Duration of Government Contracts for Clean, Green and Safe Sectors10 Jan 2017
Parliamentary Question by Mr Zainal Sapari:
To ask the Minister for Finance (a) what is the average length of Government agencies' contracts for procurement services in the three traditionally outsourced clean, green and safe sectors; (b) what has been the shortest and longest contracts that have been given out by the Government; and (c) how does the Government determine the appropriate length for each of the contracts.
Parliamentary Reply by Senior Minister of State for Finance, Ms Indranee Rajah:
Contract periods vary depending on factors such as the needs of the buyer agency, the scale or complexity of the contract and industry acceptance.
Among the three sectors, the shortest contract in the past 3 years was a transitional cleaning contract. It was for a period of 6 months and is an exception as the agency was to be relocated after that. The longest contract awarded was for 7 years, as the Government agency had assessed that a longer contract was needed to enable the service provider to recoup the high capital investments needed for the contract.
While longer contracts allow service providers more time to get familiar with the contractual requirements, and justify investments in equipment or technology, contracts that are too long can introduce business risks for service providers and can be unattractive to them. So a balance needs to be struck. The vast majority of contracts in the cleaning, security and landscaping sectors have a base period of between 2 to 5 years, with an average duration of about 2.7 years. In addition, many contracts also come with options to extend for a pre-determined duration if the service provider has done well, and the needs of the agency have not changed. For instance, a cleaning contract can have a base period of 3 years, with an option to extend for another 2 years.