HOUSING AND DEVELOPMENT BOARD (Alleged malpractices in building construction) (Statement by the Minister for Law and National Development)

3.28 p.m.

Mr E. W. Barker: Mr Speaker. Sir, on the 14th December last year I informed the House that the Corrupt Practices Investigation Bureau was conducting investigations into certain alleged malpractices in connection with building construction carried out by the Housing and Development Board. These investigations followed information received in August 1966 by the C.P.I.B. about certain piling work carried out for the Board by Gammon (Malaya) Ltd., a firm of piling contractors.

The results of these investigations revealed that there had been extensive malpractices resulting in considerable over-payments by the Board to Gammon under the terms of the various contracts in question. As soon as sufficient evidence was available from the C.P.I.B., steps were taken to uncover and measure a small number of piles at Toa Payoh. The results of these physical tests confirmed the findings of the C.P.I.B. and in December 1966 Gammon were informed that they would be held responsible. Discussions were held between the Board and Gammon and between their respective legal advisers, as a result of which early this year Gammon agreed to accept full liability for all over-payments for any structural defects which might arise as a result of inadequate piling and for further incidental expenses incurred by the Board as a result of the delay in completion of certain of the contracts. Gammon also undertook to bear the full cost of any investigation necessary to establish the extent of the over-payments.

In the majority of the contracts affected, the buildings concerned were all completed or substantially approaching completion at the date when these malpractices became known, it would, therefore, be impossible, without incurring enormous expense out of all proportion to the Board's claim, to make a full and accurate physical measurement of the short-piling involved for reasons which will be very obvious. The Board did, however, instruct a firm of consultant engineers, experts in this particular field, to make a survey and an analysis of the short-piling by the best and the most efficient method known, short of demolishing the buildings concerned and lifting the piles.

Based on this survey and on the advice of its legal adviser, the Board has reached agreement with Gammon on terms which have already been published in the form of a statement by the Chairman of Gammon. The settlement involves the payment to the Board of an aggregate sum of $2,700,000, over $2 million of which is allocated to compensation for over-payments on short-piling. The remainder represents compensation for the cost of reinstatement, losses due to delay in completion, and the cost of investigation as to the whole of which the Board has been fully indemnified. In addition, the expenses of the consultant engineers and the Board's legal expenses are to be met by Gammon.

The investigations which have been carried out have implicated a number of individuals, among them some employees of Gammon and certain of the clerks of works employed by the Board. Criminal charges have been preferred against five persons, one employed by Gammon and four by the Board, under the Prevention of Corruption Ordinance, 1960, and other charges of a similar character are contemplated. It would not be appropriate at this stage for me to say any more about these proceedings which are still pending. In addition, disciplinary proceedings have been taken by the Board, as a result of which, after due inquiry, 12 clerks of works have been dismissed, one has absconded and one resigned before an inquiry was held. Inquiries with a view to the dismissal of a further three clerks of works remain to be held. Other disciplinary proceedings are also in contemplation.

The agreement reached between the Board and Gammon is subject to reopening if it is established that any director or responsible member of the managerial staff of Gammon not below the rank of chief engineer, past or present, was a party to or at that time aware of the circumstances resulting in the short-piling.

Finally, the House will wish to be assured, as is in fact the case, that all proper steps have been taken to ensure that, despite the frauds which have been committed, all the Board's flats in question are structurally sound. The Board's consulting engineers have been asked to report fully on this, and I am satisfied, as a result of what they say, that the Board's flats in question are in fact structurally sound.

Mr S. V. Lingam (Aljunied): Sir, I have three questions to pose to the Minister. First, has the sum of $2.7 million been paid? Second, is there any guarantee or security to ensure that Gammon do not fail in their payments? Third, what safeguards have the Housing Board taken to prevent future frauds of a similar nature?

Mr Barker: As to the first question, which refers to the sum of $2,700,000, the agreement was that $1,200,000 was to be paid on the signing of the agreement. That sum has been paid. The balance of $1 ½ million is to be paid by Gammon in three instalments. The first instalment of $½ million within six months of the date of the agreement, and the two remaining instalments at intervals of six months after that. The agreement itself was signed on the 8th day of September this year. In order to ensure that payment is made by Gammon, the Board insisted on Gammon providing a banker's guarantee that the three instalments of $½ million each will be forthcoming. I think that answers the first two questions.

