Procurement Issues(1)

Procurement issues in MalaysiaWee Shu Hui, Radiah Othman, Normah Hj Omar,Rashidah Abdul Rahman and Nurul Husna HaronAccounting Research Institute and Faculty of Accountancy,

Universiti Teknologi MARA, Selangor, Malaysia

Abstract

Purpose – This study was undertaken with the aim of surveying the perception of the two mainstakeholders in procurement system; the contractors and the procurement officers on issues such asaccountability, transparency, corruption, integrity and cronyism pertaining to the public procurementsystem in Malaysia.

Design/methodology/approach – Interviews were conducted over a nine-month period in 2007 togauge the perception of the procurement officers and contractors on procurement issues in Malaysia.The interview data were then transcribed and grouped according to six main themes; transparency,procurement policies and procedures and its implementation, personnel involved in the procurementsystem, estimation/budget/pricing, professionalism and ethics and timeliness.

Findings – One of the common complaints made by the contractors was prevalence of interference fromoutside parties and cronyism, which affects the awarding of contracts. The procurement officers wereblamed for malpractice and non-compliance to the policies and procedures of the procurement system.

Practical implications – The paper deals with sensitive issues and takes several months tosuccessfully gather respondents who willing to give feedback on their experience with theprocurement system. The data are first hand information and are carefully transcribed and categorizedinto categories to help better understanding of the issues raised by the respondents.

Originality/value – The paper deals with sensitive issues and takes several months to successfullygather respondents who willing to give feedback on their experience with the procurement system.The data are first hand information and are carefully transcribed and categorized into categories tohelp better understanding of the issues raised by the respondents and the private sector.

Keywords Malaysia, Public procurement, Public sector management, Accountability

Paper type Research paper

Introduction

Public servants have been told to carry out their duties speedily and accurately and live up tothe high expectations of the people. Deputy Prime Minister Tan Sri Muhyiddin Yassin, inissuing the directive, said they should set a timeline, identify priorities, make decisions anduse time productively. He said they should also improve the way they work, co-ordinate roles,activate all programmes that had been drawn up and use funds effectively. “It’s important todetermine our priorities. The prime minister has outlined many things including economicdevelopment, education, and social development that had been stipulated in the developmentplan that we wish to implement” (Star, 2009a).

The multi-pronged approach in developing Malaysia into a prosperous nation affectsits economic, social, culture, political and even aerospace research environment. As arapidly developing country, the government has put much effort to channel thecountry’s resources to right places of development. Public fund, which is raisedthrough the collection of income tax, companies’ tax, duties and other sources, shouldflow back to the public and benefit the public in terms of good public facilities andamenities, education, subsidies and various developments.

The current issue and full text archive of this journal is available at

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Procurementissues inMalaysia

567

Received 18 June 2009Revised 28 October 2010

Accepted 9 December 2010

International Journal of Public SectorManagement

Vol. 24 No. 6, 2011pp. 567-593

q Emerald Group Publishing Limited0951-3558

DOI 10.1108/09513551111163666

An effective procurement system would therefore ensure as little leakage from thesystem as possible. The government procurement system is part of this conversionprocess, from the collection of funds to the successful implementation of projects.Hence, the procurement system is always under the intense scrutiny of differentstakeholders. Issues of accountability, transparency, corruption, integrity andcronyism are concerns raised by the public to ensure that public funds are properlymanaged and wastage of the public funds kept to a minimum. Nonetheless,weaknesses exist in the system.

“The Red Book”[1] (The Putrajaya Committee on GLC High Performance, 2006)highlights five common weaknesses in the Malaysian procurement system. They areas follows:

(1) Failure to buy products in the right quantities, and at the right specificationsand prices, resulting in higher total cost of ownership.

(2) Inefficient and ineffective procurement processes, resulting in long cycle times.

(3) Opaqueness and ambiguity in the procurement process, resulting in leakagesand corruption.

(4) Inadequate infrastructure to support procurement, including flaws inorganization and governance.

(5) Non-existent or ineffective vendor development programs (VDPs)

It is therefore pertinent to investigate the problems as perceived by the contractors andthe procurement officers. Interviews were conducted in order to gauge the perception oftwo main respondent groups on the procurement issues.

Research issuesOne of the main concerns of the public is extravagant sum paid for jobs that are worthits value. Quality is also another issue. The enormous amount of money involved ingovernment procurement and the fact that the money comes from the public demandsaccountability and transparency, which are not only national issues, but are alsocommon global issues. For instance, in the USA, the State of South Carolina abandonedits e-procurement system in June 2002 and pilot projects were shut down in 2002 inMassachusetts, Indiana, and Michigan (Garson, 2004). While in Virginia the stateauditor reported that only 1.5 percent of the state’s business was transacted through itsstate-of-the-art $US14.9 million system (Garson, 2004).

In Europe, the UK Ministry of Defense was reported for not being able to achieve thetargeted savings from its new e-procurement service after three years in operation(KableNet, 2003). One reason can be due to the inability to “punch out” procurementorder data into the financial control systems, which was reported by Croom andBrandon-Jones (2005) as critical for the success of an e-procurement system. On adifferent note, Henriksen and Mahnke (2005) noted that in Denmark, thestructural-political issues related to the widespread decentralization had created aserious barrier for a centralized procurement process through the public e-procurementportal (PePP). They claimed that there were many other issues that needed to beconsidered such as local identities, occasions for participation in decision making, andpossibilities for local interests and influence. Culture is also one of the issues that havebeen highlighted, especially in the Asian region. A case-based study of Taiwanese

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military procurement revealed that the main challenges for e-procurementimplementation were found to be related to cultural resistance to changes (Liao et al.,2003). In New Zealand, the Government’s GoProcure E-procurement system has provedmore complex to develop than expected (Bell, 2003; Doesburg, 2003; Gifford, 2003).

There reported issues and failures of procurement systems have triggered thepublic to scrutinize public spending on the part of the government. The British tabloidsare intensifying their focus on the spending of the British MPs while the USA is liftingthe veils on the extravagant and lavish spending of chief executive officers (CEOs)using shareholders’ money. The public, and this includes the Malaysian public, aremore aware and demanding of their rights and privileges.

On the other hand, the pool of contractors is ever increasing. As at April 2009, thereare 32,000 Class F contractors in the country and they make up 70 percent of thecontractors of all classes. It is a big number, although not many are active. However,only 4,373 of the estimated 31,500 Class F contractors in the country had been allocatedprojects totaling to RM860millions (Beh, 2009). The awarding of contracts comes underdetailed scrutiny and the contractors have the right to expect that contracts andtenders be given to the deserving ones. Transparency and accountability again aremajor issues but these issues are long standing issues in addition to other issues suchas methods in allocating projects, price in tenders, and quality of projects. As reportedin May 2009, the Works ministry is still “gathering information so that we can come upwith a good mechanism to solve problems faced by the contractors”.

Procurement system in MalaysiaThe procurement system in Malaysia can be divided into three systems, which aredirect purchase, tender (open tender and close tender/quotation) and direct negotiation.The laws, regulations, and policy guidelines on these procurement types in Malaysiaare available in print form and on the web site of the Ministry of Finance as guidelinesfor the procurement officers and the users (mainly contractors).

Generally, for the purchase of below RM50,000, the direct purchase procurementsystem needs to be followed. The procurement system will require the filling ofmultiple copies of requisition forms by the departments needing the goods. Therequisition forms are then sent to the purchasing department for approval. Thepurchasing specialist will make several telephone calls to various suppliers askingthem to quote their prices, choice of products offered and the delivery terms. Onreceiving feedback from the suppliers, the purchasing officers will make an analysisand make procurement decision. He/she will then generate the purchase order and thepurchases will be made.

Closed tendering for procurements would be applied for procurement cost betweenRM50,000 and RM200,000. Whereas open tendering is used for procurements aboveRM200,000[2]. For tenders that target local suppliers, the bidding period is 21 days. Forinternational tenders, which arise only for goods and services that are not availablelocally, the bidding period is 56 days. Model tender documents, which can increasetransparency and consistency, are found in the Treasury Instruction, TreasuryCircular Letters, and the Procurement Guidelines Book issued by the Ministry ofFinance. The Procurement Guidelines Book also explains procurement procedures togovernment agency staff. In certain circumstances, the procurement could not be donethrough tender. Thus, the purchase would be made through direct negotiation.


