SMEs hit by public corporations` spec bidding

Grand Korea Leisure, a state-owned company that operates casino Seven Luck, made a bid on public procurement electronics commerce website "Nara Marketplace" in June to purchase outdoor 1,663 sets of jumpers worth 738 million won (663,370 U.S. dollars) but was foundered. Joining bid for jumpers are allowed to only small and mid-sized companies, but it was limited to brands supplying to more than 10 department stores. Only one company submitted the bid, while two companies joined the rebidding, failing to pass the fair.

Consequently in August last year, Grand Korea Leisure cancelled the condition, which allowed for companies supplying to more than 10 department stores, and opened the bid to large companies. Large companies can join the bid for products originally allowed to only smaller companies if the bidding fails. However, companies this time were also limited to those who had supplied more than 1,600 sets of jackets at one-time supply. After a competition of several companies including three small and mid companies, Hyundai H&S, a maintenance, repair and operation affiliate of Hyundai Department Store, was selected.

In the public procurement market, public institutions are demanding specs profitable to large companies, barring the entry of small companies. According to a Public Procurement Service notification, government agencies and affiliated organizations, public schools and education offices must make contracts via Public Procurement Service for more than certain amount. However, state-owned companies, quasi government institutions, public institutions and government municipals can freely make contracts. Last year, direct contracts accounted for 67.8 percent of the total public procurement market of 106.4 trillion won (95.6 billion dollars).

In most cases, high score is allocated on past performance, credit rating and sales of suppliers, thus excluding small and mid-sized companies. One research firm was interested in a bidding of 2013 integrated service quality evaluation worth 119 million won (107,505 dollars) that the Korea Racing Authority posted on Nara Marketplace. But it gave up even before submitting the bid proposal. The first obstacle was that the company had a similar service performance. Up to score 20 was allocated for the number of service satisfaction survey of more than 50 million won (44,944 dollars) in contract. The firm was in a disadvantageous position. Sales score of the previous year took 25.

The Korea Racing Authority also classified scores according to credit rating of research firm. Top rating AAA was given score 25 while BBB- rating was given just score 11. By contrast, the Public Procurement Service gives perfect score for A- or over, while cutting 0.2 each for each notch until BBB-, in order to minimize the side effects of smaller companies failing the bid due to credit rating. The CEO of the firm complained, saying, "It is unfair that we can`t even participate the bid because we are a small company. Large and foreign companies are the only beneficiaries."