There has been Parliamentary debate and many adverse media reports on the issue of Managing Agent contract of the Aljunied-Hougang-Punggol East Town Council (AHPETC). I am writing to you to clarify any misconceptions that may have arisen. I also wish to update you on a few matters concerning the management of AHPETC.
Public Tenders for AHPETC Contracts
Has AHPETC given contracts to “friends”?
It has not.
The fact is that in 2012, public tenders were called and advertised in the Straits Times newspaper for the contracts for Managing Agent (MA) and Essential Maintenance and Services Unit (EMSU) services. In 2014 and 2015, public tenders were also called for the MA and EMSU contracts respectively. Anyone can submit a bid for a public tender. AHPETC does not and cannot reserve contracts for friends in a public tender.
A tender was not called for MA services only for the one year period from July 2011 to July 2012 when urgent taking over work was needed. The elected Members of Parliaments (MPs) decided to award the newly formed FM Solutions & Services Pte Ltd (FMSS), consisting primarily of managers and staff from the former Hougang Town Council, a one-year provisional contract to take over the initial management of the Town Council, without calling a public tender. This was in order to ensure a smooth takeover of town management in view of the short time on hand to do so and to avoid any disruption in services to the residents.
Not calling a public tender for an MA contract is allowed under Para 76 of the Town Councils Financial Rules. However, the Town Councillors did not award a standard three-year MA contract to FMSS at this point, as the Town Council intended to call for a public tender for MA services as soon as possible after takeover of town management has been completed and operations have been stabilised.
Managing Agent Rates & “Overpayment”
You may have seen and read reports that AHPETC “overpaid” FMSS by an estimated $1.6 million a year and therefore supposedly estimated as $6.4 million over four years.
To support this allegation a table showing 2014 Managing Agent (MA) rates of Town Councils was distributed during the parliamentary debate on 12 Feb 2015 and the Law Minister said that “FMSS charges the Town Council $14.92 for each commercial unit compared with between $4.80 and $6.65 for all other Town Councils.”, and that “FMSS charged the Town Council $7.43 for every residential unit. Others charge between $4.80 and $6.65”. He used these as the basis to derive at the above estimated overpayments, comparing FMSS’ rates with a “weighted average” of MA rates in other TCs in 2014.
We were puzzled by the MA rates used by the Minister and hence I filed questions in Parliament to ask the Minister for National Development for more information. On 5 March 2015, the Minister provided Parliament with the tables which I will reproduce here to clarify the matter.
Table 1 – MA Rates Per Residential Unit by Town Council (2011-2014)
|Ang Mo Kio||$5.08||$5.08||$5.08||$5.33|
|Choa Chu Kang||$5.13||$5.13||$5.06*||$5.06|
* Indicates there was a change in MA during the period of the predominant rate.
** Derived by MND using total MA fees paid, which includes for managing parking lots, and making no distinction between residential and commercial rates.
We make the following observation from Table 1 on MA rates for residential units:
1) MA rates of PAP Town Councils in 2014 were lower compared to preceding years for six TCs. In 2011, there were eight PAP TCs with MA rates per residential unit over $6, and nine in 2012 and 2013. In 2014, the number dropped to five and the “weighted average” MA rate in PAP TCs was the lowest.
2) Compared to 2013, MA rates per residential unit dropped drastically in 2014 for four PAP TCs even though the MA did not change: East Coast from $6.30 to $5.10, Moulmein-Kallang from $6.63 to $5.80, Pasir Ris-Punggol from $6.25 to $5.50, and Potong Pasir from a high of $7.80 to $5.80.
Next, we look at the data on MA rates for commercial units:
Table 2 – MA Rates Per Commercial Unit by Town Council (2011-2014)
|Ang Mo Kio||$5.08||$5.08||$5.08||$5.33|
|Choa Chu Kang||$5.13||$5.13||$5.06*||$5.06|
Notes: * and ** as noted for Table 1 above.
We noted from Table 2 that prior to 2014, some MAs of PAP TCs practiced charging a higher rate for managing commercial property compared to residential property. For example, the MA rate for commercial units at East Coast and Pasir Ris Punggol TCs were $11.50 when their residential rates were in the range of $6. The former MA managing of Aljunied TC, CPG Facilities Management (“CPG”), also had the same practice and hence the former Aljunied TC had a differential MA rate for residential and commercial units (see Table 3).
In 2014, as seen from the tables, all MAs managing PAP TCs adopted the practice of charging a flat rate for MA fee for both commercial and residential units. Hence, by taking the 2014 rates only, the commercial rate of $14.92 for AHPETC stood out compared with the flat rates of PAP TCs.
