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  • 1. Learning from the Award-Winning Korean Public Procurement Service Geon-Cheol Shin (Kyunghee University, gcshin@khu.ac.kr) Myung Sub Park (Korea University, yonghee@kic.ac.kr)89th Annual International Supply Management Conference, April 2004Abstract. The Public Procurement Service of Korea (PPS) received the first award from theUnited Nations in 2003, an award given to institutions that make great contributions toimproving public service. Learn about the improvements in public service and in the quality ofpublic service processes, as well as innovations in public service that contributed to earningthe U.N. award. You will gain a better understanding of the Korean PPS that will help you tomake more effective purchasing overseas strategies.IntroductionWith the emergence of a knowledge and information-based society, countries all over the worldare trying to enhance their administrative efficiency and lead technological development byimplementing an e-procurement project with the use of IT technologies. The PublicProcurement Service (PPS) is the central procurement agency in Korea. It arrangesprocurement for those government agencies whose procurement needs exceed US$25,000.The main purpose of this kind of procurement system is to ensure government transparencyand to reduce national budget spending through centralized purchases. In 2001, the amountspent on public procurement in Korea was 67 trillion won (US$56 billion), which was 47% of allgovernment expenditures (142 trillion won or US$118 billion). PPS handles roughly 30% of allpublic procurement.PPS provides around 30,000 Korean public institutions with goods and services needed tocarry out their responsibilities and give better service to the people. Such procurementadministration, however, formerly had cumbersome procedures such as an enormous amountof required documents and frequent visits to the PPS. PPS has gone through theprocurement administration reform in general to reduce inconvenience and inefficiency andeliminate irregularities. PPS has established the Government e -Procurement System (GePS)as part of its e-government projects. GePS provides integrated procurement information andconducts the entire procurement process from purchase request, bidding, contract award,contract making, and to contractor payment, electronically.
  • 2. Characteristics of GePSOn September 30, 2002, Korea opened GePS which allows digital processing of procurementwork for all public organizations, including government agencies, local municipalities, andinstitutions receiving government funds. GePS is a system that digitally processes complicatedprocurement procedures which previously was done by paperwork. Without GePS,complicated paperwork was required to clarify the responsibilities of the government in privatesectors and to legitimize the procedures involved in using the government funds in contractswith private companies.Under GePS, however, all the procurement procedures from purchase request to payment aredigitalized, and documents are removed or drastically reduced. Since its opening onSeptember 30, 2002, all advertisement of domestic public procurement contracts had been runthrough GePS, while more than 80% of actual bidding has been conduc ted electronically.Currently, 27,000 public organizations and 70,000 suppliers are using this system.The History of Building an e-Procurement SystemE-Procurement in Korea was born from the Procurement EDI (Electronic Data Interchange) ofPPS and its electronic bidding system. PPS operated the model EDI procurement project in1997 and constructed an electronic bidding system in 2000, which was used by publicorganizations regardless of whether they entrusted their procurement to PPS. PPS graduallydigitalized 88% procurement procedures (based on the end of 2001) between publicorganizations and supplier companies. Although such achievements were made in e -Procurement, the procurement administration still remained immature - judging from agovernment-wide point of view - since even public bidding information could not be provided tocompanies in an integrated manner.This is due to the fact that the use of e-Procurement was encouraged only by large publicorganizations; small public organizations did not have any electronic means. As for thesuppliers, there was no single window through which they could have access to tenderinformation. Thus, they had to look for such information in official gazettes, newspapers,bulletin boards, or bidding information journals. The suppliers had to register with eachorganization to participate in bids, visit the related organizations, and meet with the appropriatepublic officials. On the part of public organizations, it involved time consuming procedures andinconvenient processes to shop for suppliers since each of them had to maintain informationon multiple suppliers. Consequently, it was necessary to integrate procurement on to aplatform like GePS.
  • 3. A Government-wide Cooperation and Internet InfrastructureIn January 2001, the government formed an e-Government Special Committee to carry outcommon jobs between government agencies and to link jobs between private institutions suchas commercial banks and insurance companies. The committee was formed to realize theproject Cyber Korea 21, which consists of 11 tasks including civil application, procurement,taxation, education, medical administration and etc. The committee carried out a majorfunction for the successful launching of the e-government system in November 2002, byevaluating and reviewing various opinions and views between ministries and other governmentagencies.Beside the above government-wide cooperation, GePS has a background of Korean ITinfrastructure. Korea holds a higher level of internet infrastructure qualitatively andquantitatively with more than ten million broadband Internet subscribers as of November 6,2002. This accounts for 70% of Korea’s 14.3 million households while the Internet userpopulation has exceeded 25 million people. Online stock trading has reached 67% of the totalstock trades and the online shopping rate is at 31%. Since the foundation of the e-governmentinfrastructure (based on broadband internet), it has been thought that the nationwide internetinfrastructure could support the e-government system.Major Functions of GePSGePS has a single window (www.g2b.go.kr) for public procurement, which providesprocurement information for all public organizations. It was developed to carry out thecomplete contract process on the internet from the purchasing decision and bidding topayment. The portal of GePS consists of the following features: tender information, e-shoppingmall, electronic bidding and e-payment, etc. It has also two individual functions so that eachpublic organization and each supplier can handle pertinent work online. It is possible to checkall tender information through the bid information section.GePS is a single contact point or window for public procurement, providing integrated domesticbidding information. All the bid information is required to be placed on GePS. 92.6% of publicdomestic bids were conducted by electronic bid (44,416 cases were accomplished, involvingsix million participants - 9.1 trillion won (US$ 7,475 million) - of procurement business) as ofMarch 2003. In the past, a bid of less than 30 million won (US$25,000) was posted only on thebulletin board of each procuring organization. Suppliers thereby had to browse dailynewspapers in addition to visiting each organization to look at the bulletin boards to make fairbids. However, this regulation was abolished through the revision of related laws.
