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Procurement issues in Malaysia

Wee Shu Hui, Radiah Othman, Normah Hj Omar, Rashidah Abdul Rahman and Nurul Husna Haron
Accounting Research Institute and Faculty of Accountancy, Universiti Teknologi MARA, Selangor, Malaysia
Purpose This study was undertaken with the aim of surveying the perception of the two main stakeholders in procurement system; the contractors and the procurement ofcers on issues such as accountability, transparency, corruption, integrity and cronyism pertaining to the public procurement system in Malaysia. Design/methodology/approach Interviews were conducted over a nine-month period in 2007 to gauge the perception of the procurement ofcers 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 procurement system, estimation/budget/pricing, professionalism and ethics and timeliness. Findings One of the common complaints made by the contractors was prevalence of interference from outside parties and cronyism, which affects the awarding of contracts. The procurement ofcers were blamed 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 to successfully gather respondents who willing to give feedback on their experience with the procurement system. The data are rst hand information and are carefully transcribed and categorized into 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 successfully gather respondents who willing to give feedback on their experience with the procurement system. The data are rst hand information and are carefully transcribed and categorized into categories to help 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

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Received 18 June 2009 Revised 28 October 2010 Accepted 9 December 2010

Public servants have been told to carry out their duties speedily and accurately and live up to the high expectations of the people. Deputy Prime Minister Tan Sri Muhyiddin Yassin, in issuing the directive, said they should set a timeline, identify priorities, make decisions and use 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. Its important to determine our priorities. The prime minister has outlined many things including economic development, education, and social development that had been stipulated in the development plan that we wish to implement (Star, 2009a).

The multi-pronged approach in developing Malaysia into a prosperous nation affects its economic, social, culture, political and even aerospace research environment. As a rapidly developing country, the government has put much effort to channel the countrys resources to right places of development. Public fund, which is raised through the collection of income tax, companies tax, duties and other sources, should ow back to the public and benet the public in terms of good public facilities and amenities, education, subsidies and various developments.

International Journal of Public Sector Management Vol. 24 No. 6, 2011 pp. 567-593 q Emerald Group Publishing Limited 0951-3558 DOI 10.1108/09513551111163666

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An effective procurement system would therefore ensure as little leakage from the system as possible. The government procurement system is part of this conversion process, from the collection of funds to the successful implementation of projects. Hence, the procurement system is always under the intense scrutiny of different stakeholders. Issues of accountability, transparency, corruption, integrity and cronyism are concerns raised by the public to ensure that public funds are properly managed 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 ve common weaknesses in the Malaysian procurement system. They are as follows: (1) Failure to buy products in the right quantities, and at the right specications and prices, resulting in higher total cost of ownership. (2) Inefcient and ineffective procurement processes, resulting in long cycle times. (3) Opaqueness and ambiguity in the procurement process, resulting in leakages and corruption. (4) Inadequate infrastructure to support procurement, including aws in organization and governance. (5) Non-existent or ineffective vendor development programs (VDPs) It is therefore pertinent to investigate the problems as perceived by the contractors and the procurement ofcers. Interviews were conducted in order to gauge the perception of two main respondent groups on the procurement issues. Research issues One of the main concerns of the public is extravagant sum paid for jobs that are worth its value. Quality is also another issue. The enormous amount of money involved in government procurement and the fact that the money comes from the public demands accountability and transparency, which are not only national issues, but are also common global issues. For instance, in the USA, the State of South Carolina abandoned its e-procurement system in June 2002 and pilot projects were shut down in 2002 in Massachusetts, Indiana, and Michigan (Garson, 2004). While in Virginia the state auditor reported that only 1.5 percent of the states business was transacted through its state-of-the-art $US14.9 million system (Garson, 2004). In Europe, the UK Ministry of Defense was reported for not being able to achieve the targeted 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 procurement order data into the nancial control systems, which was reported by Croom and Brandon-Jones (2005) as critical for the success of an e-procurement system. On a different note, Henriksen and Mahnke (2005) noted that in Denmark, the structural-political issues related to the widespread decentralization had created a serious barrier for a centralized procurement process through the public e-procurement portal (PePP). They claimed that there were many other issues that needed to be considered such as local identities, occasions for participation in decision making, and possibilities for local interests and inuence. Culture is also one of the issues that have been highlighted, especially in the Asian region. A case-based study of Taiwanese

military procurement revealed that the main challenges for e-procurement implementation were found to be related to cultural resistance to changes (Liao et al., 2003). In New Zealand, the Governments GoProcure E-procurement system has proved more complex to develop than expected (Bell, 2003; Doesburg, 2003; Gifford, 2003). There reported issues and failures of procurement systems have triggered the public to scrutinize public spending on the part of the government. The British tabloids are intensifying their focus on the spending of the British MPs while the USA is lifting the veils on the extravagant and lavish spending of chief executive ofcers (CEOs) using shareholders money. The public, and this includes the Malaysian public, are more aware and demanding of their rights and privileges. On the other hand, the pool of contractors is ever increasing. As at April 2009, there are 32,000 Class F contractors in the country and they make up 70 percent of the contractors 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 allocated projects totaling to RM860millions (Beh, 2009). The awarding of contracts comes under detailed scrutiny and the contractors have the right to expect that contracts and tenders be given to the deserving ones. Transparency and accountability again are major issues but these issues are long standing issues in addition to other issues such as methods in allocating projects, price in tenders, and quality of projects. As reported in May 2009, the Works ministry is still gathering information so that we can come up with a good mechanism to solve problems faced by the contractors. Procurement system in Malaysia The procurement system in Malaysia can be divided into three systems, which are direct purchase, tender (open tender and close tender/quotation) and direct negotiation. The laws, regulations, and policy guidelines on these procurement types in Malaysia are available in print form and on the web site of the Ministry of Finance as guidelines for the procurement ofcers and the users (mainly contractors). Generally, for the purchase of below RM50,000, the direct purchase procurement system needs to be followed. The procurement system will require the lling of multiple copies of requisition forms by the departments needing the goods. The requisition forms are then sent to the purchasing department for approval. The purchasing specialist will make several telephone calls to various suppliers asking them to quote their prices, choice of products offered and the delivery terms. On receiving feedback from the suppliers, the purchasing ofcers will make an analysis and make procurement decision. He/she will then generate the purchase order and the purchases will be made. Closed tendering for procurements would be applied for procurement cost between RM50,000 and RM200,000. Whereas open tendering is used for procurements above RM200,000[2]. For tenders that target local suppliers, the bidding period is 21 days. For international tenders, which arise only for goods and services that are not available locally, the bidding period is 56 days. Model tender documents, which can increase transparency and consistency, are found in the Treasury Instruction, Treasury Circular Letters, and the Procurement Guidelines Book issued by the Ministry of Finance. The Procurement Guidelines Book also explains procurement procedures to government agency staff. In certain circumstances, the procurement could not be done through 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 it would be exempted from open tender. It is mainly due to urgent purchase and there is only one supplier thus no price and specication comparison could be made. In principle, the appointed contractor must be the expert, well-known for its credibility, have wide experience, proper planning, good pricing terms and most importantly, be the only supplier or contractor in the country for the item to be purchased. Thus, the process 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 procedures must also comply with the prescribed provision. For the tenders, there is a need for invitation to tender in which it is publicized to provide opportunity to many bidders to participate. This will also facilitate the government to ensure value for money. Wide publication of tenders can help reduce corruption by increasing transparency and participation. Under Malaysian rules, local tenders must be advertised in at least one local newspaper in the Malay language. International tenders must be advertised in at least one Malay-language newspaper and one English-language newspaper. Foreign embassies in Malaysia and high commissions are also informed. All tenders, whether local or international, are posted on the web sites of the procuring and the central procurement web site of the Malaysian Government. However, the way in which a government body invites participation of the bidders would be different depending on the management of the local authority. More opportunity given will create competition and ultimately the benet will go back to the local authority. The publicity creates equal playing eld for bidders and transparency leads to more justiable decisions. On receiving various tender documents from the contractors, there is a procurement committee who will evaluate the tenders submitted and oversee the whole process of procuring. The evaluation is generally handled by the Engineering Department or other relevant departments depending on the nature of the items being tendered out. At local 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, such as passing annual budgets, enacting by-laws and approving planning permits are decided in the Full Council meeting. The president or mayor chairs Full Council meetings and is the CEO of the council. A council secretary assists the president or mayor and all heads of departments. The presidents or mayors and councilors are appointed by the respective state governments. The councilors are the representatives of the rate-payers. They bring the views and aspirations of the local people. They also pass by-laws and policies, approve planning permission and hear appeals such as reduction of assessment rates. In Malaysia, the procuring agency will set up a technical committee to determine the technical specications of the tender. Sometimes, in some cases, Ministry of Finance required ve suppliers quotations to conduct a technical evaluation. This is to make sure that the right contractor or supplier with reasonable pricing will be selected. A technical expert will be appointed to be in the committee to assist the tender board committee in making the selection. However, the experts cannot select, only propose. The committee, taking into consideration the recommendations from the technical expert will prepare a report of their decision and its justication as required by the Treasury Circular. There should be no interaction or communication at all to the bidders on the decision until the announcement made public.