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Direct negotiation should only be considered only and when necessary in which itwould be exempted from open tender. It is mainly due to urgent purchase and there isonly one supplier thus no price and specification comparison could be made. Inprinciple, the appointed contractor must be the expert, well-known for its credibility,have wide experience, proper planning, good pricing terms and most importantly, bethe only supplier or contractor in the country for the item to be purchased. Thus, theprocess for direct negotiation is expected to be faster as compared with the open tender.Even though the process of direct negotiation is faster, every step of the proceduresmust also comply with the prescribed provision.

For the tenders, there is a need for invitation to tender in which it is publicized toprovide opportunity to many bidders to participate. This will also facilitate thegovernment to ensure value for money. Wide publication of tenders can help reducecorruption by increasing transparency and participation. Under Malaysian rules, localtenders must be advertised in at least one local newspaper in the Malay language.International tenders must be advertised in at least one Malay-language newspaperand one English-language newspaper. Foreign embassies in Malaysia and highcommissions are also informed. All tenders, whether local or international, are postedon the web sites of the procuring and the central procurement web site of theMalaysian Government. However, the way in which a government body invitesparticipation of the bidders would be different depending on the management of thelocal authority. More opportunity given will create competition and ultimately thebenefit will go back to the local authority. The publicity creates equal playing field forbidders and transparency leads to more justifiable decisions.

On receiving various tender documents from the contractors, there is a procurementcommittee who will evaluate the tenders submitted and oversee the whole process ofprocuring. The evaluation is generally handled by the Engineering Department orother relevant departments depending on the nature of the items being tendered out. Atlocal authority level in Malaysia, the main decision-making body is the Full Council,which consists of the president or mayor and 24 councilors. All major decisions, suchas passing annual budgets, enacting by-laws and approving planning permits aredecided in the Full Council meeting. The president or mayor chairs Full Councilmeetings and is the CEO of the council. A council secretary assists the president ormayor and all heads of departments. The presidents or mayors and councilors areappointed by the respective state governments. The councilors are the representativesof the rate-payers. They bring the views and aspirations of the local people. They alsopass by-laws and policies, approve planning permission and hear appeals such asreduction of assessment rates.

In Malaysia, the procuring agency will set up a technical committee to determine thetechnical specifications of the tender. Sometimes, in some cases, Ministry of Financerequired five suppliers’ quotations to conduct a technical evaluation. This is to makesure that the right contractor or supplier with reasonable pricing will be selected. Atechnical expert will be appointed to be in the committee to assist the tender boardcommittee in making the selection. However, the experts cannot select, only propose.The committee, taking into consideration the recommendations from the technicalexpert will prepare a report of their decision and its justification as required by theTreasury Circular. There should be no interaction or communication at all to thebidders on the decision until the announcement made public.

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In terms of selection criteria, as much as possible, the procurement officers will practicedemocracy. In the process, previous performance has always been the pre-qualifyingfactor. Once they are selected based on their past performance, the technical committeewill then compare the pricing offered by the contractors and the estimates that they have.In some cases, retendering needs to be done because the price quoted is far more differentfrom the estimates available. The committee will also check the ability of the contractorsto deliver their services by examining the background and assessing their financialcapability. Their financial capability is being assessed thoroughly by looking at leasttheir three-month average performances. In general, the contractor must be of Class F,reliable, credible, has sufficient capital and financial stability and most importantly, is thetechnical expert. The justification for the selection is normally documented in terms of thecontractors’ financial capability, experience, current jobs at hand and other factors asconsidered necessary. If the tender is awarded to a new contractor, further justificationwas needed. The contractors that were rejected previously would be highlightedespecially if they offer the lowest prices.

In general, the pricing offered by the contractors would normally be exhibited in theproposal, but there are also cases where the pricing is not shown. Normally, if thepricing is not available, the tender will be rejected immediately to avoid fraud ormanipulation. If the pricing is provided then it must be properly evaluated.

Normally, a checklist will be made to make sure that all procedures are beingfollowed. The committee analyzes and confirms details listed and initials them. Then, atechnical interview date will be set after finalizing the ranking of the bidders. The finalreport will be sent directly to the offer board for approval. Once tender board hasapproved, the committee would then analyze and table it in the tender board meeting tobe considered. If the tender board disagrees on the pricing factor, the estimates will berevised. If the project involves a huge sum of money, a project manager will beappointed to redo the whole process of calling tender, awarding tender and getting theclosest estimates.

In principals, the contractors must be informed within ten days and only if theyagree that an offer letter would be issued. If the contractor refuses, the case would beforwarded to the attention of the Contractors Service Center (PKK) for action. One ofthe reasons for the rejection normally given by those contractors is miscalculation ofestimates. In such cases, they can be suspended by up to a year. If the contractoraccepts the offer letter a meeting would be called to endorse the result by the StateSecretary. One local authority has its own policy to send out short message services(sms) within 24 hours to inform the successful contractors. This is to avoid the chancesof results of being leaked before they are made available

As the contracts offered will be made out of public money, monitoring should begiven the priority. It should be carried out at all phases and should be conductedthoroughly. There should be a team concentrating on monitoring the work on siteincluding of the materials used, the progress to-date and the progress claim made. Anycomplaint will put the government in the highlight. This will affect the publicconfidence in the credibility and transparency of the system. This will reflect theinability of the government’s officers and the integrity of the procurement system.There must be a proper system to discourage supervising agencies or individuals fromtrying to alter the contents of their reports to let the changes in quality, performance,equipment and characteristics go unnoticed.


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The payment of the tender awarded would normally be based on the progress of theproject. The contractors need to submit the progress billing attached with the approvepercentage of completion by the authorized person in charge. The general guideline isto honor payment within 14 days on submission of completed information anddocumentation with the Finance Department. Most of the problems occur whencontractors do not attach necessary documents required. In order to avoid delay inpaying the contractors, the payment officers have to make sure that documentation iscomplete. If there is any problem, the documents would be sent back to the relevantcontractors for verification. From thereon, it would take another two days with theTreasury and three days in the finance department to process the payment. Overall, itwould take the latest a week for the payment to be honored. There is also a clausesaying that the contractors can be paid three months after the signing date of theagreement. Before any payment is being made, it is a contractual obligation of thecommittee to also monitor whether the claim is made in accordance to the terms,product delivery and other criteria prescribed. The Ministry of Transport wouldnormally release payment within 15 days. In fact, 98 percent of such processing can becompleted within 10 days. If the payment is late, the finance officer must inform thereason for the delay in writing.

E-procurement in MalaysiaOne of the extensive efforts from the government is the introduction andimplementation of e-procurement (known as e-Perolehan in Malaysia (http://home.eperolehan.com.my)) to replace in stages the conventional and traditional procurementsystem. E-procurement refers to the use of electronic methods in every stage of thepurchasing process from identification of requirements to payment, and potentially tocontract management (Tonkin, 2003).

Volatile environment, intense global competition, coupled with the increase andwidening use of IT necessitates a paradigm shift of transacting business via efficientvirtual internet. E-procurement has been associated with savings in time, improvedproductivity, and reduced costs to the governments as well as the suppliers althoughthe initial costs and time spent in establishing the system may be high in thebeginning. However, e-procurement could ensure greater transparency, and provideequal opportunity to private entrepreneurs in bidding for government contracts. In thelong run, the effective practice of e-procurement will provide a conducive environmentfor robust competition, attracting the best suppliers, resulting in money well spent.

The e-Perolehan allows the Government ministries to electronically select items tobe procured from the desktop, initiate an electronic approval process and also create,submit and receive purchase orders, delivery orders and other related documentselectronically (Maniam et al., 2006). With the abolishment of manual documentation,the technical and pricing evaluation committee can only refer to what have been statedon the screen, thus making the process more transparent.

Legitimacy theory and stakeholder theoryLegitimacy theoryThe legitimacy theory posits that the organization is responsible to disclose itspractices to the stakeholders, especially to the public and justify its existence withinthe boundaries of society (Wilmshurst and Frost, 2000). Thus, the relationship and

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interaction between an organization and the society is the focus of the legitimacytheory:

A condition or a status which exists when an entity’s value system is congruent with thevalue system of the larger social system of which the entity is a part (Lindblom, 1993, p. 2).

Legitimacy is a generalized perception or assumption that the actions of an entity aredesirable, proper, or appropriate within some socially constructed system of norms, values,beliefs, and definitions (Suchman, 1995, p. 574).

