Bill requires competitive tenders

Urip Hudiono, The Jakarta Post - 2006-12-13 17:12

Jakarta, December 13, 2006 (JP) - Finally realizing how the holding of competitive tenders in procurement projects can save public funds, the government will require all procurements -- including small ones by state-owned enterprises (SOEs) -- to be put out to open tender.

The requirement will be instituted through a new Procurement Law, the bill for which is to be submitted next year to the House of Representatives, said the National Development Planning Board (Bappenas)'s head of procurement policy, Agus Rahardjo.

The legal framework needed to be strengthened, Agus explained, as the current 2006 President Regulation on the matter only covered procurements by state agencies worth more than Rp 50 million (US$5,494). However, the holding of properly prepared and transparent tenders over the year had given rise to quite significant savings and better results.

Examples included a procurement project at the Public Works Ministry which managed to reduce the total cost to only Rp 2.1 trillion from the previously estimated figure of Rp 3.7 trillion, while a procurement by the Finance Ministry came in 30 percent cheaper than a similar procurement last year, with the goods supplied being exactly the same quality.

"This is all because open tenders attract more bidders offering more competitive prices," Agus told reporters Tuesday during a workshop on improving government procurement that was jointly organized by Bappenas and the Asian Development Bank (ADB).

"So, the Presidential Regulation is not enough as it is limited to procurement projects financed through the state and regional budgets, while SOEs aren't actually obliged to comply.

"It is, therefore, important that all procurements involving public funds in the future are conducted by means of open and transparent tenders."

The workshop introduced a set of standard-form tender documents for the procurement goods and services, which Bappenas had been developing with ADB support in the form of US$500,000 in technical assistance grants since 2001.

Agus said there was great potential for saving taxpayer funds if all procurement projects involving SOEs were required to be put out to open tender, particularly when one realized that procurements by state power utility PT PLN alone amounted to approximately Rp 33 trillion per year, while those by SOEs in the oil and gas sector could reach up to US$9 billion.

Some Rp 260 trillion out of next year's total of Rp 760 trillion in government spending will go on the procurement of goods and services.

A heated debate arose earlier this year when the government decided to directly appoint contractors for PLN's crash power-plant development program up to 2009. The projects have since been reoffered through public tenders.

Agus admitted that holding competitive tenders would result in a more cumbersome process.

Accordingly, it would also be necessary to set up a public sector procurement agency along the lines of those that existed in other countries.

He also said that it would be a good idea to pay procurement managers more than colleagues of equal rank to discourage them from accepting bribes and kickbacks from suppliers.