AHPETC paid Managing Agent estimated S$1.6 million a year more than other town councils: MND

In a response to a question in Parliament, National Development Minister Khaw Boon Wan notes that FMSS - unlike other MAs - had "3 separate cost components" in its 2011 MA contract, including fees to cover costs for existing and new staff.
Channel NewsAsia, 5 Mar 2015

The fees paid by Aljunied Town Council to Managing Agent FM Solutions and Services (FMSS) in 2011 were 20 per cent higher than the fees paid the year before to CPG, the previous MA, Mr Khaw Boon Wan said on Thursday (Mar 5).

And the difference paid by Aljunied-Hougang-Punggol East Town Council (AHPETC) to FMSS compared to what other town councils pay their MAs has grown, to an estimated difference of S$1.6 million a year, he said.

The National Development Minister was responding to a question from Ms Sylvia Lim, Chairman of the Workers' Party, in which she asked for the MAs for each town council from 2011 to 2013, as well as the rates charged per residential and commerical unit.

Mr Khaw noted that all MA contracts did not include a different rate for residential and commerical units - with the exception of FMSS' 2011 contract with the AHPETC, which had "three separate cost components".

Mr Khaw's response, in full, reads as follows:

Not all Town Councils (TCs) appoint Managing Agents (MAs). If they do, the Town Councils Act requires the MAs to be selected via an open market tender. Before 2014, my Ministry had not required TCs to submit their MA contracts. As we did not have the pre-2014 MA contracts, MND wrote to all TCs on Feb 27, 2015 to request submission.

Based on the submissions received, we have tabulated the requested information below (see Tables 1-3). The information for 2014 is included for completeness. We should highlight that all MA contracts charge a clean MA rate for each property type, with the exception of the FMSS’ 2011 MA contract with AHPETC. Unlike other MA contracts, the FMSS MA fee comprises three separate cost components:

A MA rate of $6.37 for residential properties and $12.80 for commercial properties under the former Aljunied Town Council;

A separate MA fee to cover the annual staff cost of all existing staff of the former Hougang Town Council (HGTC) as per HGTC’s accounts as at 31 Mar 2011, which was $1,114,283.02 subject to adjustments, if any, based on the final audited accounts; and

An additional MA fee to cover the costs of new staff on a full reimbursement basis.

As AHPETC’s submission did not include the quantum of the three MA cost components, it does not allow MND to compute the effective MA rate for the whole TC for 2011 and 2012. However, based on the Auditor-General’s Office (AGO) report on the audit of AHPETC, FMSS’ 2011 MA contract had a contract value of $432,319.91 per month, or $5,187,838.90 for one year. This would give an effective MA rate of $7.87 per unit (without making a distinction between residential and commercial units).

This rate is reflected in Tables 2 and 3.

My Ministry did not have the MA contract that the former Aljunied Town Council signed with its MA, CPG Facilities Management. It is in fact in Aljunied-Hougang-Punggol East Town Council’s possession. Based on the TC’s submission, the MA rates for residential units and commercial units are tabulated at Table 4 below.

As explained in para 2, while FMSS’ 2011 MA fees appeared to be pegged to CPG’s second year contractual rates, they included separate MA fee components to cover the staff cost of all existing staff of the former Hougang Town Council, as well as the costs of new staff. This had effectively made the FMSS’ 2011 MA fees 20 per cent higher than CPG’s 2010 fees.

The overpayment to FMSS has further grown, as compared to other MAs. By 2014, the overpayment to FMSS was estimated at S$1.6 million per year.

In a statement released to the media, MP for Bishan-Toa Payoh Hri Kumar also weighed in on the topic, once again calling for a "comprehensive forensic audit" of AHPETC.

“It is not clear why FMSS charged Aljunied-Hougang Town Council an additional S$1.1 million for Hougang staff, and another undisclosed sum for new staff, in 2011," said Mr Kumar. "Since the work of running the enlarged Aljunied-Hougang Town Council fell on former Hougang staff – some of whom became owners of FMSS – as well as the new staff whose salaries were provided for, why were additional MA fees payable for that year to FMSS?"

"As it appears, the effective MA rates for FMSS were about 20 per cent higher than the previous MA, which was a professional facilities management firm," he added.

"I repeat the call I made in Parliament for the Workers’ Party to commission a comprehensive forensic audit of the Town Council, and undertake to bring legal proceedings to recover any monies that may have been lost and seek damages for any breach of duty," said Mr Kumar. "That would bring an effective close to this matter and would benefit everyone, especially the residents of Aljunied. Curiously, the Workers’ Party has not responded to this suggestion.”

AHPETC rates had two extra charges: Ministry
These led to fees 20% higher than other councils'
By Chong Zi Liang, The Straits Times, 6 Mar 2015

DATA released by the Ministry of National Development (MND) yesterday showed why the fees of the managing agent hired by the Workers' Party (WP) were 20 per cent higher than the previous agency under the People's Action Party in Aljunied GRC.