In terms of selection criteria, as much as possible, the procurement ofcers will practice democracy. In the process, previous performance has always been the pre-qualifying factor. Once they are selected based on their past performance, the technical committee will 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 different from the estimates available. The committee will also check the ability of the contractors to deliver their services by examining the background and assessing their nancial capability. Their nancial capability is being assessed thoroughly by looking at least their three-month average performances. In general, the contractor must be of Class F, reliable, credible, has sufcient capital and nancial stability and most importantly, is the technical expert. The justication for the selection is normally documented in terms of the contractors nancial capability, experience, current jobs at hand and other factors as considered necessary. If the tender is awarded to a new contractor, further justication was needed. The contractors that were rejected previously would be highlighted especially if they offer the lowest prices. In general, the pricing offered by the contractors would normally be exhibited in the proposal, but there are also cases where the pricing is not shown. Normally, if the pricing is not available, the tender will be rejected immediately to avoid fraud or manipulation. If the pricing is provided then it must be properly evaluated. Normally, a checklist will be made to make sure that all procedures are being followed. The committee analyzes and conrms details listed and initials them. Then, a technical interview date will be set after nalizing the ranking of the bidders. The nal report will be sent directly to the offer board for approval. Once tender board has approved, the committee would then analyze and table it in the tender board meeting to be considered. If the tender board disagrees on the pricing factor, the estimates will be revised. If the project involves a huge sum of money, a project manager will be appointed to redo the whole process of calling tender, awarding tender and getting the closest estimates. In principals, the contractors must be informed within ten days and only if they agree that an offer letter would be issued. If the contractor refuses, the case would be forwarded to the attention of the Contractors Service Center (PKK) for action. One of the reasons for the rejection normally given by those contractors is miscalculation of estimates. In such cases, they can be suspended by up to a year. If the contractor accepts the offer letter a meeting would be called to endorse the result by the State Secretary. 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 chances of results of being leaked before they are made available As the contracts offered will be made out of public money, monitoring should be given the priority. It should be carried out at all phases and should be conducted thoroughly. There should be a team concentrating on monitoring the work on site including of the materials used, the progress to-date and the progress claim made. Any complaint will put the government in the highlight. This will affect the public condence in the credibility and transparency of the system. This will reect the inability of the governments ofcers and the integrity of the procurement system. There must be a proper system to discourage supervising agencies or individuals from trying 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 the project. The contractors need to submit the progress billing attached with the approve percentage of completion by the authorized person in charge. The general guideline is to honor payment within 14 days on submission of completed information and documentation with the Finance Department. Most of the problems occur when contractors do not attach necessary documents required. In order to avoid delay in paying the contractors, the payment ofcers have to make sure that documentation is complete. If there is any problem, the documents would be sent back to the relevant contractors for verication. From thereon, it would take another two days with the Treasury and three days in the nance department to process the payment. Overall, it would take the latest a week for the payment to be honored. There is also a clause saying that the contractors can be paid three months after the signing date of the agreement. Before any payment is being made, it is a contractual obligation of the committee to also monitor whether the claim is made in accordance to the terms, product delivery and other criteria prescribed. The Ministry of Transport would normally release payment within 15 days. In fact, 98 percent of such processing can be completed within 10 days. If the payment is late, the nance ofcer must inform the reason for the delay in writing. E-procurement in Malaysia One of the extensive efforts from the government is the introduction and implementation of e-procurement (known as e-Perolehan in Malaysia (http://home. to replace in stages the conventional and traditional procurement system. E-procurement refers to the use of electronic methods in every stage of the purchasing process from identication of requirements to payment, and potentially to contract management (Tonkin, 2003). Volatile environment, intense global competition, coupled with the increase and widening use of IT necessitates a paradigm shift of transacting business via efcient virtual internet. E-procurement has been associated with savings in time, improved productivity, and reduced costs to the governments as well as the suppliers although the initial costs and time spent in establishing the system may be high in the beginning. However, e-procurement could ensure greater transparency, and provide equal opportunity to private entrepreneurs in bidding for government contracts. In the long run, the effective practice of e-procurement will provide a conducive environment for robust competition, attracting the best suppliers, resulting in money well spent. The e-Perolehan allows the Government ministries to electronically select items to be procured from the desktop, initiate an electronic approval process and also create, submit and receive purchase orders, delivery orders and other related documents electronically (Maniam et al., 2006). With the abolishment of manual documentation, the technical and pricing evaluation committee can only refer to what have been stated on the screen, thus making the process more transparent. Legitimacy theory and stakeholder theory Legitimacy theory The legitimacy theory posits that the organization is responsible to disclose its practices to the stakeholders, especially to the public and justify its existence within the boundaries of society (Wilmshurst and Frost, 2000). Thus, the relationship and

interaction between an organization and the society is the focus of the legitimacy theory:
A condition or a status which exists when an entitys value system is congruent with the value 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 are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and denitions (Suchman, 1995, p. 574).

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Legitimacy theory provides a sufcient and superior lens for understanding government procurement system. The concept of legitimacy implies that the social contract between the government and the public can be destroyed. In government procurement context, there are various issues (such as cronyism, corruption, etc.) that could threaten the legitimacy practice. Failure to act in accordance with the social contract is construed as being detrimental to the ongoing implementation of government policies. In the light of this theory, the recent complaints made by class F contractors have been legitimized and action 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 costing more than RM10mil to be allocated for Class F contractors, who are usually engaged by the main contractors (Class A). Each Class F contractor, whose job includes laying tiles, fencing and wiring, is only entitled to take up projects of not more than RM200,000. Speaking to reporters after attending the ministrys monthly gathering yesterday, Shaziman said the decision to temporarily suspend the policy was made following a meeting with more than 700 Class F contractors. They complained about fewer jobs, low prot margins due to higher construction costs and their problems with the main contractors, he said. We will nd a solution that will benet 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, to help them through the economic downturn. It was reported that as of last month, only 4,373 of the estimated 31,500 Class F contractors in the country had been allocated projects totalling RM860mil (Beh, 2009).

