Contracting Model Adopted for Public Services

Date: 7 July 2014

Parliamentary Question by Mr Teo Siong Seng:

To ask the Minister for Finance whether the restructured bus contracting model starting from the second half of 2014 will be the new business model going forward for Government outsourcing projects in other public services such as the MRT and healthcare sectors where the Government is to own and pay for the infrastructure while the operators will focus on improving efficiency and service levels.

Reply by DPM and Finance Minister Tharman Shanmugaratnam:

Mr Teo Siong Seng has asked whether the contracting model which the Government has adopted for public bus services will be adopted for other public services such as the MRT and healthcare.

The contracting model where the Government owns and pays for infrastructure and private sector operators bid for service contracts is relevant for public transport. As pointed out earlier by the Minister for Transport, we have moved in a similar direction for the MRT with the implementation of the New Rail Financing Framework for the Downtown Line.
 
The contracting model is one of a range of possible public-private partnership models that can be adopted, depending on the specific circumstances and our objectives in each case.

In healthcare, the Government retains the role of the dominant provider of hospital beds (about 85%) so as to influence the supply of hospital beds and better manage cost increases. Through this approach, the Government is also able to set a benchmark for pricing for the private sector. However, since the 1980s, the Government has also corporatised the public sector hospitals and other healthcare institutions. This has enabled efficiency gains, and helped keep costs down for patients and taxpayers.

Moreover, a contracting model is in place in the nursing home sector for example. The Government funds the development costs and owns the buildings which house our nursing homes, but leases them out through a competitive bidding process. The Government selects the operator who can best provide good quality care at affordable prices. This helps to reduce the barriers to entry into the nursing home sector, and gives access to a wider range of interested operators, including voluntary welfare organisations which provide nursing home care that is partially subsidised through charitable donations.

Another model of public-private partnership is in NEWater and desalination plants. The private sector operators are able to take on the upfront costs and risks in constructing, owning and operating these plants, with the Government purchasing water according to a pre-negotiated pricing structure. This provides room for private sector ventures and innovation, and allows us to obtain competitive prices for water.

In summary, the model adopted in each area will differ according to specific circumstances and objectives. We will continue to have a mix of business models that allows the Government, where appropriate, to leverage on the strengths of the private sector to provide high standards of public services at affordable cost.