Changi viaduct collapse and the LTA’s record of awarding contracts to lowest bids

Changi viaduct collapse and the LTA’s record of awarding contracts to lowest bids
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Does the government have a penchant for awarding contracts to the lowest bidder? And does this result in bad quality work and standards?

The fatal workplace accident at the viaduct project in Changi in July is once again shining the spotlight on the issue of bids for public works. In that incident, a foreign worker was killed and 10 others injured when part of the raised road being built collapsed.

The construction company responsible for the project, Or Kim Peow Contractors (OKP), was later reported to have submitted the lowest bid for the contract in 2015.

OKP’s winning bid was $94.6 million, 27 per cent lower than the next three lowest bids – $129.7 million by Yongnam Engineering, $185 million by Singapore Piling, and $193.7 million by Samwoh Corp.

Incidentally, OKP was apparently awarded the contract in 2015 a mere 2 months after a fatal accident had taken place at one of its construction sites then. One worker was killed and three others were injured in that instance.

The Ministry of Manpower (MOM) had said that this was ““a clear case of a company that does not take workplace safety seriously.”

So, many questions are being asked about how OKP was awarded the 2015 contract by the Land Transport Authority (LTA) despite the recent accident at the time, and if its successful lowest bid for the Changi viaduct project had risked workplace safety.

While the authorities search for answers to those questions, the issue of awarding contracts to the lowest bids has been highlighted regularly in the past by concerned parties, including the Straits Times.

In 2015, for example, its Senior Transport Correspondent, Christopher Tan, wrote a piece titled “Infrastructure projects: Lowest bid = Highest risk?”

In it, Mr Tan laid out a record of lowest bids contracts awarded by the LTA which had resulted in the eventual delay of projects because the contractors were, for various reasons, unable to fulfil their commitments.

More importantly, the question of whether public safety was compromised as some of the projects had also resulted in major accidents is pertinent.

“Industry watchers often wonder if the Government’s penchant for awarding contracts to contractors with the lowest bid is an underlying problem,” Mr Tan wrote.

“Most, if not all, the above contracts were the lowest bids,” he added, referring to the list he had collated.

Let us take a moment to delve a little into each of these incidents.

1995: The bid for the Bukit Panjang LRT line in 1995 was the lowest bid. The service on the line “broke down no fewer than 150 times between 1999 and 2012 (or an average of once every month)”, said Mr Tan.

Bukit Panjang LRT line

2004: Viaduct project in Pasir Panjang was delayed for 3 years after the contract was awarded:

2005: Viaduct in Keppel Road delayed.

2004: Nicoll Highway tunnel bid:

2006: Bartley Rd viaduct:

2012: Flyover and widening of Braddell Rd, expected to be completed by “end 2015”, it has dragged on… and remains unfinished till today:

 

In response to Mr Tan’s article, the LTA said while price is “an important consideration… it is considered only after the contractor has met strict pre-qualifying criteria and the proposal is deemed to be of good quality.”

“Any contractor interested in bidding for public-sector construction projects must first meet strict requirements, including financial capacity, available technical personnel, proof of management standards and project track records, set by the Building and Construction Authority, before they qualify to participate in the bidding of tenders by the Government,” the LTA said.

The government practices what is called a two-envelope system where “the envelope containing the monetary value of a bid is opened only if the authority is satisfied with proposals made in the first envelope”, as Mr Tan explained.

The LTA said “[this] means a contractor who submits a proposal of substandard quality will be eliminated at the first stage, regardless of his price proposal.”

“The winning proposal is the one with the best balance of quality and price,” the LTA explained. “Bids that differ greatly from our pre-bid estimates are carefully scrutinised to ensure the contractor can satisfactorily deliver its contractual commitments.”

Interestingly, the LTA also added: “From among those that meet the quality criteria, 17 per cent of the civil engineering projects in the last 10 years were not awarded to the lowest bid.”

In other words, 83 per cent of such projects were in fact awarded to the lowest bids?

Even so, is this a bad thing? Does a higher bid mean better quality works? The LTA does not think so.

Such thinking, it said, “is based on the simplistic assumption that higher-priced bids must mean higher quality.”

“Over the last 10 years, LTA has awarded thousands of contracts,” it said. “Only three were affected by contractor insolvency.”

Many, like Mr Tan, remain unconvinced.

“Despite the two-envelope system – which is supposed to prioritise quality over value – public projects still tend to be awarded to the lowest bidder,” Mr Tan said in his report on 15 July this year, on the Changi viaduct collapse.

The good news is that perhaps the government is now taking the matter more seriously.

Straits Times, 14 June 2017

Last month, the Minister of National Development, Lawrence Wong, said that the authorities will place more focus on quality over price in public tenders.

This is apparently in response to what those like Mr Tan and industry players who have been raising concerns that contractors, in a slow economy, will submit unsustainable low bids, what is called “fee-diving”,  just to win one of the limited number of contracts in such times.

“Unhealthy price competition can lead to negative consequences for the whole industry,” Mr Wong said at the Building and Construction Authority (BCA) awards event. “Consultants and contractors who bid very low to get the contract end up having to cut costs and, worse still, cut corners.”

Among the new standards or qualifying criteria, the weightage given to the quality of the consultant or contractor will be raised from the current 30 per cent for all public tenders.

Regulatory authorities will also be stricter in penalising firms that do not deliver to the quality standards, the Minister said.

Companies which adopt new technologies will also be given an advantage in the assessment of their bids.

Wong

“We want to have more balanced quality and fee competition, and provide greater rewards for firms that deliver high-quality work,” Mr Wong said.

One drawback of proposed changes is that they will not be implemented “so quickly”, as government agencies with procurement practices need more time.

In the meantime, the authorities, especially the LTA, should be extra vigilant in awarding contracts to the lowest bidders. They should also take a tougher stance against those which have already proved to be irresponsible and callous when it comes to workers’ and workplace safety.

Such companies should be barred from tendering for contracts for an extended period, rather than a mere 3 months as in the case of OKP.

 

** On a related note: is the LTA the only government agency which awards contracts to the lowest bidders? Or do others, such as the Housing and Development Board (HDB), do the same? What are the consequences of this? Does this result in inferior quality lifts in housing blocks or poor maintenance regimes, for example?