Indonesia: Transparency in government procurement

March 19, 2018

This blog appeared first in Bahasa. You can find the original version here.

Written by Agus Sunaryanto, Vice Coordinator of Indonesia Corruption Watch (ICW)

Government procurement transparency

Indonesian President, Joko Widodo has on several occasions stressed the importance of utilising information technology in the procurement of goods and services to be more transparent.

Indonesia’s Corruption Eradication Commission (KPK) agrees, and even recently suggested not only to rely on e-procurement, but also on e-catalogues for all procurement of goods and services in ministries, governmental organisations and local governments.

Indeed, the use of information technology in the procurement process is an innovation that continues to be developed to replace the conventional procurement process – one that is no longer considered efficient and effective, with minimal transparency, and high risk of collision between organisers and bidders.

Efficiency level

According to the monitoring and evaluation data by the Institute for Procurement of Goods and Services (Monev LKPP), the percentage efficiency of electronic auction/bidding in 2015 is 10 per cent. Although the efficiency level tends to fluctuate, if it is assumed that the national procurement spending is around IDR 900 trillion, the average annual savings will be estimated at IDR 90 trillion.

Ironically, this system has not been effectively implemented at the ministry and institutional level, including the local governments. In 2017, based on LKPP’s data, the utilisation of new electronic systems was estimated to be IDR 403 trillion, or 40 per cent of the total national procurement expenditure, which valued at IDR 994 trillion. In fact, 100 per cent of electronic procurement obligations, both central and regional, has been mandated in Presidential Regulation No. 54/2010 and Presidential Instruction No. 1/2013 on Corruption and Eradication Action.

The lack of utilisation of the electronic systems will likely hamper its use by others in the future as a means for preventing corruption. In 2017, the Indonesian Corruption Watch (ICW) found that in a total of 576 corruption cases handled by law enforcement officials, 42 per cent, or 241 of those cases were related to the corruption of procurement of goods and services. This shows an upward trend compared to 2016, where there were 195 corruption cases.

There is no guarantee that the implementation of the electronic system will eliminate corruption in the procurement sector. No matter what, some form of human intervention is still needed. In order for the electronic system to be most effective, it will require the full cooperation and integrity of the organisers and procurement participants.

Videotron’s procurement corruption case in 2012 in the Ministry of Cooperatives for Small to Medium Enterprises is a good example of how the electronic auction process can still be altered. In this case, the procurement officer was intervened by a bidding company whose owner was the child of a high-ranking official in the Ministry of Cooperatives for Small to Medium Enterprise at the time.

In other cases, like the electronic identification cards (e-ID), it clearly illustrates how the procurement process can be altered since the beginning/early stages, from the time the procurement budget plan was decided by DPR politicians.

Urgency for Transparency

The rise of corruption in the procurement sector is a challenge on its own amid the government’s attempts to be more efficient. Therefore, it is important to maintain a shared commitment for an effective procurement ecosystem; in implementing regulations, maintaining the integrity of organisations, procurement officers, procurement platforms, as well as their transparency and accountability mechanisms.

The commitment for an effective procurement ecosystem that is transparent and accountable must address three main areas: government transparency, the private sector integrity, and the public control as the main beneficiary.

In addition to having authority over the budget, the government can encourage procurement organisers to be transparent and accountable. This is to simply announce their general procurement plan to be implemented annually in each portal of every institution and national procurement portal provided by LKPP in accordance with Article 112 (2) of the Presidential Regulation No. 54/2010.

Supervision Instrument

The transparency of a general procurement plan is very important because it becomes an instrument for internal supervisors and the public to oversee and prevent any procurements from renters, including from politicians. Other than that, the publication of a general procurement plan can also enhance the role of the domestic economy, in particular small to medium sized enterprises, in preparing the needs of government goods and services.

Unfortunately, the number of general procurement plans submitted on the national procurement portal is still very low. In 2017, there were 10 ministries and 16 government agencies that did not fill out the general procurement plan in their evaluation application and supervision of budget realisation (Monev TEPRA LKPP). Therefore, the President still has a lot of work to improve and encourage transparency and efficiency in the procurement process.

An incentive mechanism, as well as a blacklist system needs to be integrated nationally for suppliers. The government has just recently issued Presidential Regulation No. 13/2018 recognising the beneficial ownership of corporations.

In addition, the National Standardisation Agency for Indonesia has recently developed an anti-corruption management based on ISO: 37001. If the two standards become main requirements for suppliers, it will make it difficult for unregistered organisations to be involved in the procurement process.

The blacklist mechanism must be given to organisations that are caught cheating. Moreover, organisations that follow the rules and regulations should be given incentives, for example, guarantees or easy credit to increase capital and develop business.

Public access

The public should be able to access documents related to procurement. Current facts, auction documents and contracts are still understood as private matters, considered to contain company and trade secrets, and feared as a disruption to healthy competition amongst businesses.

However, this has actually been refuted by a number of decisions by the Information Commission, such as No. 358/IX/KIP-PS-MA/2011, No. 026/II/KIP-PS-MA/2012 and Number 374/XII/KIP-PS-A/2013. These decisions state that the documents and procurement contracts should be and are open to the public as they do not cause disruption to unfair business competition and do not violate intellectual property rights.

In order for tender documents and procurement contracts to be understood as open to the public, it has to be revised in the Perpres No. 54/2010. In addition, a joint letter of consent or a memorandum of understanding between the Information Commission, LKPP, Ministry of National Development Planning and the Ministry of Home Affairs should be issued.

Innovative procurement reforms must still be accompanied by a commitment of transparency and accountability. This is systematically implemented, integrated and supervised by the public so that potential mishaps in each stage of the procurement process can be prevented as much as possible.