Spending Rush Hour

Spending Rush Hour,

An Opinion on Government’s Budgeting and Procurement Process

For the last months, if you notice, you will see many road blocks, development in progress and many works going on. If you are a contractor, or working for one, it is the time where you will be very busy because there are bunch of contracts going on. If you happened to be some one working in a hotel or convention service, you will also notice that some time during these year end months, your service are not hard to sell. Customers from government institutions flocked up to your door asking for space. If you are just a hard labor worker, it is also a good time. Whether you know some one or not, you will higher opportunity to be accepted to work at development project.  There are so many opportunities available at the year end months. For the government employees, there will be many invitations and instruction letters for meetings, workshops, or seminar.

These situations are related to government spending cycle. In December, the government will close the fiscal year. The closing will be the cut off between this and next year’s budget. As the money that are not spent yet should be returned to the state’s account, normally most government institutions will accelerate their spending. On top of that,  as spending the budgeted money is one of the performance indicators, the government will spend spuriously to ensure their performance card clear.

The way the government spend ( rushy spending at the end of the year) creates problems. First, this practice make the regulatory and stimulating function of the government spending ineffective. In the macroeconomic theory, government expenditure can be used as a tool to drive the economy. When the government spend at certain time only, the drive that the spending bring with be tentative either. Let’s take the spending on infrastructure development as an example. At the end of the year when most government institution spend their money, the demand for construction workers and company will increase. This means that the economy is growing because more people working creating economic value added. However, when the incentive cut, immediately the economic value added decrease. More than that, as the government spending (demand) can only be responded by adequate investment by private sectors (contractors) in capital and labor, when the government demand is only at certain time of the year, in the other period, this investment became idle. It create economic inefficiency. If only government spending can be smoothed, the investment required will be lower, means some part can be used for other activities, and the increase in value added will be higher. 

Second, the year end robust spending will  make the infrastructure build at low quality. July to December is the rainy season in Indonesia. This time is not a proper time to do development project. Not just that some job need a dry condition, such as to ensure the mortar dry or to make asphalt applied well to the road, but also to allocate personnel. It is impossible for masonry to do t he job during rainfall. The consequence is the required dry condition ignored and the working process be rushed because most of the time are taken by the forced halt caused by the rain.
During my stay in New York State, US, I witness that the maintenance and development of infrastructure are done only the winter completely end. June to September is the October to December of Indonesia. U.S. fiscal year is from 1 October to 30 September each year. This fiscal year suit their four seasons climate where it is almost impossible to build anything during winter. So during the beginning of the fiscal year they could prepare the planning and do the procurement process, while the job will be done in the most advantageous months.  In Indonesia, considering our season, actually we need a fiscal year that begin at the beginning of the monsoon season and end at the end of dry season.

Third, the situation also make the project prone to corrupt practice. In physical projects, when most of the time is consumed by bad weather, and the time is limited before the year end, the project manager must decide whether to take the risk of allowing the expansion of the time limit or take the blame for not being  able to complete the job. In this situation the project manager is helpless for the flirtatious offer from the contractor. In the non physical projects, the situation is of no difference. As the activity is not properly planned and the values of the projects oftentimes are unclear, the manager tends to have a driver to do unintended corruption by making program without a value added, or bargain with the provider because they have paid more than it should have pay whether for the lack of available facility or simply because they do not actually need such activity.

 The are two main sectors directly related to the situation, first, the budgeting process, and second the procurement process. Both sectors are in fact grow in parallel. In 2003, the parliament approve the law number 17/2003. In short, this law implement performance based budgeting in place of previously line budgeting system. In the same year, the President decreed Presidential Decree number 80/2003 on procurement. This decree has been replaced by Presidential Regulation number 54/2010 and several times changed, lastly by Presidential Regulation number 70/2012.

