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GOOD GOVERNANCE VIA E-PROCUREMENT SYSTEM NOVRIYANTO UNIVERSITI TEKNOLOGI MALAYSIA
GOOD GOVERNANCE VIA E-PROCUREMENT SYSTEM
NOVRIYANTO
UNIVERSITI TEKNOLOGI MALAYSIA
iii
My beloved father H. Syafril Mahmud
and my mother Hj. Ratnawilis,
two persons who I most want to present this thesis.
The ones I love most in this life, my wife Shirley, S.Sos.,
with my beloved children,
Linov Zhafran Ramadhan,
this is a milestone in my responsibility to bring you a better life.
My brothers,
Andri, ST
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ACKNOWLEDGEMENT
I would like to express my sincere appreciation to my supervisor Assoc. Prof.
Dr. Naomie Salim, for encouragement, guidance, critics, advices, motivation and
friendship from the start until finish this project. Without her continued support and
interest, this thesis would not have been the same as presented here.
My thanks go to Esa Firmansyah, Fariz Rahman Bey and Eko Budi Prasetyo
who provided in valuable help by teaching the nature PHP programming and English
editing for improvement.
My fellow postgraduate students should also be recognized for their support.
My sincere appreciation also extends to all my colleagues, friends and others who
have provided assistance at various occasions. Their views and tips are useful indeed.
Unfortunately, it is not possible to list all of them in this limited space.
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ABSTRACT
Public procurement in government context involved complicated processes
and too budget-consuming. Inadequate and not transparency information are the
main factors that cause corruption and data manipulation. However, to avoid such
problems, the development of web-based e-procurement system gives priority to
integrity, transparency, accountability, fairness, economy, and efficiency is needed.
The e-procurement system mentioned involved five main modules such as vendor
management system, announcing the acquisition of good and services, electronic
access to tender documents, tender submission document, and tender selection. This
e-procurement system gives privileges to all of the committee members in
calculating marks to determine the winners based on their committee position.
Moreover, this e-procurement system can automatically alert important events such
as the due date of registration, the marking date, and the date of winner
announcement. By using this e-procurement system, three stakeholders can see the
benefits. First, in term of government side where reducing procurement cost,
transparency, time saving, access to new supplier, and blacklist vendor. Second, in
term of vendor’s side where reducing cost, accessing to new buyers and increasing
sales. Third, in term of public society where adequate information, and public trusts.
Hopefully, good governance can be achieved by implementing this e-procurement
system.
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ABSTRAK
Pemerolehan umum di dalam konteks kerajaan melibatkan proses yang rumit
dan menelan belanja yang besar. Maklumat yang tidak mencukupi dan telus adalah
faktor utama yang mengakibatkan manipulasi data dan sogokan.
Walaubagaimanapun, bagi menghindari masalah ini, pembangunan sistem e-
procurement secara web yang memberi keutamaan terhadap aspek integriti,
ketelusan, kebertanggungjawapan, keadilan, ekonomi dan kecekapan adalah amat
diperlukan. Sistem e-procurement ini melibatkan lima modul utama seperti system
pengurusan penjual, pengumuman perolehan produk dan perkhidmatan, dan
pemilihan tender. Sistem ini memberi keistimewaan kepada semua ahli jawatankuasa
dalam mengira markah bagi menentukan pemenang berdasarkan jawatan yang
disandang. Seterusnya, sistem ini juga mampu memberi makluman mengenai acara-
acara penting secara automatik seperti tarikh luput pendaftaran, tarikh pemarkahan,
dan tarikh pengumuman pemenang. Dengan menggunakan system ini, tiga pemegang
taruh boleh melihat faedah-faedahnya. Pertamanya, faedah kepada pihak kerajaan
adalah seperti mengurangkan kos pemerolehan, meningkatkan nilai ketelusan,
menjimatkan masa, capaian kepada pembekal-pembekal baru dan menyenarai
hitamkan penjual. Keduanya, faedah kepada pihak penjual adalah seperti
mengurangkan kos, capaian kepada pembeli-pembeli baru dan meningkatkan tahap
jualan. Memberi maklumat yang mencukupi dan kepercayaan daripada masyarakat
umum adalah faedah penting yang perlu disampikan. Diharapkan, pentadbiran yang
baik boleh dicapai dengan menggunakan sistem e-procurement ini.
