Enhancing Efficiency and Expertise through Government Procurement Agency

1. Enhancing Efficiency and Expertise through Government Procurement Agency September 2012 HeeSeokByeon | Director General, Construction Works Bureau Public Procurement Service (PPS), the Republic of Korea

2. Contents Use of Public Procurement Agency Enhancing Procurement Efficiency Strengthening Professional Workforce Ⅰ. Ⅱ. Ⅲ.

3. Ⅰ Use of Public Procurement Agency

4. Use of Public Procurement Agency Diverse Models of Using Procurement Agencies PA Type Countries Use of PA Public Sector Agency Central govt. agency model Canada Mandatory for central govt. Korea Mandatory for central govt. Non-mandatory for local govt. Varying degrees of centralized procurement USA Turkey Non-mandatory Italy Chile Finland Public enterprise model Non-mandatory Product-specific PRC Public Sector Agencies & Private Sector Agents Japan Russia Mexico Direct procurement by each public entity Decentralized procurement

5. The Korean Model Korea’s Public Procurement Model • Public Procurement Service (PPS) under Ministry of Strategy and Finance • Provides procurement services for all public entities • Operates government-wide single e-Procurement portal (KONEPS)that covers entire procurement cycle Central Public Procurement Agency Centralized & Decentralized Procurement • Central government entities are required to use PPS services for procurement above the threshold value • Local govt. entities and public enterprises may procure either autonomously or use PPS services • All public entities should purchase from PPS’s MAS contracts*whenever applicable Goods & Services above $100,000 above $3,000,000 Construction Works * MAS contract : unit-price framework contracts for commercial products established by PPS. All public entities may place orders against MAS contracts.

6. The Korean Model Centralized & Decentralized Procurement in Korea In 2011, centralized procurement through PPS was34%(USD 34 billion) of Korea’s total public procurement (99.8 billion) - Of PPS’s procurement, 53% was upon mandatory procurement request and 47% was upon non-mandatory procurement request

7. The Korean Model Compromising Centralized & Decentralized Procurement

8. Enhancing Procurement Efficiency through Central Procurement Agency II

9. Efficiency through Central Procurement Agency Enhancing Procurement Efficiency Concentrated expertise and professional workforce Accumulated Expertise from specialized work and experiences Price transparency from accumulated data and market survey - Reduces information asymmetry between suppliers and public buyers Economy of scale and greater bargaining leverage Administrative efficiency Standardized processes, forms and specifications Reduced administrative cost from concentration of procurement workforce Administrative cost per contract = (Labor cost + operational cost) / number of contracts

10. Efficiency through Central Procurement Agency Saving budget through price/cost analysis Budget review and revision through price analysis PPS analyzes procurement budget to ensure it reflects competitive market prices Analysis conducted by procurement specialists based on market survey and accumulated data from past transactions Bidding and awarding is based on the revised budget (estimated price) Estimated Price (PPS) Bidding (PPS) Reference Price (PPS) Price /Cost Analysis (PPS) Planned Budget (Public Org.) Procurement Request Market price, past data analysis Constr. design & cost review* Applies to bid evaluation * For construction works - the cost review includes constr. materials, labor, mgt. cost, etc.

11. Cost Savings through Professionalization Budget In 2009, PPS’s price analysis reduced procurement budget by 13.9% for goods & services, and 6.4% for construction works Not “savings” in itself, but prevents possible budget waste by screening excessive budget and setting more competitive reference price for bidding Budget Reduction from PPS Review 12,021 11,250 7,090 6,102 6.4% For construction works directly contracted by local governments, PPS also provides cost review service to help them save budget. 13.9% Total Budget for PPS-conducted Procurement Goods & Services Construction Works Total Estimated Price after PPS’s Review Reference year : 2011 Unit: USD Million

12. Savings through Economy of Scale Saving budget through MAS Contracts Multiple Award Schedule (MAS) Contracts Framework contracts (unit-price based) for frequently purchased commercial products Contracted by PPS, available for all public entities for e-ordering Favorable price terms due to opportunities for to sell to all public entities (economy of scale)

13. Savings through Economy of Scale Saving procurement budget through MAS contracts In 2011, public purchase from PPS Online Shopping Mall amounted to USD 11.3 bnfor 327,000 products 2011 survey on 6 sample MAS-contracted products showed significantly lower price compared to average market price [Price Comparison Samples : Private Market Price vs. MAS Contract Price] Reference year : 2011 9.1% 31.7% 13.9% 27% 21.5% 12.2% DVD Player Air Purifier Vacuum Cleaner Scanner Heater Photo-copier Average Price in Commercial Online Malls PPS e-Shopping Mall Price (on MAS Contracts)

14. Strengthening Procurement Workforce III

15. Strengthening Professional Workforce PPS’s Missions in Training Procurement Workforce Effectiveness of public procurement agency relies on professional procurement workforce • In Korea’s public procurement environment, PPS need to : • Develop highly professionalized workforce within PPS • Provide procurement training for autonomous public buyers (local govt., public enterprises, etc.) Public Procurement Education Institute (PPEI) Professional Development Institution under PPS - trains 900 PPS procurement officials, 160,000 staff from other public organizations, and 300,000 suppliers Manages 3rd party professional training for PPS professionals Administers Public Contracting Officers’ Certification program

16. Strengthening Professional Workforce PPEI Training Programs for Public officials PPEI offers in-class procurement training curricula for procurement officials across the public sector [ 2012 PPEI training curricular for public sector procurement officials ] PPEI also offers cyber training on 5 courses for 5,700 trainees in 2012

17. Strengthening Professional Workforce PPEI Specialized Programs for PPS Officials For procurement officials at PPS, PPEI offers additional professional courses [ 2012 PPEI additional courses for PPS officials ]

18. Strengthening Professional Workforce Contracting Officer’s Certification Program Certification program operated by PPS - Introduced in ’04 for PPS staff, opened to other public officials since 2007 Categorized into Advanced & Intermediate Professional Contact Officer and Cost Analysis Officer Certificate Holding Ratio among PPS Employees 592 Grade 1 (10) 270 69% Grade 2 (582) 31% Uncertified Certified

19. Vision World Best Procurement Agency e-Commerce Act State Contract Act Total service for public procurement e-Government Act Continuing development of expertise and workforce e-ProcurementAct Digital Signature Act Exchange of expertise and best practices with the World 17

20. THANK YOU