2011 annual report

Public Procurement ServiceThe Republic of Korea

2011ANNUAL REPORT

Public Procurement Service

Government PublicationsRegistration Number

11-1230000-000205-10

www.pps.go.kr/english


Public Procurement ServiceThe Republic of Korea

2011ANNUAL REPORT

2011 ANNUAL REPORTPublic Procurement Service

The Republic of Korea

About PPS

08 / Overview

10 / History

12 / Functions & Roles

14 / Organizational Chart

Letter from the Administrator

Analysis and Evaluation of Procurement Business

18 / Overview24 / Domestic Procurement

28 / Foreign Procurement 33 / Construction Works

38 / Stockpiling43 / Government Goods Management

e-Procurement

52 / KONEPS

59 / Global Cooperation in e-Procurement & KONEPS

61 / KONEPS Statistics

Globalization of Government Procurement

66 / Overview

67 / Global Cooperation in Public Procurement

68 / Cooperation with International Organizations

Green Procurement

72 / Overview

75 / Performance Highlights

Statistics and Others

80 / Statistics

82 / Work Flow Chart

86 / Contact Information

Table of

Contents

0102

0304

0506

Letter from the Administrator

Public Procurement Service | www.pps.go.kr 42011 Annual Report

Letterfrom 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 reforming various 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 also expanded the use of fingerprint recognition system by suppliers to prevent any illegal e-bidding attempts from occurring at the initial stage. Furthermore, it reinforced various measures to monitor and punish for fraudulent practices including violation of direct production, submission of false documents and other infractions. Thanks to these efforts, PPS was able to increase awareness that any illegal practices would not be rewarded.

In order to enhance the competitiveness of the industry as a whole, PPS boosted the procurement of green & new industries and promoted competition in technology & quality among suppliers through proactively utilizing its purchasing power. To this end, its priority was

5|Public Procurement Service | www.pps.go.kr 4

set on generating initial demand at the early stage with increasing the number of minimum green standard products and giving advantage to green manufacturers, so that the green industry could continue to grow at a stable rate. Also, by expanding the purchase of high technology and excellent procurement products, the levels of technology and quality in the public procurement market were improved greatly. Adopting the advanced schemes such as Pre-Notification System for Minimum Purchase Specification and Self -Qualification Guarantee System was another part of its effort to raise the competitiveness.

Moreover, PPS has contributed to accomplishing balanced growth for suppliers by encouraging the Small-Medium Enterprises (SMEs) including the socially vulnerable companies, to participate in the public procurement market. Expendables which used to be supplied by major companies in the past were replaced with those of SMEs and the participation of IT/SW SMEs in the public technology market 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 foreign procurement markets and further cooperate with its international counterparts in the field of public procurement. As part of its efforts, a new team consisted of specialists in global procurement market was organized to conduct such tasks. PPS has also strived to cooperate with other countries to share knowledge and discuss key issues in public procurement such as e-procurement via multiple communication channels including signing MOU, cooperative meetings and exchange of relevant public and private officials. Exporting the Korea ON-line E-Procurement System (KONEPS), recognized as a world-class e-procurement system, to Tunisia followed 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 at the stable level of stockpiling volume. Also, it analyzed each raw material effectively to differentiate the 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 forward procurement policies as to revitalize the nation’s economy and build capabilities to be prepared for a long run, so that every stakeholder in the field of public procurement can benefit through balanced growth.

This Annual Report details PPS’s activities throughout 2011 and their outcomes. I hope this Annual Report will serve to foster a broader understanding of PPS.

Ho-In KangHo-In KangAdministrator


Chapter 01

Overview _ 08

History _ 10

Functions & Roles _ 12

Organizational Chart _ 14

About PPS

2 0 1 1 A N N U A L R E P O R T

2011 Annual Report

About PPS

Public Procurement Service | www.pps.go.kr 8Public Procurement Service | www.pps.go.kr 8

Characteristics of Government Procurement

The lexical definition of procurement is to acquire financial or material resources. In this sense, procurement activities encompass all organizational units from households to firms, organizations, and the government. From the functional viewpoint, procurement is an indispensable activity and its successful fulfillment is essential to the continuation of an organization. There is a major distinction between the procurement of the government and that of other socio-economic agents, in that government procurement draws its funds from tax revenue. Hence, unlike procurement in the private sector, government procurement should reflect public concerns as well as efficiency.

Objectives of Government Procurement

Objectives of government procurement are as follows:

Firstly, government procurement aims at budget efficiency. Efficiency is the most valued objective for all economic agents. As an economic agent, the government also sets the highest priority on efficiency. Efficient procurement is increasingly viewed as an important strategic value both in public and private organizations. For private firms, cost savings can be more easily achieved through efficient procurement than through productivity enhancement. For the government, saving of the budget through efficient procurement poses less difficulty than increasing taxation, which may encounter resistance. From the perspective of a buyer, efficient procurement is fulfilled by selecting the supplier that provides goods or services of the highest quality 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 of resources, which in turn leads to budget saving for the government. Alternatively, lack of transparency impedes competition and may cause best-in-class suppliers to be precluded. This raises procurement cost and discourages further cost saving efforts on the part of the suppliers that are already within the barrier, which in effect lowers budget efficiency.

Overview

Public Procurement Service | www.pps.go.kr 8 9|Public Procurement Service | www.pps.go.kr 8

About PPSAnalysis and Evaluation ofProcurem

ent Businesse-Procurem

entG

lobalization ofG

overnment Procurem

entG

reen Procurement


Secondly, government procurement should ensure that it meets the intended purpose of public organizations 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 itself, as government procurement is intended to serve the functions and services that the government operates for the public. In other words, procurement is the acquisition of resources needed for the government’s policy objectives. Therefore, government procurement should serve the government’s policy objectives so that the government may accomplish its goals without hindrance.

Thirdly, government procurement also indirectly serves the government’s policies in relation to various aspects. Government procurement is characterized by its large scale. From the policy-makers’ perspective, the government’s large purchasing power is a helpful tool for realizing the government’s policies, and the government subsequently utilizes it to achieve its policy objectives. A representative example is the government’s support for small and medium businesses, local businesses, and socially disadvantaged businesses through its procurement policies. The government support for the socially disadvantaged through procurement policies should be limited to such an extent that it does not significantly affect the ultimate objective of budget efficiency.

Government Procurement Scale

Though varying in degrees, the size of government procurement has been in a constant state of growth in most countries. This is related to the continuous growth of the overall size of economy, despite regional and temporal fluctuations. The relative scale of government procurement, however, varies among countries and is dependent upon various factors such as the 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, representing 8.9% of GDP. PPS contracted approximately 37 trillion which is 36.2% of Korea’s total government procurement.

2011 Annual Report

About PPS


PPS’s Share in Government Procurement

(Unit: 100 million won)

Categories 2007 2008 2009 2010 2011

Govt. Procurement Total(A)* 920,352 1,040,760 1,222,846 1,044,265 998,494

PPS Procurement Total(B)** 276,348 290,000 452,064 377,608 332,937

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)** Figure represents the sum of PPS’s domestic procurement and construction work contracting. Foreign

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.

The history of PPS traces back to the period immediately following the foundation of the Korean government. 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 Economic Corporation Administration, which administered the US’s foreign aid, and contributed to Korea’s economic development and industrial revival through the management of foreign aid supplies.

On December 15, 1949, the Office of Foreign Procurement was established separately with exclusive responsibilities for foreign procurement. Thus, foreign procurement and foreign aid supplies began to be administered separately. On December 19, 1949, POFS was restructured and renamed as the Provisional Office of Foreign Supply Management. Provisional Office of Foreign Supply Management was consolidated with the Office of Foreign Procurement on February 17, 1955, and was renamed the Office of Foreign Supply. On October 2, 1961, for the purpose of procuring domestic and foreign supplies more efficiently for the nation’s economic development, the Office of Foreign Supply was expanded and became the Office of Supply, the Republic of Korea (OSROK). On November 29 of the same year, contracting for construction works was included in its capacity.

History




entG

lobalization ofG

overnment Procurem

entG

reen Procurement


On February 16, 1967, PPS assumed a new function of stockpiling, aimed at mitigating the impact of price fluctuations in the international raw material market and thus contributing to the steady growth of the national economy. On September 22, 1971, PPS was vested with an added responsibility to oversee and coordinate government goods management for the efficient and systematic management of the government’s movable assets.

The storage and distribution of supplies commonly used by government organizations had been centrally administered by PPS since 1962. On January 1, 2006, this storage operation was discontinued considering that it restricted the growingly diversifying demands of public organizations. On December 28, 2007, legal basis was founded for PPS’s new roles in government property management, including the management status monitoring of government properties.

Change of PPS English Name

2000 ~ Present PPS (Public Procurement Service, the Republic of Korea)

1997~1999 SAROK (Supply Administration, the Republic of Korea)

1961~1996 OSROK (Office of Supply, the Republic of Korea)

Added Functions

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

Feb 16, 1967 Commodity stockpile

Nov 29, 1961 Construction contracts

2011 Annual Report

About PPS


PPS’s Functions

PPS performs the following five functions as prescribed by laws and regulations, with the exception of defense procurement including arms, ammunition, and war materials:

Domestic and foreign procurement for public organizations• In 2011, PPS’s domestic and foreign procurement totaled 17.9 trillion won and 688

billion won respectively.

Contracts for the government’s major construction projects•Contracts for construction works concluded via PPS in 2011 totaled 15 trillion won.• PPS also provides both the total construction cost review service and construction

management services for public organizations lacking relevant expertise.

Government stockpiling and supply of major raw material commodities• PPS stockpiles major raw materials and construction materials such as aluminum,

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•�PPS oversees and ensures the efficient management of government goods valued at

approx. 13.4 trillion won in total.• PPS also assumes a role in the management of government-owned real estate

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• PPS operates the Korea ON-line E-Procurement System (KONEPS) to facilitate the

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.• By promoting the use of KONEPS, PPS serves to enhance transparency and efficiency

in government procurement.

Functions & Roles




entG

lobalization ofG

overnment Procurem

entG

reen Procurement


PPS’s Roles

As a specialized executive agency, PPS assumes various roles :

PPS maximizes the efficiency of the government’s budget execution and management by minimizing procurement costs through centralized procurement. PPS has also broadened the customers’ choices with its Multiple Award Schedule (MAS) and Online Shopping Mall which channels the public organizations’ demands and streamlines the procurement process, resulting in budget savings, reduced human resources and a scaled-down yet more efficient government.

PPS pioneers the ways of enhancing transparency in public procurement. Through the implementation of KONEPS, PPS has digitalized the entire procurement process from purchase request through to payment, removing unnecessary person-to-person contacts between suppliers and contracting officials. PPS has improved its work procedures and policies to enhance transparency, such as the Integrity Pact policy and the real-time release of procurement related information. With the advent of e-Procurement, PPS dedicates itself to 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 on its accumulated expertise. PPS raises government’s budget efficiency through reviewing and adjusting the total construction cost of large scale national projects. In the trend of decentralization, local autonomies are given increased freedom of finance control, and allowed to independently conclude contracts for large construction projects. PPS complements the local autonomies’ contracting capabilities through its advance construction cost review service.