In a written reply to questions that Ms Sylvia Lim (Aljunied GRC) asked National Development Minister Khaw Boon Wan, MND said the Aljunied- Hougang-Punggol East Town Council's (AHPETC) 2011 contract with its agent was unique as it had other components not seen in contracts that other town councils had with their managing agents.

So while the basic rates of its agent - FM Services & Solutions (FMSS) - for residential and commercial properties "appeared to be pegged" to the rates of its predecessor, CPG Facilities Management, there were two additional fees.

These were for the cost of existing staff of the former Hougang town council - which merged with Aljunied Town Council after the WP won the constituency in the 2011 General Election - and for the hiring of new staff. "This had effectively made the FMSS' 2011 managing agent fees 20 per cent higher than CPG's 2010 fees. The overpayment to FMSS has further grown, as compared to other managing agents. By 2014, the overpayment to FMSS was estimated at $1.6 million per year," the reply said.

The issue of how much FMSS was paid dominated a two-day debate in Parliament last month over the Auditor-General's Office's (AGO) findings of accounting lapses in the WP-run town council.

PAP MPs said FMSS' fees were nearly double the average fees of PAP-run town councils. WP chief Low Thia Khiang explained then that only FMSS submitted an open tender bid for the role, making its fees the market rate that the town council faced.

Yesterday, MND pointed out that FMSS' rates were $7.87 per residential unit for the years 2011 and 2012, and $7.01 for 2013.

Explaining the numbers, it said that based on the AGO's audit report, FMSS' 2011 contract had a value of $432,319.91 per month, or $5,187,838.90 for one year. This was "an effective managing agent rate of $7.87 per unit (without making a distinction between residential and commercial units)".

It also revealed that CPG's rates when it was Aljunied Town Council's managing agent were $6.03 for 2011, $6.37 for 2012, and $6.73 for 2013.

Ms Lim had asked Mr Khaw for information on managing agents and rates of all town councils, as well as the rates that CPG charged when Aljunied Town Council was under the PAP. Contacted last night on the additional components in the FMSS contract, she said FMSS took over staff of Hougang town council. The staff cost for Hougang came to slightly more than $1.1 million, and was paid from out of Hougang town council's coffers. It was also necessary to hire new staff to handle the handover.

Also last night, Bishan-Toa Payoh GRC MP Hri Kumar Nair questioned why there was a need for additional fees for the Hougang town council staff who formed part of the enlarged Aljunied-Hougang Town Council. "Since the work of running the enlarged Aljunied-Hougang Town Council fell on former Hougang staff - some of whom became owners of FMSS - as well as the new staff whose salaries were provided for, why were additional managing agent fees payable for that year to FMSS?" he asked in a statement, noting that the fee was 20 per cent higher. He added that it was not clear why FMSS charged the Aljunied-Hougang Town Council an additional $1.1 million for Hougang staff, and another undisclosed sum for new staff, in 2011.

"I repeat the call I made in Parliament for the WP to commission a comprehensive forensic audit of the town council, and undertake to bring legal proceedings to recover any monies that may have been lost and seek damages for any breach of duty.

"That would bring an effective close to this matter and would benefit everyone, especially the residents of Aljunied. Curiously, the WP has not responded to this suggestion."

Related
Debate on AGO's audit report on AHPETC, Day 1

Debate on AGO's audit report on AHPETC, Day 2
Closing Statement by Minister Khaw Boon Wan on the Motion on AGO Report on the Audit of AHPETC
Parliament Highlights - 13 Feb 2015
Parliament Highlights - 12 Feb 2015
Speech by Minister Khaw Boon Wan at the Motion on the Auditor-General's Report on the Audit of Aljunied-Hougang-Punggol East Town Council

Low Thia Khiang cements Wayang Party tag for Workers' Party with AHPETC saga
Workers' Party has betrayed residents' trust: Heng Swee Keat
Hri Kumar: PAP 'cannot go easy on WP even if there is political price'
Pritam Singh: FMSS built Chinese Wall for AHPETC
Png Eng Huat: Civil Servants screw up like AHPETC except that we screw up everyday
Shanmugam: AHPETC setup designed to let friends benefit
Low Thia Khiang admits after 20 years, he still has no idea how to manage Town Councils
Sylvia Lim takes responsibility for friends with benefits in AHPETC
Chen Show Mao learns he's in a fiduciary relationship with AHPETC
Pritam Singh to AHPETC residents: Ask me where is your money?
Khaw Boon Wan on AHPETC incompetence: In the good old days, Japanese CEOs may even kill themselves

Auditor-General's Report on Aljunied-Hougang-Punggol East Town Council's FY2012-13 Accounts
Audit of Workers' Party-run town council flags major lapses

The politics of accountability
The problem with related party transactions
WP must now walk the talk, take action

Parliament: Written Answer by Ministry of National Development on town councils’ managing agents -5 Mar 2015