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Technical Assistance Consultant’s Report Project Number: 43149-01 June 2011 PHILIPPINES: Case study on The Philippine Government Electronic Procurement System (PhilGEPS) (Financed by R-CDTA 7437: Asia Pacific Procurement Partnership Initiative) Prepared by Nide Marie Bombay Philippines For Asian...

Technical Assistance Consultant’s Report Project Number: 43149-01 June 2011 PHILIPPINES: Case study on The Philippine Government Electronic Procurement System (PhilGEPS) (Financed by R-CDTA 7437: Asia Pacific Procurement Partnership Initiative) Prepared by Nide Marie Bombay Philippines For Asian Development Bank This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. DISCLAIMER The views expressed in this report are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgement of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. TABLE OF CONTENTS EXECUTIVE SUMMARY ................................................................................................. 1 The Philippine Government Electronic Procurement System (PhilGEPS) ........................ 2 I. Introduction .................................................................................................................. 2 II. Background ................................................................................................................. 3 A. Government Procurement Context ......................................................................... 3 B. Procurement Reform .............................................................................................. 4 C. Drivers for Implementing E-Procurement ............................................................... 5 III. The PhilGEPS ............................................................................................................ 5 A. History of the PhilGEPS ......................................................................................... 5 B. The Pilot Electronic Procurement System (EPS) .................................................... 6 C. Organizational Function, Structure and Staffing ..................................................... 7 D. Planning, Systems Design and Methodology for Implementation. .......................... 8 1. Overall Approach and Business Model ............................................................... 8 2. Systems Features and Components ................................................................... 9 E. Implementation Experience .................................................................................. 11 1. Partnerships and Project Management for Implementation ............................... 11 2. Technical Considerations ................................................................................. 12 3. Technology Solution and Physical Infrastructure ............................................... 14 4. Legal and Contracting Considerations .............................................................. 14 5. Policy Requirements ......................................................................................... 16 6. Change Management ....................................................................................... 17 7. Human Capital Requirements ........................................................................... 18 8. Capacity Development Requirements ............................................................... 18 9. User Training .................................................................................................... 22 10. Vendor Management ...................................................................................... 23 11. Release Timelines ......................................................................................... 23 12. Costing and Funding Source .......................................................................... 24 12. Perceived Risk factors and Risk Mitigating Strategies .................................... 25 IV. Future Directions...................................................................................................... 28 V. Achievements and Results........................................................................................ 28 A. Accomplishments of the System .......................................................................... 28 B. Impact on Government Procurement Costs ......................................................... 29 C. Impact on the Procurement Process .................................................................... 30 D. Impact on Private Sector Suppliers ...................................................................... 30 E. Other Results ....................................................................................................... 31 VI. Critical Success Factors........................................................................................... 31 VII. Key Implementation Challenges ............................................................................. 32 A. E-readiness of Buyers and Suppliers. ................................................................. 32 B. Buyer and Supplier Registration .......................................................................... 32 C. Buyer Compliance................................................................................................ 33 D. Integration and Interoperability ............................................................................. 33 E. Training for Buyers and Suppliers. ....................................................................... 34 F. Policy gaps in Implementation .............................................................................. 34 G. The Organization Structure of the PhilGEPS ....................................................... 34 H. Engaging Users and Citizenry ............................................................................. 35 VIII. Lessons Learnt ...................................................................................................... 36 2 TABLE OF CONTENTS APPENDIX 1: APPENDIX 2: APPENDIX 3: APPENDIX 4: APPENDIX 5: APPENDIX 6: SUPPLIER TERMS AND CONDITIONS ................................................ 39 BUYER TERMS AND CONDITIONS ..................................................... 44 PRIMARY STAKHOLDERS’ OBJECTIVES ........................................... 48 PhilGEPS PLANTILLA AND JOB ORDER POSITIONS......................... 49 OUTLINE OF TRAINING PROGRAMS FOR BUYERS AND ................. 50 DETAILED SUMMARY OF AGENCIES REGISTERED WITH PHILGEPS.................................................................................. 52 References and Key Source Documents ....................................................................... 