In conclusion, PPS contributes to realizing the government’s various policy objectives by rendering practical support for the government in achieving its goals. PPS executes procurement policies and contributes to actualizing the government’s business support polices for small and medium sized businesses, venture businesses, entrepreneurs, traditional and cultural enterprises and socially disadvantaged businesses; as well as policies for environmental preservation and economic stabilization, such as price stabilization, and supply and demand balancing.

2011 Annual Report

About PPS

Public Procurement Service | www.pps.go.kr 14

5 Bureaus, 1 Quality Management Office, 11 Regional Offices, 4 Oversea officesPersonnel: 945 employees (434 in the Headquarters, 54 in Quality Management Office, 457 in

Regional Offices)

Oversea Procurement Officers Toyko London Chicago Beijing

•General Management Division •General Procurement Division

Deputy Administrator

Administrator

Daejeon·Gangwon·Chungbuk·Jeonbuk·Gyeongnam·Jeju Regional Public Procurement Service

Spokesperson

Audit and Inspection Officer General Services Division

Director General for Planning & Coordination

•Planning and Budget Officer•Regulatory Reform & Legal Affair Officer•Management Support Team•Administrative Management Officer•Procurement Professional Development Officer

International Goods Bureau

•Commodity Management Division•Commodity Stockpile Division•Foreign Equipment Division•International Cooperation Division•Foreign Machinery Team

Construction Works Bureau

•Construction Business Management Division•Civil Engineering Contract Division•Buildings & Facilities Contract Division•Construction Planning Division•Budget Project Management Division•Technical Evaluation Team•Construction Supervision Team

Seoul Regional Public Procurement Service

•General Management Division•Materials Procurement Division•Equipment Procurement Division•IT and Service Contract Division•Construction Divisioan•Construction Supervision Team

Incheon Regional Public Procurement Service

•General Management Division•Materials Procurement Division•Equipment Procurement Team

e-Procurement Service Bureau

•Information Planning Division•Information Management Division•Government Property Management Division•Government Goods Management Division•Customer Support Team•Government Property Planning & Research Division

Procurement Service Bureau

•Procurement Management Division•Materials & Equipment Division•Excellent Products Division•Shopping Mall Planning Division•Information Technology & Services Division •Shopping Mall Unit Price Contract Team•Shopping Mall Procurement Team

Quality Management Office

•Quality Management Coordination Division•Materials Quality Management Division•Equipment Quality Management Division•Quality Assurance Division

Busan Regional Public Procurement Service

•General Management Division•Materials Procurement Division•Equipment Procurement Team

Daegu . Gwangju Regional Public Procurement Service

•General Management Team•Materials Procurement Team•Equipment Procurement Team

Organizational Chart

Chapter 02

Overview _ 18

Domestic Procurement _ 24

Foreign Procurement _ 28

Construction Works _ 33

Stockpiling _ 38

Government Goods Management _ 43

2 0 1 1 A N N U A L R E P O R T


In 2011, Korea overcame the financial crisis at an alarming rate and its employment rate began to improve. However, due to its weak domestic market, the actual economic sentiment of ordinary citizens and SMEs somewhat worsened. As a result, the Korean government put its priority on revitalizing the domestic market by expanding the income-base for those of ordinary citizens and SMEs.

PPS also made efforts to support SMEs and other under-privileged people. By actively introducing separate order of construction materials, and competitive bidding among SME consortium, it supported market entrance for SMEs. In particular, the share of purchasing by SMEs totaled record-breaking 14 trillion won which accounts for 77.6% of the total purchasing amount.

Meanwhile, there was concern over the rising rate of inflation due to the price hike in international commodity market. To this end, the Korean government strived to stabilize the price and PPS contributed to its efforts by establishing measures for implementing procurement policies to support of price stabilization.

There was also policy improvement for establishing fair procurement market. PPS ensured a level playing field for each participant in the procurement market by strengthening its sanctions for unfair practices and improving its procurement system to supplement any loophole of regulations.

In addition, PPS laid the foundation of the procurement system to encourage suppliers to innovate the quality and technology. It adopted the Pre-notification of Minimum Purchasing Standard and Comprehensive Awarding system to take the functions and environment into account. Also, it improved the system of designating Excellent Procurement Goods so it could enhance the quality and promote competition in technological development.

Moreover, PPS strived to develop the green procurement scheme. It designated 19 additional products including vacuums as the Minimum Environmental Standards products and assigned the Green Construction Materials, thus enabling the demand for green products in public

Overview

2011 Annual Report



market to be expanded. The performance of purchasing green products in 2011 recorded at 3.38 trillion won approximately, up by 1.20 trillion won compared to last year. The figure represented 20.4 % of total purchasing products, 7.5% increase year on year.

What’s more, PPS continuously supported SMEs by releasing stockpiled materials at a discounted price. Depending on the possibility of supply disruption and demand from SMEs, it differentiated the target volume of stockpiling by item and carried out the Joint Public-Private Stockpiling business to prepare against any potential threat of supply disruption.

PPS played a typical role of central procurement agency by reducing procurement budget and supporting SMEs throughout the year of 2011, while executing procurement administration in 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)

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 construction supervision service

included in domestic

procurement


procurement


procurement3,176 3,230

Stockpiling

services

stockpiling 7,261 7,219 6,864 3,236 3,628

stock release (5,742) (6,206) (4,216) 3,722 6,592

futures options (3,702) - - - -

Supervision and review for construction works 173,911 213,837 241,115 138,856 134,187

Total Service 11,112 19,713 28,853 33,281 24,003

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

* The figure represents the total sum of the performance results in procurement services (domestic procurement + 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).

Public Procurement Service | www.pps.go.kr 18 19|

About PPSAnalysis and Evaluation of

Procurement Business

e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Performance Highlights

Enhancing fairness in government procurement

PPS has been trying to ensure a level playing field by continuously improving and closing any loop hole in the procurement system. In particular, PPS set the Policies to Enhance Fairness in Government Procurement and implemented it as one of its main objectives in 2011.

Additionally, PPS signed the agreements with 8 associations representing more than 200,000 suppliers in the procurement market to create the environment of fairness.

History

▲ Signing ceremony for Agreement on Fair Practice in Public Procurement with supplier associations

•�Strengthening regulations on abuse of the support system

•�Elimination of ineffective contractor holders

•�Restricting unqualified suppliers to KONEPS

•�Strict regulations on bid rigging for major construction projects

•�Not awarding contracts to unlawful contractors

•�Ensuring the enterprises enter the market

•�Expanding preferential policies for SMEs

Preventing unlawful participation in the

procurement market

Restricting market entry of unqualified or insolvent

suppliers

Eradicating unfair business practices

Reinforcing competitiveness of Socially vulnerable

Enterprises

Establishing fair competition rules &Reinforcing competitiveness of Socially

vulnerable Enterprises

2011 Annual Report



Support of Socially Disadvantaged Enterprises

The Korean government has been assisting SMEs with various policies such as tax-exemption, financial support, etc. In line with the government policy, PPS has also been supporting SMEs, which 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 last five years. Contracting with SMEs in construction works exceeded more than 50 % of total contracts for the first time. This demonstrates that PPS’s constant endeavor to support SMEs has been coming to fruition.

Support for SMEs

(Unit : 100 million won, %)

Categories 2007 2008 2009 2010 2011

Total

Total amount 282,090 293,122 431,563 381,330 339,529

Support amount 156,515 176,932 232,952 229,528 224,941

(%) (55.5) (60.4) (54.0) (60.2) (66.3)

Goods

purchased

Total amount 132,295 150,556 188,353 173,495 179,378

Support amount 87,988 104,606 133,512 130,479 139,205

(%) (66.5) (69.5) (70.9) (75.2) (77.6)

construction

works

Total amount 144,053 136,360 238,994 204,113 153,559

Support amount 62,861 66,157 95,349 95,327 79,479

(%) (43.6) (48.5) (39.9) (46.7) (51.8)

commodity

release

Total amount 5,742 6,206 4,216 3,722 6,592

Support amount 5,666 6,169 4,091 3,722 6,257

(%) (98.7) (99.4) (97.0) (100.0) 94.9

In order to ease the economic imbalance between large metropolitan areas and regional areas and to vitalize regional economies, PPS has been implementing preferential treatments for enterprises based in regional areas. In addition, when a joint consortium is formed with regional enterprises to submit a bid, it can receive additional points during the evaluation for awarding contracts. As a result, the purchased amount from regionally-based businesses reached 67.5%, up by 4.5% from last year.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Support for regionally-based businesses


Categories 2007 2008 2009 2010 2011

Total

Total amount 282,090 293,122 431,563 381,330 339,529

Support amount 167,560 190,076 268,347 240,093 229,050

(%) (59.4) (64.8) (62.2) (63.0) (67.5)

Goods

purchased

Total amount 132,295 150,556 188,353 173,495 179,378

Support amount 78,820 99,240 125,169 112,697 117,747

(%) (59.6) (65.9) (66.5) (65.0) (65.6)

construction

works

Total amount 144,053 136,360 238,994 204,113 153,559

Support amount 84,646 86,553 139,621 123,803 104,852

(%) (58.8) (63.5) (58.4) (60.7) (68.3)

commodity

release

Total amount 5,742 6,206 4,216 3,722 6,592

Support amount 4,094 4,283 3,557 3,593 6,451

(%) (71.3) (69.0) (84.4) (96.5) (97.9)

PPS also strengthened its support for women-owned businesses and according to the data in 2011, the performance of women-owned businesses recorded 1.8 trillion won which accounted for 5.4% of the total performance (goods purchased + construction contracts).

Support for women-owned businesses


Categories 2007 2008 2009 2010 2011

Total

Total amount 276,348 286,916 427,347 377,608 332,937

Support amount 10,399 13,511 16,675 16,776 18,037

(%) (3.8) (4.7) (3.9) (4.4) (5.4)

Goods

purchased

Total amount 132,295 150,556 188,353 173,495 179,378

Support amount 6,388 7,976 10,895 10,495 12,181

(%) (4.8) (5.3) (5.8) (4.4) (6.8)

construction

works

Total amount 144,053 136,360 238,994 204,113 153,559

Support amount 4,011 5,535 5,780 6,281 5,856

(%) (2.8) (4.1) (2.4) (3.1) (3.8)

2011 Annual Report



Expansion of purchasing green products

In 2011, the total purchasing of green products by PPS increased after it had been hovering around 12% for the past 3 years. Thanks to its green growth policy, the green products took a larger 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

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 entry barrier for green products such as establishing the Minimum Environmental Standard Product, designating green products as Excellent Procurement Products, giving preferential treatments on green products during MAS contracts and expanding the use of comprehensive award system with consideration to the environment.