Legitimacy theory provides a sufficient and superior lens for understanding governmentprocurement system. The concept of legitimacy implies that the social contract betweenthe government and the public can be destroyed. In government procurement context,there are various issues (such as cronyism, corruption, etc.) that could threaten thelegitimacy practice. Failure to act in accordance with the social contract is construed asbeing detrimental to the ongoing implementation of government policies. In the light ofthis theory, the recent complaints made by class F contractors have been legitimized andaction taken by the relevant authority, as highlighted in the following excerpt:

Since last year, the ministry has required that 10 percent of all development projects costingmore than RM10mil to be allocated for Class F contractors, who are usually engaged by themain contractors (Class A). Each Class F contractor, whose job includes laying tiles, fencingand wiring, is only entitled to take up projects of not more than RM200,000.

Speaking to reporters after attending the ministry’s monthly gathering yesterday, Shazimansaid the decision to temporarily suspend the policy was made following a meeting with morethan 700 Class F contractors. They complained about fewer jobs, low profit margins due tohigher construction costs and their problems with the main contractors, he said.

“We will find a solution that will benefit both parties,’’ he added.Shaziman said small contractors (Class D, E and F) would be given priority in the RM200mil

project to upgrade federal roads in Felda settlements under the second stimulus package, tohelp them through the economic downturn. It was reported that as of last month, only 4,373 ofthe estimated 31,500 Class F contractors in the country had been allocated projects totallingRM860mil (Beh, 2009).

Pursuant to legitimacy theory, government officers’ choices of legitimizingimplementation strategies are based on the perceptions of the particular localauthority or department involved, and different government officers will be likely tohave different ideas about what the public expects (that is, what the terms of the socialcontract are), and whether the department or agency or local authority is perceived byits community members as complying with these expectations (see Deegan et al., 2002).Nevertheless, when significant events such as a major environmental disaster occur, orwhen there is sustained mass media interest, then it is reasonable to assume that mostofficers would perceive that the department’s ongoing legitimacy is threatened.

The legitimacy theory argues that officers make a disclosure practice as a way to builda good impression among the stakeholders of the role and the officers (Magness, 2006).Additionally, the government discloses the information to the public in an effort to changethe public’s perception towards the government’s performance and activities to reflect thechange in the change in lineup under the new Prime Minister. The recent release of thereport in May 2009 by PriceWaterhouseCoopers on the Port Klang Free Zone (PKFZ)fiasco illustrates the concerted effort of the Malaysian government under the “PeopleFirst” from the 1Malaysia concept to move beyond the rhetoric to walk the talk.


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Research methodsThe main objective of this research is to get an in-depth understanding of the problemsfaced by contractors and government procurement officers that entails the use ofqualitative research techniques.

The first phase was a pilot phase of face-to-face interviews with 12 individualcontractors. Contractors formed a huge group and as reported in The Star (2009b) theWorks Minister reported:

There are 32,000 Class F contractors in the country and they make up 70 percent of thecontractors of all classes.

A total of 250 contractors, the majority of whom are located in Klang Valley wereinterviewed over a nine-month period. Focus group interviews were conducted withthree to six interviewees in a group. The focus group interviews were conducted atvarious seminars and conferences fro contractors held by different bodies andassociations at different times and different places over the nine-month period.

The aim of these interviews is to obtain first-hand information on the generalperception of contractors and procurement officers on the government procurementsystem. In ensuring the consistency of questions asked during the interviewsessions, interviewees and facilitators are guided by an interview protocol.Interviewers were taught the skill of interviewing and given the list of questions toask.

Appointments were made with different government agencies and departments andthe researchers were able to secure interviews with 18 procurement officers locatedmainly in the Klang Valley. Interviews were conducted with procurement officers tounderstand better how the system worked and the problems faced by them. Asemi-structured approach was utilized to solicit information that may be peculiar to aparticular agency or department.

Each interview with key procurement personnel lasted from one to two hours.According to Tuckman (1972):

By providing access to what is inside a person’s head, [it] makes it possible to measure what aperson knows (knowledge and information), what a person likes or dislikes (values andpreferences), and what a person thinks, his attitudes and beliefs.

Most interviews were tape-recorded but some interviewees requested that theinterviews be not be taped due to the highly confidential nature of information that wasrevealed. These interviews were then transcribed and analyses were made according tothe common themes that surfaced from these interviews.

Interview of procurement officersThe sample for focus group interviews is randomly selected from among individualswho are procurement officers at federal, state and local government and from differentparts of the country (North, South, Central, East and East Malaysia). The interviewswere conducted with procurement officers, engineers, IT officers, Yang Dipertua,Deputy Yang Dipertua, Accountant, Secretary to Local Authority and Dato’ SharirSamad, the former Chairman of Public Accounts Committee.

The full list of the organizations, position and number of interviewees is listed inTable I.

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Interview of contractorsAbout 250 contractors were interviewed at face-to-face and focus group interviews indifferent parts of Malaysia, with the majority of interviews carried out in the KlangValley. Interviews on an individual basis were arranged and carried in various placesconvenient to both interviewers and interviewees, such as at the Accounting ResearchInstitute in UiTM Shah Alam. Focus group interviews were carried out at conferencesorganized for contractors at Sunway Lagoon Hotel and Dewan Annex at UiTM ShahAlam at various dates starting from February 14, 2007 onwards.

The findings presented below are organized based on different issues highlightedbased on the two groups responds. The issues have been grouped according to themes:transparency, procurement policies and procedures and their implementation,personnel involved in the procurement system, estimation/budget/pricing,professionalism and ethics and timeliness.

FindingsBased on the interviews conducted, the similarities and differences regarding the issuesraised by the procurement officers and contractors are discussed under a common theme.

TransparencyTransparency is given the utmost priority by the Malaysian Government in all itsservices. Transparency guarantees equal opportunities and access to the stakeholders.Transparency International (2006) defined transparency as laws, regulations,institutions, processes, plans and decisions that are made accessible to the public atlarge or at least to “representatives” of the public so that processes and decisions canbe monitored, reviewed, commented on and influenced by the stakeholders, anddecision makers can be held accountable for them. The opportunity for abuse andmanipulation of the procurement process would also be reduced whenever thetransparency of the process is increased.

Organization Position No of interviewee

Public Accounts Committee Chairman 1Majlis Daerah Hulu Selangor Procurement Officer 1Kementerian Sumber Asli 1Kementerian Pengangkutan 1Kementerian Kesihatan 1Majlis Bandaraya Melaka Bersejarah 2Majlis Perbandaran Kajang 2Majlis Daerah Ulu Langat 1Ministry of Culture, Arts and Heritage Principal Assistant Secretary 1Pejabat Negeri Perak Chairman 1Majlis Perbandaran Kajang Deputy President 1PBT Pasir Gudang Accountant 1

Engineer 1Majlis Perbandaran Seberang Perai Engineer 1

IT officer 1Majlis Daerah Ulu Langat Accountant 1Total no of interviewees 18

Table I.List of interviewees


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In the public sector, transparency in a procurement system has been an importantissue for years and is still regarded as a sensitive issue. In many countries, theconventional procurement system has led to unwholesome activities such ascorruption. In the government sector specifically, the lack of transparency inprocurement activities can sometimes be the source of such unwholesome activitiessuch as corruption, scandal and abuse of public resources. The traditional procurementsystem with its inherent lack of transparency has been perceived as inadequate since itresults in inflated cost and progress delay. The inadequacies delays projectdevelopments, and purchase of goods and services. Complaints and dissatisfaction ofpublic taxpayers are not uncommon and these are often publicly voiced out in publicchannels such as newspapers, etc.

One of the complaints raised by the procurement officers is on awarding tenders todeserving contractors. The invitation to tender is publicized to provide opportunity tomany bidders to participate. This will also facilitate the government to ensure value formoney. However, one local authority officer from Melaka informs how his organizationstresses value for money but does not practice open tender. He said:

[. . .] For example, the procedures for purchasing official vehicles for the local authority. It wasnot made based on open tender. The office obtain and compare quotations from various cardealers. The final selection will be on car dealer that offers the best price and value for money.

At the initial procurement system, there is a need to identify what are the things thatneed to be procured based on the necessities and demand rather than fulfilling thepersonal benefit of irresponsible personnel. The government has the right to decidewhether to purchase or sell goods or services, or to outsource the management of a unit.The risk is that the decision does not follow a policy rational or an existing need butrather the desire to channel benefits to an individual and/or organization. Theprocurement rules should emphasize on transparency rather than confidentiality, openbidding only from pre-qualified suppliers, guarantee equal access to information tosuppliers, and make sure all documentation are publicly and timely available.

