2011ANNUAL REPORTPublic Procurement ServiceThe Republic of Korea Public Procurement Service
2011 ANNUAL REPORT Public Procurement Service The Republic of Korea
Letter from the AdministratorTable of About PPS 01Contents 08 / Overview 10 / History 12 / Functions & Roles 14 / Organizational Chart Analysis and Evaluation of Procurement Business 02 18 / Overview 24 / Domestic Procurement 28 / Foreign Procurement 33 / Construction Works 38 / Stockpiling 43 / Government Goods Management e-Procurement 03 52 / KONEPS 59 / Global Cooperation in e-Procurement & KONEPS 61 / KONEPS Statistics Globalization of Government Procurement 04 66 / Overview 67 / Global Cooperation in Public Procurement 68 / Cooperation with International Organizations Green Procurement 05 72 / Overview 75 / Performance Highlights Statistics and Others 06 80 / Statistics 82 / Work Flow Chart 86 / Contact Information
2011 Annual ReportLetter from the Administrator Letter from the Administrator Korea made a remarkable achievement in 2011, despite difficult economic circumstances including continuous economic crisis in European countries and surge in oil prices, by reaching 3.6 % in economic growth, higher than most of the advanced countries and becoming the world’s 9th country to pass the 1 trillion dollar mark of trade amount. In addition, Korea won the bid to host the 2018 Winter Olympics in Pyeongchang, showing its capability even further in the world stage. Under the goal of realizing procurement administration with sound policies to be in line with the market, Public Procurement Service (PPS) of Korea successfully carried out its tasks to support the nation’s economic policies in 2011, which were to create a fair society, overcome the economic crisis, establish a firm ground of economic development in the long run and improve the lives of ordinary people. First, PPS pushed ahead with reformingvarious systems to ensure a level playing field in public procurement market. It adopted the Pre-Qualification Review System that weeded out suppliers who didn’t meet requirements. It alsoexpanded the use of fingerprint recognition system by suppliers to prevent any illegal e-biddingattempts from occurring at the initial stage. Furthermore, it reinforced various measures tomonitor and punish for fraudulent practices including violation of direct production, submissionof false documents and other infractions. Thanks to these efforts, PPS was able to increaseawareness that any illegal practices would not be rewarded.In order to enhance the competitiveness of the industry as a whole, PPS boosted theprocurement of green & new industries and promoted competition in technology & qualityamong suppliers through proactively utilizing its purchasing power. To this end, its priority was
Public Procurement Service | www.pps.go.kr 4|5set on generating initial demand at the early stage with increasing the number of minimumgreen standard products and giving advantage to green manufacturers, so that the greenindustry could continue to grow at a stable rate. Also, by expanding the purchase of hightechnology and excellent procurement products, the levels of technology and quality in thepublic procurement market were improved greatly. Adopting the advanced schemes such asPre-Notification System for Minimum Purchase Specification and Self -Qualification GuaranteeSystem was another part of its effort to raise the competitiveness.Moreover, PPS has contributed to accomplishing balanced growth for suppliers by encouraging theSmall-Medium Enterprises (SMEs) including the socially vulnerable companies, to participate inthe public procurement market. Expendables which used to be supplied by major companies in thepast were replaced with those of SMEs and the participation of IT/SW SMEs in the public technologymarket was institutionalized. As a result, 77.6% of goods purchased in 2011 came from SMEs.What’s more, PPS spared no effort to assist competitive SMEs to enter the foreignprocurement markets and further cooperate with its international counterparts in the fieldof public procurement. As part of its efforts, a new team consisted of specialists in globalprocurement market was organized to conduct such tasks. PPS has also strived to cooperatewith other countries to share knowledge and discuss key issues in public procurement suchas e-procurement via multiple communication channels including signing MOU, cooperativemeetings and exchange of relevant public and private officials. Exporting the Korea ON-lineE-Procurement System (KONEPS), recognized as a world-class e-procurement system, to Tunisiafollowed after Vietnam, Costa Rica and Mongolia was another notable achievement in 2011.In order to cope with sudden surge of price in raw materials, PPS has continuously maintained atthe stable level of stockpiling volume. Also, it analyzed each raw material effectively to differentiatethe target volume by item. These diversified measures such as releasing them at a discount rate,taken in 2011, contributed to successfully supplying raw materials on demand by SMEs.On the basis of its achievements made in 2011, PPS will continuously carry forwardprocurement policies as to revitalize the nation’s economy and build capabilities to be preparedfor a long run, so that every stakeholder in the field of public procurement can benefit throughbalanced growth.This Annual Report details PPS’s activities throughout 2011 and their outcomes. I hope thisAnnual Report will serve to foster a broader understanding of PPS. Ho-In Kang Administrator Public Procurement Service
About PPS Overview _ 08 History _ 10 Functions & Roles _ 12 Organizational Chart _ 142 0 1 1 A N N U A L R E P O R T
2011 Annual ReportAbout PPS OverviewCharacteristics of Government ProcurementThe lexical definition of procurement is to acquire financial or material resources. In thissense, procurement activities encompass all organizational units from households tofirms, organizations, and the government. From the functional viewpoint, procurement isan indispensable activity and its successful fulfillment is essential to the continuation of anorganization. There is a major distinction between the procurement of the government andthat of other socio-economic agents, in that government procurement draws its funds from taxrevenue. Hence, unlike procurement in the private sector, government procurement shouldreflect public concerns as well as efficiency.Objectives of Government ProcurementObjectives of government procurement are as follows:Firstly, government procurement aims at budget efficiency. Efficiency is the most valuedobjective for all economic agents. As an economic agent, the government also sets the highestpriority on efficiency. Efficient procurement is increasingly viewed as an important strategicvalue both in public and private organizations. For private firms, cost savings can be moreeasily achieved through efficient procurement than through productivity enhancement. Forthe government, saving of the budget through efficient procurement poses less difficulty thanincreasing taxation, which may encounter resistance. From the perspective of a buyer, efficientprocurement is fulfilled by selecting the supplier that provides goods or services of the highestquality at the lowest price, and ensuring the timely performance of contract. In this respect,Transparency in procurement procedures is essential to achieving budget efficiency.Transparency promotes competition and thereby contributes to the efficient allocation ofresources, which in turn leads to budget saving for the government. Alternatively, lack oftransparency impedes competition and may cause best-in-class suppliers to be precluded. Thisraises procurement cost and discourages further cost saving efforts on the part of the suppliersthat are already within the barrier, which in effect lowers budget efficiency.