In addition, PPS launched the Integrated Information Network on Public Green Purchasing in November 2011, which enables users to access to all the available information on green products. It was somewhat difficult for public contracting officials to purchase green products in the past due to its complexity related to certificates and regulations. However, the network has made it possible to resolve any inconvenience for officials.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Overview

The world economy was expected to recover gradually in 2011 with growth rate of Korea estimated at 3.6%. Recognizing insufficient recovery of economic sentiment and the need to improve structure of our economy, PPS focused on economic revitalization through various policies in support of SMEs, expedited budget execution to boost domestic consumption and enhance financial soundness of SMEs. It also pursued “Low Carbon Green Growth” by facilitating green purchasing in public sector and promoted qualitative growth of procurement market by establishing procurement system which encourages quality and technology competition contributing to strengthening foundation of our economy.

Performance

PPS’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 public entities. However, the purchasing amount by local governments which accounts for more than 50% of domestic procurement decreased by 38 billion won compared with 2010. The changes in procurement demands by local governments are attributed to the increased volume of their autonomous procurement after procurement liberalization became effective.

Domestic procurement performance


Categories 2009 2010 2011

Domestic procurement 188,353 173,495 179,378

Domestic Procurement

2011 Annual Report



Domestic procurement performance of each end-user


Categories2009 2010 2011

Amount Share Amount Share Amount Share

Total 188,353 100 173,495 100 179,378 100

Central Orgs 41,705 22.1 41,413 23.7 42,264 23.6

Local Gov 116,285 61.7 99,498 57.3 95,711 53.4

Public Orgs 17,753 9.4 21,785 12.6 31,892 17.7

Others 12,610 6.7 11,069 6.4 9,511 5.3

Purchasing amount of products by SMEs recorded 13.9 trillion won with its share representing 77.6% of domestic procurement thanks to policies supporting SMEs. The share of purchased products by regionally-based businesses has been maintaining 65% since 2009, and the share of purchased products by women-owned businesses has increased constantly to 6.8% in 2011. Their increased shares resulted from implementing various policies including purchasing policies favorable to SMEs, regionally-based businesses, and women-owned businesses, promoting group purchasing of products by those businesses, and reducing barriers for small sized businesses to enter public procurement market.

Domestic procurement performance of SMEs


Categories 2009 2010 2011

Domestic procurement 188,353 173,495 179,378

Purchasing amount of products by SMES (Share) 133,512(70.9)

130,479(75.2)

139,205(77.6)

Purchasing amount of products by regionally-based businesses (Share) 125,169(66.5)

112,697(65.0)

117,747(65.6)

Purchasing amount of products by women-owned businesses (Share) 10,895(5.8)

10,495(6.0)

12,181(6.8)




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers



Securing fairness in public purchasing scheme

Support SMEs with more opportunities to supply goodsPPS came up with measures to give preferential treatment to SMEs by granting them additional points during the evaluation process so they can have increased chances to supply goods to public organizations. Also, In order for SMEs to participate more in MRO market, PPS reformed its purchasing system to provide more options for end-users and encourage SMEs to improve quality 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: past performance, management, technology capability, reliability, and satisfaction level. Also, 16 additional indexes were checked whether suppliers are qualified. As a result, only suppliers which passed the review system with high scores could make contracts with public organizations.

Contribution to the development of technology and industry

Introduction of pre-notification for minimum purchasing standardPPS enabled only suppliers, who meet the requirement of pre-notification for minimum purchasing standard to register in MAS. This standard was applied to green, IT and new growth engine products and products closely related to safety and hygiene. By doing so, the overall quality 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 6 halls operated including Excellent Products Hall, Green Products Hall, and Overseas Expansion Hall. In particular, PPS invited foreign buyers as well as domestic buyers to give opportunities to outstanding SMEs and for venture companies to have business talks with foreign buyers, which was for direct/indirect promotion of products by domestic companies supporting their overseas market entrance.

▲ Korea Public Procurement Expo (KOPPEX) 2011

2011 Annual Report



Future Plan

Continuous improvement of MAS

PPS is planning to expand the use of pre-qualification review system and improve the 2nd stage competition in 2012. As a result, unqualified suppliers will be weeded out while transparency and fairness in MAS market are enhancing. Moreover, by strengthening its monitoring system on market price, it is expected that the soundness of MAS market will improve further.

Operation of program management office (PMO)

In 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.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Overview

Foreign procurement refers to procuring goods and services that are not domestically produced or supplied, and therefore procured through international tendering in accordance with international commercial practice. Central government organizations are required to use PPS 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 procurement independently starting in 2008, in accordance with the government’s policy to expand autonomy of government procurement. Foreign procurement encompasses a variety of commodities ranging from books to sophisticated system equipment including science and research equipment, 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 Provisional Office of Foreign Supply (1949) and the Office of Foreign Procurement (1955). During the years between Korea’s liberation from Japanese colonialism and recuperation from the Korean War, the management of foreign aid supplies and foreign procurements was the essential function that largely contributed to the nation’s industrial development. Even after the three major areas of centralized government procurement which were mostly consisted of foreign procurement, domestic procurement and construction works, converged under the responsibility of PPS in 1961, foreign procurement continued to play a major role in the development of Korea’s procurement administration.

However, due to rapid economic growth and domestic industrial development, more foreign products were replaced by domestic ones. After Korea ceased to be the beneficiary of public loans from all international organizations in 1995, the scale of Korea’s foreign procurement has decreased thus leading to the inevitable downsizing of the foreign procurement unit in PPS. In addition, the effectuation of the WTO Government Procurement Agreement (GPA) in 1997 led to the opening of the government procurement market to foreign suppliers. Korea has since adopted the national treatment and non-discrimination principles for domestic and foreign suppliers for goods and services covered under GPA regulations, and therefore purchases goods and services regardless of domestic or foreign origin.

Foreign Procurement

2011 Annual Report



In such changes related the procurement environment and circumstances, PPS is facing a heightened requirement of timely and expert services for foreign procurement in response to the diversifying needs of the customer organizations. Hence, PPS has streamlined the work processes for foreign procurement, and adopted multimodal transport contracts whereby goods are delivered to the designated place in a single process, as well as blanket import cargo insurance contracts which enabled further budget savings for customer organizations.

Further, as an effort to expand competition and enhance transparency as well as to digitalize foreign procurement procedures, PPS has implemented the policy of disclosing the purchase request (PR) details via KONEPS in advance. KONEPS also enables ordering organizations to conduct this procedure independently.

In 2005, PPS successfully incorporated foreign procurement procedures into its e-Bidding system, which was previously an issue due to the additional procedures associated with foreign procurement. In 2006, PPS implemented a digitalized logistics management system for foreign procurement. In addition, PPS reorganized its foreign procurement unit to consolidate its professional expertise in preparation for launching the On-Demand Service. The foreign procurement unit, formerly divided by the types of customer organizations, was subsequently restructured into a unit divided by product categories.

PPS additionally improved the user convenience for the suppliers with the commencement of the SMS information service, which provides contract awarding information on a real-time basis through mobile messaging. Furthermore, PPS streamlined its policy bidders’ submission of manufacturer’s certificate in order to reduce the bidders’ paperwork burden. The submission of manufacturer’s certificate, which was formerly mandatory for participating in tenders of which the estimated value exceeds 200,000 USD, is no longer required except for a limited range of equipment 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 by procuring entities when preparing specifications in English. As part of PPS’s On-Demand Service, PPS established an expert pool to conduct proposal evaluations in 14 highly specialized areas on behalf of public organizations without sufficient expert professionals. The 2007 performance of the On-Demand Service includes technical proposal evaluations for major procurement projects including the lift installation work at the ski range in Seolak Leisure Complex for Taebaek Tour Development Construction Co.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


In 2008, PPS’s foreign procurement operation concentrated on further complementing the recent innovations. The application scope of small foreign procurement procedure was expanded 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 overall procurement volume and reaches 3.5% of domestic procurement, it has been continuously growing since 2000 despite the autonomy of local government’s procurement. This shows that public organizations continue to use PPS’s services for foreign procurements regardless of the size of requirement. Due to the specialized nature of foreign procurement and difficulties for procuring entities involving international trade laws and practices, foreign procurement is recognized as an important area for PPS‘s development.

As Korea advances in respect of technology, replacements of foreign equipment with domestic ones are expected to accelerate. Foreign procurement is expected to face further challenges in the environment and diversifying demands of customer organizations. PPS is facing the need to enhance its consulting services based on its expertise, such as assisting procuring entities with the preparation of specifications in English, and expanding its database of products and specifications.

Performance

The 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 decreased by 10 % compared to last year, overall performance was up by 13% compared to the previous year due to major foreign procurement projects such as purchasing construction materials for building the subway line in the city of Daegu.

Performance Breakdown by Contracting Methods

(Unit : USD 1,000,%)

Categories2008 2009 2010 2011

Amount Share Amount Share Amount Share Amount Share

Total 880,866 100 1,012,574 100 525,028 100 625,923 100

Competitive tendering 852,860 96.8 972,497 96.0 473,033 90.1 585,124 93.5

single tendering 28,006 3.2 40,077 4 51,786 9.9 40,799 6.5

2011 Annual Report



Performance Breakdown by Customer Organization Type

(Unit : USD 1,000,%)

CategoriesCentral Gov. Local Gov. Public orgs Others Total

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


Improvement of business process

Since 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 information by manufactures or by models, raising efficiency in contracting work.

Quality enhancement for foreign procurement

PPS revised the Regulation on Foreign Procurement in October 2011 to improve quality and manage contracts effectively. It mainly consists of increasing amount of the performance bond and the defect bond on suppliers with the past history of delay in delivery and use of defective goods.

Future plan

Introduction of main standard evaluation process to promote competitiveness

There are some cases where certain bids are determined to be unsuitable during the evaluation process due to difference in the standard of unimportant parts. Therefore, PPS will strive to evaluate the standard based on main functions and prevent bidders being turned down because of insufficient standard on unnecessary parts.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Simplified process of submitting supplementary documents

The documents related with contract execution are among supplementary documents submitted at the initial stage of bidding. However, PPS is expected to request the contract execution related documents to only contract awardees in the future.

Holding meetings with dissatisfied customers

Meetings will take place regularly to listen to what concerns or complains customers might have. PPS will take this opportunity to resolve any complaints or misunderstanding of discontented customers.

Enhancement of fairness and competitiveness by facilitating open solicitation for foreign procurement specifications

PPS is operating the site for 「Open Solicitation for Foreign Procurement」 at KONEPS by which it collects specifications and opinions from concerned companies before they draw up specifications and provide standardized specification forms. In 2011, PPS plans to raise competitiveness of purchasing specifications by further utilizing this site and help customers have better understand of foreign products. It will also add functions of automatic comparison among specifications from various foreign suppliers and submission of specifications as well as function of opinion exchanges between demander organizations and suppliers to the site.

Introduction of identification numbers for providing information on products 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.

