Flawed procurement

Flawed procurement

There is nothing surprising about the uncovering of strong
evidence of conspiracy among bidders and collusion between
bidders and officials in the tendering of works for World Bank
and Asian Development Bank-funded projects in Sulawesi and North
Sumatra worth more than US$103 million.

The discovery of the rigged bidding process that was disclosed
last week serves only to confirm the long-established perception
of the Indonesian government as among the most corrupt in Asia.
In fact, its utterly poor financial management and flawed
procurement system, which is subject to systemic abuse and
systematic irregularities, are two of the major factors that have
built up such a notorious perception.

The Supreme Audit Agency's (BPK) audit of state budget
implementation for the first semester of this fiscal year that
coincidentally was unveiled last week also found hundreds of
instances of irregularities involving Rp 6.4 trillion ($710
million) in spending. Last year, its auditors found
irregularities involving Rp 36.5 trillion.

The striking difference in approach is that while the
government chooses to simply ignore the findings and
recommendations of BPK as it has done with most of the agency's
previous audit reports, the World Bank and ADB acted immediately
and firmly on the preliminary results of the fiduciary reviews
made by their internal audit departments.

Just witness how the two multilateral aid agencies have been
intolerant of irregularities or violations of budgetary and
procurement procedures. Both abruptly stopped further
disbursements of their loans to the projects on the two islands,
until thorough investigations are completed, necessary
corrections are made and those responsible for the suspected
malfeasance are dealt with firmly to prevent recurrence of such
wrongdoings.

However, BPK chairman Satrio B. Joedono has long been
frustrated by the government's seeming limitless tolerance of
breaches of procurement procedures and prudent financial
management.

Over the past two decades, BPK has again and again discovered
the same sorts of irregularities in the public financial
management and public procurements, but the government has simply
discarded the agency's findings and recommendations, while the
agency is not vested with the authority to enforce the law.

A bill designed to correct this legal flaw has been stuck at
the House of Representatives for almost two years, again
indicating the government's lack of political resolve to develop
good governance.

Had not the projects in Sulawesi and North Sumatra been funded
by the two multilateral aid agencies or had the projects been
inspected only the government, the kind of evidence of collusion
that was uncovered by the World Bank and ADB internal audit units
would have simply been cast aside as petty negligence that did
not deserve further investigation.

Yet the findings of the World Bank-ADB review teams are mind-
boggling because the subterfuges deployed by the bidders in their
conspiracy were not so sophisticated as to escape the scrutiny of
project management officials. Their tactics were instead so crude
that they had been made effective only in collusion with
officials.

Take for example the evidence of different bidding firms being
owned by the same party and bidding for the same work contract or
the similarities of bid proposals between the winning and losing
bidders. In several cases, dozens of contractors bidding against
each other on the same job shared the same address and same
telephone numbers.

The review teams also found many cases whereby bid documents
were missing, completion certificates were issued for incomplete
works and contractors were allowed to change various items during
work contract implementation. This simply indicated overarching
collusions involving winning bidders, project management
officials and supervisory consultants assigned to oversee the
project implementation.

There were also many cases where contracts were not supported
with proper documents, fund disbursements had been made based on
claims written on plain pieces of paper without letterhead and
heavy equipment was procured without proper invoices.

All these sorts of blatant collusive and questionable
practices could only have occurred because the government
procurement system is so disorganized and corrupt. Such large,
multi-sector projects such as the urban and rural development
works in Sulawesi and North Sumatra, let alone those using
foreign loans, are subject to multilevel oversights spanning from
the directorate general of urban and rural development in Jakarta
and the project managers down to project management units in
provincial and district towns and project implementation units
for each project component.

The allegedly collusive procurements for the projects in
Sulawesi and North Sumatra once again make it more imperative
than ever for the government to review all its regulations on
public procurement in light of developing an effective national
public procurement system. After all, an effective procurement
system and accountable financial management are key components of
the anticorruption campaign to build good governance.