2011 annual report

Government Publications
Registration Number
11-1230000-000205-10

2011
ANNUAL REPORT
Public Procurement Service
The Republic of Korea

www.pps.go.kr/english


2011
ANNUAL REPORT


2011 ANNUAL REPORT

Letter from the Administrator

Table of About PPS

01
Contents 08 / Overview
10 / History
12 / Functions & Roles
14 / Organizational Chart

Analysis and Evaluation of Procurement Business

02
18 / Overview
24 / Domestic Procurement
28 / Foreign Procurement
33 / Construction Works
38 / Stockpiling
43 / Government Goods Management

e-Procurement

03
52 / KONEPS
59 / Global Cooperation
in e-Procurement & KONEPS
61 / KONEPS Statistics

Globalization of Government Procurement

04
66 / Overview
67 / Global Cooperation
in Public Procurement
68 / Cooperation with
International Organizations

Green Procurement 05

72 / Overview

75 / Performance Highlights

Statistics and Others
06

80 / Statistics
82 / Work Flow Chart
86 / Contact Information

2011 Annual Report

Letter from the Administrator

Letter
from the Administrator

Korea made a remarkable achievement in
2011, despite difficult economic circumstances
including continuous economic crisis in
European countries and surge in oil prices,
by reaching 3.6 % in economic growth, higher
than most of the advanced countries and
becoming the world’s 9th country to pass
the 1 trillion dollar mark of trade amount. In
addition, Korea won the bid to host the 2018
Winter Olympics in Pyeongchang, showing its
capability even further in the world stage.

Under the goal of realizing procurement
administration with sound policies to be in
line with the market, Public Procurement
Service (PPS) of Korea successfully
carried out its tasks to support the nation’s
economic policies in 2011, which were to
create a fair society, overcome the economic
crisis, establish a firm ground of economic
development in the long run and improve the
lives of ordinary people.

First, PPS pushed ahead with reforming
various systems to ensure a level playing field in public procurement market. It adopted the Pre-
Qualification Review System that weeded out suppliers who didn’t meet requirements. It also
expanded the use of fingerprint recognition system by suppliers to prevent any illegal e-bidding
attempts from occurring at the initial stage. Furthermore, it reinforced various measures to
monitor and punish for fraudulent practices including violation of direct production, submission
of false documents and other infractions. Thanks to these efforts, PPS was able to increase
awareness that any illegal practices would not be rewarded.

In order to enhance the competitiveness of the industry as a whole, PPS boosted the
procurement of green & new industries and promoted competition in technology & quality
among suppliers through proactively utilizing its purchasing power. To this end, its priority was

Public Procurement Service | www.pps.go.kr 4|5

set on generating initial demand at the early stage with increasing the number of minimum
green standard products and giving advantage to green manufacturers, so that the green
industry could continue to grow at a stable rate. Also, by expanding the purchase of high
technology and excellent procurement products, the levels of technology and quality in the
public procurement market were improved greatly. Adopting the advanced schemes such as
Pre-Notification System for Minimum Purchase Specification and Self -Qualification Guarantee
System was another part of its effort to raise the competitiveness.

Moreover, PPS has contributed to accomplishing balanced growth for suppliers by encouraging the
Small-Medium Enterprises (SMEs) including the socially vulnerable companies, to participate in
the public procurement market. Expendables which used to be supplied by major companies in the
past were replaced with those of SMEs and the participation of IT/SW SMEs in the public technology
market was institutionalized. As a result, 77.6% of goods purchased in 2011 came from SMEs.

What’s more, PPS spared no effort to assist competitive SMEs to enter the foreign
procurement markets and further cooperate with its international counterparts in the field
of public procurement. As part of its efforts, a new team consisted of specialists in global
procurement market was organized to conduct such tasks. PPS has also strived to cooperate
with other countries to share knowledge and discuss key issues in public procurement such
as e-procurement via multiple communication channels including signing MOU, cooperative
meetings and exchange of relevant public and private officials. Exporting the Korea ON-line
E-Procurement System (KONEPS), recognized as a world-class e-procurement system, to Tunisia
followed after Vietnam, Costa Rica and Mongolia was another notable achievement in 2011.

In order to cope with sudden surge of price in raw materials, PPS has continuously maintained at
the stable level of stockpiling volume. Also, it analyzed each raw material effectively to differentiate
the target volume by item. These diversified measures such as releasing them at a discount rate,
taken in 2011, contributed to successfully supplying raw materials on demand by SMEs.

On the basis of its achievements made in 2011, PPS will continuously carry forward
procurement policies as to revitalize the nation’s economy and build capabilities to be prepared
for a long run, so that every stakeholder in the field of public procurement can benefit through
balanced growth.

This Annual Report details PPS’s activities throughout 2011 and their outcomes. I hope this
Annual Report will serve to foster a broader understanding of PPS.

Ho-In Kang
Administrator

About PPS
Overview _ 08
History _ 10
Functions & Roles _ 12
Organizational Chart _ 14

2 0 1 1 A N N U A L R E P O R T

2011 Annual Report

About PPS

Overview

Characteristics of Government Procurement
The lexical definition of procurement is to acquire financial or material resources. In this
sense, procurement activities encompass all organizational units from households to
firms, organizations, and the government. From the functional viewpoint, procurement is
an indispensable activity and its successful fulfillment is essential to the continuation of an
organization. There is a major distinction between the procurement of the government and
that of other socio-economic agents, in that government procurement draws its funds from tax
revenue. Hence, unlike procurement in the private sector, government procurement should
reflect public concerns as well as efficiency.

Objectives of Government Procurement
Objectives of government procurement are as follows:

Firstly, government procurement aims at budget efficiency. Efficiency is the most valued
objective for all economic agents. As an economic agent, the government also sets the highest
priority on efficiency. Efficient procurement is increasingly viewed as an important strategic
value both in public and private organizations. For private firms, cost savings can be more
easily achieved through efficient procurement than through productivity enhancement. For
the government, saving of the budget through efficient procurement poses less difficulty than
increasing taxation, which may encounter resistance. From the perspective of a buyer, efficient
procurement is fulfilled by selecting the supplier that provides goods or services of the highest
quality at the lowest price, and ensuring the timely performance of contract. In this respect,
Transparency in procurement procedures is essential to achieving budget efficiency.

Transparency promotes competition and thereby contributes to the efficient allocation of
resources, which in turn leads to budget saving for the government. Alternatively, lack of
transparency impedes competition and may cause best-in-class suppliers to be precluded. This
raises procurement cost and discourages further cost saving efforts on the part of the suppliers
that are already within the barrier, which in effect lowers budget efficiency.

Public Procurement Service | www.pps.go.kr 8|9

About PPS
Secondly, government procurement should ensure that it meets the intended purpose of public
organizations by ensuring the timely and cost-effective delivery of that which is in their need,
thereby assisting them in achieving their broader goals. The value of procurement does not lie in

Procurement Business
Analysis and Evaluation of
procurement itself, as government procurement is intended to serve the functions and services
that the government operates for the public. In other words, procurement is the acquisition of
resources needed for the government’s policy objectives. Therefore, government procurement
should serve the government’s policy objectives so that the government may accomplish its
goals without hindrance.