2011 Annual Report



Overview

In 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 of expertise and effective connection to each other. When such phases are lacking functional connectivity, a deadlock for large-scale construction works including budget waste and a delayed construction period may result. It could also lead to serious side effects such as an ineffective value for money and a reduction in public convenience.

The government adopts two roles in issuing orders for construction works, which include that of a buyer of public facilities, and executor of construction-related policies. As an end-user of the facilities, the government selects the contractor which is competitive in terms of price and technology, thus successfully completing construction. The government’s role as the executor of construction-related policies is to support a balanced development of the construction industry, social minority companies, and distribute orders in a fair manner.

The yearly volume of construction orders is determined by various factors such as construction market sentiment, economic conditions, and government policy directions. In 2011, the volume of construction orders reached 110.7 trillion won. Public construction works account for approx. 33% of the total construction market. The yearly volume of construction orders issued by PPS is recorded 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

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)

Construction Works




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


The headquarters for construction works in PPS engages in a range of diverse services throughout the respective construction period. Primary concerns involve contracts and management of major constructions, designing and supervision contracts, designing management, and construction management as requested by government organizations, local authorities, and government-invested organizations. As for construction contracts, the related Korean law states that central government organizations are required to use PPS for ordering any construction works that reach a value of over 3 billion won.

For design-supervision service contracts, designing management contracts and construction management contracts, it is not mandatory for public institutions to contract through PPS. In particular, the Enforcement Decree of the Procurement Business Act was revised at the end of 2004 to reduce the scope of mandatory use of PPS by local autonomies, with a view to expanding the 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 works since 2010. However, in order to prevent possible budget waste resulting from self-orders of local autonomies, PPS reviews in advance the cost price for construction works of which the estimated value is in excess of 10 billion won.

In addition to the above-mentioned executive functions, PPS also takes initiative in implementing appropriate tendering criteria by the types of ordering organizations in compliance with their respective laws that are in turn adopted by other government organizations. Thus, PPS contributes to the dissemination of best practices in public construction works.

Performance

The volume of new construction contracts remained stationary at 11.18 trillion won on average from 2005 to 2008 after it had reached its peak at 14.6 trillion won in 2004. In 2009, the volume sharply increased to 26.35 trillion won thanks to 4 Major River Restoration Project and large scale government-led construction works. In 2011, the volume was down by 25 % from the previous year due to decreased share of new construction projects among SOC budgets of the government, local autonomies, and government-invested organizations.

PPS is implementing policies in support of small and medium sized construction companies and regionally-based construction companies. PPS’s construction contract volume with SMEs totaled 7.948 trillion won decreased from 9.533 trillion won of last year. But its share of the PPS’s total construction contract volume increased sharply to 51.8% from 46.7% year-on-year thanks to the policies in support of SMEs.

2011 Annual Report



PPS’s construction contract volume with regionally-based construction companies totaled 10.49 trillion won. The figure is less than 12.38 trillion won of 2010, but its share of PPS’s total construction contract volume increased greatly to reach at 68.3%, up by 7.6% from 60.7% year-on-year. It means that PPS policy to encourage large-scale construction projects to be contracted 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 trillion won of 2010. Although there was decrease in the service, the volume of the On-Demand Service has been on track of growing till 2010 by over 50% annually. It is attributable to the fact that PPS has successfully conducted many complex construction projects requested by various end-users based on its expertise and technology it has accumulated as the professional agency of construction management.

Performance of construction works


Categories 2011 plan(A)

Performance Achievement rate (%)2010(B) 2011(C) C/A C/B

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-based business 121,940 123,803 104,852 86.0 84.7


Budget reduction in public construction works through design review

PPS upgraded its status by shifting focus of construction cost management from the past’s cost reduction through project cost review to more reaso nable construction cost management which pursues Best Value such as correction of design errors and excess design. It also applied Value Engineering (VE) which enhances designing functions and reduces construction cost at the same time, resulted in decrease in the total construction cost of 2011 by 2.81%, up by 93.8% from last year.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Provision of On-Demand Service each public organization wants

For those end-users who are experiencing difficulties in implementing construction project due to shortage of expertise and technology, PPS conducted the entire construction works from planning through to post-management or part of it on behalf of those organizations upon their voluntary request. The On-Demand Service, which has been provided since 2004, has continuously increased in volume with 2.89 trillion won in 2009, 3.33 trillion won in 2010. Even though the volume somewhat decreased to 2.40 trillion won in 2011, it can be considered that the service is becoming a essential system to support end-users with specialized labors.

Expansion of scope of total project cost review for large-scale government-led construction works

PPS reviews appropriateness of detail designs for public works valued at over 50 billion won and construction works worth over 20 billion won to prevent waste of expenditure in advance. In 2011, PPS reviewed appropriateness of detail designs of total project cost for 216 construction projects, 2,325 cases of prices adjustments, and appropriateness of detail designs for 18 private construction projects. It has contributed to reducing the national budget by 886 billion won which accounts for 7.1% of the total amount requested by demander organizations.

Publication of source book of “Analysis on Construction cost based on Construction Types” to estimate appropriate construction cost

PPS has published and distributed source books covering analysis on construction cost per each unit based on types of public works and public buildings since 2004 annually to government 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 construction works contracted in 2011, and analyzed their construction cost per unit area or length.

Establishment of standard to request the investigation of bid rigging in major construction projects

After analyzing past practices of bid riggings, PPS set 12 standards to find out in advance if there 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. By regulating such procedures, it is expected that fair competition will take a firm root in the public construction market while improving overall quality of construction and reducing budget.

2011 Annual Report



Future plan

Enhancing competitiveness in the construction industry by improving construction contracts

PPS will differentiate the evaluation criteria for a bidding of technology proposal by reflecting other 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 past performance of specific field can be restricted in participation of bidding.

Support of green construction

In order to increase the demand for green construction, PPS will seek to set the guideline of standard on green remodeling technology and orders and push ahead with pilot projects for green remodeling. In addition, PPS will expand the use of green construction materials and vigorously demand the strict energy efficiency in the new public buildings being built.

Enhancement of Construction Total Service

Through the assessment of performance on Construction Total Service, PPS will set up the quality control system appropriately and develop best practices. Also, vitalizing the evaluation of performance on each stage of construction, PPS will be able to clarify where the responsibility lies and strengthen the quality control through using the result of evaluation and feed-back.

※BIM(Building Information Modeling)

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.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Overview

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 selected

materials and policies for stockpiling operation have been changed according to the national economic conditions of a certain period.

In the early stages, PPS’s stockpiling was mainly for stabilizing prices with short-term perspective concentrated on rebar and cotton yarn, but recently it has been focused on base metals 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 materials and helps SMEs stabilize their operations by expanding release volume of stockpile materials responding to the continuous rise of international commodity prices since 2003.

In particular, it introduced Commodity Group Purchasing Service which contributed to reducing risk from high cost of government stockpiling and securing necessary materials for SMEs. Commodity Group Purchasing Service is to help stable supply of the materials regardless of price fluctuations by forecasting SMEs’ commodity consumption for a certain period and concluding premium contracts based on futures trading.

Stockpiling

2011 Annual Report



PerformanceDespite limited resources, PPS has steadily expanded its stocks through effective stockpiling operation. At the end of 2010, PPS started stockpiling non-ferrous metals for 33 days of import demand, 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 metal 22.4 30.7 39.0 39.5 33.0

rare metal 14.9 22.7 56.7 63.6 68.8

Performance of stockpiling fell a little bit short of the initial plan in 2011. It is attributable to unfavorable conditions for purchasing due to commodity price hikes. Meanwhile, releasing commodities from stockpiles at a discounted price to SMEs helped prevent shortages.

Stockpiling performance


Categories2010

performance(A)

2011 Share (%)

Plan (B) Performance(C)

Against 2010(C/A)

Against the plan(C/B)

StockpilingPurchasing 3.236 4,900 3,628 112.1 74.0

Stock release 3,722 4,300 6,592 177.1 153.3


Establishment of infrastructure to enhance national stockpiling system

PPS came up with a measure to differentiate target volume of stockpile materials considering their demand structure, especially for SMEs, barriers in supply and economic feasibility. For example, 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 be stabilized due to relatively large number of suppliers. Also, the target volume of stockpiling rare metals including cobalt, indium, silicon, and others were adjusted to meet the current demand or to be free from possible shortage of supply.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


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. For example, it designated Pusan warehouse as a joint public-private stockpiling warehouse and Incheon as an exclusive warehouse for metropolitan area.

In order to release stockpiled materials effectively, releasing conditions were categorized into 3 situations: Emergency, Possible Shortage of Supply, and Normal circumstances. The releasing volume was set at percentage depending on each situation. In case of an Emergency, the full volume is possible to be released to meet the demand while up to 30% of target operational stock could be released at market price in Normal circumstances. Also, when there is concern over 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 of stockpile materials

PPS increased the stockpiling volume of raw materials from 51.5 days of import demand in 2010 to 52.3 days of import demand at the end of 2011. It also secured reasonable amount of rare metals for stockpiling based on items by the end of 2011 (increased from 63.6 days of import demand in 2010 to 68.8 days at the end of 2011), which are currently the subjects of tough competition among countries.

Increasing volume of stockpiled materials to be supplied to SMEs

PPS 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 of commodity price hikes. ‘Emergency Allocation’ is for allocating necessary amount of materials

2011 Annual Report



to SMEs in urgent need after evaluating requirements, and ‘Additional allocation for Small sized Companies’ is for allocating certain amount of materials additionally for small-sized firms even when the limit of additional release for each item is exceeded. Also, from March 2011 to the end of June 2011, the stockpiled materials were released at the discounted price given that it was the peak period for demand of raw materials, thus contributing to businesses of SMEs who were struggling with maintaining stable volume of raw materials.

Laying foundation for public-private joint stockpiling and pilot project

To secure appropriate amount of commodities is not easy given that government budget for stockpiling is limited. To solve this problem, PPS promoted public-private joint stockpiling project to supplement government stockpiling operations. Under this project, PPS stores and manages rare metals purchased by private companies in its idle facilities and utilize those materials exempted from facility use fee for public interest in case of commodity price hikes. Through this project, PPS can expand the scope of stockpiling of domestic materials without budget injection while the companies are able to reduce financial burden of securing their own storage facilities and save storage/ management costs compared to the lease of private storage facility.

Future plan

Foundation for balanced supply and demand of commodities

PPS plans to expand its volume of stockpiling based on mid and long-term plan for target volume which will be differentiated by each item. In particular, it will expand the stockpiling volumes of rare metals which are in a great risk of supply shortage. It also plans to gradually replace current specifications of stockpiled materials to specifications that are needed and expected to increase in demand in the future.

Vitalizing joint public-private stockpiling to secure commodities at sufficient level

In order to respond to possible supply disruption, it is essential to secure commodities as much as possible. However, it is also true that it is difficult to maintain the enough volume due to a limited budget. For this reason, PPS has been enhancing its effort to promote joint public-




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


private stockpiling by using a private fund to stock the PPS warehouses. In 2010, the part of PPS warehouse was designated as bonded area to lay the institutional ground. Its joint stockpiling business will begin in full-swing from 2012.

