The importance of proper procurement

By P Gunasegaram, The Star

From night view binoculars and thumb drives see the recently released Auditor-General’s report) to mass rapid transit systems (see our cover story this week) managing procurement is a vital part of government.

Mismanage that and you have spiralling costs spinning out of control to cause damage to government finances especially in the current scenario where worrisome world conditions threaten growth and prosperity, and by extension government revenues.

We simply cannot afford to waste money in the same way that we have been doing in the past.

There are three aspects to procurement – first prioritise to buy only what you need and if there are competing needs as they always are, buy what you need most. Second do your damnedest to ensure that what you buy fits the need and third get it at the lowest cost possible.

Sadly, the evidence, as indicated by the AG’s report, is that we as a nation routinely do not follow any of this when in fact we should be adhering to all three of them like a blood-starved leech on human skin in the virgin jungles of Pahang.

Let’s take a look at night binoculars, a terribly amusing tale if not for the seriousness of it all. According to an investigation by the Malaysian Anti-Corruption Commission or MACC following the AG’s report, they could have been bought for RM5,000 a pair by the Marine Park Department but instead the department was charged RM50,000 by the company or 10 times more!

Surprisingly, MACC’s deputy chief commissioner Datuk Mohd Shukri Abdul told a news conference there was no case of graft. He inexplicably maintained that there were no financial irregularities in the purchase of the two pairs of binoculars but conceded the department had ignored Treasury procedures. Surely the question is, WHY?

According to news reports, the AG’s report for 2010 had said that the department paid RM56,250 for a pair of night vision binoculars which has an estimated market price of RM1,940. But what the department got instead was a non-night vision pair worth RM1,069.

Whichever body you listen to its clear that the wastage was enormous – at least 10 times market price according to the MACC and at least 50 times according to the AG’s report. Yes, the base amounts are relatively small but small amounts repeated numerous times add up to quite a bit.

How is it possible that up to 50 times the market price is made for the purchase of an item and nobody is eventually held to account for that? That kind of lack of accountability simply ensures that the misdeed will be repeated over and over again.

Let’s take the My Rapid Transit (MRT) system now. The debate over whether we need it or not is over. The decision has been taken to proceed with it and there can be little doubt that Kuala Lumpur badly needs it, even if many other things can and should be done to improve the traffic situation first.

Yes, there is a plan in place and tenders have already been pre-qualified for the tunnelling works for the first line. This first phase could cost up to RM30bil, perhaps less.

That’s a massive amount of money. It is important to ensure that it is built at the lowest cost possible for the required specifications. It is necessary to ensure that it works and there is a huge coordination effort required.

Work on the other two lines will have to start soon too and there will be overlap in terms of time with the first. There will be many phases, many tenders and many contracts.

On it will depend the future of KL, whether it will be a city choked by its own traffic becoming increasingly unliveable or whether it will gain a lifeline by finding a suitable, affordable and more humane commute for millions who work in the city and surrounding areas.

It is good to note that the tenders will be open but equally important that the tenders are evaluated by those who know how to evaluate them and will do so fairly without any interference. If that is done, the price can be kept reasonable and there will be some hope that the MRT will operate well.

Property development will help to defray very little of the overall costs of the project and limited land acquisition will actually help to keep project costs lower and cause far less angst among those whose properties are affected.

It is clear that the government will have to bear the brunt of expenses for the project but it may not be all that much considering that the project will be spread out over 8-10 years, with the first line spanning some 5-6 years.

If total costs were RM50bil and if these were spread out over 10 years, then the cost per year may be around RM5bil, give or take some to account for lumpiness of at least some of the project costs. That is within the government’s affordability level but still costs must be kept as low as possible.

It is vital for good government finances to keep a tight grip on buying. Patronage and politics must play no part in procurement, big or small.

P. Gunasegaram is taking a break for the rest of the year before he decides what to do next. He wishes readers all the best and thanks them for their attention, interest and comments. He considers it a privilege to have connected with them through The Star these past three years.