POLICY AND GUIDELINES ON INDUSTRIAL COLLABORATION

PROGRAMME (ICP) IN GOVERNMENT PROCUREMENT

A Review

CONTENTS

▸ Background▸ Technology Depository Agency Berhad

(TDA)▸ Mass Rapid Transit Corporation Sdn Bhd

(MRT Corp)▸ Industrial Collaboration Programme (ICP)

Policy▸ A Review On ICP Policy ▸ Conclusion

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BACKGROUNDof the Internship

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A compulsory component of the Masters in Science, Technology and Innovation (STI) Policy program in Perdana School of Policy, Universiti Teknologi Malaysia.

Four months period with two different organizations.TECHNOLOGY DEPOSITORY AGENCY BERHAD (TDA)12 February – 31 March 2016

MASS RAPID TRANSIT CORPORATION SDN BHD (MRT CORP)4 April – 3 June 2016Supervisor: Dr Nor Ashikin Mohamed Yusof

Sr Azita Mohamed Tahir

Learning Goals:

1. To understand and compare the concept of Policy Cycle in theory and in real life implementation in a Government owned organizations;

2. To understand different roles and function of both organizations towards realizing the objectives set in the ICP Policy; and

3. To identify and propose areas of improvement in the formulation and implementation of ICP Policy.

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BACKGROUND

TECHNOLOGY DEPOSITORY

AGENCY BERHAD (TDA)

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TECHNOLOGY

DEPOSITORY AGENCY BERHAD

(TDA)

▸ Government Owned Company wholly owned by MOF

▸ The ICP Authority in Malaysia

▸ 40 employees

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Review & AnalysisConduct study on the current and future local industry needs.

PlanningDevelop strategic documents to ensure national procurements are fully leveraged to support national needs.

Assessment/ EvaluationCarry out evaluation of ICP Proposals and audit activities for the ICP Recipient and ICP Providers.

Surveillance/ MonitoringEnsure that the implementation of ICP Programs comply with the Malaysia ICP Management Framework.

VerificationPerform verification process on the output of each projects.

DatabaseRecord and store all information about ICP in Malaysia and also the needs of the country for planning of future ICP projects.

TDA Roles and Functions1

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1. Clause 130, ICP Policy

MASS RAPID TRANSIT CORPORATION SDN

BHD (MRT CORP)

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MASS RAPID TRANSIT

CORPORATION SDN BHD (MRT CORP)

▸ Government Owned Company

▸ Special Purpose Vehicle wholly owned by MOF Incorporated

▸ The developer and asset owner of the Mass Rapid Transit (MRT) project

▸ 600 employees

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MRT Vision and

Mission

10VisionTo be recognised as an integral provider of urban rail transport solution

Source: MMC-Gamuda (T) Sdn Bhd

MissionTo engineer and deliver an effective, efficient and integrated mass rapid transit system safely, on time and within cost.

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The STI Human Resource Pyramid

Agenda Setting

Policy Formulation

Policy Adoption

Policy Implementa

tion & Enforceme

nt

Policy Evaluation

& Monitoring

Policy CycleSource: Professor Tan Sri Datuk Dr Omar Abdul

Rahman

TDA

MRT

TDA

TDA

TDA

TDA

TDA

MRT

INVOLVEMENT OF TDA AND MRT CORP IN THE ICP POLICY

INDUSTRIAL COLLABORATION

PROGRAMME (ICP) POLICY

An Introduction

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“Industrial Collaboration Programme (ICP) is a program which consists of activities that add value to procurement made by the Government of Malaysia”

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Source: Clause 3, ICP Policy

ICP

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ICP

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ICP

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The ICP consists of 3 main elements that are:

▸ Economic Enhancement Programme (EEP);

▸ Offset Programme; and

▸ Countertrade Programme

MALAYSIA ICP

MANAGEMENT

FRAMEWORK

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Source: Attachment 1, ICP Policy

ICP MANAGEMENT UNIT\(IMU)

AND THE ICP

REPORTING STRUCTURE

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CASE STUDY:Trent900 Program

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Supplier/OEM▸ Rolls-Royce has been selected as the supplier of the

engines

Government Procurement▸ Purchase 6 units of Airbus A380 aircraft by GOM▸ 28 units of engine are needed for the aircraft.