Upgrade of effectiveness of support for the industry through flexible and customer-tailored stock release

PPS will make efforts to resolve the difficulties of SMES in securing commodities by adjusting volume of its stock release flexibly. In particular, it will provide them with the discounted price so that SMEs can maintain stable supply of commodities. In addition, it will introduce a simplified system of releasing commodities at SMEs’ credit and reduce the interest rate when released with their credit to ease the burdens of SMEs.

2011 Annual Report



Overview

PPS, as the organization in charge of regulating and supervising goods management, is implementing various policies for effective and systematic management of government goods.

In response to changes in circumstances, PPS is enacting and revising various standards (guidelines or announcements), and submitting goods management related reports (Report on Regular Goods Inspection, Product Supply Management Plan, Report on Goods Management) to the organizations in charge.

In addition, PPS is responsible for management of government art collections, operation of the government goods recycling project to promote recycling of disused products, negotiation of products disuse, and transfer of control over goods disposal. And it is nurturing the expertise of public servants by providing goods management related education and conducting goods management inspection on them. After that, PPS investigates legality of goods management performed by the public servants in charge. In addition, PPS established and expanded RFID based goods management system for quick and accurate goods management as part of effort to reduce burden on public servants in charge.

In 2011, PPS revised the storage/management regulations of government arts in order to manage them more effectively. Also, by continuously improving the RFID-based goods management system, the goods management was made possible to be conducted more autonomously and systematically.

GovernmentGoods Management




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


PPS and Government Goods Management

There are generally three essential resources for the operation of an organization: human resources, finance, and goods. Among them, goods are indispensable physical resources for serving the needs of public services and performing administrative functions. Government goods are defined as movable properties used by central government organizations and subsidiary agencies under the Legislature, Executive, and Judicature, to provide for administrative services or conducting public programs. For a systematic management of government goods, the Government Goods Management Act was legislated in 1962.

Vested with the responsibility for overseeing and coordinating government goods management since 1971, the administrator of PPS has administered such tasks as statistical management, evaluation, and audits for government owned movables. PPS has continuously endeavored to streamline and digitalize the management procedures in response to changes in the administrative environment and continuing emphasis upon decentralization and autonomy. Likewise, PPS conducts a comprehensive evaluation of government goods management every year, with the purpose of raising awareness on the importance of movable asset management and to disseminate model practices.

Government Goods Management Act

Government Goods Management Act is a general law which defines the basics and operational system for the acquisition, storage, use and disposal of government goods. Movables owned or stored for use by the government are managed under the Government Goods Management Act. However, cash, securities, and other separately defined properties are governed by the State Property Act, while military supplies and goods owned by local autonomies are governed by the Act on Management of Military Supplies and Act on Management of Co-owned Assets and Properties respectively.

Also, in 2011, in order to manage the artwork owned by government more effectively, the enforcement decree of Government Goods Management Act was revised so the artwork with great artistic value can be acquired and managed by professional agencies designated by the Minister of Culture, Sports and Tourism.

2011 Annual Report



Digitalization of Government Goods Management (GGM)

PPS has continued its effort to digitalize GGM to improve efficiency in response to the rising scale of government finance and consequent expansion of government goods. In 1995, a DOS-based GGM software program was introduced to resolve the inaccuracies resulting from manual documentation, which was subsequently upgraded to a Window-based version in 1998. PPS added a GGM system to the National Finance Information System (NAFIS) in 2003, which allowed a comprehensive management of government-owned properties. In 2007, further improvement was made by linking GGM to budget operations through the Digital Budget Accounting System (d-Brain), enabling accurate processing of government goods for accounting.

The RFID-based (Radio Frequency Identification) GGM system was established in 2005, to attach electronic tags to each article. This system allowed a real-time management of government owned goods throughout the complete process from acquisition to disposal, enhancing the overall administrative efficiency with increased accuracy and reduced lead time. Enabling an individual history management for each item, even via wireless devices, the system also laid foundation for the ubiquitous environment of GGM. As of the end of 2007, the RFID system had been in use by 27 government organizations including the Office of the President.

Since 2010, RFID-based goods management system has been expanded continuously. To nurture practical competencies of those in charge of goods management, PPS has operated RFID training courses that include user guide and the RFID-based goods management system since the latter half of 2010.

Government Goods Management System

Acquisition and Disposal

Each organization develops an early plan for GGM, tracks the acquisition and disposal status for items, and conducts the yearly inventory audit. Year-end inventories and the details of changes are reported to PPS to be compiled. The compiled figures are then submitted to the Ministry of Strategy and Finance to be audited by the Board of Audit and Inspection and National Assembly. As of the end of 2011, the government-wide inventory from 47 central government organizations totaled 13.4 trillion won.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


When goods are no longer used or subsequent purpose of use changes, they can be transferred to other organizations. In cases where such transfers are not feasible, they can be either sold through the Online-Bid system or handed over to PPS for recycling. In some cases, those goods are donated to local autonomies or non-profit organizations. Goods that are no longer usable from damage or wear are to be disposed of.

Service Life

The economic period of use for non-expendable goods is termed as ‘service life’. PPS identifies non-expendable goods broadly used by government organizations, calculates the average lifecycle and determines the durable years. By the end of 2011, the service life for 1,565 items has been defined.

Recycling of Government Properties

In order to promote the recycling of government properties with a view to saving resources and preserving the natural environment, PPS administers the free-of-charge collection of surplus properties from public organizations through private recycling companies. The collected items are then repaired and sold. PPS initiated the recycling service in 1997, and commissioned a private recycling company to operate government property recycling centers. As of 2011, 9 recycling centers have been in operation.

Cyber Gallery for Government-owned Arts

Major works of art owned by government organizations amount to 17,893 pieces valued at 61 billion won as of 2011. These artworks are managed separately from general properties. In 2004, PPS established a cyber gallery (www.pps.go.kr/hpage/cyber/index.html) with a twofold purpose. The gallery allows a real-time monitoring of the management status of government owned artworks including the ones at the government’s embassies and legations abroad. Through the cyber gallery anyone at home or abroad is able to appreciate Korean government-owned artworks. PPS is currently preparing to expand the gallery to include artworks owned by local autonomies.

2011 Annual Report



Training and Evaluation

GGM Training

PPS provides the GGM training course, enabling training for officials of public organizations regarding relevant laws and work procedures. In addition, PPS published the GGM Innovation Manual and Computerization Manual and distributed them across the government, as well as using them for course materials for PPS’s training programs.

Comprehensive Evaluation by organizations

In order to encourage the voluntary and systematic management of government-owned goods among 47 central government organizations and over 2,000 sub-central organizations, PPS has been conducting the Comprehensive GGM Evaluation since 2005. During the 2 years of operation, increased interest and improved performance have been observed, and PPS regularized the evaluation program in 2008. Evaluation criteria have been revised to further refine the previous evaluation scheme, and to reflect the changes in the environment.

Establishment and utilization of RFID-based goods management system

In 2009, expansion project of RFID-based goods management system to the entire government organization was completed. Also, in 2010, Goods Management Monitoring System was established based on the RFID-based goods management system DB. The established system started to provide estimated products information such as products’ statistical figures of maintenance and products usage which can be utilized in decision of disuse and supply/demand of the products by each organization.

In 2011, PPS improved functions of a portable reader and recycling system to be more user-friendly. Also, RFID system played a huge role in tracking the record by tagging electronic tags on every government-owned goods. As a result, RFID system was recognized as one of the best goods management systems used by government organizations.

In the future, PPS plans to integrate all the repeated goods management works into RFID-based goods management system to enhance convenience of system users and expand functions of goods management monitoring system, thus enabling various statistical information to be provided for decision making related to goods management.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Performance

Expansion of the number of items designated by durable years

Durable years or service life refers to the economic period of use. This is the standard for deciding a product’s disuse, disposal, depreciation, and acquisition. PPS initially designated durable years for 550 items in 2005 and expanded the number to 1,556 in December 2010, and to 1,565 in December 2011 through revision of its official announcement. By doing so, PPS could lay groundwork for the organizations’ goods management to be taken place in unified standard more appropriately.

Establishment and development of comprehensive evaluation program for government goods management

PPS introduced and has operated Comprehensive Evaluation Program for Government Goods Management since 2005 to award organizations with great performance of goods management based on their reported goods statements. The program aims to encourage voluntary and systematic goods management of all central government agencies and approx. 2,000 government organizational units. In 2011, PPS awarded commendations to 31 outstanding organizations such as regional office of Small & Medium Business Administration, etc.

▲ 2011 Excellent Government Goods Management Award

2011 Annual Report



Future plan

Expansion of On-line inspection through e-goods management system

PPS established e-goods management inspection system to increase effects of goods management inspection with limited staffs and resources, and conducted On-line inspection for 131 organizations in 2009 and 330 organizations in 2010. PPS plans to conduct the On-line inspection to all 2,000 government organizational units regularly every 2 years in the future. In order for the On-line inspection to be expanded greatly, PPS will develop Self-Inspection System so each organization can conduct the management task autonomously and efficiently.

Facilitation of use of RFID-based goods management system

As of 2011, RFID-based goods management system is taking root in every government organization. PPS plans to improve the system by further stabilizing the system and adopting WiFi access to make it more user-friendly. It will also provide various statistics necessary for decision-making related to goods management service.




e-Procurement

Globalization of

Governm

ent Procurement

Green Procurem

entStatistics and O

thers


Chapter 03

KONEPS _ 52

Global Cooperation in e-Procurement & KONEPS _ 59

KONEPS Statistics _ 61

2 0 1 1 A N N U A L R E P O R T

e-Procurement

Characteristics

Prior to Korea ON-line E-procurement System (KONEPS), bidders had to manually check tender notices through the official gazette, associated documents, bulletin boards, and the website of each procuring entity. Similarly, they had to register for bid participation with each individual procuring entity for separate tenders.

Since its establishment, KONEPS electronically published tender information from all public institutions, thus functioning as the single window to public procurement. It also enabled the sharing of bidder information, thereby allowing bidders to participate in all public biddings with a one-time registration through KONEPS.

KONEPS - Conceptual Diagram

* MOPAS : Ministry of Public Administration and Security* MOSF : Ministry of Strategy and Finance

KONEPS processes the entire procurement procedures online, from tender notice, awarding, and contracting through to payment. Thanks to the data exchange linkage with the G4C system

KONEPS

dBrain system of MOSF

Certification Authorities

Financial Institutions

Credit Rating Agencies

Surety Companies

Customer Organizations’ External Systems

Administrative Network

Customer Organizations’ External Systems

G4C system of MOPAS

Construction Associations

▶▶ ▶▶▶

ProductInformation

OnlineShopping

Mall

DeliveryInspection

e-Payment e-Bidding

e-Contracting

Bid Notice

Suppliers

PPS

PublicOrganizations

Shopping Bid NoticeBid Notice

2011 Annual Report

e-Procurement


of the Ministry of Public Administration and Security (MOPAS), KONEPS eliminated the need for the submission of paper documents such as business registration certificates and tax payment certificates. It digitalized more than 160 document forms for electronic processing, including bid, contract, inspection request, and payment request.

