Mr Khaw’s round up speech on Town Councils ( AIM . FMSS )

Read Mr Khaw’s round up speech on Town Councils :

1.    Mdm Speaker, I thank all the members who spoke, sharing their views on the MND Review Report, and also their actual ground experience running their TCs. Several MPs, including Ms Denise Phua, Mr Zainal Sapari, Mr Teo Ho Pin, and Mr Liang Eng Hwa, offered many suggestions for SMS Lee Yi Shyan to consider when he reviews the TCs and I am sure he will take them up. Let me respond to the key comments.

2.    The Review Team has established that the AIM transaction has complied with the TCs Act and the TC Financial Rules. Ms Sylvia Lim unfortunately continued to question whether the AIM transaction truly complied with the TCs Act since the tender period was only posted for 2 weeks in the first instance.

3.    Under the TC Financial Rules, the minimum period of tender notice should not be less than 3 weeks. Nonetheless, latitude is given to the Chairman of the TC to approve a shorter period of tender notice. The Review Team has established that the PAP TCs had obtained the necessary approvals for the shorter two week tender notice, as well as a subsequent extension of one week. So in the end the tender period was 3 weeks.

4.    In fact, the TC Financial Rules also provide latitude to TCs or their Chairmen to waive requirement to call for tender altogether. Ms Sylvia Lim would be familiar with this because she exercised this latitude when her TC waived competition and appointed FM Solutions and Services Pte Ltd (FMSS) as its Managing Agent (MA) in 2011. MND left the appointment to her best judgement and did not object. We have to apply the TCs Act and the TC Financial Rules fairly, evenly and consistently.

5.    Ms Sylvia Lim said that the tender was only open in substance because “each of the directors of the company had to have adequate experience in the operations and functions of a town council”.

6.    The tender requirements had been drawn up in the interests of residents. It was important that the vendor should have an established track record in TC operations, given the extensive and specialised nature of TC administration, involving thousands of HDB blocks and associated common property.

7.    AIM was not the only company that could have qualified. For one thing, Ms How Weng Fan, with her extensive experience in TC work, could have formed a company with others like her and submitted a bid for this. After all, this is what she, her husband and her HGTC colleagues did when they set up FMSS several days before the setting up of AHTC. And they went on to win the contract to be AHTC MA, which is worth millions of dollars, without even a tender being called.

8.    In reality, the TCs did not receive any feedback from prospective tenderers to change or vary this requirement. In fact, from the informal feedback obtained, the sense is that stringency of requirement was something else. It was that the contract for the transaction ensured against any increase in maintenance costs – this is a maintenance cost charged by NCS – even as sourcing and development of a new generation TCMS (Town Council Management System) was pursued.

9.    This particular requirement, coupled with the fact that there is no certainty that the vendor would be given the contract to develop the next generation software, explains why the other vendors were not interested.

10.    Ms Sylvia Lim mentioned that a vendor told the media that there was insufficient information in the tender document. There was a 3-week tender notice period, during which potential vendors could seek clarifications from the TCs or ask for a tender briefing. So there was sufficient opportunity for potential bidders to obtain the necessary information for their assessment.

11.    Mrs Lina Chiam asked how there can be no conflict of interest even if nobody made money. She said she was not sure if any lawyer would be satisfied with how a conflict of interest has been defined in the review report. Let me share that the Review Team had consulted the Attorney-General who had confirmed the legal position taken in the report on this.

12.    Some WP members could not accept the Review Report’s conclusion that there was no conflict of interest in the AIM transaction. I had explained earlier the background to the enactment of the TCs Act and the political nature of TCs. And this is the context against which the AIM transaction needs to be examined. Let me state the case from MND’s perspective as the administrator of the Act. We are the authority, we own the policy. We are the policy formulator and the policy administrator for this Act.

13.    TCs are specifically set up to establish a link between the elected MPs and their TC. The Act by design does not prohibit transactions between the TC and party-related entities or persons. Latitude has always been given to MPs to manage their TCs according to their best judgement and be accountable to their residents politically. TCs run by MPs from all political parties have at one time or another appointed party supporters or former candidates to provide services to the TCs they run. The Straits Times gave some examples in an article of 7 May; so did LHZB on 11 May.