Thirdly, government procurement also indirectly serves the government’s policies in relation

e-Procurement
to various aspects. Government procurement is characterized by its large scale. From the
policy-makers’ perspective, the government’s large purchasing power is a helpful tool for
realizing the government’s policies, and the government subsequently utilizes it to achieve its
policy objectives. A representative example is the government’s support for small and medium
businesses, local businesses, and socially disadvantaged businesses through its procurement
policies. The government support for the socially disadvantaged through procurement policies
should be limited to such an extent that it does not significantly affect the ultimate objective of

Government Procurement
Globalization of
budget efficiency.

Government Procurement Scale
Though varying in degrees, the size of government procurement has been in a constant
state of growth in most countries. This is related to the continuous growth of the overall size Green Procurement

of economy, despite regional and temporal fluctuations. The relative scale of government
procurement, however, varies among countries and is dependent upon various factors such as
the country’s economic scale, taxation systems, and the government’s role in the private sector.

In the case of Korea, a survey report by Small and Medium Business Administration(SMBA)
indicated that Korea’s government procurement in 2010 totaled approx. 104 trillion won,

representing 8.9% of GDP. PPS contracted approximately 37 trillion which is 36.2% of Korea’s
total government procurement.

2011 Annual Report

About PPS

PPS’s Share in Government Procurement
(Unit: 100 million won)
Categories 2007 2008 2009 2010 2011
Govt. Procurement
920,352 1,040,760 1,222,846 1,044,265 998,494
Total(A)*

PPS Procurement
276,348 290,000 452,064 377,608 332,937
Total(B)**
PPS’s Share (B/A, %) 30.0 27.9 36.9 36.2 33.3
* Figure is based on government procurement plan (published by SMBA)
** igure represents the sum of PPS’s domestic procurement and construction work contracting. Foreign
F
procurement (687.5 billion won), stockpiling (362.8 billion won), and supervision and review service for
construction works (13.42 trillion won) are not included.

History

The history of PPS traces back to the period immediately following the foundation of the Korean
government. It began with the establishment of the Provisional Office of Foreign Supply (POFS)
on January 17, 1949. Provisional POFS functioned as the counterpart to the US Economic
Corporation Administration, which administered the US’s foreign aid, and contributed to Korea’s
economic development and industrial revival through the management of foreign aid supplies.

On December 15, 1949, the Office of Foreign Procurement was established separately with
exclusive responsibilities for foreign procurement. Thus, foreign procurement and foreign aid
supplies began to be administered separately. On December 19, 1949, POFS was restructured
and renamed as the Provisional Office of Foreign Supply Management. Provisional Office of
Foreign Supply Management was consolidated with the Office of Foreign Procurement on
February 17, 1955, and was renamed the Office of Foreign Supply. On October 2, 1961, for the
purpose of procuring domestic and foreign supplies more efficiently for the nation’s economic
development, the Office of Foreign Supply was expanded and became the Office of Supply, the
Republic of Korea (OSROK). On November 29 of the same year, contracting for construction
works was included in its capacity.

Public Procurement Service | www.pps.go.kr 10 | 11

About PPS
On February 16, 1967, PPS assumed a new function
of stockpiling, aimed at mitigating the impact of
price fluctuations in the international raw material

market and thus contributing to the steady growth of
the national economy. On September 22, 1971, PPS
was vested with an added responsibility to oversee
and coordinate government goods management
for the efficient and systematic management of the
government’s movable assets.

e-Procurement
The storage and distribution of supplies commonly
used by government organizations had been
centrally administered by PPS since 1962. On
January 1, 2006, this storage operation was
discontinued considering that it restricted
the growingly diversifying demands of public
organizations. On December 28, 2007, legal basis was founded for PPS’s new roles in

Globalization of
government property management, including the management status monitoring of
government properties.

Added Functions
Green Procurement
Nov 29, 1961 Construction contracts
Feb 16, 1967 Commodity stockpile
Sep 22, 1971 Government goods management
Apr 12, 1978 Price survey and construction supervision
Dec 28, 2007 Government property management and acquisition of real estate reserves for government use

Change of PPS English Name

1961~1996 OSROK (Office of Supply, the Republic of Korea)
1997~1999 SAROK (Supply Administration, the Republic of Korea)
2000 ~ Present PPS (Public Procurement Service, the Republic of Korea)

2011 Annual Report

About PPS

Functions Roles

PPS’s Functions
PPS performs the following five functions as prescribed by laws and regulations, with the
exception of defense procurement including arms, ammunition, and war materials:

Domestic and foreign procurement for public organizations
•n 2011, PPS’s domestic and foreign procurement totaled 17.9 trillion won and 688
I
billion won respectively.

Contracts for the government’s major construction projects
•Contracts for construction works concluded via PPS in 2011 totaled 15 trillion won.
• PS also provides both the total construction cost review service and construction
P
management services for public organizations lacking relevant expertise.

Government stockpiling and supply of major raw material commodities
• PS stockpiles major raw materials and construction materials such as aluminum,
P
copper and tin, in order to ensure their short and long-term availability and price
stability, thereby supporting the continued development of the national economy.

Efficient management of government goods and property
• PS oversees and ensures the efficient management of government goods valued at
P
approx. 13.4 trillion won in total.
• PS also assumes a role in the management of government-owned real estate
P
management, including government property development, preservation of
government’s property ownership rights, and acquisition of real estate reserves for
government use.

Operation Management of the government-wide e-Procurement system
• PS operates the Korea ON-line E-Procurement System (KONEPS) to facilitate the
P
work process for public procurement, allowing all public organizations to conduct the
entire procurement process online from bid notice, bidding, and contracting through to
payment.
• y promoting the use of KONEPS, PPS serves to enhance transparency and efficiency
B
in government procurement.


About PPS
PPS’s Roles

As a specialized executive agency, PPS assumes various roles :

PPS maximizes the efficiency of the government’s budget execution and management by
minimizing procurement costs through centralized procurement. PPS has also broadened
the customers’ choices with its Multiple Award Schedule (MAS) and Online Shopping Mall
which channels the public organizations’ demands and streamlines the procurement process,
resulting in budget savings, reduced human resources and a scaled-down yet more efficient

e-Procurement
government.

PPS pioneers the ways of enhancing transparency in public procurement. Through the
implementation of KONEPS, PPS has digitalized the entire procurement process from
purchase request through to payment, removing unnecessary person-to-person contacts
between suppliers and contracting officials. PPS has improved its work procedures and
policies to enhance transparency, such as the Integrity Pact policy and the real-time release

Globalization of
of procurement related information. With the advent of e-Procurement, PPS dedicates itself
to ensuring transparency through its dissemination of transparent procurement procedures,
policies and best practices among public organizations.

