Entering new terrain with open tenders

Photograph: Kwong Wah Yit Poh

By Zairil Khir Johari

When the open tender system was introduced by the Penang state government more than three years ago, its architects believed that the transparent process would once and for all eliminate irregularities and political partiality, two traits that were once almost synonymous with public procurement. Zairil Khir Johari explores its implications on the broader socioeconomic picture.

By and large, it has achieved its objectives. Yet at the same time it has also attracted a string of criticisms, including accusations of discriminating against the Malays on the one hand, and disenfranchising the Chinese on the other. So is it either or neither? How does the open tender system work and why is it perceived to discriminate?

A promise fulfilled
Within two weeks of the opposition’s historic victory in Penang in the 2008 general elections, the state’s executive council approved the use of an open tender system for all state procurements. This meant that all works procurements worth RM20,000 and above, as well as supplies and services procurements worth more than RM50,000, would be awarded through a public and competitive bidding process. For works procurements worth less than RM20,000 and supplies and services below RM50,000, contractors would be rotated through a balloting system.

An open tender system is basically a process that enjoins all qualified bidders in a contest to offer the best price, service and quality. Besides fostering competitive bidding, it must also be transparent. The objective is simple: to acquire the best possible deal in the name of public accountability.

In Penang, great care is taken to ensure that the process is as transparent as possible. Firstly, all procurement needs are advertised and published on each department’s or agency’s website, in addition to at least one local daily and the state government’s e-Procurement portal. All bids received will then be displayed for public scrutiny, without revealing the identities of the bidders. This is to make known the number of bidders and the quotations offered.

Once the tender deadline is up, the necessary evaluations will be made before the bids are presented to the Tender Board, or Quotations Committee for procurements below RM200,000. (Members of the Tender Board are appointed by the Chief Minister.) After a decision has been made, the winning bidder and corresponding details will be published online for all to see. It is only after a two-week objection period that an approval letter is sent out. If, however, a protest is lodged during this period and found to have basis, then the process loops back to the Tender Board for reconsideration (Figure 1).

Figure 1: General Tender Application Process Flowchart.

In short, it was a complete departure from the previous practice. For the first time, there was an across-the-board competitive and public open tender process, a direct line of payment to recipients that effectively bypassed opportunistic middlemen and “turnkey” contractors, a transparent e-tender process via the e-Procurement portal and a two-week objection period.

In line with the new government’s mantra of “Competency, Accountability and Transparency” or CAT for short, Penang had, by a stroke of the pen, effectively put an end to the longstanding practice of directly negotiated awards, and with it, an end to a system that bred a rentier economy dependent on political patronage.

Market efficiency has been restored and the incessant problems of kickbacks, wastages and inflated prices have been replaced with sound financial prudence. Value for money, a Penangite’s cardinal maxim, is once again an official custom.

The open tender system in Penang, the first comprehensive commitment of its kind in Malaysia, has undoubtedly left its mark. Not only are the results reflected in the accounting ledgers, Penang has begun to receive a multitude of accolades and recognition, from Transparency International levying praise on the state government’s efforts to fight corruption to the awarding of the highest rating in the Auditor-General’s Report for two successive years.

As Penang quickly gained a reputation for its transparency, business confidence began to boom and the state reaped the rewards. A record RM12.2bil of investments – the highest in the country for the first time – poured into Penang in 2010, the lion’s share of which was RM10.5bil worth of foreign direct investment.

Bayan Mutiara. Photograph: Ong Ee Lynn

An economy that was only three years ago considered to be in graceful decline had suddenly discovered a newfound desire for living. Without missing a beat, the state government ploughed on with recent big ticket projects awarded via open tender, such as the RM37mil Aman Crag Resort redevelopment project on Penang Hill and the Bayan Mutiara township development that will add more than RM1bil to the state coffers from land sale alone.

Yet in the midst of all the success and prosperity, disgruntled voices continue to rumble.