Pursuant to legitimacy theory, government ofcers choices of legitimizing implementation strategies are based on the perceptions of the particular local authority or department involved, and different government ofcers will be likely to have different ideas about what the public expects (that is, what the terms of the social contract are), and whether the department or agency or local authority is perceived by its community members as complying with these expectations (see Deegan et al., 2002). Nevertheless, when signicant events such as a major environmental disaster occur, or when there is sustained mass media interest, then it is reasonable to assume that most ofcers would perceive that the departments ongoing legitimacy is threatened. The legitimacy theory argues that ofcers make a disclosure practice as a way to build a good impression among the stakeholders of the role and the ofcers (Magness, 2006). Additionally, the government discloses the information to the public in an effort to change the publics perception towards the governments performance and activities to reect the change in the change in lineup under the new Prime Minister. The recent release of the report in May 2009 by PriceWaterhouseCoopers on the Port Klang Free Zone (PKFZ) asco illustrates the concerted effort of the Malaysian government under the People First from the 1Malaysia concept to move beyond the rhetoric to walk the talk.

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Research methods The main objective of this research is to get an in-depth understanding of the problems faced by contractors and government procurement ofcers that entails the use of qualitative research techniques. The rst phase was a pilot phase of face-to-face interviews with 12 individual contractors. Contractors formed a huge group and as reported in The Star (2009b) the Works Minister reported:
There are 32,000 Class F contractors in the country and they make up 70 percent of the contractors of all classes.

A total of 250 contractors, the majority of whom are located in Klang Valley were interviewed over a nine-month period. Focus group interviews were conducted with three to six interviewees in a group. The focus group interviews were conducted at various seminars and conferences fro contractors held by different bodies and associations at different times and different places over the nine-month period. The aim of these interviews is to obtain rst-hand information on the general perception of contractors and procurement ofcers on the government procurement system. In ensuring the consistency of questions asked during the interview sessions, interviewees and facilitators are guided by an interview protocol. Interviewers were taught the skill of interviewing and given the list of questions to ask. Appointments were made with different government agencies and departments and the researchers were able to secure interviews with 18 procurement ofcers located mainly in the Klang Valley. Interviews were conducted with procurement ofcers to understand better how the system worked and the problems faced by them. A semi-structured approach was utilized to solicit information that may be peculiar to a particular 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 persons head, [it] makes it possible to measure what a person knows (knowledge and information), what a person likes or dislikes (values and preferences), and what a person thinks, his attitudes and beliefs.

Most interviews were tape-recorded but some interviewees requested that the interviews be not be taped due to the highly condential nature of information that was revealed. These interviews were then transcribed and analyses were made according to the common themes that surfaced from these interviews. Interview of procurement ofcers The sample for focus group interviews is randomly selected from among individuals who are procurement ofcers at federal, state and local government and from different parts of the country (North, South, Central, East and East Malaysia). The interviews were conducted with procurement ofcers, engineers, IT ofcers, Yang Dipertua, Deputy Yang Dipertua, Accountant, Secretary to Local Authority and Dato Sharir Samad, the former Chairman of Public Accounts Committee. The full list of the organizations, position and number of interviewees is listed in Table I.

Organization Public Accounts Committee Majlis Daerah Hulu Selangor Kementerian Sumber Asli Kementerian Pengangkutan Kementerian Kesihatan Majlis Bandaraya Melaka Bersejarah Majlis Perbandaran Kajang Majlis Daerah Ulu Langat Ministry of Culture, Arts and Heritage Pejabat Negeri Perak Majlis Perbandaran Kajang PBT Pasir Gudang Majlis Perbandaran Seberang Perai Majlis Daerah Ulu Langat Total no of interviewees

Position Chairman Procurement Ofcer

No of interviewee 1 1 1 1 1 2 2 1 1 1 1 1 1 1 1 1 18

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Principal Assistant Secretary Chairman Deputy President Accountant Engineer Engineer IT ofcer Accountant

Table I. List of interviewees

Interview of contractors About 250 contractors were interviewed at face-to-face and focus group interviews in different parts of Malaysia, with the majority of interviews carried out in the Klang Valley. Interviews on an individual basis were arranged and carried in various places convenient to both interviewers and interviewees, such as at the Accounting Research Institute in UiTM Shah Alam. Focus group interviews were carried out at conferences organized for contractors at Sunway Lagoon Hotel and Dewan Annex at UiTM Shah Alam at various dates starting from February 14, 2007 onwards. The ndings presented below are organized based on different issues highlighted based 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. Findings Based on the interviews conducted, the similarities and differences regarding the issues raised by the procurement ofcers and contractors are discussed under a common theme. Transparency Transparency is given the utmost priority by the Malaysian Government in all its services. Transparency guarantees equal opportunities and access to the stakeholders. Transparency International (2006) dened transparency as laws, regulations, institutions, processes, plans and decisions that are made accessible to the public at large or at least to representatives of the public so that processes and decisions can be monitored, reviewed, commented on and inuenced by the stakeholders, and decision makers can be held accountable for them. The opportunity for abuse and manipulation of the procurement process would also be reduced whenever the transparency of the process is increased.

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In the public sector, transparency in a procurement system has been an important issue for years and is still regarded as a sensitive issue. In many countries, the conventional procurement system has led to unwholesome activities such as corruption. In the government sector specically, the lack of transparency in procurement activities can sometimes be the source of such unwholesome activities such as corruption, scandal and abuse of public resources. The traditional procurement system with its inherent lack of transparency has been perceived as inadequate since it results in inated cost and progress delay. The inadequacies delays project developments, and purchase of goods and services. Complaints and dissatisfaction of public taxpayers are not uncommon and these are often publicly voiced out in public channels such as newspapers, etc. One of the complaints raised by the procurement ofcers is on awarding tenders to deserving contractors. The invitation to tender is publicized to provide opportunity to many bidders to participate. This will also facilitate the government to ensure value for money. However, one local authority ofcer from Melaka informs how his organization stresses value for money but does not practice open tender. He said:
[. . .] For example, the procedures for purchasing ofcial vehicles for the local authority. It was not made based on open tender. The ofce obtain and compare quotations from various car dealers. The nal 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 that need to be procured based on the necessities and demand rather than fullling the personal benet of irresponsible personnel. The government has the right to decide whether 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 but rather the desire to channel benets to an individual and/or organization. The procurement rules should emphasize on transparency rather than condentiality, open bidding only from pre-qualied suppliers, guarantee equal access to information to suppliers, and make sure all documentation are publicly and timely available. The policies had been created to provide transparency and accountability especially in the suppliers selection process. However, there should be a balance between transparency and its contribution to corruption control with other considerations such as efciency (OECD, 2007). In practice, many countries have adapted the level of transparency and openness of the procurement procedure according to a number of factors, including the sensitivity of the information and the specicity and value of the public procurement. Based on the interviews conducted with the procurement ofcers, they agreed that the Malaysian procurement policies and procedures are good in comparison with the procedures from other places. The ofcers themselves strictly adhered to and followed the guidelines set up. The ofcers involved discussed and identied various factors to be considered at all the processes from decision to contract, invitation to tender, selection of tender committee until the tender evaluation. These processes are lengthy and involve arguments between the ofcers because of to the bureaucracy practices. However, interference from the local politician, businessmen, members of parliament and someone who is very inuential from the top management has interrupted the processes and no longer transparent. Numerous contractors made references to the importance of making acquaintances with these inside people, in order to be awarded

