1

A COMPARATIVE STUDY WITH THE UNITED KINGDOM PUBLIC

PROCUREMENT POLICY

1.1 Background of Research

Procurement can be generally defined as the act of contracting or assuming

or acquiring possession of something.1 On the other hand, the term public used in
this context can be referred as for the use of all people; open or known to all;
acting officially for the people.2 Thus, Public Procurement can be further
deliberated as the acquisition, whether under formal contract or not, of works,
supplies and services by public bodies on behalf of the people.

Public authorities are significant market players as buyers of goods and

services and its procurement scope ranges from the purchase of routine supplies or
services to formal tendering and placing contracts for large infrastructural projects by
a wide and diverse range of contracting authorities. 3 It involve processes by which,
government contracts are awarded either by state, local, regional or municipal
authorities or public bodies and it is a hugely significant area of economic activity
for a country and can be seen as a valuable macro-economic development tool that
can help address socio-economic imbalances.4

A large part of an average expenditure of a developing countrys income is

made up of the spending of its federal government; inter-alia, on the purchases of
good, payment of all kinds of services and a variety of infrastructure projects. 5
Adding the expenditure of state and municipal governments, statutory bodies and
state-run enterprises, the total number of money spent by the public sector becomes
enormous and for some countries, it is much larger even than their total imports or
exports. Public Procurement of goods and services is more than big business. It can
amount to 10 percent to 15 percent of Gross Domestic Product (GDP) for developed

1
http://dictionary.sensagent.com/procurement/en-en/
2
The New Choice English Dictionary. 1999. Scotland: Peter Haddock Limited. page 261
3
Ireland National Public Procurement Policy Framework. April 2005
4
http://www.ftamalaysia.org/article.php?aid=191
5
Office for Official Publications of the European Communities. (1989). Public Procurement and
Construction Towards an Integrated Market. Luxembourg, page 53
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countries and possibly more for developing countries. 6 In some countries, public
sector expenditure may comprise of 30 to 50 percent of Gross National Product
(GNP) while imports may comprise of 10 to 30 percent of GNP. 7 For example, a
study by R. Preston McAfee, J. Stanley Johnson; Professor of Business, Economics
and Management at the California Institute of Technology has shown that the United
State (U.S.) Government had spent an estimated amount of up to $563 million of
Taxpayers money in its Federal Procurement Contracts Costs alone, between year
2004 to 2005.8

In Malaysia, Public Procurement and expenditure has been a major

instrument for economic management and for socio-economic planning, as well as
political stability among ethnic communities. The levels of procurement, especially
if state and local authorities including government-related enterprises are included,
are very large. Malaysia has made use of the level of government expenditure as a
means to influence the level and growth of economic output, thus reducing economic
instability. Public Procurement has been used to expand the opportunities for local
enterprises, whereas the procurement policies have also been a major instrument in
increasing the opportunities for the Bumiputra community; i.e. in construction
projects within the context of the New Economic Policy (NEP) and its subsequent
variations.
In 2003, it is estimated that Public Procurement could have been about
Ringgit Malaysia (RM) 38 billion. Under the 9 th Malaysia Plan, the Malaysia
Government has allocated a total of RM 1,079 million or more than RM 1 Trillion
for upgrading and renovation works only, as part of its developmental budget. 9
Although this makes up only 0.5 percent of the total budget, it is nonetheless
significant as it involve an enormous funding derived from the Taxpayers money.

In March 2009, Malaysias Former Deputy Prime Minister Datuk Seri Najib
Tun Razak tabled an RM 60 billion mini budget as part of the second stimulus

6
Transparency. April 2006. The Malaysian Governments Anti Corruption Drive. Vol. 7; No. 1
7
http://www.kilroyslawfirm.com/library/public_tendering/public_procurement_directives_library_kilr
oys.htm
8
http://www.amd.com/breakfree
9
Hassan, Y. Bhg. Tan Sri Mohd Sidek. 13th August 2007. Special Keynote on National Asset and
Facilities Management Development. Putra World Trade Centre (PWTC); Kuala Lumpur.
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package to help Malaysia weather the global recession crisis, which accounts to
almost 9 percent of Malaysias GDP, to be implemented over 2009 and 2010 10. The
said mini budget includes; inter-alia, RM 7 billion worth of Private Finance
Initiatives (PFI) and off-budget projects, additional allocation of RM 200 million to
repair and maintain drains and roads and to improve surroundings of public flats in
ensuring a more comfortable living conditions and another RM 150 million to
undertake renovation, maintenance and repairs of welfare homes, fire and rescue
stations and quarters as well as public toilets in mosques, surau and tourist spots.