53 3 List of Acronyms and Abbreviations ADB ASTI BAC BIR COA CoST DBM DBP DTI EO EPS GOCC GFI GPPB GPRA ICT IRRs LGU MPI NGAs PhilGEPS PS RA SEC SLA SME SUCC TIN WB Asian Development Bank Ayala Systems and Technology, Inc. Bids and Awards Committee Bureau of Internal Revenue Commission on Audit Construction Sector Transparency Initiative Department of Budget and Management Development Bank of the Philippines Department of Trade and Industry Executive Order Electronic Procurement System Government owned and/or controlled corporations Government Financial Institutions Government Procurement Policy Board Government Procurement Reform Act Information Communication Technology Implementing Rules and Regulations Local Government Units Material Project Information National government agencies Philippine Government Electronic Procurement System Procurement Service Republic Act Securities and Exchange Committees Service Level Agreements Small and Medium Enterprises State Universities and Colleges Tax Identification Number World Bank 4 LIST OF FIGURES AND TABLES FIGURE 1: CURRENT FUNCTIONAL ORGANIZATION CHART OF THE PROCUREMENT SERVICE AND PHILGEPS ……...…………………………………………………………….. 8 FIGURE 2: ELEMENTS OF CAPACITY ……………………………………………………………19 TABLE 1: PHILIPPINE GOVERNMENT PROCUREMENT BUDGET 2007-2011 …………………..3 TABLE 2: PHILGEPS FEATURES AND SERVICES BY USER CATEGORY ………………….......21 TABLE 3: CAPACITY ANALYSIS MATRIX FOR PHILGEPS ……………………………………...21 TABLE 4: PHILGEPS ACTUAL EXPENDITURES, 2006-2010 ..……………………………...…25 TABLE 5: PHILGEPS PROJECTED EXPENDITURES AND BUDGET FOR 2011 - 2015 .………..25 TABLE 6: RISK MATRIX FOR PHILGEPS ..……………………………...………………………26 TABLE 7: SUMMARY OF AGENCY REGISTRATION ……………………..……………………….28 TABLE 8: PHILGEPS MILESTONE STATISTICS ………………………………………………..28 5 EXECUTIVE SUMMARY The Internet has offered governments and organizations a new channel to deliver services and information in a more open and cost efficient manner. Many countries including the Philippines have taken advantage of the Internet and have developed new applications services for the delivery of government services including electronic procurement systems. The Philippine government established its own electronic procurement, the PhilGEPS, as part of its initiatives to modernize the procurement process and achieve greater transparency. The PhilGEPS started as a pilot system for the purchase of common-use supplies, materials and equipment. By operating the service, the government was able to gain a better understanding of the design and architecture requirements, evaluate the business model, identify strategies for operation and evaluate funding sources in preparation for the construction of its own system. The PhilGEPS was launched using a phased approach to give time to introduce, educate, train and support government agencies and suppliers. It adopted a government managed service with the back end system outsourced to a third party provider. This business model was seen to be the most viable option to mitigate the risks associated with development and delivery and the difficulty in recruitment and retention of technical expertise required for the system under government rules and regulations. Under the Government Procurement Reform Act(GPRA) that was passed in 2003, the PhilGEPS became the single portal to serve as primary source of all government procurement information. The current service (phase 1) has three features – an electronic bulletin board, a supplier registry and an electronic catalogue. By the end of 2011, it will be rolling out phases 2 to 5 that includes an expanded supplier registry, an e-payment facility, an e-bidding facility and a virtual store. It is also planning to implement user fees to address its long term sustainability. Many stakeholders are benefiting from the pilot of the PhilGEPS. The government saved over P564 million in advertising costs alone. It is also getting better prices substantial savings in administrative procurement costs and time. Suppliers find PhilGEPS to be a cost effective and efficient way of doing business with government. also providing greater opportunity for small and medium enterprise participation. has and the It is While its user base is growing and some success have been achieved in implementation, many challenges continue to be experienced by PhilGEPS. These include e-readiness of buyers and suppliers, achieving 100% registration for government agencies and its suppliers, compliance to posting of bid opportunities, awards and other procurement information that impact on the quality of the content, the growing training need, the delays in the release timelines for additional functionalities, policy gaps, lack of flexibility in the PhilGEPS organization that is limiting ability to respond to its expanding user base and the sustainability of operations in the long run. PhilGEPS will expand towards getting full value of its content and maximizing its system architecture by adding critical components such as those in supply chain planning and management, procurement performance measurement and monitoring that contribute to increased workflow integration and transparency. The Philippine Government Electronic Procurement System (PhilGEPS) I. Introduction In many countries including the Philippines, the government is the single largest procuring entity in the economy. Each year, the Philippine government spends billions of taxpayers’ money to acquire goods and services for its projects and deliver services to its citizens. Government leaders who are responsible for managing public funds are constantly looking at how they can spend better by paying more attention to their procurement methods. Most of the time however, the capacity of government to handle key procurement processes with its suppliers has not kept pace with modern best practices. Many of the problems stem from outdated manual workflows or lack of clear guidelines in some steps of the process. These challenges significantly impact the operational efficiencies and effectiveness of its procurement system and the ability of many businesses to participate without any barrier. Many studies indicate that government and private institutions realize substantial savings on their total expenditure by making the purchasing process more uniform and transparent. Because of this fact, governments have created electronic procurement systems that offer potential for greater cost savings and better controls over their procurement practices. They have developed Internet based application services to provide business with a single point of access to all public procurement creating an open and transparent procurement environment that is efficient and providing faster service that can be shared by all government agencies. The Philippine government has decided to take advantage of the new technologies and the use of the internet to establish its own electronic procurement system. It is developing electronic tools and services that will assist the agencies with procurement of goods and services as well as suppliers who wish to sell these goods and services to the government. Many stakeholders using the e-procurement system are beginning to experience significant impact even if the application is limited to a few functionalities at this time. They indicate that the service is lowering procurement costs and increasing the number of firms participating in each bid. The availability of accurate data from the system is contributing significantly to higher quality purchasing decisions and better prices for government. For suppliers it is lessening marketing costs and paving the way for more micro, small and medium enterprises to participate, giving a broader spectrum of businesses the opportunity to benefit income wise. In establishing a more transparent procurement environment, government is able to contribute to the national goals of competitiveness and economic development. This case study presents the experience of the PhilGEPS1 - its history, current state, future plans, major accomplishments, key challenges and lessons learnt. It is prepared for the Asian Development Bank(ADB) - Asia Pacific Procurement Partnership Initiatives and is intended to form part of the studies of selected electronic government procurement(e-GP) initiatives that will be presented in the planned Asia Pacific Conference on e-GP in late 2011. 