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Fourth Meeting of the Digital Agency Information Systems Acquisition Reform Study Panel

Last Updated:

Outline

  • Date and time: Monday, October 3, 2022 from 13:00 to 15:00
  • Location: online
  • Agenda:
    • 1. Opening
    • 2. Proceedings
      • 1. Procedures of the 4th Investigative Commission
      • 2. Overview of Each Topic
      • 3. Examples of initiatives by local governments
      • 4. Free Discussion
    • 3) Closing

Data

Relevant policy

Summary of the proceedings

Date and time

  • Monday, October 3, 2022 from 13:00 to 15:00

Place

  • Online (Teams)

Attending committee member

Member Kajikawa, Member Arikawa, Member Kawasawa, Member Kimura, Member Sakashita, Member Sumiya

Summary of the proceedings

The Secretariat explained "B-1: Expanding Business Opportunities for SMEs and Startup Companies," and after explaining the points at issue, free discussion ensued. Subsequently, as representatives of local governments, persons in charge from the Tokyo Metropolitan Government and the Kobe City Government made presentations, followed by an exchange of questions and answers. Finally, the Secretariat again explained "A-1: Introduction of Flexible Budgetary Systems," and "C-2: Development of a function for Verification of Transparent System Procurements." After explaining the points at issue, free discussion ensued. In all discussions, lively opinions were expressed. The main opinions expressed by each member are as follows.

B-1 Expanding Entry Opportunities for SMEs and Startup Companies

  • Although re-outsourcing is an effective measure, we believe that it should be considered only in the context of system procurement. In implementing the re-outsourcing, the criteria for the percentage of re-outsourcing should be determined after careful discussions on points such as increasing security requirements and being careful not to increase the number of middlemen.
  • If the government adopts a ceiling on the amount of damages, there must be a certain rationality. For example, the point is how many past cases, for example, in the last five to ten years, have resulted in the payment of damages exceeding the contract amount. If there are few examples, the risk for the country is low. Even if there are more than a few cases, if there is a tendency to pay damages exceeding the contract amount only in the case of work that handles important confidential information, for example, there may be a form in which a ceiling on the amount of damages is not set only in that case. In principle, it may be good to find exceptions while setting a ceiling.
  • Regarding requests from SMEs and start-up companies providing SaaS services to the procuring party to agree to the terms of use. I think there may be cases where the actual site processes it as a kind of sales contract in the form of license purchase. It may be a good idea to clearly classify it as a type of procurement in the case of information systems.
  • The current procurement system is built on the principle of equality, but if we are going to utilize small and medium-sized enterprises and startups, I would like to see a fair system. I would like to see a system that allows participation in the same way, taking into account each person's situation.
  • In the case of procurement for projects where plans collapse, such as long periods from planning to public announcement, and short development periods due to delayed procurement, startups can't afford it, so please don't do it.
  • The reason why start-ups and small and medium-sized companies are involved in public procurement is that they want to gain credibility. By creating opportunities for them to enter the market, the government should increase the number of competing corporations. Unless competition increases, the Japanese economy will not be revitalized.
  • Even in the discussion of digital marketplaces, participants from local governments expressed concerns about how to consider the risk of startup bankruptcies. I would like you to study how other countries are responding to the public procurement of startups and use it as a reference.
  • With regard to the establishment of an upper limit for damages, there are cases in which a contract template without an upper limit has been used for a long time in accordance with precedent. We would like you to set it based on rational judgment.
  • For example, the devices that can be used with GEPS are limited. For example, operation of Mac OS is not guaranteed with GEPS. Thus, accessibility should also be considered.
  • In addition to the problem of multiple subcontracting structures, when considering the introduction of a mechanism such as a digital marketplace, I think subcontracting is not suitable. I think it is important for administrative agencies to have the capability to procure contracts by dividing the contract category at an appropriate responsibility decomposition point based on the premise of loose coupling, instead of administrative agencies originally placing sole responsibility on prime vendors. However, it is effective in the sense that it is one of the transitional methods to promote the participation of startups, so I would like you to send out the message that it will be used when necessary, not with the prerequisite of subcontracting.
  • As a whole, bankruptcy risks and entry barriers are discussed by confusing SMEs and startup companies. I would like you to consider whether it is possible to analyze the causes of bankruptcy risks and entry barriers separately for SMEs and startup companies.
  • I would like to see a more careful explanation of the analysis that recommissioning is better than a consortium or even a joint venture.
  • The notice issued by Ministry of Finance in 2006 also states that, in principle, collective subcontracting is prohibited, and that even partial subcontracting requires clear control and management. In line with this, it is stated that the most important thing is to secure a performance system for subcontracting and to follow up on the actual performance status after the performance system is secured. It is important to ensure the operation of this system. What is important is to secure a performance system and to follow up on the status of performance. I think that re-outsourcing is a situation where such things have not been done properly. It would be appreciated if a more detailed analysis could be made on the points that in information systems, unlike other procurements, there is a need for re-outsourcing or that it is effective.
  • For subcontracting, it is necessary for the ordering party to be able to confirm the actual performance status. If there have been problems in the past, is it possible that problems have occurred in cases where the status of performance has not been confirmed or explained? If the expansion of subcontracting is considered as a measure, it is necessary to expect that the management cost as the ordering party will increase.
  • It is also necessary to promote digitalization and paperless systems in parallel with subcontracting. For example, at present, the promotion of the procurement portal and the procurement system GEPS, etc., is being promoted by the Japanese government by setting targets, but it is still at a low level. Currently, estimates are attached as files, which are made digitalization and paperless, but there is a possibility that the format may differ from bureau to bureau or from person to person. Instead of attaching documents based on existing formats in digitalization and paperless formats, it may be necessary to first unify the formats among ministries, or for companies to increase the number of optional formats. I feel that it is very important to make efforts to reduce the cost of procedures for startups and small and medium-sized enterprises by considerably relaxing the format.
  • Regarding the relaxation of qualifications to participate in tenders. Until now, qualifications to participate in tenders have been set on a case-by-case basis, and it is believed that this has been done in order to reduce the risks associated with placing orders, by narrowing down the number of providers with financial conditions that are commensurate with the size of the orders placed. For example, in the field of information systems, it was stated that the general evaluation and planning competition should be the principle, so if placing orders can properly evaluate the content of proposals, it may be reasonable to relax the qualifications to participate in tenders.
  • If we were to increase the number of subcontractors, I think it would be necessary for each ministry or Digital Agency to implement a cycle as part of the management process, in which, for example, the achievements of subcontractors are properly evaluated in comprehensive evaluations and planning evaluations, and for the next time or a similar project, not only the main contractor but also subcontractors are approached, and startups are made aware of requests for estimates.

