A Check on Indonesia’s Graft-Ridden Procurement Games

June 27, 2012

By Erman Rahman

Tracing the complicated web of procurement scandals in the Indonesian media over the past few months, it has been hard to remain upbeat about the country’s fight against corruption. But among the gloomy headlines, The Asia Foundation was glad to find a glimmer of hope in Makassar, South Sulawesi.

A contractor, a labor rights activist, a lawyer, a budget analyst and a handful of community organizers are tirelessly working to hold the municipal government accountable. Known as the Independent Monitoring Commission (LPI), this dedicated group of professionals is making a difference, one public procurement project at a time.

Pervasive corruption in government procurement has been long recognized, but recently a number of massive graft cases – meticulously detailed by Indonesia’s boisterous media – have brought a greater urgency to the issue. Cases involving collusion between national government personnel, members of parliament, political party leaders and the private sector show how deep these problems run, with many special interests conspiring to keep government spending from being competitive and fair.

Many observers have praised the Indonesian government for the steps it has taken to combat corruption and improve public procurement practices, through reforms like electronic procurement. Our recent study found the adoption of these reforms is on the rise, with about three-quarters of the nation’s 500-plus subnational governments adopting some form of e-procurement, about a quarter centralizing procurement through an integrated unit (ULP), and more than half possessing more than 100 staff accredited to serve on procurement committees (Asia Foundation, Bandung Advisory Trust (B-Trust) in collaboration with the World Bank). These are crucial steps toward improving transparency, expanding competition, increasing efficiency and providing checks and balances over public spending.

Yet public oversight remains critically underdeveloped. Procurement is not always a focus of the State Audit Agency’s reports, which are a key source of public information about regional governments’ performance. And even in regions where civil society organizations focus on combating corruption, NGOs have made limited efforts to monitor procurement.

It therefore came as some surprise to find a promising civil society initiative in Makassar. The capital of South Sulawesi – the “gateway to Eastern Indonesia” – has a checkered record of economic governance. Private sector respondents ranked corruption in the city in the bottom quintile of 50 districts surveyed in 2010, according to a Transparency International Indonesia (TII) poll. Makassar ranked 19 out of 24 districts recently surveyed by Regional Autonomy Watch (KPPOD) in terms of the quality of economic governance.

With this as a backdrop, in 2010 the city government established a quasi-governmental unit, the Independent Monitoring Commission (LPI). The LPI’s five commissioners were identified through an open recruitment process led by the government, with oversight from civil society and support from TII. The commission utilizes a grassroots network of community organizers – sub-district monitoring committees – which enables it to monitor public projects across the municipality.

Last year, commissioners identified 13 procurement projects – involving roadways, drainage ditches and school furniture – to be monitored. Specifications obtained from the units responsible for these projects were the LPI’s main reference, and were utilized to undertake regular monitoring visits. An array of problems was identified, starting with two government departments that resisted providing procurement documents to commissioners.

Even with limited information, commissioners were able to detect “sophisticated” practices implying collusion, such as subprojects with different types of work and locations bundled into a single package (seemingly to limit competition), bids with simple mistakes in their cost proposals (so the company would knowingly be disqualified, and the perception of more bidders would be inflated), and proposals that added items beyond the scope of work (and hid these unneeded additions by lack of detail in quantities and costs). Commissioners also found two bidders for a contract that had the same owner.

Through its field network, LPI was also able to identify problems in contracting, such as road segments not built to specifications, volumes of supplemental food not delivered, substandard school furniture, and contractors receiving their final payments before completing work. The mayor responded to these reports by calling together department directors and pressing them to follow up on the findings. Encouragingly, the Department of Public Works heeded the call – negotiating with contractors to finish faulty infrastructure projects.

Now that the LPI has shown its teeth, it is creatively thinking of ways to expand its monitoring activities and disseminate its findings widely. Its biggest challenge may be that its authority rests on a mayoral decree. With the current mayor running for governor in 2013, the LPI could be easily dismantled when a new executive takes the helm. This would be a great shame, as this promising initiative is one of the few active civil society checks on Indonesia’s graft-ridden procurement games.

Erman Rahman is the Asia Foundation’s Director for Local and Economic Governance in Indonesia. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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