1 The PhilGEPS is the on-line e-government procurement portal of the Philippine government. Its website th address is http://www.philgeps.net Its physical office is located at the 25 floor, Raffles Corporate Center, F. Ortigas Avenue, Pasig City, Metro Manila, Philippines. 2 II. Background A. Government Procurement Context Public sector procurement is increasingly becoming a significant component of the overall budget. In the period 2007 – 2010, government procurement accounted for an average of 3.86% of GDP and 21.2% of total government budget. For 2011, public procurement is projected to reach approximately P308 billion or 18.7% of total government budget (Table 1). TABLE 1: PHILIPPINE GOVERNMENT PROCUREMENT BUDGET 2007-2011 (Php’000) Expense Classs 2007 2008 2009 2010 2011 Maintenance & Ooperating Expenses Repair and Maintenance Supplies and Materials Utility Expenses Training and Scholarship Expense Prof essional Serv ices Printing nd Binding Expenses Adv ertising Expenses Subscription Expenses Subtotal (A) 23,465,563 24,988,621 21,771,084 25,021,782 27,763,401 39,637,080 41,277,811 48,635,923 44,274,234 43,433,069 6,442,858 6,705,812 6,834,835 8,253,051 8,533,803 6,209,303 7,160,583 11,843,028 9,192,594 13,372,926 15,964,613 22,805,652 31,559,649 23,184,888 19,071,665 1,871,709 1,131,623 1,303,719 1,232,892 1,263,446 609,565 891,073 960,280 827,372 1,062,623 171,309 132,796 6,949,257 238,528 247,884 94,372,000 105,093,971 129,857,775 112,225,341 114,748,817 Capital Outlay Land and Land Improv ement Buildings and Structures Of f ice Equipment Transportation Equipment Machineries and Equipment Public Inf rastructure Subtotal (B) 12,127,661 5,525,203 11,723,151 5,440,485 6,161,027 8,472,219 10,837,703 10,997,394 22,694,122 38,662,260 4,944,178 5,583,390 9,309,847 7,357,548 6,833,778 1,380,911 2,524,880 4,524,978 2,104,774 1,580,823 8,084,841 11,996,851 9,361,146 10,679,190 10,170,871 99,936,131 138,463,865 168,035,648 151,048,823 129,923,265 134,945,941 174,931,892 213,952,164 199,324,942 193,332,024 Total 229,317,941 280,025,863 343,809,939 311,550,283 308,080,841 Percent of National Government Budget Percent of Gross Domestic Product 19.84% 3.45% 21.30% 3.77% 23.90% 4.47% 20% 3.74% 18.70% 3.40% source: Budget of Expenditure and Sources of Financing (2010 & 2011), Department of Budget and Management There is no single operating unit responsible for the government procurement function. Procurement is decentralized, with each agency maintaining responsibility for and control over its own procurement activities. The government procurement system has always been perceived to be “a cumbersome, fragmented process with many loopholes 3 that are prone to corruption opportunities by both dishonest officials and bidders”. 2 There were a large number of overlapping procurement laws, rules and regulations and many agencies dealing with procurement have duplicating if not unclear functions and accountability. These complexities have resulted either in the procurement of substandard goods and services or in inefficiencies resulting in delays in completing projects and delivering services. Competition has been perceived to be generally low, with little or no participation from foreign bidders. B. Procurement Reform In 2003, with strong support of its development partners, the government enacted Republic Act 9184 known as the Government Procurement Reform Act (GPRA)3. This new law paved the way for adopting key international procurement best practices and standards by (i)harmonizing over 100 laws, rules and regulations, (ii)standardizing bidding procedures and documents, (iii)increasing the accountability of bidding organizations, and (iv)streamlining the procurement system. Through the GPRA, the Government Procurement Policy Board4 (GPPB), was created as the policy and monitoring body mandated to act as oversight agency for all procurement matters affecting national interest. More importantly, the GPRA institutionalized and mainstreamed the use of the Philippine Government e-Procurement System5 (PhilGEPS). The GPRA mandated all national government agencies (NGAs), government owned and controlled corporations (GOCCs), state universities and colleges(SUCCs) government financial institutions (GFIs) and local government units(LGUs) to post all procurement opportunities, bid results, awards and other related information in the procurement of goods and general support services, civil works and consulting services. It also reduced the advertisement requirements for bid opportunities costing P2 million and above for goods, P1 million and above for consulting services, and P5 million and above for civil works, which immediately reduced by more than 50% the governments newspaper advertisement costs. Because of its success at passing the GPRA and instituting reform measures that include the operation of the PhilGEPS, the Philippines scored 95 or “very strong” in the subcategory of “Government Procurement: Transparency, Fairness, and Conflict of Interest Safeguards” of the 2010 Global Integrity Report. The overall classification however, was 57 or “very weak”, a downgrade from the 2008 overall score of 71 or “moderate”. This was primarily due to the subcategories on Anti-Corruption mechanisms, Judicial Independence and Law Enforcement Safeguards. 2 Philippine Country Procurement Assessment Report, A Joint Document of the Government of the Philippines, the Asian Development Bank and the World Bank, October, 2008, page 15. wwwwds.worldbank.org/external/default/main?pagePK= 3 http://www.lawphil.net/statutes/repacts/ra2003/ra_9184_2003.html 4 http://www.gppb.gov.ph 5 http://www.philgeps.net 4 C. Drivers for Implementing E-Procurement The establishment of the PhilGEPS is in line with the thrusts of the government to advance the use of information technology in public sector governance pursuant to the E-Commerce Act(Republic Act 8792). The E-Commerce Act promotes the use of electronic transactions in government with the general public through a number of initiatives. It identifies e-procurement as a strategic tool in increasing national competitiveness by reducing procurement costs both for the government and the private sector. The Philippine Development Plan (PDP) 2011-20166 acknowledges the importance of building upon the GPRA in pursuing a national good governance agenda. It underscores the need to enhance productivity, improve efficiency and ensure greater transparency and accountability in government procurement. It recognizes the use of ICT systems like the PhilGEPS for reducing opportunities and incentives for graft and corruption by minimizing discretion and intervention in the procurement process. It advocates the widening use of the PhilGEPS in the bidding process of government agencies to ensure greater participation and cost effectiveness in procurement. 