Suppliers’ Perception of Government Procurement and e-Procurement

Ridzuan Kushairi Mohd Ramli

Ministry of Education, Malaysia

Hazman Shah Abdullah

Rozalli Hashim
Faculty of Administrative Science & Policy Studies
Universiti Teknologi MARA, Malaysia

Abstract

Electronic government holds tremendous promise for improvements in internal

governmental management as much as it does for the public service delivery. Efforts
to e-procure goods and services estimated at about 12-25% of GDP (OECD, 2002)
from vendors since 1999 is expected to provide significant savings to the government.
But the uptake among the vendor community is still less than satisfactory. This paper
reports on a study of the suppliers’ perception of efficiency and transparency of the
public e-procurement system called “e-Perolehan”. A cross-sectional survey of 91
suppliers of one key federal ministry was carried out for their perceptions of the e-
Perolehan system. A model of adoption developed identified attitude towards-
procurement and government procurement, knowledge of e-procurement and
knowledge of government procurement as exogenous variables and ease of use of e-
procurement as the moderator of the two outcome variables namely, perception of
efficiency and transparency of the e-procurement. The perception of efficiency of eP
was influenced by knowledge of eP and government procurement and subjective
norms of suppliers while perception of transparency of EP was influenced by attitude
towards EP and government procurement and EOU. The vendors either vicariously or
experientially are unconvinced that the eP is more effective way of transacting with
the government. There are still strong residual concerns about the transparency of the
process. There is a feeling that the more personal or “high touch” mode gives them
greater control of the outcome of the bid than can the “impersonal” and high tech
approach. To achieve greater level of adoption and usage, the government must
pursue a dual policy of coercion and persuasive. Datelines for adoption must not be
extended any further as has been the case before and it must listen to and address
small vendors concerns of high cost and poor integrity of the privatized eP system.
[292 words]

Keywords: e-procurement, e-government, B2B commerce, private-public

partnership.

INTRODUCTION
The government in most countries is the largest single institution in terms of
employment and the amount of expenditure. This huge and vertically and highly
differentiated bureaucracy that forms the backbone of the government suffers from
poor information exchange, inefficiency, low responsiveness and wastefulness. E-
government has enabled this unwieldy bureaucratic machinery to be reconstructed to
overcome some of the most pernicious traits (Marche & McNiven, 2003; Davison,
Wagner & Ma, 2005). E-government has been extensively exploited to improve the
internal workings of the government as much as it has the service delivery. The one

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area that e-government is believed to hold huge potential is in the procurement of
goods and services (Kubicek, 2001). Government procurement which is estimated to
be about 12-25% of the GDP (OECD, 2002) is marked rampant claims of abuse and
corruption. Consequently, the procurement process does not yield the best products
and services for the government. Therefore, e-procurement system that is more
efficient, less prone to tampering and more transparent should be a welcome initiative.
However, e-perolehan system, a key MSC flagship project in Malaysia has
experienced many challenges in achieving acceptance among the suppliers. Since its
introduction in 2000, e-perolehan users and usage have grown from 11,016 (RM71.5
mln) transactions to 326,807 transactions in 2007 (RM4.073 bln). Despite the
creditable achievement, the government procurement through e-Perolehan remains
small in the value in relation to the total value of government procurement and about
11% of the registered suppliers have become e-P enabled (www.uniteperolehan.
gov.my). Why are the suppliers slow in adopting the e-perolehan systems? While
many technical and economic issues have been raised i.e. reliability, stability and
integrity of the system by and the exorbitant cost of services by the franchise holder,
what role does suppliers attitudes, perceptions and prejudices influence their adoption
of e-perolehan system? Where adoption is viewed as voluntary, perceptions play a
huge role in precipitating or delaying of adoption. To examine these questions, a
study of suppliers to a large federal ministry was carried out to examine the
knowledge, attitude and perception of suppliers towards government procurement and
e-procurement and its impact on efficiency and transparency