Public Procurement Service | www.pps.go.kr 8|9 About PPSSecondly, government procurement should ensure that it meets the intended purpose of publicorganizations by ensuring the timely and cost-effective delivery of that which is in their need,thereby assisting them in achieving their broader goals. The value of procurement does not lie in Procurement Business Analysis and Evaluation ofprocurement itself, as government procurement is intended to serve the functions and servicesthat the government operates for the public. In other words, procurement is the acquisition ofresources needed for the government’s policy objectives. Therefore, government procurementshould serve the government’s policy objectives so that the government may accomplish itsgoals without hindrance.Thirdly, government procurement also indirectly serves the government’s policies in relation e-Procurementto various aspects. Government procurement is characterized by its large scale. From thepolicy-makers’ perspective, the government’s large purchasing power is a helpful tool forrealizing the government’s policies, and the government subsequently utilizes it to achieve itspolicy objectives. A representative example is the government’s support for small and mediumbusinesses, local businesses, and socially disadvantaged businesses through its procurementpolicies. The government support for the socially disadvantaged through procurement policiesshould be limited to such an extent that it does not significantly affect the ultimate objective of Government Procurement Globalization ofbudget efficiency.Government Procurement ScaleThough varying in degrees, the size of government procurement has been in a constantstate of growth in most countries. This is related to the continuous growth of the overall size Green Procurementof economy, despite regional and temporal fluctuations. The relative scale of governmentprocurement, however, varies among countries and is dependent upon various factors such asthe country’s economic scale, taxation systems, and the government’s role in the private sector.In the case of Korea, a survey report by Small and Medium Business Administration(SMBA)indicated that Korea’s government procurement in 2010 totaled approx. 104 trillion won, Statistics and Othersrepresenting 8.9% of GDP. PPS contracted approximately 37 trillion which is 36.2% of Korea’stotal government procurement.
2011 Annual ReportAbout PPSPPS’s Share in Government Procurement (Unit: 100 million won) Categories 2007 2008 2009 2010 2011 Govt. Procurement 920,352 1,040,760 1,222,846 1,044,265 998,494 Total(A)* PPS Procurement 276,348 290,000 452,064 377,608 332,937 Total(B)** PPS’s Share (B/A, %) 30.0 27.9 36.9 36.2 33.3 * Figure is based on government procurement plan (published by SMBA) ** igure represents the sum of PPS’s domestic procurement and construction work contracting. Foreign F procurement (687.5 billion won), stockpiling (362.8 billion won), and supervision and review service for construction works (13.42 trillion won) are not included. HistoryThe history of PPS traces back to the period immediately following the foundation of the Koreangovernment. It began with the establishment of the Provisional Office of Foreign Supply (POFS)on January 17, 1949. Provisional POFS functioned as the counterpart to the US EconomicCorporation Administration, which administered the US’s foreign aid, and contributed to Korea’seconomic development and industrial revival through the management of foreign aid supplies.On December 15, 1949, the Office of Foreign Procurement was established separately withexclusive responsibilities for foreign procurement. Thus, foreign procurement and foreign aidsupplies began to be administered separately. On December 19, 1949, POFS was restructuredand renamed as the Provisional Office of Foreign Supply Management. Provisional Office ofForeign Supply Management was consolidated with the Office of Foreign Procurement onFebruary 17, 1955, and was renamed the Office of Foreign Supply. On October 2, 1961, for thepurpose of procuring domestic and foreign supplies more efficiently for the nation’s economicdevelopment, the Office of Foreign Supply was expanded and became the Office of Supply, theRepublic of Korea (OSROK). On November 29 of the same year, contracting for constructionworks was included in its capacity.
Public Procurement Service | www.pps.go.kr 10 | 11 About PPSOn February 16, 1967, PPS assumed a new functionof stockpiling, aimed at mitigating the impact ofprice fluctuations in the international raw material Procurement Business Analysis and Evaluation ofmarket and thus contributing to the steady growth ofthe national economy. On September 22, 1971, PPSwas vested with an added responsibility to overseeand coordinate government goods managementfor the efficient and systematic management of thegovernment’s movable assets. e-ProcurementThe storage and distribution of supplies commonlyused by government organizations had beencentrally administered by PPS since 1962. OnJanuary 1, 2006, this storage operation wasdiscontinued considering that it restrictedthe growingly diversifying demands of publicorganizations. On December 28, 2007, legal basis was founded for PPS’s new roles in Government Procurement Globalization ofgovernment property management, including the management status monitoring ofgovernment properties. Added Functions Green Procurement Nov 29, 1961 Construction contracts Feb 16, 1967 Commodity stockpile Sep 22, 1971 Government goods management Apr 12, 1978 Price survey and construction supervision Dec 28, 2007 Government property management and acquisition of real estate reserves for government use Change of PPS English Name Statistics and Others 1961~1996 OSROK (Office of Supply, the Republic of Korea) 1997~1999 SAROK (Supply Administration, the Republic of Korea) 2000 ~ Present PPS (Public Procurement Service, the Republic of Korea)
2011 Annual ReportAbout PPS Functions RolesPPS’s FunctionsPPS performs the following five functions as prescribed by laws and regulations, with theexception of defense procurement including arms, ammunition, and war materials: Domestic and foreign procurement for public organizations •n 2011, PPS’s domestic and foreign procurement totaled 17.9 trillion won and 688 I billion won respectively. Contracts for the government’s major construction projects •Contracts for construction works concluded via PPS in 2011 totaled 15 trillion won. • PS also provides both the total construction cost review service and construction P management services for public organizations lacking relevant expertise. Government stockpiling and supply of major raw material commodities • PS stockpiles major raw materials and construction materials such as aluminum, P copper and tin, in order to ensure their short and long-term availability and price stability, thereby supporting the continued development of the national economy. Efficient management of government goods and property • PS oversees and ensures the efficient management of government goods valued at P approx. 13.4 trillion won in total. • PS also assumes a role in the management of government-owned real estate P management, including government property development, preservation of government’s property ownership rights, and acquisition of real estate reserves for government use. Operation Management of the government-wide e-Procurement system • PS operates the Korea ON-line E-Procurement System (KONEPS) to facilitate the P work process for public procurement, allowing all public organizations to conduct the entire procurement process online from bid notice, bidding, and contracting through to payment. • y promoting the use of KONEPS, PPS serves to enhance transparency and efficiency B in government procurement.
Public Procurement Service | www.pps.go.kr 12 | 13 About PPSPPS’s Roles Procurement Business Analysis and Evaluation ofAs a specialized executive agency, PPS assumes various roles :PPS maximizes the efficiency of the government’s budget execution and management byminimizing procurement costs through centralized procurement. PPS has also broadenedthe customers’ choices with its Multiple Award Schedule (MAS) and Online Shopping Mallwhich channels the public organizations’ demands and streamlines the procurement process,resulting in budget savings, reduced human resources and a scaled-down yet more efficient e-Procurementgovernment.PPS pioneers the ways of enhancing transparency in public procurement. Through theimplementation of KONEPS, PPS has digitalized the entire procurement process frompurchase request through to payment, removing unnecessary person-to-person contactsbetween suppliers and contracting officials. PPS has improved its work procedures andpolicies to enhance transparency, such as the Integrity Pact policy and the real-time release Government Procurement Globalization ofof procurement related information. With the advent of e-Procurement, PPS dedicates itselfto ensuring transparency through its dissemination of transparent procurement procedures,policies and best practices among public organizations.In addition, PPS assists public organizations with their efficient budget execution based onits accumulated expertise. PPS raises government’s budget efficiency through reviewingand adjusting the total construction cost of large scale national projects. In the trend of Green Procurementdecentralization, local autonomies are given increased freedom of finance control, and allowedto independently conclude contracts for large construction projects. PPS complements the localautonomies’ contracting capabilities through its advance construction cost review service.In conclusion, PPS contributes to realizing the government’s various policy objectivesby rendering practical support for the government in achieving its goals. PPS executesprocurement policies and contributes to actualizing the government’s business support polices Statistics and Othersfor small and medium sized businesses, venture businesses, entrepreneurs, traditionaland cultural enterprises and socially disadvantaged businesses; as well as policies forenvironmental preservation and economic stabilization, such as price stabilization, and supplyand demand balancing.