TABLE OF CONTENTS
CHAPTER TITLE PAGE
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENTS iv
ABSTRACT v
ABSTRAK vi
TABLE OF CONTENT vii
LIST OF TABLE xii
LIST OF FIGURES xiii
LIST OF APPENDICES xiv
1 PROJECT OVERVIEW 1
1.1 Introduction 1
1.2 The Background of The Study 4
1.3 Problem Statement 7
1.4 Objective of The Study 7
1.5 Scope of The Project 8
1.6 Important of Project 8
1.7 Chapter Summary 9
2 LITERATURE REVIEW 10
2.1 Introduction 10
2.2 Supply Chain Management and Procurement Management 12
2.3 Definition of e-Procurement 13
2.3.1 Government Readiness to e-Procurement 14
2.3.1.1 Authentication 14
2.3.1.2 Interoperability 14
2.3.1.3 Open Standard 15
2.3.1.4 Security and Privacy 16
2.3.2 Vendor/ Supplier Readiness to e-Procurement 16
2.3.3 Advantages and Disadvantages Using
e-Procurement 17
2.3.3.1 Advantages 17
2.3.3.2 Disadvantages 18
2.4 Module of e-Procurement 18
2.4.1 e-MRO (Maintenance, Repair, and Operating) 19
2.4.2 e-Sourcing 19
2.4.3 e-Tendering 20
2.4.4 e-Reverse Auctioning 20
2.4.5 e-Informing 20
2.5 Requirement For e-Procurement 21
2.5.1 Security Requirement for e-Procurement 21
2.5.2 Technical Realization of Security Requirement 22
2.6 Legal Context of Public Procurement in Indonesia 24
2.6.1 Presidential Decree No. 18 of 2000 24
2.6.2 Presidential Decree No. 80 of 2003 25
2.6.3 Addendum Presidential Decree No. 80 of 2003 26
2.7 Benchmarking Study 27
2.7.1 Challenges and Successes of Benchmarking 28
2.7.2 Best Practice in e-Procurement 30
2.7.2.1 University of Pennsylvania 30
2.7.2.2 Hewlett Packard 32
2.8 Technology Analysis 35
2.8.1 Three Tier Client Server Architecture 35
2.8.2 Web Database Construction 37
2.8.2.1 The Front End : Web Pages 37
2.8.2.2 The Back End : Database 38
2.8.2.3 Middleware 38
2.8.2.4 The Benefits and Challenges of The Web
Database Construction 39
2.8.3 Hypertext Markup Language 39
2.9 Discussion 40
2.10 Chapter Summary 43
3 METHODOLOGY 44
3.1 Introduction 44
3.2 Project Methodology 44
3.2.1 Planning Phase 46
3.2.2 Analysis Phase 46
3.2.2.1 Organization 46
3.2.2.2 Requirement Gathering 46
3.2.2.3 Literature Review 47
3.2.3 Design 47
3.2.4 Implementation 47
3.3 System Development Methodology 51
3.3.1 The Unified Process 51
3.3.1.1 Inception Phase 51
3.3.1.2 Elaboration Phase 52
3.3.1.3 Construction Phase 52
3.3.1.4 Transition Phase 52
3.3.2 Justification of Chosen Methodology 53
3.3.3 Object Oriented Approach 53
3.3.4 UML Notation 54
3.4 System Requirement Analysis 55
3.4.1 Hardware Requirement 55
3.4.2 Software Requirement 55
3.5 Project Schedule 57
3.6 Chapter Summary 57
4 ANALYSIS AND DESIGN 58
4.1 Introduction 58
4.2 Organization Analysis 58
4.2.1 Organization Structure 60
4.3 As-Is Process 61
4.3.1 Pre Qualification 61
4.3.2 Post Qualification 63
4.4 User Requirement 65
4.4.1 Functional Requirement 66
4.4.2 Non Functional Requirement 66
4.5 To-Be Process and Data Model 67
4.5.1 Use Case Diagram 67
4.5.1.1 Use Case Description 72
4.5.2 Class Diagram 72
4.5.3 CRC Card 74
4.5.4 Sequence Diagram 74
4.6 System Architecture 74
4.7 Tender Evaluation 76
4.7.1 Failed System Evaluation 76
4.7.2 Merit Point System Evaluation 76
4.8 Window Navigation Diagram 77
4.9 Chapter Summary 81
5 IMPLEMENTING AND TESTING 82
5.1 Introduction 82
5.2 System Implementation 82
5.2.1 Database Design 83
5.2.2 Coding Approach 85
5.3 Test Result/ System Evaluation 85
5.3.1 Black Box Testing 85
5.3.2 Integration Testing 90
5.3.3 User Acceptance Test 90
5.4 Chapter Summary 91
6 ORGANIZATIONAL STRATEGY 92
6.1 Introduction 92
6.2 Implementation Strategy 92
6.3 Change in Management 97
6.4 Installation of Infrastructure Process 97
6.5 Training 98
6.6 Expected Organization Benefits 99
6.6.1 Impact Toward Organization 99
6.6.2 Impact Toward Vendor 100
6.6.3 Impact Toward Public 100
6.7 Contingency Plan 101