with the tenders. The majority of the procurement ofcers claim that there are cases where recommendation letters from the politician being brought into the meeting and sometimes certain contractor is chosen because of political reasons rather than his/her credibility. According to them, sometimes, even the State Governments interfere by giving advice and instructions to local authorities. Most of the time, the local authorities can only give technical advice, but the State Governments make the decisions. The scenario would jump the whole processes and straight away come to the nal decision in which the tender should be awarded to a party with which they have personal relationship. This interference has abused the beauty of the policies. The whole tender processes that are time consuming and have already taken consideration various factors seem useless. Based on research done by Evenett and Hoekman (2005), a lack of transparency can impede the ability of new companies to bid for contracts even if there is no discrimination. This is due to the ambiguity and uncertainty that exist in the policies created. In other words, transparent procurement policies and implementation could help more companies to bid and try to get government jobs and be able to crystallize the publics ambiguities. From the users perspective, they emphasize two key areas that need greater transparency: evaluation and selection of contractors. It is understood that not every bidder 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. Important criteria such as the track record of contractors, their experience and their ability to complete the jobs on time should be taken into consideration in the evaluation and selection of contractors. Integrity is an important issue and under the counter practice must not be condoned. Procurement procedures need to be exercised with all fairness and justice. Cronyism cannot be tolerated especially in small projects. An example cited is a hospital canteen in Selangor. All the tenders have been submitted and at the last minute, the contractors were asked to withdraw their tenders to give way to some politician:
If politicians interfere in government procurement, then their cronies will get everything. For example, in the case of a certain MPK as reported in the local newspaper, the children of the councilor also became council members, leading to the angry reaction of the public. But in the end, he is still appointed as a council member. Where is justice? Where is integrity?

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A result of questionnaire also revealed that the respondents were just moderately satised that the organisation informed the respective parties who will sit in the board of awarding tender. As explained before, this is possibly due to the transparency and cronyism issues. The board that is from the public sector might have personal affairs and interests with some of the suppliers that are from the private sector, which could lead them to decide unfairly. Matechak (2005) opined that public procurement is one of the key areas where the public sector and the private sector interact nancially that is a prime candidate for corrupt activity, cronyism, and favoritism as well as outright bribery. The transparency issue would be different in direct negotiation. Some of the procurement ofcers feel that it has many disadvantages such as no comparison of pricing can be made as the supplier is the sole supplier in the country and so, the evaluation is made based on trust. The procurement ofcers raise concern that in the future, for another exercise, another supplier might be able to supply similar items through 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 direct negotiation allows different suppliers to supply similar items with different pricing. One ofcer interviewed claims that sometimes, outsiders interfere in the process; there is one case where the price hiked from RM80,000 to RM200,000. The hike could reect the wastage of the public money, inefciency in the procurement system, transparency process being hidden, and nally lead to untrustworthiness to the procurement system itself. According to a procurement ofcer from Hulu Selangor, direct negotiation reects an agencys inefciency in doing proper planning. One representative from a Ministry stresses that there is no such thing as emergency as proper planning can be made much 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 about dealing with direct negotiation. Some procurement ofcers claim against this exercise that it is not necessary true that direct negotiation is important to get the project done faster because sometimes the process can be much slower than tender. The whole process of appointment can take up to two or three months, although there is no need for a quotation committees decision. This is because the approval from the nance committee is still required. Further, a comparison is not made between the pricing with the current market price. Procurement policies and procedures and their implementation In general, the procurement ofcers perceived the guidelines as clear and they have no problem in understanding them in order to apply them in their daily work. They also agree that although the Treasury has been very successful in setting up very clear and complete 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 further review. One local authority ofcer from Melaka reveals how his organization stresses on value for money but not practicing open tender. He said:
[. . .] For example, the procedures for purchasing ofcial vehicles for the local authority. It was not made based on open tender. The ofce obtain and compare quotations from various car dealers. The nal selection will be on car dealer that offers the best price and value for money [. . .]

Another issue highlighted by a Ministrys representative; in which he claims that there are also disadvantages of being democratic in selecting the best contractors. He said the idea is novel as the intention is to give equal opportunities to all contractors. If a contractor has been chosen previously, the selection committee will choose another contractor for a new job or work. Even though the previous contractor has performed his job excellently, he will not be chosen for the next job in a queue to give opportunity to other contractors. The new contractor might not be as good as the previous contractor or the pricing might not be as close to estimates as what has been given by the previous contractor; he will be given the job under the banner of democracy and equal opportunity. The representative said that it would be a waste of time to choose a lesser credibility contractor when the committee cannot choose the best contractor available 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

given the jobs. However, the system does not take into consideration the value of the jobs especially to compete for small jobs. For example, if a contractor got a small job for RM8,000, he would not be able to get another contract for the year. The recent voting was for jobs ranging from RM4,000 to RM8,000, values of which are very small. The voting system should not be limited to the smaller jobs and it would be just as useful for jobs or tenders of say RM50,000 and above. There are also issues in voting system raised by the contractors in the valuation of work-in-progress or incomplete work by previous contractors. They complained that whenever there is an incomplete job, the price offered is too low that makes it impossible for the next contractor to continue or bid. A representative from Perak commented on the voting system and bureaucracy practices in the procurement system. He adds that if any contractor has been previously been awarded tender by the Works department, the committee would crosscheck his previous performance inclusive of its administration and management performance. There are also cases where some contractors are having nancial problems resulting in projects that cannot be completed on time. In this case, a new contractor had to be appointed to continue the project. The contract value would be based on the value of the incomplete project. The committee has to go to the construction site to evaluate the uncompleted project. However, one procurement ofcer admits that this can also be due to poor monitoring procedures. He says sometimes the maintenance cost can be more expensive than the initial development cost due to low quality materials being used and the extensive modication works needed to be done. From the contractors perspective, they opined that the improvements in implementation have been forthcoming albeit slow. The bureaucracy should be reduced in order to make the procurement process more efcient. Bureaucracy in the implementation of policies has serious repercussion on the prot margin of contractors. As quoted from a contractor:
Because of bureaucracy in government, projects get delayed and this led to cost increase due to increase in the price of construction materials and the contractor is forced to shoulder the burden of the price increase. The actual prices are now much higher than the budget estimates.

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From this it can be found that the bureaucracy would not only remove the best contractors to be selected, but also indirectly eat up the prot margin of the contractors selected. The other issue on the procedures of procurement system is contractors have to register with the local authority each time they are applying for tender. This procedure makes the process a lengthy one. The red tape and the bureaucratic procedures of each registration take up a lot of time. This red tape can be reduced if it sufces to register only once with the Ministry of Finance (MoF) so that the process does not repeat itself each time the contractor goes and bid for a contract. A contractor expressed his dissatisfaction:
Why do we need to register with each department or organization since we have already registered with MOF? All our details are already in our registered prole with MOF. It is time consuming to travel to and fro just to ll forms.

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

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The dissatisfaction continues when the governments frequently appoint consultants to monitor the quality of contractors work. The contractors questioned the necessity of hiring the consultants. Contractors feel that the consultants took advantage of government projects by xing the price that need to be paid by contractor for their services. The Class F contractors feel like they are untreated fairly because they also need to pay for the Electronic Fund Transfer (EFT) fee besides the fee for a consultant, which reduced their prot margin. These contractors feel that they, themselves, make better consultants for their projects rather than hiring consultants from outside. Additionally, the tender documents are found fairly complicated to handle, which frustrates the good intention of the contractors in trying to comprehend the requirements of the tender process. There are instances where the contractors think that they are qualied to bid for the contract but then found they are not. Personnel involved in the procurement system In certain circumstances, a procurement ofcer from Johor admits that problems such as incomplete and abandoned projects keep on repeating due to poor monitoring and auditing services from the relevant authority. It is found that this scenario is contributed by the problematic contractors and poor monitoring and auditing ofcers. On awarding the tender to the selected contractors, there is a crucial need for the relevant authority to continuously monitor and audit the progress and performance of the projects tendered. The monitoring and auditing role could help ensuring the projects proceed without having severe problems and run smoothly in accordance with the plan within the acceptable tolerance level. The roles should be emphasized not only on the awarded contractors, but also on the sub-contractors in which the main contractor delegated part of the projects. In playing this role, the ofcer should be independent in which he/she should not have close relationship with the contractors and sub-contractors that could jeopardize his/her professionalism. According to an accountant from a local authority in Selangor:
There are no specic and clear guidelines on how to prevent or even punishment for government ofcers for breaching trust, misconduct and negligence in relation to procurement.

