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10 Apr 2024  (3521 Views) 
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Tan Kin Lian - Perspectives


An alternative to the tender system
The government uses the tender system to award infrastructure projects. From my observation, this does not lead to lower prices or better outcomes. There are several reasons for this situation, but I will not discuss them here. 

I will now discuss an alternative to the tender system. It will describe it as a cost plus system (CPS). This is how it works:

a) For each project, the planning agency will work out the expected price, based on the calculations by a quantity surveyor. It is based on the current prices of labor, materials and construction method plus a margin for profit. 

b) The CPS price is announced to the contractors that are interested in the project. They can quote their own price (above or below the CPS price), but the quoted price will not be an important factor. 

c) The project will be awarded to the contractor that has the experience, manpower and materials required for the project, provided that they are able to accept the CPS price. This will encourage the contractors to retain the workers with the required skills and keep the equipment that are necessary for the construction. The use of unskilled subcontract workers will be minimized. 

d) The final award will be done in a transparent manner and is available for viewing by the public. This is to ensure that the final selection is done in a fair and objective manner. 

Under the CPS approach, the government will pay a fair price. It will not try to get a lower price based on tender by a "hungry contractor", as it may lead to substandard work. The contractors who are willing to keep the available resources on standby will have a better chance of winning the contract. 

Under the CPS method, the contractors do not have to spend a lot of money to calculate the tender price, as the calculation from the government is made available to them. This cost of preparing the tender is reduced. This reduction in wasted work in preparing tenders will bring down the final cost, over many projects.

I wish to quote my experience in running a large company. I do not rely on the tender system to get the right price. I was able to find a fair price based on the market rates. If the supplier is willing to supply the products based on this market rates, he has a good chance of winning the contract. 

I find the CPS approach to be fair, objective and transparent. It is not perfect, but it should work better than the prevailing tender system. 

Tan Kin Lian 
 


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