6.8 Chapter Summary 101
7 DISCUSSION AND CONCLUSION 102
7.1 Achievement 102
7.2 Constrains and Challenges 103
7.3 Aspirations 103
7.4 Future Work for the System 104
7.5 Chapter Summary 104
REFERENCES 105
Appendices A - I 108 - 247
xii
LIST OF TABLES
TABLE NO. TITLE PAGE
2.1 Security Requirement 23
2.2 Best Practice Summary 41
3.1 Detail Every Phase In Project Methodology
Framework 48
3.2 Software Requirement for Developing the System 56
4.1 System Improvement 65
4.2 Functional Requirement for Project 66
4.3 Non-Functional Requirement for Project 67
4.4 Failed System Evaluation 76
4.5 Merit Point System Evaluation 77
5.1 List of Black Box Testing 85
6.1 Implementation Strategy 93
6.2 Parallel Implementation 97
6.3 Installation of Infrastructure 98
6.4 Training Design 99
xiii
LIST OF FIGURES
FIGURE NO. TITLE PAGE
2.1 Literature Review Structure 11
2.2 Benchmarking Wheel 27
2.3 The Three Tier Client Server Architecture Model 35
2.4 Web Base Construction Model 37
3.1 Project Methodology Framework 45
4.1 Organization Structure 60
4.2 Activity Diagram for Prequalification 62
4.3 Activity Diagram for Post qualification 64
4.4 Admin Use Case Diagram 68
4.5 Committee Use Case Diagram 69
4.6 Vendor Use Case Diagram 70
4.7 Public Use Case Diagram 71
4.8 Class Diagram 73
4.9 System Architecture 75
4.10 Window Navigation Diagram 78
4.11 Administrator Window Navigation Diagram 79
4.12 Committee Window Navigation Diagram 80
4.13 Vendor Window Navigation Diagram 81
5.1 Entity Relationship Diagram 84
xiv
LIST OF APPENDICES
APPENDIX TITLE PAGE
A Use Case Description 108
B CRC Card 146
C Sequence Diagram 158
D User Manual 171
E Database Design 195
F Snapshot PHP Code 202
G User Acceptance Test Questionnaires 223
H Technical Documentation 232
I Activity Diagram 247
CHAPTER 1
PROJECT OVERVIEW
1.1 Introduction
Procurement good and services in government of Riau Province is conducted
every year. Source of budget procurement goods and services come from National
General Revenue and Expenditure Budget (Anggaran Pendapatan Belanja Negara/
APBN) and Regional General Revenue and Expenditure Budget (Anggaran
Pendapatan Belanja Daerah/ APBD). Procurement in government involves
supplier/vendor of goods and services and must be announced to public by local
news paper.
Some regulation and legislation of procurement goods and services have been
issued before, but the latest one is Presidential Decree No. 80/2003 (Keputusan
Presiden No. 80/2003). This Presidential Decree’s focus more on procurement goods
and services in government that source budget from National General Revenue and
Expenditure Budget (Anggaran Pendapatan Belanja Negara/ APBN) and Regional
General Revenue and Expenditure Budget (Anggaran Pendapatan Belanja Daerah/
APBD) and also non budgeter resources. This presidential decree’s also encourages
globalization and liberalization procurement in Indonesia. The main goal of this
presidential decree’s is to reduce corruption, collusion and nepotism and make fair
competition in procurement.
Nowdays, government try to improve public procurement by using internet
media. With internet services, the government hope to get good prices by transparent,
open and fair competition. This mean that the public is also involved to control this
procurement processes.
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A good criteria of procurement must contains :
1. Integrity
Integrity means that the procurement processes are honest and in
compliance with the respective laws, that the best available, most suitable
technical expertise is employed in a non-discriminatory manner, that fair
and open competition leads to a quality product at a fair price, and that the
product takes into account the legitimate aspirations and concerns of all
the stakeholders.