In any case, if we use the same logic of the ministers to derive at “overpayment” estimates, PAP TCs such as Tanjong Pagar (77,300 units), Nee Soon (65,000 units) and Sembawang (67,000 units) are also overpaying their MAs by around $860,000, $530,000 and $550,000 a year respectively. I am not alleging Tanjong Pagar, Nee Soon and Sembawang TCs are overpaying their MAs. My point is that comparing the MA rates of a TC to the “weighted average” of MA rates for all TCs is not a good way to judge the fairness of the rates charged by the MA. As you can see in Table 1 & 2 above, there is a lot of variation in MA rates among TCs, which reflect the different geography and requirements of each town.
Fair-Pricing the MA Contract in an Uncompetitive Situation
During the parliamentary debate, the Law Minister also brought up Tampines and Choa Chu Kang TCs because these towns are supposedly comparable to or host a similar number of units as AHPETC. Incidentally, these two PAP TCs also charged the lowest MA rates in 2014 (see Table 1). The contrast is there, but Tampines and Choa Chu Kang are not easily comparable to AHPETC because all towns are different in terms of geography and other town characteristics that affect how they are managed.
As stated earlier, we decided to award FMSS a one-year provisional contract to ensure a smooth transition to avoid any disruption in services to the residents before calling for a public tender in 2012. The question was how to fairly price the one-year MA contract.
Reasonably, we used the contractual MA rates agreed to between the former Aljunied Town Council and their MA, CPG, as our reference point for fair-pricing the MA contract (Table 3). There was no reason to doubt the professionalism of the former Aljunied Town Council in contracting the following MA rates with CPG. More importantly, we believed, as evidenced by the varying MA rates in Table 1 & 2, the contractual MA rates with CPG reflected the cost of managing the bulk of the town in terms of its unique geography and town characteristics.
Table 3. CPG’s contractual MA rates for Aljunied TC
|1 August 2010 – 31 July 2011||$6.03||$12.80|
|1 August 2011 – 31 July 2012||$6.37||$12.80|
|1 August 2012 – 31 July 2013||$6.73||$12.80|
Hence, when Aljunied-Hougang Town Council (AHTC) appointed FMSS as MA for one year, the contract provided for the taking over of the management of the former Aljunied TC at the same MA rate agreed between the former Aljunied TC and CPG for that year (1 August 2011 – 31 July 2012). In other words, our contract with FMSS was substantially the same as CPG’s contractual MA rates for the second year, $6.37 for residential unit and $12.80 for commercial unit (highlighted in Table 3). This was the first cost component for the one year transitional contract. However, there was a second cost component that covered the taking over of the existing staff of the former Hougang Town Council at their existing salary, and also some additional staff who had to come in to prepare for the handover before the actual handover date.
In its tenders for MA services in 2012 and 2014, AHPETC did not receive competing bids. Only FMSS submitted a bid for our public tender for MA in 2012. In the absence of a competing bid, we again returned to the CPG contractual rates and used the third year rate (2012) as the reference point (Table 3).
We awarded FMSS the MA contract at the contractual rate for residential units of $7.01 for 2012/13. This rate represented a premium of approximately 4% compared to the third-year CPG residential rate of $6.73 for 2012. We also assessed the increase in the MA fees to be reasonable for several reasons, including the need to operate an additional TC office in Kaki Bukit and the lower economies of scale enjoyed by FMSS as a smaller operator compared to CPG. We were also aware of the MA rates in several PAP TCs being in the range of $6 to $7 at the time of the tender i.e. in 2012.
The subsequent rise in FMSS’ contractual MA rate from $7.01 in 2012/2013 to $7.43 for 2013/14 for residential units mirrors the annual 6% rise in the CPG contractual MA rates for residential units.
To summarise, our contractual commitments with FMSS have been based on strict reasoning using available market information in 2012 when tender was called in the absence of competing bids, while placing residents’ interests in undisrupted services at the forefront.
Follow-ups on the Report by the Auditor-General’s Office
AHPETC underwent a rigorous 10-month audit by the Auditor-General’s Office (AGO) in 2014. The AGO found some areas where there had been lapses in financial management and weaknesses in controls. AHPETC has made some improvements and has also acted promptly to hire external accountants to assist to clean up its accounts and to further strengthen its processes and controls. The work is making progress and certain financial issues will take time to resolve. AHPETC is also working towards filing its audited accounts by the deadlines set by the Ministry of National Development.
Transition to Direct Management
Come July 2015, we will be embarking on direct management of the TC, as no MA has submitted a bid to work for AHPETC. We will do our best to keep costs down and protect AHPETC’s long-term financial interests. On behalf of my fellow MPs and Town Councillors, I would like to thank you for your concern and support. Despite the challenging political climate, we will continue to serve you to the best of our ability.
ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL
This letter was extracted from the June 2015 edition of Good Neighbours newsletter.