E-PROCUREMENT
E-Procurement refers to the use of ICT to support all the transactions that comprise
the procurement process. E-procurement utilizes electronic integration and
management that includes purchase request, authorization, ordering, delivery and
payment between supplier and purchaser (Chaffey, 2002). From access to online
product and catalog information through electronic payment services, the Internet
facilitates seamless exchanges in support of electronic commerce (The National
Electronic Commerce Coordinating Council, 2002). World Bank categorized the term
“Electronic Government Procurement” (e-GP) into three levels The first-level defined
e-GP as the use of information & communication technology by governments in
conducting their procurement relationships with suppliers for the acquisition of goods,
works, and consultancy services required by the public sector, while the second-level
definition distinguishes between e-Tendering and e-Purchasing and the third-level
definition covers the basic steps as part of the e-Tendering and e-Purchasing process
(World Bank, 2003).

Generally, e-Procurement is known literally as doing business over the Internet that
requires the use technology. Many definitions of e-Procurement focus more on
technology rather than the process. However, underpinning the success of an e-
Procurement implementation is the system which involves end to end transaction to
complete the process of e-Procurement.

Government agendas are more complicated than those of private sectors where
efficiency, cost reduction and time savings are sufficient justifications to adopt e-
Procurement (Coulthard and Castleman, 2001). Government procurement is often

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used to further goals of national interest, distribution and equity. Consequently
economy and value for money may not be the only criteria defining the procurement.
These heterogeneity of goals is often exploited by unscrupulous parties to engage in
wasteful and illegal transactions.

In some instances public servants engaged in the procurement function were subject
to unacceptable influence and pressure from their superiors to violate laid down
procurement procedures. The abuse of power by some senior officials is attributed to
the lack of formal protection from victimization for employees who wish to resist
directives bordering on corruption and the general misuse of public resources.
Generally, respondents were of the view that the Procurement procedures were
transparent and efficient although it was intimated in some circles that the procedures
caused delays in the procurement process and that there was a tendency, in some
cases, to shift goal posts when it came to the evaluation of bids (Lolojih, 2003).

Procurement procedures were generally considered to be transparent except that of

dishonesty on the part of some individuals. It was possible to manipulate them.
Dishonest officials may, for example, get only one quotation instead of the required
three and because of laxity in the monitoring process goods or services may be
procured on the basis of only one quotation. It was also possible for corrupt and
dishonest officials to connive with suppliers in order to get commissions by obtaining
two quotations from expensive sources and the third one from the supplier that is
willing to offer them a commission. In this case such a supplier would be asked to
provide a quotation that will appear cheaper than the first two (Lolojih, 2003).

In Malaysia, eP was designed to enhance the public delivery system. Theoretically

seen, these are some of the benefits of employing eP in government procurement that
is inline with the objectives of any ICT initiatives. However, in terms of the practical
aspects of implementing ICT initiatives, they are not in congruence with the
theoretical aspects of the benefits of ICT initiatives. Even though there are 83,087
registered supplier with valid certificates to utilize eP, however, suppliers that
participate in government tenders were adopting a “wait and see” approach due to an
indifference attitude towards technology (Tee, 2007). Currently, out of the registered
suppliers with valid certificates to utilize eP, only 9794 suppliers actually trade online
with the government (www.uniteperolehan.gov.my)

Drivers of e-Procurement

The use of IT today not only supports business processes and operations, and
foundations of doing business, it also enhances organizational productivity. The
structured foundations of an IT system assists decision making at the managerial,
operational and functional levels, albeit at different scopes. An IT infrastructure of an
organization is a strategic tool used by organizations such as using a financial
business strategy of operational cost saving and an operational strategy of efficiency
and effectiveness (Laudon, 2006).

Many authors have gone on to provide comments on the benefits of e-procurement.

Procurement is evolving from a support function to a valuable weapon in a
corporation’s competitive arsenal. Today’s companies seek solutions that combat high

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procurement costs and lengthy order cycle times while simultaneously ensuring that
the delivery of materials or services goes smoothly. These businesses want to
automate day to day purchasing tasks. By doing so, companies can free their
employees to perform more important tasks (Kalakota, 2001).

Early adopters have shown that e-procurement can deliver bottom-line benefits to
their organisations in cost savings and process efficiency gains. At a time when cost
savings is at the top of most agendas, organisations have considered the adoption of
an e-procurement system and use the evaluation process as a vehicle for doing a
complete spend and sourcing review.

