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02 November 2006
On September 27 2006 the Business Competition Supervisory Commission issued its decision on the direct appointment of PT Netway Utama by PT PLN Distribusi Jakarta Raya and Tangerang, known as Disjaya, for the outsourcing of an IT project. Disjaya is the distribution unit of the state electricity company, PLN, in the Jakarta and Tangerang area. The project involved the implementation of an information system, including designs and software, to be used in conjunction with Disjaya's customer billing system.
The commission found that Disjaya had unlawfully appointed Netway to undertake the project without conducting a tender process. Disjaya argued that it was entitled to award the project by direct appointment and was exempt from conducting a tender process pursuant to PLN's Decision Letter 038(K)/920/DIR/1998 on the procurement of goods and services for the company. The letter states that PLN may appoint directly:
The commission found that no urgent situation had existed in relation to the project. The letter defines an 'urgent situation' as a natural disaster or other situation which threatens human life, or a situation with the potential to cause greater damage to PLN. Neither criterion was a factor in the project. The commission identified no fewer than 10 other contractors with similar qualifications and capabilities. It further concluded that the project was not a continuation of a previous project - Netway was found to have been directly appointed for a new project.
Therefore, the commission found that Disjaya had violated Article 19(d) of the Anti-monopoly and Unfair Business Competition Law, which states that "a business actor is prohibited from conducting activities that discriminate against other business actors". Disjaya's direct appointment of Netway for the project was held to be discriminatory, unfair and anti-competitive.
The commission also found that Netway had prevented other business actors from entering the market and conducting the same business. It considered that Netway's application to register its customer care billing system - essentially the objective and expected outcome of the project - with the Directorate General of Intellectual Property had been a deceitful attempt to compel Disjaya to appoint it directly. As copyright holder of the system, Netway had placed Disjaya in a position of indirect dependence. Furthermore, Netway had not informed Disjaya of changes in its shareholding status. Netway had foreign shareholders at the material time, which changed its status and made it a foreign investment company. State procurement rules require foreign investment companies to partner a local company when carrying out work or performing contracts for PLN or Disjaya.
The commission found that Netway had violated Article 19(a) of the law, which states that:
The commission fined Netway Rp1 billion (approximately $110,000) and ordered Disjaya and PLN to exclude Netway from all tender processes for goods or services for either company for one year.
One of the three commissioners on the panel dissented, arguing that Netway was not at fault. He reasoned that:
Both majority and dissenting views have strong and weak points. The majority of the commissioners may have gone too far in concluding that, as the copyright holder of the billing system, Netway was certain to win the tender automatically. Assuming that Disjaya's system was compatible with other systems, a fair tender process including the 10 bidders identified as capable of meeting the conditions of tender might still have resulted in Netway's system being chosen as the best option, in which case the fault lay solely with Disjaya for choosing to appoint Netway directly, rather than opting for an open tender process.
The dissenting commissioner seems to have been equally unrealistic in his readiness to shift the burden of responsibility onto Disjaya, despite the fact that Netway failed to disclose its new status. It could be argued that Netway was obliged to inform Disjaya of the change; only if it had done so could Disjaya reasonably have been expected to take appropriate action by disqualifying Netway from the tender process.
For further information on this topic please contact Theodoor Bakker or Zacky Husein at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125) or by fax (+62 21 250 5122) or by email (email@example.com or firstname.lastname@example.org).
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Zacky Z Husein