2011 Annual ReportAbout PPS Organizational Chart5 Bureaus, 1 Quality Management Office, 11 Regional Offices, 4 Oversea officesPersonnel: 45 employees (434 in the Headquarters, 54 in Quality Management Office, 457 in 9 Regional Offices) Administrator Spokesperson Deputy Administrator Audit and Inspection Officer General Services Division Director General for Planning Coordination e-Procurement Service Bureau •Planning and Budget Officer •Information Planning Division •Regulatory Reform Legal Affair Officer •Information Management Division •Management Support Team •Government Property Management Division •Administrative Management Officer •Government Goods Management Division •Procurement Professional Development Officer •Customer Support Team •Government Property Planning Research Division International Goods Bureau Procurement Service Bureau •Commodity Management Division •Commodity Stockpile Division •Procurement Management Division •Foreign Equipment Division •Materials Equipment Division •International Cooperation Division •Excellent Products Division •Foreign Machinery Team •Shopping Mall Planning Division •Information Technology Services Division Construction Works Bureau •Shopping Mall Unit Price Contract Team •Shopping Mall Procurement Team •Construction Business Management Division •Civil Engineering Contract Division •Buildings Facilities Contract Division Quality Management Office •Construction Planning Division •Budget Project Management Division •Quality Management Coordination Division •Technical Evaluation Team •Materials Quality Management Division •Construction Supervision Team •Equipment Quality Management Division •Quality Assurance Division Seoul Regional Public Procurement Service •General Management Division Busan Regional Public Procurement Service •Materials Procurement Division •Equipment Procurement Division •General Management Division •IT and Service Contract Division •Materials Procurement Division •Construction Divisioan •Equipment Procurement Team •Construction Supervision Team Incheon Regional Public Procurement Service Daegu . Gwangju Regional Public Procurement Service •General Management Division •General Management Team •Materials Procurement Division •Materials Procurement Team •Equipment Procurement Team •Equipment Procurement Team Daejeon·Gangwon·Chungbuk·Jeonbuk·Gyeongnam·Jeju Regional Public Procurement Service •General Management Division •General Procurement Division Oversea Procurement Officers Toyko London Chicago Beijing
Analysis and Evaluation of Procurement Business Overview _ 18 Domestic Procurement _ 24 Foreign Procurement _ 28 Construction Works _ 33 Stockpiling _ 38 Government Goods Management _ 432 0 1 1 A N N U A L R E P O R T
2011 Annual ReportAnalysis and Evaluation of Procurement Business OverviewIn 2011, Korea overcame the financial crisis at an alarming rate and its employment rate beganto improve. However, due to its weak domestic market, the actual economic sentiment ofordinary citizens and SMEs somewhat worsened. As a result, the Korean government put itspriority on revitalizing the domestic market by expanding the income-base for those of ordinarycitizens and SMEs.PPS also made efforts to support SMEs and other under-privileged people. By activelyintroducing separate order of construction materials, and competitive bidding among SMEconsortium, it supported market entrance for SMEs. In particular, the share of purchasing bySMEs totaled record-breaking 14 trillion won which accounts for 77.6% of the total purchasingamount.Meanwhile, there was concern over the rising rate of inflation due to the price hike ininternational commodity market. To this end, the Korean government strived to stabilizethe price and PPS contributed to its efforts by establishing measures for implementingprocurement policies to support of price stabilization.There was also policy improvement for establishing fair procurement market. PPS ensured alevel playing field for each participant in the procurement market by strengthening its sanctionsfor unfair practices and improving its procurement system to supplement any loophole ofregulations.In addition, PPS laid the foundation of the procurement system to encourage suppliers toinnovate the quality and technology. It adopted the Pre-notification of Minimum PurchasingStandard and Comprehensive Awarding system to take the functions and environment intoaccount. Also, it improved the system of designating Excellent Procurement Goods so it couldenhance the quality and promote competition in technological development.Moreover, PPS strived to develop the green procurement scheme. It designated 19 additionalproducts including vacuums as the Minimum Environmental Standards products and assignedthe Green Construction Materials, thus enabling the demand for green products in public
Public Procurement Service | www.pps.go.kr 18 | 19 About PPSmarket to be expanded. The performance of purchasing green products in 2011 recorded at 3.38trillion won approximately, up by 1.20 trillion won compared to last year. The figure represented20.4 % of total purchasing products, 7.5% increase year on year. Analysis and Evaluation of Procurement BusinessWhat’s more, PPS continuously supported SMEs by releasing stockpiled materials at adiscounted price. Depending on the possibility of supply disruption and demand from SMEs, itdifferentiated the target volume of stockpiling by item and carried out the Joint Public-PrivateStockpiling business to prepare against any potential threat of supply disruption.PPS played a typical role of central procurement agency by reducing procurement budget and e-Procurementsupporting SMEs throughout the year of 2011, while executing procurement administrationin line with government policies such as promoting fair competition in procurement market,stabilizing the price and enhancing the competitiveness of suppliers.Annual Performance (Unit:100 million won) Government Procurement Globalization of Categories 2007 2008 2009 2010 2011 Procurement total* 464,467 518,319 688,990 525,797 477,627 Procurement services 283,295 297,263 441,011 383,705 339,812 Domestic procurement 132,295 132,295 150,556 188,353 173,495 Foreign procurement 6,947 10,347 13,664 6,097 6,875 Construction works 144,053 136,360 238,994 200,937 150,329 Architectural design and included in included in included in construction domestic domestic domestic 3,176 3,230 Green Procurement supervision service procurement procurement procurement stockpiling 7,261 7,219 6,864 3,236 3,628 Stockpiling stock release (5,742) (6,206) (4,216) 3,722 6,592 services futures options (3,702) - - - - Supervision and review for 173,911 213,837 241,115 138,856 134,187 construction works Total Service 11,112 19,713 28,853 33,281 24,003 Statistics and Others Total project cost review 146,198 166,715 190,169 90,657 101,735 Construction cost review 16,601 27,409 22,093 14,918 8,449 * he figure represents the total sum of the performance results in procurement services (domestic procurement + T foreign procurement + construction works + architectural design construction supervision service), stockpiling (new acquisition only), and supervision and review for construction works (construction management + total project cost review + construction cost review).
