Kuala Lumpur, 29 September 2021 – A new report by the Institute for Democracy and Economic Affairs (IDEAS) entitled ‘Public Procurement and Bumiputera Company Development in the Construction Industry: Reviewing Policies, Exploring Possibilities’, traced the public procurement policy and preferential terms towards Bumiputera contractors that have been embedded since the 1970s as well as the efforts to promote equality and competitiveness in the construction industry that have emerged from time to time.

IDEAS noted that Malaysia, like many countries around the world, utilises public procurement for developmental goals by conferring preference to a designated group in the award of contracts. 

However, unlike most countries in which its system would benefit disadvantaged minority groups, Malaysia’s policies concentrated most attention on small-scale operations that are more accessible for start-ups but favours a majority group, the Bumiputera community.

IDEAS CEO Tricia Yeoh commented, “Findings from this report indicate that existing pro-Bumiputera policies within public procurement have not necessarily ensured that there is equitable opportunity for all Bumiputera contractors, where for example fraudulent practices of beneficial ownership or political influence in the award of contracts have prevented competitive contractors from winning bids fairly. In order to truly elevate and enhance Bumiputera contractors, the research confirms that structural changes such as transparency are needed, as well as an emphasis on professionalisation and upskilling. We hope these findings will assist the government as it considers how to improve Bumiputera economic conditions more effectively, as outlined in the recently launched 12th Malaysia Plan.”

As observed by the author of the report, Dr. Lee Hwok Aun, “Malaysia’s efforts to develop Bumiputera companies through public procurement policy hold out potentialities and pitfalls. The approach, with reservation of all small-scale contracts as well as quotas and price preferences for medium to large contracts exclusively for Bumiputera contractors, stands out globally for its form and magnitude.”

This report presents an overview and update of pro-Bumiputera policies within public procurement, and the findings and implications of an original research project undertaken in April-August 2021. The research set out to survey and assess the distribution and characteristics of Bumiputera contractors, to investigate the effects of public procurement on Bumiputera company development. 

Based on a review of a broad range of data and interviews, the report finds a consistent concentration of Bumiputera contractors at the smallest out of seven grades, G1, with over-representation in lower-income states, and in rural or mixed rural/urban districts. G1 Bumiputera contractors proliferated when registration reopened in 2019 after a 14-year freeze. As of the end of August 2021, there are 66,906 Bumiputera contractors registered with Pusat Khidmat Kontraktor (PKK) and G1 accounts for 63.3% of all Bumiputera contractors.

Interviews with contractors and stakeholders add further insight of the different pathways of company progress. Graduating from G1 is not the only pathway for companies to progress. Research found that within G1, companies with a wider set of competencies tend to win tendered contracts more regularly. Some companies appear to adopt a higher-skilled and focused specialization mode of participation in procurement, which presents scarcer opportunity but potentially better financial reward per contract.

The report highlights some of the shortcomings in terms of implementation in existing public procurement policies. The report pointed to the prevalence of fraudulent practices especially the registration of proxy companies under one beneficial owner as fronts in balloting or contract bidding exercises as well as the challenge of detecting and prosecuting the aforementioned fraudulent practices by under-resourced authorities. 

Dr. Lee Hwok Aun further added “Our probe into contractors’ outlook in public procurement is valuable for policymakers moving forward. Drawing from the interviews with a few participants in the MRT Young Entrepreneur Programme (MYEP), training and mentorship, exposure to rigorous professional standards, access to finance, and linkage with networks and established trust between main contractors and subcontractors, contribute substantially to company growth. Meanwhile, political influence in the award of contracts can reduce morale among the excluded, or in some cases, spur a movement into GLC or private sector procurement.”

The research has led IDEAS to make the following policy recommendations: 

• On reservation and quota policy, consider locality – defined even more specifically than district, as an additional layer for granting preference in award of contract. 
• Margin of pricing reference, or a points system, diminishes in the degree of preference over time, or with each successive contract as a general rule for facilitating graduation.
• On ownership regulations and the contract award system, introduce beneficial ownership declarations with clear liability for infringements falling on the beneficial owner.
• Increase resources of relevant enforcement agencies and set up whistleblower channels.
• Implementation of a points system reinforced by growth pathways. This scheme, by awarding the highest points to new entrants followed by a sliding scale based on time or number of contracts, can incentivize graduation. Points can also be awarded for entry into specific grades or specializations, or adoption of technology, and based on group disadvantage beyond Bumiputera status.

The report was launched at a webinar on 29th September 2021. You can find the report here.

— END —

Download Media Statement PDF File Here

For enquiries, please contact:
Zokhri Idris, Ph.D, Director, External Relations
T: +603 2070 8881/8882 | E: zokhri@ideas.org.my