Roles of Procurement Agencies to Enhance Integrity

1. Joint Cooperative Committee Roles of Procurement Agencies to Enhance Integrity Sept. 2011 Kyungsoon Chang PPS South Korea

2. Transparency in PP Transparency Policies Effects Contents Ⅰ Ⅱ Ⅲ

3. Ⅰ. Transparency in PPS 1. The Issue 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) Data from Transparency International • Level of Vulnerability • Works Contracts & Constructions / Arms Defense Industry / • Power Industry/ Procurement • “Prevalent” in more than 70 countries ※ More prevalent in developing , still occurring even in developed

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

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

6. Ⅱ. Transparency Policies Process : Offline → Online Preventions and Penalties Constant Amendments : Eliminate Discretionary Power ●New base for integrity from the root ●Project management information system even on construction site ●Written integrity pledge is a must ●Harsh punishment to both bribe provider and taker ●Activate Ombudsman ●Hotline ●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

7. Ⅱ. Transparency Policies 1. e-Procurement ▶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 PMIS Covering All Entities in Construction Collusion Detection System • Owner, architect, general contractor, supplier • Uncover any non-transparent amendments such as design change • 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…

8. Ⅱ. Transparency Policies 2. Centralized Procurement Transactions User Numbers Benchmark betw. Agencies • Users are increasing (’08)39,000 (’10)42,400 (’11.7) 43,300 • System integration into KONEPS • 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 • Unit contract for commonly used items • Comparison among various agencies • Feedback • - Autonomy in procurement is getting popular • - Strengthened centralization through e-Procurement

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

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

11. Ⅱ. Transparency Policies 5. Experts from Out of Office Specification Check in Design 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 • Limit competition by specifying design spec… • Check in early stage of design to minimize design changes • Cost surveillance to large projects

12. Ⅱ. Transparency Policies 6. Prevention and Penalty Committee for Civil Complaint 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 • 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

13. Ⅲ. Effect • [Corruption cases in PPS] Decreased Corruption Increased Customer Satisfaction Year 2006 2007 2008 2009 2010 Index Cases 76.1 5 79.3 5 1 80.9 1 81.5 0 82.9 Year 2006 2007 2008 2009 2010 [Satisfaction index for PPS ]

14. Ⅲ. Effect • Schools, public corporations, consulate abroad, and defense • industries Contribute to Anti-Corruption Index Procurement Excluded from Major Sectors ‘06 5.1 42 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘07 ‘08 ‘09 ‘10 Year 4.0 48 42 4.2 4.5 40 4.3 50 4.5 47 40 5.0 5.1 43 5.6 40 5.5 39 39 5.4 CPI Rank

15. Thank You