14.    Mr Pritam Singh suggested that, going forward, to avoid conflict of interest, companies owned by political parties should not be allowed to transact with TCs. As I mentioned, the TCs Act presently does not prohibit transactions with party affiliates. However, if we choose to do this as Mr Pritam Singh proposed, we must impose it across all TCs, and also not just narrowly for party-owned companies but companies owned by people in various forms of party affiliations, like ex-party members and party supporters and even their immediate families. If we do this, we would of course be prohibiting the appointment of FMSS by the AHTC as well. Ms Sylvia Lim mentioned about FMSS and some comments about MND providing this information to a media query. She asked about this point, so let me elaborate on what this entity called FMSS is.

15.    FMSS was formed by a group of Hougang TC employees. It is now principally owned by Ms How Weng Fan and her husband Mr Danny Loh, who although not a staff of Hougang TC, was a contractor of services to Hougang TC when his wife, Ms How, was the estate manager. Apart from their long association with the WP’s leadership, Mr Danny Low and Ms How are WP supporters who acted as assentor and proposer to the WP team of candidates led by Mr Yaw Shin Leong to contest in Ang Mo Kio GRC in the 2006 General Election.

16.    Thus, if you look at the substance of the contract between AHTC and FMSS, the following points are quite striking:

a)    FMSS was formed on 15 May 2011, four days after the 2011 GE. The company was principally owned by two very close WP party associates. They were husband and wife and were providing services to Hougang as well. And they were Secretary and Deputy Secretary of AHTC.

b)    The Management Contract, which was worth $5.2 million a year, was awarded to FMSS without tender.

c)    One year later, AHTC did go for a tender where FMSS was the only tenderer and a three-year contract worth $16.8 million was given to FMSS.

d)    Subsequently, another three-year contract for EMSU (Essential Maintenance Services Unit) was also given to FMSS, which was worth $3.9 million.

17.    So, Madam Speaker, when we talk about public interest, how would Ms Sylvia Lim characterise the FMSS transactions? In substance, has public interest been protected? Would she take the position that contracts like these given to close Party associates be prohibited? In the AIM contract, public interest was enhanced. Can the same be said for the FMSS contract? In this respect let me also remind members that Mrs Lina Chiam too was appointed as Potong Pasir Town Council’s Secretary in February 2010 and she was paid a monthly salary. She was then the Singapore People’s Party’s CEC member and became its Vice Chairman in August that year. MND accepted that, consistent with its approach to allow all town councils the same latitude with all party affiliates and we did not interfere with any of these transactions. And I think that should be the same, fair, consistent approach that we apply to all parties, whether it is PAP, WP or SPP.

18.    Ms Sylvia Lim and Mr Pritam Singh asserted that the transfer of ownership of the management software from the TCs to AIM was improper and against the residents’ interests. Ms Sylvia Lim has of course been spreading this narrative ever since MND found her TC to be lacking in performance. She asked essentially: why should the TCs pass the ownership of an essential software to AIM only to lease it back at a fee from AIM? The Review Report has given a detailed explanation for this arrangement. This was a sale and leaseback arrangement, which is perfectly normal in the industry. Just because at the end of it, the software has been transferred to AIM does not mean that it is at all improper.

19.    Why did the TCs do so, just when the software was nearing obsolescence? Precisely because the software would soon be obsolescent, the TCs needed to move onto next generation software. Centralising the software ownership in one entity so that the latter could negotiate with potential vendors as one would greatly facilitate the process. But as the TCs needed to continue to function, the TCs would still need to make use of the software. The sale and leaseback arrangement was a practical solution to this problem.

20.    Moreover, as new generation software would need time to develop, the TCs would also need the NCS to continue to maintain the system in the meantime. The tender specifications further required the successful bidder to undertake to secure extensions of the NCS maintenance contract at no extra cost to the TCs. Essentially, AIM took on the financial risk of any fee escalation by NCS.