The policies had been created to provide transparency and accountability especiallyin the suppliers’ selection process. However, there should be a balance betweentransparency and its contribution to corruption control with other considerations suchas efficiency (OECD, 2007). In practice, many countries have adapted the level oftransparency and openness of the procurement procedure according to a number offactors, including the sensitivity of the information and the specificity and value of thepublic procurement.

Based on the interviews conducted with the procurement officers, they agreed thatthe Malaysian procurement policies and procedures are good in comparison with theprocedures from other places. The officers themselves strictly adhered to and followedthe guidelines set up. The officers involved discussed and identified various factors tobe considered at all the processes from decision to contract, invitation to tender,selection of tender committee until the tender evaluation. These processes are lengthyand involve arguments between the officers because of to the bureaucracy practices.However, interference from the local politician, businessmen, members of parliamentand someone who is very influential from the top management has interrupted theprocesses and no longer transparent. Numerous contractors made references to theimportance of making acquaintances with these “inside” people, in order to be awarded

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with the tenders. The majority of the procurement officers claim that there are caseswhere recommendation letters from the politician being brought into the meeting andsometimes certain contractor is chosen because of political reasons rather than his/hercredibility. According to them, sometimes, even the State Governments interfere bygiving advice and instructions to local authorities. Most of the time, the localauthorities can only give technical advice, but the State Governments make thedecisions. The scenario would jump the whole processes and straight away come to thefinal decision in which the tender should be awarded to a party with which they havepersonal relationship. This interference has abused the beauty of the policies. Thewhole tender processes that are time consuming and have already taken considerationvarious factors seem useless.

Based on research done by Evenett and Hoekman (2005), a lack of transparency canimpede the ability of new companies to bid for contracts even if there is nodiscrimination. This is due to the ambiguity and uncertainty that exist in the policiescreated. In other words, transparent procurement policies and implementation couldhelp more companies to bid and try to get government jobs and be able to crystallizethe public’s ambiguities.

From the users’ perspective, they emphasize two key areas that need greatertransparency: evaluation and selection of contractors. It is understood that not everybidder will get the job. The issue is giving the job to the most deserving contractor.There are numerous cases where the jobs are not given to the “best choice”. Importantcriteria such as the track record of contractors, their experience and their ability tocomplete the jobs on time should be taken into consideration in the evaluation andselection of contractors. Integrity is an important issue and “under the counter”practice must not be condoned. Procurement procedures need to be exercised with allfairness and justice. Cronyism cannot be tolerated especially in small projects. Anexample cited is a hospital canteen in Selangor. All the tenders have been submittedand at the last minute, the contractors were asked to withdraw their tenders to giveway to some politician:

If politicians interfere in government procurement, then their cronies will get everything. Forexample, in the case of a certain MPK as reported in the local newspaper, the children of thecouncilor also became council members, leading to the angry reaction of the public. But in theend, he is still appointed as a council member. Where is justice? Where is integrity?

A result of questionnaire also revealed that the respondents were just moderately satisfiedthat “the organisation informed the respective parties who will sit in the board ofawarding tender”. As explained before, this is possibly due to the transparency andcronyism issues. The board that is from the public sector might have personal affairs andinterests with some of the suppliers that are from the private sector, which could leadthem to decide unfairly. Matechak (2005) opined that public procurement is one of the keyareas where the public sector and the private sector interact financially that is a primecandidate for corrupt activity, cronyism, and favoritism as well as outright bribery.

The transparency issue would be different in “direct negotiation”. Some of theprocurement officers feel that it has many disadvantages such as no comparison ofpricing can be made as the supplier is the sole supplier in the country and so, theevaluation is made based on trust. The procurement officers raise concern that in thefuture, for another exercise, another supplier might be able to supply similar itemsthrough direct negotiation. But still, comparison might not be able to be conducted in


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the absence of the benchmarking on the pricing. In the end, they are afraid that directnegotiation allows different suppliers to supply similar items with different pricing.One officer interviewed claims that sometimes, outsiders interfere in the process; thereis one case where the price hiked from RM80,000 to RM200,000. The hike could reflectthe wastage of the public money, inefficiency in the procurement system, transparencyprocess being hidden, and finally lead to untrustworthiness to the procurement systemitself.

According to a procurement officer from Hulu Selangor, direct negotiation reflectsan agency’s inefficiency in doing proper planning. One representative from a Ministrystresses that there is no such thing as emergency as proper planning can be mademuch earlier. Every agency has similar activities and functions to be performed yearly,as such direct negotiation is not a necessity. Some state authorities are very strict aboutdealing with direct negotiation. Some procurement officers claim against this exercisethat it is not necessary true that direct negotiation is important to get the project donefaster because sometimes the process can be much slower than tender. The wholeprocess of appointment can take up to two or three months, although there is no needfor a quotation committee’s decision. This is because the approval from the financecommittee is still required. Further, a comparison is not made between the pricing withthe current market price.

Procurement policies and procedures and their implementationIn general, the procurement officers perceived the guidelines as clear and they have noproblem in understanding them in order to apply them in their daily work. They alsoagree that although the Treasury has been very successful in setting up very clear andcomplete policies, in some circumstances sometimes it cannot be fully complied with.In such instances, the tender would be sent back to the technical committee for furtherreview.

One local authority officer from Melaka reveals how his organization stresses onvalue for money but not practicing open tender. He said:

[. . .] For example, the procedures for purchasing official vehicles for the local authority. It wasnot made based on open tender. The office obtain and compare quotations from various cardealers. The final selection will be on car dealer that offers the best price and value formoney [. . .]

Another issue highlighted by a Ministry’s representative; in which he claims that thereare also disadvantages of being democratic in selecting the best contractors. He saidthe idea is novel as the intention is to give equal opportunities to all contractors. If acontractor has been chosen previously, the selection committee will choose anothercontractor for a new job or work. Even though the previous contractor has performedhis job excellently, he will not be chosen for the next job in a queue to give opportunityto other contractors. The new contractor might not be as good as the previouscontractor or the pricing might not be as close to estimates as what has been given bythe previous contractor; he will be given the job under the banner of democracy andequal opportunity. The representative said that it would be a waste of time to choose alesser credibility contractor when the committee cannot choose the best contractoravailable just because he has been given a job previously.

Apart from that, there is also issue on the voting system raised by the contractors.The voting system is established to provide opportunities for more contractors to be

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given the jobs. However, the system does not take into consideration the value of the jobsespecially to compete for small jobs. For example, if a contractor got a small job forRM8,000, he would not be able to get another contract for the year. The recent voting wasfor jobs ranging from RM4,000 to RM8,000, values of which are very small. The votingsystem should not be limited to the smaller jobs and it would be just as useful for jobs ortenders of say RM50,000 and above. There are also issues in voting system raised by thecontractors in the valuation of work-in-progress or incomplete work by previouscontractors. They complained that whenever there is an incomplete job, the price offeredis too low that makes it impossible for the next contractor to continue or bid.

A representative from Perak commented on the voting system and bureaucracypractices in the procurement system. He adds that if any contractor has been previouslybeen awarded tender by the Works department, the committee would crosscheck hisprevious performance inclusive of its administration and management performance.There are also cases where some contractors are having financial problems resulting inprojects that cannot be completed on time. In this case, a new contractor had to beappointed to continue the project. The contract value would be based on the value of theincomplete project. The committee has to go to the construction site to evaluate theuncompleted project. However, one procurement officer admits that this can also be dueto poor monitoring procedures. He says sometimes the maintenance cost can be moreexpensive than the initial development cost due to low quality materials being used andthe extensive modification works needed to be done.

From the contractors’ perspective, they opined that the improvements inimplementation have been forthcoming albeit slow. The bureaucracy should bereduced in order to make the procurement process more efficient. Bureaucracy in theimplementation of policies has serious repercussion on the profit margin of contractors.As quoted from a contractor:

Because of bureaucracy in government, projects get delayed and this led to cost increase dueto increase in the price of construction materials and the contractor is forced to shoulder theburden of the price increase. The actual prices are now much higher than the budgetestimates.

From this it can be found that the bureaucracy would not only remove the bestcontractors to be selected, but also indirectly eat up the profit margin of the contractorsselected.

