Dispute between AHTC and AIM

The dispute between AHTC and AIM was a public controversy running from December 2012 to mid-2013 over the termination of the Aljunied–Hougang Town Council's (AHTC) use of the Town Council Management System (TCMS) software, and over the 2010 sale of that software by the 14 People's Action Party-run town councils to Action Information Management Pte Ltd (AIM), a company wholly owned by the PAP and since struck off. It began when AHTC chairman Sylvia Lim responded to a Ministry of National Development (MND) town council management report on 14 December 2012 by attributing the delay in her town council's audit to the termination of the TCMS. The dispute turned on whether AIM had terminated the software's provision on inadequate notice, on whether the tender by which AIM acquired the software was properly conducted, and on whether it was in the public interest for town councils to sell a critical operating system to a company owned by a political party.

Prime Minister Lee Hsien Loong directed MND to review the transaction in January 2013. The MND Town Council Review Team reported on 30 April 2013 that the town councils had complied with the Town Councils Act and the Town Council Financial Rules and that there was no loss of public monies. Parliament debated the report on 13 May 2013.

Background

AIM was set up by the PAP in 1991 to coordinate IT services common to the PAP-run town councils, and developed the first-generation TCMS after winning an open tender in 1994. The second-generation TCMS was developed by National Computer Systems Pte Ltd (NCS) under a 2003 tender in which AIM did not participate.

In 2009 the PAP town councils appointed Deloitte & Touche Enterprise Risk Services Pte Ltd to review the second-generation TCMS. The review found the system was facing obsolescence — it was built on Windows XP and Oracle Financial 11 platforms, both of which were being superseded — and recommended two operating models: a service model under which an external vendor would own the software and lease it to the town councils, and an ownership model under which the town councils would own it. The town councils decided to explore the service model, and concluded that consolidating the intellectual property rights in a single party would be more efficient than each of the 14 town councils holding rights separately.

The 2010 tender

Tender by town councils for its management system in 2010

The tender notice was advertised in The Straits Times on 30 June 2010 with a closing date of 14 July 2010, subsequently extended to 21 July 2010 to give tenderers a three-week notice period. Five vendors collected tender documents — AIM, CSC Information Technologies Services Pte Ltd, Hutcabb Consulting Pte Ltd, NCS Pte Ltd and NEC Asia Pte Ltd — but only one bid was submitted, by AIM on 20 July 2010. No written reasons were given for the non-participation of the other four; the town councils were informed verbally that the reasons included the limited value of the software outside the town council context and the absence of assurance of service continuity.

AIM bid S$140,000 for the software — based on S$10,000 per town council — and proposed to lease it back at S$785 per month per town council from 1 November 2010 to 31 October 2011, after which no further lease payments would be charged. Against the S$140,000 sale price, the town councils paid S$131,880 in lease payments over that year, a net gain of S$8,120. AIM also undertook to secure extensions of the NCS maintenance contract at no increase in rates. The sale agreement was dated 3 January 2011. The contract was later extended from 1 November 2011 to 30 April 2013, during which AIM charged a management fee of S$33,150 on a cost-recovery basis.

Under the contract AIM could terminate on three months' written notice, or on one month's notice in the event of material changes to the membership, scope or duties of a town council, including changes to its boundaries. The town councils' stated rationale was that a vendor priced its bid on the basis of existing boundaries and could otherwise be held to the same fixed price while serving a materially larger area.

What was sold was the intellectual property in the software; the review team recorded that ownership of the physical computer systems remained with the individual town councils.

Termination of AHTC's Use of the TCMS

At the 2011 general election the Workers' Party won Aljunied GRC, and the incoming AHTC took over management of the town from the former Aljunied Town Council on 1 August 2011, including its existing contracts.