As KONEPS processes the payment process online, such as delivery report, inspection request, and payment request, it effectively reduced the payment lead time. Since the contracting unit, inspection unit, and payment unit process their respective tasks through the common system, it also streamlined the payment process. KONEPS is linked to the government accounting system (d-Brain) of the Ministry of Strategy and Finance and the B2B system of Korea Financial Telecommunications & Clearings institute (KFTC), which allows the procuring entities to administer payment via electronic fund transfer.

The On-line Shopping Mall system, developed as a component of KONEPS, provides the electronic catalogue of products available for purchase on the basis of unit-price contracts established by PPS. Procuring entities can directly order products from the On-line Shopping Mall site, and administer on-line payment.

A comprehensive standardization project was undertaken as a part of KONEPS’s development in order to enhance worldwide compatibility with e-Commerce systems in the private sector and eliminate inefficiency resulting from redundant separate codifications. KONEPS adopted the UNSPSC classification of the UN and operates on a standardized product catalogue system that allows quick product registration and search. Product properties, including specifications, contract terms and manufacturer information, have also been restructured to comply with international standards.

As the first of KONEPS’s mobile services, Mobile Information Service was launched in March 2004. This system allowed browsing and searching for tender information via PDAs. In 2005, after implementing the authentication schemes for mobile devices, KONEPS opened its Mobile Bidding Service which enabled bid submission through PDAs. In order to further increase user convenience, PPS made further efforts to implement electronic signature and encryption technologies for mobile phones. In 2008, KONEPS began to provide its mobile service that enabled bid submission via mobile phones.

KONEPS operates on the highest level of security. For network security, it is equipped with a dual fire-wall, intrusion detection system, and security solutions. Intranet is separated from extranet, the log access and program modification history are automatically managed, and




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



program modifications are monitored on-line by an independent third party entity. The servers and networks are managed on a dual operation basis, the data is mirrored at the back-up center, and ITSM applies to its management.

History

As a specialized procurement agency, PPS was the first to introduce e-Procurement in Korea. PPS’s initiative for e-Procurement started in 1997 with the commencement of the electronic document interchange among public organizations, business firms and PPS. In 2002, PPS launched Korea ON-line E-Procurement System (KONEPS), providing a single window to all government procurements. KONEPS was cited as the best application in e-Government by international organizations including the UN, and PPS came to be widely regarded as a pioneer institution in e-Government.

PPS continued to further advance KONEPS since its initial implementation. In 2004, PPS opened its Customized Information Service based on the CRM method, and laid foundation for ubiquitous network environment for government procurement. These were shortly followed by the commencement of a mobile service in 2005, which enabled suppliers to obtain information and participate in bidding through mobile devices such as PDAs. In 2006, KONEPS was interlinked with the Digital Budget Accounting System (dBrain) to provide an integrated service for procurement related tasks from budgeting to payment, shortly followed by the expansion of KONEPS Web Service and SMS Service on procurement processes.

In 2008, the e-Bidding system, the core component of KONEPS, was separated from the central coordination system to ensure security and system stability. Also, PPS restructured the user menus in KONEPS to render it more user-friendly, and expanded the SMS notification service to provide customers with customized real-time information. Fraudulent Bidding Monitoring System was established to monitor signs of illicit bidding practices, and a separate information system was set up to cope with system overloads from massive information extractions by commercial tender information providers.

As part of efforts to prevent forms of corruption such as illegal proxy bidding and bid rigging, PPS introduced Fingerprint recognition e-bidding in April 2010. By reading a bidder’s fingerprint electronically and comparing it with pre-registered user data, the adoption of fingerprint recognition technology contributed to preventing illegal proxy bidders from participating using borrowed registration certificates.

History

2011 Annual Report

e-Procurement


History of KONEPS

e-Guarantee,e-Payment

Ubiquitous Service

Digital procurementenabled via Smartphone

e-Bidding

CRM

FingerprintRecognition for e-Security

EDI

Back-up Center

Mobile e-Bidding Service

KONEPS

On-Line shopping mall

Next generation governmental integreated e-procurement system

1997

e-Guarantee,

2001

e-Bidding

2000

KONEPS

2002

2003

2008

2005

Digital procurement

2011

2004

Fingerprint

2010

On-Line

2006

Next generation

2012




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Outstanding Services

On-line Shopping Mall System

PPS has been operating Online Shopping Mall since July 1, 2006 which was for enhancing quality of customer service and strengthening functions of public procurement such as market entrance support for products by SMEs.

The Online Shopping Mall is an electronic mall where PPS displays products under unit price contracts. Public organizations can directly place orders for various products conveniently for cheaper prices. In other words, the shopping mall contributes to reducing time and number of staff necessary for the procurement procedure because processes of bid notice, bidding, and contract are not needed.

A number of products displayed at the Online Shopping Mall can be contracted through ‘Multiple Award Schedule (MAS)” and registered all year round which allow SMEs to easily enter the public procurement market. This feature is particularly attractive for many SMEs with excellent products and new technology, who are experiencing difficulty in entering the public procurement market.

KONEPS

2011 Annual Report

e-Procurement


As of 2011, approx. 327 thousand items worth of 11 trillion won are contracted through the Online Shopping Mall with the total contract volume being increased by more than two folds compared to that of 2005.

Introduction of Smart KONEPS

With today’s amazing mix of ever-smarter mobile devices and collaboration tools, almost everything possible on PC can be undertaken via smartphones. Therefore, PPS expanded the use of KONEPS to PPS expanded the use of KONEPS to smartphnones in order to promote bidders to participate in bidding and make the system more user-friendly.

In April 2010, PPS hosted a panel discussion with the participation of relevant organizations including certification authorities, mobile carriers, and manufacturers of smartphones, KONEPS operation team and other related officials to seek the launch of Smart KONEPS. In September, PPS signed MOU with KT, one of leading telecommunication companies in Korea to develop applications and security tokens. After conducting numerous discussion sessions, demonstrations and trial group, PPS was finally able to introduce the system in May 2011.

Smart KONEPS now enables smartphone users to bid, search data and access to contract award information anytime and anywhere. Even though only KT members using smartphones based on IOS (iphone & ipad) can take advantage of the system in 2011, PPS is planning to broaden its service to other telecommunication companies and smartphones with Android operating system next year.

▲ Smart KONEPS on mobile devices




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Global Recognition

Recognizing KONEPS as an exemplary case of public sector innovation, the UN granted the 2003 Public Service Award to PPS. Since that time PPS’s KONEPS has been the recipient of a number of international awards as set out below.

Global Recognition for KONEPS

AwardingOrganization Award Date

UN

UN Public Service AwardUN Public Service Award was established in July 2000 to raise public awareness of the importance of public services and globally encourage the improvement thereof. PPS was the first-ever awardee in the Asia-Pacific region.

June

2003

OECDBest Case for Effects on the Private SectorThe OECD reported that Korea's e -Procurement contributed towards the dissemination of IT in the private sector, and reached the level of “no further action required”

April

2004

UNBest Practice Model in e-ProcurementKONEPS was selected as one of the best 23 practices in the world in the UN Global E-government Readiness Report 2004

November

2004

UNKONEPS process reflected in UN/CEFACT standardsKONEPS process was reflected in UN/CEFACT standards at the 6th UN/CEFACT Forum

March

2005

BSIITIL BS15000 CertificationKONEPS received ITIL certification (BS15000) from British Standards Institution (BSI)

November

2005

WITSAGlobal IT Excellence AwardPPS was named as the public institution of best service innovationusing information technology at WCIT

May

2006

AFACT2007 eAsia AwardKONEPS was named as a best practice model of e-Transaction in the public sector.

August2007

WBWorld Bank Procurement Innovation ChallengeThe Fingerprint Recognition e-Bidding System was selected as one of the best top 15 practices.

May 2012

2011 Annual Report

e-Procurement


Many developing countries as well as international development banks have shown substantial interest in PPS’s innovations in procurement administration achieved through the implementation of KONEPS. PPS is actively cooperating with countries such as Vietnam and Costa Rica and providing support for their successful e-Procurement implementation.

The Government of Vietnam has benchmarked Korea’s public procurement system KONEPS since 1997. It has legislated provisions for e-Procurement based on PPS’s consultation, and requested the Korean government to provide an e-Procurement pilot system using Korea’s Official Development Assistance (ODA) fund. In response, the implementation project was undertaken by the KONEPS developer in March 2009.

PPS is also cooperating with the Government of Costa Rica and entered a cooperative MOU with the government of Costa Rica in May 2008. The implementation project for the Costa Rican e-Procurement system commenced in July 2009 and Mer-Link (www.merlink.cr) was launched in August 2010. This complete e-Procurement system implementation project is funded by the Costa Rican Government, and undertaken by the KONEPS developer with PPS’s consultancy and support.

Apart from the currently on-going system implementation projects, PPS has provided feasibility studies and consultancy for e-Procurement implementation for other countries including Uzbekistan, Tunisia, and Tunisia. Also, PPS newly signed MOUs with Peru and Honduras in 2011. As of 2011, PPS has signed MOUs with a total of 19 countries consenting to general cooperation in e-Procurement.

Global Cooperationin e-Procurement & KONEPS

▲ MOU Signing between PPS and OSCE (Government Procurement Supervisory Authority of Peru)




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Due to its advanced e-procurement system, PPS gained its reputation as the best practice of e-government throughout the world. As such, PPS has been the benchmark by many different countries and visited frequently by delegations around the world. As stated above, PPS has been very active in implementing e-procurement in the Asia-Pacific region. It proposed to create Asia-

Pacific e-procurement cooperative body during the e-GP conference hosted by ADB in 2011 and received a lot of support among participants.

As of 2011, KONEPS is in use by 43,708 public organizations and 218,719 private businesses, with a daily access count over 232,000. The total volume of transactions conducted through KONEPS amounted to approx. 64 trillion won, of which centralized procurement by PPS accounted for 35 trillion won, and independent procurement by individual procuring entities constitute 29 trillion won.

2011 Annual Report

e-Procurement


Transactions via KONEPS


Some public institutions, such as the Defense Acquisition Administration and Korea Electric Power Corporation, individually operate their own Procurement systems. However, through the data exchange linkage, tender notices published by such institutions are also published through KONEPS.