7 The newly crafted Philippine Digital Strategy (PDS)8 that supports the PDP sets the development of e-government as a priority and puts emphasis on “integration and interoperability of government ICT structures and programs”. It validates the role of PhilGEPS in sharing more government data online for improving the efficiency of government procurement operations. It confirms the need to strengthen PhilGEPS as one of its key action areas leading to its goals for “transparent and efficient government services”.9 III. The PhilGEPS A. History of the PhilGEPS In 2000, the Secretary of the Department of Budget and Management (DBM) initiated a web-based pilot electronic procurement system (EPS) as part of its reform initiatives for modernizing the government procurement process. Executive Order(EO) 26210 and EO 32211 issued by then President Estrada authorized the Procurement Service(PS), the agency responsible for procuring all common-use supplies, materials and equipment, to launch the internet-based EPS. It directed all national agencies and government owned or controlled corporations to participate in its use. At that time, it was positioned as a government owned and managed service designed to increase the operational efficiency of the PS in managing its procurement process. However, it made provisions for the eventual use of the system by the whole of government. The EPS also provided a common portal for registration of suppliers and advertisement of bid opportunities by 6 http://www.neda.gov.ph/PDP/2011-2016/default.asp Philippine Development Plan 2010–2016, National Economic and Development Agency, Chapter 7, page 18. 8 www/cict.gov.ph 9 The Philippine Digital Strategy, Commission on Information and Communications Technology, 2011, Chapter 2. 10 http://elibrary.judiciary.gov.ph/index10.php?doctype=Executive%20Orders&docid=12136853611830343075 11 http://www.gppb.gov.ph/laws_rules/laws/EO_322-2000.pdf 7 5 government agencies. The pilot EPS was launched with technical assistance from the Canadian International Development Agency’s (CIDA)12 Policy, Training and Technical Assistance Facility (PTTAF) Project. 13 When then President Gloria Macapagal-Arroyo assumed office in 2001, good governance and competitiveness were identified to be fundamental for the country’s growth and development. To comply with the provision of the Electronic Commerce Act (R.A. 8792)14 requiring government to establish an electronic procurement portal, EO 40 was promulgated in October 2001 adopting the EPS to be the single and centralized electronic portal for all of government’s procurement. The EO expanded the existing coverage of the EPS to all agencies of government at the national and local levels including government financial institutions and state owned universities and colleges. EO 4015 underscored the importance of the EPS as a tool for enhancing transparency, accountability and equity in government procurement and recognized the mandate of the Procurement Service (PS) to be the organization responsible for the development, management, and maintenance of the EPS. B. The Pilot Electronic Procurement System (EPS) The EPS service was based on the e-procurement model used by the Canadian Federal Government and various other levels of government and public agencies in Canada. The service provides a common portal for registration of suppliers and advertising of government bid opportunities by government agencies, and an electronic catalogue that features the different common-use goods, supplies and materials which agencies purchase from the PS. It does not have any responsibility for the procurement activities and bid evaluation. The service grew to support a few thousand agencies, publishing tender notices that include those for civil works, consulting services and other goods, and distributing tender documents to more than 30,000 vendors. The objective of operating the pilot was to help the DBM and the PS gain a better understanding of the resource requirements for supporting and operating an electronic procurement system across multiple organizational levels. By operating the system, the government was able to (i)explore functionality and features, (ii)review systems design and architecture, (iii)identify operational risks, (iv)establish strategies for implementation and (v)evaluate funding source, in preparation for the construction of their own electronic procurement system. Initially, the EPS was hosted by the MERX system16, the same platform being used by the Canadian government for its procurement activities. In 2004, a five-year US$5 12 http://www.picpa.com.ph/getmedia/bc4039f5-e1c4-4728-af43-168e826e09b2/geps.aspx Technical assistance from the PTTAF project included support for the business process definition, design and operation of the pilot system, outsourcing, training and contract management including reviewing the detailed specifications, reviewing the Test Plans, preparing the User Acceptance Test Plans and the conduct of operations with the third party service provider. 14 http://www.lawphil.net/statutes/repacts/ra2000/ra_8792_2000.html 15 Executive Order (EO) 40 entitled Consolidating Procurement Rules and Procedures for all National Government Agencies, Government owned or Controlled Corporations and Government Financial Institutions and Requiring the Use of the Government Electronic Procurement System. 16 http://www.merx.com/ 13 6 million outsourced contract was awarded to a local service provider to construct and operate an electronic system and build additional functionalities. In mid 2006, the EPS was replaced with the PhilGEPS that makes available the same features as the EPS with systems enhancements and modifications drawn from the experience of operating the pilot system. C. Organizational Function, Structure and Staffing The PhilGEPS is the single portal to serve as primary source of all government procurement information.17 The main objectives of the PhilGEPS are: (i) To establish an open, transparent, efficient and competitive marketplace for government procurement; (ii) To get better prices; (iii) To build the framework to continually improve the procurement processes; and (iv) To maintain sustainability of its operations over the long term. To achieve these objectives, the PhilGEPS: (v) manages and operates the service, (vi) provides regular training to all its users and, (vii) provides customer service support such as the help desk and other administrative support. (viii) Undertakes business development and marketing initiatives to grow and sustain its supplier base The PS is the organization responsible for the strategic definition of the PhilGEPS and its management. The PS Executive Director assumes responsibility for all activities inherent to the PhilGEPS and provides general supervision, direction and control over the work of all employees. The responsibility for the day-to-day operational management of the PhilGEPS rests with the PhilGEPS Group. The PhilGEPS Group is lead by a PhilGEPS Director who reports to the Executive Director of the PS. The Executive Director of the PS and the PhilGEPS Director are interdependently responsible for planning, organizing, leading and controlling the PhilGEPS operations while the Secretary of the DBM provides overall leadership. The current PhilGEPS organization is composed of 15 contractual and 8 job order positions. The PS, and by extension the PhilGEPS, is under the administrative supervision of the DBM while functional supervision is with GPPB, an inter-agency body headed by the Secretary of the Department of Budget and Management as chairperson and the Director-General of NEDA as alternate chair with the secretaries of Public Highways, Finance, Science and technology, Health, Trade and Industry, Transportation and Communication, Education, Defense, Energy and Interior and Local Government, and a representative from the private sector as members. 