-operability KONEPS PPS also has the role of operating KONEPS, Korea’s government-wide e-Procurement system. We developed the system in 2002, and we operate the system so that all other public agencies can use the system. KONEPS is characterized by three main features. Firstly, It is the single window to Korea’s public procurement. It is used not only by PPS, but by all public agencies in Korea. Secondly, it provides a one-stop service for all procurement processes. Lastly, it is integrated with many other public and private sector systems. I will explain more in the next slides.

Characteristics of KONEPS Single Window for Public Procurement This slide shows KONEPS’s role as the Single Window to public procurement. Bidding information from all public organizations is integrated, and provided through KONEPS. Once registered in KONEPS, suppliers are able to participate in all public tenders. Therefore, KONEPS represents the entire public procurement in Korea. Publication of all public tender notices and related information at a single website Bidders can participate in all public biddings after one-time registration

Characteristics of KONEPS Integration of Entire Procurement Process Entire procurement processes from supplier registration, bidding through to payment are conducted via the internet One-click purchase at the Online Shopping Mall One-stop Service 160 types of documents handled online through the data exchange linkage with 100 other public sector & private sector information systems KONEPS handles the entire procurement process, including registration, bid notice, bidding, awarding, contracting, and payment. In order to provide such comprehensive services, KONEPS is connected to over 100 external systems in the public and private sector. It exchanges 160 types of e-Documents and procurement related data. For example, KONEPS checks the suppliers’ business registration, tax payment status, credit rating, and so on. In evaluating bidders for construction projects, KONEPS obtains the construction companies' past performance data. As such, you can access any necessary information on suppliers.

Functions of KONEPS KONEPS e-Contracting e-Bidding e-Payment KONEPS processes the entire procurement procedures through the 4 major sub-systems: e-bidding, e-contracting, e-payment and the online shopping mall e-Bidding e-Contracting Contract Registration Composition and sealing of Contracts Contract Review Tender notice Price Assessment Evaluation / Analysis KONEPS e-Payment Online Shopping Mall KONEPS has four modules: e-Bidding, e-Contracting, e-Payment, and e-Shopping Mall. You can see how these 4 modules cover the entire procurement procedure. The e-Bidding module handles e-Noticing of public tenders, e-Submission of bids, bid evaluation, awarding, and the announcement of the successful bidder. e-Contracting module covers contract registration, composition of e-Contract documents, and e-Signing. e-Payment module covers the payment process through electronic fund transfer. It is connected to the National Finance System to support the government’s accounting process. PPS also establish framework contracts for goods and services that are commonly purchased across the government. The contracted goods are registered at KONEPS’s e-Shopping Mall. Public agencies can directly order these goods on-line, without separate contracting process. E-Payment Expenditure Mgmt. Fee Management Product Registration E-Catalogue Product Search Online Order

KONEPS at a Glance Ministry of Strategy and Finance Construction CALS Ministry of Public Administration and Security Ministry of Strategy and Finance Certification-Related Agencies Construction-Related Associations Korea Financial Telecommuni-cations & Clearings Institute Construction CALS Surety Insurance Now, let’s take a look at how KONEPS interacts with other systems. On the left column, you see the 3 groups of KONEPS users. PPS operates the system and uses it for its own procurement. Other public agencies also use the system as the buyers. Private companies are the supplier’s side users. On the bottom, you see the external systems that are connected with KONEPS. They include surety companies for e-guarantees, for bid bonds and performance bonds; the Ministry of Financing for government budgeting, accounting, and payment; the Construction CALS system that manages the record of construction companies’ past performances. On the right, there are e-Certificate authorities, the Ministry of Public Administration and Security for business registration, e-certificates for tax payment, and so on. KONEPS is also connected to construction industry associations to obtain the bidder’s license information and their past performance in the private sector. Lastly, KONEPS also exchanges data with financial institutions, including The Korea Financial Telecommunications and Clearings Institute, to make e-Payment possible.