In addition, PPS assists public organizations with their efficient budget execution based on
its accumulated expertise. PPS raises government’s budget efficiency through reviewing
and adjusting the total construction cost of large scale national projects. In the trend of
Green Procurement
decentralization, local autonomies are given increased freedom of finance control, and allowed
to independently conclude contracts for large construction projects. PPS complements the local
autonomies’ contracting capabilities through its advance construction cost review service.

In conclusion, PPS contributes to realizing the government’s various policy objectives
by rendering practical support for the government in achieving its goals. PPS executes
procurement policies and contributes to actualizing the government’s business support polices

for small and medium sized businesses, venture businesses, entrepreneurs, traditional
and cultural enterprises and socially disadvantaged businesses; as well as policies for
environmental preservation and economic stabilization, such as price stabilization, and supply
and demand balancing.

2011 Annual Report

About PPS

Organizational Chart
5 Bureaus, 1 Quality Management Office, 11 Regional Offices, 4 Oversea offices
Personnel: 45 employees (434 in the Headquarters, 54 in Quality Management Office, 457 in
9
Regional Offices)

Administrator
Spokesperson
Deputy Administrator

Audit and Inspection Officer General Services Division
Director General for Planning Coordination e-Procurement Service Bureau
•Planning and Budget Officer •Information Planning Division
•Regulatory Reform Legal Affair Officer •Information Management Division
•Management Support Team •Government Property Management Division
•Administrative Management Officer •Government Goods Management Division
•Procurement Professional Development Officer •Customer Support Team
•Government Property Planning Research Division
International Goods Bureau
Procurement Service Bureau
•Commodity Management Division
•Commodity Stockpile Division •Procurement Management Division
•Foreign Equipment Division •Materials Equipment Division
•International Cooperation Division •Excellent Products Division
•Foreign Machinery Team •Shopping Mall Planning Division
•Information Technology Services Division
Construction Works Bureau •Shopping Mall Unit Price Contract Team
•Shopping Mall Procurement Team
•Construction Business Management Division
•Civil Engineering Contract Division
•Buildings Facilities Contract Division Quality Management Office
•Construction Planning Division
•Budget Project Management Division •Quality Management Coordination Division
•Technical Evaluation Team •Materials Quality Management Division
•Construction Supervision Team •Equipment Quality Management Division
•Quality Assurance Division
Seoul Regional Public Procurement Service
•General Management Division Busan Regional Public Procurement Service
•Materials Procurement Division
•Equipment Procurement Division •General Management Division
•IT and Service Contract Division •Materials Procurement Division
•Construction Divisioan •Equipment Procurement Team
•Construction Supervision Team
Incheon Regional Public Procurement Service Daegu . Gwangju Regional Public Procurement Service
•General Management Division •General Management Team
•Materials Procurement Division •Materials Procurement Team
•Equipment Procurement Team •Equipment Procurement Team

Daejeon·Gangwon·Chungbuk·Jeonbuk·Gyeongnam·Jeju Regional Public Procurement Service
•General Management Division •General Procurement Division

Oversea Procurement Officers Toyko London Chicago Beijing

Public Procurement Service | www.pps.go.kr 14

Overview _ 18
Domestic Procurement _ 24
Foreign Procurement _ 28
Construction Works _ 33
Stockpiling _ 38
Government Goods Management _ 43

2 0 1 1 A N N U A L R E P O R T

2011 Annual Report


Overview

In 2011, Korea overcame the financial crisis at an alarming rate and its employment rate began
to improve. However, due to its weak domestic market, the actual economic sentiment of
ordinary citizens and SMEs somewhat worsened. As a result, the Korean government put its
priority on revitalizing the domestic market by expanding the income-base for those of ordinary
citizens and SMEs.

PPS also made efforts to support SMEs and other under-privileged people. By actively
introducing separate order of construction materials, and competitive bidding among SME
consortium, it supported market entrance for SMEs. In particular, the share of purchasing by
SMEs totaled record-breaking 14 trillion won which accounts for 77.6% of the total purchasing
amount.

Meanwhile, there was concern over the rising rate of inflation due to the price hike in
international commodity market. To this end, the Korean government strived to stabilize
the price and PPS contributed to its efforts by establishing measures for implementing
procurement policies to support of price stabilization.

There was also policy improvement for establishing fair procurement market. PPS ensured a
level playing field for each participant in the procurement market by strengthening its sanctions
for unfair practices and improving its procurement system to supplement any loophole of
regulations.

In addition, PPS laid the foundation of the procurement system to encourage suppliers to
innovate the quality and technology. It adopted the Pre-notification of Minimum Purchasing
Standard and Comprehensive Awarding system to take the functions and environment into
account. Also, it improved the system of designating Excellent Procurement Goods so it could
enhance the quality and promote competition in technological development.

Moreover, PPS strived to develop the green procurement scheme. It designated 19 additional
products including vacuums as the Minimum Environmental Standards products and assigned
the Green Construction Materials, thus enabling the demand for green products in public


About PPS
market to be expanded. The performance of purchasing green products in 2011 recorded at 3.38
trillion won approximately, up by 1.20 trillion won compared to last year. The figure represented
20.4 % of total purchasing products, 7.5% increase year on year.

What’s more, PPS continuously supported SMEs by releasing stockpiled materials at a
discounted price. Depending on the possibility of supply disruption and demand from SMEs, it
differentiated the target volume of stockpiling by item and carried out the Joint Public-Private
Stockpiling business to prepare against any potential threat of supply disruption.

PPS played a typical role of central procurement agency by reducing procurement budget and

e-Procurement
supporting SMEs throughout the year of 2011, while executing procurement administration
in line with government policies such as promoting fair competition in procurement market,
stabilizing the price and enhancing the competitiveness of suppliers.

Annual Performance
(Unit:100 million won)

Globalization of
Categories 2007 2008 2009 2010 2011
Procurement total* 464,467 518,319 688,990 525,797 477,627
Procurement services 283,295 297,263 441,011 383,705 339,812
Domestic procurement 132,295 132,295 150,556 188,353 173,495
Foreign procurement 6,947 10,347 13,664 6,097 6,875
Construction works 144,053 136,360 238,994 200,937 150,329

Architectural design and included in included in included in
construction domestic domestic domestic 3,176 3,230 Green Procurement
supervision service procurement procurement procurement

stockpiling 7,261 7,219 6,864 3,236 3,628
Stockpiling
stock release (5,742) (6,206) (4,216) 3,722 6,592
services
futures options (3,702) - - - -
Supervision and review for
173,911 213,837 241,115 138,856 134,187
construction works
Total Service 11,112 19,713 28,853 33,281 24,003

Total project cost review 146,198 166,715 190,169 90,657 101,735
Construction cost review 16,601 27,409 22,093 14,918 8,449
* he figure represents the total sum of the performance results in procurement services (domestic procurement +
T
foreign procurement + construction works + architectural design construction supervision service), stockpiling
(new acquisition only), and supervision and review for construction works (construction management + total
project cost review + construction cost review).

