Introduction to the Public Purchasing System

What is the Public Purchasing System for Goods of SMBs

The Joint Purchasing Program of the SMB goods is based on Article 2 of the ACT ON FACILITATION OF PURCHASE OF SMALL AND MEDIUM ENTERPRISE-MANUFACTURED PRODUCTS AND SUPPORT FOR DEVELOPMENT OF THEIR MARKETS (hereinafter referred to as the Facilitation Act),which generally refers to the systems that are intended to facilitate purchasing of the goods of SMBs by public agencies (national government agencies, local governments, public agencies in accordance with the ACT ON THE MANAGEMENT OF PUBLIC INSTITUTIONS, local corporations, industrial complexes, or other special corporations).

Key Contents

Characteristics of the Facilitation Act

The Facilitation Act is a special law to be applied in preference to the national (or local) public contracting laws.

The Facilitation Act is to be applied in preference to the National Contracting Act for the products designated by the head of the SMBA in Competitive Tenders (Designation Tenders) for SMBs, direct purchasing of the materials used for public purposes, or preferential purchase of R&D products.

Related Laws

Designation of the competing products between SMBs

Overview

A system that requires the products which are manufactured by SMBs and need marketing facilitation (207 Competition-between-SMBs items as of 2014) should be procured and contracted through competition only between SMBs

Designation requirements

A. There should be at least 10 SMBs that directly manufacture and deliver such products (5 if the manufacturers of such products
need protection and facilitation).

B. The purchase amount by public agencies per year should be at least one billion won.

C. While the products meet the requirements in A and B above, it is recognized that the business opportunities for the SMBs which
manufacture such products are threatened due the entry of large corporate manufactures or importer-distributers into the
Korean market based on actual cases, statistical reviews, or otherwise believed to be in need of such facilitation for the sake
of industrial policies.

Designation process

Direct purchasing program for the construction materials

Overview

The direct purchasing program for the construction materials is a system which requires that, if the materials used in a construction project owned by a public agency require the use of a material that is designated as a "Construction Material Subject to Direct Purchasing", such a material is to be purchased directly from the manufacturer in order to prevent the manufacturers of such products being limited to the role of a sub-contractor of a large corporation and to facilitate stabilization of the operation of the SMBs by increasing the purchase of products by SMBs.

- The products among the Competition-between-SMBs products that are to be used as construction materials are selected and designated as the "Direct Purchase Items" (122 construction materials in 2014).

Key Contents

Size-based competition program for SMBs

Background for Introduction

If the competition for a certain material is too intense, and the opportunity to be awarded with the supply contract for the item is likely diminished for the small-sized companies and therefore it is feared that a handful of companies may monopolize the market in a competitive tender limited to SMBs, the manufacturers are classified into Medium-sized Enterprises, Small-sized Enterprises, and Small Businesses to expand the opportunity to participate in the tenders depending on their classes, in order to increase the business opportunities for the small-sized businesses.

Key Contents

The limitation in bidding by the sizes of the companies for the products which are subject to competition in the same classes of SMBs

The limitation in bidding by the sizes of the companies for the products which are subject to competition in the same classes of SMBs

Name of the Cooperative	Business Area	Participation Limitation (Unit: 100 million won)
		Small business	Small-sized Enterprises	Medium-sized Enterprises
Korea Federation of Advertising Material Manufacturing Industry Cooperatives	Signboards, exhibition stands, signage (outdoor)	No limitation	Less than 0.5	Less than 0.7
Korea Federation of Metallic Furniture Industry Cooperatives	Office Furniture	No limitation	Less than 0.3	Less than 0.6
Korea Surveillance Equipment Industry Cooperative	CCTV systems	No limitation	Less than 0.5	Less than 1.9
Korea Electrical Manufacturer's Cooperative	Distribution panels	No limitation	Less than 0.6	Less than 1.9
Korea Automatic Control Industry Cooperative	Automatic Control Panel, Field Control Panel	No limitation	Less than 0.7	Less than 1.9
Korea Exhibition and Cultural Industry Cooperative	Life-size structures, models	No limitation	Less than 0.3	Less than 0.8
Korea Federation of Furniture Industry Cooperatives Korea Federation of Metallic Furniture Industry Cooperatives	Furniture, interior ornament furniture	No limitation	Less than 0.3	Less than 0.6

SMB products purchasing quota program

SMB products purchasing quota program

A system that requires the public agencies specified in Article 5 of the Facilitation Act and Article 3 in the Execution Decree of
the said law to purchase a certain ratio of SMB products and R&D products in order to significantly enhance the material
purchasing effect for the SMB products

Key Contents

Direct manufacturing confirmation program

Purpose

The Direct Manufacturing Certification Program seeks to prevent certain malpractices, in which an SMB is awarded with a contract through a Competition-between-SMBs Tender and supplies products manufactured by a large corporation or imported goods, or has the products manufactured by a subcontractor supplied through them. It also seeks to prevent the borrowing of the names of the incorporations, or tenants of agricultural industrial complexes which are qualified for a non-tender based contract and supply products which are manufactured by other sub-contractors.

