High time to revamp the government and some GLC's procurement and tendering process

The recent report by the auditor general showed that the country's procurement processes contained some severe flaws. The fact that many of the irregularities and over budget appeared on government's capital expenditure warrants a complete and serious review of the overall service delivery process. Having worked in procurement department before, I would like to share some thoughts on the drawbacks of the tender process and ways to improve the delivery process.

Overall in Malaysia, the tender process can be divided into at least 3 types - direct negotiation, closed tender and open tender. Each type of tender is initiated based on the job scope, cost and complexity of the project.

A. Direct negotiation process

The direct negotiation process is one of the key area that requires a complete revamp. By right, the direct negotiation process is only initiated when the required works can only be supplied by a sole or distinctive company but somehow, there are cases where a local company is taken as a main supplier whose job is only as a liaison between the principal and tender board. Because of that, the tender becomes more expensive as it goes through a middleman layer and the service level again is double charged by the local company without providing any form of support. This is undesirable.

B. Closed tender

Close Tender invitation is offered to specific tender companies who were pre-determined based on capability, technical and financial strength. This category of tender companies should be vetted carefully based on track record but since there is no transparency, some companies are inadvertently favoured over the rest and hence benefitted a great deal from this system. It is also not very competitive judging from the fact that the selected few company may put a higher price than normal and by the end of the day still be selected for the contract.

C. Open Tender

Open tender is the preferred system in many countries. In open tender, the bidding process is open to all qualified bidders, the sealed bids are opened in public for scrutiny and bids are chosen on the basis of price and quality. This will ensure competitiveness and best price over performance for the awarding body.

One of the cynic on the current system is there is not enough transparencies in the tendering process, especially in the direct negotiation and closed tender categories. I strongly believe the tenders be it closed or open, should be open for public scrutiny to ensure that there is no foul play.

My suggestions for improvements are as follows:

1)  Continuous tender monitoring for non-conformance

Overall, the entire tender process should be monitored by an independent body for breach of terms and conditions such as non-compliance, soaring prices, variation orders (VO), delay in delivery etc. In many instances there is a strict time to delivery after a tender is floated. Tender committees are sometimes forced to make unfavourable decisions; for example, to select the cheapest offer from the tender company which may still be way beyond the market price or to select items from vendor whose specifications are less than the stipulated requirements. In actual fact, the non-conforming tenders should be refloated until the prices or specifications are compliant with the stipulated budget and specifications. It is alarming that some of the departments have even go to the extent of asking for more funding directly from the ministry of finance or the respective finance department for more funds so that the tender can proceed. This is ethically and fundamentally wrong!

To overcome these problems - a special review committee must be formed to take over the task from the tender select committee and review the tendering process whenever there is a breach of terms and conditions. They should be empowered to overrule or reject the decisions made by the tender select committee. The scope includes termination of tender, suspension of tender pending compliance, refloating of tender, and revised of capital expenditure (CAPEX) budget. It should be noted however that this empowerment does not cover reselection or endorsement of vendor to ensure neutrality of the review committee.

2)  Revise the vendor certification process

One of the major drawbacks of the procurement process is that the vendor certification process. Many tenders are only open to registered vendors, which are supposed to be vetted by ministry of finance or the respective finance division. The ministry or respective finance department is supposed to vet through the track record, financial strength and capabilities of the companies, but somehow in the process, many under qualified vendors are approved to take on jobs that they do not have expertise in. To overcome this problem, one of the entry criteria may be to ensure that the companies are registered members of the relevant professional bodies. To ensure conformity and qualification, the certification process should be removed and replaced with a point scoring questionnaire of track record relevant to the tender expertise sought. Only vendors who have scored well in the track record questionnaire may be allowed to take on relevant jobs. The same thing can be done for financial strength to ensure that the selected vendor are financially sound for the project.

3)  Purchase strictly through the principal company without any intermediaries

If there is an item that can only be bought from a principal company abroad, the preference of purchasing should be to the principal and not to a local company. The support however, must come from an establish local entity to ensure swift response. Often, this criteria is the one that invites problems. To alleviate the problem, purchasing shall only be made directly to the principal subject to the following criteria:

·         Principal companies without a local presence should either set up a local subsidiary company or nominate a local support partner before the deal is made. This is to ensure that the level of support will be on par with the principal’s specification. The local maintenance and support contract can be terminated if the service does not conform to the approved service level agreement (SLA).

·         The principal undertake to provide support should the local subsidiary or appointed local support partner fails to deliver the service as stipulated in the SLA.

4)  Abolish Closed Tenders

Closed tenders are anti-competition as it is awarded only to an exclusive group of tender companies. It may also encourage favouritism and hence is not a good system to be used nowadays. In a global competitive world, exclusivity is counterproductive and should be avoided at all costs. As such, closed tenders are no longer a viable choice compared with open tenders. Although the selection process of open tenders can be slightly longer, the benefits of getting the best price over performance from the tender greatly outweighs the complaints of a slow vetting process.

With full transparency in the tender process and the mechanisms mentioned above, the tender process will become more competitive and problems like over budget and corruption can be reduced to a minimum.

Steve Teoh Chee Hooi