Jul 17, 2018 Last Updated 6:30 AM, Jul 17, 2018

New rules, new forms of corruption

New rules, new forms of corruption
Published: Apr 02, 2012

Sylvia Tidey

A construction site in Eastern Indonesia
Sylvia Tidey

The construction industry in Indonesia is renowned for its dodgy dealings and backroom exchanges. Corruption is such an issue in the industry that a presidential decree was passed in 2003 to standardise the procurement of goods and services by both central and regional governments. These changes stipulated stricter tendering requirements for projects, involving eleven stages to be finalised within 23 working days. Additionally, contractors no longer need to be a member of the national Chamber of Commerce, but only require a license with an existing business association.

These revisions were designed to close some of the systemic loopholes thought to facilitate corrupt practices, and to encourage a more competitive and transparent tendering process. But some cases suggest that the reforms have not only failed, but have actually fostered new forms of corruption. One of these cases involves the Department of Public Works in a small town in Eastern Indonesia.

Running scared

In the outer provinces, you might expect to find a general disregard – or simple lack of knowledge – of tender rules and regulations amidst flourishing corrupt practices in the construction industry. This, however, is not quite the case. In this particular small town, a well-respected local contractor was convicted and incarcerated in 2008 for corruption, as punishment for failing to finish an infrastructure project.

As a result, several contractors confess that they now fear being investigated and convicted, much more so than in previous years. The head of the Department of Public Works is also running scared. While some contractors continue to believe that a ‘personal’ approach – including house visits to enlist their applications or to drop off documents – can increase their chance of winning a tender, he claims that he now sends them away. Such relationship-building efforts might have been acceptable in the past, he says, but now ‘we have to play by the official rules’.

Bureaucrats in the Department of Public Works are certainly worried about knowing the rules. Their desks are littered with books explaining them, and they try hard to understand them. An ambitious young staff member brought a copy of Presidential Decree No.80/2003 to the office so he and his co-workers could make sure they followed the new tender rules during the bidding process. The tender amendments generated lively discussions in the various sub-departments about the correct interpretation of the new regulations involved. So when the Department of Public Works announced an upcoming tender in August 2008, the staff were ready.

A shining example of good governance?

In the following weeks, contractors enlisted and submitted their proposals for 35 different tenders. Temporary project committees assembled in each sub-department to assess the tender documents, announcing the winning bids in September.

The execution of the various steps of the tender process was flawless and to the letter. Contractors were required to provide their association certificate, a personnel list and a machinery list as evidence of their credentials. To ensure compliance, the contractors were not only given booklets with detailed information about the projects they were interested in bidding for, they were also invited to a forum where they could ask questions and clarify details.

After receiving this information, contractors still interested in bidding submitted their project proposals. In line with the tendering guidelines, the Public Works project committees then assessed each project proposal using a ‘merit point’ system, according points for the best costings and the shortest timeframes. They also assessed the administrative information on a pass/fail basis, so that proposals that did not follow national guidelines were automatically dismissed.

The documentation accumulated during the 2008 tender process appeared a shining example of ‘good governance’ and fair and open competition. A total of 227 companies had enlisted for the tender, many for more than one project. The 35 winners had indeed accumulated the most ‘merit points’ and had passed the administrative test. The tender process, at least on the surface, seemed genuinely successful in its aim of curbing corruption in the construction sector.

The performance of legitimacy

But a closer investigation of the documents revealed that they were not quite as shiny as they first seemed. For example, the enlisting forms listing contractors showed clusters of entries written in identical handwriting, even though the companies had different names, different owners and a unique company stamp. When comparing the names of the companies that had enlisted with those that actually submitted a project proposal, it was apparent that several companies had not bothered to proceed to the second stage.

One Public Works official explained that contractors wanted it to appear as if there is lots of competition. The more contractors that apply, the more open the whole process seemed. The reality is that contractors wishing to bid invite friends to enlist as well to give an appearance of broad interest, masking the fact that competition is really only limited to a few prominent contractors. This informal competition was neatly covered up by adherence to the form of new tender rules and regulations.

Adherence to form not only masks informal practices, it also delegitimises formal bids. As some contractors lamented, form was often times prioritised over more important issues when judging the eligibility of a bidding contractor like experience, financial backing, human resources and a good project proposal. No matter how many ‘merit points’ a contractor’s proposal gained, a single ‘fail point’ on the submitted administration was considered enough reason to dismiss an entire bid. One experienced contractor explained that the Public Works’ project committee can always find flaws in a submission like a forgotten stamp or a missing signature. Failure to submit the proper form of documents – proper punctuation, signatures and stamps – was used as a legitimate reason to disqualify non-preferred contractors.

Adherence to form also created a new means of collusion between Public Works officials and preferred contractors. If small mistakes, referred to as ‘lice’, were found in documentation, Public Works employees would notify the preferred contractor, giving them the opportunity to fix their proposal. As technically only a ‘lice free’ proposal can win a tender, this was an important step to avoid misfortune in case of investigation by another government body. This system meant that contractors whose administrative documents were initially flawed were still able to win contracts with the help of Department insiders, potentially beating others with better bids.

Old wine, new bottles

This emphasis on filling in documents properly has created opportunities for Public Works employees to rent out their expertise in tendering regulations to contractors. Knowing that contractors need to submit ‘lice free’ documents, employees can demand fees of up to Rp. 500,000 (A$ 55) per contractor for their services.

So despite their fear of investigation and better knowledge of new tendering regulations, Public Works employees and contractors haven’t really changed at all. Contractors used to pay off Public Works employees to turn a blind eye when they broke the rules. Now they pay the same employees to make sure their documentation meets the new requirements, while continuing to do whatever they want.

Sylvia Tidey (sylviatidey@hotmail.com) is a PhD scholar at the Amsterdam Institute for Social Science Research. Her doctoral research focuses on state, corruption, and reciprocity in local government offices in Eastern Indonesia.


Inside Indonesia 108: Apr-June 2012

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