Today it's possible to buy almost anything electronically. But e-procurement can
deliver more than just lower prices. The net impact of its other characteristic
deliverables – better productivity, faster processing, greater visibility, the elimination
of maverick, or unplanned, ad hoc buying—can have a much higher ROI than what
can be achieved by shaving a few pennies off price (Wheatley, 2003).

The average organisation spends 40% of purchasing expenditure on non production

items like travel, office supplies and services. By acting now and automating the
purchase of goods and services through implementing an e-procurement system,
organisations can make significant reductions on purchasing expenditures that boost
the bottom line. An e-procurement implementation, as part of a total supply
management strategy, which manages the impact on people, processes and
technology, results in lower item prices, spending controls and saving opportunities
(Ernst & Young, 2001).

The use of the web can be used as a sales channel, but by using e-procurement
techniques, the web can also be used as a savings channel. Upon stating so, Intel
Corporation goes on to say that after the installation of an e-procurement system,
employees create requisitions and purchase orders electronically. The order can be
entered into the system only once, which saves time for both the purchasing
department and the supplier, who electronically loads the request into his system. The
automated e-procurement system then seeks authorisation for the purchase, places the
order with the vendor and transmits payment for the goods without human
intervention (Intel Corporation, 2000).

With the implementation of public e-Procurement, the market shall be led by the
public sector, while traditionally it is the public sector that tries to catch up with the
market (Makarem-Saab, 2006).

e-Procurement is the most important area of development in the e-Commerce arena –

and “if there is one sector in the economy where e-Procurement can and will have an
enormous effect, it is government” (Neef, 2001).

e-Procurement is one of the very important e-Government initiatives currently taking

place within the Australian public sectors (Kubicek, 2001) because there is a demand
to integrate e-Government and e-Commerce, e-Procurement is the ideal link to enable
such integration (Joia & Zamot, 2002).

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In Latin America, corruption has been a key public issue and therefore e-procurement
and transparency in public spending have been emphasized. A number of E-
Government projects in other countries have also focused on reduction of
administrative corruption and increase in transparency. E-Government can have a
direct impact on reducing the number of intermediaries that citizens need to interact
with in order to get a government service, improving government ability to monitor
transactions and disclosing information about government processes and public
budget spending to citizens. Increasingly, governments would like to use E-
Government as a tool to enhance transparency and reduce corruption, although this
goal is some times not stated publicly as it may create resistance within the civil
service (Bhatnagar, 2003).

Barriers to e-Procurement

e-Procurement is one area where public sectors can reduce inefficiencies as it has
drawn great attention and have been adopted by increasing number of private and
public organisations. However, simply having an e-Procurement system in place does
not guarantee that it will bring about benefits in term of improved procurement
management. The system must be measured and evaluated (Vaidya, 2002). Eadie et
al. (2006) provided a empirically derived set of barriers that hold back rapid adoption
of e-procurement in Europe. Foremost in this list was the security of the transaction.
Most respondents express misgivings about Internet based e-procurements systems
that can be easily compromise. This was followed up by lack of knowledge and skills
in e-procurement and the loss of personal contact with suppliers.

A large volume of corporate buyer’s time is spent on non value added activities such
as data entry, correcting errors in paperwork, expediting delivery, or solving quality
problems. As a result, buyers do not have sufficient time to pay full attention to
properly deal with the purchasing of high value or high volume direct materials.
Purchasing personnel need to spend a lot of time and effort on upstream procurement
activities such as qualifying suppliers, negotiating price and terms, building rapport
with strategic suppliers, and carrying out supplier evaluation and certification (King,
2002).

It is not the same as saying that everything should be bought electronically. Deciding
whether to invest in e-procurement applications is not easy. It is easy to purchase
common items in the market like pens, paper clips and copier paper, however, for
complex, made-to-order engineered components is not (Henriksen et al., 2004). E-
procurement implementations often simply facilitate the catalog-based buying of
indirect materials such as office supplies. The ROI of those implementations is
invariably good. Rarely, however, are they earthshaking. Savings on office supplies
can only boost a bottom line so far (Eadie, 2006). If a company makes large purchases
of strategically important raw materials or components, it usually does so in
multimillion-dollar deals. These are often negotiated over weeks and months,
arranging for supplies for up to a year ahead. In such environments, e-procurement
adds little value (Wheatley, 2003).