These ofcers issues is expected be solved by the implementation of the e-procurement in which it has reduced the role of the ofcers through the abolishment of manual documentation. Thus, the technical and pricing evaluation committee can only refer to what have been stated on the screen, thus making the process more transparent. In fact, one of the objectives of e-procurement is to improve the speed in handling government procurement procedures but at times, the response from the ofcers through e-procurement are slow. Contractors did comment on this matter as follows:
E-procurement system still has some weaknesses. The response from the ofcers is still slow.

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

due to the incompetent ofcers. The following is an example of an incompetent ofcer who 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 been signed by the government. The ofcer insisted it must be corrected even though the document had already been signed. This ofcer checked through the document again and halfway 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 another mistake, went up again.

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Estimation/budget/pricing The main problem encountered by the tender committee is to have good/close estimation for different type of work and services. They do not have clear and precise guidelines on estimates as this might change from time to time depending on the changes in the market price of the raw building materials. Most of the time, the estimation provided is basically a rough estimate. The committee will then compare the 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 the estimates available. The procurement ofcer from Penang claims that some ofcers in the Technical Department are very close with contractors and this relationship might jeopardize their professionalism when they are asked about the estimation for the upcoming projects. The estimates should remain condential and be kept by the ofcers. However, the estimates sometimes are keyed in by lower ranking staff as the ofcers are very busy. A representative from a ministry claims that there are ofcers who are working together with the contractors to come up with ve quotations. They will share the prot equally if any of the quotation is being selected. By principal, the estimate must be sealed and carefully kept in a secured box but sometimes, there is a leak of the information from the insider informing the contractors or the pricing that they should quote when they tender. For most of the contractors that have no inside people, they had to inate their budget estimates by adding an extra 10 percent construction material per year in tandem with rising prices of building materials. However, this way would not guarantee them in getting the tender. The following opinion was raised by the contractors:
The quantity surveyor made changes in price when the job has already started. Prot margin is affected and no reason is given. If the pricing follows the normal price, the quotation would not be accepted. There needs to be a certain degree of exibility in adjusting the pricing. Interviewees claim that JKR practices exibility for the small jobs, whereby the prices can be adjusted accordingly.

Owing to intense competition and bidding, some contractors are not capable of completing the projects that have been awarded to them because of unreasonably low bidding prices:
There are some selsh contractors who bid at very low prices in order to obtain the contract since there is a tendency for the government to accept the lowest price rather than taking into consideration the experience and quality of work done by the contractors. Personally, I feel it is better for the government to pay a little extra in order to get better quality work.

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Professionalism and ethics The tender estimation issues above that highlighted the ofcers who are working together with the contractors to come up with ve quotations has shown the breach of the trust, professionalism and ethics and leading to insider trading activity. The information leakage leads to unfair and injustice competition among the contractors that contribute to dissatisfaction among them. The corroboration between ofcers and contractors is sometimes extended to the stage of project claim. One of the main concerns here is when false or inaccurate claims by the contractors are being protected by procurement ofcers or those in charge of revising them. Before any payment is made, it is a contractual obligation of the committee 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 fullled, the amount would be deducted accordingly. One contractor has been quoted by procurement ofcer because it engages its own consultant to monitor the contractors progress such as whether they on the right track or the right supplies and materials have been delivered. Since the monitoring from the government was very weak, the payment ofcers had to rely on the consultants report before making payment. The corroborations above would encourage the subcontractors or contractors to maintain good relationship with the procurement ofcers as a mean to channel bribes. Even though a representative from a Ministry claimed that the procurement ofcers presumed 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 organisation has channels for me to report any corruption attempts from the suppliers has the lowest mean value. This nding indicated that not only the bribery attempts are actually existed, but also unfortunately the mechanism to minimize them from happening is only moderately satisfactory. The percentage of answers for Disagree and Strongly disagree (almost 20 percent) signify that some of the ofcers did not aware the existence of the corruption channels. This unawareness could be considered as troublesome, as it could promote more corruption activities. Transparency International(2006) denes corruption as the misuse of entrusted power for private gain. The Private gain must be interpreted widely, including gains accruing i.e. to an economic actors close family members, political party and in some cases to an independent organization or charitable institution in which the economic actor has a nancial or social interest. The corruption would then affect the value of money being spent on the procurement process and it is being born on the public expense. The corruption activities could exist at every stage of the procurement processes. It could start from the procurement planning and budgeting, procurement solicitation and during the contract award and performance. In many countries procurement reformers and anti-corruption advocates are rightfully taking a holistic view in approaching procurement reform and anti-corruption initiatives. Such holistic approaches include (Matechak, 2005): . devising higher ethical standards for procurement ofcials; . requiring asset disclosure for public ofcials of a certain rank or in a particular position; and . passing of freedom of information laws.

Whereas in Malaysia, proactive initiatives have been taken to cater these serious issues. On April 26, 2006, Malaysian Prime Minister Dato Seri Abdullah Ahmad Badawi, who has expressed a commitment to a better procurement process and procedure, launched the Red Book to improve the procurement process of government-linked companies (GLCs) (Transparency International, 2006). According to the Prime Minister, the top 15 GLCs can potentially save RM15 billion if they adopt best practices, better governance, and transparency and accountability in their procurement policies. The launch of the Red Book signals the governments commitment to achieving the vision of the national integrity plan with zero corruption. Despite the above professionalism issues, most of the contractors expressed their gratitude that government ofcers show a high level of professionalism in carrying out their jobs by ensuring that the job has been done within the specications as laid down by the organizations. For example, ofcers would ensure that every single tile must follow specication. Technical staffs are dispatched to the work sites to check and monitor the projects in order to ensure that the entire task is done within the required specication. It is getting increasingly difcult for contractors not to adhere strictly job specication. After the job is completed, the technical ofcers will come and check the job. It must be done according to what has been agreed in the contract. Timeliness The lengthy process results in delays in the award of projects that lead increase in costs (because of rising material costs) and this cost increase would be borne by the contractors through no fault of theirs. Because of bureaucracy in government, some of the project has to be delayed leading to cost increase and placing a heavy cost burden on the contractors who had to revise their budgets. The contractors suggest that the procurement systems need to be improved in term of payment and the duration. The recent news announced by the Deputy Prime Minister on February 25, 2009 regarding the increase of open tender limit from RM200,000 to RM500,000 has invited various responses. From the contractors perspective, they opined that the increased benchmark would make the tender process faster and could foster more participation from the Class E contractors. In contrast, Transparency International Malaysia opined that the announcement would affect the transparency and accountability of the government procurement system. It could lead to misuse of power when the big projects are being delegated to smaller projects and be awarded to Class E contractors that are lack of expertise or have bad records. The timeliness issue here is not to focus on the procurement ofcers only, but also on the contractors. It is both parties issues. Although the contractors has been screened for capability, experience, capital, background and the lowest price offered, still some contractors have to be terminated due to inability to proceed work immediately or long delay after the contract has been awarded. The procurement ofcers 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 by required stages, progress billing claim would be the issue. The general guideline is to honor payment within 14 days on submission of completed information and documentation with the Finance Department. Most of the problems occur when contractors did not attach necessary documents required. In order to avoid delay in paying the contractors, the payment ofcers 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 relevant contractors for verication. From thereon, it would take another two days with the Treasury and three days in the nance department to process the payment. Overall, it would take the latest a week for the payment to be honored. There is also a clause saying that the contractors can be paid three months after the signing date of the agreement. However, the major stumbling block is at the Land Ofce which seldom refuse to release certain documents within the stipulated time. The delay in fact is not in line with the Prime Ministers suggestion where the contractors (especially Class F) and suppliers were promised will be paid within two weeks after the completion of the projects/ goods and services being delivered. In this condition, neither the ofcers nor the contractor is to be blamed. The government budget should also be focused on. In certain circumstances, the payment delay is due to lack of budget in the government itself. The allocation of fund would be prioritized accordingly. Some of the organizations pay the contractors and suppliers using their own collection rather than the allocation from the federal government:
From the date of tender submission until the project gets awarded, the period is excessively long but I dont put 100 percent blame on the government. I think that the government is diverting the budget allocation to priority projects and hence inadvertently delayed the current project. However, the delay causes the nancial hardship to the contractors. Price increases of construction materials affect the budget and prot for the contractors. For example, the budget that had been agreed at the submission date is RM100,000, but because of the long process, raw material prices have increased and this will affect the budget estimation for contractor. The government opens a tender based on last year price without taking into account the price increases of construction materials every year.

