PAD370

PUBLIC FINANCIAL
DMINISTRATION

Chapt
PUBLIC
er 6
PROCURE
MENT
Lecture by:

Ms. Ani Juaini

Chapter
Outcomes

After studying this chapter, you should be able

to:
1. Explain the concept of procurement.
2. Understand the objectives, importance
and principles of procurement.
3. Understand the policies and procedures to
be followed in procurement.
4. Understand the Government Procurement
Regime.
5. Understand the government asset
management.

Chapter
Outline

6.1 Definition
6.2 Objectives of public procurement
6.3 The Procurement Principles
6.4 Criteria in procurement
6.5 The Importance
6.6 Procurement Policies
6.7 Types / Modes of Procurement
6.8 Procedures for Procurement
6.9 The Federal Procurement Board
6.10 Government assets management :
policies and procedures

6.
1

Definition

The term PROCUREMENT (perolehan) is usually used

together with terms such as purchasing, procurement
supply (pembekalan) and logistic management
Supply (procurement) explain about purchasing
process such as studying of a needs to buy, location,
choosing appropriate supplier, price negotiation and
others terms that assist in ensuring efficiency of
delivering. (Leenders Fearon)
Purchasing is a management activities that beyond
simple purchasing. It involve planning and policy
activity. (JH Westing ,1976)

Definition

GOVERNMENT PROCUREMENT
The acquisition of goods and/or
services in the right quantity, right
quality, at the right time, in the right
place for the direct benefit or use of
governments, corporations, or
individuals, generally via a contract.

Legal Requirement for

Government Procurement
For government sector way to handle procurement
is spell out under the:

Tresury Instruction
(Arahan
Perbendaharaan)
AP106 to AP300

b
Circular issued
out by Financial
Procedure Act 1957

6.
2

Objectives

Government procurement comprises the following objectives in general:

Source : TREASURY OF MALAYSIA

To ENSURE
CONTINUOUS SUPPLY
OF MATERIALS AND
SERVICES to meet the
Government needs
from the best and
reliable sources

TO ENSURE EFFICIENT,
EFFECTIVE AND ETHICAL
PROCUREMENT
PRACTICES to enable the
Government to achieve
best value for money
without compromising on
quality, delivery and other
price and non-price factors

Objectives
To STIMULATE AND
ENCOURAGE THE
GROWTH AND
DEVELOPMENT OF
LOCAL INDUSTRIES
through the optimal
usage of local
resources and materials

To EXPAND AND
INVIGORATE THE
LOCAL INDUSTRIAL
SECTOR by means
of transfer of
technology and
expertise to suit
the nation's needs

To PROMOTE
ALTERNATIVE AND
MULTIPLE SOURCING
through
supplier/vendor
development
according to the
aspirations and vision
of the Government

6.
3

Procurement Principles
Source : TREASURY OF MALAYSIA

1
Public
Accountability
Procurement should obviously reflect public accountability
entrusted with the Government.

Transparen 2
All procurement regulations, conditions, procedures and
cy
processes need to be clear and transparent to
facilitate
better understanding among suppliers and contractors.

Procurement Principles

3
Value
for Money
Government procurement should yield the best returns for
every Malaysian Ringgit spent in terms of quality, quantity,
timeliness, price and source.

Open & Fair 4

Processes involving Government procurement should offer
fair and equitableCompetition
opportunities to all those participating
or competing in any procurement.

5
Fair
Dealing
All acceptable bids will be processed fairly based on
current rules, policies and procedures.

6.
4

Criteria in Procurement

6.
5

The Importance
REDUCTION OF COORDINATION TIME

Tight rules, regulations and procedures will reduce time

spent by the officers in managing minor details. Inspection
can be done with ease without much interference in terms
of goods or data storage.

GUARANTEE NATIONAL ECONOMIC SYSTEM

Efficient and effective procurement management and
reduced rate of Stock Cycle in the national Procurement
Management can guarantee the effectiveness and continual
development of National Economic System.

The Importance
GUARANTEES SMOOTH AND RUNNING DEPARTMENT
OPERATIONS
Provide necessary facilities and office equipment that lead
to smoothness and effectiveness of government operations.
AVOID MISAPPROPRIATION AND DISTRUST
The tight and rigid procedures are a form of guarantee to
effective usage of products with low rates of replacement.
REDUCTION OF PUBLIC FINANCE SPENDING
Procurement system ensure that the public finance usage of
product will have a low rates of replacement. It cause by
all equipment will be evaluated and any repair needed will
be done immediately.

