Innovating Public Procurement through Korea ON-line E-Procurement System

Innovating Public Procurement through Korea ON-line E-Procurement System April 2011 Kang-il Seo International Cooperation Division Public Procurement Service (PPS) The Republic of Korea

Contents 1. Korea ON-line E-Procurement System (KONEPS) 2. Impacts of KONEPS 3. Implementation Experiences 4. Recommendations

1. Korea ON-line E-Procurement System (KONEPS)

Foreword: Korea’s e-Government Project The Korean Government initiated 11 e-Government projects to enhance national competitiveness utilizing information technology e-Government Innovation in Services 1 2 3 4 Administrative Productivity Single Window for Civil Services 5 National Finance system 6 Government-wide e-Procurement System Integrated Administration System for Local Governments Nation-wide Educational Administration System Standardized HR Management System 7 Integrated Social Security Information System 8 Internet-based National Taxation System 9 Consolidation of e-Document Exchange and e-Reporting INFRASTRUCTURE 10 e-Authentication and e-Signature System 11 Government-wide IT-governance Environment

Public Procurement System in Korea Combination of Centralized and Decentralized Procurement Medium to Increasing large scale procurement for central government agencies SME’s Market Opportunities : handled by Public Procurement Service (PPS) Small scale procurement: handled by each government agency Local governments and public enterprises: autonomous procurement Public Procurement Service (PPS) PPS is the central government procurement agency of Korea under the Ministry of Strategy and Finance Total procurement volume of 38 billion USD in 2010 (30% of Korea’s total public procurement) PPS operates KONEPS, Korea’s public e-Procurement system

Korea ON-line E-Procurement System (KONEPS) KONEPS Government-wide e. Procurement System Developed and operated by PPS Commonly used by all public agencies for procuring goods and construction works International standards to ensure interoperability

Characteristics of KONEPS Single Window for Public Procurement Publication of all public tender notices and related information at a single website Bidders can participate in all public biddings after onetime registration

Characteristics of KONEPS Integration of Entire Procurement Process Entire procurement processes from supplier registration, bidding through to payment are conducted via the internet One-click purchase at the Online Shopping Mall One-stop Service 160 types of documents handled online through the data exchange linkage with 100 other public sector & private sector information systems

Functions of KONEPS processes the entire procurement procedures through the 4 major sub-systems: e-bidding, e-contracting, e-payment and the online shopping mall e-Contracting e-Bidding Contract Registration Tender notice Composition and Price Assessment sealing of Contracts Evaluation / Analysis Contract Review KONEPS e-Payment Expenditure Mgmt. Fee Management Online Shopping Mall Product Registration E-Catalogue Product Search Online Order

KONEPS at a Glance Certification. Related Agencies Ministry of Public Administration and Security Construction. Related Associations Surety Insurance Ministry of Strategy and Finance Construction CALS Korea Financial Telecommunications & Clearings Institute

KONEPS e-Tendering Processes Certificate Authorities Other Bidding Systems PG System Certificate Related Associations Certificate Authorities D-Brain System G 4 C System Authentication Certificate Integrated Notice Commission for Bid Participation Supplier Data Authentication Certificate Contract Information Certificate for Tex Payment Supplier Registration Integrated For Bidding Bid Opening/ Evaluation G 4 C System Public Org. (40, 000) Surety Company Encryption Key Issuance System Surety Company Supplier Registration Integrated Notice Bid Bond Encryption/ Time Stamp Performance Bond, etc Contracting Delivery/ Inspection/ Acceptance D-Brain System Payment Banks Electronic Funds Transfer All procurement processes are digitalized Online Transaction KONEPS electronically obtains information on the bidders (business registration, credit rating, past performances, etc) from other public and private information systems (no need for submitting paper documents and certificates)

KONEPS Online Shopping Mall PPS establishes unit-price contracts for commonly and repetitively purchased products Products on unit-price contracts are made available at Online Shopping Mall for direct orders from public entities

Phased Establishment Early Development (1997 -2001) KONEPS (2002) Electronic Data Interchange System (1997) Online Shopping Mall System (1998) e-Tendering System (2000) e-Guarantee and e-Payment System (2001) Establishment of KONEPS for the use of all public organizations (2002)

2. Impacts of KONEPS

Transactions through KONEPS 41, 000 Public Entities $86 bn 191, 000 Registered Suppliers In 2009, over 70% of Korea’s total public procurement (122 billion USD) was conducted through KONEPS $63 bn $56 bn 2007 2008 2009 Total Volume of Transactions Conducted via KONEPS

Transparency and Cost Efficiency Enhanced efficiency and transparency Improves transparency in doing business with the government Minimized face-to-face contacts All the information are published on-line on a real time basis The number of bid participants increased three-fold Saves USD 8. 1 B worth of transaction costs annually USD 6. 6 on the suppliers’ side, USD 1. 5 in the public sector Reduction of visits and contract-related papers, time-saving, etc Savings of labor and time for searching for tender information Savings from increased competition (not included in the figure)

Corruption Prevention through KONEPS Increase public access to procurement information & decrease contracting officer’s discretion • Reduce the possibility for corrupt and illegal activities involving abuse of classified information • Clarify criteria for bid evaluation & disclose evaluation results • Digitalization of successful bidder selection reduces public officers’ discretion at the bid evaluation stage, therefore prevents corruption Minimize face-to-face contact and increase information exchange between public organizations • Minimize possible corruption between government officials and suppliers • Discourage defected companies’ participation in biddings & prevent documents from being forged, consequently preventing corruption Increased competition as a remedy to bid rigging • Augmenting the number of bidders curbs collusion between bidders 17