Recommendation The above highlighted issues are signicantly worrying the public and the stakeholders. Various suggestions and improvement have been implemented to cure the issues. The following recommendations are highlighted by the procurement ofcers, contractors and stakeholders. Transparency Rules are not enough, especially when the law enforcement mechanisms are also weak. Proper monitoring policies can help make existing norms effective. Transparency International has developed and implemented a number of monitoring tools to increase transparency and access to information that involve cooperation between governments, companies, donors and civil society. Monitoring should also include an annual external audit. Some government agencies, such as the Ministry of Health and Hulu Langat authority has proactively endeavor the recommendation by practicing Management Audit. This practice audited the management of the government agencies on its compliance with all procedures, rules and regulations in relation to procurement. As such, the procedures had to be made transparent and any queries raised would require the procurement ofcer to refer back to Circulars, Treasury Instructions etc. for conrmation. A checklist must be prepared to regularly monitor the contractors performance and the timeline target for each project must be spelt out. The quality

inspection is normally conducted by the Council Members from Finance Committee. The report would be submitted to the Members of Parliament. Strict action would be imposed for example, a cut in salary payment as penalty. However, many other local authorities who started much earlier the management audit have abandoned the practice because their top management are not interested in taking action of its ofcers. 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 Finance monitors adherence to procurement rules, and may also set up special task forces to investigate complaints. The minister of nance, however, has the ultimate decision-making authority regarding complaints. Audits are also important review mechanisms. All procuring agencies in Malaysia have internal audit units that regularly examine weaknesses in and possible breaches of procurement rules. The Auditor General conducts external audits of procurement procedures and may order corrective actions. The reports of the Auditor General are published and presented annually to Parliament. The detection of corruption is strengthened by a mandatory requirement for public ofcials to report all attempts of bribery to the police or the Malaysian Anti-Corruption Activity (MACC or Suruhanjaya Pencegahan Rasuah Malaysia). With the strengthen power of the MACC, any party who report any suspicious activities dealing with the corruption would be protected. Giving or receiving a bribe is a criminal offense under the Anti-Corruption Act and the Penal Code and General Orders. Corrupt ofcials may also be administratively sanctioned and their assets may be conscated. Penal action cannot be taken against a legal person, but the Government may debar a company that has engaged in corruption. Policies and procedures and its implementation The policies created in the procurement system are expected to continuously re-engineered and improved. It is being done by considering the past experience of the ofcers, corroboration with other departments and complaints made by the stakeholders. As developing countries, Malaysia has been subjected to substantial pressure to agree to multilateral disciplines in which it limits the ability to discriminate in favor of domestic companies or crony when allocating state contracts (Evenett and Hoekman, 2005). This effort could help to boost the transparency of the policies and procedures created. However, it again backs to the root in which it depends so much on the procurement ofcers especially the top management in complying with the discipline. In addition, the policies and procedures should be created to curb any possible corruption activities and enhance the transparency, accountability and integrity process. The following corruption risks as highlighted by Transparency International (2006) should be focused on the following: . Urgent purchases at end of scal year. . Emergency responses to natural disasters and other such events. . Inadequate access to certain information by the government ofcers. . Use of non-standardized bidding documents. . Preferences to selected bidders.

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. .

Participation of ofcial-owned companies. Participation of front/shell companies.


Apart from above, complaint and review mechanisms allow bidders to verify whether the procurement processes conform to the prescribed procedures. The possibility of review is also a strong incentive for procurement ofcials to abide by the rules. Malaysia offers bidders a multitude of channels for complaint. A failed bidder may complain to a procuring agency, which may cancel a tender if it nds any irregularities. An aggrieved bidder may also complain to the Public Complaints Bureau, the, or the Public Accounts Committee. Any public complaint must be treated as a matter of urgency and public inquiry should be conducted immediately. In Perak, the nance department uses an accounting system (SPEKS) where the contractors do not have to produce documents as everything will be handled on line including the checklist. Therefore, contractors can go direct to the department concerned to get their payments. In this way, the priority is given to the contractors and this will reduce delays in getting payments. An IT department ofcer from Penang also suggests mechanism to protect a whistle blower to discourage malpractices. In Kajang, the local authority ofcer states that his ofce had at least a weekly meeting to table any complaint lodged by the public and to get co-operation from relevant departments for more information. The public are given the option either to come personally, write or e-mail direct to the ofce. Some other local authorities have special counter and section in the web site to handle public complaints. The management reviews them quarterly a year. There is also suggestion from the contractor in awarding projects. In order to be fair especially to the small scale F contractor, big projects can be divided into a number of smaller projects, so that the small scale F contractors can also participate in it. Big contracts, if broken down into smaller jobs, would provide a wider opportunity for more contractors to participate Personnel involved in the procurement system Based on the transparency and implementation issues highlighted above, it is noted that the personals involve in the procurement system are one of the main contributing factors to the inefciencies of the system. The working culture should be focused on in which it depends very much on the management practices. Efcient management is one of the most effective preventive mechanisms. It promotes transparency and accountability, facilitates oversight and provides a good basis to prevent corruption. One local authority practices rotation among the nance ofcers so that every ofcer can experience a different job scenario and environment such as procurement, human resources or nance. However, some procurement ofcers suggested that staff should only be rotated every ve years so that they could have ample time become knowledgeable in their current job. Also by rotating the ofcers it could prohibit the close and long relationship between the ofcers and certain inuential contractors who want them to be an insider informant. The rotation is also imposed on the contractors. A new innovation and efcient technique for rotating contractors has been introduced in Malacca. There, there are 44 areas 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.