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessPerformance HighlightsEnhancing fairness in government procurementPPS has been trying to ensure a level playing field by continuously improving and closing anyloop hole in the procurement system. In particular, PPS set the Policies to Enhance Fairness inGovernment Procurement and implemented it as one of its main objectives in 2011. Establishing fair competition rules Reinforcing competitiveness of Socially vulnerable Enterprises Reinforcing Preventing unlawful Restricting market entry Eradicating unfair competitiveness of participation in the of unqualified or insolvent business practices Socially vulnerable procurement market suppliers Enterprises • trengthening S • limination of ineffective E • trict regulations on S • nsuring the enterprises E regulations on abuse of contractor holders bid rigging for major enter the market the support system construction projects • estricting unqualified R • xpanding preferential E suppliers to KONEPS • ot awarding contracts N policies for SMEs to unlawful contractors Additionally, PPS signed the agreements with 8 associations representing more than 200,000 suppliers in the procurement market to create the environment of fairness.▲ Signing ceremony for Agreement on Fair Practice in Public Procurement with supplier associations
Public Procurement Service | www.pps.go.kr 20 | 21 About PPSSupport of Socially Disadvantaged EnterprisesThe Korean government has been assisting SMEs with various policies such as tax-exemption, Analysis and Evaluation offinancial support, etc. In line with the government policy, PPS has also been supporting SMEs, Procurement Businesswhich account for more than 99% of those registered in government procurement sector,through helping them enter the market and giving them preferential treatment.The amount of support for SMEs in 2011 totaled 22.49 trillion won, which accounts for 66.3%of the annual procurement performance of 33.95 trillion won (domestic procurement +construction works +commodity release). Purchasing volume from SMEs has grown over the e-Procurementlast five years. Contracting with SMEs in construction works exceeded more than 50 % of totalcontracts for the first time. This demonstrates that PPS’s constant endeavor to support SMEshas been coming to fruition.Support for SMEs (Unit : 100 million won, %) Government Procurement Globalization of Categories 2007 2008 2009 2010 2011 Total amount 282,090 293,122 431,563 381,330 339,529Total Support amount 156,515 176,932 232,952 229,528 224,941 (%) (55.5) (60.4) (54.0) (60.2) (66.3) Total amount 132,295 150,556 188,353 173,495 179,378Goods Support amount 87,988 104,606 133,512 130,479 139,205purchased (%) (66.5) (69.5) (70.9) (75.2) (77.6) Total amount 144,053 136,360 238,994 204,113 153,559 Green Procurementconstruction Support amount 62,861 66,157 95,349 95,327 79,479works (%) (43.6) (48.5) (39.9) (46.7) (51.8) Total amount 5,742 6,206 4,216 3,722 6,592commodity Support amount 5,666 6,169 4,091 3,722 6,257release (%) (98.7) (99.4) (97.0) (100.0) 94.9In order to ease the economic imbalance between large metropolitan areas and regional areas Statistics and Othersand to vitalize regional economies, PPS has been implementing preferential treatments forenterprises based in regional areas. In addition, when a joint consortium is formed with regionalenterprises to submit a bid, it can receive additional points during the evaluation for awardingcontracts. As a result, the purchased amount from regionally-based businesses reached 67.5%,up by 4.5% from last year.
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessSupport for regionally-based businesses (Unit : 100 million won, %) Categories 2007 2008 2009 2010 2011 Total amount 282,090 293,122 431,563 381,330 339,529Total Support amount 167,560 190,076 268,347 240,093 229,050 (%) (59.4) (64.8) (62.2) (63.0) (67.5) Total amount 132,295 150,556 188,353 173,495 179,378Goods Support amount 78,820 99,240 125,169 112,697 117,747purchased (%) (59.6) (65.9) (66.5) (65.0) (65.6) Total amount 144,053 136,360 238,994 204,113 153,559construction Support amount 84,646 86,553 139,621 123,803 104,852works (%) (58.8) (63.5) (58.4) (60.7) (68.3) Total amount 5,742 6,206 4,216 3,722 6,592commodity Support amount 4,094 4,283 3,557 3,593 6,451release (%) (71.3) (69.0) (84.4) (96.5) (97.9)PPS also strengthened its support for women-owned businesses and according to the data in2011, the performance of women-owned businesses recorded 1.8 trillion won which accountedfor 5.4% of the total performance (goods purchased + construction contracts).Support for women-owned businesses (Unit : 100 million won, %) Categories 2007 2008 2009 2010 2011 Total amount 276,348 286,916 427,347 377,608 332,937Total Support amount 10,399 13,511 16,675 16,776 18,037 (%) (3.8) (4.7) (3.9) (4.4) (5.4) Total amount 132,295 150,556 188,353 173,495 179,378Goods Support amount 6,388 7,976 10,895 10,495 12,181purchased (%) (4.8) (5.3) (5.8) (4.4) (6.8) Total amount 144,053 136,360 238,994 204,113 153,559construction Support amount 4,011 5,535 5,780 6,281 5,856works (%) (2.8) (4.1) (2.4) (3.1) (3.8)
Public Procurement Service | www.pps.go.kr 22 | 23 About PPSExpansion of purchasing green productsIn 2011, the total purchasing of green products by PPS increased after it had been hovering Analysis and Evaluation ofaround 12% for the past 3 years. Thanks to its green growth policy, the green products took a Procurement Businesslarger portion with 20.4% of total goods purchased.Performance of purchasing green products (Unit : 100 million won) Categories 2008 2009 2010 2011 Total Goods purchased(a) 126,032 156,453 142,249 148,823 e-Procurement Green purchasing(b) 15,464 20,243 18,365 30,381 (b/a) 12.3% 12.9% 12.9% 20.4%The increase of purchasing green products was attributable to PPS’s efforts to ease the entrybarrier for green products such as establishing the Minimum Environmental Standard Product,designating green products as Excellent Procurement Products, giving preferential treatmentson green products during MAS contracts and expanding the use of comprehensive award Government Procurement Globalization ofsystem with consideration to the environment.In addition, PPS launched the Integrated Information Network on Public Green Purchasingin November 2011, which enables users to access to all the available information on greenproducts. It was somewhat difficult for public contracting officials to purchase green products inthe past due to its complexity related to certificates and regulations. However, the network hasmade it possible to resolve any inconvenience for officials. Green Procurement Statistics and Others
2011 Annual ReportAnalysis and Evaluation of Procurement Business Domestic ProcurementOverviewThe world economy was expected to recover gradually in 2011 with growth rate of Koreaestimated at 3.6%. Recognizing insufficient recovery of economic sentiment and the need toimprove structure of our economy, PPS focused on economic revitalization through variouspolicies in support of SMEs, expedited budget execution to boost domestic consumptionand enhance financial soundness of SMEs. It also pursued “Low Carbon Green Growth” byfacilitating green purchasing in public sector and promoted qualitative growth of procurementmarket by establishing procurement system which encourages quality and technologycompetition contributing to strengthening foundation of our economy.PerformancePPS’s domestic procurement performance recorded 17.93 trillion won, an increase of 3.4%from last year. The performance was attributable to a surge of 46.4% in procurement by publicentities. However, the purchasing amount by local governments which accounts for more than50% of domestic procurement decreased by 38 billion won compared with 2010. The changesin procurement demands by local governments are attributed to the increased volume of theirautonomous procurement after procurement liberalization became effective.Domestic procurement performance (Unit : 100 million won) Categories 2009 2010 2011 Domestic procurement 188,353 173,495 179,378