The MND review team observed that AHTC and AIM appeared to have had different understandings of how the termination clause was executed. Its chronology, supported by the correspondence annexed to the report, records:

Date	Event
Before 10 June 2011	AHTC is given to understand by its then-interim Secretary that AIM would be terminating the TCMS contract, and plans to upscale the system it had used for the former Hougang Town Council. The review team records no direct or written communication from AIM on this
10 June 2011	AHTC writes to AIM stating it is developing its own system, targeted to go live on 1 August 2011, and requests to continue using the TCMS until 31 August 2011 to ascertain the new system's reliability
22 June 2011	AIM gives notice of termination of AHTC's use of the TCMS with effect from 1 August 2011, citing material changes to the town council's membership under Clause 9.3
24 June 2011	AIM agrees to extend use of the TCMS to 31 August 2011, subject to payment of S$30,918.63
28 June 2011	AHTC confirms acceptance
29 August 2011	AHTC requests a further extension to 9 September 2011 so its auditors can review data in the system
31 August 2011	AIM grants the request, subject to a one-off payment of S$419.98
2 September 2011	AHTC accepts
10 September 2011	AHTC's use of the TCMS ceases

The review team recorded that AIM understood AHTC's letter of 10 June 2011 to mean that AHTC was giving notice of its intention to use its own system and not rely on the TCMS, but had sought an extension to allow more time to install it. It also recorded that AIM was internally prepared to grant any further extension if requested.

Public Dispute

MND town council report and AHTC's response

On 14 December 2012 MND released its town council management report, which gave AHTC a "red" rating for its handling of service and conservancy charge (S&CC) arrears. AHTC was not rated for corporate governance, MND stating that the town council had been late in submitting an auditor's management letter material to the banding of that indicator.

In a statement issued the same day, AHTC chairman Sylvia Lim attributed the delay to the town council's need to develop a new computer and financial system from scratch. She said that on taking over the town council after the 2011 general election, AHTC was informed its existing computer and financial systems would be terminated from 1 August 2011 owing to material changes to the membership of the town council. She said the systems had been developed collectively by the 14 PAP town councils over more than 15 months and had since been sold to AIM and leased back, and that AHTC was left with roughly two months to develop its own equivalent — a task she described as near-impossible, which had required the town council to phase the development of its financial system and so delayed its audit.

Blogger Alex Au wrote that the matter had the potential to cause significant damage to the PAP, and posed the questions of what price the software was sold for, how that price was arrived at, and whether there was competitive tendering.

AIM's composition

Reporting in December 2012 drew attention to AIM's structure. Lim stated that the company was dormant. The socio-political site TR Emeritus, citing the company's ACRA filing, reported that AIM comprised three people — chairman S. Chandra Das and directors Lau Ping Sum and Chew Heng Ching, all former PAP MPs — and had a total paid-up capital of S$2, one dollar held by Chandra Das and the other by Lau. It also reported that AIM operated from an address shared with a large number of other businesses.

The MND review report of April 2013 did not address AIM's paid-up capital, dormancy or registered address.

Exchange between the parties

AHTC stated in December 2012 that the termination of AIM's services was one reason its corporate governance audit had been delayed. AIM's chairman S. Chandra Das said in a letter to the media that the company had extended its services to the town council twice, in August and September 2011, and would have agreed to a further extension had the town council requested one; AIM described Lim's characterisation that the town council had to fight for an extension as inaccurate, saying that as AHTC did not ask for a further extension, the contract lapsed. Lim said the town council had understood that no further extensions would be forthcoming, and questioned why AIM had terminated its services in the first place.

Dr Teo Ho Pin, then Coordinating Chairman of the PAP Town Councils, said the transactions followed regulations, that the sale involved the software while ownership of the hardware remained with the town councils, and that in 2010 an open tender was called to which AIM submitted the sole bid though five companies collected the tender documents. In a further statement reported on 22 December 2012, he said the one-month termination clause was reasonable because the contractor had priced its bid on the basis of the existing town council and town boundaries, and could otherwise end up serving a materially larger area and more residents at the same price. He said the sale took place because it was cumbersome and inefficient for 14 individual town councils to hold intellectual property rights to software used by all of them, and that the move resulted in savings of about S$8,000 for the town councils.