Measures by the Tokyo Metropolitan Government

  • There was a talk about the Tokyo Metropolitan Government as the first customer, and they showed the number of certified cases and the number of actual procurements. After that, are you following cases that led to procurement by other companies? For example, in the previous discussion, there was a comment from an organization that the qualifications for bidding participation differ between the central and local governments and that they need to be standardized. For startups, I think it is important to expand what is certified and procured in the Tokyo Metropolitan Government to companies and other local governments. Is there anything that you are doing or that needs to be improved?
  • (Statement from the Tokyo Metropolitan Government) After the certification, we are listening to startups, but there are no organized materials on the results of recruitment in other municipalities. When promoting public procurement for startups in the future, I would like to use this as a necessary perspective.
  • The story of "Dejima," where the employees go out on their own, is interesting. It must be very stimulating for the employees to have contact with startups. At this point, the use of subcontracting may be necessary, but I think it is also important to have a place where the employees and startups can meet. What is the perception of the employees?
  • (Statement from the Tokyo Metropolitan Government) Until now, the department that works with startups has been limited. As a way of thinking from now on, it is not the time when the Tokyo Metropolitan Government alone can think about something and solve a problem. The administration must also upgrade its version while incorporating products and new things conceived by startups. I built Dejima as one of them. When you are in CICTokyo, startups visit you, which is stimulating for the staff. I would like to make it an opportunity to think about what kind of things the Tokyo Metropolitan Government can do and promote measures while talking with startups.
  • It appears that the main contract is used to achieve policy objectives by using a policy discretionary contract (No. 4 discretionary contract) while flexibly concluding discretionary contracts. How is fairness ensured?
  • (Statement from the Tokyo Metropolitan Government) A normal contract is the basis, but the point is that the efforts introduced are unique. As a process, a public call is widely made, and upon receiving an application from the business operator, two or more academic experts examine whether it is equivalent to No. 4 Zuikkei (whether it is novel), and then grant it.
  • It is said that startups and small and medium-sized enterprises are at high risk of bankruptcy and may fail in procurement. Wasn't there any discussion on this point in various efforts? Also, were there any companies that went bankrupt in their efforts?
  • (Statement from the Tokyo Metropolitan Government) I understand that it has not been discussed because it is a startup support project. I have not heard about companies that have gone bankrupt.
  • We hear from various ministries and agencies that when small companies such as small and medium-sized enterprises and startups enter the field, it is difficult to exchange documents.
  • (Statement from Tokyo Metropolitan Government) We have not heard from the field.