Public Procurement Service | www.pps.go.kr 24 | 25 About PPSDomestic procurement performance of each end-user (Unit : 100 million won, %) 2009 2010 2011 Analysis and Evaluation of Categories Procurement Business Amount Share Amount Share Amount Share Total 188,353 100 173,495 100 179,378 100Central Orgs 41,705 22.1 41,413 23.7 42,264 23.6Local Gov 116,285 61.7 99,498 57.3 95,711 53.4Public Orgs 17,753 9.4 21,785 12.6 31,892 17.7Others 12,610 6.7 11,069 6.4 9,511 5.3 e-ProcurementPurchasing amount of products by SMEs recorded13.9 trillion won with its share representing 77.6% ofdomestic procurement thanks to policies supportingSMEs. The share of purchased products by regionally-based businesses has been maintaining 65% since2009, and the share of purchased products bywomen-owned businesses has increased constantly Government Procurement Globalization ofto 6.8% in 2011. Their increased shares resultedfrom implementing various policies including purchasing policies favorable to SMEs, regionally-based businesses, and women-owned businesses, promoting group purchasing of products bythose businesses, and reducing barriers for small sized businesses to enter public procurementmarket.Domestic procurement performance of SMEs Green Procurement (Unit : 100 million won, %) Categories 2009 2010 2011Domestic procurement 188,353 173,495 179,378 133,512 130,479 139,205Purchasing amount of products by SMES (Share) (70.9) (75.2) (77.6) 125,169 112,697 117,747Purchasing amount of products by regionally-based businesses (Share) (66.5) (65.0) (65.6) 10,895 10,495 12,181Purchasing amount of products by women-owned businesses (Share) Statistics and Others (5.8) (6.0) (6.8)
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessPerformance HighlightsSecuring fairness in public purchasing schemeSupport SMEs with more opportunities to supply goodsPPS came up with measures to give preferential treatment to SMEs by granting them additionalpoints during the evaluation process so they can have increased chances to supply goods topublic organizations. Also, In order for SMEs to participate more in MRO market, PPS reformedits purchasing system to provide more options for end-users and encourage SMEs to improvequality and service through price competition.Strict regulatory restrictions on unqualified suppliers to enter the procurement marketPre-qualification review system was introduced to evaluate suppliers’ 5 categories: pastperformance, management, technology capability, reliability, and satisfaction level. Also, 16additional indexes were checked whether suppliers are qualified. As a result, only supplierswhich passed the review system with high scores could make contracts with public organizations.Contribution to the development of technology and industryIntroduction of pre-notification for minimum purchasing standardPPS enabled only suppliers, who meet the requirement of pre-notification for minimumpurchasing standard to register in MAS. This standard was applied to green, IT and new growthengine products and products closely related to safety and hygiene. By doing so, the overallquality of industry was able to develop fully.Hosting of 2011 Korea Public Procurement EXPO(KOPPEX)The 2011 KOPPEX was held in COEX Hall,Seoul from April 13 to 15, 2011 with total 6halls operated including Excellent ProductsHall, Green Products Hall, and OverseasExpansion Hall. In particular, PPS invitedforeign buyers as well as domestic buyersto give opportunities to outstanding SMEsand for venture companies to have businesstalks with foreign buyers, which was fordirect/indirect promotion of products by ▲ Korea Public Procurement Expo (KOPPEX) 2011 domestic companies supporting theiroverseas market entrance.
Public Procurement Service | www.pps.go.kr 26 | 27 About PPSFuture PlanContinuous improvement of MAS Analysis and Evaluation of Procurement BusinessPPS is planning to expand the use of pre-qualification review system and improve the 2nd stagecompetition in 2012. As a result, unqualified suppliers will be weeded out while transparencyand fairness in MAS market are enhancing. Moreover, by strengthening its monitoring systemon market price, it is expected that the soundness of MAS market will improve further.Operation of program management office (PMO) e-ProcurementIn order to enhance specialty in informatization projects, PMO will be test running from 2012.After operating on small-scale project with less than 500 million won and analyzing it carefully,long-term development strategy of PMO will be established. Government Procurement Globalization of Green Procurement Statistics and Others
2011 Annual ReportAnalysis and Evaluation of Procurement Business Foreign ProcurementOverviewForeign procurement refers to procuring goods and services that are not domesticallyproduced or supplied, and therefore procured through international tendering in accordancewith international commercial practice. Central government organizations are required to usePPS for foreign procurement if the estimated price of such procurement exceeds USD 200,000.Local autonomies, on the other hand, are fully authorized to conduct foreign procurementindependently starting in 2008, in accordance with the government’s policy to expand autonomyof government procurement. Foreign procurement encompasses a variety of commoditiesranging from books to sophisticated system equipment including science and researchequipment, state-of-the-art medical equipment, meteorological and environmental equipment,vehicle and railway equipment, and helicopters.Foreign procurement began as a core function of PPS under the formal names of the ProvisionalOffice of Foreign Supply (1949) and the Office of Foreign Procurement (1955). During the yearsbetween Korea’s liberation from Japanese colonialism and recuperation from the Korean War,the management of foreign aid supplies and foreign procurements was the essential functionthat largely contributed to the nation’s industrial development. Even after the three major areasof centralized government procurement which were mostly consisted of foreign procurement,domestic procurement and construction works, converged under the responsibility of PPSin 1961, foreign procurement continued to play a major role in the development of Korea’sprocurement administration.However, due to rapid economic growth and domestic industrial development, more foreignproducts were replaced by domestic ones. After Korea ceased to be the beneficiary of publicloans from all international organizations in 1995, the scale of Korea’s foreign procurement hasdecreased thus leading to the inevitable downsizing of the foreign procurement unit in PPS. Inaddition, the effectuation of the WTO Government Procurement Agreement (GPA) in 1997 ledto the opening of the government procurement market to foreign suppliers. Korea has sinceadopted the national treatment and non-discrimination principles for domestic and foreignsuppliers for goods and services covered under GPA regulations, and therefore purchasesgoods and services regardless of domestic or foreign origin.