Lim responded that Teo's and Chandra Das's statements were calculated to side-step what she called the most critical question of how the public interest was served, asking what justification there was for the town councils to relinquish ownership of the systems and leave the continuity of town council operations at the mercy of a third party. Noting Teo's acknowledgement that AIM was wholly owned by the PAP, she said the PAP-managed town councils had seen it fit to sell away ownership of systems developed with public funds to a political party which could presumably act in its own interests when exercising its rights to terminate the contracts.

Tender conduct

The Online Citizen questioned the conduct of the tender in December 2012, arguing that the notice — headed only "Contract for the purchase of the developed application software" — carried no description of what the software was or did, made no mention of the leaseback obligations, and appeared alongside notices for other projects that contained substantially more detail. It noted that obtaining the tender documents cost S$214, and argued that paragraph 74(5) of the Town Council Financial Rules required a tender advertisement to contain the minimum information necessary for tenderers to know what was required and the period of the contract, and that paragraph 74(6) required a minimum three-week tender period unless a shorter one was approved and the reasons recorded.

Punggol East by-election

The dispute continued into the 2013 Punggol East by-election campaign. At a WP rally on 22 January 2013, Lim said that after the party won Aljunied GRC in 2011 it had been able to examine town council documents, and that she had found contracts carrying a clause allowing termination of services on a change in the composition of town council management. She questioned whether the ruling party was determined to trip up an incoming opposition even where the arrangement might not be in the public interest, likening it to sending soldiers to war and taking away their ammunition. She said the WP had not raised the matter in 2011 because the party had been focused on taking over the town council, and that the issue would not have come to light had the WP not won Aljunied.

In a statement issued on 22 January 2013 in response to media queries, Teo said AIM had been awarded the contract after an open tender by the PAP town councils to centralise software maintenance and help develop a new system, that the transaction brought benefits and savings to the town councils and AIM made no financial gains from it, and that it was AHTC which terminated the contract and not AIM. He added that Lim had admitted AHTC's arrears were high and that this had nothing to do with AIM or the changeover of the IT system, and said the key issue was the performance of the town councils and how the WP managed them.

MND Review

Prime Minister Lee Hsien Loong directed MND in January 2013 to review the sale, to satisfy itself that public funds were safeguarded and residents' interests were not compromised, and to make observations on the nature of town councils and how they are run. The review team studied the Town Councils Act and the Town Council Financial Rules, examined the external audit reports for the FY2010 accounts of the 14 PAP town councils, and interviewed the PAP town councils, AHPETC and AIM. It reported on 30 April 2013.

Findings

The review team concluded that the PAP town councils had complied with the open tender process under the Town Councils Act and the Town Council Financial Rules; that the sale and leaseback was permissible under the Rules, the town councils having autonomy to manage their assets; that there was no misuse or loss of public monies; and that no town council member held a pecuniary or direct interest in AIM or an indirect interest in the contract. It verified that AIM did not profit from the transaction, made a loss on the one-year arrangement, and that its directors were not paid a fee. It noted that the independent external auditors of the 14 PAP town councils' FY2010 accounts had not raised the transaction as an issue.

On the tender notice period, the review team found that the town councils met the requirement of a minimum three-week notice period, having obtained the necessary approvals for the initial two-week period and the subsequent one-week extension to 21 July 2010. On the single bid, it found it permissible under the Rules to accept a bid meeting the tender requirements and evaluation criteria, and that as only one bid was received the town councils did not need to choose between competing bids. It considered it reasonable to award the tender to AIM given its track record with the town councils since 1994.

On conflict of interest, the report stated that town councils were set up for and fulfil a political purpose, and that latitude has always been given to them to exercise autonomy in engaging those who share their political agenda or are affiliated to their parties; the substantive issue was therefore whether members held a pecuniary or direct interest in the transaction and whether residents' interests were impaired.