The 45th contractor would go round and collect rubbish being left by the rest of the 44 contractors. The 45th contractor would then claim for the any rubbish he/she collects. In short, the contractor is paid out of inefciencies of other appointed contractors. Also, a scorecard is maintained for each contractor to assess their performance. The city council can also trace contractors who sub-contract their work to other contractors. In this case, the main contractor would be penalized for the jobs not performed and also on any delays. On the issue of procurement committee, the department handling the procurement should have an administrative review system to foster objective evaluation on the selection of successful bidder. There should be an independent external auditor who could highlight and come forward to announce the intervention of the local politician, businessman, Members of Parliament and someone who is very inuential from the top management in the procurement processes. It was also suggested that the committee need to be diligent in making a fair assessment and conducting spot checks on contractors in order to ensure they are not an Ali Baba contractor. Continuous monitoring of the job is essential to maintain quality. Effective monitoring in the form of frequent checks and discussion between clients and contractors would ensure the jobs are done according to specications subsequently leading to a decrease in abandoned projects. Some of the procurement ofcers also suggested that council members should be appointed through election. They suggested for the structure of the local authority to be revised for council members to be effective. They give examples such as the structure in Malacca and Pasir Gudang City Councils. In Malacca City Council, the position of the Secretary is permanent and the council members are not necessarily representatives from the political parties. A unique criterion is that the chief is not a government servant. He is not under the governments payroll and, therefore, is not easily intimidated by certain individuals or groups of people. Since he is being paid based 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 of the whole tender process. New ofcers must be properly oriented and given sufcient training from top senior ofcers who are familiar with the ins and outs of government procurement process. This is especially relevant for ofcers and accountants involved in e-procurement. However, training is lacking in local authorities. The ofcer must be trained and aware about all regulations in relation to procurement and related procedures. They must be very clear of what they can and cannot do. The ofcers must be exposed continuously on various aspects of procurement and its related documents and agreements. They should also go to other local authorities for academic visits and workshops to have valuable discussions with other ofcers in local authorities as part of their training strategies. Soft skill should also be emphasized such as customer service in dealing with the public. Seminar or talk on accounting, ICT, management should also be benecial. Monthly awareness campaign should be conducted such as procurement from Islamic perspective and promoting transparency as way of doing things. Some council members thought that they have the ultimate power of making decisions and can never be contested. They should undergo training and awareness on corruption and malpractices such as certifying uncompleted job for payment. In addition to training, fortnightly meetings are recommended to be held to focus on the KPIs of each ofcer 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 procurement ofcers, the establishment of multidisciplinary and multi-party evaluation committees, rotation principles for procurement ofcers and contractors and the establishment of accountability and report procedures, are key strategies in ghting corruption and promoting transparency. Incentives promoting good behavior for individuals are also needed, such as the performance-based staff incentive structures. Estimation/pricing/budget A suggestion would be to have a standardized xed price for certain standard projects so that contractors can enjoy a xed prot margin. This would mean that the government itself would have to determine the prot margin for the contractors. In such a case, the government would need to monitor and be sensitive to the volatility in market prices. Close relationships between contractors and suppliers are essential to help the contractors to buffer themselves from the impact of price uctuations on their prot margins:
I suggest the government must intervene and control the price of construction materials in order to avoid the price uncertainty.


Professionalism and ethics There should be measures to ensure the integrity of procurement ofcers in which can be strengthened by codes of conduct and penal provisions that are specically tailored specically to procurement ofcers. This is to make sure that corruption practices that typically occur in the procurement process can be curbed. A system is usually implemented to plan punishment for misbehavior without realizing the fact that rewards for good behavior can also motivate individuals. Thus the development of codes of conduct for staff is also extremely important. Also important is the creation, dissemination, implementation, and enforcement of codes of conduct for procurement ofcers. In the effort of raising awareness of ethics, the National Institute of Public Administration provides training that includes integrity issues to procurement ofcers. The Public Accounts Committee (PAC) former chairman advises all procurement ofcers to complete their work on time. He suggests that the government agencies not only have a code of ethics, but also actually practice them such as that which has been practiced by Malaysian Institute of Accountants. The code of ethics should be extended to council members and Members of Parliaments to prevent them in bringing their interest and interfering with the procedures. One local authority in Perak frequently arranged for assemblies for the chief to remind their staff on integrity and accountability in performing their job. Posters, brochures and newspaper cuttings on bribery are frequently distributed to remind and warn relevant ofcers on the consequences. Meetings are also conducted to discuss any loopholes in the procedures resulting in leaking of insider information. In the case of absent rules or existing rules that can be easily manipulated, they should be amended or abolished. The staff are also advised to change their working attitude and culture. They are not permitted to take leave early in the month except for emergency cases. As a result a payment that normally 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

have been followed, there should also be an independent body to handle reports of misdoing and to enforce disciplinary actions. However, the procurement ofcers interviewed admit that such implementation is difcult due to limited information and enforcement. Therefore, a surveyor ofcer from Penang suggests proper documentation in order that investigation can be made before disciplinary actions can be taken. Another ofcer from Perak suggests that an anti-corruption agency make regular visits to local authorities which are prone to malpractices to prove the governments seriousness in curbing malpractices in procurement sections. Timeliness Based on questionnaire results, most of the activities by the procurement organizations needed nearly between 21 days to 100 days to be completed as revealed by the contractors. It is interesting to note that, 38.9 percent of the contractors mentioned that it 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 of payment were being completed within less than 26 days. Some of the processes were extended to 26-50 days, possibly due to the problems of documentation, management and 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 organization team in which it needs to be improved. However, certain delayed payment raised by the contractor interviewees did not represent the whole population of the contractors. Here, it is suggested that the ofcers provide all the contractors with a full detailed checklist on the document types and information needed that are important to be furnished during the payment claim by the contractors. What is more important is the communication between the ofcers and the contractors. The contractors need to be educated and made them clear regarding all the payment procedures and consequences of not attaching the required particulars. A supplier database should be kept for future purchases. In Hulu Selangor Local Authority, the accountant reveals that his department maintains a supplier database which is very useful for future reference and to make sure that purchasing of high quality products at lower prices can be made. Maintenance of public utilities such as rubbish collection, cleanliness and maintenance of public toilets have been the major priorities. The authority also introduces competition for the most clean public toilets. Conclusion The issues such as accountability, transparency, corruption, integrity and cronyism that exist in the procurement system in Malaysia are the main concerns that disturb the public, especially on the mismanagement that results in huge wastage of the public funds. The procurement system, it was claimed by the contractors and the stakeholders, made selection based on cronyism, personal relationship rather than on professional standing. At that time, the tender board was seen as the ultimate decision-maker and nobody could contest their choice of selection. The procurement ofcers were blamed for malpractice and non-compliance with the policies and procedures of the procurement system. Interviews have been conducted in order to gauge the perception of two main respondent groups on the procurement issues and to understand better how the system worked and affected these people. From the interviews, six main themes have been

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identied that raised by both groups respondents. The themes are transparency, procurement policies and procedures and its implementation, personnel involve in the procurement system, estimation/budget/pricing, professionalism and ethics and timeliness. After analyzing the interviews result, the public and stakeholders negative perception about the public procurement systems in Malaysia is found slightly decrease. The decrease is mainly due to the improvements and renement of the system as complained and raised by the contractors and the procurement ofcers themselves. 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 as accountability, transparency, corruption, integrity and cronyism are still inherited. The introduction of the e-procurement is expected to solve them. However, it could only be reduced, not fully eliminated. It is a long way to go for the procurement system to be clean from negative perceptions. There are chances and rooms for improvement for the system as long as the people who run and affected by the system committed in every angle to strengthen the system. The above ndings have both, theoretical and practical implications. The situation in Malaysia at the time of study was not congruent to the position of legitimacy theory that posits that the organization is responsible for disclosing its practices to the stakeholders and for justifying its existence within the boundaries of society. The main stakeholders identied in this paper have grave concerns about transparency in procurement procedures repudiating social contract between the government and the public. From a practical standpoint, the government has to make sure that there are transparent processes and procedures that allow only people of high integrity, credibility and respect to be in tender boards. There should be an independent and trusted whistle-blowing channel that could facilitate stakeholders who feel that they are being victimized by the system. The stakeholders must also be informed of various mechanisms available for them to resolve grievances.
Notes 1. The Putrajaya Committee on GLC High Performance has come out with a book titled The Red Book Procurement Guidelines and Best Practices for all the GLCs. The books content is very much applicable to the Government. 2. The open tender has been increased to RM500,000 as announced by the Deputy Prime Minister as at February 25, 2009 (Bernama, 2009) References Beh, Y.H. (2009), Ministry lifts 10 percent policy for Class F contractors, Star, May 8, p. 1. Bell, S. (2003), Going, going . . . govt e-procurement tool shrinks further, Computerworld, available at: (accessed October 20, 2003). Bernama (2009), Ekonomi, February 25, available at: news_lite.php?id392352 Croom, S.R. and Brandon-Jones, A. (2005), Key issues in e-procurement: procurement implementation and operation in the public sector, Journal of Public Procurement, Vol. 5 No. 3, pp. 367-87.