Public Procurement Service | www.pps.go.kr 28 | 29 About PPSIn such changes related the procurement environment and circumstances, PPS is facing aheightened requirement of timely and expert services for foreign procurement in response tothe diversifying needs of the customer organizations. Hence, PPS has streamlined the work Analysis and Evaluation of Procurement Businessprocesses for foreign procurement, and adopted multimodal transport contracts wherebygoods are delivered to the designated place in a single process, as well as blanket import cargoinsurance contracts which enabled further budget savings for customer organizations.Further, as an effort to expand competition and enhance transparency as well as to digitalizeforeign procurement procedures, PPS has implemented the policy of disclosing the purchaserequest (PR) details via KONEPS in advance. KONEPS also enables ordering organizations to e-Procurementconduct this procedure independently.In 2005, PPS successfully incorporated foreign procurement procedures into its e-Biddingsystem, which was previously an issue due to the additional procedures associated withforeign procurement. In 2006, PPS implemented a digitalized logistics management system forforeign procurement. In addition, PPS reorganized its foreign procurement unit to consolidateits professional expertise in preparation for launching the On-Demand Service. The foreign Government Procurement Globalization ofprocurement unit, formerly divided by the types of customer organizations, was subsequentlyrestructured into a unit divided by product categories.PPS additionally improved the user convenience for the suppliers with the commencement ofthe SMS information service, which provides contract awarding information on a real-time basisthrough mobile messaging. Furthermore, PPS streamlined its policy bidders’ submission ofmanufacturer’s certificate in order to reduce the bidders’ paperwork burden. The submission of Green Procurementmanufacturer’s certificate, which was formerly mandatory for participating in tenders of whichthe estimated value exceeds 200,000 USD, is no longer required except for a limited range ofequipment for which the manufacturer’s certificate is needed due to their particular natures.In 2007, PPS has established a product database of 200 products to be used as reference byprocuring entities when preparing specifications in English. As part of PPS’s On-DemandService, PPS established an expert pool to conduct proposal evaluations in 14 highly specialized Statistics and Othersareas on behalf of public organizations without sufficient expert professionals. The 2007performance of the On-Demand Service includes technical proposal evaluations for majorprocurement projects including the lift installation work at the ski range in Seolak LeisureComplex for Taebaek Tour Development Construction Co.
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessIn 2008, PPS’s foreign procurement operation concentrated on further complementing therecent innovations. The application scope of small foreign procurement procedure wasexpanded up to 40,000 USD, resulting in the reduction of the procurement lead time by 17 days.Although foreign procurement represents a relatively low portion of 1.59% in PPS’s overallprocurement volume and reaches 3.5% of domestic procurement, it has been continuouslygrowing since 2000 despite the autonomy of local government’s procurement. This shows thatpublic organizations continue to use PPS’s services for foreign procurements regardless ofthe size of requirement. Due to the specialized nature of foreign procurement and difficultiesfor procuring entities involving international trade laws and practices, foreign procurement isrecognized as an important area for PPS‘s development.As Korea advances in respect of technology, replacements of foreign equipment with domesticones are expected to accelerate. Foreign procurement is expected to face further challenges inthe environment and diversifying demands of customer organizations. PPS is facing the needto enhance its consulting services based on its expertise, such as assisting procuring entitieswith the preparation of specifications in English, and expanding its database of products andspecifications.PerformanceThe foreign performance of 2011 recorded 687.5 billion won. This is 112.8% of 2010 and 96.8%of the 2011 annual goal of 710 billion won. Even though the number of contracts decreasedby 10 % compared to last year, overall performance was up by 13% compared to the previousyear due to major foreign procurement projects such as purchasing construction materials forbuilding the subway line in the city of Daegu.Performance Breakdown by Contracting Methods (Unit : USD 1,000,%) 2008 2009 2010 2011 Categories Amount Share Amount Share Amount Share Amount Share Total 880,866 100 1,012,574 100 525,028 100 625,923 100 Competitive 852,860 96.8 972,497 96.0 473,033 90.1 585,124 93.5 tendering single tendering 28,006 3.2 40,077 4 51,786 9.9 40,799 6.5
Public Procurement Service | www.pps.go.kr 30 | 31 About PPSPerformance Breakdown by Customer Organization Type (Unit : USD 1,000,%) Central Gov. Local Gov. Public orgs Others Total Analysis and Evaluation ofCategories Procurement Business Amount Share Amount Share Amount Share Amount Share Amount Share 2008 203,983 23.2 458,440 52.0 60,868 6.9 157,575 17.9 880,866 100 2009 246,063 24.3 584,764 57.8 114,850 11.3 66,897 6.6 1,012,574 100 2010 229,423 43.7 111,254 21.2 47,261 9.0 137,090 26.1 525,028 100 2011 245,627 39.2 221,832 35.4 39,427 6.3 119,037 19.1 625,923 100 Average 231,274 32.6 344,073 41.6 65,601 8.4 120,150 17.4 761,098 100 e-ProcurementPerformance HighlightsImprovement of business processSince October 2011, all the supplementary documents have been submitted online. Also,with the upgraded price-search system in place, contracting officials can easily access price Government Procurement Globalization ofinformation by manufactures or by models, raising efficiency in contracting work.Quality enhancement for foreign procurementPPS revised the Regulation on Foreign Procurement in October 2011 to improve quality andmanage contracts effectively. It mainly consists of increasing amount of the performance bondand the defect bond on suppliers with the past history of delay in delivery and use of defectivegoods. Green ProcurementFuture planIntroduction of main standard evaluation process to promotecompetitiveness Statistics and OthersThere are some cases where certain bids are determined to be unsuitable during the evaluationprocess due to difference in the standard of unimportant parts. Therefore, PPS will strive toevaluate the standard based on main functions and prevent bidders being turned down becauseof insufficient standard on unnecessary parts.
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessSimplified process of submitting supplementary documentsThe documents related with contract execution are among supplementary documentssubmitted at the initial stage of bidding. However, PPS is expected to request the contractexecution related documents to only contract awardees in the future.Holding meetings with dissatisfied customersMeetings will take place regularly to listen to what concerns or complains customers mighthave. PPS will take this opportunity to resolve any complaints or misunderstanding ofdiscontented customers.Enhancement of fairness and competitiveness by facilitating opensolicitation for foreign procurement specificationsPPS is operating the site for 「Open Solicitation for Foreign Procurement」 at KONEPS bywhich it collects specifications and opinions from concerned companies before they drawup specifications and provide standardized specification forms. In 2011, PPS plans to raisecompetitiveness of purchasing specifications by further utilizing this site and help customershave better understand of foreign products. It will also add functions of automatic comparisonamong specifications from various foreign suppliers and submission of specifications as well asfunction of opinion exchanges between demander organizations and suppliers to the site.Introduction of identification numbers for providing information onproducts for foreign procurement PPS plans to assign products classification codes to products for foreign procurement which are similar to HSK to better identify the foreign products and upgrade efficiency of work process.