Kobe City's Efforts

  • How are you involving government officials? In particular, in terms of utilizing new technologies such as AI and blockchains, I think it is an important initiative to work with verification test. In order to make it truly effective, it is particularly important to involve employees and engage in in-depth engagement, such as cooperating from the point of reviewing their own work processes. However, it takes effort, and it may be difficult to actively involve busy employees. I would be grateful if you could tell us how you can achieve collaboration that actively involves employees, as in Kobe City, and what your current challenges are.
  • To be honest, there was a difficult aspect at first. People in the government are not used to collaborating with startups. As measures to connect the government and startups, the key points were to hire external talent who can mediate and to have an NPO join the secretariat of Urban Innovation Kobe. Employees who have utilized verification test using startups and transferred to different departments are spreading the idea of utilizing it in their departments.
  • In verification test, when one municipality is unable to handle its own budgets, I think it would be effective to have initiatives like joint procurements by municipalities working together. Is verification test also making progress on joint procurements through something like URBANINNOVATIONJAPAN?
  • (Comments from Kobe-shi) Urban Innovation Japan (NPO corporation) is promoting horizontal development between local governments. In terms of cooperation between local governments, Kobe-shi has signed a cooperation agreement with Shibuya-ku and is promoting efforts to verification test on both sides.
  • Regarding the new product certification system, it is written in item 4 of No. 167 - 2 of the Enforcement Order of the Local Autonomy Act that a procurement system that allows Kobe City to make a discretionary contract was established in November 2019. Please tell us if the rules, etc. have been changed. In the second place, fairness is mentioned, but regarding this examination and certification, what is written in the rules regarding the publication of examination criteria and examination results?
  • (Statement from Kobe-shi) The implementation of the verification test, the members of the examination committee, and what points will be used for the examination are set forth in the form of implementation guidelines. Those that have been approved are made public. Rather than setting up a new council for the ordinance and regulations, the place of its operation was set forth in the Kobe-shi Gaiyo, and a new process was started.
  • Is it not institutionalized to publicize the results of the evaluation, such as the evaluation criteria or the planning competition of the comprehensive evaluation?
  • (Comment by Mr. Kobe City) The certification result is announced after a comprehensive evaluation of price, novelty, similar competitiveness, etc. Individual factors are not announced.
  • It is a tight schedule to select a task for verification test and demonstrate it in 4-5 months. As a startup, is it an effort to customize existing services and those services, rather than to jointly build a completely new service? Also, if that is the case, when selecting a task, if there is no prospect of how and by whom the task can be improved, I think it is not possible to public call the task and match it well. Is it a system that can be realized because external human resources and intermediary human resources grasp the situation of the service of the startup and there is a prospect of improving the problem?
  • (Statement from Mr. Kobe city) As for the period, the verification test is getting longer, and we had been conducting it twice, in the first and second halves, but this fiscal year we will conduct it once a year. However, we are also aware that the longer it takes, the more burden the startup side will have. We also consider the period, and there are existing products, which are often customized.
    As a mechanism for verification test to be able to do it well, when a problem arises, we, a non-profit organization, will discuss whether there are startups we can provide. We are preparing by filtering and calling out to candidate startups if they want to apply.
  • I understand that you are recruiting a wide range of start-ups. Do you have any ideas to increase the number of applications? Also, if there are any ideas that didn't make sense, please let us know.
  • (Statement from Kobe City) We are talking to startups in advance, but as a local city, it is harder for startups to participate than in Tokyo. If we expand the aspect of public relations, applications may increase.

