The AIM Transaction: Business or Political – Png Eng Huat

By MP for Hougang SMC, Png Eng Huat
[Delivered in Parliament on 13 May 2013]

The MND Town Council Review has left many questions unanswered despite providing a lot of background information on the AIM transaction. While the report has concluded that the sale of the Town Council Management System (TCMS) to a PAP-owned company was nothing more than a business deal, the intentions behind the AIM transaction were not thoroughly scrutinized and explained.

The MND Review also did not look into the possibility that some of the decisions made in the AIM transaction could be politically motivated since MND has acknowledged that Town Councils, by virtue of their leadership, are politicized already.

While the AIM transaction is deemed legal and permissible under the law, the rationale behind the sale of the Intellectual Property (IP) rights to the TCMS to a PAP-owned company and the provision of the Termination Clause in the contract remains unclear and unconvincing in the review. Today I wish to speak on these 2 issues.

Termination Clause
The MND review has not fully addressed how public interest is being served when a vital piece of software for town management, developed at a combined cost of $23.8 million (page 15), was offloaded to a PAP-owned company for $140,000 with an unusual Termination Clause made in favour of the new owner.

The Termination Clause reads:
“The Contractor may in its absolute discretion terminate his services during the contract by giving three (3) months prior notice in writing to the Town Council. However, in the event that there are material changes to the membership of the Town Council or there are material changes to the scope and duties of the Town Council, including but not limited to changes to its present boundaries the Contractor may give a month’s notice in writing, if he wishes to terminate the services during the contract period.”

I find it hard to comprehend that after selling the TCMS to a vendor, the PAP Town Councils also found it imperative to give the same vendor absolute discretion to terminate its services which are vital to the operations of their own towns. How are the interests of the residents protected in such an arrangement?

And what are ‘material changes’ and why it is so important that if such changes were to happen, AIM could just give a month’s notice to terminate its services to any town council.

In the official explanation of the Termination Clause, the PAP Town Council has failed to fully address the meaning of ‘material changes.’ Nonetheless, the PAP Town Councils felt that the provision of such a one-sided Termination clause was ‘fair and reasonable as the vendor would have priced its bid on the basis of the existing TC and Town boundaries. However, should this change materially, the vendor could end up providing services to a TC comprising a much larger area and a larger population of residents, but is held to do so at the same fixed price since a key feature of the contract was that there should be no price change to the TCs even for extensions. The TCs felt that this would be unfair to the prospective vendors, and a clause explicitly addressing such changes would reduce the business risk to the vendor. This would help fetch a better tender price for the TCs’ old software.’

While the above explanation may sound logical, I will explain to this House, point by point, why the provision of the Termination Clause is ill-conceived and makes absolutely no sense at all.

First, there will always be changes made to the size and population of a town because of Build-to-Order (BTO) flats, Selective En bloc Redevelopment (SER) Scheme, private developments and the constant redrawing of our electoral boundaries. Is it then prudent to allow AIM or any new owner of the TCMS to simply walk away from this critical contract citing ‘material changes’ and leaving an entire town in a lurch? How is public interest protected with such a one-sided Termination Clause?

Second, in its original contract, AIM proposed a Lease-Back payment schedule that did not take into consideration the size and population of a town council. All the 14 PAP Town Councils, regardless of their size and population, were required to pay an equal amount of $785 per TC per month as lease-back payment for the use of the TCMS. Thus, it does not matter if you are running a small GRC like Moulmein-Kallang or a big GRC like Ang Mo Kio, each town council pays AIM the same amount of subscription fee. So was AIM concerned about the size and population of a town when pricing the TCMS subscription fee? The answer is obvious. And if AIM is not even worried about such business risk, why would the 14 PAP Town Councils lose sleep over this and want AIM to address such risk? After all, the PAP Town Councils had assessed that AIM is ‘a company with an established track record in TCs and IT services’ and they had confidence the company would deliver on its commitments.

Third, the above explanation of the Termination Clause sounds even more ludicrous when one finds out that there is a clause in the same contract that allows for variation and AIM would be paid in accordance to a method of calculation based on industry practice. In short, AIM is covered if ‘material changes’ in size and population of a town council were to happen for whatever reason. So why was there a need to give AIM the absolute discretion to cite ‘material changes’ to terminate its services to a town council when ‘material changes’ were already covered under the Variation Clause? Can the Minister explain this anomaly?

