The Malaysian Insider
Sep 20, 2011

KUALA LUMPUR, Sept 20 — An unpublished Works Ministry study found that Bumiputera contractors as a rule sold their government contracts to buy luxury cars and houses apart from misusing payments received from the Treasury, according to a leaked US diplomatic cable.

The cable, revealed by whistleblower website WikiLeaks, comes just after Putrajaya agreed to allocate RM8 billion worth of contracts in the country’s most expensive infrastructure project, the Klang Valley Mass Rapid Transit (MRT), which initially set strict rules for its contractors.

The US diplomatic cable quoted a Works Ministry source as saying the “Study on Bumiputera Contractor Leakage” was the result of feedback from various industry sources on failed and successful projects. The report was used by then-Prime Minister Tun Abdullah Ahmad Badawi (picture) to castigate failing Bumiputera businessmen in February 2007.

“The current system of awarding lucrative government contracts to Bumis provides them with a strong economic incentive to simply act as agents, turning over as many projects as possible and taking a cut before handing each one off to a competent non-Bumi implementer.

“This ‘Bumi agent’ system is firmly entrenched in Malaysia. Any effort to make reforms is likely to be resisted not only by well-established Bumis, but also by the non-Bumi implementers who have built up a network of well-oiled agent partnership,” the US Embassy concluded in the report published by the Malaysia-Today news portal.

The US and European Union have called for more transparency and equality in government procurement by Malaysia as part of the free trade agreement talks which have yet to be concluded.

In the leaked cable, the US embassy reported: “The source said the study, which has not been released to the public, revealed that many Bumi contractors typically sold off their tenders for quick money, often to finance expensive cars and houses. The report also found Bumiputera contractors had misused payments received from the government to pay off creditors and that they often sought additional government tenders prior to completing the ones already awarded to them.”

“The official said contractors were irresponsible and had abused the trust given to them by the government which was meant to help Bumiputeras progress,” it added.

The US cable noted that then-Finance Ministry secretary-general Tan Sri Izzudin Dali had disclosed new regulations that Bumiputera contractors seeking government tenders will soon be required to sign an official declaration promising not to sell or subcontract their tender to other races.

“Violators will have their contracts and registrations terminated. Izzudin added that under the new rules contractors undertaking public infrastructure contracts will now be awarded only one project at a time and that projects will be distributed evenly among contractors in the same area or district,” the cable said, quoting Izzudin’s speech on February 16, 2007.

Incidentally, Izzudin recently completed one term as chairman of Syarikat Prasarana Negara Bhd (Prasarana), the original project owners of the MRT which is now owned by a new Finance Ministry unit called MRT Co. Sources said his strictness in selecting successful contractors had delayed the massive infrastructure project.

The cable also quoted then-executive chairman Datuk Moehamad Izat Emir of the Malay Entrepreneurs and Merchants Association as saying payment was the main issue facing the contractors.

“He said that while Abdullah had directed the disbursing agency to pay the contractors within two weeks after completing the work, this often does not happen,” the cable reported, saying Moehamad suggested Bumiputera contractors be trained to upgrade their skills and suggested government-linked companies (GLCs) be required to support these contractors.

It noted that Roslan Awang Chik, of the Malay Contractors Association, shared Moehamad’s view that “competency comes from exposure”.

“He is puzzled why many well-known and qualified Bumiputera contractors were not being awarded government contracts while several unknown ones were. He suggested the government blacklist any contractors found to be selling their tenders,” the cable said, quoting Roslan as saying “they can be considered traitors.”

The US cable was sent to Washington after Abdullah had publicly expressed frustration and disappointment over findings from a recently released Works Ministry report showing 85 per cent of government contracts awarded to Bumiputera contractors.

“They (Bumiputera) do not want to work, do not want to learn, and give little importance to the opportunities provided by the government…

“This approach will only make us hope and wait for aid and subsidies. Such a mentality thrives among the people, including Bumiputera petty traders and contractors,” the report quoted Abdullah as making the comments at a dinner speech on February 13, 2007.