The Member also wants to be satisfied that steps have been taken by the Board to prevent frauds of a similar nature. Sir, the frauds were in fact committed because of lack of supervision on the piling site, lack of supervision over the clerks of works and Gammon's men on the site. In this respect, the Board has taken steps to introduce more effective means of supervision to prevent the occurrence of irregularities in future contracts. Resident engineers are now stationed on the major piling sites. In fact, the Board has created more posts for such engineers and it is now possible to have these engineers permanently stationed on a rotation basis on the piling sites. As an additional safeguard, to enable checks to be made at any time after the piles have been driven into the ground, a half-inch diameter iron pipe is inserted into the centre of a pile in a group of piles, the group of piles consisting of about two to five piles. This is to enable the length of the pile to be measured at any time after the piling has been completed by the insertion of a flexible iron rod. Thirdly, Sir, internal technical audit checks have been introduced on the piling and building sites. The Technical Audit Team makes periodic visits to do surprise checks. These are the measures the Board is taking.

At the same time, Members are aware that the suspension on Gammon tendering for future work of the Board has been lifted as a result of the settlement, and Gammon have been asked by the Board what measures they themselves will take to ensure or to prevent frauds of a similar nature taking place again. And Gammon have replied to the Board stating that, firstly, no officers and other employees involved in the over-claims remain in the employ of the company or any of its associate companies and that they have been replaced by men of proven probity. Secondly, piling work by Gammon will he carried out by direct labour on an incentive pay basis under stricter supervision, and sub-contractors shall not be employed for any piling work in Singapore. Thirdly, the company's technical auditor is now under instructions to conduct an independent scrutiny of all their piling contracts and personnel employed by them unhindered in any way as a matter of policy laid down by the Board of Management.

Mr Tang See Chim: Mr Speaker, Sir, I am rather disturbed by the Minister's statement that the suspension of Gammon has been lifted and that there is a possibility of future work being done by them. No doubt they have been asked what measures they are taking to prevent further frauds, and it is interesting to hear their reply about "men of proved ability". But I was wondering whether they were men of proved integrity too. I wonder whether the Minister will consider not accepting tenders from Gammon any longer since, as far as I can see, there is no dearth of piling firms in the Republic.

There is a further question I would like to ask the Minister, and that is whether the balance of $1½ million to be paid over three instalments attracts interest, and if so, at what per cent, and if not, why not?

Mr Barker: Mr Speaker, Sir, I am surprised that a member of the Bar should ask me, after a settlement in which the Housing Board is to be paid $2,700,000, why Gammon's suspension was lifted. The answer is simple. If the Board had not agreed to lift the suspension, Gammon would not have paid $2.7 million. It is a big sum. The other alternative was to take them to court, and again here a member of the Bar should know that court proceedings take a long time and, in the final analysis, the Board may get more, maybe a little more, or they may get less. But in any settlement, there must be give and take. The fact that the suspension has been lifted means that Gammon, like other contractors, can tender. There is no guarantee that their tenders will be accepted. But there are measures taken by the Board not only in respect of work sites, on which Gammon are employed, but also of other piling contracts.

As for the second question, there is no agreement for interest to be paid on the sum of $1½ million. The Member wants to know why not. The answer is this. Gammon were in no position to pay the Housing Board $2.7 million in cash. There was bargaining on the final figure, whether it was $2.5 million or $2.7 million. But the question of interest was not taken up by the Board because, in the final analysis, it was the Board's figure that was accepted by Gammon, not Gammon's figure accepted by the Board.

Mr Tang See Chim: Does the Minister agree that $1½ million in one and a half years' time is, in fact, worth less than $1½ million now? So the settlement would, in fact, be less than $2.7 million.

On the question of suspension, I realise that the word "suspension" may be a technical term. But can the Minister assure the House that future tenders by Gammon will not be accepted? It means that we can settle but it does not mean that we are required to do business again.

Mr Barker: Sir, I think it is pure logic that $1½ million to be paid now is worth much more than $1½ million to be paid in three instalments. That is admitted. But again under the terms of settlement, Gammon were allowed to make these payments because they were in no position to pay $2.7 million cash.

As for the lifting of the suspension, once the suspension is lifted, how does the hon. Member expect me to give him an assurance that Gammon's tenders will not be accepted? Is the hon. Member asking me to black-ball Gammon again? As I have pointed out, under the terms of the agreement, no company paying $2.7 million is going to pay that money without getting something in return.