The other issue on the procedures of procurement system is contractors have toregister with the local authority each time they are applying for tender. This proceduremakes the process a lengthy one. The red tape and the bureaucratic procedures of eachregistration take up a lot of time. This red tape can be reduced if it suffices to registeronly once with the Ministry of Finance (MoF) so that the process does not repeat itselfeach time the contractor goes and bid for a contract. A contractor expressed hisdissatisfaction:

Why do we need to register with each department or organization since we have alreadyregistered with MOF? All our details are already in our registered profile with MOF. It is timeconsuming to travel to and fro just to fill forms.

The lengthy process results in delays in the award of projects that lead to increases incosts (due to rising material costs), and this cost increase would be borne by thecontractors through no fault of their own. They had to revise their budgets.


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The dissatisfaction continues when the governments frequently appointconsultants to monitor the quality of contractors’ work. The contractors questionedthe necessity of hiring the consultants. Contractors feel that the consultants tookadvantage of government projects by fixing the price that need to be paid by contractorfor their “services”. The Class F contractors feel like they are untreated fairly becausethey also need to pay for the Electronic Fund Transfer (EFT) fee besides the fee for aconsultant, which reduced their profit margin. These contractors feel that they,themselves, make better “consultants” for their projects rather than hiring consultantsfrom outside.

Additionally, the tender documents are found fairly complicated to handle, whichfrustrates the good intention of the contractors in trying to comprehend therequirements of the tender process. There are instances where the contractors thinkthat they are qualified to bid for the contract but then found they are not.

Personnel involved in the procurement systemIn certain circumstances, a procurement officer from Johor admits that problems suchas incomplete and abandoned projects keep on repeating due to poor monitoring andauditing services from the relevant authority. It is found that this scenario iscontributed by the problematic contractors and poor monitoring and auditing officers.On awarding the tender to the selected contractors, there is a crucial need for therelevant authority to continuously monitor and audit the progress and performance ofthe projects tendered. The monitoring and auditing role could help ensuring theprojects proceed without having severe problems and run smoothly in accordance withthe plan within the acceptable tolerance level. The roles should be emphasized not onlyon the awarded contractors, but also on the sub-contractors in which the maincontractor delegated part of the projects. In playing this role, the officer should beindependent in which he/she should not have close relationship with the contractorsand sub-contractors that could jeopardize his/her professionalism.

According to an accountant from a local authority in Selangor:

There are no specific and clear guidelines on how to prevent or even punishment forgovernment officers for breaching trust, misconduct and negligence in relation toprocurement.

These officers issues is expected be solved by the implementation of the e-procurementin which it has reduced the role of the officers through the abolishment of manualdocumentation. Thus, the technical and pricing evaluation committee can only refer towhat have been stated on the screen, thus making the process more transparent. Infact, one of the objectives of e-procurement is to improve the speed in handlinggovernment procurement procedures but at times, the response from the officersthrough e-procurement are slow. Contractors did comment on this matter as follows:

E-procurement system still has some weaknesses. The response from the officers is still slow.

The slow response would thus affect the contractors’ and stakeholders’ expectation onthe e-procurement as its implementation is hoped to make most of the procurementtransactions faster and in a more efficient manner. Although the contractors believe onthe competency level of the procurement staff, nonetheless there are some areas(although they are ISO certified) where they have yet to achieve the required standard

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due to the incompetent officers. The following is an example of an incompetent officerwho had to go “up and down” several times to correct some errors:

A contractor had made a small, undetected error in the document which had already beensigned by the government. The officer insisted it must be corrected even though thedocument had already been signed. This officer checked through the document again andhalfway reading through the document, spotted another error, and he had to go “upstairs”again to consult the boss, after which he came back. Three minutes later, he spotted anothermistake, went up again.

Estimation/budget/pricingThe main problem encountered by the tender committee is to have good/closeestimation for different type of work and services. They do not have clear and preciseguidelines on estimates as this might change from time to time depending on thechanges in the market price of the raw building materials. Most of the time, theestimation provided is basically a rough estimate. The committee will then comparethe pricing provided by the contractor and the estimates that they have. In some cases,retendering needs to be done because the price quoted is far different from theestimates available.

The procurement officer from Penang claims that some officers in the TechnicalDepartment are very close with contractors and this relationship might jeopardize theirprofessionalism when they are asked about the estimation for the upcoming projects.The estimates should remain confidential and be kept by the officers. However, theestimates sometimes are keyed in by lower ranking staff as the officers are very busy.A representative from a ministry claims that there are officers who are workingtogether with the contractors to come up with five quotations. They will share theprofit equally if any of the quotation is being selected. By principal, the estimate mustbe sealed and carefully kept in a secured box but sometimes, there is a leak of theinformation from the insider informing the contractors or the pricing that they shouldquote when they tender.

For most of the contractors that have no inside people, they had to inflate theirbudget estimates by adding an extra 10 percent construction material per year intandem with rising prices of building materials. However, this way would notguarantee them in getting the tender. The following opinion was raised by thecontractors:

The quantity surveyor made changes in price when the job has already started. Profit marginis affected and no reason is given. If the pricing follows the normal price, the quotation wouldnot be accepted. There needs to be a certain degree of flexibility in adjusting the pricing.Interviewees claim that JKR practices flexibility for the small jobs, whereby the prices can beadjusted accordingly.

Owing to intense competition and bidding, some contractors are not capable ofcompleting the projects that have been awarded to them because of unreasonably lowbidding prices:

There are some selfish contractors who bid at very low prices in order to obtain the contractsince there is a tendency for the government to accept the lowest price rather than taking intoconsideration the experience and quality of work done by the contractors. Personally, I feel itis better for the government to pay a little extra in order to get better quality work.


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Professionalism and ethicsThe tender estimation issues above that highlighted the officers who are workingtogether with the contractors to come up with five quotations has shown the breach ofthe trust, professionalism and ethics and leading to insider trading activity. Theinformation leakage leads to unfair and injustice competition among the contractorsthat contribute to dissatisfaction among them.

The corroboration between officers and contractors is sometimes extended to thestage of project claim. One of the main concerns here is when false or inaccurate claimsby the contractors are being protected by procurement officers or those in charge ofrevising them. Before any payment is made, it is a contractual obligation of thecommittee to also monitor whether the claim is made in accordance to the terms,product delivery and other criteria prescribed. If certain criteria have not been fulfilled,the amount would be deducted accordingly. One contractor has been quoted byprocurement officer because it engages its own consultant to monitor the contractor’sprogress such as whether they on the right track or the right supplies and materialshave been delivered. Since the monitoring from the government was very weak, thepayment officers had to rely on the consultant’s report before making payment.

The corroborations above would encourage the subcontractors or contractors tomaintain good relationship with the procurement officers as a mean to channel bribes.Even though a representative from a Ministry claimed that the procurement officerspresumed such given money as an appreciation for their work and not for other reason(bribe, etc.), such a relationship has jeopardized their professionalism and ethics.

Based on the questionnaire result on the same topic, a question “My organisationhas channels for me to report any corruption attempts from the suppliers” has thelowest mean value. This finding indicated that not only the bribery attempts areactually existed, but also unfortunately the mechanism to minimize them fromhappening is only moderately satisfactory. The percentage of answers for Disagreeand Strongly disagree (almost 20 percent) signify that some of the officers did notaware the existence of the corruption channels. This unawareness could be consideredas troublesome, as it could promote more corruption activities.

Transparency International(2006) defines corruption as “the misuse of entrustedpower for private gain”. The “Private gain” must be interpreted widely, includinggains accruing i.e. to an economic actor’s close family members, political party and insome cases to an independent organization or charitable institution in which theeconomic actor has a financial or social interest. The corruption would then affect thevalue of money being spent on the procurement process and it is being born on thepublic expense. The corruption activities could exist at every stage of the procurementprocesses. It could start from the procurement planning and budgeting, procurementsolicitation and during the contract award and performance.

In many countries procurement reformers and anti-corruption advocates arerightfully taking a holistic view in approaching procurement reform andanti-corruption initiatives. Such holistic approaches include (Matechak, 2005):

. devising higher ethical standards for procurement officials;

. requiring asset disclosure for public officials of a certain rank or in a particularposition; and

. passing of freedom of information laws.

