• Current policies are inadequate to address prevailing issues indirectly negotiated contracts, including corruption and chronic mismanagement.
• Analysis of the Auditor-General’s Report 2014-18 indicates that there were multiple instances of abuse where no further action was taken.
• To respond to non-catastrophe related urgent needs direct negotiation should be replaced with competitive negotiations, building on international best practice.
• The upcoming Government Procurement Act provides an opportunity for the government to improve value for money, accountability, and transparency in the direct negotiation process. IDEAS calls for the inclusion of “competitive negotiations” and “review system” in the upcoming Act, as well as strengthening of the current circulars.

Kuala Lumpur, 18 November 2020 –The Institute for Democracy and Economic Affairs (IDEAS) has published a policy paper, “Improving Direct Negotiation Rules in Malaysia: Learning from Current Practices and International Laws” co-written by Sri Murniati and Danial Ariff.

Public procurement through direct negotiation has been viewed negatively by the public due to its proclivity for abuse and cronyism.  The Finance Minister’s revelation of 101 directly-negotiated contracts in August put direct negotiations in the spotlight once again.

IDEAS CEO Tricia Yeoh said, “This paper is part of IDEAS’ initiative to contribute to the government’s plan to introduce a procurement legislation by 2023, as mandated by the National Anti-Corruption Plan 2020. The paper evaluates the limitations of current rules on direct negotiation, how they are practised, and presents recommendations for reform. To show how the current rules are being practised, this paper conducted an analysis of direct negotiation contracts disclosed in Auditor-General’s report 2014-18.”

The paper argues that the current rules of direct negotiation (Circulars P.K 7.15 & P.K 7.16) have measures to ensure direct negotiation contracts are delivered with some accountability, achieve value for money, and foster fair competition. However, they do not have adequate transparency measures and contain measures that may negatively impact accountability and value for money.  Additionally, the analysis of the direct negotiation projects in the Auditor General Reports from 2014-2018 shows that the rules are not implemented well. The paper identifies multiple violations of rules in the approval process, qualification of contractors, and negotiation process.The paper recommends revision to the current policies and the adoption of “competitive negotiations” as an alternative to the current model of direct negotiation. This reform should be coupled with a review system in the upcoming procurement legislation. Additionally, IDEAS calls for a clear separation between the power and responsibility of bureaucrats and politicians in procurement exercises. It also reiterates our previous call to publish information about direct negotiation before and after the procurement exercise.

Yeoh added that “Direct negotiation is a necessary procurement method to address the needs for expedited service delivery. However, the gaps in the current rules create loopholes that can be exploited by individuals in positions of power for their advantages. The recommendations that the paper puts forward can minimise the loopholes and strengthen the potential of this procurement method to deliver value for taxpayers’ money.”

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A copy of the paper can be downloaded here ()

We will be discussing the paper tomorrow at a webinar titled “Direct Negotiations: Should we abandon the practice?” (27 Nov 2020, 10:00 am). To register, log on to https://us02web.zoom.us/webinar/register/WN_2QnRbvFFSwmCu3PaCm1NWw