2011 Annual Report


Performance Highlights
Enhancing fairness in government procurement

PPS has been trying to ensure a level playing field by continuously improving and closing any
loop hole in the procurement system. In particular, PPS set the Policies to Enhance Fairness in
Government Procurement and implemented it as one of its main objectives in 2011.

Establishing fair competition rules
Reinforcing competitiveness of Socially
vulnerable Enterprises

Reinforcing
Preventing unlawful Restricting market entry
Eradicating unfair competitiveness of
participation in the of unqualified or insolvent
business practices Socially vulnerable
procurement market suppliers
Enterprises

• trengthening
S • limination of ineffective
E • trict regulations on
S • nsuring the enterprises
E
regulations on abuse of contractor holders bid rigging for major enter the market
the support system construction projects
• estricting unqualified
R • xpanding preferential
E
suppliers to KONEPS • ot awarding contracts
N policies for SMEs
to unlawful contractors

Additionally, PPS signed the agreements
with 8 associations representing
more than 200,000 suppliers in the
procurement market to create the
environment of fairness.

▲ Signing ceremony for Agreement on Fair Practice in Public Procurement with supplier
associations


About PPS
Support of Socially Disadvantaged Enterprises
The Korean government has been assisting SMEs with various policies such as tax-exemption,

financial support, etc. In line with the government policy, PPS has also been supporting SMEs,

which account for more than 99% of those registered in government procurement sector,
through helping them enter the market and giving them preferential treatment.

The amount of support for SMEs in 2011 totaled 22.49 trillion won, which accounts for 66.3%
of the annual procurement performance of 33.95 trillion won (domestic procurement +
construction works +commodity release). Purchasing volume from SMEs has grown over the

e-Procurement
last five years. Contracting with SMEs in construction works exceeded more than 50 % of total
contracts for the first time. This demonstrates that PPS’s constant endeavor to support SMEs
has been coming to fruition.

Support for SMEs
(Unit : 100 million won, %)

Globalization of
Categories 2007 2008 2009 2010 2011
Total amount 282,090 293,122 431,563 381,330 339,529
Total Support amount 156,515 176,932 232,952 229,528 224,941
(%) (55.5) (60.4) (54.0) (60.2) (66.3)
Total amount 132,295 150,556 188,353 173,495 179,378
Goods
Support amount 87,988 104,606 133,512 130,479 139,205
purchased
(%) (66.5) (69.5) (70.9) (75.2) (77.6)
Total amount 144,053 136,360 238,994 204,113 153,559 Green Procurement
construction
Support amount 62,861 66,157 95,349 95,327 79,479
works
(%) (43.6) (48.5) (39.9) (46.7) (51.8)
Total amount 5,742 6,206 4,216 3,722 6,592
commodity
Support amount 5,666 6,169 4,091 3,722 6,257
release
(%) (98.7) (99.4) (97.0) (100.0) 94.9

In order to ease the economic imbalance between large metropolitan areas and regional areas

and to vitalize regional economies, PPS has been implementing preferential treatments for
enterprises based in regional areas. In addition, when a joint consortium is formed with regional
enterprises to submit a bid, it can receive additional points during the evaluation for awarding
contracts. As a result, the purchased amount from regionally-based businesses reached 67.5%,
up by 4.5% from last year.

2011 Annual Report


Support for regionally-based businesses
Categories 2007 2008 2009 2010 2011
Total amount 282,090 293,122 431,563 381,330 339,529
(%) (59.4) (64.8) (62.2) (63.0) (67.5)
Total amount 132,295 150,556 188,353 173,495 179,378
Goods
Support amount 78,820 99,240 125,169 112,697 117,747
purchased
(%) (59.6) (65.9) (66.5) (65.0) (65.6)
Total amount 144,053 136,360 238,994 204,113 153,559
construction
Support amount 84,646 86,553 139,621 123,803 104,852
works
(%) (58.8) (63.5) (58.4) (60.7) (68.3)
Total amount 5,742 6,206 4,216 3,722 6,592
commodity
Support amount 4,094 4,283 3,557 3,593 6,451
release
(%) (71.3) (69.0) (84.4) (96.5) (97.9)

PPS also strengthened its support for women-owned businesses and according to the data in
2011, the performance of women-owned businesses recorded 1.8 trillion won which accounted
for 5.4% of the total performance (goods purchased + construction contracts).

Support for women-owned businesses
Categories 2007 2008 2009 2010 2011
Total amount 276,348 286,916 427,347 377,608 332,937
(%) (3.8) (4.7) (3.9) (4.4) (5.4)
Total amount 132,295 150,556 188,353 173,495 179,378
Goods
Support amount 6,388 7,976 10,895 10,495 12,181
purchased
(%) (4.8) (5.3) (5.8) (4.4) (6.8)
Total amount 144,053 136,360 238,994 204,113 153,559
construction
Support amount 4,011 5,535 5,780 6,281 5,856
works
(%) (2.8) (4.1) (2.4) (3.1) (3.8)


About PPS
Expansion of purchasing green products
In 2011, the total purchasing of green products by PPS increased after it had been hovering

around 12% for the past 3 years. Thanks to its green growth policy, the green products took a

larger portion with 20.4% of total goods purchased.

Performance of purchasing green products
(Unit : 100 million won)
Categories 2008 2009 2010 2011
Total Goods purchased(a) 126,032 156,453 142,249 148,823

e-Procurement
Green purchasing(b) 15,464 20,243 18,365 30,381
(b/a) 12.3% 12.9% 12.9% 20.4%

The increase of purchasing green products was attributable to PPS’s efforts to ease the entry
barrier for green products such as establishing the Minimum Environmental Standard Product,
designating green products as Excellent Procurement Products, giving preferential treatments
on green products during MAS contracts and expanding the use of comprehensive award

Globalization of
system with consideration to the environment.

In addition, PPS launched the Integrated Information Network on Public Green Purchasing
in November 2011, which enables users to access to all the available information on green
products. It was somewhat difficult for public contracting officials to purchase green products in
the past due to its complexity related to certificates and regulations. However, the network has
made it possible to resolve any inconvenience for officials.
Green Procurement

2011 Annual Report


Domestic Procurement

Overview
The world economy was expected to recover gradually in 2011 with growth rate of Korea
estimated at 3.6%. Recognizing insufficient recovery of economic sentiment and the need to
improve structure of our economy, PPS focused on economic revitalization through various
policies in support of SMEs, expedited budget execution to boost domestic consumption
and enhance financial soundness of SMEs. It also pursued “Low Carbon Green Growth” by
facilitating green purchasing in public sector and promoted qualitative growth of procurement
market by establishing procurement system which encourages quality and technology
competition contributing to strengthening foundation of our economy.

Performance
PPS’s domestic procurement performance recorded 17.93 trillion won, an increase of 3.4%
from last year. The performance was attributable to a surge of 46.4% in procurement by public
entities. However, the purchasing amount by local governments which accounts for more than
50% of domestic procurement decreased by 38 billion won compared with 2010. The changes
in procurement demands by local governments are attributed to the increased volume of their
autonomous procurement after procurement liberalization became effective.