2. Transparency
Transparency means that laws, regulations, institutions, processes, plans
and decisions are made accessible to the public at large or at least to
representatives of the public so that processes and decisions can be
monitored, reviewed, commented upon and influenced by the
stakeholders, and decision makers can be held accountable for them.
3. Accountability
Accountability means that governments, public institutions or
corporations and individual officials, and companies or other individuals
acting on behalf of companies, must be accountable for the correct and
complete execution of their tasks and duties and for the decisions and
actions being made in their area of responsibility. Procedures enabling
full accountability should be systematic and dependable.
4. Fairness, economy and efficiency
Contract award decisions should be fair and impartial. Public funds
should not be used to provide favors to specific individuals or companies,
standards and specifications must be nondiscriminatory, suppliers and
contractors should be selected on the basis of their qualifications and the
merit of their offers, there should be equal treatment of all in terms of
deadlines, confidentiality.
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Procurement should be economical. It should result in the best quality of
goods and services for the price paid, or the lowest price for the
acceptable, stipulated quality of goods and services, not necessarily the
lowest priced goods available; and not necessarily the absolutely best
quality available, but the best combination to meet the particular needs,
and the published specifications.
The procurement process should be efficient. The procurement rules
should reflect the value and complexity of the items to be procured.
Procedures for small value purchases should be simple and fast though
not at the expense of integrity, fairness or transparency, but as contract
values and complexity increase, more time and more complex rules will
be required to ensure that principles are observed. Decision-making for
larger contracts may require complex committee and review processes.
However, bureaucratic interventions should be kept to a minimum.
Public Procurement is the biggest state expenditure budget in Indonesia and
also the highest level of bribery specially public work and construction sector. Lack
of information about public procurement can easily hide corrupt manipulation. The
problem of public procurements in Indonesia are :
a. Mark Up Price.
b. Double Receipt, Fake Receipt, Blank Receipt.
c. Bad Quality within high price.
d. Arranged Bidding.
e. Not Transparent and Unaccountable.
f. Lower Ethics by apparatus.
g. Bribery.
In this study, researcher proposes a prototype electronic procurement (e-
procurement) by using web base technology that give priority to integrity,
transparency, accountability, fairness, economy and efficiency that is in accordance
to presidential decree No. 80/ 2003.
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In order to capture data and information about procurement processes,
researcher choose Riau Government to be the case study, specifically department of
Regional Planning and Development Agency of Riau Province (Badan Perencanaan
dan Pembangunan Daerah Provinsi Riau) which is located in Pekanbaru.
The remaining part of the study is divided into three chapters. The second
chapter presents the literature review; while the third presents the research
methodology. The initial findings and analysis are discussed in chapter four.
1.2 The Background of the Study
Procedures of public procurement are often complex. Transparencies of the
processes are limited, and manipulations are hard to detect. Acquisition goods and
services processes in government are complicated, and often occurs corruption
action. Marginally, procurement in government has the followings steps.
1. Need Assessment Phase/ Demand Determination.
2. Preparation Phase/ Process Design And Bid Documents Preparation.
3. Contractor Selection And Award Phase.
4. Contract Implementation Phase.
5. Final Accounting And Audit.
From each phase above, there are possible corruptions that inflict a financial
loss. Possible corruptions in every phase on procurement can be identified as:
1. Need Assessment Phase/ Demand Determination. Possible Corruption are
:
a. The investment or purchase is unnecessary. Demand is induced so that
a particular company can make a deal but is of little or no value to the
society.
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b. Goods or services that are needed are overestimated to favor a
particular provider.
c. Old political favors or kickbacks are paid by including in the budget a
“tagged” contract (budget for a contract with a “certain”, pre arranged
contractor).
d. Conflicts of interest (revolving doors) are left unmanaged and
decision makers decide on the need for contracts that impact their old
employers.
2. Preparation Phase/ Process Design And Bid Documents Preparation.
Possible Corruption are :
a. Bidding documents or terms of reference are designed to favor a
particular provider so that in fact, competition is not possible.
b. Goods or services needed are over- or underestimated to favor a
particular bidder.
c. Unnecessary complexity of bidding documents or terms of reference
is used to create confusion to hide corrupt behavior and make
monitoring difficult.
d. Design consultants prepare a design that favors a particular bidder.
e. Grounds for direct contracting are abused.
