Lowest bid doesn't mean highest risk

Media Replies 05 Feb 2015

SENIOR transport correspondent Christopher Tan asserted that “more than nine out of 10” major construction projects undertaken by the Land Transport Authority (LTA) were awarded to the lowest bidder and suggested that transport infrastructure project delays were caused by an “underlying problem” of the “Government’s penchant for awarding contracts to contractors with the lowest bid” (“Infrastructure projects: Lowest bid = Highest risk?”; last Thursday). These are sweeping and untrue.

As public infrastructure projects are funded with taxpayers’ monies, LTA has to ensure it achieves the best value from among the submitted proposals. In tender evaluations, price is, thus, an important consideration, but it is considered only after the contractor has met strict pre-qualifying criteria and the proposal is deemed to be of good quality.

Any contractor interested in bidding for public-sector construction projects must first meet strict requirements, including financial capacity, available technical personnel, proof of management standards and project track records, set by the Building and Construction Authority, before they qualify to participate in the bidding of tenders by the Government.

Based on tender documents submitted in 2012 to the LTA, Hexagroup’s audited net worth in 2011 was over $3 million – substantially higher than the $300,000 Mr Tan quoted. That Hexagroup did not file financial statements with the Accounting and Corporate Regulatory Authority after 2007 was not relevant, as being a solvent Exempt Private Company, it was not required to do so.

On quality of the proposal, as Mr Tan noted, LTA uses a two-envelope tender system to procure all its major infrastructure projects. This means a contractor who submits a proposal of substandard quality will be eliminated at the first stage, regardless of his price proposal.

The winning proposal is the one with the best balance of quality and price. Bids that differ greatly from our pre-bid estimates are carefully scrutinised to ensure the contractor can satisfactorily deliver its contractual commitments. From among those that meet the quality criteria, 17 per cent of the civil engineering projects in the last 10 years were not awarded to the lowest bid.

Mr Tan implies that the Government, and taxpayers, should award tenders to higher and more expensive bids, but this is based on the simplistic assumption that higher-priced bids must mean higher quality.

For the same quality, some contractors are less price-competitive because of their operating and business model, for example, they are less efficient, and others may submit more price-competitive bids in order to secure a project for strategic business reasons.

It is inevitable that some contractors will face changes in their financial position due to unforeseen factors. This can happen even if the contractor had submitted expensive bids.

Over the last 10 years, LTA has awarded thousands of contracts. Only three were affected by contractor insolvency. We assure the public of the robustness of the Government’s procurement process even as LTA strives to improve Singapore’s transport infrastructure.

Helen Lim (Ms)
Director, Media Relations
Land Transport Authority

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