21.    By structuring the tender in this manner, the TCs had protected the interests of their residents to the maximum degree. This is the exact opposite of Ms Sylvia Lim’s incorrect narrative. How did the TCs benefit? First, they enjoyed a net savings as AIM actually made a loss on the 2010 transaction. Second, the NCS maintenance contract was extended for 18 months at the same cost, without any fee increase. Third, the TCs are now on the development path to the next generation software.

22.    Ms Sylvia Lim also argued that AIM, as a $2 company, could not be qualified to deliver on its commitments, thus placing residents’ interests under undue risk. I accept the point that, in general, the fact that a company had just $2 of paid-up capital must raise a flag and need to be considered. But in this case, AIM is not any ordinary $2 company. It was set up by the PAP specifically years ago to help its PAP MPs do a better job running their TCs. The party was standing behind it, effectively guaranteeing its performance. Moreover, there was a track record as it was responsible for the earlier version of the TCs’ management software. That is the difference between AIM and any other “$2 company” that gave the PAP TCs confidence to enter into this contract with AIM.

23.    And as it turned out, did AIM perform as required? Yes, AIM performed its duty successfully. First, centralising the software did not cost the TCs any extra money. Second, AIM has helped the TCs to extend the NCS software maintenance contract at no increased cost in the past 18 months. This has saved money for TCs, and hence their residents. Third, AIM has got the TCs onto a new generation software to be developed by NEC under a new leasing arrangement. This was a major objective of the TCs when they called the 2010 tender to sell-and-lease-back their obsolescent software. This necessary task has now been fully completed. The TCs have benefited from the AIM services.

24.    Ms Sylvia Lim further suggested that the timing of the sale of the TCMS to AIM just before the 2011 General Election shows that the transaction was politically motivated. This is a rather paranoid view which distorts and ignores the facts. What are the facts?

25.    First, the TCs brought in Deloitte & Touche (D&T) to evaluate their software, not in the year just before the 2011 GE, but as early as June 2009.

26.    Second, software becomes obsolescent with time as the hardware and software platforms on which it is written are regularly upgraded. Those of us who have had to deal with software will know. The TCs knew that their software which had been developed in 2003, and built upon Windows XP and Oracle Financial 11 platforms, would have to be upgraded to the next generation soon. D&T confirmed it after conducting their review. Windows XP had been superseded, in fact two generations, by Windows Vista and Windows 7. Worse, Oracle would also soon phase out its Financial 11 platform. They therefore recommended a software leasing arrangement for the TCs to consider, in line with the general industry practice.

27.    Third, the TCs’ software maintenance contract with NCS was expiring in October 2010. And that was why the TCs invited the open tender in mid-2010.

28.    These were compelling considerations, which had nothing to do with the timing of the GE.

29.    Ms Sylvia Lim further argued that the residents’ interests were placed at risk by AIM’s one-sided termination clause. All commercial contracts come with a termination clause. And termination can be initiated by both sides after observing a period of notice. Question is – is it one-sided? The Review Team has studied the specific termination clause in question and noted in its report that the TCs had valid reasons to insert it. The AIM contract is a lump-sum contract and a termination clause to address material changes to the scope and duties of the TC will help reduce the vendor’s business risk and hopefully fetch a better price.

30.    There are now, as we have heard repeatedly, two interpretations of what actually happened. AIM insisted that it did not initiate termination and that it was the Aljunied-Hougang TC which gave notice of its intention to use its own software. Only on receipt of that notice did AIM then terminate the contract. The AHTC’s version is that they believed that it would be terminated and so decided to start sourcing for their own IT software system. The Review Team has included the full exchange of letters in their report, and we will let the readers draw their own conclusion.

31.    I am honestly quite disappointed that Ms Sylvia Lim has chosen to construe the AIM transaction in such a sinister light and to suggest that the PAP has used the AIM transaction to trip up the incoming MPs. This is like what the Chinese would say, “杯弓蛇影”: seeing a snake in the cup when it is nothing more than the reflection of a bow hung on the wall.

32.    In any case, are we so stupid? As the WP themselves point out, the people who suffer are the residents. Why would we want to deliberately disrupt the lives of residents in Aljunied? Would the WP just keep quiet and not make a political issue out of it? Who then would get the blame? Why would the PAP want to hurt the interest of residents in Aljunied and alienate them? How could we hope to regain Aljunied if we did this?