The Commission of European Communities (2004) found that an analysis of the

background information points to a rather fragmented landscape and uneven
development of operational electronic public procurement systems in Europe. In most,

5
Member States electronic public procurement is still at an initial state of development.
In addition, the levels of sophistication and available functionalities vary enormously.
Some Member States operate parts of their procurement electronically, in particular at
central government level. In countries such as the United Kingdom, Denmark,
Finland, Italy and France, fully operational systems exist for advertising and tendering
procurement contracts electronically. In others, the effort was concentrated on
developing portals which provide information for public authorities and economic
operators along with some basic directory and search services. Pilot projects are also
underway in different countries mostly for contracts below the EU thresholds, as
public authorities are trying to acquire experience and experiment with the novel tools
offered by ICT. Introduction of electronic means in public sector procurement is
pursued most often at national level in the framework of long term plans to modernise
government and administrative practices. Interviews with Member States’ experts
show that governments’ main incentive for introducing electronic public procurement
is to achieve public savings. This effort is mainly driven by the central level of
government, while other stakeholders in the public and private sector are often only
marginally involved in this process. Most noticeably, the European dimension of this
process does not seem to occupy a high rank on the administrations’ policy agenda,
despite the importance of ensuring an open and competitive EU public sector
procurement market.

Research Framework

Based on the extant literature on e-government and in particular the literature on e-

procurement, the research framework as depicted in Fig. 1 was developed.

Fig. 1: Research Framework

The framework was informed by Azjen & Fishbein (1975) and the Technology
Acceptance Model by Davis (1989) although not all the variables were deemed
necessary. The attitude and knowledge of procurement and e-procurement with norms

6
were considered the primary drivers of suppliers perception of e-procurement (Eadie
et al., 2006). In fact, perceived ease of use, posited as a mediator in TAMs is
conceptualized more as a moderator in this framework (Davis, 1989). Two key
criterion variables are the efficiency (economic/business rationale) and transparency
perception (political rationale) (Henriksen, et al., 2004)

RESEARCH METHOD
A cross-sectional sample survey of suppliers in a federal ministry was carried out. The
respondents were chosen from those who attended tender briefings at the ministry.
300 questionnaires were distributed to respondents during the month of March 2008
during tender briefings for suppliers and only 96 questionnaires were returned. Five
questionnaires were unusable resulting in a final sample of 91 suppliers. The variables
were measured using existing measures which were adapted to the context of this
study. All items used a 5 point Likert Scale with 1 marking strong disagreement and 5
marking strong agreement. The items were factor analysed to confirm the factor
structure and item loadings. The KMO and Bartletts’s Test of Sphericity showed good
factorability and all but 3 factors explained > 60% of the variance in the data.
Generally, the items achieved adequate loading on the a priori factor. Only 2 items
were deleted due to poor convergence on the required factors. The Cronbach’s alpha
for all variables exceeded 0.70 threshold suggested Nunnally’s (1978).
T

RESULTS
A large majority (91%) of the suppliers were constituted as private companies and
Bumiputras (see Table 1). With policy preference for Bumiputras in government
procurement this composition is not unusual. Most of the suppliers have revenues
ranging from 500,000 to 10,000,000. Most of the suppliers (70%) have been around
for more than 6 years and trade in ICT and non-ICT related products.

Table 1: Profile of Respondents

No. of Respondents %
Company Type
Public listed companies (Bhd) 4 4.4%
Private companies (Sdn Bhd) 83 91.2%
Others 4 4.4%
Total 91 100%

Status of Respondents
Bumiputra 89 97.8%
Non-Bumiputra 1 1.1%
Total 90 98.9%

Annual Revenue

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 No. of Respondents %
Less than RM500,000 7 7.7%
RM500,000 – RM2,999,999 23 25.3%
RM3,000,000 – RM9,999,999 36 39.6%
RM10,000,000 – RM19,999,999 11 12.1%
More than RM20,000,000 11 12.1%
Total 88 96.7%