A-1 Increasing the Flexibility of the Budget System

  • In the current information system, it is difficult to apply the legal system of advance payment and approximate payment, so I think it is reasonable to say that what is possible is partial payment. The contents of the inspection and acceptance inspection are related to the contents of the contract. If the contents of the contract change to some extent, the inspection and acceptance inspection will be carried out accordingly, and the payment method can be devised within the framework of the budgetary accounting system, but I think it depends on the examination of the contents of the contract. In order to support startups, I think it is necessary to supplement not only the procurement aspect but also the financing system, the subsidy system, and the guarantee system and the insurance system linked to it. I think it is necessary to discuss not only procurement but also to nurture and analyze it.
  • I support the idea of evaluating observed data and market research results, planning improvements in a flexible manner, and procuring analysis, improvement, and planning work from a business operator who is not in charge of app maintenance and operation. You mentioned that procurement work is complicated, but I think GEPS should also be involved in analysis and improvement projects. Probably, there are quite a few business operators who have left in the middle of the system. On the other hand, I think it is also necessary for the orderer and person in charge of the information system to collect and analyze the information data themselves. First of all, it is necessary to consider whether the employees themselves can take on the analysis and improvement project. On that basis, if it is difficult for them to take on the project themselves, or if the system is considerably complicated, I think one idea is to outsource it. In that case, what kind of outsourcee should be selected? It is important to build a relationship of trust with major vendors, but for example, for the systems of major vendors, it may be possible to utilize the knowledge of startups in a more strategic and political manner, such as by entering into a discretionary contract with multiple startups that have new technologies and obtaining advice. When considering analysis improvement, we talked about competitive dialogue and RFI, but I think that it is necessary to well design as a whole, daily analysis improvement planning work and ad hoc technical dialogue, etc., and I think that it is necessary to consider when procuring a system what part and what kind of resources.
  • I think we need a process in which payment is made after inspection and acceptance are completed. I think there was a talk about improving the efficiency of bidding and contract affairs, but I think it is necessary to consider whether there is room for improving the efficiency of inspection and acceptance. For example, I think it is necessary to review the process, such as whether the forms are excessively unified or whether written submissions are required.
  • Regarding whether it is necessary to allow multiple payments. In the first place, in the private sector, there is a risk of bankruptcy even for large companies, but the government's payment is promised to some extent, so it should be a transaction that does not need to be divided into multiple times as much as the private sector. On the other hand, the problem with current procurement is that it is not divided into projects that can be divided into multiple times within specific individual projects, such as, for example, compensation calculated at the unit price is due at the end of the fiscal year, and payment is not made even after delivery is completed, even though delivery and maintenance operation are separated. I wonder if it is okay to consider something that can be divided into multiple times from the viewpoint of the national government. Rather than simply discussing where to divide, I think it is better to analyze the procurement and respond to what can be done.
  • I strongly support the idea that analytical improvement planning services should be procured from another company. We must know what the system is doing. This documentation is not available from many companies or local governments. I want Digital Agency to collect it.
  • About rough estimate payment. Rough estimate payment leads to the discussion of equality and fairness. Large companies don't need rough estimate payment, but startups have cash flow problems, so I want them to do it fairly. However, I am concerned about the possibility of personal judgment by each ministry and agency. I would like you to think about what kind of rule operation is most appropriate by examining cases.

C-2 Improvement of Inspection function for Transparent System Procurements

  • Monitoring. When there is a problem in a contract or procurement, it is necessary to monitor the problem as a countermeasure. This involves analyzing the cause, taking measures to improve it, and following up to see whether the measures are being taken properly. What is important, however, is that while various improvement measures are being formulated for IT system procurement, how will the various improvement measures for IT system procurement that will be formulated in the future be monitored, in the same manner as the procurement improvement plans and ex-post evaluations that are increasing at the Administrative Reform Secretariat? I would like to see a system established for monitoring under a two pronged policy.
  • I think it is necessary to set rules for prior contact and actively conduct it. Unless some rules are set, it is difficult for the person in charge to contact them, so clear rules are necessary. As mentioned in the introduction of Kobe City's efforts, I feel that appointing external personnel who are familiar with the market is an effective policy for collecting market information. I think it is necessary to consider combining the part that we implement ourselves and the part that we rely on external resources.
  • Regarding internal audits, I think it would be better to increase the advisory function a little more. In the case of the national government, there are many institutions, including the Board of Audit and Ministry of Finance, which play a function similar to auditing in terms of private sector. On the other hand, there are few institutions that give advice, and each employee is having trouble. Therefore, it is better to increase the advisory function. However, even if each ministry and agency establishes an advisory body in the course of discussions, there is a tendency for it to disappear every time without notice, and in fact, it is not used much, and I have the impression that it will gradually become a dual-role. Personal Information Protection Commission has a consultation system, but if we are to establish an advisory body in Digital Agency in the same way, I think it would be better to actively go outside and create a system that makes it easier to receive advice.
  • I think there is a case where inappropriate preliminary contact is not exchanged. In particular, I think there are many problems with employees on loan from the private sector. In the case of employees on loan from the private sector, the starting point is that they do not know what the rules of the country are in the first place, and I think it is quite difficult to pay attention to details. I think it is necessary to create rules and manuals that can be understood even by employees on loan from the private sector.
  • Patents and copyrights are among the "points to be verified to ensure transparency," but there is an example in which a company that followed the public call guidelines insisted on its own patents, which caused a controversy. I would like patents and copyrights to be discussed thoroughly and rules to be compiled.
  • Regarding the monitoring of internal audits, rather than a function who critically checks whether or not rules are being followed, a function who runs side by side with those in charge of procurements and gives advice on how to use the new guidelines and manage procurements so that they meet the objectives is more important. Rather than a function who just monitors, I would like to see a function / institution where those in charge of procurements would want to ask for help from their side.

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