3. Contractor Selection And Award Phase. Possible corruption are :
a. Decision makers are biased (bribes, kickbacks, or conflicts of interest
are involved).
b. Selection criteria are subjective in ways that allow biases to play a
role and remain unattended.
c. An advantage to a particular bidder is granted through the exchange of
confidential information before bid submission or during the
clarification period. Clarifications are not shared with all the bidders.
d. Confidentiality is abused and extended beyond legally protected
information making monitoring and control difficult.
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e. The grounds for the selection of the winner are not made public
(transparency of bid evaluation).
f. Excessive (unnecessarily high) price as a result of limited or non-
existent competition.
4. Contract Implementation Phase. Possible corruption are :
a. Winning bidders/contractors compensate bribes and other extra
payments with poor quality, defective or different specifications than
those contracted. Faulty or sub-specification work execution,
requiring early repairs or expensive correction.
b. Contract renegotiation or change orders introduce substantial changes
to the contract, often in small increments that can be decided by site
engineer.
c. Price increases during execution through change orders reflecting
changes in specifications or cost increases, facilitated often by
collusion between corrupt contractor and corrupt control official.
d. Contract renegotiation is allowed or performed introducing substantial
changes that render the bidding process useless.
e. Contract supervisors or monitors are not independent and willing to
justify false or inexistent claims.
5. Final Accounting And Audit (When Applicable). Possible corruption are :
a. Accountants doing final accounts and Auditors are biased and willing
to support false certificates
In recent years, government emphasizes to use the internet for public
procurement processes. The main objective here is to have better value for money by
fostering access, competition, impartiality, transparency and allowing control by civil
society. By using e-procurement government, it is hoped that we can achieve the
following :
a. Increased efficiency.
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b. Enhanced transparency.
c. Public access.
d. Better risk management.
e. Higher levels of integrity and ethics.
f. Significantly better access to government procurement for Small and
Medium Size Enterprises (SMEs).
g. Better access for non-local (provincial) bidders.
h. Corruption avoidance.
The proposed of this project is to develop a web base procurement or e-
procurement to give priority to integrity, transparency, accountability, fairness,
economy, and efficiency. Researcher also hope to reduce corruption and financial
lose in procurement services and goods on government.
1.3. Problem Statement
The problem statement from this project is :
“How to design and develop a prototype of e-procurement that is in accordance to
Presidential Decree (Keputusan Presiden RI) No. 80/2003 with web base
technology”.
1.4. Objective of the project
The objective of this project are :
1. To study current procurement processes.
2. To design and develop a prototype of e-Procurement system.
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1.5. Scope of the project
Procurement have complexity processes, therefore researcher will be focus on
the following area :
1. Design and develop Vendor Management System to record vendor or
supplier data.
2. Announce the acquisition of good and services in government and with
the entire requirement.
3. Notification, include the electronic access to tender documents. This
implies that suppliers can download the tender documents from the
website.
4. Tender submission document, the vendor can submit all tender documents
via website.
5. Winner information will be publishing via internet. This will show who
won the procurement and project specification.
6. Tender Selection, e-Procurement will be generate winner candidate each
tender.
1.6. Importance of project
By implementing internet media to conduct procurement in government,
especially e-procurement services and good, Researcher hope that it can increase
public trust in government for acquisition goods and services. Some benefit of using
e-procurement for government, vendors/supplier and public are :
1. Government
a. Lower transaction costs – streamlined transaction processing
b. Transparency – greater openness on the publication and award of
public contracts
c. Access to new suppliers – internet access removes geographical
barriers and provides for a more competitive marketplace
d. Time savings – provides faster approval, ordering processes and
potentially delivery.
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e. Blacklist vendor databases – Government have database that contain
blacklist vendor for procurement, and band the vendor for 2 years.
2. Vendors/ Supplier
a. Reduced costs – electronic trading enables faster processing costs, and
can help to minimize errors often associated with paper based systems
b. Access to new buyers and markets – e-procurement provides a new
sales channel opening up many new opportunities for suppliers.
c. Increased sales – with access to a wider public sector market,
suppliers have the potential to increase revenue.
3. Public
a. Adequate procurement Information – Public can monitor and control
procurement processes through official website.
1.7 Summary In this first chapter a brief introduction about the project and how the project
is going to be implemented has been discussed. The problem background and
statement has also been discussed in this chapter to give an introduction of the
project and to explain why this project has been proposed. The objective, scope and
the importance of this project have also been pointed out. Hopefully, by developing
the project successfully, the objective and aim of the project can be achieved.
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