33.    Ms Sylvia Lim said that the PAP is not concerned about the passengers sitting in the Cessna getting hurt should it crash land. This is self-righteous, and – pardon me for saying so – arrogant. Many of us in this House have been serving Singaporeans for decades, long before she entered this House. Please, don’t behave as if you are the only patriot in this House.

34.    Do you honestly believe that the WP would blame themselves if they crash, even if there is nothing to do with the plane engine, but because they are bad pilots? No way. I think they will also start pointing fingers at everybody else. So when Ms Sylvia Lim said that the AIM transaction shows that the PAP is hurting the people in Aljunied and that it is just “collateral damage in a bigger political game”, I am disappointed at such a comment, What is the bigger political game? It is about winning back Aljunied, not about doing something petty that will just upset everybody and make us lose Aljunied permanently.

35.    Indeed, who has been playing politics with this AIM transaction? If Ms Sylvia Lim was really concerned about the termination of the contract by AIM, why didn’t she simply write to AIM to extend the contract, rather than assume it would not be acceded to? As events demonstrated, AIM readily acceded to their subsequent requests for extensions, and not once, but twice. Maybe pride or political motives got in the way, and residents’ interests became secondary.

36.    Please take a good look at Mr Sitoh who dealt with a similar transitional problem in Potong Pasir. He didn’t feel anything wrong to ask for an extension of the service of the GM who had served for many years under Mr Chiam See Tong. He placed residents’ interests first, and because he ventured to ask, he ensured a successful transition and handing over at Potong Pasir. The transition there was not without problems; there were many. But instead of bad-mouthing or finding excuses through attributing problems to his predecessor, he and his team worked quietly round-the-clock to minimise any disruption to their residents. That is the professional way of dealing with handing over.

37.    If there is anything suspicious about timing, it is really the timing of Ms Sylvia Lim raising the AIM issue. Why didn’t she raise the termination of the TCMS back in 2011 when they took over, instead of thanking AIM for agreeing to the extensions that they had requested? Why, after thanking AIM, then wait 18 months till December 2012 when the MND revealed that the TC’s audit report had been delayed to raise this complaint against AIM? I presume she will claim that they had been too busy setting up their own system to bother about raising this issue. Anyway, I must say it has been quite an effective move in distracting the public from the actual situation in the Aljunied-Hougang TC.

38.    Ms Sylvia Lim has also questioned the prudence in incurring unnecessary expenditure during handovers to replicate systems already developed with public funds, when these systems could simply be handed over to MPs taking over. I agree that TCs should not incur unnecessary expenditure, whether during handovers or for day-to-day operations, as these are residents’ funds. That is why during a handover, contracts, assets and liabilities remain vested with the TC and they are accessible to the newly elected MPs when they take over. It is not necessary for the new TC management to terminate the existing contracts and incur additional costs to replicate existing systems unless they choose to.

39.    However, software contracts have unique difficulties with such an arrangement. There have to be significant software changes when boundaries are changed. This happens with TCs even when the political party remains unchanged. Where political parties change, the operating software inevitably has to evolve to suit the new MP’s management style and operational preference. As Mr Zainal Sapari put it just now, “the reality is that there will be cost incurred whenever there is a change of Town Council and which can be significant”. But I agree that we should try to minimise it, and this requires some give-and-take on the part of the two parties involved in the changeover.

40.    There was some comment about the TCMS software by Mr Png, that this is a software that TCs spent almost $24 million to build up, and why hand it over, or tender it out, for $140,000. We all know that software has limited shelf life. IT platforms are so dynamic and progressive, and software updates are inevitable almost every few years. When this AIM episode was raised, what struck me was this – I used to run National University Hospital. The then Health Minister Mr Goh had appointed me to start up this newly built hospital. The hospital was almost built, and the deadline to open the hospital was announced to the public. My team was to start it up. We were given four or five months to start it up. One of the things that was missing at that time was software. To run a hospital, you need computer software. Yes, if you don’t have a software system, it is very hard to run a hospital properly, and to do it manually is impossible. But we managed it in four, five months. How? Because the industry is very well developed. There are off-the-shelf software which you can pick and buy, and then you have to suit your processes to be in accordance with the software. So that was one easy option, and that was the option I did with NUH, successfully. But if you want bells and whistles, then of course you have to spend time developing, modifying, changing the software code, so it cannot be a common platform, off-the-shelf solution. But in the case of NUH, we started with off-the-shelf, settle in, get the priorities right, and then over time, we added in all the bells and whistles, and then we had a very sophisticated software when I left the hospital.