Years in Business
Less than 5 years 25 27.5%
6 years – 10 years 37 40.7%
More than 10 years 28 30.8%
Total 90 98.9%

Nature of Business
Trading – Non ICT related products 1 1.1%
Trading – ICT related products 36 39.6%
Trading – ICT & Non ICT Products 48 52.7%
Non-Trading (Construction) 3 3.3%
Total 88 96.7%

Attitudes towards and knowledge of procurement

On the whole, the suppliers’ attitude toward government procurement and e-perolehan
is slightly positive as evidenced by the scores in Table 2. The same is also true of
subjective norms and knowledge of procurement and e-perolehan. The efficiency and
transparency attribute of e-perolehan is only slightly positive (3.33 and 3.39
respectively) indicating that the introduction of e-perolehan has not dramatically
changed the suppliers perception of cost saving and confidence in the openness. The
moderately positive ratings for ease of use and knowledge of e-perolehan are
consistent with the rating of e-perolehan on efficiency and transparency. The
correlation between the attitude and knowledge variables and suppliers’ perception of
efficiency and transparency of EP is strong and positive. Pre-existing attitudes unless
disconfirmed by experience directly or vicariously, will limit the perception of
efficiency and transparency of EP. However, given the high correlation between the
independent and dependent variables, bivariate correlation can provide misleading
assessment. Regression analysis which can control for collinearity will provide a far
more robust analysis of the relationship between the variables.

Table 2: Correlation Matrix of Study Variables

Std
No Variables Mean 1 2 3 4 5 6 7 8
Dev
Attitude
1 3.52 0.70 .851
Towards EP
2
Attitude
3.37 0.71 .593* .851
Towards GP *

8
 3
Subjective
3.06 0.70 .491* .784* .865
Norms * *
Knowledge * .721* .701*
4 3.49 0.58 .490 .765
of EP * * *
Knowledge * .751* .772* .723*
5 3.34 0.61 .600 .725
of GP * * * *
.836 * .696* .609* .598* .687*
6 Ease of Use 3.36 0.66 .756
* * * * *
* .770* .826* .822* .899* .747*
7 Efficiency 3.34 0.66 .671 .813
* * * * * *
.415 * .739* .719* .749* .775* .641* .724* .798
8 Transparency 3.39 0.63
* * * * * * *
*p<.05, **p<.001, Cronbach’s Alpha in the diagonals

Table 3 shows the 3 step hierarchical regression analysis for two dependent variables
i.e. Perception of efficiency and transparency of EP by suppliers. The 3 step
regression analysis allows for the detection of the incremental value of the additional
variables, which in the case is the moderator – ease of use and the interaction
variables. For the efficiency model, the moderating and interaction variables do not
help explain significantly the changes in efficiency of EP. Attitude towards EP,
subjective norms, knowledge of EP and knowledge of GP explains 89% of the
variation in efficiency perception.

In the case of perception of transparency by suppliers, knowledge of EP and

government procurement explains 71% of the variation. The rest of the variables are
not significant as are also the other two models i.e. moderator – ease of use and the
interaction variables, are not significant.

Table 3: Regression of Efficiency and Transparency on Attitude and Knowledge

Variables
Perception of eP Perception of eP Transparency
Efficiency
Models 1 2 3 1 2 3
Independent variables
Attitude Towards
179** .084 .090 -.083 -.289 -.300*
EP(ATT1)
Attitude Towards
-.088 -.116 -.154 .268 .208 .274
GP(ATT2)
Subjective Norms(SN) .275** .288** .282** -.002 .027 .054
Knowledge of EP(KEP) .245** .231** .265 .311* .279* .200
Knowledge of GP(KGP) .469** .444** .496** .411* .356* .217
Moderating variable
Ease of Use (EASE) .151 .123 .327 .426*
Interaction variables #
ATTIC x EASEC .049 -.225
ATT2C x EASEC -.012 .112
SNC x EASEC -.115 .218

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 KEPC x EASEC .106 -.251
KGPC x EASEC -.080 .253
Model Summary
R2 .891 .896 .902 .692 .714 .755
R2 .891 .005 .006 .692 .023 .040
F 80.20** 2.251 .523 21.52** 3.773 1.388
*p<.05, **p<.001, # - all variables were centered before computing the interaction terms.