Bid Opening/ Evaluation KONEPS e-Tendering Processes Certificate Authorities Other Bidding Systems PG System Certificate Related Associations Certificate Authorities D-Brain System G4C System Authentication Certificate Integrated Notice Commission for Bid Participation Supplier Data Authentication Certificate Contract Information Certificate for Tex Payment Supplier Registration Integrated For Bid Bidding Bid Opening/ Evaluation Contracting Delivery/ Inspection/ Acceptance Payment G4C System Public Org. (40,000) Surety Company Encryption Key Issuance System Surety Company D-Brain System Banks Performance Bond, etc Supplier Registration Integrated Notice Bid Bond Encryption/ Time Stamp Electronic Funds Transfer All procurement processes are digitalized KONEPS electronically obtains information on the bidders (business registration, credit rating, past performances, etc) from other public and private information systems (no need for submitting paper documents and certificates) Online Transaction 11

KONEPS Online Shopping Mall PPS establishes unit-price contracts for commonly and repetitively purchased products Products on unit-price contracts are made available at Online Shopping Mall for direct orders from public entities This is another look at KONEPS’s Online Shopping Mall. As mentioned earlier, PPS makes unit-price contracts for commonly used goods, and put them on our Online Shopping Mall site. Just like you order goods online from amazon.com, Korea’s public agencies can order goods and pay for them online through our Online Shopping Mall.

Phased Establishment Early Development (1997-2001) KONEPS (2002) Electronic Data Interchange System (1997) Online Shopping Mall System (1998) e-Tendering System (2000) e-Guarantee and e-Payment System (2001) KONEPS (2002) Establishment of KONEPS for the use of all public organizations (2002) As you have seen so far, KONEPS is a very comprehensive e-Procurement system. Such a comprehensive system was not made in a single step. We built the system on a gradual basis. The initial step was the EDI (electronic document exchange) system in 1997. In 2001, PPS started e-Bidding. In 2002, PPS integrated the entire procurement process into a single system, and launched KONEPS.

2. Impacts of KONEPS Now, I will introduce major impacts of KONEPS on Korea’s public procurement.

Total Volume of Transactions Transactions through KONEPS 41,000 Public Entities $86 bn 191,000 Registered Suppliers $63 bn $56 bn In 2009, over 70% of Korea’s total public procurement (122 billion USD) was conducted through KONEPS A critical success factor for an e-Procurement system is how well it is received among the users, and how broadly used. Thanks to its comprehensive services and user convenience, the user base of KONEPS expanded very quickly. As of 2009, 41,000 public agencies and 191,000 suppliers are using the system. As a result, the value of total transactions through KONEPS is over 86 billion dollars. It is over 70% of Korea’s total public procurement. 2007 2008 2009 Total Volume of Transactions Conducted via KONEPS

Transparency and Cost Efficiency Enhanced efficiency and transparency Improves transparency in doing business with the government Minimized face-to-face contacts All the information are published on-line on a real time basis The number of bid participants increased three-fold Saves USD 8.1B worth of transaction costs annually KONEPS has a large impact on transparency and budget efficiency in Korea’s public procurement. Due to the digitalization of the entire procurement process, the face-to-face contacts between suppliers and officials nearly disappeared. In the past, such face-to-face contacts gave possibilities for corruption. Now such risks are greatly reduced. In addition, all bid awarding results and related information are disclosed on a real time basis. This ensures faire and transparent procurement administration. As we often say, the best watchmen in bid awarding are the unsuccessful bidders. As long as they keep their eyes on the bid results, there is little room for corruption. e-Procurement also contributed to the reduction of transaction costs. According to our survey in 2009, KONEPS saved over 8 billion dollars of transaction costs. It resulted from the reduction of personal visits, paper documents, and the saving of time and labor. USD 6.6 on the suppliers’ side, USD 1.5 in the public sector Reduction of visits and contract-related papers, time-saving, etc Savings of labor and time for searching for tender information Savings from increased competition (not included in the figure)