6.
6

Government Procurement
Policies

To STIMULATE THE GROWTH OF LOCAL INDUSTRIES through the

maximum utilisation of local materials and resources
TO ENCOURAGE AND SUPPORT THE EVOLVEMENT OF BUMIPUTERA
(indigenous) entrepreneurs in line with the nation's aspirations
to create Bumiputera Commercial and Industrial Community
TO INCREASE AND ENHANCE THE CAPABILITIES OF LOCAL
INSTITUTIONS AND INDUSTRIES via transfer of technology and
expertise (joint venture contract with foreign company)
To STIMULATE AND PROMOTE SERVICE ORIENTED LOCAL
INDUSTRIES such as freight and insurance
To ACCELERATE ECONOMIC GROWTH whereby Government
procurement is used as a tool to achieve socio-economic and
development objectives

6.
Types/Modes
of
Procuremen
7
6.7.
GENERAL Types/Modes
1

Types/Modes of Procurement

6.7.
Types / Modes of
2

Procurement

6.
Procedures
for
Procurement
8
6.8.
Central
Treasury
Contract
(CTC)
1

AP 178 and AP 287

For items that are used by all government

departments the CTC may be made
Any department must get supply of such item from
appointed supplier and no purchase is allowed
The purpose of CTC is to gain economies of scale
benefit, avoid hoarding (penyimpanan) and avoid the
need for large stock
E.g. papers, cabinets, courier services, spare parts,
bullets for small weapons, Microsoft software,
streetlight, national flag, etc.

6.8.
2

Procedures for Procurement

Casual / Direct Purchase AP173

For small, routine goods and immediate use.

E.g. Sport equipment, stationery & office equipment
Free to choose any contractors or suppliers
No documentation needed (enough with receipt)
Involve to possible condition:

Procedures for Procurement

CASUAL / DIRECT PURCHASE PROCEDURE

6.8.
3

Procedures for Procurement

Quotation AP174

Services & goods RM50,000 - RM500,000

Works:
i. Class F RM20,000 - RM200,000
ii. Class D Rm20,000 - 500,000

QUOTATION
PROCEDURE

6.8.
4

Procedures for Procurement

Tender AP171

Involve amount of more than RM500,000 for

both either task or services
TENDER PROCEDURE

1. Availability of allocation of budget

2. Prepare specification document - either for
services or product
3. Offer tender
Advertise (minimum to 1 major newspaper)
open to all (regardless of bumi or nonbumi, local or foreign company)
14 weeks given to fill in document

Procedures for Procurement

Tender

4. Tender deposit must be prepared by tender

bidder to reflect their commitment
5. Department set procedure on submission of
tender, dateline and etc
6. Establish committee to open tender box
7. Pass tender document to another committee
to analyse the document
8. Pass document to higher committee
(tender box) - choose the best quotation & if
lowest quotation is not accepted, the reasons
for such decisions must be explained
9. Issuance of agreement & LPO

6.8.
5

Procedures for Procurement

Direct Negotiation AP171

Government could directly negotiate with

supplier
For special case
Example: Jet, army weapon , Pulau Pinang Bridge
Supported by agreement

6.8.
6

Procedures for Procurement

Foreign Purchase AP171

Amount - no limitation
When goods that are not offered by local
suppliers
advertisements are made locally and
externally
tender period is 8 weeks from the date of
advertisement
purchase below 1MM can only be made
internationally if such item is unable to be
provided by local supplier
24

Procedures for Procurement Foreign

Purchase

Normal tender procedure through treasury

1Tender

2
Direct
Purchasing
Most appropriate to do with certain firms regarding special
standards like spare parts

3
Purchasing through crown agent
Direct
Indent
4
Direct
Consultation
Important in term of emphasizing
technicality aspects, price and payment mode; includes
standardization, proprietary item, secrecy and quality

5
overnment
to Government

Through MOU when difficulty in getting supplies arises & effects

national interest. E.g: fertilizers, defense devices from various
countries like Russia, Ukraine, France and USA to obtain check &
balance

6.9.
7

Procedures for Procurement

Emergency Purchase AP173(b)

The purchase that needs to be immediately

made where delay in purchase may have adverse
consequences-example on public interest
Normally, done in time of emergency-example:
fire, flood, landslide, war
Amount is limited to the accommodate
emergency needs
Emergency purchase must be followed with
report to the controlling officer to be forwarded
to the Treasury Secretary General
Such purchase is also provided under AP55

