Financial-Viability of Foreign Contractors Awarded Government Tenders

Date: 17 February 2014

Parliamentary Question by Mr Gan Thiam Poh:

To ask the Deputy Prime Minister and Minister for Finance whether measures will be taken to ensure that foreign contractors who tender for public projects in Singapore are financially independent and legally separate from their parent company to ensure that they remain financially viable during the fulfillment of their contracts when their parent company faces financial adversity.

Reply by DPM and Finance Minister Tharman Shanmugaratnam:

Foreign contractors intending to tender for public construction projects in Singapore must be registered with the Building and Construction Authority. Like local contractors, they will be assessed for their capacity to finance the project till completion. In addition, to be considered for larger projects, all contractors also have to undergo credit rating by an independent credit rating bureau.

There are two ways in which foreign contractors may be registered in Singapore. If they register a local subsidiary, the Singapore company is a separate legal entity and not liable for the debts of its foreign parent company. If a local subsidiary company is liquidated as a result of financial difficulties faced by its foreign parent company, the Companies Act requires the creditors of the local subsidiary company to be paid before payment is made to the foreign parent company as a shareholder.

Alternatively, a foreign contractor can register a branch which is part of the same legal entity as its parent company. Foreign contractors registered as branches are required to submit information on the parent company’s finances, including audited accounts. If the parent company goes into liquidation, the law also requires that its assets in Singapore be used for payment of debts incurred here before any of it can be transmitted overseas.

Regardless of which contractor is appointed, public agencies continue to monitor the progress of public projects and watch for signs that they may be running into financial difficulties, for example, a sudden slowdown in work progress or an unexpected reduction in manpower assigned to the project. If the foreign parent company goes into liquidation, the Government will take steps to minimise possible cost impact or delays to project schedules arising from the need to replace contractors.