Unfair Clauses in Government Tender Specifications

1 Mr Ang Wei Neng asked the Prime Minister and Minister for Finance whether the Ministry will advise all Government agencies to avoid having unfair clauses in all Government tender specifications, in view of the feedback from the Singapore Institute of Architects on the unfair clauses in the Singapore University of Social Sciences' tender documents.

The Second Minister for Finance (Ms Indranee Rajah) (for the Prime Minister and Minister for Finance): Speaker, Government agencies are required to conduct procurements in a fair manner. To guide agencies, the Ministry of Finance (MOF) provides templates with contractual terms and conditions which set out the responsibilities of the parties. These templates are developed in consultation with key sector agencies to reflect industry norms, particularly for major categories like construction, and information and communications technology (ICT). For example, the Standard Consultancy Agreement (SCA), used by Government agencies for construction-related consultancy services, states that agencies will pay for additional services not covered by the contract.

Mr Speaker: Mr Ang.

Mr Ang Wei Neng (West Coast-Jurong West): I thank the Minister for the reply. I would like to first declare that I am the CEO of Strides Premier, a company that from time to time participates in Government tenders.

I understand that the Government departments have the duty to safeguard public money and not overpay private companies that provide services through Government contracts. At the same time, the Government also has a responsibility to support small and medium enterprises (SMEs), especially during the current climate of economic uncertainty. Thus, I hope the Minister will consider my supplementary question to remove or tweak three common clauses in Government contracts or tenders that SMEs find hard to comply with.

Firstly, the clause on unlimited liability, regardless of contract value, similar to the clause required by the Singapore University of Social Sciences (SUSS) as reported in the press. Such a clause can be onerous to our SMEs and can even bankrupt them.

Secondly, some other clauses in the Government contracts have limited milestone payments. Very often, Government agencies will only make the bulk of the payment at the end of the project, creating potential cash flow problems for SMEs participating in Government tenders.

And thirdly, some Government tenders require contractors to make unlimited changes to design requirements without additional payment, similar to those required by SUSS. The tender document states that they will make changes and the changes will not be paid, even though, as the Minister said, what is not stated in the tender is supposed to be paid. But the tender says that it will not be paid in the first place. Any design change will cost money and someone has to pay for it. There is no free lunch.

Thus, I hope the Minister could advise the various Government departments to consider tweaking such demanding clauses.

Ms Indranee Rajah: I thank the Member for his supplementary question, which raises a couple of important points. Let me address them in turn.

The first is to make a distinction between SUSS and Government. Strictly speaking, SUSS is an autonomous university (AU). AUs are independent corporate entities and not Government agencies, and this gives them the autonomy to handle operational and corporate service matters according to their own policies and procedures. Nevertheless, AUs are expected to adhere to fundamental procurement principles – of value-for-money, transparency, and open and fair competition; and we encourage them to align broadly.

So, I just wanted to make that distinction, because in the particular instance that Mr Ang is referring to, I would not go into the details because it is between different parties, but my understanding is that those contract terms are not in exactly the same terms as the Government standard contracting terms. That is the first point.

The second point is that for such contracts, there are really three broad groups. One is pure Government. Then, there are those which are not exactly Government, but like SUSS or other agencies, are expected to follow Government, but have much broader leeway to depart or set their own terms. And then, third, there is the private sector.

So, I will come back to these three, but just let me address first the specific queries that Mr Ang had raised.

We do recognise the need to support enterprises in this economic environment, even as we continue to achieve value-for-money for public spending. So, on the point about making unlimited design changes, I had shared earlier that under the SCA, which is what the Government follows, the one that is used for construction-related consultancy services, agencies will pay for additional services not covered by the contract, such as further changes after design sign-off.

Then, with respect to unlimited liability, in November 2024, we added an option in the SCA to limit consultants' contractual liability. And then, as announced by Minister for National Development Mr Chee Hong Tat, last month, we will be making this mandatory starting from 1 December 2025. So, in other words, going forward, there will be limited liability.

Though these changes have only been applied to the SCA, agencies are expected to be fair to suppliers in all their contracts, facilitated by standard contract templates, such as the Tender Lite Conditions of Contract.

And on the question of milestones, Government agencies typically make payments to their suppliers at specified milestones during the course of the project. For instance, construction contractors are usually paid every month, based on monthly progress payments. MOF has also provided agencies with guidelines for more frequent payment milestones. Besides this, the Government has introduced Tender Lite to simplify procurement in tenders with estimated procurement value up to $1 million. This makes it easier for businesses, especially SMEs, to access Government procurement opportunities.

MOF has worked closely with partners, including the Singapore Business Federation, the Association of Small and Medium Enterprises, and sector-specific trade associations to develop Tender Lite. We will continue to partner industry to look for ways to ease doing business with Government.

That said, Mr Ang's supplementary question raises a broader issue, which is that of fair contracting. The Government is actually encouraging the industry, especially the construction industry but across the board, to have collaborative contracting and fair clauses. The old way of approaching contracts is very much a win-lose. The lawyers on one side will want to get everything for their client. The lawyers on the other side will obviously want to do the same. But contracts for such procurement should not be win-lose. You should try to see how you can make it win-win. Because if every party has a vested interest in the contract to make it succeed, that would be better. And if it is completely one-sided, then after a while the other side will either not want to participate or the relationship will break down.

And this needs a change of mindset. Many of the contracts out there, especially in the private sector, which are not mandated by Government, are in old standard forms. It is very difficult to get lawyers to shift from standard forms. They like their precedents. My message, really, to the industry, especially the built environment industry, is that we are trying to effect change. That change is collaborative contracting where it is win-win, and fair clauses.

That leads to the question of what is fair. Usually, that is a matter of negotiation. But it is difficult when you have parties who have uneven resources and of different sizes. This is the reason why the SCA and other Government standard contracts can and should be the base reference. You can depart from it, but that should be the standard for what is the expected norm, and the Government has the ability by putting in certain clauses, firstly, to practise it for ourselves, but also to signal to the market what is considered fair. And of course, if we get feedback that clauses are not fair or too onerous, then we can always review and adjust as needed.