The Government Procurement Bill passed in parliament last week is an important step in economic reform and a new pillar of fiscal discipline complimenting the Fiscal Responsibility Act and the Medium-Term Fiscal Strategy.
Poor procurement practices are a major source of wastage, leakages and inefficiency including high administration and transaction costs, failed and abandoned contracts given to unqualified applicants, inflated costs in overpriced projects and low-quality outcomes, requiring additional costs for repairs or replacement.
Market distortions, lack of competition, corruption, fraud, favouritism and cronyism restricted market access and create patronage cascades supporting vested interests rather than genuine socio-economic development.
Negative macroeconomic outcomes including stifled development and investment, reduced domestic multipliers, crowding out private firms, lower competition and less innovation cause slower overall economic growth, justifying procurement reform.
Actually, discretionary government procurement is relatively in overall government spending. In Budget 2025 for example almost 76% of spending is already committed. Pay and pensions account for RM146.5 billion, interest payments RM54.7 billion and subsidies and social protection RM52.6 billion. The discretionary element is around RM81.3 billion.
Direct operational expenditure on procurement is around RM41.8 billion and development expenditure is RM86 billion, so saving just 5% of this through better procurement processes frees up RM6.4 billion which can be better spent on priorities in health, education and social protection without raising taxes which burden the rakyat. Although small, this is worthwhile.
Budget 2025: Committed and discretionary expenditure
Malaysia already has a set of laws regulating government procurement originating from the Financial Procedures Act 1957, treasury circulars and standard protocols that have evolved on an ad-hoc basis since then.
Reliance on Merdeka-era laws and ad-hoc standard operating procedures which give almost unfettered power to ministers and civil servants is unsustainable. Irregular procurement practices are often only discovered by the auditor-general after the fact or through whistle-blowers connected to the malpractice themselves.
Investigation by MACC and the police is very difficult and often hampered by denial of access to documents, cover-up of malpractice, protection of colleagues and movement around and out of the civil services to avoid accountability.
Reform is therefore both necessary and overdue to codify the checks and balances, accountability process and appeals system in a new more transparent governance system.
The process started under the last PH government but was paused under the old-guard administrations that followed. It has been reinvigorated as a centrepiece of the Madani agenda.
The act directly tackles the culture of awarding contracts through direct negotiation and cancels the absolute discretion of the finance minister or any authority to award contracts without transparent procedures, public disclosure and open tender.
It is not easy for politicians to voluntarily agree to be constrained by regulations or to give up power over spending. So the procurement bill is a major concession and reform.
The regulations are clearer and more stringent but do include flexibility, for example in the registration of approved suppliers.
Accountability applies to everyone including ministers and the penalties for breaches are higher and more transparent. Civil servants can be held accountable even if they leave government service, so historical malpractice can be investigated and prosecuted. The burden of proof to show breaches of the regulations is relatively low.
Objections from think tanks and even government MPs focus on too much power for ministers and chief ministers, not enough independence in the process and appeals for issuing contracts and excessive investigative powers.
These are important issues and concerns raised in good faith by people genuinely concerned about integrity. Nonetheless the fact is that in public policy pragmatism is more important than perfection, which is the enemy of progress in policy reform.
The views expressed are those of the writer and do not necessarily reflect those of FMT.