An Offset Agreement between the Government of Malaysia and Rolls-Royce was signed on 30th March 2006 for a 5-year

implementation period

Offset Program strategies▸ Support the development of Malaysian Aerospace

industry;▸ Develop capacity and capability through:

▸ ToT;▸ Research skills & capability development; and ▸ Industrial participation & commercilization;▸ Create high-income/high skill jobs.

Offset Projects Impact

1Authorised Maintenance Center (AMC) status to Airod Turbopower Sdn Bhd

• Reduction of cost to become 8th AMC in the world

• Window to current global business segment opportunities worth of RM 350 million

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Aerospace contract manufacturing works to local parts and component manufacturers (CTRM, UPECA and SMEA)

• V2500 nacelle program awarded worth RM178 million (more than the original requirement)

• Led to a business deal worth of RM 3.5 billion until year 2023

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Collaborative R&D between UTM and Cambridge University on Aero Gas Turbine Combustor and Bio Fuel

• Position Malaysian bio-mass into high value product

• Getting ready to market potential of RM120.96 billion in 2030

4Aerostructure Manufacturing Innovation Centre (AMIC)

• Capacity development for aerospace industry

• Triple-Helix concept at work

5 Maerogel Application on jet-engine parts

• Stepping stone to global nanomaterial market segment worth of RM60 billion

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CASE STUDY:Trent900 Program

POLICY REVIEW

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Issue Improvement Areas

1

The Government procurement value of RM50 million for foreign contractor and RM100 million for local contractor is compulsory to implement ICP.

The value is too low and should be set should be higher. Government procured a lot of non-strategic item like agriculture products and medicine with low value. Higher value indicates higher technology contents. Therefore, by increasing the procurement value for the ICP, TDA can focus its resource towards managing more strategic and higher impact procurements such as in defense, biotechnology and transportation.

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POLICY IMPROVEMEN

T

Issue Improvement Areas

2

Economic Enhancement Program (EEP) is compulsory to local contractor that is awarded with contract worth more than RM100 million

EEP is a burden to local industry. Local industry needs to allocate their resources to implement the EEP when what they should be focusing is to deliver the main contract as expected and gain higher margin out of it. EEP will be a hindrance to local industry to deliver the project and make profits. Because EEP is mandated to local industry, there will be no technology transfer happening since the ICP Obligor has the same technology maturity as the ICP Recipient. Instead, Malaysia should utilized ICP to fill the technology gap (in design and manufacturing) that can be obtain from foreign contractor.

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POLICY IMPROVEMEN

T

Issue Improvement Areas

3

The policy formulation

Does not involve stakeholders. Only TDA and MOF. This makes the policy unrealistic and too ideal for real life implementation. The policy should involve all stakeholders with and without ICP knowledge from the inception stage. The final Policy should be presented and reviewed continuously by all the strategic stakeholders for further improvement.

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POLICY IMPROVEMEN

T

Issue Improvement Areas

4

TDA’s conflict of interest

The function of governance and profit making entity should be separated. TDA should be independent and focuses more on the governance side of the Policy. Other agency such MIGHT can provide IMU services to government agencies with no in-house IMU. In MRT Corp’s case, they are relying solely on TDA to manage, make decision and consult the industry regarding the ICP Program since TDA-IMU has been paid to provide this kind of services to MRT Corp. All the issues on conflict of interest as stated in Section 6.1 of my report can be mitigated if TDA perform only one function either as ICP Authority or IMU, but not both.

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POLICY IMPROVEMEN

T

Issue Improvement Areas

5

No code of conduct for IMU

Learning from MRT Corp’s experience, it is high time for TDA to implement their own version of No Gift Policy to avoid misperception and misuse of authority.

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POLICY IMPROVEMEN

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Issue Improvement Areas

6

The ICP Program is implemented with no premium (additional payment to support the ICP implementation) and based on mutual benefit (profitable and beneficial to the Government, ICP Provider and Beneficiaries.