Contribution to the Growth of SMEs Benefits for SMEs Minimal cost for marketing and promotion in the public sector Easy access to tender information and broader bidding opportunities Market opportunities for new technology products SMEs participation 99. 5% of the total 191, 000 registered bidders are SMEs 97% of the suppliers of the On-line Shopping mall are SMEs

3. Implementation

Dimensions of e-Procurement Implementation Business Process Reengineering Technology Leadership Change Management

Business Process Reengineering Redesigning Procurement Work Process for Improvement • 80% of the total 565 processes in three categories (goods, services, construction • works) were revised 152 processes were removed, and over 300 processes were streamlined through integration and digitalization Standardization of e-Document forms and contents • Foundation for standardized product catalogue system • (product classification / identification) Determining standard e-Document forms (eb-XML based standards with development guidelines) Revision of Legal and Institutional Basis • Provisions for the registration of information and mandatory reporting for • e-Procurement services Revisions for the streamlining of procurement procedures

Revision of Laws and Regulations for e-Procurement Framework Act on Electronic Commerce • Ministry of Knowledge & Economy • Established in 1999/ revised in 2002, 2005, 2007 • Provides for legally binding effect for digital documents Digital Signature Act • Ministry of Public Administration and Security (MOPAS) • Established in 1999/ revised in 2001, 2005 • Legal force clarification for a digital signature Revision of Relevant Regulations • Mandatory: tender notice via KONEPS, sanctions against fraudulent bidders, disclosure of award information • Optional: use of e-Bidding and e-Contracting • Grace period (3 months) and interim measures for smooth transition

Technology (1) – Intl. Standards for Interoperability Adopting the most up-to-date technology standards to ensure compatibility for data exchange with other external systems eb-XML based web applications Application of public digital signature e-Documents are generated on and sent from the sender’s PC, and received by the recipient's PC, to ensure end-to-end security system for e-Documents PKI-based personal keys are issued for each individual tender and stored in the responsible contracting official’s PC, so that the system operator may not access the bid information Adopting the government’s standard values (business registration information, standard public institution codes, etc. ) to ensure compatibility for data exchange with other external systems

Technology (2) – Security and Authentication Digital signature and encryption technology is used for the security of e. Transactions (PKI method)

International Cooperation for e-Procurement Mongolia Uzbekistan Mongolian e-GP System Implementation by Aug. 2011 e-Procurement F/S in 2009 Tunisia e-Procurement F/S in 2009 Iran Costa Rica e-Procurement F/S in 2008 MER-LINK Commenced Full Service in Dec. 2010 Vietnam e-GP Pilot System Operated since Jul. 2010 Cross-governmental expansion in planning

4. Recommendations

Recommendations Simplification and Clarification of Procurement Regulations for Process Transition through BPR A single e-procurement system for all public organizations Take the step-by-step approach from integrated bid notice (e-Notice), bidding (e-Submission) and e. Shopping Mall Government leadership and establishment of a lead agency 27

THANK YOU 28

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e-Biddings through KONEPS 235, 178 207, 633 207, 960 213, 539 20. 8 2006 Number of e-Biddings 20. 9 2007 23. 2 20. 5 2008 2009 Total number of bid participants (unit: million) 30

Focal points in the implementation of KONEPS Gateway to Government Procurement Integrated Information & Shared Use E-Procurement Portal Comprehensive Information Contents Integrated Information Search Customer Service Comprehensive information on public bids and bid awarding Access to integrated data from public authorities and industry associations Shared use of information Standardized Procurement Process ASP for public institutions Services for suppliers System development for the System Operation Authority Efficient Procurement Process One-time registration for participating in all public bids Reducing the paper document submissions by bidders Korea ON-line E-Procurement System (KONEPS) Standardization of Fundamental data Standardizing Product Catalog and consolidating the database Creation of e-Catalog Standardizing 149 e-Document forms Reliable e-Document Exchange Conformity to W 3 C/eb. XML international standards End-To-End security measures Security assurance 31

Security and Operation Policies Network Security Separation of Internet and Extranet, Dual Fire-wall, Intrusion Detection System, Security Solutions, etc System Operation complying with ITIL Check and Balance between PPS and outsourced Operator, Programmers and System managers Access control to system, program and D/B National Computing & Information Resources Center Automatic management of log access and program modification history, post-verification system Service Stability against accidents Dual operation of servers and networks, Back-up Center(Data mirroring), ITSM 32

Features of KONEPS Modules e-Bidding e-Contract e-Payment e-Shopping Mall All bidding notices of public organizations (central government entities, local autonomies and educational institutions) are published thru KONEPS. It secures stability and confidentiality via digital-signature, encryption and e-Data. Generation of e-Contact forms and electronic signing of the contract document The contract info is stored in the system The real-time fund transfer via data-linkage to the d. Brain after payment request. Unnecessary documents for inspection/tally and off-line payment request were removed. Businesses can take impartial opportunities, and public organizations can have multiple choices, which satisfies various demands. Repetitive purchase and vexatious bidding process have been simplified via registration of the unit-price contract product and ordering function. 33