The review team also found that the town councils had underestimated the complexity of developing a new TCMS, which led to two extensions totalling 18 months beyond the initial contract.

Observations on town councils

The report made broader observations on continuity of service when a town council changes hands. It noted that the Town Councils Act allows the Minister to specify that an outgoing town council continue to manage a transferred area for up to 90 days, but contains no other transition provisions, and questioned whether 90 days is sufficient in all circumstances. It observed that both Potong Pasir Town Council and AHTC had appointed new managing agents by waiver of tender after the 2011 general election due to the urgency of their needs — AHTC appointing FM Solutions and Services Pte Ltd (FMSS), newly set up in May 2011 by the former General Manager of Hougang Town Council — and that while services were not compromised, the arrangement was not ideal and more time should be given to select a managing agent.

The report concluded that there is a fundamental tension between town councils' dual objectives of delivering public service and the political accountability of MPs in a context of political competition, and that the current arrangement inherently bears a constant risk of politicisation of town council administration. It proposed that the Government consider a strategic review of town councils in their current form.

Parliamentary Debate (13 May 2013)

The Prime Minister released the Review Report to the public on 3 May 2013, and it was circulated to Members as a miscellaneous paper. Parliament debated the report on 13 May 2013 on a Ministerial Statement delivered by Minister for National Development Khaw Boon Wan, followed by a motion under Standing Order 44 that the matter be considered by Parliament.

Government's account

Khaw set out the review team's findings: that there was no pecuniary or material interest by any town council member in AIM or the contract, that the PAP town councils had complied with the open-tender process, that acceptance of a single bid was permissible, that AIM did not profit and its directors were unpaid, and that there was no misuse or loss of public monies. He said the team had been given a free hand, was led by MND Deputy Secretary Tay Kim Poh, and reported through the Permanent Secretary. He stated that the review team had consulted the Attorney-General, who confirmed the legal position taken in the report on conflict of interest.

Teo Ho Pin said the sale had followed a Deloitte & Touche recommendation to adopt a service model, that AIM had secured two extensions of the NCS maintenance contract at no extra cost, and that the transaction had paved the way for a new TCMS tender called in February 2013. He said the PAP town councils had awarded the new TCMS contract to NEC Asia Pacific for S$16.8 million in April 2013 on a service model, under which the town councils would not own the software. In later clarifications he said the one-month termination clause applied to all town councils regardless of political affiliation, and that neither AIM nor the town councils would own the new NEC software.

Workers' Party's account

Sylvia Lim said the WP did not accept the finding that public funds were safeguarded and residents' interests not compromised. She argued that aspects of the tender did not follow the spirit of an open tender — the specifications required each director of a tendering company to have town council experience, which she suggested only AIM could meet, and the tender was first advertised for two weeks, below the three-week minimum, before being extended. She questioned the S$8,000 saving cited for the sale (about S$571 per town council), the entrusting of cost-escalation risk to a company with S$2 paid-up capital, and the one-month termination clause on a system that by the PAP's own estimate would take 18 to 24 months to replace. She said the sale's timing, straddling the 2011 general election, called for explanation.

Pritam Singh said that although the report had cleared AIM of legal wrongdoing, legal legitimacy under the Town Councils Act did not amount to good governance, and that the source of the "fundamental tension" the report identified was AIM's political profile. He argued that a PAP-owned company's right to terminate a critical system on one month's notice ran the risk of prejudicing an incoming non-PAP town council, and proposed that companies wholly owned by political parties should have no business dealings with town councils.

Png Eng Huat argued that the termination clause was redundant because a separate variation clause already compensated AIM for changes in town size, and that the flat S$785 monthly fee across all 14 town councils showed size was not a pricing concern. He questioned the sale of the intellectual property in a system developed at a cost of S$23.8 million, and asked who would own the IP in the new NEC system.