17 Government Procurement Reform Act, Section III, Article 8 7 Figure 1 below shows the existing functional organizational chart of the PS and the PhilGEPS. FIGURE 1: FUNCTIONAL ORGANIZATION CHART OF THE PROCUREMENT SERVICES AND PHILGEPS . While the administrative relationships for managing the PhilGEPS are well defined, the functional relationships and interface among the PS, the DBM, and the GPPB sometimes appear to be unclear. The Revised Implementing Rules and Regulations (IRRs)18 of the GPRA limits the GPPB’s role for “monitoring the implementation and effectiveness of the PhilGEPS”.19 On the other hand, because the PS deals only with the procuring process for common-used goods, supplies and equipment, it exercises very little oversight and monitoring, often limited to the regular review of accounting reports and intermittent participation in PhilGEPS management meetings. The DBM’s interaction is directed at providing some strategic and operational guidance with respect to the funds that it provides the service. The much required collaboration between the PhilGEPS and the GPPB appears to be marginal even if their roles and function in streamlining the procurement process are complementary. D. Planning, Systems Design and Methodology for Implementation. 1. Overall Approach and Business Model 18 19 http://www.coa.gov.ph/tsolmp/TSOIntra/Appendices/Appendix%203/Revised%20IRR.RA9184_2009.pdf Handbook on Philippine Government Procurement, Fifth Edition, Article 63.3, Rule XX of he IRR. 8 Many factors were considered by the PS in choosing a business model. These include (i) the desire for an economical solution, (ii) limited in-house capacity to expand and support the system, (iii) the need for additional functionality and features, (iv) scalability and flexibility for expansion (v) the imperatives of reducing development risk and lead time to implementation, (vi) management resource requirements, (vii) uneven resource levels and competencies of users to support the use of the service, and (iv) limited funding for operations. However, one overriding consideration was government control and ownership of the service. The PS was aware that using the e-procurement service would create changes with a number of existing practices and procedures and would require a lot of promotion, support and learning for all the user groups. Because of this, the PS planned on a 2-3 year implementation strategy to introduce, educate, train and support both government agencies and suppliers. It settled on a slow move from the EPS to provide a seamless transition while giving sufficient time for the new system to be tested during this period. It chose to adopt a phased approach in implementing its system to minimize operating risks. The PS decided to pursue a Government Managed System using a third-party owned and operated solution to deliver the back end system.20 Outsourcing the technical delivery component was the answer to mitigate the risks associated with system development and implementation, as well as difficulty in the recruitment and retention of the technical expertise required for the system under Civil Service rules and regulations. 2. Systems Features and Components The PhilGEPS is designed as a web-enabled application that is easily accessible to any user through the Internet using a common browser and the Adobe PDF reader. It supports multiple access views depending on a user’s role and has the following major features: (i) Electronic Bulletin Board - includes posting of procurement opportunities, notice of awards, electronic distribution of bid documents, and automatic notification of bid notices and amendments (ii) Supplier Registry - includes a registry of all government agencies (buyers) and government suppliers, contractors and consultants. (iii) Electronic Catalogue – includes a price list of common-use goods, supplies, materials and equipment that are to be purchased from a centralized procurement system being implemented by the PS. Through the support of the ADB and the World Bank, modifications recommended by the Philippine Country Assessment Report have been introduced in 2010 for the system’s application on ADB- and World Bank- funded NCB and shopping procedures. In 2009, ADB approved USD 600,000 Technical assistance to Strengthen Philippine Electronic Government Procurement. (CDTA- 7244)21. World Bank has processed parallel funding of USD 300,000 to support PhilGEPS. 20 21 E-GP Implementations: A Review of Business Models. A Study Conducted by the World Bank http://www.adb.org/Documents/TARS/PHI/42537-PHI-TAR.pdf 9 Before the end of 2011, additional features (phases 2 - 5) will be made available in the PhilGEPS platform. These include (i)an expanded supplier registry, ii)a virtual store for online ordering iii)an e-payment facility and, (iv)an e-bidding facility. PhilGEPS will also introduce user charges and fees for the use of the system. Table 2 below summarizes the features and services available to different users. Table 2: PhilGEPS Features and Services by User Category Category Functions General Public Buyer Supplier - Open bid opportunities - Open bid opportunities - Open bid opportunities - View bid abstract - View bid abstract - View bid abstract - View recent 100 awards - View all awards - View all awards - View catalogue - View catalogue - View catalogue - View statistics on registered agencies, suppliers & opportunities - Access to suplier & buy er registry - Access to complete listing of opportunites & awards - View to MPI/CoST site - View to MPI/CoST site - View to MPI/CoST site - Create & manage tender notices - View, order & download bid documents - Automatic bid matching & email - View tracking reports on their notif icaiton, bid supplement & bid serv ice activ ity or specif ic notice bulletin - Create amendment & notices - Update company prof ile f or use of gov 't buy ers - Update bidding list by indicating - Entitled to a Registration which supplier submitted a bid Certif icate - Post award notices - Designates 1 user as organization's coordinator - Establish own list of suppliers or designate accreditations - Post black listed suppliers - Search & v iew f ormer opportunities - ePay ment av ailable when phase 2-5 are implemented - Access to Annual Procurement Plan - Submit bid online (ebidding) - Upload Eligibility Docs - Catalogue Serv ice & Adv ertisement - List of on going & completed proj per supplier The public has free access to the system.22 Anyone who wishes to view all current procurement being conducted by the government entities and any recent awards published may do so without the need to register. Local and foreign suppliers who wish to participate in the procurement process can register online by completing a registration form and accepting the terms and conditions for registering on the system. Appendix 1 provides a copy of the Suppliers’ Terms and Conditions. The same holds for government buyers participating as government users. Appendix 2 provides a copy of the Buyers’ Terms and Conditions for registering on the system. 