Monday October 26, 2009

The Penang experience

GEORGE TOWN: The cost of a state government project can differ by over 50% in an open tender.

Penang Chief Minister Lim Guan Eng said that when a recent state government project on the mainland was opened for tender, the difference between the highest and lowest bid was about RM100mil.

“The highest bid was over RM160mil, while the lowest and winning bid was RM75mil. If the project was not openly tendered, the state would have had to spend about RM100mil more for the same project,” Guan Eng told StarProbe.

“The lack of visibility in the tendering process is a key reason why previous state government projects were expensive. Now that we have adopted an open bidding process, a substantial amount of money has been saved,” he said.

Guan Eng said the state government would usually seek advice from an in-house consultant on the cost of a project.

“We will then compare it with the price in an open bid. If it is 20% more than the estimated cost, we won’t award the project. If it is 20% less than the estimated cost, we also won’t award it, as it would not be possible to complete the project at such a low price.

“The reputation of the contractor counts, as the contractor will bank his name on the job. If the project were to fail, the cost of rehabilitating it will be astronomical, not counting the time lost,” he said.

Under the current state government’s transparency system, details of these jobs and their costs are posted on the state government website, www.penang.gov.my.

Penang Master Builders’ & Building Material Dealers’ Association (PMBBMDA) executive adviser Lim Hun Swee said the lack of visibility and transparency in project tenders started after the Asian financial crisis in 1997.

“Government agencies picked a select few to bid for jobs or it was done via direct negotiation with only one party. Without an open system, the Government cannot get the best deal and may actually spend more, as there is no basis for comparison,’’ Hun Swee said.

Until today, Federal Government jobs were still not well advertised for open bidding, he said.

PMBBMDA president Finn Choong pointed out that government contracts generally cost more because of the safety specifications of the Public Works Department (JKR).

“For example, the specifications for a JKR bridge would need additional requirement for cement and steel to ensure that it met the highest safety standards. The project would cost more than if a private developer were to do it.

“Government contracts are also higher because it has a policy of looking after small Class F contractors. The Government will usually ensure that a RM5mil job is broken up into ten RM500,000 portions for the small contractors.

“But because the small contractors are not competitive, they would charge the Government more, subsequently raising the cost of the project,” he explained.

According to Penang Municipal Council president Tan Cheng Chui, government contracts could also be more expensive because raw material prices were not reviewed regularly.

“In general, government contracts are higher because there is very little review of material prices going on. For example, a project to build a bridge this year may make use of last year’s quotation for building materials.

“Consistent review of quotations based on the latest pricing of raw materials is needed to lower the cost of government projects,” Tan said.

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