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E-Procurement & E-Tendering in Indonesia: Game Changer or A Way for Irregularities?

Procurement

In today’s ever-increasing digitalization era, all businesses across sectors must adapt to the challenges of this digital landscape to become more competitive and efficient. Procurement of products and services, as one of the entry points into business competition in government and private projects, contributes to the adoption of digitalization to ensure smooth and efficient procurement process. E-procurement and e-tendering are terms used in Indonesia to describe the procurement of products and services through a digitalization process.

What are e-procurement and e-tendering?

E-procurement, or the electronic procurement of products and services, represents a revolution in the way the government conducts procurement processes. Implemented online, the procurement it utilizes the Electronic Procurement Service or “Layanan Pengadaan Secara Elektronik” (LPSE) of the Ministry of Finance, State-Owned Assets or “Barang Milik Negara” (BMN), and Procurement. By utilizing communication and information technology facilities, this electronic process enhances efficiency and transparency, fostering an inclusive environment for products and service providers from various business sectors.

On the other hand, e-tendering is a procedure for selecting providers of products and services.  This electronic process opens the door widely to all registered businesses as it is conducted openly, allowing any qualifying party to submit a single bid within a specified timeframe.

Procurement

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Understanding E-Tendering and E-Procurement in the Context of Indonesian Law

Why is it important for businesses to understand e-procurement and e-tendering? The answer is simple: it is the key to unlocking new opportunities and to enhancing competitiveness. Grasping the concepts, dynamics, and regulations behind these processes will broaden market reach of businesses and enable them to prepare for challenges and opportunities that may arise.

Currently, government procurement of goods/services is primarily governed by Presidential Regulation Number 12 of 2021 concerning Amendments to Presidential Regulation Number 16 of 2018 concerning Government Procurement of Goods/Services (“PR 12/2021“). It is crucial for various parties, especially businesses, to carefully understand and comprehend several key points in PR 12/2021, including:

  1. Changes in the Role of Procurement Actors
    The deletion of the Pejabat Penerima Hasil Pekerjaan (Pj/PPHP) has significant implications for the interaction and communication methods of procurement actors.
  2. Innovation in Procurement Preparation
    The addition of types of construction work procurement contracts, such as turnkey contracts and cost-plus-reward contracts, provides flexible collaboration opportunities in the procurement preparation phase.
  3. Adjustments in Supplier Selection
    Regarding e-purchasing, the regulations expand the options not only through electronic catalogs but also involve online stores. This indicates a significant change in the way suppliers of products/services are selected.
  4. Administrative Sanctions for Non-Compliant Bidders
    The existence of administrative sanctions for winning bidders who withdraw for unacceptable reasons before contract signing emphasizes the importance of commitment from businesses in the execution phase of agreements.

Procurement

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Case Study: Collusion in Project Tendering

On February 1, 2021, the Bogor Regency Government announced a tender for a construction project to repair the Kandang Roda-Pakansari Road with a project value of IDR 97,974,310,650. After a complex process, on February 15, 2022, PT Lambok Ulina was declared the main winner, while PT Tureloto Battu Indah was the reserve winner.

However, PT Lambok Ulina’s victory gained public attention due to alleged collusion between PT Lambok Ulina, PT Tureloto Battu Indah, and Lai Bui Min, a businessman suspected of acting as an intermediary. The allegation of collusion was based on several factors, including:

  • Borrowing companies: PT Lambok Ulina and PT Tureloto Battu Indah were found to have borrowed a company from Lai Bui Min to participate in the tender.
  • Appointment of other parties to prepare bid documents: The bid documents of PT Lambok Ulina and PT Tureloto Battu Indah were known to have been prepared by the same party.
  • Similar internet addresses: PT Lambok Ulina and PT Tureloto Battu Indah were found to have the same internet address.
  • Similarities in bid documents: The bid documents of PT Lambok Ulina and PT Tureloto Battu Indah were known to have similarities in terms of price, specifications, and implementation schedules.

This alleged collusion was then reported to the Business Competition Supervisory Commission or Komisi Pengawas Persaingan Usaha (“KPPU”), which then conducted an investigation. During their investigation and examination process, KPPU found sufficient evidence to state that PT Lambok Ulina, PT Tureloto Battu Indah, and Lai Bui Min were convincingly proven to have violated Article 22 of Law Number 5 of 1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition.

On December 8, 2023, KPPU finally imposed a fine of IDR 1.5 billion on Lai Bui Min. This fine was to be paid to the State Treasury no later than 30 days after the decision became legally binding.

In the case above, we must acknowledge the crucial role of the e-procurement system in promoting efficient and transparent procurement of goods and services. Previously, the procurement of goods and services was conducted conventionally, tending to take a long time and lacking security guarantees due to a lack of transparency.

E-procurement is implemented to increase security and transparency. However, this case highlights the fact that, despite the existence of the e-procurement system, the risk of violations and collusion still exists. The possibility of manipulation of bid documents, borrowing companies, and collusion indicates that transparency is not always accompanied by strong integrity.

Procurement

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Strategies to Prevent Violations

Tender collusion is one loophole that is often used to manipulate government procurement processes. According to KPPU, 80% of cases reported are tender cases. The report explains that unfair business competition practices have developed in complex ways with various loopholes, making it difficult to overcome these issues using conventional methods, especially in the procurement of goods/services.

Therefore, it is critical for all stakeholders in this digital age to thoroughly understand the important aspects of procuring goods and services, one of which is the strategy that must be implemented to avoid violations that could harm other businesses or tender participants. Listed below are several prevention strategies to implement:

  • Understand and comprehend the latest regulations and provisions related to the procurement of goods/services, especially in the context of e-procurement and e-tendering.
  • Gain a deep understanding of the e-procurement and e-tendering processes to ensure compliance with applicable regulations.
  • If constrained by time or energy to learn e-procurement and e-tendering, consider using the services of a consultant who is an expert in the field.
  • Build a close relationship with supervisory institutions, such as KPPU, to obtain guidance and up-to-date information on regulations and business practices in the procurement sector.

The case of tender collusion in Bogor Regency serves as a warning that, despite the implementation of the e-procurement system, the risk of violations still exists. Therefore, it is crucial for all stakeholders, including businesses, to take proactive steps to protect business integrity in this digital era, such us implementing prevention strategies that focus on understanding regulations, building a close relationship with supervisory institutions e.g., KPPU, and hiring consultant services. We, ADCO Law, are ready to be a reliable partner for businesses wishing to explore or consult on legal aspects related to this matter.

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About ADCO Law:

ADCO Law is a firm that offers clients a wide range of integrated legal services, including in commercial transactions and corporate disputes in a variety of industry sectors. Over the course of more than a decade, we have grown to understand our client’s industry and business as well as the regulatory aspect. In dealing with business dynamics, we provide comprehensive solid legal advice and solutions to minimize legal and business risks.

ADCO Law is a Proud Member of the Alliott Global Alliance (AGA) in Indonesia. Founded in 1979, AGA is one of the largest and fastest-growing global multidisciplinary alliances, with 215 member firms in 95 countries.

As a law firm, we also believe in regeneration. To stay abreast of business changes and stay relevant, our formation of lawyers is comprised of the top graduates from Indonesian and international law schools.

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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.