KONEPS Statistics

900

800

700

600

500

400

300

200

1002007 2008 2009 2010 2011

638,

48575

1,25

8

857,

615

630,

153

559,

240




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



e-Biddings via KONEPS

e-Biddings via KONEPS

* Figures do not include tenders that were not awarded

Use Ratio of e-Contracting

105%

95%

85%

75%

65%

55%

45%

35%

25%

15%2007 2008 2009 2010 2011

99.0

%

97.9

%

96.5

%

91.9

%

74.6

%

700

600

500

400

300

200

100

02007 2008 2009 2010 2011

213,

539 35

1,92

0

207,

960

423,

030

235,

178

630,

543

288,

506

449,

423

248,

417

445,

479

■ No. of cases ■ amount (Unit : 100 million won)

2011 Annual Report

e-Procurement


Use of Electronic Surety Documents

(Unit : No. of cases)

Information Obtained from the G4C System of MOPAS

(Unit : No. of Accesses)

700

600

500

400

300

200

100

02007 2008 2009 2010 2011

637,

271

532,

515

458,

780

313,

406

257,

652

900

800

700

600

500

400

300

200

100

02007 2008 2009 2010 2011

843,

267

754,

067

541,

965

377,

336

396,

114




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Chapter 04

Overview _ 66

Global Cooperation in Public Procurement _ 67

Cooperation with International Organizations _ 68

2 0 1 1 A N N U A L R E P O R T

Globalization of Government

Procurement

2011 Annual Report



Since 1994 when Korea joined WTO Government Procurement Agreement, it has concluded FTAs with Chile, Singapore, EFTA, ASEAN, EU, and Peru, which are currently in effect. Also, FTA with the United States will take effect on March 15, 2012. In line with the globalization of procurement, PPS has made efforts to raise transparency and effectiveness of procurement procedure, and enhance the procurement administration to the level befitting the international standard.

PPS contributed to enhancing procurement system and greatly raised efficiency and transparency of procurement administration by establishing and operating KONEPS. Due to these efforts, PPS was able to gain global recognition of KONEPS as the global standard, exporting the system to Vietnam, Costa Rica, Mongolia, and Tunisia.

PPS contributed to upgrading Korea’s national status by actively participating in various activities at UN, WTO, APEC, OECD, and World Bank. At the same time, it launched Multilateral Joint Cooperation Committee with US GSA, Canada’s PWGSC, Italy’s CONSIP through which PPS enhances procurement services and supports Korean companies’ entry into foreign markets by building network with foreign procurement agencies and exchanging information.

In addition, it is making substantial efforts for globalization of government procurement sector through aggressive cooperation and exchange with China and neighboring countries.

In particular, PPS successfully hosted International Public Procurement Conference 2010 (IPPC) and secured its position as the biggest event in procurement sector based on public-private cooperation. By doing so, PPS greatly upgraded its recognition and international status of Korea, and expanded opportunity for Korean companies to enter foreign procurement market. As a leading organization in the world’s e-procurement sector, PPS is enhancing procurement administration of Korea and expanding KONEPS abroad.

Overview




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Multilateral Meeting on Government Procurement

PPS is coordinating with central procurement agencies of foreign governments in the Americas and Europe for establishing a platform for multilateral cooperation in public procurement. At PPS’s proposal, the first Multilateral Cooperation Meeting was held in June, 2009 in Texas, U.S., with participation from PPS, GSA of the US, PWGSC of Canada, and Consip S.p.A of Italy. At the meeting, the participants shared best practices in the areas of e-Procurement system and education, economic stimulus strategies, and development of the procurement of human resources. The 2nd Multilateral Meeting on Government Procurement, hosted by CONSIP in Italy, was held from June 15 to 16 at CONSIP headquarter in 2010.

In 2011, PPS participated in the 3rd meeting held in Chile. The participants included people from central procurement agencies of 5 countries: Korea’s PPS, the US GSA, Canada’s PWGSC, Italy’s CONSIP, and Chile’s Compra. The participants discussed improving the capability of procurement officials, enhancing transparency in procurement, strategies for minimizing reliance on certain contractors, good practices for strengthening purchasing power implemented by each country and future policy directions. They gave high praise to KONEPS and policies for supporting SMEs adopted by PPS

The 4th meeting in 2013 will take place in Seoul hosted by PPS. It is expected to be a venue for central procurement agencies to further cooperate in the overall aspects of procurement.

Global Cooperationin Public Procurement

▲ The 3rd Multilateral Meeting on Government Procurement held in Chile

2011 Annual Report



Continuous Cooperation with Various Countries

PPS has signed MOUs with a total of 19 countries as of 2011 to share knowledge and experience of e-procurement. Beginning with Vietnam in 2004, PPS signed MOUs with Peru and Honduras in 2011. Based on MOUs signed with other countries, PPS has conducted feasibility studies of implementing e-procurement systems in Vietnam, Pakistan, Georgia, Mongolia, Costa Rica, Iran, Uzbekistan, Tunisia and Nepal as of 2011.

The feasibility study took a new turn in 2011. In order to carry out the study, local agency such as KOICA or NIPA assumed the major role of implementing it in the past. Since recognized as a leading organization in e-procurement, PPS has been asked to join the advisory committee from many international organizations including MDB and IDB to conduct the study in countries where e-procurement system is needed.

WTO Government Procurement Agreement (GPA)

Korea joined the WTO GPA in 1994. The GPA took effect in Korea as of January 1, 1997, and applies to the procurement of goods, services, and construction services conducted by central organizations, local autonomies and state-owned corporations. For domestic implementation of the WTO GPA, Korea legislated the Act on Contracts to Which the State is a Party (“the Act”, hereinafter) in January 1995, followed by the promulgation of the Enforcement Decree of the Act and the Regulations on Special Cases on the Enforcement Decree. Accordingly, the procurement system and procedures have been modified and augmented to meet international standards.

Cooperation withInternational Organizations




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



As of December 31, 2011, the WTO GPA comprises 42 signatories, and a number of countries are currently negotiating for accession. China’s possible accession to the WTO GPA is becoming a focal interest for Korea as well as for other parties due to its large potential influence in the government procurement market.

FTAs and Government ProcurementSince the establishment of WTO in January 1995, bilateral Free Trade Agreements (FTAs) have been rapidly spreading across the world. As of 2007, over 50% of the world’s international trades are estimated to be subject to bilateral FTAs. In response to this global trend, Korea is actively negotiating for FTAs with its trade partners to secure broader opportunities in the overseas market and enhance Korean businesses’ competitiveness through market liberalization.

As a result of multiple FTA negotiations concurrently carried out over recent years, Korea has concluded FTAs with Chile (effective as of April 1, 2004), Singapore (March 2, 2006), European Free Trade Association (Switzerland, Norway, Iceland, and Liechtenstein; September 1, 2006), the EU (July 1, 2011), Peru (August 1, 2011), and the US (goes into effect on March 15, 2012).

Further FTA negotiations are currently in progress, with Canada, Mexico, Japan, and GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), Australia, New Zealand, Colombia, and turkey. Negotiations with Indonesia and China are also anticipated in the near future.

Keynote speech at Asia-Pacific e- Government Procurement ConferencePPS administrator and his delegation participated in the Asia-Pacific e-Government Procurement Conference in Bali, Indonesia, hosted by Asian Development Bank (ADB). PPS administrator made a keynote speech and shared experience of e-procurement with participants. PPS proposed the establishment of Asia-Pacific e-Procurement Cooperative Network in order to exchange information and further strengthen cooperative relationships in the region.

▲ PPS Administrator delivering a keynote speech at Asia and the Pacific e-Procurement Conference

Chapter 05

2 0 1 1 A N N U A L R E P O R T

Overview _ 72

Performance Highlights _ 75

Green Procurement

2011 Annual Report



Background of green purchasing

The world is now aggressively implementing green purchasing such as preemptive investment in public procurement for developing green technology, expansion of green consumption in private sector, and creation of demands in green markets to secure new national growth engine and to pursue sustainable development responding to the climate change and energy issues.

In line with this trend, Korea designated ‘Low Carbon Green Growth’ as a national vision in 2008, so as to harmonize national development with the environment by nurturing green technology and green industry into its new growth engine.

Under this vision, the government launched Presidential Committee on Green Growth in February 2009, and established ‘5-year Green Growth Plan’ in July 2009, and is making efforts to enact 「Basic Law on Low Carbon Green Growth」.

PPS also established Action Plan for Green Purchasing in November 2009, and has started the Low Carbon Green Growth policy in earnest in July 2010.

In order to expand public green market, PPS lowered the entry barriers and increased the demand for green products in 2011.

Overview

▲ PPS Administrator and staff visiting a manufacturer of LED lighting




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Expansion of green market through public procurement

Utilizing massive purchasing power can lead to the build-up of a market base of green products and green technology in the procurement market.

In this respect, Korea has an advantageous position to expand and push ahead with green purchasing because it has a centralized procurement policy. Total goods purchased by PPS in 2011 were worth 14.9 trillion won while green purchasing stood at 3 trillion won, 20.4% of total purchasing, which shows PPS is playing critical role of driving green market through public procurement sector.

PPS has improved various policies to expand green market in public procurement and its efforts can be summarized below as:

First, PPS expanded incentives for purchasing green products to remove barriers for green products in entering the public procurement market, and are designating Minimum Environmental Standard products each year. In addition, it improved its awarding policy to encourage public organizations to purchase products based not only on prices and energy efficiency but also on eco-friendliness.

Second, it arranged procurement standards for promoting green purchasing to expand public demand for green products, and built infrastructure by establishing of integrated information network for green purchasing and providing education about green purchasing to end-users.

Third, it introduced BIM (Building Information Modeling) which is 3-dimensional design method in public buildings to expand green design on construction works. It also provides preferential treatment to companies with green construction works in PQ eligibility examination, and made the Energy Efficiency Grade 1 and Eco-friendly design standard mandatory for government complex building.

2011 Annual Report



Current status of green purchasing

PPS had been continuously purchasing green products and eco-friendly products before the government started its Low Carbon Green Growth policy. PPS purchased and supplied green products worth 2.24 trillion won which accounted for 10.75% of the total domestic procurement 18.84 trillion won in 2009, worth 1.84 trillion won which accounted for 10.59% of 17.35 trillion won in 2010, and worth 3.38 trillion won which accounted for 20.4% of 14.88 trillion won in 2011.

Performance of green purchasing


Categories 2008 2009 2010 2011

Domestic procurement 150,556 188,353 182,000 179,378

Green

products

eco-friendly

products

Environment Mark 9,048 10,647 8,202 9,144

GR Mark 346 522 480 694

Sub-total 9,394 11,169 8,682 9,838

High Energy

Efficiency

Products

Energy Savings 5,921 6,652 6,289 4,994

High Efficiency Equipment

149 517 680 853

Sub-total 6,070 7,169 6,969 5,847

Renewable Energy facilities 471 1,661 2,135 13,388

Others 309 244 579 1,208

Total 16,244 20,243 18,365 30,381

* Others : hybrid vehicles, LED lightings

Market entry support for green products

PPS has improved procurement policies to help green products enter the public procurement market with various incentives.




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Preferential treatment on green products in MAS

Suppliers with certificates of green technology are exempt from the eligibility test for MAS. Also, if MAS contracted products by certain supplier are green-certified more than 50%, then the period of MAS is extended for 6 more months upon request.

