Open Tenders and Crazy Economics

I am very perplexed by a recent statement made by our Finance Minister. He opined that open tenders are not necessarily equitable, as it prevents financially-weak companies from competing. This is crazy economics.

A company with weak financial fundamentals (Company A) is likely to obtain a bank loan with higher interest rates (given the higher risk), vs. another one (Company B) with solid financial standing. This means for any project that Company A tenders for, it is going to demand a higher rate of return to compensate for its higher interest costs, which translates into higher tender price. This essentially means that it will lose to a lower bid by Company B if price was the only determining criteria.

Yet the Finance Minister is saying this is “unfair”. Is it fair to the tax-payers (if Company A was chosen) who will end up paying more, for say, a bridge, when some companies are willing to build it for less? The Government has no business to prop up companies by awarding plum projects to them, as it is akin to gambling with the rakyat’s money. What if Company A fails to deliver the project? Why take this risk when there are other companies who are far more reliable and cheaper?

Of course, there is nothing to prevent Company A from subcontracting the project to Company B, who can pull off the project with lower costs and hence price. Company A ends up with a profit by doing nothing, apart from securing the fat government tender. Company B gets the project it is fully qualified for in the first place, albeit from the “winning” bidder, and delivers. However, we, the tax-payers end up with a higher tab. Is this fair?

Ultimately, the Government, as custodians of the people’s money, must have the interests of the people in mind. So what if “only the strong and those with financial capacity” benefit from open tenders, if the people also benefits? After all, it is the rakyat that the Government is subservient to, not businesses. Equity to the People first, not companies!