Monday, November 19, 2018

Weakness of a tender system

Singapore has relied on the tender system for several decades. It is believed to be the best way to get the best price for a work to be done. It is supposed to be open and transparent.

Sadly, this is not the case.

There are many ways that the tender system can be manipulated by the purchaser, who works for a large organization.

The purchaser can select the tenderers who work in collusion. One of the party will get the tender, and the price may be higher than market price based on an open tender.

Over the years, we have seen contractors that have made large fortunes. They know how to take the best advantage of the tender system. They build good relations with the purchaser.

We are not getting the best prices. We are actually paying a higher cost. The cost of our infrastructure and building is quite high, compared to other countries.

In some countries where corruption is quite common, it is usual to see the "ali baba" arrangement. The contract is awarded to a connected party who keeps a margin and get another party to do the actual work.

Many people may not realize that the "ali baba" arrangement is quite common in Singapore. We call it by a different name, i.e. outsourcing and sub-contracting. The effect is the same. The main contractor, who may be a connected party (or "crony"), keeps a big profit, but the actual work is done by somebody else.

Maybe, the main contractor add value by ensuring the quality of the work. But in some cases, their value added is questionable.

Is there an alternative to the tender system?

I suggest two alternatives:

a) We should have benchmark pricing for common types of work. There can be a benchmark price for 1 km of road or MRT line or one square meter of a building. While the actual price may vary according to the ground conditions, the benchmark price will set a guide. The quantity surveyor can be used to work out the benchmark price.

b) We should adopt a transparent system to show the actual prices of the work that is awarded. This allows independent parties, who have the expertise in the area, to comment on the prices. If the price is inflated, it can be seen clearly. This process also helps to improve the benchmark price to be used in the future.

It is risky to have blind faith in the tender system. We need to support it using benchmark pricing and transparency.

Tan Kin Lian

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