Variation of Existing Outsourced Services Contracts to Factor in Cost Increases from Changes in CPF Contribution Rates

Parliamentary Question by Mr Zainal Sapari:

To ask the Deputy Prime Minister and Minister for Finance whether guidelines will be given to the procurement departments in the Ministries and statutory boards to allow for a contraction variation of their existing outsourced services contracts to factor in the possible cost increase that will be faced by service providers due to changes in CPF contribution rates or any policy-related changes that affect the wage cost.

Parliamentary Reply by Deputy Prime Minister for Finance, Mr Heng Swee Keat:

The recent announcement on CPF contribution rates affect workers after the age of 55 years, and the intent is to restore the full CPF rate gradually taking into account economic conditions, over the next ten years starting from 2021. Contractors bidding for Government contracts have advance notice to price their bids accordingly when they bid for contracts. 

The Prime Minister has also said in his 2019 National Day Rally speech that the Government will help businesses to adjust to these new arrangements through a support package and details will be announced in next year’s Budget.  The approach taken by the Government is to give sufficient notice of changes that affect businesses, to help companies plan ahead. As nominal wage increases have averaged over 4% p.a. in the past 10 years, we expect most companies to be able to manage the planned 0.5-1% point increase in employers’ CPF contribution rate within the total wage increases in the coming years.