Domestic procurement performance
Categories 2009 2010 2011
Domestic procurement 188,353 173,495 179,378


About PPS
Domestic procurement performance of each end-user
2009 2010 2011

Categories

Amount Share Amount Share Amount Share
Total 188,353 100 173,495 100 179,378 100
Central Orgs 41,705 22.1 41,413 23.7 42,264 23.6
Local Gov 116,285 61.7 99,498 57.3 95,711 53.4
Public Orgs 17,753 9.4 21,785 12.6 31,892 17.7
Others 12,610 6.7 11,069 6.4 9,511 5.3

e-Procurement
Purchasing amount of products by SMEs recorded
13.9 trillion won with its share representing 77.6% of
domestic procurement thanks to policies supporting
SMEs. The share of purchased products by regionally-
based businesses has been maintaining 65% since
2009, and the share of purchased products by
women-owned businesses has increased constantly

Globalization of
to 6.8% in 2011. Their increased shares resulted
from implementing various policies including purchasing policies favorable to SMEs, regionally-
based businesses, and women-owned businesses, promoting group purchasing of products by
those businesses, and reducing barriers for small sized businesses to enter public procurement
market.

Domestic procurement performance of SMEs Green Procurement
Categories 2009 2010 2011
Domestic procurement 188,353 173,495 179,378
133,512 130,479 139,205
Purchasing amount of products by SMES (Share)
(70.9) (75.2) (77.6)
125,169 112,697 117,747
Purchasing amount of products by regionally-based businesses (Share)
(66.5) (65.0) (65.6)
10,895 10,495 12,181
Purchasing amount of products by women-owned businesses (Share)

(5.8) (6.0) (6.8)

2011 Annual Report


Securing fairness in public purchasing scheme
Support SMEs with more opportunities to supply goods
PPS came up with measures to give preferential treatment to SMEs by granting them additional
points during the evaluation process so they can have increased chances to supply goods to
public organizations. Also, In order for SMEs to participate more in MRO market, PPS reformed
its purchasing system to provide more options for end-users and encourage SMEs to improve
quality and service through price competition.

Strict regulatory restrictions on unqualified suppliers to enter the procurement market
Pre-qualification review system was introduced to evaluate suppliers’ 5 categories: past
performance, management, technology capability, reliability, and satisfaction level. Also, 16
additional indexes were checked whether suppliers are qualified. As a result, only suppliers
which passed the review system with high scores could make contracts with public organizations.

Contribution to the development of technology and industry
Introduction of pre-notification for minimum purchasing standard
PPS enabled only suppliers, who meet the requirement of pre-notification for minimum
purchasing standard to register in MAS. This standard was applied to green, IT and new growth
engine products and products closely related to safety and hygiene. By doing so, the overall
quality of industry was able to develop fully.

Hosting of 2011 Korea Public Procurement EXPO(KOPPEX)
The 2011 KOPPEX was held in COEX Hall,
Seoul from April 13 to 15, 2011 with total 6
halls operated including Excellent Products
Hall, Green Products Hall, and Overseas
Expansion Hall. In particular, PPS invited
foreign buyers as well as domestic buyers
to give opportunities to outstanding SMEs
and for venture companies to have business
talks with foreign buyers, which was for
direct/indirect promotion of products by ▲ Korea Public Procurement Expo (KOPPEX) 2011

domestic companies supporting their
overseas market entrance.


About PPS
Future Plan
Continuous improvement of MAS

PPS is planning to expand the use of pre-qualification review system and improve the 2nd stage
competition in 2012. As a result, unqualified suppliers will be weeded out while transparency
and fairness in MAS market are enhancing. Moreover, by strengthening its monitoring system
on market price, it is expected that the soundness of MAS market will improve further.

Operation of program management office (PMO)

e-Procurement
In order to enhance specialty in informatization projects, PMO will be test running from 2012.
After operating on small-scale project with less than 500 million won and analyzing it carefully,
long-term development strategy of PMO will be established.

Globalization of
Green Procurement

2011 Annual Report


Foreign Procurement

Overview
Foreign procurement refers to procuring goods and services that are not domestically
produced or supplied, and therefore procured through international tendering in accordance
with international commercial practice. Central government organizations are required to use
PPS for foreign procurement if the estimated price of such procurement exceeds USD 200,000.
Local autonomies, on the other hand, are fully authorized to conduct foreign procurement
independently starting in 2008, in accordance with the government’s policy to expand autonomy
of government procurement. Foreign procurement encompasses a variety of commodities
ranging from books to sophisticated system equipment including science and research
equipment, state-of-the-art medical equipment, meteorological and environmental equipment,
vehicle and railway equipment, and helicopters.

Foreign procurement began as a core function of PPS under the formal names of the Provisional
Office of Foreign Supply (1949) and the Office of Foreign Procurement (1955). During the years
between Korea’s liberation from Japanese colonialism and recuperation from the Korean War,
the management of foreign aid supplies and foreign procurements was the essential function
that largely contributed to the nation’s industrial development. Even after the three major areas
of centralized government procurement which were mostly consisted of foreign procurement,
domestic procurement and construction works, converged under the responsibility of PPS
in 1961, foreign procurement continued to play a major role in the development of Korea’s
procurement administration.

However, due to rapid economic growth and domestic industrial development, more foreign
products were replaced by domestic ones. After Korea ceased to be the beneficiary of public
loans from all international organizations in 1995, the scale of Korea’s foreign procurement has
decreased thus leading to the inevitable downsizing of the foreign procurement unit in PPS. In
addition, the effectuation of the WTO Government Procurement Agreement (GPA) in 1997 led
to the opening of the government procurement market to foreign suppliers. Korea has since
adopted the national treatment and non-discrimination principles for domestic and foreign
suppliers for goods and services covered under GPA regulations, and therefore purchases
goods and services regardless of domestic or foreign origin.


About PPS
In such changes related the procurement environment and circumstances, PPS is facing a
heightened requirement of timely and expert services for foreign procurement in response to
the diversifying needs of the customer organizations. Hence, PPS has streamlined the work

processes for foreign procurement, and adopted multimodal transport contracts whereby
goods are delivered to the designated place in a single process, as well as blanket import cargo
insurance contracts which enabled further budget savings for customer organizations.

Further, as an effort to expand competition and enhance transparency as well as to digitalize
foreign procurement procedures, PPS has implemented the policy of disclosing the purchase
request (PR) details via KONEPS in advance. KONEPS also enables ordering organizations to

e-Procurement
conduct this procedure independently.

In 2005, PPS successfully incorporated foreign procurement procedures into its e-Bidding
system, which was previously an issue due to the additional procedures associated with
foreign procurement. In 2006, PPS implemented a digitalized logistics management system for
foreign procurement. In addition, PPS reorganized its foreign procurement unit to consolidate
its professional expertise in preparation for launching the On-Demand Service. The foreign

Globalization of
procurement unit, formerly divided by the types of customer organizations, was subsequently
restructured into a unit divided by product categories.