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Whereas in Malaysia, proactive initiatives have been taken to cater these seriousissues. On April 26, 2006, Malaysian Prime Minister Dato’ Seri Abdullah AhmadBadawi, who has expressed a commitment to a better procurement process andprocedure, launched the Red Book to improve the procurement process ofgovernment-linked companies (GLCs) (Transparency International, 2006). Accordingto the Prime Minister, the top 15 GLCs can potentially save RM15 billion if they adoptbest practices, better governance, and transparency and accountability in theirprocurement policies. The launch of the Red Book signals the government’scommitment to achieving the vision of the national integrity plan with zero corruption.

Despite the above professionalism issues, most of the contractors expressed theirgratitude that government officers show a high level of professionalism in carrying outtheir jobs by ensuring that the job has been done within the specifications as laid downby the organizations. For example, officers would ensure that every single tile mustfollow specification. Technical staffs are dispatched to the work sites to check andmonitor the projects in order to ensure that the entire task is done within the requiredspecification. It is getting increasingly difficult for contractors not to adhere strictly jobspecification. After the job is completed, the technical officers will come and check thejob. It must be done according to what has been agreed in the contract.

TimelinessThe lengthy process results in delays in the award of projects that lead increase incosts (because of rising material costs) and this cost increase would be borne by thecontractors through no fault of theirs. Because of bureaucracy in government, some ofthe project has to be delayed leading to cost increase and placing a heavy cost burdenon the contractors who had to revise their budgets. The contractors suggest that theprocurement systems need to be improved in term of payment and the duration.

The recent news announced by the Deputy Prime Minister on February 25, 2009regarding the increase of open tender limit from RM200,000 to RM500,000 has invitedvarious responses. From the contractors’ perspective, they opined that the increasedbenchmark would make the tender process faster and could foster more participationfrom the Class E contractors. In contrast, Transparency International Malaysia opinedthat the announcement would affect the transparency and accountability of thegovernment procurement system. It could lead to misuse of power when the bigprojects are being delegated to smaller projects and be awarded to Class E contractorsthat are lack of expertise or have bad records.

The timeliness issue here is not to focus on the procurement officers only, but alsoon the contractors. It is both parties’ issues. Although the contractors has beenscreened for capability, experience, capital, background and the lowest price offered,still some contractors have to be terminated due to inability to proceed workimmediately or long delay after the contract has been awarded. The procurementofficers claim that this can take up 5 percent to 10 percent of cases.

For certain contractors that able to complete or meet the target of the project byrequired stages, progress billing claim would be the issue. The general guideline is tohonor payment within 14 days on submission of completed information anddocumentation with the Finance Department. Most of the problems occur whencontractors did not attach necessary documents required. In order to avoid delay inpaying the contractors, the payment officers have to make sure that documentation is


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complete. If there is any problem, the documents would be sent back to the relevantcontractors for verification. From thereon, it would take another two days with theTreasury and three days in the finance department to process the payment. Overall, itwould take the latest a week for the payment to be honored. There is also a clausesaying that the contractors can be paid three months after the signing date of theagreement. However, the major stumbling block is at the Land Office which seldomrefuse to release certain documents within the stipulated time.

The delay in fact is not in line with the Prime Minister’s suggestion where thecontractors (especially Class F) and suppliers were promised will be paid within twoweeks after the completion of the projects/ goods and services being delivered. In thiscondition, neither the officers nor the contractor is to be blamed. The governmentbudget should also be focused on. In certain circumstances, the payment delay is due tolack of budget in the government itself. The allocation of fund would be prioritizedaccordingly. Some of the organizations pay the contractors and suppliers using theirown collection rather than the allocation from the federal government:

From the date of tender submission until the project gets awarded, the period is excessivelylong but I don’t put 100 percent blame on the government. I think that the government isdiverting the budget allocation to priority projects and hence inadvertently delayed thecurrent project. However, the delay causes the financial hardship to the contractors. Priceincreases of construction materials affect the budget and profit for the contractors. Forexample, the budget that had been agreed at the submission date is RM100,000, but becauseof the long process, raw material prices have increased and this will affect the budgetestimation for contractor.

The government opens a tender based on last year price without taking into account theprice increases of construction materials every year.

RecommendationThe above highlighted issues are significantly worrying the public and thestakeholders. Various suggestions and improvement have been implemented to curethe issues. The following recommendations are highlighted by the procurementofficers, contractors and stakeholders.

TransparencyRules are not enough, especially when the law enforcement mechanisms are also weak.Proper monitoring policies can help make existing norms effective. TransparencyInternational has developed and implemented a number of monitoring tools to increasetransparency and access to information that involve cooperation betweengovernments, companies, donors and civil society. Monitoring should also includean annual external audit.

Some government agencies, such as the Ministry of Health and Hulu Langatauthority has proactively endeavor the recommendation by practicing ManagementAudit. This practice audited the management of the government agencies on itscompliance with all procedures, rules and regulations in relation to procurement. Assuch, the procedures had to be made transparent and any queries raised would requirethe procurement officer to refer back to Circulars, Treasury Instructions etc. forconfirmation. A checklist must be prepared to regularly monitor the contractors’performance and the timeline target for each project must be spelt out. The quality

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inspection is normally conducted by the Council Members from Finance Committee.The report would be submitted to the Members of Parliament. Strict action would beimposed for example, a cut in salary payment as penalty. However, many other localauthorities who started much earlier the management audit have abandoned thepractice because their top management are not interested in taking action of its officers.Most common reasons are limited staff and too much burden with working papers.Thus, other monitoring mechanism should be emphasized.

At the moment, the Monitoring and Control Division of the Ministry of Financemonitors adherence to procurement rules, and may also set up special task forces toinvestigate complaints. The minister of finance, however, has the ultimatedecision-making authority regarding complaints. Audits are also important reviewmechanisms. All procuring agencies in Malaysia have internal audit units thatregularly examine weaknesses in and possible breaches of procurement rules. TheAuditor General conducts external audits of procurement procedures and may ordercorrective actions. The reports of the Auditor General are published and presentedannually to Parliament.

The detection of corruption is strengthened by a mandatory requirement for publicofficials to report all attempts of bribery to the police or the Malaysian Anti-CorruptionActivity (MACC or Suruhanjaya Pencegahan Rasuah Malaysia). With the strengthenpower of the MACC, any party who report any suspicious activities dealing with thecorruption would be protected. Giving or receiving a bribe is a criminal offense underthe Anti-Corruption Act and the Penal Code and General Orders. Corrupt officials mayalso be administratively sanctioned and their assets may be confiscated. Penal actioncannot be taken against a legal person, but the Government may debar a company thathas engaged in corruption.

Policies and procedures and its implementationThe policies created in the procurement system are expected to continuouslyre-engineered and improved. It is being done by considering the past experience of theofficers, corroboration with other departments and complaints made by thestakeholders.

As developing countries, Malaysia has been subjected to substantial pressure toagree to multilateral disciplines in which it limits the ability to discriminate in favor ofdomestic companies or crony when allocating state contracts (Evenett and Hoekman,2005). This effort could help to boost the transparency of the policies and procedurescreated. However, it again backs to the root in which it depends so much on theprocurement officers especially the top management in complying with the discipline.

In addition, the policies and procedures should be created to curb any possiblecorruption activities and enhance the transparency, accountability and integrityprocess. The following corruption risks as highlighted by Transparency International(2006) should be focused on the following:

. “Urgent purchases” at end of fiscal year.

. “Emergency” responses to natural disasters and other such events.

. Inadequate access to certain information by the government officers.

. Use of non-standardized bidding documents.

. Preferences to selected bidders.


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. Participation of official-owned companies.

. Participation of front/shell companies.

Apart from above, complaint and review mechanisms allow bidders to verify whetherthe procurement processes conform to the prescribed procedures. The possibility ofreview is also a strong incentive for procurement officials to abide by the rules.Malaysia offers bidders a multitude of channels for complaint. A failed bidder maycomplain to a procuring agency, which may cancel a tender if it finds any irregularities.An aggrieved bidder may also complain to the Public Complaints Bureau, the, or thePublic Accounts Committee. Any public complaint must be treated as a matter ofurgency and public inquiry should be conducted immediately.

In Perak, the finance department uses an accounting system (SPEKS) where thecontractors do not have to produce documents as everything will be handled on lineincluding the checklist. Therefore, contractors can go direct to the departmentconcerned to get their payments. In this way, the priority is given to the contractorsand this will reduce delays in getting payments. An IT department officer from Penangalso suggests mechanism to protect a whistle blower to discourage malpractices.