41.    The TCs are the same thing. It is not as if it is so crippling without one. There are solutions available. It’s up to you. But in this case, the bottom line is this – AIM did not terminate. They were quite willing to extend, if only you ask. But if you don’t ask, why should they? Because you may feel insulted. And precisely because software go into obsolescence very quickly, if you examine the TCFR, hardware is classified as an asset, software is not. Software is just treated as an operating expense. It does not get depreciated. So back to the TCMS – when it was first tendered out, yes, it cost the TCs $24 million to develop. But by the time it was hitting obsolescence, how much was it worth? Very little, nothing, probably zero, and the tender proved it. Nobody was interested in it. AIM had to step in, because if they didn’t step in, the TCs would be left in the lurch, which was the point that Associate Professor Eugene Tan made in his TODAY article on May 6.

42.    Anyway, I am glad that several WP members like Sylvia Lim, made comments expressing concerns about financial prudence and the need to ensure that TCs minimise costs in the interests of their residents. Well, Mdm Speaker, so do we, although frankly how the PAP and the WP does it may be different. For instance, in Aljunied, the management agency rate which FMSS charged Aljunied-Hougang residents, we found, is 20% higher than the rate charged by the former Aljunied TC’s managing agent when he was under Mr George Yeo. To be precise, when it was under George Yeo, the rate was $6.51 per unit per month. Now, it is $7.87 in FY2011 – the first contract – and then it went up to $8.04 per unit per month in FY2012. In fact, the FMSS rate is more than 50% higher than the rate for Tampines TC which is of similar size. Tampines TC’s rate was about $5.15 per month per unit. In fact, it came down a little bit to $4.99 last year. I assume the residents living in Aljunied are aware of these and find them acceptable.

43.    I think some MPs talked about AIM not making any profit. Actually, there is nothing odd about this. As I’ve said, AIM was set up by PAP to help its MPs run their TCs. If the TCs do not perform, it will reflect on the MPs and affect their future election prospects. PAP has every interest to ensure its MPs succeed. That is why AIM did not seek to make a profit out of the 2010 transaction.

44.    As I have said just now, members are aware that WP’s supporters set up FMSS after the General Elections on 15 May 2011 and the legitimate question is – what was the motive behind the formation of FMSS? Surely, it is to help the WP MPs run their TC, is it not? The same latitude given to the PAP TCs is applied to the WP AHTC as well.

45.    Some MPs have raised examples from the Punggol East handover, to illustrate the point that the handover process is highly politicised. However, the version from Mr Zainal Sapari carries a slightly different flavour. More importantly, I must clarify that the Punggol East handover and the Aljunied handover are different, from point of view of the TCs Act. The Act allows up to 90 days handover for transfer of properties from one TC to another. This applies to Punggol East. The two parties had 90 days to complete the handover.

46.    But when the MP changes, either from the same or different party, changeover is immediate. This was what happened in Mr Sitoh’s TC in Potong Pasir. He moved in immediately, took charge, took responsibility and ensured a successful changeover. This was what was also supposed to happen in Aljunied, but sadly it did not.

47.    After an election, newly elected MPs assume office as Town Councillors immediately, and assume legal responsibility for the Town when the relevant Orders are gazetted. But we recognise that the new team may need some time to fully take over the day-to-day operations. Hence, all contracts, including the Managing Agent contract, are transferred, and the previous MA can continue to run the TC whilst the new management team eases in. But any future contracts will have to be negotiated under the ambit of the new team. Clearly, it would not be appropriate for the outgoing TC to make long term decisions on behalf of the new team.