22 Free public access to the system is a policy of the government in line with its thrust to promote greater transparency. 10 The system allows users to create a tender by adding separate line items to a notice with individually approved budgets and attach electronic copies of bid documents for online distribution or support for manual distribution of bidding documents. In choosing manual distribution, the system provides order management functions for suppliers to request a bid package and track when the package is retrieved from the procuring agency. Users are automatically notified when the bid package is available for pickup. The system administration has the ability to (i)post events in a calendar, (ii)post announcements on the system and (iii)update contents on various information pages as well as in system data tables used in drop down section lists. Administrators also have access to system management reports with the ability to extract data from custom reports generation. The system administrator is responsible for maintaining the content of the online catalogue. The notice management process allows buyers to issue amendments to a notice. Once published, all amendments or changes are automatically sent to participating suppliers, and buyers can track the delivery or retrieval of the amendments through a detailed tracking report for the tender notice. Upon closing, buyers can update the bidders list to indicate which suppliers submitted a bid and post the award notice after evaluating the submitted tenders. The system allows buying organizations to establish their own supplier list or designated accreditations to a supplier. It also allows buyers to request blacklisting of suppliers based on existing government policies. One feature unique to the PhilGEPS is its audit role. Government auditors have full access to view system activities being conducted by buying agencies but cannot make any changes. PhilGEPS has administrative functions to oversee and support users, including (i)vetting and approval, (ii)supplier and buyer registration, and (iii)assisting users in setting up their profiles, bid matching services or assisting in the creation of a tender notice. A transaction log documents all activities in the system and users can check on any activity that may have been performed on their account, including those that an administrator may have conducted on their behalf. E. Implementation Experience 1. Partnerships and Project Management for Implementation A collaborative but structured project management approach was adopted in establishing the PhilGEPS. A Project Steering Committee(PSC) composed of senior mangers from the PS and from the service provider is responsible for managing the development and implementation of the PhilGEPS. The PSC provides overall operational leadership and direction, monitors progress and resolves technical and operational issues to satisfy project requirements.23 It monitors the project based on four detailed implementation plans to meet systems deliverables. These are the (i)Systems Architecture Implementation Plan, (ii)Security Implementation Plan, (iii)Disaster 23 PhilGEPS Project Management Plan, July 2004. 11 Recovery Plan and (v)Training Plan. Monthly PSC meetings are held throughout the implementation phase. In July 2003, PhilGEPS hired a dedicated project manager24 and set up a counterpart project team whose primary responsibility is to support the implementation of PhilGEPS and manage all internal and external relationships of the system. In parallel, the service provider also set up an implementation team composed of a senior manager and technical resources that were contractually identified for this project. Both teams work closely together, with the PhilGEPS team taking the lead in providing direction and guidance in developing the system based on its business objectives. While the contract with the service provider was signed in 2004, the PhilGEPS did not go live until 2006. The transition to PhilGEPS had many management challenges with both the PhilGEPS and the service provider. Although many of the challenges were identified by PhilGEPS in the planning phase, working out solutions to these issues took longer than expected. Some of these issues are discussed in the succeeding sections of the report. 2. Technical Considerations A full requirements definition was developed to understand the system design and identify hardware and software applications that best satisfy these specifications. The requirements also served as the basis for establishing the different technical standards and security needs. In defining the technical and functional requirements for the technology solution, PhilGEPS carefully looked at how the electronic procurement system will be used to support the business and service level requirements of its primary stakeholders – the PS, DBM and the government as a whole. Because of the investment required and opportunity that can be derived from such a service, it was important to identify specific business objectives of the primary stakeholders and ensure that the system design can accomplish these objectives. The detailed list of primary stakeholders’ objectives are shown in Appendix 3. The external requirements of the client agencies and suppliers who will interact with the service were another important consideration. Agencies are looking for tools and features that (i) can make available bid notices and documents for their suppliers faster, (ii) provide an online catalogue where they can view prices of common use items that they wish to buy and, (iii) have an e-payment system to support the direct transfer of funds from the DBM to the PS for their orders. Under existing government laws, all payments to government from private sector or between government entities must be by cash or check only or remitted to a designated government bank account of the agency. Use of credit cards and epayment are not acceptable modes of payment for government. By having an epayment facility to support the direct transfer of funds from the DBM to the PS for the agency’s orders for common goods, substantial administrative time required for manually processing the check payment will be eliminated and other administrative and operating costs for this process will be reduced. The procurement process will therefore be shortened and made more efficient. 24 The Project Manager has a rank equivalent to a Director. The term Project Manager and PhilGEPS Director are used interchangeably in this document. 