In Kajang, the local authority officer states that his office had at least a weeklymeeting to table any complaint lodged by the public and to get co-operation fromrelevant departments for more information. The public are given the option either tocome personally, write or e-mail direct to the office. Some other local authorities havespecial counter and section in the web site to handle public complaints. Themanagement reviews them quarterly a year.

There is also suggestion from the contractor in awarding projects. In order to be fairespecially to the small scale “F” contractor, big projects can be divided into a number ofsmaller projects, so that the small scale “F” contractors can also participate in it. Bigcontracts, if broken down into smaller jobs, would provide a wider opportunity formore contractors to participate

Personnel involved in the procurement systemBased on the transparency and implementation issues highlighted above, it is notedthat the personals involve in the procurement system are one of the main contributingfactors to the inefficiencies of the system. The working culture should be focused on inwhich it depends very much on the management practices. Efficient management isone of the most effective preventive mechanisms. It promotes transparency andaccountability, facilitates oversight and provides a good basis to prevent corruption.One local authority practices rotation among the finance officers so that every officercan experience a different job scenario and environment such as procurement, humanresources or finance. However, some procurement officers suggested that staff shouldonly be rotated every five years so that they could have ample time becomeknowledgeable in their current job. Also by rotating the officers it could prohibit theclose and long relationship between the officers and certain influential contractors whowant them to be an insider informant.

The rotation is also imposed on the contractors. A new innovation and efficienttechnique for rotating contractors has been introduced in Malacca. There, there are 44areas for rubbish collection. However, the council appoints 45 contractors for the job.Each of 44 contractors is given certain areas of responsibility to collect rubbish.

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The 45th contractor would go round and collect rubbish being left by the rest of the 44contractors. The 45th contractor would then claim for the any rubbish he/she collects.In short, the contractor is paid out of inefficiencies of other appointed contractors. Also,a scorecard is maintained for each contractor to assess their performance. The citycouncil can also trace contractors who sub-contract their work to other contractors. Inthis case, the main contractor would be penalized for the jobs not performed and alsoon any delays.

On the issue of procurement committee, the department handling the procurementshould have an administrative review system to foster objective evaluation on theselection of successful bidder. There should be an independent external auditor who couldhighlight and come forward to announce the intervention of the local politician,businessman, Members of Parliament and someone who is very influential from the topmanagement in the procurement processes. It was also suggested that the committee needto be diligent in making a fair assessment and conducting spot checks on contractors inorder to ensure they are not an “Ali Baba” contractor. Continuous monitoring of the job isessential to maintain quality. Effective monitoring in the form of frequent checks anddiscussion between clients and contractors would ensure the jobs are done according tospecifications subsequently leading to a decrease in abandoned projects.

Some of the procurement officers also suggested that council members should beappointed through election. They suggested for the structure of the local authority tobe revised for council members to be effective. They give examples such as thestructure in Malacca and Pasir Gudang City Councils. In Malacca City Council, theposition of the Secretary is permanent and the council members are not necessarilyrepresentatives from the political parties. A unique criterion is that the chief is not agovernment servant. He is not under the government’s payroll and, therefore, is noteasily intimidated by certain individuals or groups of people. Since he is being paidbased on his service, he is more focused in delivering his jobs and responsibilities.

Training is also an essential element in ensuring a smooth and speedy handling ofthe whole tender process. New officers must be properly oriented and given sufficienttraining from top senior officers who are familiar with the ins and outs of governmentprocurement process. This is especially relevant for officers and accountants involvedin e-procurement. However, training is lacking in local authorities. The officer must betrained and aware about all regulations in relation to procurement and relatedprocedures. They must be very clear of what they can and cannot do. The officers mustbe exposed continuously on various aspects of procurement and its related documentsand agreements. They should also go to other local authorities for academic visits andworkshops to have valuable discussions with other officers in local authorities as partof their training strategies. Soft skill should also be emphasized such as customerservice in dealing with the public. Seminar or talk on accounting, ICT, managementshould also be beneficial. Monthly awareness campaign should be conducted such asprocurement from Islamic perspective and promoting transparency as way of doingthings. Some council members thought that they have the ultimate power of makingdecisions and can never be contested. They should undergo training and awareness oncorruption and malpractices such as certifying uncompleted job for payment. Inaddition to training, fortnightly meetings are recommended to be held to focus on theKPIs of each officer in order to closely monitor the progress and results of procurement,quotation and tender.


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From the above suggestions, it is found that adequate training of procurementofficers, the establishment of multidisciplinary and multi-party evaluation committees,rotation principles for procurement officers and contractors and the establishment ofaccountability and report procedures, are key strategies in fighting corruption andpromoting transparency. Incentives promoting “good behavior” for individuals arealso needed, such as the performance-based staff incentive structures.

Estimation/pricing/budgetA suggestion would be to have a standardized fixed price for certain standard projectsso that contractors can enjoy a fixed profit margin. This would mean that thegovernment itself would have to determine the profit margin for the contractors. Insuch a case, the government would need to monitor and be sensitive to the volatility inmarket prices. Close relationships between contractors and suppliers are essential tohelp the contractors to buffer themselves from the impact of price fluctuations on theirprofit margins:

I suggest the government must intervene and control the price of construction materials inorder to avoid the price uncertainty.

Professionalism and ethicsThere should be measures to ensure the integrity of procurement officers in which can bestrengthened by codes of conduct and penal provisions that are specifically tailoredspecifically to procurement officers. This is to make sure that corruption practices thattypically occur in the procurement process can be curbed. A system is usuallyimplemented to plan punishment for misbehavior without realizing the fact that rewardsfor good behavior can also motivate individuals. Thus the development of codes ofconduct for staff is also extremely important. Also important is the creation,dissemination, implementation, and enforcement of codes of conduct for procurementofficers. In the effort of raising awareness of ethics, the National Institute of PublicAdministration provides training that includes integrity issues to procurement officers.

The Public Accounts Committee (PAC) former chairman advises all procurementofficers to complete their work on time. He suggests that the government agencies notonly have a code of ethics, but also actually practice them such as that which has beenpracticed by Malaysian Institute of Accountants. The code of ethics should beextended to council members and Members of Parliaments to prevent them in bringingtheir interest and interfering with the procedures.

One local authority in Perak frequently arranged for assemblies for the chief to remindtheir staff on integrity and accountability in performing their job. Posters, brochures andnewspaper cuttings on bribery are frequently distributed to remind and warn relevantofficers on the consequences. Meetings are also conducted to discuss any loopholes in theprocedures resulting in leaking of insider information. In the case of absent rules orexisting rules that can be easily manipulated, they should be amended or abolished. Thestaff are also advised to change their working attitude and culture. They are not permittedto take leave early in the month except for emergency cases. As a result a payment thatnormally would take 30 days to settle can now be processed in three days time.

Adequate sanctions are equally important in preventing corruption in procurement.While the technical department plays a vital role in making sure that all procedures

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have been followed, there should also be an independent body to handle reports ofmisdoing and to enforce disciplinary actions. However, the procurement officersinterviewed admit that such implementation is difficult due to limited information andenforcement. Therefore, a surveyor officer from Penang suggests properdocumentation in order that investigation can be made before disciplinary actionscan be taken. Another officer from Perak suggests that an anti-corruption agency makeregular visits to local authorities which are prone to malpractices to prove thegovernment’s seriousness in curbing malpractices in procurement sections.

TimelinessBased on questionnaire results, most of the activities by the procurement organizationsneeded nearly between 21 days to 100 days to be completed as revealed by thecontractors. It is interesting to note that, 38.9 percent of the contractors mentioned thatit only took less than 21 days for the organizations to respond to customer complaints.In addition, generally the tender processes from bidding activities to the receipt ofpayment were being completed within less than 26 days. Some of the processes wereextended to 26-50 days, possibly due to the problems of documentation, managementand communication. It was very rare for the processes to be settled more than 51 days.However, the exceptions and disputes sometimes could defect the whole organizationteam in which it needs to be improved.

However, certain delayed payment raised by the contractor interviewees did notrepresent the whole population of the contractors. Here, it is suggested that the officersprovide all the contractors with a full detailed checklist on the document types andinformation needed that are important to be furnished during the payment claim by thecontractors. What is more important is the communication between the officers and thecontractors. The contractors need to be educated and made them clear regarding all thepayment procedures and consequences of not attaching the required particulars.