DISCUSSION AND CONCLUSION

The government procurement is an area of intense suspicion. It is widely believed that

conflicts of interest, corruption and abuse are rife given the lack of transparency and
often accountability for defective and exorbitant purchases. Attempts at international
and local level to prise open government procurement process have always been
resisted for reasons of politics and also national interest. Given this scenario, it is
naïve to believe that e-procurement will be welcomed with open arms especially, if
the approach and mode of operation of EP system is itself is not reassuring.

Beyond the issue of the government context, it is well established in technology

adoption literature that attitudes, norms and knowledge of the technology motivates
intentions and subsequently, adoption behavior. The low uptake of EP – about 11% of
suppliers with valid certificates certainly begs the question of the attitudinal and
experiential state among the suppliers. It is clear, at least, among the sampled
suppliers that there are lingering doubts about the efficiency of EP. Their attitudes and
perceptions are only slightly positive. It suggests that, while the suppliers may find EP
advantages, they are still to become EP converts. The EP from a technical point may
have the potential to render the process less costly, it is the experience that matters.
Operational rules and conditions can result in more hassle for the suppliers. Migrating
from a “high touch” system to a “high tech” system always creates anxiety among the
users. What more when the “high touch” system allows for greater control which may
result in suppliers confusing efficiency with effectiveness. Efficiency is merely
concerns the productivity question. It relates to less cost, less time, less tensions etc.
In the case of EP suppliers are likely to evaluate the new process in terms of not
process completion but bid success. If the bid success falls, not improvement in
efficiency will able to offset the disappointment.

Additionally, as is commonplace in e-government, convenience and efficiency is

often viewed from the standpoint of the government agency. The use of EP will
impose changes in personnel, skills and knowledge that may not exist among
suppliers. Consequently, the full range of costs incurred may not be evident to the
agency. The EP organizer must develop a client-based view to sell EP adoption rather
than the usual production mentality of public agencies. E-government projects
everywhere have suffered the fate of automating process without sufficient attention
to process review in view of ICT. As a result, a rather burdensome and inconvenient
process may be made faster.

The attitudes and knowledge are not clearly aligned with EP adoption in a major way.
Attitudes are fairly stubborn entities. Habits and routines for the well rehearsed mode

10
of thinking and working. There are resistant to change. While attitude change must be
attempted through education, more forceful approach to adoption through deadlines
for EP must also be pursued.

Secondly, the perception of transparency is only slightly positive (3.xx). EP is likely

to be seen as an automated version of the existing practice with all its weaknesses.
This may explain, in part, why the perception is not clearly positive. Achieving
transparency in government is a post election agenda of the government. Procurement
is still shrouded in secrecy leading to growing belief of corruption. Amidst the general
atmosphere, transparency in EP will be lingering question. E-government on its own
does not eliminate malpractices. Openness is a policy and ethical question that is not
an automatic or inherent part of technology. EP must be accompanied by policies to
ensure technology will be used to render the process more open to all and less prone
to misuse.

Conclusion

The study shows again that suppliers are still not clearly assigning the values of
efficiency and transparency to EP. This is driven by their less than positive attitude
and knowledge about EP. While education and training will develop better
understanding of EP, attitudes about EP will not change quickly. The efficiency of EP
must be carefully examined from an experiential and a client perspective. Technology
is quite malleable by design. E-government projects are notorious for their agency
centredness (Hazman et al, 2005). The design and operation of EP just as other e-
government projects must be client tested continuously. The monopoly nature of EP
may have also contributed to the poor perception. Transparency perception of EP
suffers from the same observation. Technology is often shaped by values of the
society. The importance attached to the transparency imperative will also rub off EP.
Openness is not a fully embraced virtue in Malaysia although signs of its emergence
is everywhere. In short, EP system must stand together with the ethos of good
governance which demands openness and believes that it will improve government.

As with any empirical study, this study is not without limitations. The sample of non
e-filer were drawn from a rather narrow location and made up almost entirely of
Malays. Given this limitation, generalization of the results of this study is not without
risks.

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