The Public Procurement expenditures in Europe are similarly enormous and

growing. According to European Commission (EC) estimates, total Public
Procurement amounted to Euro 1500 billion in 2002 accounting for 16.3 percent of
the European Unions (EU) GDP.11 The importance of total Public Procurement by
EU Member State varies significantly from 11.9 percent of GDP in Italy to 21.5
percent in the Netherlands12 and specifically in the Irish economic context, it is
hugely significant.13

UK is presently going through a massive period of infrastructural expansion.

The UK National Development Plan (NDP), which was published in 1999 has
estimated the factoring in the cost of inflation, suggested that it could cost in the
region of Euro 75 billion or around RM 385 billion worth of construction works, if
the NDP is fully implemented. The NDP sets out the roadmap for UKs Public
Capital Expenditures within the next seven years; i.e. 2007 to 2013. It proposes
investment of some Euro 184 billion in the economic and social infrastructure in
areas such as transport, energy, housing, water, education and health. 14 Despite the
current dire state of UKs public finances, the UK Government has to date, stuck
with its plans to continue with significant capital expenditure projects in 2009, which
to include; inter-alia, Euro 2.88 billion for capital expenditure in improving public
transportation and services, which are mainly on the improvement of road and rail

10
The Star. 11th March 2009. RM 60 billion for Stimulus Package.
11
http://ec.europa.eu/internal_market/publicprocurement/docs/public-proc-market-final-report_en.pdf
12
Ibid
13
http://www.kilroyslawfirm.com/library/public_tendering/public_procurement_directives_library_kilr
oys.htm
14
http://irishtimes.com/newspaper/opinion/2009/0318/1224243006929.html
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infrastructure, Euro 2 billion for Environment, Heritage and Local Government and
Euro 889 million for upgrading and development of Education and Science
infrastructures.15

The importance of Public Procurement comes from the increased awareness

of Governments worldwide, with the fact that; i) the expenditure in Public
Procurement represents about 10 to 20 percent of the GDP and ii) a considerable part
of the country resources are channeled through the country procurement
systems;16e.g. capital expenditures figures from Malaysia and UK as previously
outlined have shown that Governments spending with regards to this aspect does
involve a significant amount of public money, which were mainly resulted from the
collection of taxes, levies, etc. The system of Public Procurement, however, has
been taken for granted as very much a matter of national prerogative, often
challenged in some countries by Parliaments, opposition parties or public interest
groups but seldom or never questioned as an issue that lies within the sovereign right
of a country to determine17. As such, transparent, unbiased, fair and open
competition in Public Procurement can be seen as another way of doing good
business and good public policy.

1.2 Problem Statement

Generally, Public Procurement and policies related to it have very important

economic, social and even political roles in developing countries. However, there
are several reasons why Public Procurement is a hotly debated topic:18

a) The size of Public Procurement is obviously huge and thus, involve

significant amount of Taxpayers money

15
Ibid.
16
http://www.oecd.org/dataoecd/22/6/37946822.pdf
17
http://www.ogc.gov.uk/policy_and_standards_framework_introduction_to_public_procurement.asp
18
http://www.mier.org.my/mierscan/archives/pdf/nambiar28_2_2005.pdf
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b) Since public funds are involved in financing Public Procurement,

there is the question of accountability
c) Public Procurement is a market that attracts the interest of
businessmen including multinational companies
d) Governments in developing countries have often been accused of not
making the necessary purchases or procurements in the most efficient
manner possible. Some estimates indicate that governments could
save as much as 20 percent of their expenditure costs by being more
transparent and competitive in their procurement
e) In several developing countries, there are policies aimed at providing
preferences for certain group or communities, especially those that are
under-represented in economic standing. Procurement policy is a
major policy tool for attaining greater balance in the participation
shares among various communities within a nation. Similarly, it can
be used to redress regional imbalances, for instance by specifying that
certain provinces be allocated a particular share of procurement
business.
f) Decentralised public procurement policy
g) Lacking in a standard policies definining procurement policies in
detail

Many of these reasons are obvious. A more transparent system promotes

efficiency. The threat of corruption is decimated. Transparency encourages a more
competitive environment and as consequence better quality for money from the
consumers point of view.