PPS additionally improved the user convenience for the suppliers with the commencement of
the SMS information service, which provides contract awarding information on a real-time basis
through mobile messaging. Furthermore, PPS streamlined its policy bidders’ submission of
manufacturer’s certificate in order to reduce the bidders’ paperwork burden. The submission of Green Procurement
manufacturer’s certificate, which was formerly mandatory for participating in tenders of which
the estimated value exceeds 200,000 USD, is no longer required except for a limited range of
equipment for which the manufacturer’s certificate is needed due to their particular natures.

In 2007, PPS has established a product database of 200 products to be used as reference by
procuring entities when preparing specifications in English. As part of PPS’s On-Demand
Service, PPS established an expert pool to conduct proposal evaluations in 14 highly specialized

areas on behalf of public organizations without sufficient expert professionals. The 2007
performance of the On-Demand Service includes technical proposal evaluations for major
procurement projects including the lift installation work at the ski range in Seolak Leisure
Complex for Taebaek Tour Development Construction Co.

2011 Annual Report


In 2008, PPS’s foreign procurement operation concentrated on further complementing the
recent innovations. The application scope of small foreign procurement procedure was
expanded up to 40,000 USD, resulting in the reduction of the procurement lead time by 17 days.

Although foreign procurement represents a relatively low portion of 1.59% in PPS’s overall
procurement volume and reaches 3.5% of domestic procurement, it has been continuously
growing since 2000 despite the autonomy of local government’s procurement. This shows that
public organizations continue to use PPS’s services for foreign procurements regardless of
the size of requirement. Due to the specialized nature of foreign procurement and difficulties
for procuring entities involving international trade laws and practices, foreign procurement is
recognized as an important area for PPS‘s development.

As Korea advances in respect of technology, replacements of foreign equipment with domestic
ones are expected to accelerate. Foreign procurement is expected to face further challenges in
the environment and diversifying demands of customer organizations. PPS is facing the need
to enhance its consulting services based on its expertise, such as assisting procuring entities
with the preparation of specifications in English, and expanding its database of products and
specifications.

Performance
The foreign performance of 2011 recorded 687.5 billion won. This is 112.8% of 2010 and 96.8%
of the 2011 annual goal of 710 billion won. Even though the number of contracts decreased
by 10 % compared to last year, overall performance was up by 13% compared to the previous
year due to major foreign procurement projects such as purchasing construction materials for
building the subway line in the city of Daegu.

Performance Breakdown by Contracting Methods
(Unit : USD 1,000,%)
2008 2009 2010 2011
Categories
Amount Share Amount Share Amount Share Amount Share
Total 880,866 100 1,012,574 100 525,028 100 625,923 100
Competitive 852,860 96.8 972,497 96.0 473,033 90.1 585,124 93.5
tendering
single tendering 28,006 3.2 40,077 4 51,786 9.9 40,799 6.5


About PPS
Performance Breakdown by Customer Organization Type
(Unit : USD 1,000,%)
Central Gov. Local Gov. Public orgs Others Total

Categories

Amount Share Amount Share Amount Share Amount Share Amount Share
2008 203,983 23.2 458,440 52.0 60,868 6.9 157,575 17.9 880,866 100
2009 246,063 24.3 584,764 57.8 114,850 11.3 66,897 6.6 1,012,574 100
2010 229,423 43.7 111,254 21.2 47,261 9.0 137,090 26.1 525,028 100
2011 245,627 39.2 221,832 35.4 39,427 6.3 119,037 19.1 625,923 100
Average 231,274 32.6 344,073 41.6 65,601 8.4 120,150 17.4 761,098 100

e-Procurement
Improvement of business process
Since October 2011, all the supplementary documents have been submitted online. Also,
with the upgraded price-search system in place, contracting officials can easily access price

Globalization of
information by manufactures or by models, raising efficiency in contracting work.

Quality enhancement for foreign procurement
PPS revised the Regulation on Foreign Procurement in October 2011 to improve quality and
manage contracts effectively. It mainly consists of increasing amount of the performance bond
and the defect bond on suppliers with the past history of delay in delivery and use of defective
goods. Green Procurement

Future plan
Introduction of main standard evaluation process to promote
competitiveness

There are some cases where certain bids are determined to be unsuitable during the evaluation
process due to difference in the standard of unimportant parts. Therefore, PPS will strive to
evaluate the standard based on main functions and prevent bidders being turned down because
of insufficient standard on unnecessary parts.

2011 Annual Report


Simplified process of submitting supplementary documents
The documents related with contract execution are among supplementary documents
submitted at the initial stage of bidding. However, PPS is expected to request the contract
execution related documents to only contract awardees in the future.

Holding meetings with dissatisfied customers
Meetings will take place regularly to listen to what concerns or complains customers might
have. PPS will take this opportunity to resolve any complaints or misunderstanding of
discontented customers.

Enhancement of fairness and competitiveness by facilitating open
solicitation for foreign procurement specifications
PPS is operating the site for 「Open Solicitation for Foreign Procurement」 at KONEPS by
which it collects specifications and opinions from concerned companies before they draw
up specifications and provide standardized specification forms. In 2011, PPS plans to raise
competitiveness of purchasing specifications by further utilizing this site and help customers
have better understand of foreign products. It will also add functions of automatic comparison
among specifications from various foreign suppliers and submission of specifications as well as
function of opinion exchanges between demander organizations and suppliers to the site.

Introduction of identification numbers for providing information on
products for foreign procurement
PPS plans to assign products classification
codes to products for foreign procurement
which are similar to HSK to better identify
the foreign products and upgrade efficiency
of work process.


About PPS
Construction Works

Overview
In general, the process of construction work is comprised of five phases: planning, designing,
contracting, construction and post-construction management. Each phase requires a high level

e-Procurement
of expertise and effective connection to each other. When such phases are lacking functional
connectivity, a deadlock for large-scale construction works including budget waste and a
delayed construction period may result. It could also lead to serious side effects such as an
ineffective value for money and a reduction in public convenience.

The government adopts two roles in issuing orders for construction works, which include that
of a buyer of public facilities, and executor of construction-related policies. As an end-user of
the facilities, the government selects the contractor which is competitive in terms of price and

Globalization of
technology, thus successfully completing construction. The government’s role as the executor
of construction-related policies is to support a balanced development of the construction
industry, social minority companies, and distribute orders in a fair manner.

The yearly volume of construction orders is determined by various factors such as construction
market sentiment, economic conditions, and government policy directions. In 2011, the volume
of construction orders reached 110.7 trillion won. Public construction works account for approx.
Green Procurement
33% of the total construction market. The yearly volume of construction orders issued by PPS is
recorded at over 11 trillion won.