Procedures for Procurement Emergency Purchase

EMERGENCY PURCHASE PROCEDURE

Types/Modes of Procurement

Types of
Purchasing

Types
GOODS &
SERVICES

WORKS

Central / Treasury
contract

No limitation

No central contract

Casual / Direct
purchase

Below
RM50,000 / year

Below RM20,000

RM50,000 to
RM500,000

Class F (RM20,000 to
RM200,000)
Class D (RM200,000
to RM500,000)

Quotation
Tender

RM500,000 & above

Direct negotiation

No limitation

Emergency
purchase

No limitation

6.
9

Federal Procurement Board

Known as MALAYSIAS GOVERNMENT PROCUREMENT

REGIME
The prime objective : to support Government programmes
by obtaining value for money through acquisition of
works, supplies and services.
To meet this objective close attention is given to price
factors as well as non-price factors such as whole life
cost, quality, quantity, timeliness, maintenance and
warranty.
Chairperson Head of department / Controlling Officer
Board are appointed by:
i. Federal Level Ministry of Finance
ii. State level Chief Ministers

ROLES

Federal Procurement Board

1. Manage the annual allocation given to particular Ministry

or Department
2. Ensure all procurement policies, procedures, principles,
rules and regulations are strictly adhered to.
3. Roles of Agency Procurement Board:
i. Agency Procurement Board A
Decide upon tenders up to RM30 Million (supplies
and services) and RM50 Million (works)
Representative from MoF is a permenent member
(responsible to validate all decisions)
ii. Agency Procurement Board B
Decide on all tenders below RM20 Millions without
presence of representative from MoF.

6.1
0

Government Assets
Management
6.10.
Types
of
Storage
1
1. LIMITED SPACE Storage - use of racks
and boxes
2. Storage of HEAVY ITEMS - place at the
bottom
3. Storage OF ITEMS IN STANDARD box-box,
tin, carton
4. Storage of LOOSE ITEMS
5. GAS STORAGE - must be kept away from
items that are flammable

Government Assets Management

6. Storage of INTERESTING AND EXPENSIVE

GOODS - kept in locked area
7. Storage in COOL AND DRY room
8. Storage in OPEN SPACE - for goods / items
not easily damaged
9. Storage of CHEMICAL MATERIALS - keep in
cool and dry area, wood flooring, fire
protection
10.Storage of easily FLAMMABLE MATERIALS
11.Storage of EASILY EVAPORATED ITEMS eg. chemical - ensure properly sealed

6.10.
2

Government Assets Management

Storage Management Procedures

1
Store
Organisation
there are 5 main sections: inventory control, ledger
department, storage department, packaging & delivery
department and accounts department

2
ument
to record request & del
stock can only be taken out if the ordered is signed by
authorised officer
ordered voucher should hace 6 copies
each withdrawal of goods must be signed by the store
officer

Government Assets Management

3
kaging
and Delivery of Goods
a process of acceptance of goods
packaging must be made in such a way to avoid damage
and theft
list of packaging must be made in 3 copies
small items must be package in standard packaging
sender and acceptance address should be clearly written
down
receipt of items upon receiving any items/goods, checking
must be carried out on the invoice
any discrepancies should be immediately reported to a
supervisor
the report on received of materials is a notice of
discrepancies to the transportation agent

Government Assets Management

4
Stock
Control
to avoid excessive of goods, wastage and control usage of
storage space
all items are kept according to code, unit, price and shape
expensive and easily purchase item in the market need not
be stored
for imported items, stock will only be kept for 12 months
only
divided into 2 groups:
i. Group A (30%) represent the items that considered as
the highest annual purchase
ii. Group B (70%) represent the remaining goods

Government Assets Management

5
Store
System
usage of storage space must be optimise
safety factors, accessibility and tidiness factors should be
taken care
expensive item should be placed in locked cabinet/place

6
Stock
Verification
physical count of stock is made by someone that not from
the store department for verification
the Treasury Secretary General may appoint a Board of
inspector for such purposes
spot check must be conducted by comparing the actual
stock with balance register in the ledger

Government Assets Management

7
Accounting
System
the storage accounting system is divided into 2 partsitems that are provided for (diperuntukkan) and not
provided for (belum diperuntukkan)
items that provided for is charged on departments vote
(AP 211)
items not provided for is charged on the trust account
known as Trust Fund for Uncredited Work Cycle (Akaun
Kumpulan Wang Amanah Pusingan Kerja) -AP250

End of
Chapter
6
THANK YOU
38

Tutorial
Questions

1. Define Public Procurement.

2. Identify FIVE (5) objectives of
purchasing.
3. Explain the criteria for a good
purchasing.
4. Explain the roles of Government
Procurement Regime.
5. Identify types of foreign purchasing.
6. Explain the procedures to be followed
for emergency purchasing.
39