Robin Asad Suryo – Economist and deputy chairman of the National Public Procurement Agency (LKPP)

President Joko Jokowi Widodo recently signed and issued Presidential Regulation (PR) No. 16 /2018 on Government Procurement to replace the PR No. 54/2010.
In essence, the government procurement regulation sets rules and procedures on how the government purchases goods and services. Government purchases are very important for it to function well, especially in providing public goods and public services.
It is expected to have big and positive impacts on business, economy and eventually, public welfare. The money allocated for purchasing goods and services comes from taxpayers, and should ultimately be spent in the public interest.
Statistics show that government spending on goods and services has increased tremendously in the last eight years, from approximately Rp 300 trillion (US$21.9 billion) in 2010 to almost Rp 800 trillion in 2018 nationally, and it is expected to increase in coming years.
As the largest buyer in the market, the government purchases almost everything from the market. Government buys not only routine, low-value items such as office supplies, but it also buys critical, high-value or strategic purchases such as medical equipment, medicines, weapons and satellites. As the demand for the provision of economic and social infrastructure increases, the government also procures more construction projects such as schools, hospitals, mass transportation systems, roads, bridges, dams and other projects. Therefore, it is imperative for the government to establish a good procurement system including a procurement regulatory framework.
As part of public expenditure reform, PR No. 16/20018 must address three challenges in government procurement. The first challenge is the increasing magnitude and complexity of goods and services the government purchases. The second challenge is the fast-changing market and business environment. The third is the necessity of using government procurement as a policy instrument for development.
These three challenges demand more effective procurement procedures to deal with the market (outward view), better government capacity to manage procurement, including the ability to mitigate risks (inward view), and better alignment of the procurement policy with other development goals (inclusive view).
If we look at the provisions of PR No. 16/20018, the regulation is generally designed to address these challenges. It is more market-oriented and at the same time, it intensifies and enhances the use of information technology in the procurement process. These are reflected, for example, by the introduction of the government procurement e-marketplace, especially in expanding its e-catalog system and its use of a digital reverse auction, primarily for routine and low-value procurement.
The extensive use of an electronic procurement system will not only increase transparency of the procurement process, but also improve efficiency in terms of costs and time saved.
Furthermore, under PR No. 16/20018, procurement entities are encouraged to approach the market in a consolidated manner. Practicing consolidated procurement will allow the government to reduce transaction costs and make contracts more manageable. However, procurement entities must implement consolidated procurement selectively, cautiously and hand-in-hand with other policies so that it will have no adverse effect on small and medium enterprises (SMEs) in obtaining access and opportunities to the government procurement market.
PR No. 16/20018 also adopts the market practice on using procurement agent, allowing procurement entities to delegate highly complex or specialized procurements to professional agents. This policy is very good, not only in the short run, but also in the long run, because with increasing complexities, procurement entities can reduce their risks to exposure by transferring some of the risks to a procurement agent. Using procurement agents will also allow government institutions to focus on other strategic policy issues.
The inward view requires the government to improve the capacity of procurement entities to conduct procurements in an efficient and effective, as well as accountable, manner. Hence, it is mandatory that procurement entities strengthen their institutional capacity, including the capacity of its officials.
PR No. 16/2018 calls for procurement entities at both central and local governments to strengthen the capacity of their procurement service units (PSU) by establishing permanent units and creating functional positions for its officials who have a central role in government purchasing activities.
Improving PSU capacity should be accompanied by providing the right incentives to its officials in order to promote, appreciate and maintain their professionalism and integrity. Allocating a bigger budget for developing human resources in the government procurement field has to be viewed not only as a necessary cost, but also as a good long-term investment.
The inclusive view certainly suggests that the success of government procurement is not measured simply by value for money as a singular objective. The public expects the regulation to prescribe rules and procedures for purchasing, but also equally important is how it achieves other economic and social objectives such as promoting responsible and sustainable procurement, developing SMEs, encouraging the use of domestic products and supporting trade and local development.
PR No. 16/20018 demonstrates that in addition to establishing rules, it also sets other development goals for government procurement, particularly in serving business, economic, public and environmental interests.
Procurement has many functions in both the private and public sectors. Even so, one cannot underestimate its importance. In the private sector, procurement is considered an influential factor in a companys competitiveness. In the public sector, it is high time that government procurement should also be considered as one of the factors that determine our nations competitiveness.
Therefore, government procurement should be implemented efficiently and effectively so that it will contribute significantly to the competitiveness of the Indonesian economy. We hope that PR No. 16/2018 on Government Procurement will be able to cope with the challenges.
The writer is an economist and deputy chairman of the National Public Procurement Agency (LKPP). The views expressed are his own.