  • 4. Instead, a bid notice through GePS is now mandatory, allowing private companies to examineall domestic bidding information on a single window.To participate in public procurement in the past, suppliers had to register their company withPPS. These companies also had to register with each public organization to participate in eachorganizations procurement contracts or projects. However, because GePS provides companyregistration, which is shared through the preparation of a single window, the inconveniences ofcorporate duplicate registration has been streamlined. Through GePS, regulated documentsrequired for public procurement have been greatly simplified or removed. For instance, due tocommon information use with public organizations and associations, documents such asbusiness registration certificates, registered seal certificates, and tax paid certificates havebeen abolished. Under the integrated system, the information of 90,710 suppliers is provided,which was previously managed by several separate organizations; including PPS (managing105,753 suppliers), Ministry of National Defense (9,915), Korea Highway Corp. (41,178),Korea National Housing Corp. (1,011), and Korea National Railroad (4,410).Effects of GepsAmong all advantages of GePS, the most important enhancement is to the transparency ofpublic procurement rather than the quantitative effects. PPS expects open competitionbetween of bidders to develop from publicly held information of a bid announcement. Thetransactions between public organizations and companies are improved through the internetand not as a face-to-face mode. Potential corruption factors, for example, frequentrelationships between procurement officials and the staff of private companies which causedabsurdity in procurement in the past, are prevented. PPS is looking forward to a greaterenhancement of transparency and efficiency in public e-Procurement.Opening real-time data to the public interrupts release of specifications to a certain staffmember of a private company. Also, the placing of an order between public organizations (bidand contract details) can be compared and evaluated at real time on a screen including theresults of a contract award, estimated prices, and winning bids. By interrupting a certaincompany’s favorable specification to win the bid, every bidder can participate to make anestimated specification. Internet bidding on GePS has reached 92.6% of PPS load (44,416cases with six million bidders) as of March 31, 2003. It is a complete digitalized system of pan-government dimensions including government offices, regional autonomous municipalities, andprivate companies.
  • 5. Due to all the bid information seamlessly provided on GePS, each companys opportunity toparticipate in public procurement has been broadened. It is expected to trigger intensecompetition between companies in terms of technology, price, and quality with comparisonsand evaluation. In fact, after GePS had been introduced, 61,922 placing orders, and 10,500announcements of free contracts and international tenders were posted on the web betweenOctober 2002 and March 2003. After the electronic bid implementation (January 2001), thenumber of participant companies per case had increased 3-fold. In order to prevent theparticipation in bidding of inappropriate companies under non face-to-face transactions, PPSbars these companies from the participation through the result of an evaluation standard forreliabilities and contract performance. The evaluation of competition restrictive factors on eachorganizations contract is provided and is used to manage suppliers effectively. Also, it isimpossible to confer privately about the bidding among participants because all bids aredisclosed online. By releasing all the procedures online, it is not possible for a procurementofficer to delay in placing orders, determining successful bidders, concluding contracts, andarranging payment intentionally. Prior treatment of customers in a discourteous and high-handed manner, it stopped as GePS processes procurement work on the web; officers haveno control over the documents, nor ability to issue or receive false documents.GePS helps to prepare an opportunity for rational policy making. As the related basic datacollection becomes easier with procurement implementation of all public organizations, it willhelp to establish rational policy in public procurement. Because procurement statistics is just aclick away, it has never been easier to check the status of the public procurement market, bidcases, procurement opportunities, and all the processes of the procurement administration. Asa consequence of this favorable condition, it is possible for government agencies and forprivate companies to set their procurement policy based on the system. Because GePSregulates standard guidelines of procurement, suppliers can use unified standard guidelines ofprocurement for each organization which differs from procurement practices in the past.Future Prospects of GePSGePS is considered a success for making e-government in Korea a reality. The UN Secretariathas established a classification system for the development of e-government among 190 UNmember nations. Korea has been included in the elite group of 17 nations at the top of the e-government field, countries in which online money transactions are possible. Although nocountry in the world has yet managed to digitally integrate all of its administrative services, thescope of e-government administration conducted through Korea’s GePS makes it a breath-taking system, advancing Korea into the top levels of e-government. Because of this, the UN
  • 6. decided to award 2003 Public Service Award to PPS. UN considered PPS has succeeded inintroducing an integrated GePS which contributes to the reform of procurement administration.Although GePS is such a successful system, this success reflects only on hardware aspects ofthe procurement process. Many tasks still remain in developing software aspects that makethe procurement process even more transparent. In order to maximize customer satisfaction,PPS will improve the reliability of GePS contents, broaden product choices, and develop moreflexible contract methods. PPS will also focus on enhancing its expertise in the procurementmarket while strengthening user training to encourage public use of e-Procurement. In addition,PPS, as the central e -Procurement supporting agency, will continue system upgrades to renewits functions. PPS is committed to work out new managerial expertise in various areas such asIT-related services (from information strategic planning to hardware purchase), generalresearch contracts, construction supervision, and settlement of contract disputes. By doing so,PPS maximizes its transparency and to minimize corruption potentials through the continuousdevelopment of e-Procurement in the public sector.