Non-Constituency MP Lina Chiam and Nominated MPs R. Dhinakaran and Eugene Tan Kheng Boon raised concerns about how conflict of interest had been defined and about corporate governance, while Sitoh Yih Pin, Zainal Sapari, Denise Phua and Liang Eng Hwa spoke in support of the report and described their own town council handover and management experience.

The FMSS comparison

In the debate the Government drew a comparison with AHTC's own managing agent, FM Solutions and Services Pte Ltd (FMSS). Khaw noted that FMSS had been formed days after the 2011 general election, was owned by How Weng Fan and Danny Loh — described as WP associates — and had been appointed managing agent without a tender, later winning a S$16.8 million three-year contract as the sole tenderer and a further S$3.9 million EMSU contract. He said MND applied the same latitude on party affiliation to all town councils and had not interfered. He also stated that FMSS's managing-agent rate in Aljunied was higher than the rate charged under the former PAP-run town council and than that in Tampines.

During the Denise Phua exchange, Lim stated that the AIM sale agreement was dated 3 January 2011, some months before the 2011 general election; Phua replied that discussions on replacing the software had begun in 2009 and that the general election had not been a consideration.

Workers' Party statement of 16 May 2013

In a statement issued on 16 May 2013, Lim said the WP had raised the AIM transaction because it viewed the sale as jeopardising the public interest, and rejected what she called attempts by Khaw and Teo to distract the public by casting aspersions on the WP's management of the town council and on FMSS. She set out what she described as the key differences between the AIM transaction and the appointment of FMSS: that AIM was wholly owned by the PAP and managed by former PAP MPs whereas the WP had no interest in FMSS; that AIM's paid-up capital was S$2 against FMSS's S$500,000; that both were single bids but a special audit was conducted in FMSS's case; and that a critical town council asset was placed in AIM's ownership allowing one-month termination, whereas no town council assets were placed in FMSS's ownership. She invited the Minister or Ministry, if they believed there was wrongdoing in the WP's management, to report the matter to the Corrupt Practices Investigation Bureau rather than make insinuations, and assured those agencies of the WP's full co-operation.

The award of the managing agent contracts to FMSS, raised by the Government in this debate, later became the subject of the civil suits described at Aljunied–Hougang Town Council saga.

Timeline of Events

Date	Event
30 June 2010	PAP town councils advertise the TCMS sale tender in The Straits Times
20 July 2010	AIM submits the only bid, at S$140,000
1 November 2010	Sale and leaseback arrangement takes effect
May 2011	WP wins Aljunied GRC at the general election
22 June 2011	AIM gives notice of termination of AHTC's use of the TCMS
10 September 2011	AHTC's use of the TCMS ceases
14 December 2012	MND town council management report rates AHTC "red" on S&CC arrears; Lim's response attributes the audit delay to the TCMS termination
22 December 2012	Teo Ho Pin says the one-month termination clause is reasonable; AIM disputes Lim's account of the extensions
31 December 2012	The Online Citizen questions the tender notice's lack of detail
3 January 2011	Date of the AIM sale agreement (as stated by Sylvia Lim in Parliament)
22 January 2013	WP rally at Punggol East by-election; Dr Teo Ho Pin issues a statement in response to media queries
January 2013	PM Lee Hsien Loong directs MND to review the transaction
30 April 2013	MND Town Council Review Report completed
3 May 2013	Report released to the public
13 May 2013	Parliament debates the report on a Ministerial Statement
16 May 2013	WP issues "Town Council Management – What Is Really At Stake"
13 May 2013	Parliament debates the Review Report
16 May 2013	WP issues "Town Council Management – What Is Really At Stake"

See also

• Action Information Management
• Aljunied–Hougang Town Council saga
• Aljunied–Hougang Town Council
• Town Councils Act
• 2013 Punggol East by-election
• People's Action Party