At national level, there are good reasons why Malaysia should work towards
a more transparent Public Procurement policy. The Procurement Framework in
Malaysia is made up of three main components; the agents involved, the legal and
regulatory framework and the tender process. Among the agents involved, the
Federal government comes next in importance, followed by the local authorities.
Each entity have their guidelines to follow; inter-alia, the Government Contract Act
1949, which provides legal validity for the ministries to represent the Government in
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making procurements and the Financial Procedure Act 1957 outlines the mode of
control and management of public finances. Notwithstanding both Acts mentioned
earlier, perhaps the most important element of any Public Procurement Framework is
the tender process.19 With the availability of extensive and well-documented
guidelines and references with regards to Public Procurement matters, it is therefore
reasonable to say that there seems to be clear guidelines that govern the procurement
process in Malaysia.

The Government Procurement Management Division of the Ministry of

Finance sets the procurement policy and rules; i.e. Treasury Instructions, Treasury
Circular Letters and the Guidebook on Government Procurement 1997 issued by the
Ministry of Finance.20 Generally, there are five principles that must be followed in
the dealings of Public Procurement by the local authorities; i.e. public accountability,
transparency, best value for money, open competition and fair dealing. Malaysias
Procurement Policy also aims to promote the involvement of Bumiputra
entrepreneurs and firms by exclusively setting aside public tenders, in value of not
exceeding RM 100,000 to them. Public tenders, which are exceeding the
RM 100,000 threshold can be procured by any entrepreneurs and firms and not just
exclusive to Bumiputras.21 In addition, there are procedures that require
procurement personnel to declare any conflict of interests and to withdraw from the
tendering process. Furthermore, dissatisfied bidders can complain to the procuring
agency, which may cancel a tender that is marred by irregularities.

Despite the abundance of safeguards in the Malaysia Procurement Policy and

Framework, issues may still be raised due to the discretionary of powers of the
approving authority, non-disclosure of reasons for rejection of bids or redefining of
tendering conditions in mid-process22 and what then is of concern, whether all or
any of the elements of good procurements system are in place or efficiently
implemented?

19
http://www.mier.org.my/mierscan/archives/pdf/nambiar28_2_2005.pdf
20
http://adb.org/Documents/Books/Public-Procurement-Asia-Pacific/mal.pdf
21
www.cpps.org.my/resource_centre/Local%20Government.pdf
22
www.sun2surf/article.cfm?id=18904
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Yang Berbahagia Tan Sri Mohd Sidek Hassan; Chief Secretary to the
Government, in his Special Keynote entitling National Asset and Facilities
Management Development23 highlighted that, even with the Governments
commitment and the mechanisms that are in place, there are still evidences of shoddy
works and buildings falling into disrepair a couple of years upon completion; e.g.
falling ceiling panels in the newly opened RM 270 million Kuala Lumpur Court
Complex in Jalan Duta, cracks on the new Middle Ring Road 2 (MRR2) highway
and the delay in the completion of Malaysian External Trade Development
Corporation (Matrade) head quarters. Additionally, according to Public Works
Department,24 in 2006, there were 10 abandoned mega projects out of 215 projects,
all publicly funded worth billions of RM and it is further deliberated that one of the
major reason is due to the corruption issue in Public Procurement dealings. It was
also recorded that many local councils did not comply with Treasury Procurement
Rules25 and that a total of 78 annual financial statements with regards to local
authorities spending from 1995 to 1999 are not yet submitted.26

Such incidents call into questions the monitoring of projects during

implementation, which are related to integrity and transparency especially in the
Public Procurement process.