12 Another area of concern in preparing the technical requirements of the system was the fact that considerable variation exists in the level of systems support for the procurement process of all agencies. Agencies also raised the issue of security more than the suppliers. Three key security areas were identified: (i)the requirement of both buyers and suppliers for a robust authentication as well as authorization functionality, (ii)the transfer of procurement data between buyers, suppliers and potentially banks and other government institutions that require secure communication channels and (iii)the potential business solution and how it will directly affect the level of security requirements. Suppliers and civil society would prefer a government wide e-procurement system that would include all tendered opportunities from all agencies along with notices for invitation, planned procurement opportunities and contract awards. They want to see who is bidding on opportunities, view the rules and regulations and have access to the specifications documents electronically or at least be able to request the documents. Suppliers also want to see an online supplier registry so that they only need to get accredited once and that information could be shared with all agencies. Internet Connectivity and access was another key consideration. A number of the targeted agencies do not have access to the Internet and those who do have very little experience using it. This concern also applies to suppliers as not all suppliers have access to the Internet. Poor internet connection affects the ability of both buyers and suppliers to benefit from the use of the system effectively. The other factor that was considered in this regard was the speed of the connections. Most organizations only have slow speed dial-up access to the Internet because of the cost of a high-speed connection. The system design took into account the speed with which most users will be accessing the service and is minimizing the amount of graphics applied on the web pages. In addition, the PhilGEPS will take advantage of the high levels of mobile penetration to improve access to the service. Additional functionalities have been identified will be developed in succeeding phases to allow suppliers and bidders to receive notification on bid matching opportunities or awards through mobile devices and SMS. E-procurement is only one of a number of e-systems being initiated by government. It is important that its establishment be consistent with e-commerce and e-government strategies, and where appropriate, integrated with these other initiatives. However, integration appears to be the single most challenging consideration for the eprocurement system because of the evolution of legacy systems and the disparate ERP systems. Most of these systems were designed to automate agency-specific business processes or services and are generally not meant to connect or interact with other internal or external agency systems, nor were they designed to provide integrated endto-end managed services. Other back end systems in the banking and regulatory agencies also have to be linked together so that transactional messages can be aggregated in a central location. The process of converting multiple message types for different users into a single standard and then integrating the standardized messages into the PhilGEPS is a huge task. The technical considerations of this aspect are more complex and will take time before the requirements of the existing systems infrastructure landscape can be fully understood. A promising, and probably easier area for integration is linking the e-procurement with other government supply chain systems such as supply chain planning and 13 management and storefront systems. In addition to providing a more holistic architecture, connecting the PhilGEPS with these systems will greatly impact efficiency of the procurement process because most of these systems are currently manually done. However, any attempt to link these will also require a lot of time and resources. PhilGEPS is anticipating that integration with any e-systems will be extremely difficult not only because of the challenge in addressing the backend technical issues, but also because the agencies creating or managing these e-government systems do not have the resources to make the changes to link to the e-procurement system. 3. Technology Solution and Physical Infrastructure The PhilGEPS did not put emphasis in reviewing the technology solutions and physical infrastructure requirements in the planning of its system. These two areas are the responsibility of the service provider following the provisions of the chosen business model. However, PhilGEPS carefully defined its primary functional requirements and detailed its expectations from the system to make sure that these were translated by the service provider into a robust back end system, using the appropriate technology solution and physical infrastructure to support the service. The PhilGEPS technology framework provides its users with a secure access to an integrated range of procurement systems and services using the Internet. It makes use of both public and private networks to deliver the connectivity requirements and guarantee performance. Its network infrastructure employs Innove Communications’ Enterprise Solutions to deliver the connectivity and high availability requirements of the system. The technology implementation of PhilGEPS employs the DOT NET Framework 1.1 and the C# Programming Language technology. 25 Access to the system is primary controlled through the user ID/password pair assigned to users, and through the use of SSL to ensure the secure transmission of information from users to the host system. The system has also implemented industry-standard security controls to limit any unauthorized access to the system with appropriate firewalls, intrusion detection and other security measures. An outside firm was retained to test the load capacity and security features of the system to ensure all requirements were met prior to the launch of the system. ADB sponsored load testing through funding provided under CDTA 7244. PhilGEPS is hosted and managed from a secure data centre that is physically separate from both the PhilGEPS support office and the service provider’s technical operations office.26 It maintains controlled access procedures limiting any physical access to the facilities. 4. Legal and Contracting Considerations Following its decision to adopt a government business model, the PhilGEPS, outsourced, through a competitive bidding process, all technical aspects of the system 25 PhilGEPS Systems Architecture Plan, 2004. The secure data center is located in the Global Business Internet Data Center in Makati City, the mirror site is located in the Cebu Data Center in Cebu City in the Visayas. 