DIRECT NEGOTIATION TENDER

According to Wee Shu Hui of the International Journal of Public Sector, a negotiated tender or
direct negotiation is a purchase made directly from one single supplier. Direct negotiating is only
appropriate for urgent needs where pricing is not the primary priority, and only if the chosen
supplier is knowledgeable and experienced in the goods and services provided. The procurement
process will be exempt from open bidding if the agency chooses direct negotiation. As a result,
prequalification and selection of the best performing contractor are no longer options. Direct
negotiating was discovered to be a tendency, with open tender procurement being exploited.

In the Journal of the Supply Management, Haliza Zahari has mention that some of these Direct
Negotiations are substantially more expensive, which the contractor took advantage of in order to
maximize profit. Several awards are being given out depending on political sway. In 2018, the
Auditor General's report stated that major doubts existed. Many of these government contracts
were negotiated directly, with no clear basis. By opting for direct bargaining, government entities
leave themselves vulnerable to backdoor deals. Contracts awarded through direct negotiation, for
example, were given to political cronies. A lot of it has to do with procurement fraud and
corruption. This was caused by the lack of transparency and secrecy in public procurement
information. Therefore, the tender information were not disclose and only available to the
political influenced contractors.

According to an article by Prashanth Parameswaran, eliminating the Direct Negotiation system,

Although many researches have been done on the influence of direct negotiations on the
contractor's performance, few studies have been done on the impact of direct negotiations on the
contractor's performance. Even though the government has the authority to take action against a
contractor who violates a contract clause, it has been discovered that those contractors were
getting away with it and were awarded another Direct Negotiation because contractor
performance was only evaluated if the previous contract had issues and had been terminated or if
the delivery was 30 percent late. Others have a record of accomplishment of contract
renegotiation and restructure depending on the contractor's request.

Problem identification

Based on what Haliza Zahari stated, direct negotiation issues, as reported in the Auditor General
Report, occurred in the Ministry and Government agencies, and were caused not only by the
failure of the appointed contractor, but also by the inefficiency of Ministry and Government
agency personnel who failed to closely monitor the project's progress. As a result, the Haliza
Zahari has divided the direct negotiating difficulties into two categories: issues involving the
failure of an appointed contractor and issues involving the inefficiency of ministries and
government agencies. Because this study focused solely on the impact of supplier performance,
the findings were limited to issues about the failure of the appointed contractor.

Cases related to Direct Negotiation issues reported in Auditor General Report 2015 to 2018. All
the project issues took place when the project has been awarded to the contractor. One of the
issue is direct negotiations for FELDA second-generation settler’s housing project.

This issue concerned the creation of a housing project for the second generation of FELDA
members. Poor project management led in substandard construction and land erosion. According
to the Audit General Report 2018, the Federal Land Development Authority (FELDA) has spent
around 87 percent of the RM870 million budget, and has only built 1,498 houses under the
FELDA New Generation Housing Project since 2013. (PGBF). Despite the project being
assigned an initial period of five years from 2013 to 2017, where 20,000 residences were
intended to be completed, FELDA spent RM757.86 million through 2019, according to the
statement.

Only 792 of the 1,498 houses have been delivered, with the remaining 706 remaining vacant and
unfinished. Furthermore, only 8,314 PGBF houses were intended to be completed under 43
projects, out of a total of 20,000 planned. The financial allocation for PGBF development
between 2015 and 2016 was also not made public, according to the Audit General Report 2018.
Without the consent of the Ministry of Finance, the construction business for PGBF was
appointed as a pilot project contractor through direct negotiation. Even before being registered
with the Construction Industry Development Board Malaysia, the company was designated as a
pilot project contractor.

Analysis

The implementation of Direct Negotiation for Public Procurement Tender was judged to be less
than satisfactory due to the contractor's inefficiency who was appointed through a closed deal
during Direct Negotiation. Direct Negotiation in Public Procurement was only allowed for urgent
requirements, according to the Ministry of Finance Circular, and only one supplier or expert may
deliver certain items or services. This direct negotiating procurement must come from a
reputable source and be approved by the Ministry of Finance. However, the auditor general's
report revealed that practically all of the auditor's observations pointed to the project's late
delivery and the contractor's inefficiencies. It reveals that the failure to find the suitable supplier
caused the late delivery. The auditor's findings were at odds with the premise and terms set aside
for direct bargaining.

Conclusion & Recommendation

Direct negotiation is a procurement method that can assist the government in procuring products
and services in the shortest amount of time if the contractor chosen is knowledgeable and
trustworthy. The difficulties mentioned in this study were unethical, misbehaving, and
unsatisfactory public procurement delivery, demonstrating that some Ministries and Government
agencies have destroyed the goal of having Direct Negotiation in public procurement. As a
result, the time has come for the Malaysian government to abandon the option of direct
negotiation in public procurement. Starting in May 2018, the new administration under Pakatan
Harapan examined all direct negotiation projects and procurements, taking into account
numerous variables that have an impact on direct negotiation. The administration currently
refuses to award any contracts through Direct Negotiation.
There are a few recommendations that we propose to improve the governance of direct
negotiation that can be included either in the upcoming procurement legislation or in other
relevant legislations.

Firstly, clarify the role of minister in the procurement process. The involvement of ministers in
the application and decision of direct negotiation at the line ministry level is not included in
Treasury circulars on direct negotiation. Only the controlling officers, who are the secretaries
general of the ministries or the heads of the agencies, can sign the formal application, according
to the Financial Procedures Act. The Auditor General Reports, on the other hand, revealed that
ministers suggested direct negotiation contracts to the MoF and the Cabinet on a number of times
and designated the companies that should be granted the contracts. In certain circumstances,
ministers disregarded agency recommendations and went forward with the nomination of
unqualified commissioners.

The use of unqualified companies has a negative impact on the projects' outcomes: some have
been delayed, while others are incomplete and fall short of the required requirements. Ministers
are in charge of the ministry's policy directions. Their participation in procurement should be
based on ensuring that policy objectives are met. As a result, they should allow civil servants to
follow procurement laws and procedures that are designed to assure the best value for money, as
well as do due diligence on the process and ultimate results. Ministers or deputies and other
politicians in policy-making positions, on the other hand, should not decide on procurement
procedures or firms that will be granted contracts.

Empowering the controlling officers is another way to reduce political influence in the direct
negotiation process. The existing legal provision empowers controlling officers to monitor and
oversee expenditures and public funds, as well as the procurement process. In reality, the circular
indicates unequivocally that the commanding officer should use direct negotiation in direct
negotiations. Two platforms can be explored to allow controlling officers to hold procurement
decisions made in their departments or ministries responsible. The first is Public Account
Committee sessions, in which members of the PAC question the controlling executives about the
procurement process and outcomes, including those reached through direct negotiation. The
second is a unique forum set up to allow members of the public to ask procurement officers in
their respective departments.
References

Hui, W. S. (2011). Procurement issues in Malaysia. International Journal of Public Sector, 567-
593.

Parameswaran, P. (2018). Malaysia's Defence Policy After the 2018 Elections. ASIA PACIFIC
BULLETIN, 434-435.

Zahari, H. (2020). Direct Negotiation and the Impact on Supplier. International Journal of
Supply Chain Management, 957-960.