Tunku Abdul Aziz, one of the founder and prime movers in setting up
Transparency International Malaysia once quoted that the Public Procurement is the
single most important source of corruption in any country, including Malaysia. 27
On 26th April 2006, Dato Seri Abdullah Ahmad Badawi, former Prime Minister of
Malaysia launched the Red Book and the Green Book to improve the procurement
process of Government Linked Companies (GLCs). According to the former Prime
Minister, the top 15 GLCs can potentially save RM 15 billion if they adopt best
practices and better governance, transparency and accountability.
23
National Asset and Facility Management (NAFAM) Convention 2007. 13 August 2007. PWTC;
Kuala Lumpur
24
http://ap58.kkr.gov.my/node/9
25
Auditor General Tan Sri Dato Setia Hj. Ambrin Buang. 2006. National Workshop on Preventing
Corruption in Public Contracting.
26
Auditor General Datuk Dr Hadenan Abd Jalil. 2002.
27
http://www.themalaysianinsider.com/index.php/opinion/tunku-aziz/31144-procurement-a-call-for-
transparency
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Datuk Seri Najib Tun Razak has suggested that the corruption among civil
servants can be avoided by implementing competitive bidding on government
projects and reducing the use of discretionary authority. 28 He has also suggested that
the implementation of Open Tenders can help to ensure transparency and value for
money and would ensure that a large portion of Public Procurement be via open and
restricted tenders29. Having open and restricted tenders for Public Procurement
contracts will also inspire the peoples confidence in the Government. President of
Integrity Institute of Malaysia; Datuk Dr Mohd Tap Salleh said that, although the
tender system might not necessarily result in cheaper deals, it would be more
transparent and accountable. In order to embrace the five principles of Public
Procurement, it was also suggested that all races are allowed to participate in
selection of contractors and suppliers regardless of project threshold value, as well as
to install a stricter accountability system to monitor and assess all public projects. 30
Most recent is the emphasis on the use of open or restricted tender process for all
government projects with the exception of those sensitive in nature was announced
by Prime Minister of Malaysia; Datuk Seri Najib Tun Razak as way of combating
corruption.31

Despite of the many issues arises from the implementation of Malaysian

Public Procurement Policy and Procedures and the recent emphasis on the use of
Open and Restricted Tenders in Public Procurement, the main area of concern that
should be further explored in ensuring efficiency in its implementations are:

a) Whether there are any elements of check-and-balance and lesson-learnt

from other countries policies and procedures

It is a fact that Malaysia does have a well written Public Procurement Policy
and Procedures but it is also a fact that these policies and procedures fail to
ensure full compliance of the 5 procurement principles; i.e. public
accountability, transparency, best value for money, open competition and fair

28
http://www.malaysianbar.org.my/legal/general_news/najib_implement_competitive_bidding_to_prevent_corruption.html
29
http://thestar.com.my/news/story.asp?file=/2008/11/5/nation/2458897&sec=nation
30
http://dailyexpress.com.my/news.cfm?NewsID=52165
31
The Star Online. July 28th 2009. Target set for the six Key Result Areas (KRA).
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dealing. Thus, having the abovementioned elements will help Malaysia to

better understand the essential issues of Public Procurement in general and
indirectly helps to promote a better implemented system and will benefit
Malaysia in a great deal by looking at the other side of the picture.

b) What are the potential issues that may arise from the lacking in a clear and
and standardize definition and/or process of a public procurement?

c) Whether the existing law provides avenue for public to take action against the
Government?

Sub-questions

d) What is the Public Works Procument Policy in Malaysia and how does that
compares to the UK?

e) What are the legal issues arising from these policies?

f) What and how does the law in Malaysia and UK compels the
implementation of these policies?

g) What and how does the law in Malaysia and UK addresses any complaints
received from the public against the Government / Government
Personnel due to non-compliance?

h) Do we need a reform in the existing law?

1.3 Objectives of the Research

The objectives of the research are:
a) To identify the legal issues arising from the implementation of the Public
Works Policies in Malaysia and with comparison to the UK.
b) To compare the Public Works Procument Policies and processes between
Malaysia and UK
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