The provision of this one-sided Termination Clause in the AIM transaction makes no sense because the interests of the residents were not protected at all. Our towns are always in a constant flux of change due to the dynamics of our public and private housing schemes and the redrawing of our electoral boundaries. Residents should not be made to suffer unnecessarily as a result of such ‘material changes’.

The one-sided Termination Clause has caused so much confusion that even the Minister is confused as he has said earlier that the letter of 10 June 2011 sent by the Interim Secretary of the Aljunied-Hougang Town Council was a request to terminate the use of the TCMS. On the contrary, the letter was a request to continue the use of the software of the software till 31 Aug 2011. The Aljunied-Hougang Town Council has no power to initiate any termination based on ‘material changes’. AIM was the one which was given the power to terminate and did exercise it 12 days later on 22 June 2011 according to its own timeline. The question is why PAP Town Councils allowed town councils to be powerless and at the mercy of AIM?

Sale of Intellectual Property Rights
The review report has also concluded that the AIM transaction complied with the Town Council Act and Financial Rules. However, there is a misplaced trust that the sale of the IP of the software to a PAP-owned company was done in the best interests of the residents.

Would any member in this House want to spend $23.8m of your residents’ money to develop a vital piece of software and then offload the IP to a third party knowing very well that future developments and upgrades of the system may depend on the use of the original IP rights?

The risks of system obsolescence are common problems faced by people or companies who depend a lot on the use of IT in their operations. Thus everything from software to hardware can be rendered obsolete in a short space of time but the IP will not. The knowledge system that went into developing the IP for the $23.8 million TCMS is valuable and critical. The TCMS may have zero book value but its real operational value is immeasurable. Right at this moment as we debate in this parliament, the TCMS is keeping almost the entire Singapore humming along, processing payments, managing arrears, handling residents’ feedback and facilities bookings, keeping the financial in check, keeping the communications flowing, and more. The rights to the use of the TCMS must remain open to a town council no matter what or when ‘material changes’ take place.

In the interest of the public, can the Minister state who will own the IP rights to the $17.6 million 3rd generation TCMS that is currently being developed by NEC Asia Pacific? Will AIM be holding any IP rights, direct or derivative, to the new system that is being developed and funded with town council money?

The official explanation of the sale of the TCMS to AIM was to consolidate the IP rights under a single entity for ease of management, future development, and securing extensions of the NCS contract at no extra cost to the PAP Town Councils until such time when the current system is replaced.

As AIM outsourced its IT services to other vendors, it is basically playing the role of a project manager and project managers do not need to own the IP rights to the project they managed especially when those projects are vital to the operation of our towns and developed with public money.

It also appears incredulous that the 14 PAP Town Councils would need an external company, who is technically a competitor of NCS, to help them negotiate and secure extensions of the NCS contract at no extra cost to the PAP Town Councils even though the town councils have a longstanding working relationship with NCS going back to 2003 when they first awarded the multi-million project to the IT company.

How hard it is for the PAP Town Councils to secure extensions of the NCS contract at no extra cost on goodwill? Did the PAP Town Councils try to approach NCS directly?

Conclusion
The relationship between the PAP Town Councils and AIM is an uneasy one. It was reported that AIM was set up by the PAP in 1991 to specifically support PAP MPs in the running of their TCs and estates. The company does not seek to make profit from its work done for the PAP Town Councils and only charges management fee based on cost-recovery. Thus, any transaction done between the PAP Town Councils and AIM has very little business consideration, mostly political I presumed.

The MND Review has stated that ‘given the political character of the town council’s leadership and the political implications attached to the management of the town council, it is inevitable that the town council function is carried out in a competitive politicised context.’

The AIM transaction had all the trappings of a high stake political game where the interests of the residents are of the least concern. So how should MND classify the sale of the TCMS to AIM and the provision of the one-sided Termination Clause in this review, business or political?

Finally, I believe whatever that was written in black and white in the AIM transaction has been reviewed by the committee but whatever intention that was written in the hearts of the people that were involved in this transaction will remain hidden for their conscience and makers to judge.