Roles of Procurement Agencies to Enhance Integrity Joint Cooperative Committee Sept Kyungsoon Chang PPS South Korea

Contents Transparency in PP Ⅰ Transparency Policies Ⅱ Effects Ⅲ

1. The Issue Ⅰ. Transparency in PPS Data from Transparency International Level of Vulnerability Works Contracts & Constructions / Arms Defense Industry / Power Industry/ Procurement “Prevalent” in more than 70 countries World Bank estimate : US$200bn in the world/yr - 3.5% out of entire public procurement, US$5.8tril - if resulting loss included, 6.6~20.0%(US$385bn~US$1.16tril) ※ More prevalent in developing, still occurring even in developed

Ⅰ. Transparency in PPS 2. PPS in South Korea One of the most unethical sectors Suspended because of being engaged in c orruption Suspicion over public servants and suppliers Lifetime employment opportunities for public servants More Favorable Image Before Now Excluded from the major non-transparent sectors

Ⅰ. Transparency in PPS 3. Road to Clean Procurement Joined WTO Government Procurement Agreement and Upgraded the System to Global Standards (1997) Digitalized Procurement Process Utilizing New Technologies (2002) Carried Out a Massive Crackdown on Corruption in the Early 1980s

Ⅱ. Transparency Policies Process : Offline → Online ● New base for integrity from the root ● Project management information system even on construction site Constant Amendments : Eliminate Discretionary Power ● Guidelines when determining contract method ● Strengthening quality control and inspection ● Experts from out of office join in decision-making procedure ● Review bids with excessively low prices Preventions and Penalties ● Written integrity pledge is a must ● Harsh punishment to both bribe provider and taker ● Activate Ombudsman ● Hotline

Ⅱ. Transparency Policies 1. e-Procurement PMIS Covering All Entities in Construction Owner, architect, general contractor, supplier Uncover any non-transparent amendments such as design change Collusion Detection System KONEPS connected to Collusion Warning System - Korea Fair Trade Commission Alert if there are signs of collusion based on bid price or number of bidders, etc… ▶ Open access to procurement information - decreased contracting officer’s discretion ▶ Minimizing face-to-face contact ▶ Increasing information exchange betw. public organizations ▶ Increased bidder no. resulting in discouragement for collusion

Ⅱ. Transparency Policies 2. Centralized Procurement Benchmark betw. Agencies Unit contract for commonly used items Comparison among various agencies Feedback - Autonomy in procurement is getting popular - Strengthened centralization through e-Procurement User Numbers Users are increasing (’08)39,000 (’10)42,400 (’11.7) 43,300 System integration into KONEPS Transactions Transaction volume is increasing (’08)63b$ (’09)86b$ (’10)75b$ Central (PPS) vs autonomous (each agency) is 50:50 - Public agencies ask PPS to buy even though autonomy in procurement is permitted

Ⅱ. Transparency Policies 3. Strict Control Guideline for Single Sourcing Strictly limit rationales for single sourcing Electronic quotation even in small single sourcing with small or disadvantage businesses Decreased Share of Single Sourcing From 25.7% in ’06 to 11.1% in ‘10

Ⅱ. Transparency Policies 4. Quality Control Inspection for Quality of Goods PPS’s Quality Management Office On-site sensory test, professional inspection by private institutions Investigate illegal subcontracts - Visiting factories for on-site inspections Excellent Quality and New Technology Single sourcing is permitted to the products as incentives

Ⅱ. Transparency Policies 5. Experts from Out of Office Experts from Private Sector Participate in Bid Evaluation When qualitative evaluation is applied Design build project : evaluation for Design Low bid : Price check procedure Purchasing with special spec.: Screening spec to prevent discretion Specification Check in Design Limit competition by specifying design spec… Check in early stage of design to minimize design changes Cost surveillance to large projects

Ⅱ. Transparency Policies 6. Prevention and Penalty Mandatory Submission of Written Integrity Pledge Integrity pledge when bidding Upgrading code of integrity for procuring officer Hotline at Audit and Inspection Division - Secret channel for reporting non-transparent or suspicious bidding Committee for Civil Complaint Regular meeting - Allow civilians as committee members to promote objectivity Reward civilians who suggest good points for improvement Reward whistle blowers to encourage their tip-offs to corruption

Ⅲ. Effect Decreased Corruption [Corruption cases in PPS] Year Cases55110 Increased Customer Satisfaction [ Satisfaction index for PPS ] Year Index

Ⅲ. Effect Procurement Excluded from Major Sectors Schools, public corporations, consulate abroad, and defense industries Contribute to Anti-Corruption Index Year CPI Rank ‘00‘01‘02‘03‘04‘05 ‘06 ‘07‘08‘09‘

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