Designation process

Contract Performance capacity evaluation system

Overview of the Program

The program was introduced in order to be applied to the Competition-between-SMBs tenders starting from January 2006.

- The system was introduced in order to exclude the lowest bid price and preserve a certain pricing level (the lowest rate of permitted bid price is 88% of the target price), in the fear of overly-intensified competition between SMBs and excessive lowering of the prices.

- The program is intended to select SMBs with proper performance capability for the contract and promote greater compliance with the government's policy.

SMB Technical R&D Product Preferential Purchasing Program

Overview of the Program

A preferential purchasing program for the technical R&D products by SMBs in order to facilitate marketing of the technical R&D products of an SMB.

- SMB's technical R&D products :
New products (NEP), new technology products (NET), SW quality-certified products (GS), Excellent Public Procurement Products, Performance-certified products (EPC), and products originating from a successful purchase-guaranteed project, Products from a successful joint public-private technical development project, certified Green products, Excellent Public Procurement Joint Trademark Products, products from a successful SMB convergence technical R&D program, products designated as an industrial convergence product, products from a successful shared-achievements technical development project, and 13 designated items for joint technical development programs between SMBs and public agencies.

Performance Certification, Performance Insurance Program

Overview of the Program

A program in which the government conducts a performance test on the technical R&D product of an SMB of which the reliability of the performance is yet to be certified. The certified products are subject to a preferential purchase program by public agencies in order to facilitate technical development of SMBs and increase the purchase volume of such products by the public sector. Also, the products which are covered by the performance insurance after certification are not subject to any liabilities for damages caused by the purchase of such a product.

Performance Certification Process

Performance Insurers

Seoul Guarantee Insurance, Machinery Financial Cooperative, Software Financial Cooperative, Samsung Fire and Marine Insurance, LG Fire and Marine Insurance

MAS

Background

1. The result of the analysis on the needs of the customers showed that the needs and preferences of the customers further diversified as they demand supply of more diverse items of higher quality and appropriate customer services.

2. To meet the needs of the customers and ensure transparency in public purchasing, as well as to encourage high-quality, high-class products, it is now required to introduce an advanced form of procurement service.

MAS flow

Recommendation Program for companies subject to non-tender procurement for small value items

Overview

In the case where a public agency is to purchase a Competition-between-SMBs product (as designated by the President of SMBA in accordance with Article 6 of the Facilitation Act), this program allows for the receipt of recommendations of the possible suppliers from the relevant association (Small-sized enterprises or small businesses) after comparing the prices between them and entering into a non-tender contract, in order to promote procurement of products manufactured by SMBs.

Small amount non-tender contract program recommended process

• Preferential Purchasing Programs for SMBs

Overview

 When a public agency purchases items in a volume less than a certain amount (The announced amount by the MOST) (except for the products from Competition-between-SMBs category)

competition limited between medium-sized or small-sized enterprises.

- Less than 100 million won: competition limited to small enterprises

- 100 million ~ less than 210 million won: competition limited to medium sized enterprises

Or limited competition between at least three small manufacturers which commercialized the products through a joint program with the cooperative in accordance with the decree by the Ministry of Industry and Resources

- May request the relevant cooperative to issue a recommendation → Designation competition with the relevant company

Basis

Article 2-3 and 2-3 of the Facilitation Act

Preferential Purchasing Program for small companies (competing items)

Overview

When a public agency purchases goods or services designated by the President of SMBA among the Competition-between-SMBs products,

it is possible to declare limited competition between small enterprises or small businesses.Or limited competition between at least three small manufacturers which commercialized the products through a joint program with the cooperative in accordance with the decree by the Ministry of Industry and Resources

- May request the relevant cooperative to issue a recommendation → Designation competition with the relevant company

Selection of the target products

In accordance with the designation process for the Competition-between-SMBs products

- The selection shall be made by the SMBA after a review on whether the product meets the requirements to be selected as such a product in accordance with the requirements outlined by the Federation and a public hearing.

- The selection is to be made after a meeting between the related departments regarding the products recommended by the SMBA and the Federation.

- Validity: 3 years (same as the validity for the Competition-between-SMBs products)

Basis

Article 8-4, ACT ON SPECIAL MEASURES FOR DEVELOPMENT OF SMALL AND MICRO ENTERPRISES