Public Procurement Service | www.pps.go.kr 32 | 33 About PPS Construction Works Analysis and Evaluation of Procurement BusinessOverviewIn general, the process of construction work is comprised of five phases: planning, designing,contracting, construction and post-construction management. Each phase requires a high level e-Procurementof expertise and effective connection to each other. When such phases are lacking functionalconnectivity, a deadlock for large-scale construction works including budget waste and adelayed construction period may result. It could also lead to serious side effects such as anineffective value for money and a reduction in public convenience.The government adopts two roles in issuing orders for construction works, which include thatof a buyer of public facilities, and executor of construction-related policies. As an end-user ofthe facilities, the government selects the contractor which is competitive in terms of price and Government Procurement Globalization oftechnology, thus successfully completing construction. The government’s role as the executorof construction-related policies is to support a balanced development of the constructionindustry, social minority companies, and distribute orders in a fair manner.The yearly volume of construction orders is determined by various factors such as constructionmarket sentiment, economic conditions, and government policy directions. In 2011, the volumeof construction orders reached 110.7 trillion won. Public construction works account for approx. Green Procurement33% of the total construction market. The yearly volume of construction orders issued by PPS isrecorded at over 11 trillion won.Construction Contract Performance (Unit : trillion won, %) Year 2008 2009 2010 2011 Domestic Total 120.085 118.714 103.230 110.701 Statistics and Others Public Sector 41.839 (34.8%) 58.488 (49.3) 38.237 (37.0) 36.624 (33.1) - PPS 13.6360 26.354 (22.2) 14.840 (14.4) 11.123 (10.1) - Others 28.2128 34.588 (29.1) 23.397 (22.2) 25.501 (23.0) Private Sector 78.2363 (65.2%) 60.227 (50.7) 64.993 (63.0) 74.076 (66.9)
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessThe headquarters for construction works in PPS engages in a range of diverse servicesthroughout the respective construction period. Primary concerns involve contracts andmanagement of major constructions, designing and supervision contracts, designingmanagement, and construction management as requested by government organizations, localauthorities, and government-invested organizations. As for construction contracts, the relatedKorean law states that central government organizations are required to use PPS for orderingany construction works that reach a value of over 3 billion won.For design-supervision service contracts, designing management contracts and constructionmanagement contracts, it is not mandatory for public institutions to contract through PPS. Inparticular, the Enforcement Decree of the Procurement Business Act was revised at the end of2004 to reduce the scope of mandatory use of PPS by local autonomies, with a view to expandingthe financial independence of local autonomies and allowing them autonomy in procurement.As a result, local autonomies have started to issue self-orders for all construction workssince 2010. However, in order to prevent possible budget waste resulting from self-orders oflocal autonomies, PPS reviews in advance the cost price for construction works of which theestimated value is in excess of 10 billion won.In addition to the above-mentioned executive functions, PPS also takes initiative in implementingappropriate tendering criteria by the types of ordering organizations in compliance withtheir respective laws that are in turn adopted by other government organizations. Thus, PPScontributes to the dissemination of best practices in public construction works.PerformanceThe volume of new construction contracts remained stationary at 11.18 trillion won on averagefrom 2005 to 2008 after it had reached its peak at 14.6 trillion won in 2004. In 2009, the volumesharply increased to 26.35 trillion won thanks to 4 Major River Restoration Project and largescale government-led construction works. In 2011, the volume was down by 25 % from theprevious year due to decreased share of new construction projects among SOC budgets of thegovernment, local autonomies, and government-invested organizations.PPS is implementing policies in support of small and medium sized construction companiesand regionally-based construction companies. PPS’s construction contract volume with SMEstotaled 7.948 trillion won decreased from 9.533 trillion won of last year. But its share of thePPS’s total construction contract volume increased sharply to 51.8% from 46.7% year-on-yearthanks to the policies in support of SMEs.
Public Procurement Service | www.pps.go.kr 34 | 35 About PPSPPS’s construction contract volume with regionally-based construction companies totaled10.49 trillion won. The figure is less than 12.38 trillion won of 2010, but its share of PPS’s totalconstruction contract volume increased greatly to reach at 68.3%, up by 7.6% from 60.7% Analysis and Evaluation of Procurement Businessyear-on-year. It means that PPS policy to encourage large-scale construction projects to becontracted jointly with regionally-based construction companies were effective.PPS’s volume of the On-Demand Service recorded 2.40 trillion won decreased from 3.33 trillionwon of 2010. Although there was decrease in the service, the volume of the On-Demand Servicehas been on track of growing till 2010 by over 50% annually. It is attributable to the fact that PPShas successfully conducted many complex construction projects requested by various end- e-Procurementusers based on its expertise and technology it has accumulated as the professional agency ofconstruction management.Performance of construction works (Unit : 100 million won) 2011 plan Performance Achievement rate (%) Categories (A) 2010(B) 2011(C) C/A C/B Government Procurement Globalization of Construction contracts 200,000 204,113 153,559 76.8 75.2 On-demand service 37,000 33,281 24,003 64.9 72.1 Construction cost review 15,000 14,918 8,449 56.3 56.7 Total project cost review 100,000 90,657 101,735 101.7 112.2 Contracts with SMEs 138,320 95,327 79,479 57.5 83.3 Contracts with regionally- 121,940 123,803 104,852 86.0 84.7 based business Green ProcurementPerformance HighlightsBudget reduction in public construction works through design reviewPPS upgraded its status by shifting focus of construction cost management from the past’scost reduction through project cost review to more reaso nable construction cost management Statistics and Otherswhich pursues Best Value such as correction of design errors and excess design. It also appliedValue Engineering (VE) which enhances designing functions and reduces construction cost atthe same time, resulted in decrease in the total construction cost of 2011 by 2.81%, up by 93.8%from last year.
2011 Annual ReportAnalysis and Evaluation of Procurement BusinessProvision of On-Demand Service each public organization wantsFor those end-users who are experiencing difficulties in implementing construction projectdue to shortage of expertise and technology, PPS conducted the entire construction worksfrom planning through to post-management or part of it on behalf of those organizations upontheir voluntary request. The On-Demand Service, which has been provided since 2004, hascontinuously increased in volume with 2.89 trillion won in 2009, 3.33 trillion won in 2010. Eventhough the volume somewhat decreased to 2.40 trillion won in 2011, it can be considered thatthe service is becoming a essential system to support end-users with specialized labors.Expansion of scope of total project cost review for large-scalegovernment-led construction worksPPS reviews appropriateness of detail designs for public works valued at over 50 billion wonand construction works worth over 20 billion won to prevent waste of expenditure in advance. In2011, PPS reviewed appropriateness of detail designs of total project cost for 216 constructionprojects, 2,325 cases of prices adjustments, and appropriateness of detail designs for 18 privateconstruction projects. It has contributed to reducing the national budget by 886 billion wonwhich accounts for 7.1% of the total amount requested by demander organizations.Publication of source book of “Analysis on Construction cost based onConstruction Types” to estimate appropriate construction costPPS has published and distributed source books covering analysis on construction costper each unit based on types of public works and public buildings since 2004 annually togovernment organizations and local autonomies to utilize them as basis of budgeting. In 2012,PPS designated 36 construction projects with 14 types which represent the entire constructionworks contracted in 2011, and analyzed their construction cost per unit area or length.Establishment of standard to request the investigation of bid rigging inmajor construction projectsAfter analyzing past practices of bid riggings, PPS set 12 standards to find out in advance ifthere is any sign of bid rigging. After the conducting the test in accordance with the standards,PPS may or may not choose to request the investigation to the Fair Trade Commission. Byregulating such procedures, it is expected that fair competition will take a firm root in the publicconstruction market while improving overall quality of construction and reducing budget.