Mr Ng Kah Ting and Mr Tang See Chim rose -

Mr Speaker: Mr Tang, I will come back to you if we have time. Mr Ng.

Mr Ng Kah Ting: Mr Speaker, Sir, will the Minister inform the House of the number of contracts awarded to Gammon and the total sum of the contracts, and how was this settlement of $2.7 million arrived at?

Mr Barker: I take it that the Member for Punggol is referring to past contracts. Since investigations started, no contracts have been awarded to Gammon as yet. I cannot tell you exactly how many piling contracts were awarded to Gammon in the past.

Out of the $2.7 million, roughly $2,098,000 was in respect of short-piling. I do not think I need bother you with details, but I have the figures here showing how the sum of $2,098,000 is made up in respect of contracts all over the island. It adds up to $2,098,000 based on the calculations of the consultants. Roughly, it represents about 20 per cent of the total cost of piling work done by Gammon. The uncovering of the piles at Toa Payoh revealed that there was a shortage of roughly 20 per cent. It was physically impossible to go around Singapore pulling up piles from occupied buildings. So the estimate was 20 per cent right round the island. And 20 per cent of a little more than $10 million works out to about $2,098,000.

As for the balance - a sum of roughly $350,000 - $300,000 was for compensation in respect of delay covering nine blocks in Toa Payoh; $50,000 being the amount estimated to be payable to the Board's contractor for uncovering the piles. Then you have other items like investigation costs, including professional fees and wages of the Board and P.W.D. personnel involved in the investigations into the said short-piling. And then the cost of reinstating buildings damaged or demolished. But in a settlement for a lump sum of $2.7 million, it is difficult to say how much went to each particular item. But the bigger part of the sum, i.e., nearly $2,100,000 was estimated to be in respect of short-piling.

Mr Yeoh Ghim Seng (Joe Chiat): Mr Speaker, Sir, I would like to know who will be responsible to the Board in the event of possible structural damage to flats? Does the sum of $2.7 million exonerate Gammon from future liabilities?

Mr Barker: May I assure the Member for Joo Chiat that the sum of $2.7 million does not exonerate Gammon from future claims in respect of, say, major structural defects which might appear. In fact, if I may quote clause 4 of the agreement:

'The Company hereby undertakes liability to the Board in respect of and indemnifies the Board in full in respect of all damages, costs and expenses of whatever nature suffered or incurred by the Board consequent upon any structural defects in any buildings covered by the said contracts arising within ten years from the date of completion of each particular contract as a result of inadequate piling by the Company.'

Some of these contracts started in 1961. So for the earliest contracts, we can wait till 1971. For others, you calculate a period of ten years.

Mr Yeoh Ghim Seng: What happens if human lives are also damaged?

Mr Barker: The Board is responsible and Gammon will be responsible under this clause of indemnity.

Mr Speaker: I will take one more question. Mr Ng.

Mr Ng Kah Ting: With the lifting of the suspension of Gammon, can the Minister assure the House that should the piling construction company concerned be successful in any future tenders in respect of the Board's tenders, stringent steps would be taken to ensure that no future fraud or malpractices would be practised?

Mr Barker: In answer to the hon. Member for Aljunied who originally asked this question in the House, I did set out in detail the steps already taken by the Board to try to prevent future frauds of this nature. As I have pointed out, previous frauds were due to lack of supervision. The clerks of works have to be supervised. Now you want to get engineers to supervise the clerks of works. How far do we go from there? Do you want someone else to supervise the engineers? And someone else to supervise that someone else? We can go on for ever. But I myself am satisfied that satisfactory steps have been taken by the Board to prevent future occurrences of a similar nature and I think we will have to wait and see what the future holds for us.

The Minister of Defence (Mr Lim Kim San): Can I add something for clarification for the peace of mind of Members here? Mr Speaker, Sir, normally after a lapse of an interval of, say, six months or a year, if there are no structural defects in a building, it is unlikely that there will be structural defects later on. So I think, by and large, we can assure the House that in most of the buildings where the piling has been undertaken by Gammon and in which they have been lived for two or three years by this time, there is no danger at all of any major structural defects.

Mr Barker: Can I just add one last sentence perhaps to satisfy the Member for Choa Chu Kang who criticised the Board for not insisting on interest to be paid on the $1½ million?

Let me assure the House that it was not the Housing Board and its Minister that settled this matter. This matter, in view of its wide implications and the sums of money involved, had the blessing of the members of the Cabinet of the Singapore Government.