Corruption Prevention through KONEPS Increase public access to procurement information & decrease contracting officer’s discretion Reduce the possibility for corrupt and illegal activities involving abuse of classified information Clarify criteria for bid evaluation & disclose evaluation results Digitalization of successful bidder selection reduces public officers’ discretion at the bid evaluation stage, therefore prevents corruption Minimize face-to-face contact and increase information exchange between public organizations Minimize possible corruption between government officials and suppliers Discourage defected companies’ participation in biddings & prevent documents from being forged, consequently preventing corruption Increased competition as a remedy to bid rigging Augmenting the number of bidders curbs collusion between bidders 17 17

Contribution to the Growth of SMEs Benefits for SMEs SMEs participation Minimal cost for marketing and promotion in the public sector Easy access to tender information and broader bidding opportunities Market opportunities for new technology products 99.5% of the total 191,000 registered bidders are SMEs 97% of the suppliers of the On-line Shopping mall are SMEs Another impact of KONEPS was a much better business environment for SMEs. SMEs could do business with the government more easily with minimal marketing cost. They have better and easier access to bidding opportunities. Also, through KONEPS’s Online Shopping Mall, new technology products can be promoted among public agencies more easily. Such environment made SMEs more competitive in the public sector. Currently, 99.5% of bidders registered in KONEPS are SMEs. SMEs also account for 97% of the suppliers that sell their products through Online Shopping Mall.

3. Implementation

Dimensions of e-Procurement Implementation Business Process Reengineering Technology Leadership Change Management

Business Process Reengineering Redesigning Procurement Work Process for Improvement 80% of the total 565 processes in three categories (goods, services, construction works) were revised 152 processes were removed, and over 300 processes were streamlined through integration and digitalization Standardization of e-Document forms and contents Foundation for standardized product catalogue system (product classification / identification) Determining standard e-Document forms (eb-XML based standards with development guidelines) Revision of Legal and Institutional Basis Provisions for the registration of information and mandatory reporting for e-Procurement services Revisions for the streamlining of procurement procedures

Revision of Laws and Regulations for e-Procurement Framework Act on Electronic Commerce Ministry of Knowledge & Economy Established in 1999/ revised in 2002, 2005, 2007 Provides for legally binding effect for digital documents Digital Signature Act Ministry of Public Administration and Security (MOPAS) Established in 1999/ revised in 2001, 2005 Legal force clarification for a digital signature Revision of Relevant Regulations Mandatory: tender notice via KONEPS, sanctions against fraudulent bidders, disclosure of award information Optional: use of e-Bidding and e-Contracting Grace period (3 months) and interim measures for smooth transition

Technology (1) – Intl. Standards for Interoperability Adopting the most up-to-date technology standards to ensure compatibility for data exchange with other external systems eb-XML based web applications Application of public digital signature e-Documents are generated on and sent from the sender’s PC, and received by the recipient's PC, to ensure end-to-end security system for e-Documents PKI-based personal keys are issued for each individual tender and stored in the responsible contracting official’s PC, so that the system operator may not access the bid information Adopting the government’s standard values (business registration information, standard public institution codes, etc.) to ensure compatibility for data exchange with other external systems

Technology (2) – Security and Authentication Digital signature and encryption technology is used for the security of e-Transactions (PKI method)

International Cooperation for e-Procurement Mongolia Uzbekistan Mongolian e-GP System Implementation by Aug. 2011 e-Procurement F/S in 2009 Tunisia e-Procurement F/S in 2009 Iran e-Procurement F/S in 2008 Costa Rica MER-LINK Commenced Full Service in Dec. 2010 Vietnam With the successful experience in adopting e-Procurement, we are actively sharing our experiences with other countries and providing support. We provided consultation and support for e-Procurement projects in Costa Rica , Vietnam, and Mongolia. For those countries at an early stage, we have provided technical and financial support for conducting feasibility studies. e-GP Pilot System Operated since Jul. 2010 Cross-governmental expansion in planning

4. Recommendations I have come to the last section of my presentation. The title says “recommendations”, but I will simply draw your attention to some points to be considered in e-Procurement.

