Tan Kin Lian's Blog: Tender Loving Society

Wednesday, June 16, 2010

Tender Loving Society

Singapore is a tender loving society. We believe in using the tender for most business transactions. The contract is usually awarded to the party that submitted the lowest cost or, in the case of sale of land, to the highest bidder.

This system has bad consequences. When a contractor tender a lower price to get a job, they are under pressure to reduce their cost. This will find ways to cut corners, resulting in lower quality of work. Alternatively, they will seek opportunity to increase their revenue on variation orders or extended scope of work.

If a developer pays a high cost for a piece of land, they will add the cost to the final product tht is sold. This has led to escalation in the price of property. The high property prices have led to high cost of living and other an unfair distribution of income, from tenants to owners of property. This has led to a frenzy of property buying, which has in turn caused the property prices to escalate further.

There is an alternative to the tender system. It is easy to estimate the cost of a contract, using the inputs in materials and labour, and to award the contract based on cost plus a fair margin. The work can be distributed to eligible parties based on fair assessment of quality. This is people are recruited to work in a big organisation.

If land is tendered based on the average price of similar properties and is sold at controlled prices (i.e. cost of land, construction and a fair margin of profit), there is no need for property prices to escalate sharply. The property prices will reflect the true market, without the excessive speculation.

There is an alternative to the "tender loving society".

Tan Kin Lian

5 comments:

C H Yak said...: Mr Tan

The difficult issue has to do with "double standard".

Land is awarded by URA to the highest bidder.

But tenders by contractors, or even project consultants is to the lowest bidder.

While Consultant are higher up the value chain, they have bargaining power, but not the Contractors. Consultants helped the landowners (developers) squeezed the Contractors further.

Hence, two opposing forces ... then costs still finally burdened by the end purchasers or consumers...way below the value chain...despite great savings ... it must go to profits of developers or tax revenue of Govt.; June 16, 2010 10:34 AM
Anonymous said...: HK land sales is by auction. It is the most transparent form of tender.; June 16, 2010 10:58 AM
Scribe said...: The tender system may not be flawless, but it addresses key elements like price competiveness, value for money, transparency and discourages corruption. Tenders are not awarded purely on price basis, it has to take into account conformance to specifications and quality issues like warranties and cost of maintenance. It is always suspect when some company is awarded a project with no alternative bids considered. Of course there are ways to abuse a perfectly legitimate tendering process, such as writing the specifications to suit only one product or service, like the time NTU wanted an expensive chair that cost thousands of dollars. From the vendor side, it is called specification selling. At the end of the day, the purchaser has to justify the buying decision, be it a gold plated toilet accessory for a charitable organisation or a Mercedes so that the troops can look up to a General in the armed forces.; June 16, 2010 2:01 PM
wiseinvestor said...: It is not difficult to see that tender of sale of land to highest bidder and contract to lowest party leads to the highest revenue and lowest expense for the government.

Irregardless of whether it is in the best interests of citizens or not.; June 17, 2010 1:48 PM
M. Ortgage said...: Every body knows that the Singapore is a tender loving society. We can enjoy more in this society.; June 19, 2010 12:36 AM