The main character that the law number 17/2003 brought about is that the budgeting is not just continuing and dividing the budget into lines of expenditure, but more importantly it should be planned in lieu of certain performance target. With this change, each government organization must prepare their own budget. In other word, the institution is not just doing what is given money for, but ask money for what they intend to do.

However, although the budgeting process change, but in practice the budgeting process do not change much. The reason is that the budgeting system that are now applied do not really measure the performance based budget. The planning process that is done from the middle of the year to the end is not recognized as an entity of activity. So the plan are usually made out of thin air based of the imagination of the head, or using the service of future expected contractor tied with expectation that they will get the project. The outcome of course badly prepared and planned performance based budget. This lead to confusion in the application period as the plan is not clear and ready to be applied.

As the planning process is the essence of performance based budgeting, it should have enough attention. It is not less important than the execution. Next years planning process should get a portion of the current year budget and the planning activity should be measured as one of the important activity of the organization. The practice may vary, but the key is that next year’s activity should be planned appropriately so it is ready to be applied.

The procurement system brought about by the presidential decree number 80/2003 and then Presidential Regulation number 54/2010 and several times changed, lastly by Presidential Regulation number 70/2012 also tries to assert good governance practice to the procurement process. One of them is the separation of the user, the project manager and the procurement committee. This is meant to answer to the problem where the user that are also the project manager and the procurement committee who have so many power to dictate the process that of course result in lack of control. The later even introduce the use of e-procurement as a mean system to limit the meeting point between the procurement committee and the contractor during the bidding process.

How ever, this new procurement process creates complication of problem from imbalance of risk and reward, and ineffective of the separation of responsibility from the internal control point of view. Previously the responsibility such as violation of procedure or corruption, is the responsibility of who have control over the organization. Currently, each party have their own risk. User (usually head of the office) is the least responsible. On the other hand, the project manager and the procurement committee hold the most responsibility. Project manager is responsible to the whole process of procurement, and the committee for the bidding process. For the sense of the job they do, this kind of settlement is fair. However, since the most senior officer have control over the subordinates and based on out spread organization culture, it will be considered insubordinate to say no to your boss, the positive characteristic  of separating responsibility does not effectively work. Instead of increasing the control, the current arrangement make the lower employee vulnerable and the boss can do as he will and not responsible for what he ask his subordinates do. No wonder currently working as a Project Manager and procurement committee is no more prestigious. Every body avoid to get involved in.

The procurement process that have been intended to overcome the weakness in internal control of responsibility in one hand is a good one. However, with the current wide-spread organizational culture, it is not enough. We should start thinking about taking it further, like separating the procurement function from the organization. A simple initiative that can be done is creating a bureau of procurement. With the budget that already prepared appropriately, we can expect that a separate organization should be able to do the procurement process out of the user organization.

Moreover, as the civil servant is not immune of the law of economy, risk and reward should be balance. If the project manager is responsible in person for up to RP 50 billion, is it appropriate to give him several hundred thousand Rupiah as honor?

Once again, rushing spending the budgeted money as commonly done by public institutions hamper the effectiveness of government spending. It is also prompt for corrupt practice. The main problem came from the planning (preparation of the budget) and the procurement system. It is not that the current budgeting and procurement regulations are wrong, but because the regulations fail to answer to factual conditions. Conditions that I meant here are features and details like cultures, common practices, values and habit in the community and organization, situations like climate and available infrastructures including market condition. What we can do to overcome this problem is by doing some adjustment in the regulation so it correspond to the need. Hopefully, it will make the best practice work for us. It is true that there is no such thing as guarantee of success, but if we pay more attention there are many avoidable failure we can avoid. 

Yazid Khair Harson, SST., MPA.

Home: Jl. Barumbung III no 9 Aur Kuning Bukittinggi, Sum-Bar

Office: Kantor Pusat Direktorat Jenderal Bea dan Cukai, Jl. A. Yani, By pass Rawamangun Jakarta Timur.

Phone: 081905`156696

e-mail: yharson@yahoo.com