Ideas: TPP not ideal but right step for more accountable procurement process

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This article first appeared in Forum, The Edge Malaysia Weekly, on November 16 - 22, 2015.


THE government managed to secure a number of exemptions and flexibilities for the  public procurement sector in the recently concluded Trans-Pacific Partnership (TPP) agreement.

These exemptions and flexibilities make the so-called 21st century model of trade agreements short of being ideal, but may benefit local contractors and suppliers. Besides, the TPP requires Malaysia to embed new procurement practices such as domestic review procedures that will improve transparency and accountability of its procurement system.

Annex 15-A of the agreement spells out in detail the exemptions and flexibilities accorded to Malaysia. Among the procurement activities that the government managed to exempt from the obligations are public-private partnership projects (PPPs) and procurements for any poverty eradication programme.

The government has also secured some transitional measures, including a delay in the  implementation of thresholds for all procurement activities. The construction sector, for example, will not be subject to the SDR14 million (around RM80 million) threshold until after 21 years of joining. The government also managed to maintain the current set-aside and margin of preferences for bumiputera companies in any procurement activities covered by the agreement.

These exemptions and flexibilities, on one hand, show that the fears of the anti-globalisation groups were not confirmed. During the negotiation process, these groups doubted the government’s ability to include bumiputera policies in the agreement. But Annex 15-A proves otherwise.

On the other hand, these exemptions and flexibilities also show that some reforms that were expected to be implemented by signing the agreement may not take place. The general exemption of PPPs from the agreement as well as the maintenance of bumiputera preferences are among them. These two items could be put in the transitional measures section but instead, they are in the general notes section, which make the exemptions permanent.

Nevertheless, the TPP requires Malaysia to embed some good practices into the current procurement system. Among these is the establishment of domestic review procedures (Article 15.19). The article on domestic review requires TPP countries to have a review authority that will receive and process any complaints or challenges from contractors and suppliers to any procurement decisions or practices seen to breach the provisions of the chapter. This review authority will also decide on compensation, if any, arising from the complaints.  

The Institute for Democracy and Economic Affairs (IDEAS) since early 2014 has advocated for the establishment of the review body in the procurement system. It is one of the recommendations put forward in the paper written by Dr Francesco Stolfi and me, entitled “Transparency in European public procurement: benefits and lessons for Malaysia”.

The paper points out the absence of review authorities/bodies in the Malaysian procurement system. While contractors can file objections to the procuring entities, the objections can only be made during the tendering process in regard to specifications of the goods and services, with no proper hearing process, let alone provision for compensation. Review bodies in European procurement systems are among the institutional provisions that help improve transparency and accountability and for that reason, the paper recommended that it be adopted in Malaysia.

 The paper does not point specifically to the negative impact of not having the review system. But its absence may leave the impression that the procurement system is unfair because contractors do not have an impartial and independent platform to file complaints if, for example, procuring entities do not properly inform them of changes in evaluation criteria or procurement method, or if there are processes or decisions that are deemed to be unfair or partial. They just have to accept any processes and decisions by procuring entities, no matter what they feel about them.  

The absence of a review authority will also discourage procuring entities from being  disciplined and committed to the rules and regulations of the procurement system because their actions and decisions will not be questioned by the bidders.

Having a review authority will, therefore, benefit the procurement system since it will make procuring entities more accountable, not only to the bidders, but ultimately, to the public. While the idea has been floating around for some time, the need to create a review authority may not have been so soon if not for the TPP.  

Countries that have signed the World Trade Organization’s government procurement agreement (GPA) have review authorities in place because domestic review procedures are one of the the GPA’s institutional provisions. Five out of 12 TPP countries are already signatories to this global agreement — Singapore, the US, Japan, New Zealand and Canada.

Malaysia is only an observer to the GPA. Therefore, it will have to establish the review authority after joining the TPP. It is given three years after entry to establish the review authority. It can use its available court system to act as the review authority, but it can also establish a special procurement review body.

 Whatever the choice, Malaysia has to make sure that the review authortity is “independent of its procuring entities to review in a non-discriminatory, timely, transparent and effective manner”.

Sri Murniati is manager, Governance and Political Economy Unit, at the Institute for Democracy and Economic Affairs