Saturday, 23 September 2023

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AIM Review Report: So everything was OK?

By Leong Sze Hian

I refer to the articles “AIM deal given all clear: MND review” (Today, May 3) and “MND review: No misuse or loss of public funds in AIM deal with PAP town councils” (Straits Times, May 3).

Some of the questions that many Singaporeans have been asking may arguably deserve more details or clarification.

Some extracts from the Ministry of National Development (MND) TOWN COUNCIL REVIEW REPORT –

Tender Process OK?

“d) Conduct of Tender Process In the execution of this tender in 2010, the PAP TCs complied with the tender process stipulated in the Town Council Financial Rules.The tender was an open tender advertised in the Straits Times on 30 June 2010. It attracted expression of interest by five vendors. However, eventually there was only one bid, which came from AIM. The PAP TCs decided to award the tender to AIM based on several key considerations: The TCs assessed that AIM’s bid of $140,000 was a fair one given that the software had fully depreciated and there was effectively no market or competition for the software3. AIM was also willing to undertake the risks of getting an extension of the NCS contract at no increase in rates, which was important in protecting the TCs from an increase in maintenance fees.”

How much more of the Saga that nobody knows?

There appears to be no infomation as to how much did the town councils paid to develop the system, before it was sold? Of course, we now know how much it had to pay when it tendered for a new system to be developed in March 2013 – $16.8 million! – Let’s use an analogy – you make something for maybe over 10 million – then you sell the rights to someone related to you and this person can terminate your use of it – and then you pay another $16.8 million to make a new one – no need to review whether this was absolutely necessary? – What did your neighbour pay for theirs which peforms a similar function? – Don’t you think all these may matter to the residents who pay for it?

$2 company with no staff?

“In addition, the TCs assessed that AIM was a company with an established track record in TCs and IT services, including past working experience with the PAP TCs. The TCs had confidence that AIM would deliver on its commitments.”

Would a $2 company with no staff give anyone the confidence to deliver its commitments?

Power to terminate? Why was there such a clause?

“e) Provision of Termination Clause In the contract, AIM could terminate its services by giving three months’ prior notice in writing to the TCs. However, AIM could also terminate the contract by giving a shorter notice period of one month in the event of material changes to the membership, or to the scope and duties, such as changes to the boundaries, of the TC.The PAP TCs felt that such a clause was fair and reasonable as the vendor would have priced its bid on the basis of the existing TC and Town boundaries.

However, should this change materially, the vendor could end up providing services to a TC comprising a much larger area and a larger population of residents, but is held to do so at the same fixed price since a key feature of the contract was that there should be no price change to the TCs even for extensions. The TCs felt that this would be unfair to the prospective vendors, and a clause explicitly addressing such changes would reduce the business risk to the vendor. This would help fetch a better tender price for the TCs’old software.”

Is it not rather strange to have a contract which allows a $2 company vendor to in a sense, hold the town councils (and all its residents) to ransom – by giving it the unfetted power to terminate by giving one month’s notice – “in the event of material changes to the membership, or to the scope and duties, such as changes to the boundaries, of the TC”? Wouldn’t such IT contracts normally just provide for a variation in the pricing rather than termination?

It was all due to a mis-communication?

“f) Execution of Termination Clause Based on the formal communication between the then-AljuniedHougang TC (AHTC) and AIM, and from interviews with both parties, the Review Team observed that there appears to be a different understanding of the execution of the termination clause in 2011 by both parties. The AHTC believed that AIM would be terminating the TCMS contract under the terms of the termination clause and therefore planned to upscale its own system which it had used for the former Hougang TC4.

AHTC wrote to AIM on 10 June 2011 to inform AIM that it was developing a system, and requested to continue to use AIM’s TCMS till 31 August 2011, so as to ascertain the reliability of AHTC’s new system. AIM, on receipt of AHTC’s 10 June letterunderstood it to mean that AHTC was giving notice of its intention to use its own system and not rely on the TCMS, but had sought an extension to enable it more time to install its own system. AIM subsequently issued a notice of termination on 22 June 2011. AHTC sought two extensions5of the TCMS. AIM acceded to both requests.”

So, it was just all due to a miscommunication between AIM and AHTC? Why not produce all the communications between the two parties and any other related parties on this issue, so that we can have a better understanding – and ensure that such “mis-communication” does not happen again? After all, if it happens again – it may not be in the interest of residents – right?

Town Councils are “political”? No problem with this revelation?

“Given the political character of the TC’s leadership and the political implications attached to the management of the TC, it is inevitable that the TC’sfunction is carried out in a competitive politicised context.

c) The Town Councils Act (TCs Act) and subsidiary legislation such as the Town Council Financial Rules (TCFR) reflect a recognition of this political nature of TCs. The intent is to give the elected MPs as much latitude as possible to run the TCs within broad and general rules laid down to ensure proper governance and safeguard public interest.

For instance, TCs are required to keep proper accounts, which must be audited annually, by an independent auditor who needs to state whether the receipts, expenditures, investments and the acquisition and disposal of assets have been in accordance with the TCs Act. Beyond that, TCs are empowered with much autonomy to manage their affairs.

The TCs Act also does not prohibit transactions with persons or entities associated with political parties. In the administration of the Act, latitude has always been given to MPs, across political parties, to exercise autonomy in their judgement on such matters as to how best to achieve their agenda and serve their residents’ interest6.The TCFR also sets out the rules for good financial governance. However, the regulatory approach by MND is again one of a light touch in order to respect the autonomy of and to provide flexibility to MPs running their TCs and be directly accountable to residents, without excessive intervention by the Government.