48.    Mr Pritam Singh and Mrs Lina Chiam added their own flavour on this politicisation of TCs by referring to this old topic of upgrading projects and CIPC (Community Improvement Projects Committee). Residents in opposition wards are not excluded from the selection of upgrading programmes whether it is the Home Improvement Programme (HIP) or the Neighbourhood Renewal Programme (NRP). In our selection process, MND will try to spread out the projects among the wards and TCs. Priority is always given to the older blocks. Within each Town, we also give weight to the TC’s ranking of projects. Ms Sylvia Lim would know that this year, her TC has been given 3 upgrading projects (2 HIP and 1 NRP). No other TC has more than 3 projects. My own TC has only 1 project. In accordance with AHPETC’s priority ranking, 2 of these projects are in Hougang and 1 in Aljunied.

49.    However, let me add one point: any smooth implementation and completion of the upgrading programmes requires cooperation among all parties. I have repeated myself several times, I believe in give and take because if you do not want to cooperate, no work can be done. But if both sides are willing to give and take, things can move. While the HDB has done its part to roll out the programmes, there have been instances where the TC has apparently chosen to politicise the collaboration and not cooperate fully with the HDB. I am sorry to have to say this, but let me give you an example. A TC, I shall not name, refused to shut down the lifts to allow Lift Upgrading Programme (LUP) works to commence. It also refused to apply for the necessary licences for the switch room, for the final phase of LUP works to be carried out. All these have caused unnecessary delays, which merely inconvenience the residents. And who got the blame? HDB. We got the blame. As the Chinese saying goes , we were like “哑巴吃黄莲”. 黄莲 is a very bitter Chinese medicine, so you swallow hard, yet you are speechless. It’s really like this – 有苦难言.

50. Mdm Speaker, I often look at the way politics is being run in many other countries with great sadness. Instead of engaging one another to solve problems, parliamentary debates are conducted more like political theatre, obsessed with only scoring points against each other, while ignoring the serious issues facing the country. I really hope Singapore does not go down this route. Please, for the sake of our children and future generations.

51.    When managing TC matters, MND officials know me and my style. My instruction to my colleagues has always been – treat all TCs fairly and equitably. For instance, we apply the same formula when computing grants to be disbursed to TCs. Our technical training courses are open to all TCs. We provide technical and administrative advice to all TCs promptly, whenever we are approached. HDB holds regular TC Dialogues with all TCs to discuss future planning developments and share best practices. I personally comb through nominations for estate upgrading to ensure that the projects are selected based on objective criteria and that they also respect TCs’ order of priority. Every TC wants MND to select more projects from their town. We try to make sure that all TCs benefit from upgrading within the overall budget that we get from MOF. I cannot satisfy all TCs but I will always strive to be fair. Mdm Speaker, Parliament is now more diverse with different political parties and different opinions. But that should not prevent us from still working together for the larger good of Singaporeans.

52.    Madam, MND embarked on this review in January, in the interest of transparency and maintaining trust in the system. The review team has done a thorough job. They have satisfied themselves that the AIM transaction had complied with the TCs Act and Town Council Financial Rules. There was no misuse or loss of public funds. The residents’ interests were not compromised.

53.    The Report and its findings have been made public for all to see. The facts are set out in the Report. Members are not disputing or contradicting the facts. They are clear. It is then wrong to try to find some other basis to cast doubts, when you realise that the facts don’t help you in the arguments you want to make. If any member has any information or evidence which the MND Team has not uncovered or considered, please surface it. Just a while ago, PS passed me a message, handwritten, to say that all that has been said this afternoon in relation to the AIM transaction has also been said directly or indirectly to the Review Team. There is no new information or new argument that they have not considered before they drew their conclusions and wrote their report.

54.    In the process, the Team has pointed out some lacunae in our current TCs rules and recommended a review of TCs. This has given this House the opportunity to revisit the origin of TCs and our roles and responsibilities as MPs and Town Councillors. As MPs, we are given a lot of latitude to run TCs. This is a significant responsibility, but it is also a very rewarding one. I call on all, including our WP colleagues, to work closely with my Ministry to improve our TCs, for the interests of our residents moving forward.

55.    Thank you.

Link source : MND – Round-Up Statement on Town Councils


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