Awarding Of Contracts To Lowest Bidder

Date: 18 September 2009

Question No. 104 (by Er Lee Bee Wah, MP for Ang Mo Kio GRC):

To ask the Minister for Finance (a) how do Government departments ensure that there will be quality in delivery before awarding a contract to the lowest bidder; (b) whether the evaluation by the Tenders Committee includes an evaluation of the ability of the contractor/vendor to perform; (c) over the last three years, how many Government projects were delayed as a result of winning bidders’ inability to perform after submitting their lowest bids; and (d) whether Government agencies are penalised when a tender is not awarded to the lowest bidder.

Question No. 121 (by Ms Irene Ng Phek Hoong, MP for Tampines GRC):

To ask the Minister for Finance (a) whether the Government supports the practice of best sourcing as opposed to cheap sourcing in its public tenders; and (b) whether the latest Auditor-General's Report which states that the Ministry of Education could have saved on its school cleaning contracts if it had considered contractors who were priced below the market norm, is sending the wrong signal.

Reply by Finance Minister Tharman Shanmugaratnam:

The Government procurement regime is premised on the principles of open and fair competition, transparency and Value-for-Money (VFM). When government agencies call for tender to procure goods and services, they would stipulate their evaluation criteria upfront. These would include not only price alone, but also other criteria that would enable the agencies to assess the vendors’ ability to deliver, such as their track records for comparable contracts and their financial health, as well as criteria relating to the quality of goods and services required.

As regards the reasons why some winning bidders are unable to fulfil their contracts on time, there are many. However, there is no empirical evidence linking delays to vendors who had submitted the lowest bids. In any case, Government agencies would take any tardiness into account when assessing the track records of bidders. I would like to assure the House that Government agencies do not award tenders based on price considerations alone. In fact, about one in three government tenders are not awarded to the lowest bidders.

A similar approach is taken in the Best Sourcing Initiative which was launched in 2004. Under this initiative, government agencies would identify non-strategic functions and market-test them to see if they could be performed by external parties in a more cost-effective manner. Since 2004, 292 functions have been outsourced after market-testing, with contracts amounting to around $1.9bn.

Let me assure the House that government agencies do not "cheap-source". Even when agencies assess that certain functions can be more cost-effectively done by external parties, they would need to ensure that the vendors so selected are able to deliver quality services.

In this context, my Ministry agrees with the Auditor-General’s observation that vendors whose bids are marginally below market norms should not be rejected outright; instead ministries should evaluate vendors holistically, taking into account other factors including the their track records and quality requirements.

That said, the Government strives to set a good example on responsible best sourcing or outsourcing. To this end, MOF had worked with MOM and union representatives in 2008 to issue the Tripartite Advisory on Responsible Outsourcing Activities to guide employers on good practices in this area. We will continue to monitor developments in the industry to incorporate best practices into our Best Sourcing initiative.