FARMING OUT PUBLIC SECTOR PROJECTS TO SMEs

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FARMING OUT PUBLIC SECTOR PROJECTS TO SMEs: 7.

Ms Olivia Lum Ooi Lin asked the Prime Minister and Minister for Finance as the move by the Government to apply Public Private Partnership on large projects exceeding $50 million will definitely benefit many large private companies but not many SMEs, has his Ministry any plans to further encourage the public sector agencies to critically review areas of works or services that can be farmed out to the SMEs under similar PPP arrangements.

Mrs Lim Hwee Hua (for the Prime Minister and Minister for Finance): Sir, I would like to thank the Member for her interest in the Public Private Partnerships initiative. Public Private Partnerships (PPPs)are long-term contracts where the private sector provides services and facilities to the Government. A typical PPP requires the private sector to design, construct, finance, maintain and operate facilities over a period of 15 to 30 years. Previously, the Government would have undertaken each activity with a different company. Under a PPP, the private sector will bring these same or similar companies together, often as a consortium, to undertake the whole project.

Sir, because of the complexity and long term nature of PPP contracts, there are greater administrative costs involved. The Government can expect to save overall using PPP only if the projects are relatively large. The Ministry of Finance has set $50 million as a guide, meaning that all projects above $50 million should be considered for suitability as a PPP, while projects less than $50 million can also be considered, depending on the nature of the project.

Small and Medium Enterprises (SMEs) can participate in the PPP consortiums as partners, contractors or subcontractors. In addition, SMEs can continue to

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contract directly with the Government for projects below $50 million.

PPP contracts basically involve the provision of new services and facilities. As for current services, all public sector agencies are now required to increasingly market test non-core services which they are doing in-house. Under this Best Sourcing directive, the services will be outsourced if private sector vendors can offer the services more economically.

In summary, Best Sourcing and PPP together present more opportunities for SMEs to be involved in the delivery of public services.

Ms Olivia Lum Ooi Lin (Nominated Member): Sir, may I ask the Minister of State what is the value of these works and services that are planned to be farmed out to the local SMEs? Because of this Best Sourcing exercise, I am sure that the local Government agencies would be able to farm out as much of these services as possible to the local SMEs.

Mrs Lim Hwee Hua: Sir, for FY03, the total contract value awarded as a result of Best Sourcing projects is $16.8 million.