GOVERNMENT procurement can be made in different methods such as tender, limited tender, quotation, direct purchase and direct negotiation.

Although direct negotiation only amounted to 8.2% (RM80 billion) of the total procurement budget in 2018, contracts awarded this way are more prone to corruption compared to other methods.

Civil society groups, watchdogs and the public seldom look into procedural justice, which emphasises fairness of process.

If they do not pay attention to improving governance, there will bound to have cases that involve higher purchase price, conflict of interest (e.g. involving a politician and his family member’s company), project wastage due to inefficiency (overvalued procurement and incompetence of contract winner).

This article attempts to examine the association of direct negotiation process and corruption trend as well as make recommendations to improve governance.

Process of direct negotiation

The direct negotiation process usually involves two phases – approval and price negotiation.

The approval process begins with identifying the need for direct negotiation. Next is to identify a competent and qualified company.

Then, an assessment committee is formed that will carry out assessments, provide reports and submit applications to the Finance Ministry (MOF) for its approval.

Then it enters the price negotiation process, beginning with the government issuing a letter of intent to the contractor/supplier and a price negotiation committee is formed.

Market research, consultation with the Malaysian Administrative Modernisation and Management Planning Unit and value-for-money labs would be subsequently conducted. Negotiation with the company then only starts and is given a maximum of two weeks to close the deal.

Once the negotiation is completed, the controlling officer of the particular ministry or department will have to submit the report to MOF or the procurement board.

A letter of appointment will be issued to the company once the application is approved by MOF or the procurement board.

Non-compliance trends

There are few trends on non-compliance procurement processes that further lead to mismanagement of the awarded contracts.

The first trend is when the contracts are awarded directly by MOF without application of the relevant ministry.

Such practice overrides the right given by the ministry or department to decide whether to use direct negotiation.

In fact, treasury circular PK 7.15, which regulates the process of direct negotiation, sets certain conditions for direct negotiation.

In other words, direct negotiation is seen as a last resort and the government is discouraged from using it.

For example, the second package of the Bera Hospital project worth RM88 million was given to Maju Jaya Prasarana Sdn Bhd through direct negotiation by MOF in 2012.

The contract did not meet the criteria of direct negotiation. What is worse, the project was mismanaged such as poor construction quality and delayed work. It finally led to the termination of the contract.

The second trend of non-compliance is to conduct direct negotiation without the approval of MOF.

For the projects examined by the National Audit Department from 2016 to 2018, 11 were found to receive either delayed or no approval from MOF but were allowed to continue without any repercussions.

Another trend is the request for direct negotiation made by the minister himself.

All direct negotiation requests shall be made by a controlling officer of a particular ministry or department. This can happen either before or after bidding.

An example of this is the ticket sales management of the Kuala Lumpur SEA Games in 2017.

Direct negotiation was sought by the minister after a request for proposal (bidding), the appointed company Perbadanan Stadium Malaysia only fulfilled 13 of the 47 stated criteria, compared to its competitor, AirAsia RedTix.

Recommendation of procurement governance

According to the Auditor-General’s Reports from 2014 to 2018, 22% of projects (17 out of 76) were unqualified.

Among those, 82% were incompetent in capacity, experience or financial capability while the others were related to registration issue, which they did not meet the valid registration requirements (for registration problem, refer to treasury circular PK 7.16).

To strengthen procurement governance, the accountability of all stakeholders must be improved.

The circular should require MOF or the procurement board to offer a written explanation to the procuring entities for not taking the recommendations made by the assessment and price negotiation committees.

The most important risk factor in procurement governance is the involvement of politicians in the process.

Ministers, deputy ministers or politicians sitting in a policy-making decision position should not decide on the procurement method and the companies that will be awarded the contracts. This should be handed over to the civil servants who are the controlling officers.

Companies that are blacklisted or have relationships with any individual involved in the procurement process, including politicians, should be barred from bidding for or awarded the contracts.

In terms of checks and balances, officers who control expenditures, public money and the procurement process should be questioned by Public Accounts Committee members following the release of the Auditor-General Reports. – September 15, 2022.

* Nick Tan Beng Teong graduated with Bachelor of Economics at University of Malaya. A member of Agora Society, Tan believes in policy reforms in order to build a better nation.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.