PPS Braces for a Changing Climate

Focuses on state-of-the-art technology and know-how

"Thanks to the introduction of the electronic procurement system (KONEPS), the productivity per employee has tripled during the period from 2001 to 2006. The international community has recognized the superiority of the new procurement system, awarding it the "Best Practice Model,"Public Procurement Service (PPS) Administrator Kim Sung-jin said.
"We are currently in the final stages of negotiating a three million dollar contract with Vietnamese partners for sales of the system. Many other countries such as Cambodia and Mongolia in Asia as well as Georgia and Kazakhstan in Central Asia, Peru, Mexico, Guatemala and Colombia in Latin America are also showing interest in our system.
"To further proliferate our system, we will seek closer ties with international organizations, including Asian Development Bank (ADB), Inter-American Development Bank(IDB) and African Development Bank (AfDB),"Kim said.
The following is an excerpt from a recent written interview between PPS Administrator Kim and NewsWorld.
Q: You have been recognized as a financial expert due to your career at key posts in the Ministry of Finance and Economy in charge of financial policy, international financial affairs and economic cooperation. In coming years, the environment surrounding the Public Procurement Service (PPS) is likely to change drastically with the liberalization of the current centralized procurement policy, which is expected to curtail PPS's roles and the scope of its job. What is your plan to cope with the possible changes?
A: In accordance with the decentralization policy of the central government, autonomous purchase limit for goods and services of local governments has been extended from 40 to 70 million won in April 2004, followed by further increase of the limit to 100 million won last February. With the expected removal of this threshold at the end of this year, local governments will soon be granted discretionary authority from next year over the purchase of goods and services without recourse to PPS.
In addition, local governments will be free to sign contracts for all construction facilities without recourse to PPS from 2010.
Since local governments account for approximately half of total operations by PPS, the ongoing trend of liberalization poses a challenge to the future of PPS. In an effort to overcome this challenge, PPS has been striving to encourage local governments to remain committed to current levels of cooperation with PPS even after full liberalization. To this end, we are persuading local governments to sign Memorandum of Understanding(MOU) with PPS, in a way to demonstrate their intention to continue to recourse to PPS. Under this MOU, PPS will also obligate itself to provide best services to the local governments. Upon signing of the memorandum, the local government will be expected to concentrate efforts on their core mission- to enhance the welfare of citizens, while PPS will be dedicated to fulfill its overarching objective, i.e. to provide procurement services to the nation in the most stable manner.
In a nutshell, this MOU is clearly a win-win strategy for both local governments and PPS, which already has been producing positive outcomes. At present, 63 out of 246 local governments have signed MOUs with PPS.
Q: PPS set up the "Narajangteo,"or Korea On-line e-Procurement System (KONEPS) in 2002 as the government's electronic procurement system, which is often referred to as the First Procurement Revolution. This system has been regarded as having contributed to the promotion of transparency in the procurement system and it also led to development of a comprehensive "Online Shopping Mall."What is your assessment on the system?
A: KONEPS, which was launched October 2002, is a sort of cyber market which provides a trading venue for public and private enterprises via the internet. Users can access bidding information on all public organizations, and once registered, they can take part in all bids offered by public organizations.
It has now grown into the world's largest cyber procurement market with annual trades amounting to 44 trillion won. Some 36,000 public organizations and 170,000 private businesses are now registered users of the system and a total of 21 million people are participating in 210,000 cyber bids.
The new system has greatly enhanced transparency of public procurement deals since all procurement processes are recorded and disclosed electronically. Information regarding any deals made through the system is made public on a real-time basis, while person-to-person interactions between public officials and business people have been minimized. It is estimated that, with the introduction of the new system, some 4.5 trillion won will be saved in transaction costs every year and productivity per employee of PPS be tripled during the period from 2001 to 2006.
The international community has recognized the superiority of Korea's new procurement system, and the United Nations recently granted it the prestigious title of "Best Practice Model."Moreover, the Organization for Economic Cooperation and Development (OECD) described it as having a far-reaching impact upon the informatization of businesses while having reached the level that needs no further improvement. The system also received "e-Asia Award"from the Asia Pacific Council for Trade Facilitation and Electronic Business (AFACT).
Q: We understand that KONEPS has been recognized as the Best Practice Model in the international community. Could you elaborate on your future plans to promote international cooperation in the area of electronic public procurement?
A: Since its launching in October 2002, we have been engaged in proactive public relations projects in many countries and international organizations in a bid to publicize the advantages of KONEPS. In addition, we have been sending out market exploration missions to various countries in order to conduct feasibility studies and provide education on cyber procurement system.