26 14 operations, including the expansion, infrastructure, facilities, support and operational management, in accordance with its requirements and service levels. Its contractual framework was designed to achieve the most advantageous position for the government that considered the following: (i) Establish full ownership and control over the market brand (PhilGEPS), the URL, all data in the system and the overall business service operation system from a legal perspective (ii) Ensure the successful implementation and get maximum benefit from the system (iii) Minimize if not eradicate risks particularly those associated with cost overruns and delays in development (iv) Have built in flexibility to adopt new or more efficient technologies or change providers without being tied to substantial capital investments or restrictive contract provisions. Under the agreement, the government retains responsibility for all users of the system, as well as users who enter into a contractual relation with the government. It exercises control of the business operation and has the option to acquire the current platform at the end of the contract period. It may also extend the contract on a year-to-year basis or consider any other technical solution or vendor, if this alternative is more advantageous to government and more effective for servicing its customers. It can exact compliance and ensure timely delivery from its provider by imposing stiff penalties for delays on a daily basis based on the Liquidated Damages Clause27 of the service contract between PhilGEPS and the service provider. It can engage in revenue generating activities such as charging user fees to cover operational costs over the life of the service, regardless of the backend solution being used or the vendor providing it. The service provider, Ayala Systems Technologies Inc.(ASTI) is paid an annual fee of up to P50,000,000.0028 based on the system components delivered and accepted by the government over the five-year contract period. This fee covers (i)provision of an Internet based application and related maintenance services, (ii)the provision of system integration services for the implementation, configuration and, if needed, customization of the system application, (iii)provision of all necessary computer and network facilities and services for the operation of the service, and (iv)provision of optional technical advisory and planning assistance on a consulting services basis for the ongoing development of the system service and related application systems. The provider owns all rights to the application as well as any hardware or facilities supporting the delivery of the system. The contractual safeguard for government comes principally from the provision that payment of the monthly fees will begin only when the system is accepted by PhilGEPS and placed into production. The service provider does not receive any remuneration during the development phase. Payment is made only after delivery of the application and is based on actual accomplishments and operating service levels as defined in the contract. This payment arrangement minimizes risk and protects the PhilGEPS from cost of overruns and potential cost of delays in the initial development stage. For the 27 Schedule 6 or the Liquidated Dmaages clause provides for a penalty of 1/10 of 1% for every day delay in the unperformed part of the contract. This is estimated to be a penalty of about P7,000.00 per day. 28 Approximately $1.15 million at an exchange rate of $1=P43.50 15 provider, the fixed fee nature of the payment that is not dependent on any particular projected transaction such as the number of suppliers registering or the number of bid documents purchased, assure a steady revenue stream from which to cover its costs. The contract includes a service level agreement (SLA) that specifies the uptime, response time and responsibilities of the service operation; however, it also protects and indemnifies the service provider from any claims or losses that may be brought forth by any user due to a service operation failure. While a performance evaluation has yet to been conducted for the contract once it is completed, many regard the outsourced contract of the service provider to be successful at this stage of implementation. The contract has demonstrated that government’s interests are adequately protected, development and implementation requirements are fully supported and its procurement objectives are being met. In addition to the unique contractual framework between PhilGEPS and its service provider, the independent service operation nature of the PhilGEPS is creating new legal and business arrangements with it stakeholders, specifically in areas relating to the availability of the PhilGEPS service, guarantees on system utilization and indemnification for possible losses and breach of information security. All suppliers agree to accept the terms and conditions for the access of government procurement information and for the use of the PhilGEPS of its submitted information and documentation. All buyers are covered by an agreement for the use of the PhilGEPS for their procurement needs. Both agreements for buyers and suppliers are designed to encourage use of the service while protecting and safeguarding the integrity of the system. 5. Policy Requirements RA 9184 and the IRR established the general policy principles necessary for the adoption of the PhilGEPS within the existing procurement framework of government. Most agencies refer to the provision of the law and its IRR as the basis for compliance to utilize the PhilGEPS. But these two documents do not address specific policy requirements for procurement operating processes and procedures with respect to the use of the system and the attendant changes in the procurement process brought about by its use. New policies need to be crafted to better support the systems operations, align procurement processes converging in the system, and reflect changes resulting from procurement process reengineering or to acknowledge emerging activities necessary to implement new e-procurement features. Some of the key policy areas include: (i)standardizing the fee structure for downloading bid documents and the cost sharing mechanism for this fee between the agency and PhilGEPS, (ii) e-bidding rules, procedures and guidelines, (iii) financial policies covering the payment mechanisms and utilization of fees collected by the PhilGEPS – i.e., can credit cards be used and how will these funds be made available to the PhilGEPS for its operations, (iv) rules governing the use of the virtual store including those relating to framework agreements and, 16 (v) personnel policies including the adoption of new plantilla29 classifications and addition of staff that will acknowledge the highly technical or more specialized skill sets required by the PhilGEPS and the 24/7 nature of its operation. These include technical and training staff with skills in contract management, customer service, customer care and business development. Many of these new policies need to be in place before any new system features are deployed. 6. Change Management At the time of the pilot, majority of key procurement processes in government were manually done and information technology was limited to a few stand-alone computers used primarily for word processing and e-mail. The introduction of e-procurement therefore meant fundamental changes to existing structures and business processes within PS and the government agencies that it deals with. Senior managers were aware that if successfully implemented, the e-procurement system could become one of government’s largest and most widely used e-systems. In this context, the PS decided to prioritize its change management initiatives internally so that it can build the capacity of the PS to be the main operational change champion for e-procurement in government. A subtle and reactive approach to change management was chosen because of the anticipated level of resistance and the cultural sensitivity that generally goes in dealing with transparency issues. The PS concentrated its change management efforts on bui