Construction Contract Performance
(Unit : trillion won, %)
Year 2008 2009 2010 2011
Domestic Total 120.085 118.714 103.230 110.701

Public Sector 41.839 (34.8%) 58.488 (49.3) 38.237 (37.0) 36.624 (33.1)
- PPS 13.6360 26.354 (22.2) 14.840 (14.4) 11.123 (10.1)
- Others 28.2128 34.588 (29.1) 23.397 (22.2) 25.501 (23.0)
Private Sector 78.2363 (65.2%) 60.227 (50.7) 64.993 (63.0) 74.076 (66.9)

2011 Annual Report


The headquarters for construction works in PPS engages in a range of diverse services
throughout the respective construction period. Primary concerns involve contracts and
management of major constructions, designing and supervision contracts, designing
management, and construction management as requested by government organizations, local
authorities, and government-invested organizations. As for construction contracts, the related
Korean law states that central government organizations are required to use PPS for ordering
any construction works that reach a value of over 3 billion won.

For design-supervision service contracts, designing management contracts and construction
management contracts, it is not mandatory for public institutions to contract through PPS. In
particular, the Enforcement Decree of the Procurement Business Act was revised at the end of
2004 to reduce the scope of mandatory use of PPS by local autonomies, with a view to expanding
the financial independence of local autonomies and allowing them autonomy in procurement.

As a result, local autonomies have started to issue self-orders for all construction works
since 2010. However, in order to prevent possible budget waste resulting from self-orders of
local autonomies, PPS reviews in advance the cost price for construction works of which the
estimated value is in excess of 10 billion won.

In addition to the above-mentioned executive functions, PPS also takes initiative in implementing
appropriate tendering criteria by the types of ordering organizations in compliance with
their respective laws that are in turn adopted by other government organizations. Thus, PPS
contributes to the dissemination of best practices in public construction works.

Performance
The volume of new construction contracts remained stationary at 11.18 trillion won on average
from 2005 to 2008 after it had reached its peak at 14.6 trillion won in 2004. In 2009, the volume
sharply increased to 26.35 trillion won thanks to 4 Major River Restoration Project and large
scale government-led construction works. In 2011, the volume was down by 25 % from the
previous year due to decreased share of new construction projects among SOC budgets of the
government, local autonomies, and government-invested organizations.

PPS is implementing policies in support of small and medium sized construction companies
and regionally-based construction companies. PPS’s construction contract volume with SMEs
totaled 7.948 trillion won decreased from 9.533 trillion won of last year. But its share of the
PPS’s total construction contract volume increased sharply to 51.8% from 46.7% year-on-year
thanks to the policies in support of SMEs.


About PPS
PPS’s construction contract volume with regionally-based construction companies totaled
10.49 trillion won. The figure is less than 12.38 trillion won of 2010, but its share of PPS’s total
construction contract volume increased greatly to reach at 68.3%, up by 7.6% from 60.7%

year-on-year. It means that PPS policy to encourage large-scale construction projects to be
contracted jointly with regionally-based construction companies were effective.

PPS’s volume of the On-Demand Service recorded 2.40 trillion won decreased from 3.33 trillion
won of 2010. Although there was decrease in the service, the volume of the On-Demand Service
has been on track of growing till 2010 by over 50% annually. It is attributable to the fact that PPS
has successfully conducted many complex construction projects requested by various end-

e-Procurement
users based on its expertise and technology it has accumulated as the professional agency of
construction management.

Performance of construction works
2011 plan Performance Achievement rate (%)
Categories
(A) 2010(B) 2011(C) C/A C/B

Globalization of
Construction contracts 200,000 204,113 153,559 76.8 75.2
On-demand service 37,000 33,281 24,003 64.9 72.1
Construction cost review 15,000 14,918 8,449 56.3 56.7
Total project cost review 100,000 90,657 101,735 101.7 112.2
Contracts with SMEs 138,320 95,327 79,479 57.5 83.3
Contracts with regionally-
121,940 123,803 104,852 86.0 84.7
based business

Green Procurement

Budget reduction in public construction works through design review
PPS upgraded its status by shifting focus of construction cost management from the past’s
cost reduction through project cost review to more reaso nable construction cost management

which pursues Best Value such as correction of design errors and excess design. It also applied
Value Engineering (VE) which enhances designing functions and reduces construction cost at
the same time, resulted in decrease in the total construction cost of 2011 by 2.81%, up by 93.8%
from last year.

2011 Annual Report


Provision of On-Demand Service each public organization wants
For those end-users who are experiencing difficulties in implementing construction project
due to shortage of expertise and technology, PPS conducted the entire construction works
from planning through to post-management or part of it on behalf of those organizations upon
their voluntary request. The On-Demand Service, which has been provided since 2004, has
continuously increased in volume with 2.89 trillion won in 2009, 3.33 trillion won in 2010. Even
though the volume somewhat decreased to 2.40 trillion won in 2011, it can be considered that
the service is becoming a essential system to support end-users with specialized labors.

Expansion of scope of total project cost review for large-scale
government-led construction works
PPS reviews appropriateness of detail designs for public works valued at over 50 billion won
and construction works worth over 20 billion won to prevent waste of expenditure in advance. In
2011, PPS reviewed appropriateness of detail designs of total project cost for 216 construction
projects, 2,325 cases of prices adjustments, and appropriateness of detail designs for 18 private
construction projects. It has contributed to reducing the national budget by 886 billion won
which accounts for 7.1% of the total amount requested by demander organizations.

Publication of source book of “Analysis on Construction cost based on
Construction Types” to estimate appropriate construction cost
PPS has published and distributed source books covering analysis on construction cost
per each unit based on types of public works and public buildings since 2004 annually to
government organizations and local autonomies to utilize them as basis of budgeting. In 2012,
PPS designated 36 construction projects with 14 types which represent the entire construction
works contracted in 2011, and analyzed their construction cost per unit area or length.

Establishment of standard to request the investigation of bid rigging in
major construction projects
After analyzing past practices of bid riggings, PPS set 12 standards to find out in advance if
there is any sign of bid rigging. After the conducting the test in accordance with the standards,
PPS may or may not choose to request the investigation to the Fair Trade Commission. By
regulating such procedures, it is expected that fair competition will take a firm root in the public
construction market while improving overall quality of construction and reducing budget.


About PPS
Future plan
Enhancing competitiveness in the construction industry by improving

construction contracts
PPS will differentiate the evaluation criteria for a bidding of technology proposal by reflecting
other criteria such as improvement made by new technology, symbolism and creativity. Also,
PPS is planning to improve the pre-qualification standard so that constructors with no past
performance of specific field can be restricted in participation of bidding.

e-Procurement
Support of green construction
In order to increase the demand for green construction, PPS will seek to set the guideline of
standard on green remodeling technology and orders and push ahead with pilot projects for
green remodeling. In addition, PPS will expand the use of green construction materials and
vigorously demand the strict energy efficiency in the new public buildings being built.