Although ICP Program aspiration is to have programs that will benefit not only Malaysia but also the OEM, the measurement of the success of the Projects during Post-Implementation Audit is heavily depends on the investment made by OEM. This means that OEM need to increase their pricing margin to include to the cost to implement ICP. This will only increase the project cost that will be charge back to the Government. Not to mention, Agency need to put aside a percentage of the budgeted project allocation to pay for the IMU services fee to TDA. In the end, Government is essentially paying for the ICP Program.

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POLICY IMPROVEMEN

T

Issue Improvement Areas

7

ICP Program and the Trans-Pacific Partnership Agreement (TPPA)

Malaysia is being asked in the TPPA to let foreign suppliers compete in its procurement on an equal basis with its domestic suppliers. Malaysia have 12 years to slowly reduce and in the end abolished the ICP Program. The Policy needs to address this new development in TPPA and to decide whether we want to continue to rely of ICP as a tool of development.

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POLICY IMPROVEMEN

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Issue Improvement Areas

8

A tripartite ICP Agreement need to be signed by OEM, Agency and TDA (on behalf of the Government)

TDA has no authority to sign on behalf of the Government. This requirement need to be taken out from the Policy. The ICP Policy has not been endorsed by the Attorney General Chamber (AGC). Therefore, by having the Government as the signing party will only expose the Government to additional risk. The ICP Agreement should only be between OEM and the Implementing Agency.

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POLICY IMPROVEMEN

T

Issue Improvement Areas

9

Lack of definition and cross reference on the terms in the Policy

There is a serious lack of definition and cross reference in the document. For example, and important document, ICP Strategic Document (ISD) is not being properly defined in Clause 10, Terminology and Definition. There are also discrepancy on terms and definition between Bahasa Melayu’s version and the English version. Appendix C in my report identifies some of the discrepancies.

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POLICY IMPROVEMEN

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Issue Improvement Areas

10

A lot of typo error in the original documents

The typo error happen due to the editing of the Policy is not done by professionals. Appendix C in my report illustrates the various typo errors in the documents. Besides effecting the translation and understanding of the Policy, the typo errors reduce the credibility of the policy and the implementing authority as the Policy is being used by foreign OEMs all over the world.

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POLICY IMPROVEMEN

T

THEORY vs

REALITY

Stakeholder’s Engagement

Was not fully practiced during Agenda Setting, Policy Formulation and Policy Review.

Legimitation

There is no activities towards ensuring that the chosen policy instruments have supports. No legislative approval by AGC, no implementation budget and other resources by GoM.

Implementation

TDA, the ICP Authority to take responsibility for implementation, ensuring that policy decisions are carried out as planned, is exposed to impartiality and conflict of interest.

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CONCLUSION

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CONCLUSION

▸ ICP Policy has a lot more improvement needed as identified in my report

▸ Contradicting clauses and unclear terms and definition makes the ICP Policy open for different interpretations. This will result in inconsistencies during implementation

▸ ICP Policy needs a reality check

▸ The ICP Authority needs to create more awareness and educate the industry on the opportunities offered through ICP Policy

▸ ICP program is supposed to be a win-win situation between the Government and OEM. Mutual understanding and goodwill is more important than following the rules set out by the ICP Policy.

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THANK YOU

norazliza.aris@mymrt.com.my

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Q&A

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BACK UP SLIDES

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ICP CREDIT VALUE(ICV)

▸ ICP Credit Value (ICV) is a credit value which the calculation is based on the economic impact generated by the ICP implementation within the specified period in line with the terms and conditions agreed in the ICP Agreement. The mandatory ICV (unit is in Malaysian Ringgit) for an ICP is based on a minimum of one hundred per cent (100%) equivalent to the value of the Main Procurement Contract.

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ICP CREDIT VALUE(ICV)

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ICP CREDIT VALUE(ICV)

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RELATIONSHIP MRT CORP

AND TDA

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OEM 1 OEM 2 OEM 3 OEM 4

MRT CORP

ICP COMMITTEE

MIECChair by MOF, TDA as Secretariat, members are other Govt Agencies

Chair by MRT, TDA as Secretariat, members are MOF and SPAD

IMU-TDA