Now we are beginning to see such arduous efforts bear fruits. For example, we are in the final stages of negotiating a three million dollar contract with Vietnamese partners for sales of the system. Many other countries such as Cambodia and Mongolia in Asia, Georgia, Azerbaijan and Kazakhstan in Central Asia, Peru, Mexico, Guatemala and Colombia in Latin America are also showing interest in our system. On December 17, we are having a workshop related to this system with the Peruvian government in Lima, Peru.
PPS will also seek closer ties with international organizations, including Asian Development Bank (ADB), Inter-American Development Bank(IDB) and African Development Bank (AfDB) by holding international workshops on the electronic procurement system in partnership with these agencies.
Q: Do you have any other plans to further develop the electronic procurement system in the future?
A: Building upon its current excellence, PPS will make constant endeavors to further advance KONEPS, the system with customers of 36,000 public organizations and 170,000 enterprises. We will continue our efforts to connect the system with outside systems so that it can become a hub for cyber procurement. State-of-the-art technologies will be adopted to enable customers to access the system through various devices, such as mobile phones, for instance. Along with such advances, we expect the number of goods traded via KONEPS to double from 800,000 in 2006 to 1.6 million in 2011. A product information mapping system, designed to connect different production information systems according to types of organizations and purposes, will be created in order to enhance interoperability among different product coding systems.
Q: It is said that Korea will face a series of changes as well as challenges with the conclusion of Korea-US Free Trade Agreement, which may ultimately force both sides to seek further opening of their procurement markets. What is your strategy to facilitate entry of domestic businesses into foreign procurement markets, including the US?
A: Governments of Korea and the US agreed to lower the minimum threshold value to 100 million won (about 70,000 Special Drawing Rights) from the previous 200 million won (about 130,000 SDRs), in a bid to further liberalize the procurement markets of both nations. We expect such agreement to provide room for Korean companies to take advantage of further market opening.
The Korean government will pursue necessary measures to provide domestic enterprises with information on foreign procurement markets. PPS will also explore successful cases in overseas procurement markets so that Korean companies can share bidding information and know-how to advance into those markets.
Our commitment to facilitating entry of domestic companies into foreign markets are reflected in various measures undertaken by PPS. In the second week of November, for example, we invited professionals of the US General Services Administration (GSA) and the World Bank to hold a series of workshops, giving domestic companies an opportunity to access updated overseas procurement information. We plan to publish official guidelines to provide Korean companies with practical information as to how to register with the U.S. Multiple Award Schedule (MAS), which is deemed an effective way of making inroads into the US procurement market.
Q: What are some measures that you are considering at this point in case Korea faces challenges posed by continued price increase of natural resources and materials in the midst of your insufficient reserves?
A: The prices of materials and resources in international markets have continued to soar since the latter half of 2003, reaching its highest levels in May this year.
In order to help small and medium companies better cope with possible shortages of materials, PPS plans to seek gradual increase of inventories. According to our plan, the current level of 13 days of inventories will be increased to as long as 60 days of domestic demand in 2011.
Q: Up to date, public procurement mainly consisted of bidding for public construction facilities and necessary materials. However, this trend recently began to include bids for services such as various kinds of cultural and sports events as well. We know that PPS has also been gearing itself up to cope with the changing business climate. Can you elaborate on what kind of preparatory measures PPS has been pursuing?
A: With the increasingly diverse demands for administrative services, we have been faced with increasing demand to adapt to the modified business climate. Various promotion events such as automobile expos and Hong-gildong festival have been some of the ways to respond to such calls. Over the past five years, we have seen a five-fold increase in the amount of such services procured by PPS. With this trend expected to continue, we will cope with the changing climate by setting up teams and recruiting professionals with expertise in those event activities.
Q: Lastly, would you please share with us the future directions PPS intends to pursue?
A: Among various policy directions of PPS, I would like to underscore the most important focus of our policies, which is our dedication to "quality."In the years to come, PPS will continue to place stronger emphasis on quality. Up to now, PPS has operated its system in the fields of bids, contracts, appraisals, etc., based mainly on price. The lack of commitment to quality seem to have originated from the era of hunger, where importance of quality was largely overshadowed by that of quantity and speed. However, the era of affluence has brought with it the recognition of the need to turn our eyes to the issue of quality.
Upon this recognition, we will pursue necessary changes in the paradigm of our system. In case of procurement of goods or construction of public facilities such as bridges and buildings, the level of quality will be regarded as a highly important criterion. Outer appearance, design and durability will also be considered in addition to technical functions. When such changes in our policies are implemented successfully, I believe some of those public facilities will turn into historical monuments which will entice a great number of tourists in a far distant future. nw

Public Procurement Service (PPS) Administrator Kim Sung-jin

The website of he "Narajangteo,"or Korea On-line e-Procurement System (KONEPS)