Public Procurement Service | www.pps.go.kr 36 | 37 About PPSFuture planEnhancing competitiveness in the construction industry by improving Analysis and Evaluation of Procurement Businessconstruction contractsPPS will differentiate the evaluation criteria for a bidding of technology proposal by reflectingother criteria such as improvement made by new technology, symbolism and creativity. Also,PPS is planning to improve the pre-qualification standard so that constructors with no pastperformance of specific field can be restricted in participation of bidding. e-ProcurementSupport of green constructionIn order to increase the demand for green construction, PPS will seek to set the guideline ofstandard on green remodeling technology and orders and push ahead with pilot projects forgreen remodeling. In addition, PPS will expand the use of green construction materials andvigorously demand the strict energy efficiency in the new public buildings being built.Enhancement of Construction Total Service Government Procurement Globalization ofThrough the assessment of performance on Construction Total Service, PPS will set up thequality control system appropriately and develop best practices. Also, vitalizing the evaluation ofperformance on each stage of construction, PPS will be able to clarify where the responsibilitylies and strengthen the quality control through using the result of evaluation and feed-back. ※BIM(Building Information Modeling) Green Procurement It provides integrated information on entire construction process from planning, designing, construction, and post-management upgrading the past’s 2D design to 3D design. It serves to maximize construction quality and energy efficiency of buildings contributing to the government’s budget saving. Statistics and Others
2011 Annual ReportAnalysis and Evaluation of Procurement Business StockpilingOverview PPS has carried out the government stockpiling operation to respond to emergencies such as raw materials price hikes and maintain balanced supply and demand of commodities since 1967. Materials for stockpiling are mainly those highly demanded by industries and those which have a high level of foreign dependency. The selectedmaterials and policies for stockpiling operation have been changed according to the nationaleconomic conditions of a certain period.In the early stages, PPS’s stockpiling was mainly for stabilizing prices with short-termperspective concentrated on rebar and cotton yarn, but recently it has been focused on basemetals and rare metals for long-term prices stabilization and support to SMEs.As of the end of 2011, PPS designated 6 base metals including aluminum, copper, and nickel,and 11 rare metals including silicon, cobalt, indium, and lithium as its stocks.PPS has made efforts to maintain balanced domestic supply and demand of raw materialsand helps SMEs stabilize their operations by expanding release volume of stockpile materialsresponding to the continuous rise of international commodity prices since 2003.In particular, it introduced Commodity Group Purchasing Service which contributed to reducingrisk from high cost of government stockpiling and securing necessary materials for SMEs.Commodity Group Purchasing Service is to help stable supply of the materials regardlessof price fluctuations by forecasting SMEs’ commodity consumption for a certain period andconcluding premium contracts based on futures trading.
Public Procurement Service | www.pps.go.kr 38 | 39 About PPSPerformanceDespite limited resources, PPS has steadily expanded its stocks through effective stockpiling Analysis and Evaluation ofoperation. At the end of 2010, PPS started stockpiling non-ferrous metals for 33 days of import Procurement Businessdemand, and rare metals for 68.8 days of import demand.Stockpiling volume of each year against domestic import demand (As of the end of 2011) (Unit : days) Categories 2007 2008 2009 2010 2011 Non-ferrous 22.4 30.7 39.0 39.5 33.0 e-Procurement metal rare metal 14.9 22.7 56.7 63.6 68.8Performance of stockpiling fell a little bit short of the initial plan in 2011. It is attributable tounfavorable conditions for purchasing due to commodity price hikes. Meanwhile, releasingcommodities from stockpiles at a discounted price to SMEs helped prevent shortages. Government Procurement Globalization ofStockpiling performance (Unit : 100 million won) 2010 2011 Share (%) Categories performance Performance Against 2010 Against the plan (A) Plan (B) (C) (C/A) (C/B) Purchasing 3.236 4,900 3,628 112.1 74.0 Stockpiling Stock release 3,722 4,300 6,592 177.1 153.3 Green ProcurementPerformance HighlightsEstablishment of infrastructure to enhance national stockpiling systemPPS came up with a measure to differentiate target volume of stockpile materials consideringtheir demand structure, especially for SMEs, barriers in supply and economic feasibility. For Statistics and Othersexample, it increased the target stockpiling volume of copper to 80 days of import demand,and decreased that of aluminum to 40 days of import demand whose supply is expected to bestabilized due to relatively large number of suppliers. Also, the target volume of stockpiling raremetals including cobalt, indium, silicon, and others were adjusted to meet the current demandor to be free from possible shortage of supply.
2011 Annual ReportAnalysis and Evaluation of Procurement Business In addition, a purchasing guideline for capturing exact times of purchasing and releasing through forecasting a reasonable price and close monitoring of commodity prices was completed and applied in the purchasing from April 2011. In July 2011, considering change in stockpiling environment and to vitalize joint public-private stockpiling business,PPS restructured the role of each stockpiling warehouse located throughout the nation. Forexample, it designated Pusan warehouse as a joint public-private stockpiling warehouse andIncheon as an exclusive warehouse for metropolitan area.In order to release stockpiled materials effectively, releasing conditions were categorized into 3situations: Emergency, Possible Shortage of Supply, and Normal circumstances. The releasingvolume was set at percentage depending on each situation. In case of an Emergency, the fullvolume is possible to be released to meet the demand while up to 30% of target operationalstock could be released at market price in Normal circumstances. Also, when there is concernover possible shortage of supply, the releasing volume is differentiated respectively as 100%,80% and 50% of target operational stock depending on how severe the situation is.Strengthening of crisis preparedness through continuous expansion ofstockpile materialsPPS increased the stockpiling volume of raw materials from 51.5 days of import demand in 2010to 52.3 days of import demand at the end of 2011. It also secured reasonable amount of raremetals for stockpiling based on items by the end of 2011 (increased from 63.6 days of importdemand in 2010 to 68.8 days at the end of 2011), which are currently the subjects of toughcompetition among countries.Increasing volume of stockpiled materials to be supplied to SMEsPPS introduced ‘Emergency Allocation‘ and ‘Additional allocation for Small-sized Companies‘in standard for stockpile materials to better support SMEs in providing raw materials in case ofcommodity price hikes. ‘Emergency Allocation’ is for allocating necessary amount of materials