Deegan, C., Rankin, M. and Tobin, J. (2002), An examination of the corporate social environmental disclosures of BHP from 1983-1997 a test of legitimacy theory, Accounting, Auditing & Accountability Journal, Vol. 15 No. 3, pp. 312-43. Doesburg, A. (2003), Goodbye Goprocure, available at: http://Computerworld.Co.Nz (accessed October 1, 2003). Evenett, S.J. and Hoekman, B.M. (2005), Government procurement: market access, transparency, and multilateral trade rules, European Journal of Political Economy, Vol. 21, pp. 163-83. Garson, G.D. (2004), The Promise of Digital Government, Idea Group, Hershey, PA. Gifford, A. (2003), Goprocure project shrinking, available at www.Nzherald.Co.Nz (accessed October 10, 2003). Henriksen, H.Z. and Mahnke, V. (2005), E-procurement adoption in the Danish public sector:the inuence of economic and political rationality, Scandinavian Journal of Information Systems, Vol. 17 No. 2, pp. 85-106. KableNet (2003), Absent without e-Savings, available at (accessed October 1, 2003). Liao, S.-H., Cheng, C.-H., Liao, W.-B. and Chen, I.-L. (2003), A web- based architecture for implementing electronic procurement in military organisations, Technovation, Vol. 23 No. 6, pp. 521-32. Lindblom, C.K. (1993), The implications of organisational legitimacy for corporate social performance and disclosure, paper presented at the Critical Perspectives on Accounting Conference, New York, NY. Maniam, K., Murali, R., Halimah, A. and Magiswary, D. (2006), A case study on Malaysias E-Perolehan (e-procurement) initiative, Technology in Government, Jaijit Bhattacharya, GIFT Publishing, Delhi, pp. 232-41. Matechak, J. (2005), Fighting corruption in public procurement, Center for International Private Enterprise, available at: (accessed February 17, 2008). Organisation for Economic Co-operation and Development (OECD) (2007), Integrity in Public Procurement Good Practice from A to Z, OECD Publishing, Paris, available at: http:// (accessed February 18, 2008). (The) Putrajaya Committee on GLC High Performance (2006), The Red Book Procurement Guidelines and Best Practices, The Putrajaya Committee on GLC High Performance, Kuala Lumpur. Star (2009a), Call for new work order in government sector, June 2, p. 1. Star (2009b), May 6, p. 1. Suchman, M.C. (1995), Managing legitimacy: strategic and institutional approaches, Academy of Management Review, Vol. 20 No. 3, pp. 571-610. Tonkin, C. (2003), E-procurement in the public sector: story, myth and legend, paper presented to the Policy Institute, Trinity College Dublin, November 18. Transparency International (2006), Handbook: Curbing Corruption in Public Procurement, Transparency International, Berlin. Tuckman, B.W. (1972), Conducting Educational Research, Harcourt Brace, Jovanovich, New York, NY. Wilmshurst, T.D. and Frost, G.R. (2000), Corporate environmental reporting a test of legitimacy theory, Accounting, Auditing & Accountability Journal, Vol. 13 No. 1, pp. 10-26.

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Further reading Adams, C. (2008), A commentary on: corporate social responsibility reporting and reputation risk 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 reputation of 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 rms to apply for the reporting excellence awards, Accounting and Business Research, Vol. 23 No. 91, pp. 219-27. Freeman, R. (1983), Strategic management: a stakeholder approach, Advances in Strategic Management, Vol. 1, pp. 31-60. KPMG (2001), University of California Ofce of the President System Wide E-procurement Assessment 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 the commentary 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 in developing corporate action strategies, in Sethi, S.P. (Ed.), The Unstable Ground Corporate 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 authors Wee Shu Hui is currently a Research Fellow with the Accounting Research Institute, and is also a teaching staff of the Faculty of Accountancy, University Teknologi MARA, Malaysia. She has been an academician for over 20 years. Her main area of research interest is management accounting. She enjoys researching, is an active researcher and has led numerous research and consultancy projects, and is currently spearheading an international research project. She has written several books in management accounting and published her research ndings in refereed journals. Wee Shu Hui is Asia-Pacic Management Accounting Journal (APMAJ) administrator, and is the secretary of Asia-Pacic Management Accounting Association (APMAA). She is an assessor with the National Award for Management Accounting (NAfMA). Radiah Othman has been an Accounting Lecturer with the Faculty of Accountancy, UiTM Shah Alam for more than 11 years teaching Public Sector Accounting, Auditing and Accounting Information System. She has published books on Public Sector Accounting and is a reviewer to Auditing & Assurance Services textbook. She has written in journals such as Journal of Financial Regulation and Compliance, Corporate Governance, and Journal of Financial and Accounting & Reporting. She has also written in professional journals such as Accountants Today and Smart Investors Malaysia. She is an active researcher and consultant who has received research grants from the Government Adjudicator to National Corporate Reporting Award (NACRA) in Malaysia. Radiah Othman is the corresponding author and can be contacted at:

Normah Hj Omar is a Professor in Management Accounting and Corporate Governance. She is currently the Director of the Accounting Research Institute (ARI), which is one of Malaysias six 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 nancial criminology. As a proponent of applied research, she has completed many collaborative works with government agencies, professional bodies, regulators, non-government organization and the corporate sectors. To mention a few, she has successfully completed research projects such as Developing fraud risk indicators in the audit of nancial statement, Bank frauds through the use of cheques and credit cards, Anti money laundering and anti terrorism nancing in nancial institutions, Management accounting practices Asia (CIMA Malaysia and Japanese Society of Management Accounting), Japanese Management Accounting in the Automobile Industry ( Japanese Society for the Promotion of Science ( JSPS)), Corporate Governance Reporting (with MICG and RAM) and National Award for Management Accounting NAfMA (CIMA and Malaysian Institute of Accountants). Currently Professor Omar is heading one of IIMs collaborative research projects on Corporate Integrity Framework. To date, Professor Omar sits as Editor of seven international refereed journals. She is also the vice president and founding committee member of the Asia-Pacic Management Accounting Association (APMAA) which is based in Japan. Rashidah Abdul Rahman is a Professor in Corporate Governance and Islamic Finance. She is currently the Deputy Director of the Accounting Research Institute (ARI), Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia. With research interest in corporate governance, waqf governance, Islamic nance, intellectual capital, nancial reporting, corporate ethics, environmental reporting, and mergers and acquisitions, she has presented and published various articles in these areas. She has also published several research papers in internationally refereed journals. She sits on the Editorial Board of Malaysian Accounting Research Journal and has reviewed articles for both local and international journals. She has been an external examiner for postgraduate students both at the local universities and abroad. Among her publications include books titled Effective Corporate Governance, and Corporate Governance in Malaysia: Theory, Law and Context.Her books and research work have won several national and international accolades. Nurul Husna Haron is a Lecturer at the Universiti Teknologi MARA, Shah Alam, Malaysia.

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