AIM Transaction and Compliance under the TCs Act

d) An issue that has been raised in public discussions is that of conflict of interest and whether the interests of the TCs were protected, because AIM, a PAP owned company, was contracting with TCs which were headed by PAP MPs. In considering the issue of conflict of interest, the background to the setting up of TCs and the nature of t
he TCs as explained earlier is important. TCs were set up for, and fulfil a political purpose, and therefore latitude has always been given to TCs to exercise autonomy, where they see fit, in engaging those who share their political agenda or are affiliated to their parties.”

“Depoliticised” definition of “Conflict of Interest”?

The substantive issue is therefore whether a conflict of interest arose in terms of TC members having a pecuniary or direct interest in the transaction, and whether the interests of the TCs’ residents were protected or impaired and whether there was any misuse of public funds. e) The Review Team found that the PAP TCs complied with the open tender process under the TCs Act and the TCFR. The review also found that the TCs acted in good faith in the interests of and for the benefit of their residents. There was no misuse or loss of public monies arising from this transaction.”

In other words, are we saying that it’s OK to have a conflict of interest – as long as “TC members (not) having a pecuniary or direct interest in the transaction”? This is arguably a narrower definition of “Conflict of Interest” – which according to the dictionary is “a situation in which someone cannot make a fair decision because they will be personally affected by the result” –  the issue of “political” conflict of interest of “political interest” was ignored in the review?

No conflict of interest because nobody made any money?

The Review Team has also verified that AIM did not make a profit from the transaction and its Directors were not paid a fee. AIM made a loss during the one-year sale and leaseback arrangement from the 2010 contract. For the subsequent extensions, AIM’s management fees essentially covered the costs of the headcount required to fulfil its role in support of the TCs.

f) The Review Team found no pecuniary or direct interest on the part of any of the TC members in AIM. There was also no indirect interest on the part of the TC members in the AIM contract; the TC members did not have a financial or commercial interest in the contract that AIM was awarded.”

– Perhaps the issue here may not so much be whether anybody was making any money, but rather the power of the contract to the vendor who is related to the town councils’ MPs’ and their party  – which as the review report has in my view kind of hinted at – that it may be “political”?

Tender advertisement?

“The tender which was processed via an open tender attracted only a single bid, i.e. AIM’s bid. In these circumstances, the TCs did not need to make a choice between AIM’s bid and other competing bids. The Review Team is of the view that it was reasonable for the PAP TCs to award the tender to AIM as they were familiar with AIM given its track record since 1994 of working with the TCs, and AIM’s tender bid was able to meet with their requirements.”

In this regard, what about all the questions that have been raised that the tender advertisement looked more like a “purchase” rather than a “sale” tender?

Residents’ interests?

“Observations on Town Council Operational Framework. The review of the AIM transaction and the inputs obtained from the TCs on other major contracts and the changeover process, have surfaced a broader issue of how to ensure continuity of services to residents in the event of a change of MPs. As entities led by elected MPs, TCs’ changeovers of MPs, whether from the same party but especially when from different political parties, can have a direct impact on the continuity of services to residents.

The main issue is how to ensure continuity of the services to residents, while allowing the newly elected MPs full authority and accountability immediately after an election. While the elected MPs should continue to be given full authority and autonomy after an election, there is value to consider placing safeguards to minimise the risk of disruption of critical services during a change in leadership.

The interests of residents should be the paramount priority for all political parties and MPs in such situations. One option is for TCs to have in place contractual provisions for automatic one-off extensions following an electionwhen there is a change of political party in charge of the TC, and to impose a minimum notice period for termination initiated by the contractor or key appointment holders (e.g. General Managers).

The length of such extensions or notice period would depend on the nature of services provided, and should be fair to all parties.9. The Review Team observed that TCs have largely fulfilled the original objectives for which they were set up. However, there is also the fundamentaltension between the TCs’ dual objectives of delivering good public service and the political accountability of MPs in the context of a political competition.

The current arrangement inherently bears the constant risk of politicisation of town council administration. Going forward, we propose that the Government consider a strategic review of TCs in their current form. How our public housing estates are managed is a very significant subject as it impacts the value of the homes and the experience of day-to-day life for the vast majority of Singaporeans living in our HDB estates.”

Perhaps review team had its “hands tied” for the report?

In this regard, perhaps the report may be somewhat self-contradictory (through no fault of the review team) because whilst it was able to meet its terms of reference to “satisfy itself that public funds were safeguarded and residents’ interests were not compromised” but yet at the same time, it makes observations that may imply that the way the town councils are currently structured and allowed to operate – may not be in the best interests of residents (because among other things – its software or other services may be terminated when the party that wins the elections and take over the running of the town councils changes)? So, the terms of reference – “In the course of the review, MND was also to make observations on the nature of TCs and how they are run, with a view to improving the current framework” – may arguably have tied its hands in saying with any certainity whether residents’ interests was or was not compromised – because its terms of reference was only to “make observations” and to give “a view to improving the current framework”?

Conflict of interest of the review team?

Finally, as many Singaporeans have commented – isn’t it kind of like a conflict of interest to ask the MND which oversees and is responsible for town councils to review the town councils?

Another aspect of Uniquely Singapore?

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