Audit reveals direct negotiation option risks public trust

Audit reveals direct negotiation option risks public trust

By Lee Wei Lian, Md Izwan and Zurairi Abd Rahman

October 16, 2012

Malaysian Insider

KUALA LUMPUR, Oct 16 — The annual Auditor-General’s Report has revealed several projects that were directly negotiated and were plagued with issues and which could impact the level of trust in government, say analysts.

The most glaring example was the directly negotiated RM12.49 billion Ipoh-Padang Besar double-tracking project which was delayed twice and has incurred an additional RM3.6 billion in costs.

Other examples include 1,000 brochure racks worth RM1.95 million for Visit Malaysia Year 2007 bought through direct negotiation by the Malaysian Tourism Promotion Board without the Finance Ministry’s approval, resulting in a probe by the Malaysian Anti-Corruption Commission (MACC), and the five billboards worth RM3.64 million that it put up in Indonesia via direct negotiation that are also being investigated by anti-graft officials.

In the case of the Ipoh-Padang Besar rail project, the audit report said the implementation was “not satisfactory” apparently because the appointment of the contractor was not done via competitive bidding.
“Appoint contractors through competitive bidding for future projects to get the best value for money and ensure that contract clauses protect government interest,” said the audit team.

Transparency International Malaysia president Datuk Paul Low said the direct negotiation way of awarding contracts could potentially give rise to problems such as corruption and lack of competition.

“Direct negotiation is not a good practice because it only encourages corrupt practices. If we want to avoid corruption, we have to limit this direct negotiation practice,” he told The Malaysian Insider.

“With direct negotiation, there will be no competition and the party given the project in some cases is not effective to finish the project.”

He said that based on past experience, most of the contractors that were given projects through the direct negotiation method were not qualified.

Low said however that for some cases, direct negotiation could be considered such as due to technical considerations and if only there is only one available supplier for the project.

He added that the government has to make sure enforcement is stringent if it wants to continue with direct negotiations.

“The enforcement should be responsive and disciplinary action should be taken against those contractors who have problems,” said Low. “Only with strict enforcement it can create accountability, that’s why we urged all parties to sign the Integrity Pact to avoid corrupt practices.”

Low said that while open tenders were preferable, they would only work well if the award committee was truly independent.

“First we have to make sure the board is free from conflict of interest and most qualified,” he said. “Only this way we can make sure the open tender is really effective.”

RAM Holdings chief economist Yeah Kim Leng said that if large projects were not awarded via open tenders, it could give rise to the perception that the government was not committed to transparency.

He said the Najib administration had started the momentum for greater transparency with the Government Transformation Programme (GTP) and it must accelerate the process to gain greater credibility and trust and convince the public that the transformation programme was gaining traction.

Yeah said that if big projects were not done via competitive bidding it would lead to public scepticism.
Institute of Democracy and Economic Affairs (IDEAS) chief executive Wan Saiful Wan Jan said that direct negotiations would give rise to questions over the transparency of the award.

He also said that penalties for contractors selected via direct negotiations were often too “weak”.
He noted that open tenders on the other hand will ensure qualified vendors and value for money.
“It’s better to eliminate direct negotiations as much as possible rather than having to deal with problems arising from direct negotiations,” he said.

Wan Saiful said however that in some instances, direct negotiations might have to be retained if it involved certain policies such as Bumiputera special privileges.

“But it must be minimised to avoid problems and leakages in government,” he cautioned.

Prime Minister Datuk Seri Najib Razak has pledged his commitment to open tenders, saying at the launch of the Economic Transformation Programme (ETP) in 2010 that competitive tenders for big projects would be the “default” option.

Despite efforts to boost transparency including making corruption one of the National Key Result Areas in the GTP, Malaysia slipped four spots to 60th in Transparency International’s Corruption Perception Index last year.