Improvement of 「Comprehensive Bid Evaluation System」

「Comprehensive Bid Evaluation System」is for purchasing products with the highest economic feasibility considering their prices as well as energy efficiency. PPS conducted a study with 「Korea Institute of Procurement」 to additionally consider environmental loads and cost in purchasing.

Release of “Purchasing Guidelines for the Promotion of Public Purchase of Green Products” as a PPS Notification

The annual purchasing volume of green products was estimated at 3 trillion won which accounts for 8.4% of total annual goods purchasing volume 35.5 trillion won in 2009. This figure is not sufficient to attract green investment in the private sector. There are many regulations of mandatory green purchasing for public organizations under the 「Act on Facilitation of Eco-friendly products purchasing」. However, public servants in charge of contracts are avoiding enforcement of legislation because purchasing methods are not specified. To resolve their difficulties, PPS officially announced 「Purchasing Guidelines for the Promotion of Public Purchase of Green Products」 in December 2010. By doing so, PPS specified the scope of green purchasing public organizations, and secured effectiveness of green purchasing.

Launch of Green Products Mall on KONEPS

To encourage green purchasing through KONEPS, PPS launched Green Products Mall composed of products with Environment Mark, Good Recycled (GR) Mark, High Efficiency Equipment Certification, and Energy Saving Certification at KONEPS. And it organized the green products based on product names to make the shopping mall more user-friendly and support green products’ market entry. In addition, 「Green Purchasing Network」, an integrated green


2011 Annual Report



purchasing search engine, was completed in September 2011 for procuring entities to purchase the green products more conveniently.

Comprehensive awarding system considering environment

Prior to 2011, High energy consuming products such as elevators, freezer, air compressor, ventilators, escalators and pumps had been replaced with low energy models using a comprehensive awarding system. In 2011, PPS used the system to evaluate air conditioners, washers, LCD monitors and desktop computers. Also, a new criterion considering carbon emissions was added in the comprehensive awarding system.

Designation of Minimum Environmental Standard products

PPS is implementing policies to promote green products’ market entry and creating policies to take non-green products, environmentally harmful products, and low energy efficiency products off the procurement market to help expand the market share of green products. Through benchmarking of the U.K.’s ‘Quick Wins’, PPS introduced 「Public Procurement Minimum Environmental Standard product」 in 2010.

Under the Public Procurement Minimum Environmental Standard policy, environmental factors such as standby power, energy efficiency, and recycling were included in products purchasing standards, and only suppliers which meet the standards can enter the public procurement market.

PPS organized ‘Green Product Selection Committee’ with other organizations, including Ministry of Strategy & Finance and Ministry of Environment, to discuss methods of selecting Minimum Environmental Standard products. And the Committee held public hearings from November to December 2009 for 23 items including computer, laptops, LED lighting, etc. and came to an agreement on designating 18 items as Minimum Environmental Standard products.

With this plan, 17 items highly demanded in public sector such as computers, washing machines, office machines, appliances, and recycled products were designated first inJanuary 2010, and 14 items including LED lamps, hybrid vehicles, High Efficiency Equipment, regeneration ascon, concrete blocks, and synthetic wood were additionally designated as Minimum Environmental Standard products in August.

In 2011, PPS selected additional 19 items including vacuums to be Minimum Environmental Standard products, reaching total of 50 items as of 2011. It is planning to allocate total of 100 items as Minimum Environmental Standard products by 2013.

Chapter 06

2 0 1 1 A N N U A L R E P O R T

Statistics _ 80

Work Flow Chart _ 82

Contact Information _ 86


2011 Annual Report



A. Customer Organizations (As of December 2011)

Categories Total

Central and sub-centralgovernment customers Other public customers

CentralGovernment

Organizations

LocalAutonomies

EducationCommittees

Government- invested

Organizations

OthersNumber ofcustomers

Number ofcustomers 42,042 5,195 6,772 10,994 945 18,136

Percentage 100 12.4 16.1 26.2 2.2 43.1

B. Registered Suppliers

Categories

2010 As of December 2011

SMEsMajorBusi -

nessesTotal Share

( % ) SMEsMajorBusi -

nessesTotal Share

( % )

Total 259,871 1,443 261,314 100.0 289,068 2,177 291,245 100.0

Dom

estic

Sup

plie

rs

subtotal 259,643 1,416 261,059 99.9 288,816 2,150 290,966 99.9

Suppliersin domesticprocurement

105,432 581 106,013 40.6 119,604 886 120,490 41.4

Suppliersin foreignprocurement

5,069 58 5,127 2.0 5,417 70 5,487 1.9

Constructioncompanies 74,483 312 74,795 28.6 77,226 456 77,682 26.7

Serviceproviders 74,235 464 74,699 28.5 85,973 732 86,705 29.8

Others 424 1 425 0.2 506 6 512 0.2

Foreignsuppliers 228 27 255 0.1 252 27 279 0.1

Statistics




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Annual Performance


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 132,295 150,556 188,353 173,495 179,378

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 construction supervision service


procurement


procurement


procurement3,176 3,230

Stockpiling

services

stockpiling 3,240 7,219 6,864 3,236 3,628

stock release 6,650 (6,206) (4,216) 3,722 6,592

futures options 2,682 - - - -

Supervision and review for construction works 173,911 213,837 241,115 138,856 134,187

Total Service 11,112 19,713 28,853 33,281 24,003

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

* Up to 2006, the overall performance was calculated as the total sum of the performance results in procurement services(domestic procurement + foreign procurement + construction works + architectural design and construction supervision service), stockpiling(stockpiling + stock release + futures options), and supervision and review for construction works (construction management + total project cost review + construction cost review). The formula, however, included a redundant counting in stockpiling section. Therefore, from 2007, only new acquisitions in this section are added to the total.

2011 Annual Report



A. Domestic Procurement

Work Flow Chart

PPS

2. Disclosure of PR Details

3. Review of Requirements

4. Determination of Procurement Method

5. Publication of Tendering Notice

6. Preparation of Estimated Value

7. Receipt and Opening of Tenders

8. Award of Contract

16. Close of Contract

Customer Contractor

1 . Purchase Request (PR)

15. Notification and Receipt of Payment

12. Inspection 10. Execution of Contract

14. Payment (in the case customer directly pays)

9 . Notification of Contract

11. Delivery and Inspection Request

13. Issuance of Request

14. Payment (in the case customer directly pays)




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



B. Foreign Procurement

PPS

2. Disclosure of PR Details




7. Evaluation of Bids



Customer* Contract Amount Deposit

1. Purchase Request (PR)


9. Inspection Request

9. Notification of Contract16. Delivery

15. Delivery12. Execution of Contract

13. Inspection10. L/C Opening

9. Request of L/C Opening9. Notification of Contract

9 . Request of InsuranceCertificate

14.Shipment

11.Notification

of L/C

Insurance Company Inspection Company Foreign Exchange Bank

Overseas Corresponding BankContractorMultimodal TransportationCompany

2011 Annual Report



C. Construction Contract and Management

PPS

2. Disclosure of CR Details


4. Determination of Contracting Method


6. Explanation at Site

7. Preparation of Estimated Value





Customer

Contractor

11. Notification of Contract

1. Contract Request (CR)

11. Notification of Contract

12. Execution of Contract

13. Payment




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



D. User Registration with KONEPS

Public Organization

Supplier

Public Organization User

Supplier

KONEPS Operation Center of PPS

KONEPS Operation Center of PPS

Registration into Standard PublicOrganization Code System of *MOPAS

(prerequisite)

1. Application for Customer Registration

4. Receipt of Registration Approval

5. Online Installation of Authentication Software

6. Input of Authentication Information

7. Log-in

2. Verification of Application

3. Registration Approval

3. Verification of Business ID Certificate

4. Verification of Application Documents

5. Registration Approval6. Receipt of Registration Approval

7. Input of Authentication Information

8. Log-in

1 . Online Installation of Authentication Software

2. Application for Registration ofBidder’s Qualification

* MOPAS: Ministry of Public Administration and Security

2011 Annual Report




Government Complex-Daejeon, 189 Cheongsaro, Seo-gu, Daejeon 302-701, KoreaPPS Homepage : www.pps.go.kr / KONEPS : www.g2b.go.kr

Customer Support Team

Tel : +82-70-4056-7058Fax : +82-42-472-2247

International Cooperation Division

Tel : +82-70-4056-7524Fax : +82-42-472-2278

Contact Information




entG

lobalization ofG

overnment Procurem

entG

reen Procurement



Overseas Procurement Officers

Chicago

London

Tokyo

Beijing

Consulate General of the Republic of Korea in Chicago455 N. Citifront Pl. Dr., NBC Tower, 27th Floor, Chicago, IL 60611

Tel : 1-312-676-2087 / 1-312-822-9485 (ext 135)Fax : 1-312-822-9849

Embassy of the Republic of Korea in London Procurement Department60 Buckingham Gate, London, SW1E 6AJ, U.K.

Tel : 44-20-7227-5545Fax : 44-20-7227-5523

KI yotsuya BLD 9F, 4-3 yotsuya sinjuku-ku tokyo, Japan

Tel : 81-3-3225-8619Fax : 81-3-3225-9168, 9169

Embassy of the Republic of Korea(Procurement Office),No.20. DongfangdongLu, Chaoyang District Beijing 100600, China

Tel : 86-10-8531-0846Fax : 86-10-8531-0847

Glossary Index

AFACT Asia Pacific Council for Trade Facilitation and Electronic Business

APEC Asia-Pacific Economic Cooperation

BTL Build Transfer Lease

CM Construction Management

e-CM Electronic Construction Management System

d-Brain Digital Budget Accounting System

EFT A European Free Trade Association

FTA Free Trade Agreement

GPEG Government Procurement Experts’ Group

GS Good Software (certification by Telecommunications Technology Association)

GSA General Services Administration

IT Information Technology

ITIL Information Technology Infrastructure Library

KONEPS Korea ON-line E-Procurement System

KOTRA Korea Trade and Investment Promotion Agency

KT Korea Telecommunication

MAS Multiple Award Schedule

MOU Memorandum of Understanding

NEP New Excellent Product (certification by KOREA Agency for Technology and Standards)

NET New Excellent Technology (certification by the Ministry of Science and Technology)

NAFIS National Finance Information system

OECD Organization for Economic Co-operation and Development

PPS Public Procurement Service

PQ Pre - Qualification

PR Purchase Request

PWGSC Public Works and General Services Canada

RFID Radio Frequency Identification system

SMEs Small and Medium-sized Enterprises

SMS Short Message Service

UCLG United Cities and Local Governments

UN / CEFACT The United Nations Centre for Trade facilitation and Electronic Business

WTO GPA WTO Government Procurement Agreement


The Republic of Korea



www.pps.go.kr/english

www.pps.go.kr/englishGovernment Complex-Daejeon, 189 Cheongsaro, Seo-gu, Daejeon 302-701, KoreaTel. +82-70-4056-7524 Fax. +82-42-472-2278 www.g2b.go.kr

Public Procurement ServicePublic Procurement Service

2011 annual report

Documents

Transcript of 2011 annual report