Recommendations Simplification and Clarification of Procurement Regulations for Process Transition through BPR A single e-procurement system for all public organizations Take the step-by-step approach from integrated bid notice (e-Notice), bidding (e-Submission) and e-Shopping Mall The first point is the procurement process. People often think e-Procurement is about IT technology. what is more important is re-structuring the procurement process. Through a careful BPR (Business Process Re-engineering), the procurement process should be streamlined to be suitable for e-Procurement. Secondly, it is usually a better choice to have a single e-Procurement system for all public agencies, rather than having multiple systems. This way, the system can have a greater impact, and we can avoid redundant budget spending. The third point is a step-by-step approach. Countries have different IT infrastructure, and different level of public database. For developing countries, we think the best starting point is e-Noticing and e-Bidding. e-Shopping Mall is also a good means of improving procurement efficiency without a large investment. Lastly, and most importantly, a strong government leadership is required. Adopting e-Procurement requires a government-wide cooperation among different ministries and many user organizations. Therefore, it requires a a good lead agency that can lead this cross-governmental cooperation, and the government’s strong determination for procurement reform. Government leadership and establishment of a lead agency

THANK YOU This concludes my presentation on the overview of KONEPS. I hope I made a good start, because I am opening for the next presenter. Now I will leave the stage to the system developers of KONEPS, and they will give a presentation on the more technical aspects of KONEPS. After their presentation, we will be happy to answer any questions you may have. Thank you very much.

Appendices

Total number of bid participants (unit: million) e-Biddings through KONEPS 235,178 207,960 207,633 213,539 23.2 20.9 20.5 20.8 2006 2007 2008 2009 Number of e-Biddings Total number of bid participants (unit: million)

Focal points in the implementation of KONEPS Gateway to Government Procurement E-Procurement Portal Comprehensive Information Contents Integrated Information Search Customer Service Standardized Procurement Process ASP for public institutions Services for suppliers System development for the System Operation Authority Efficient Procurement Process One-time registration for participating in all public bids Reducing the paper document submissions by bidders Integrated Information & Shared Use Comprehensive information on public bids and bid awarding Access to integrated data from public authorities and industry associations Shared use of information Standardization of Fundamental data Standardizing Product Catalog and consolidating the database Creation of e-Catalog Standardizing 149 e-Document forms Reliable e-Document Exchange Conformity to W3C/ebXML international standards End-To-End security measures Security assurance Korea ON-line E-Procurement System (KONEPS) ASP: Application Service Provider

Security and Operation Policies Network Security Separation of Internet and Extranet, Dual Fire-wall, Intrusion Detection System, Security Solutions, etc System Operation complying with ITIL Check and Balance between PPS and outsourced Operator, Programmers and System managers Access control to system, program and D/B National Computing & Information Resources Center These are some other security measures of KONEPS. For network security, we separated intranet from extranet and adopted dual fire-wall and intrusion detection system. And also we check KONEPS security periodically. And for the system check and balance, we adopted ITIL procedure, which is an international standard. For the access control, all log access and program modification history is managed automatically. Automatic management of log access and program modification history, post-verification system Service Stability against accidents Dual operation of servers and networks, Back-up Center(Data mirroring), ITSM 32

Features of KONEPS Modules e-Bidding All bidding notices of public organizations (central government entities, local autonomies and educational institutions) are published thru KONEPS. It secures stability and confidentiality via digital-signature, encryption and e-Data. Generation of e-Contact forms and electronic signing of the contract document The contract info is stored in the system e-Contract The real-time fund transfer via data-linkage to the dBrain after payment request. Unnecessary documents for inspection/tally and off-line payment request were removed. e-Payment Businesses can take impartial opportunities, and public organizations can have multiple choices, which satisfies various demands. Repetitive purchase and vexatious bidding process have been simplified via registration of the unit-price contract product and ordering function. e-Shopping Mall