Enhancement of Construction Total Service

Globalization of
Through the assessment of performance on Construction Total Service, PPS will set up the
quality control system appropriately and develop best practices. Also, vitalizing the evaluation of
performance on each stage of construction, PPS will be able to clarify where the responsibility
lies and strengthen the quality control through using the result of evaluation and feed-back.

※BIM(Building Information Modeling) Green Procurement

It provides integrated information on entire construction process from planning, designing,
construction, and post-management upgrading the past’s 2D design to 3D design. It serves
to maximize construction quality and energy efficiency of buildings contributing to the
government’s budget saving.

2011 Annual Report


Stockpiling

Overview
PPS has carried out the government stockpiling
operation to respond to emergencies such as
raw materials price hikes and maintain balanced
supply and demand of commodities since 1967.

Materials for stockpiling are mainly those highly
demanded by industries and those which have a
high level of foreign dependency. The selected
materials and policies for stockpiling operation have been changed according to the national
economic conditions of a certain period.

In the early stages, PPS’s stockpiling was mainly for stabilizing prices with short-term
perspective concentrated on rebar and cotton yarn, but recently it has been focused on base
metals and rare metals for long-term prices stabilization and support to SMEs.

As of the end of 2011, PPS designated 6 base metals including aluminum, copper, and nickel,
and 11 rare metals including silicon, cobalt, indium, and lithium as its stocks.

PPS has made efforts to maintain balanced domestic supply and demand of raw materials
and helps SMEs stabilize their operations by expanding release volume of stockpile materials
responding to the continuous rise of international commodity prices since 2003.

In particular, it introduced Commodity Group Purchasing Service which contributed to reducing
risk from high cost of government stockpiling and securing necessary materials for SMEs.
Commodity Group Purchasing Service is to help stable supply of the materials regardless
of price fluctuations by forecasting SMEs’ commodity consumption for a certain period and
concluding premium contracts based on futures trading.


About PPS
Performance
Despite limited resources, PPS has steadily expanded its stocks through effective stockpiling

operation. At the end of 2010, PPS started stockpiling non-ferrous metals for 33 days of import

demand, and rare metals for 68.8 days of import demand.

Stockpiling volume of each year against domestic import demand (As of the end of 2011)
(Unit : days)
Categories 2007 2008 2009 2010 2011
Non-ferrous 22.4 30.7 39.0 39.5 33.0

e-Procurement
metal
rare metal 14.9 22.7 56.7 63.6 68.8

Performance of stockpiling fell a little bit short of the initial plan in 2011. It is attributable to
unfavorable conditions for purchasing due to commodity price hikes. Meanwhile, releasing
commodities from stockpiles at a discounted price to SMEs helped prevent shortages.

Globalization of
Stockpiling performance
2010 2011 Share (%)
Categories performance Performance Against 2010 Against the plan
(A) Plan (B)
(C) (C/A) (C/B)
Purchasing 3.236 4,900 3,628 112.1 74.0
Stockpiling
Stock release 3,722 4,300 6,592 177.1 153.3

Green Procurement

Establishment of infrastructure to enhance national stockpiling system
PPS came up with a measure to differentiate target volume of stockpile materials considering
their demand structure, especially for SMEs, barriers in supply and economic feasibility. For

example, it increased the target stockpiling volume of copper to 80 days of import demand,
and decreased that of aluminum to 40 days of import demand whose supply is expected to be
stabilized due to relatively large number of suppliers. Also, the target volume of stockpiling rare
metals including cobalt, indium, silicon, and others were adjusted to meet the current demand
or to be free from possible shortage of supply.

2011 Annual Report


In addition, a purchasing guideline for
capturing exact times of purchasing and
releasing through forecasting a reasonable
price and close monitoring of commodity
prices was completed and applied in the
purchasing from April 2011.

In July 2011, considering change in
stockpiling environment and to vitalize
joint public-private stockpiling business,
PPS restructured the role of each stockpiling warehouse located throughout the nation. For
example, it designated Pusan warehouse as a joint public-private stockpiling warehouse and
Incheon as an exclusive warehouse for metropolitan area.

In order to release stockpiled materials effectively, releasing conditions were categorized into 3
situations: Emergency, Possible Shortage of Supply, and Normal circumstances. The releasing
volume was set at percentage depending on each situation. In case of an Emergency, the full
volume is possible to be released to meet the demand while up to 30% of target operational
stock could be released at market price in Normal circumstances. Also, when there is concern
over possible shortage of supply, the releasing volume is differentiated respectively as 100%,
80% and 50% of target operational stock depending on how severe the situation is.

Strengthening of crisis preparedness through continuous expansion of
stockpile materials
PPS increased the stockpiling volume of raw materials from 51.5 days of import demand in 2010
to 52.3 days of import demand at the end of 2011. It also secured reasonable amount of rare
metals for stockpiling based on items by the end of 2011 (increased from 63.6 days of import
demand in 2010 to 68.8 days at the end of 2011), which are currently the subjects of tough
competition among countries.

Increasing volume of stockpiled materials to be supplied to SMEs
PPS introduced ‘Emergency Allocation‘ and ‘Additional allocation for Small-sized Companies‘
in standard for stockpile materials to better support SMEs in providing raw materials in case of
commodity price hikes. ‘Emergency Allocation’ is for allocating necessary amount of materials


About PPS
to SMEs in urgent need after evaluating requirements, and ‘Additional allocation for Small sized
Companies’ is for allocating certain amount of materials additionally for small-sized firms even
when the limit of additional release for each item is exceeded. Also, from March 2011 to the

end of June 2011, the stockpiled materials were released at the discounted price given that it
was the peak period for demand of raw materials, thus contributing to businesses of SMEs who
were struggling with maintaining stable volume of raw materials.

Laying foundation for public-private joint stockpiling and pilot project
To secure appropriate amount of commodities is not easy given that government budget for

e-Procurement
stockpiling is limited. To solve this problem, PPS promoted public-private joint stockpiling
project to supplement government stockpiling operations. Under this project, PPS stores and
manages rare metals purchased by private companies in its idle facilities and utilize those
materials exempted from facility use fee for public interest in case of commodity price hikes.
Through this project, PPS can expand the scope of stockpiling of domestic materials without
budget injection while the companies are able to reduce financial burden of securing their own
storage facilities and save storage/ management costs compared to the lease of private storage

Globalization of
facility.

Future plan
Foundation for balanced supply and demand of commodities
Green Procurement
PPS plans to expand its volume of stockpiling based on mid and long-term plan for target
volume which will be differentiated by each item. In particular, it will expand the stockpiling
volumes of rare metals which are in a great risk of supply shortage. It also plans to gradually
replace current specifications of stockpiled materials to specifications that are needed and
expected to increase in demand in the future.

Vitalizing joint public-private stockpiling to secure commodities at

sufficient level
In order to respond to possible supply disruption, it is essential to secure commodities as much
as possible. However, it is also true that it is difficult to maintain the enough volume due to
a limited budget. For this reason, PPS has been enhancing its effort to promote joint public-

2011 annual report

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