A supplier database should be kept for future purchases. In Hulu Selangor LocalAuthority, the accountant reveals that his department maintains a supplier databasewhich is very useful for future reference and to make sure that purchasing of highquality products at lower prices can be made. Maintenance of public utilities such asrubbish collection, cleanliness and maintenance of public toilets have been the majorpriorities. The authority also introduces competition for the most clean public toilets.

ConclusionThe issues such as accountability, transparency, corruption, integrity and cronyismthat exist in the procurement system in Malaysia are the main concerns that disturbthe public, especially on the mismanagement that results in huge wastage of the publicfunds. The procurement system, it was claimed by the contractors and thestakeholders, made selection based on cronyism, personal relationship rather than onprofessional standing. At that time, the tender board was seen as the ultimatedecision-maker and nobody could contest their choice of selection. The procurementofficers were blamed for malpractice and non-compliance with the policies andprocedures of the procurement system.

Interviews have been conducted in order to gauge the perception of two mainrespondent groups on the procurement issues and to understand better how the systemworked and affected these people. From the interviews, six main themes have been


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identified that raised by both groups respondents. The themes are transparency,procurement policies and procedures and its implementation, personnel involve in theprocurement system, estimation/budget/pricing, professionalism and ethics andtimeliness.

After analyzing the interviews result, the public and stakeholders’ negativeperception about the public procurement systems in Malaysia is found slightlydecrease. The decrease is mainly due to the improvements and refinement of thesystem as complained and raised by the contractors and the procurement officersthemselves. At the ministries level, they also intervene as the public and stakeholders’perception is also important to be tackled.

Even though the negative perception has slightly decreased, the main issues such asaccountability, transparency, corruption, integrity and cronyism are still inherited. Theintroduction of the e-procurement is expected to solve them. However, it could only bereduced, not fully eliminated. It is a long way to go for the procurement system to beclean from negative perceptions. There are chances and rooms for improvement for thesystem as long as the people who run and affected by the system committed in everyangle to strengthen the system.

The above findings have both, theoretical and practical implications. The situationin Malaysia at the time of study was not congruent to the position of legitimacy theorythat posits that the organization is responsible for disclosing its practices to thestakeholders and for justifying its existence within the boundaries of society. The mainstakeholders identified in this paper have grave concerns about transparency inprocurement procedures repudiating social contract between the government and thepublic. From a practical standpoint, the government has to make sure that there aretransparent processes and procedures that allow only people of high integrity,credibility and respect to be in tender boards. There should be an independent andtrusted whistle-blowing channel that could facilitate stakeholders who feel that theyare being victimized by the system. The stakeholders must also be informed of variousmechanisms available for them to resolve grievances.

Notes

1. The Putrajaya Committee on GLC High Performance has come out with a book titled The RedBook – Procurement Guidelines and Best Practices for all the GLCs. The book’s content isvery much applicable to the Government.

2. The open tender has been increased to RM500,000 as announced by the Deputy PrimeMinister as at February 25, 2009 (Bernama, 2009)

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Further reading

Adams, C. (2008), “A commentary on: corporate social responsibility reporting and reputationrisk management”, Accounting, Auditing & Accountability Journal, Vol. 21 No. 3,pp. 366-71.

Bebbington, J., Gonzalez, C.L. and Abadia, J.M.M. (2008), “Legitimating reputation/the reputationof legitimacy theory”, Accounting, Auditing & Accountability Journal, Vol. 21 No. 3,pp. 371-4.

Deegan, C. (2002), “Introduction – the legitimising effect of social and environmental disclosures– a theoretical foundation”, Accounting, Auditing & Accountability Journal, Vol. 15 No. 3,pp. 282-311.

Deegan, C. and Carrol, G. (1993), “An analysis of the incentives for Australian firms to apply forthe reporting excellence awards”, Accounting and Business Research, Vol. 23 No. 91,pp. 219-27.

Freeman, R. (1983), “Strategic management: a stakeholder approach”, Advances in StrategicManagement, Vol. 1, pp. 31-60.

KPMG (2001), University of California Office of the President System – Wide E-procurementAssessment and Strategy Recommendation, KPMG Consulting, Berkeley, CA.

Mobus, J.L. (2005), “Mandatory environmental disclosures in a legitimacy theory context”,Accounting, Auditing & Accountability Journal, Vol. 18 No. 4, pp. 492-517.

Parker, L. (2005), “Social and environmental accountability research: a view from thecommentary box”, Accounting, Auditing & Accountability Journal, Vol. 18 No. 6, pp. 842-60.

Shocker, A.D. and Sethi, S.P. (1974), “An approach to incorporating social preferences indeveloping corporate action strategies”, in Sethi, S.P. (Ed.), The Unstable GroundCorporate Social Policy in a Dynamic Society, Melville, Los Angeles, CA.

Ten, E.E. (2007), “Applying stakeholder theory to analyze corporate environmental performance– evidence from Australian listed companies”, Asian Review of Accounting, Vol. 15 No. 2,pp. 164-84.

About the authorsWee Shu Hui is currently a Research Fellow with the Accounting Research Institute, and is also ateaching staff of the Faculty of Accountancy, University Teknologi MARA, Malaysia. She hasbeen an academician for over 20 years. Her main area of research interest is managementaccounting. She enjoys researching, is an active researcher and has led numerous research andconsultancy projects, and is currently spearheading an international research project. She haswritten several books in management accounting and published her research findings in refereedjournals. Wee Shu Hui is Asia-Pacific Management Accounting Journal (APMAJ) administrator,and is the secretary of Asia-Pacific Management Accounting Association (APMAA). She is anassessor with the National Award for Management Accounting (NAfMA).

Radiah Othman has been an Accounting Lecturer with the Faculty of Accountancy, UiTMShah Alam for more than 11 years teaching Public Sector Accounting, Auditing and AccountingInformation System. She has published books on Public Sector Accounting and is a reviewer toAuditing & Assurance Services textbook. She has written in journals such as Journal of FinancialRegulation and Compliance, Corporate Governance, and Journal of Financial and Accounting& Reporting. She has also written in professional journals such as Accountants Today and SmartInvestors Malaysia. She is an active researcher and consultant who has received research grantsfrom the Government Adjudicator to National Corporate Reporting Award (NACRA) inMalaysia. Radiah Othman is the corresponding author and can be contacted at:[email protected]

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Normah Hj Omar is a Professor in Management Accounting and Corporate Governance. Sheis currently the Director of the Accounting Research Institute (ARI), which is one of Malaysia’ssix centers of excellence recognized and funded by the Ministry of Higher Education, Malaysia.Professor Omar focuses her research interest on three areas, namely management accounting,forensic accounting and financial criminology. As a proponent of applied research, she hascompleted many collaborative works with government agencies, professional bodies, regulators,non-government organization and the corporate sectors. To mention a few, she has successfullycompleted research projects such as “Developing fraud risk indicators in the audit of financialstatement”, “Bank frauds through the use of cheques and credit cards”, “Anti money launderingand anti terrorism financing in financial institutions”, “Management accounting practices Asia”(CIMA Malaysia and Japanese Society of Management Accounting), Japanese ManagementAccounting in the Automobile Industry ( Japanese Society for the Promotion of Science ( JSPS)),Corporate Governance Reporting (with MICG and RAM) and National Award for ManagementAccounting – NAfMA (CIMA and Malaysian Institute of Accountants). Currently ProfessorOmar is heading one of IIM’s collaborative research projects on Corporate Integrity Framework.To date, Professor Omar sits as Editor of seven international refereed journals. She is also thevice president and founding committee member of the Asia-Pacific Management AccountingAssociation (APMAA) which is based in Japan.

Rashidah Abdul Rahman is a Professor in Corporate Governance and Islamic Finance. She iscurrently the Deputy Director of the Accounting Research Institute (ARI), Faculty ofAccountancy, Universiti Teknologi MARA, Shah Alam, Malaysia. With research interest incorporate governance, waqf governance, Islamic finance, intellectual capital, financial reporting,corporate ethics, environmental reporting, and mergers and acquisitions, she has presented andpublished various articles in these areas. She has also published several research papers ininternationally refereed journals. She sits on the Editorial Board of Malaysian AccountingResearch Journal and has reviewed articles for both local and international journals. She hasbeen an external examiner for postgraduate students both at the local universities and abroad.Among her publications include books titled Effective Corporate Governance, and CorporateGovernance in Malaysia: Theory, Law and Context.Her books and research work have wonseveral national and international accolades.

Nurul Husna Haron is a Lecturer at the Universiti Teknologi MARA, Shah Alam, Malaysia.


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