September 2012 Da-un, Jeong Deputy director, Public Contract and Procurement Policy Division Ministry of Strategy and Finance, the Republic of Korea

Coverage 1.Authorities Responsible for Public Procurement 2.Regulatory Framework 3.Liberalization of Government Procurement Market 4.Public Procurement Service 5.Volume of Korean Government Procurement Market 6.G.P. Process overview 7.Merits and Demerits of Centralized Procurement

Legal and regulatory framework for central government procurement Ministry of Strategy and Finance (MOSF) Executive agency under MOSF Public Procurement Service (PPS) Oversees public procurement policies and strategies Procures goods, services and construction works for central government entities Legal and regulatory framework for local government procurement Ministry of Public Administration and Security (MOPAS) Provides procurement services for local government entities and public enterprises upon request

Legislation of Korean Government Procurement Act on Procurement to Which the State is a Party Guideline on bidding and contracting for the central government : method of contracting and awarding Act on Procurement to Which a Local Government is a Party Guideline on bidding and contracting for local governments Act on the Management of Government-invested Institutions Guideline on bidding and contracting for public enterprises and other government-invested orgs. Public Procurement Act Mandates the establishment of central government procurement agency (PPS) and its responsibilities

Act relating to the Contract to which the State is a Party Presidential Decree of Act relating to the Contract to which the State is a Party Enforcement rule of Act relating to the Contract to which the State is a Party Domestic Bidding International Bidding Special Decree of Act and Special enforcement rule of Act relating to the specific contract to which the State is a party for International Bidding

Acceded to the 1994 Government Procurement Agreement (GPA) under the WTO Bilateral Free Trade Agreement - Korea- Chile FTA, Korea-Singapore FTA, Korea-US FTA, Korea-EU FTA, Korea-Peru FTA, Korea-EFTA FTA etc. CategoryThresholds of Central Government Goods 130,000 SDR ( US$ 2,200,000) Services 130,000 SDR ( US$ 2,200,000 ) Construction Contracts 5,000,000 SDR ( US$ 8,500,000)

l Buys goods and services l Contracts for construction services l Stockpiles raw materials such as aluminum, copper, etc. l Manages government-owned properties l Operates Korea on-line e-Procurement System (KONEPS)

-- Foreign aid materials management Established as Office of Foreign Supply (1949) History Developed into central government procurement agency - Became responsible for domestic and foreign procurement, and contracting for public construction projects (1961) - Management of government-owned goods (1971) -- Procurement of goods and services from abroad - Operation of the government e-Procurement system (2002)

Organization Administrator Deputy Administrator Audit and Inspection Officer General Services Division Office of Planning & Coordination Office of Planning & Coordination e-Procurement Service Bureau e-Procurement Service Bureau International Goods Bureau International Goods Bureau Procurement Service Bureau Procurement Service Bureau Construction Works Bureau Construction Works Bureau Quality Management Office Quality Management Office 11 Regional Offices Overseas Procurement Attachés in Chicago, London, Beijing Overseas Procurement Attachés in Chicago, London, Beijing Vice-ministerial level organization 945 Staff

Combination of Centralized and Decentralized Procurement Central government entities Construction Works Above US$ 100,000 Above US$ 3,000,000 Goods & Services - Centralized procurement Local government entities and public enterprises - Decentralized (autonomous) procurement - Legally required to procure through Public Procurement Service (central procurement agency) for requirements above threshold [ thresholds for centralized procurement]

Centralized 33% Decentralized 67% - Centralized : US$ 33 billion - Decentralized : US$ 67 billion Public Procurement Total (2011) : US$ 100 billion (10% of GDP)

PPS recovers its operational costs from procurement service fees from public entities PPS Public Entities Public Entities Suppliers Contracting Payment Supply of Goods & Services Procurement Request Payment Reimbursement Procurement Service Fee Operation PPS offers its procurement services upon receiving procurement requests

Procurement Workflow (Goods & Services) PPS Public Buyer 2. Public disclosure of PR Details 3. Review of Requirements 4. Determining Procurement Method 5. Tender Notice 6. Preparation of Estimated Value 7. Bid Evaluation and Awarding 13. Contract Closure 1. Purchase Request (PR) Contractor 12. Reimbursement 11. Payment 9. Contract Delivery 8. Notification of Contract 10. Inspection

Determining the most suitable contract and award method, considering the purpose, characteristics and size of the contract. Limited Tendering Selective Tendering Single Tendering LOW Competitiveness HIGH Open Tendering l Tendering Methods l Awarding Methods Lowest Price Awarding Lowest Price Awarding Qualification Evaluation Qualification Evaluation Contract by Negotiation Contract by Negotiation

Local govt Govt Corp Educational institute Educational institute Independent org Independent org Central govt Central govt Services Construction Goods Foreign Procurement Foreign Procurement User of PPSs Procurement Services

MeritsDemerits Centralized Procurement Volume purchasing Accumulated know- how Closer monitoring for transparency Effectively utilizes GP as economic policy tool Complex and longer procurement process Limited choice for the procuring entity Decentralized Procurement Freer choices for the procuring entity Urgent procurement Tend to be more expensive Difficulties in standardization and quality monitoring Loose monitoring – risk of moral hazard Complemented with e-Procurement: Reduced lead time via e-Processing Convenient e-Ordering for commercial goods

Da-un, Jeong