LTA’s train fiasco – The perils of the race for the “lowest quote”

So the Land Transport Authority [LTA] has just released an official report on why they sent back 26 train cars to China. If you haven’t already seen it, here’s the report.

The trains affected have been in service since 2011. Since then, some of the incidents that led LTA to remove the entire batch of trains from service include spontaneous dislodging of a train battery housing cover, cracked draughtscreen glass on five trains and hairline cracks found on all 26 trains’ car-bodies.

From an engineering background, these issues sound like common problems. You could say that LTA is being a wee bit “kiasee” here by sending the whole batch back to China over these smaller issues, since these problems could be rectified here in Singapore. [Or are there more safety incidents that LTA isn’t telling?]

Alas the media’s gone on a field day about this incident. Online media claims LTA is trying to cover up its alleged mistakes, blames the government for not being accountable for public funds, ridicules the media for only responding to the “cover up” after Hong Kong media broke the news from a whistleblower.

Let’s get real though. The only fault of the LTA, and civil servants will know this well, is their failure to spot a bad business deal.

For those of you not in the know, the government procures services and products through a system known as GeBIZ. In its blind endeavor to be “accountable” for public funds, the single most important criteria for all business dealings with the government is the “lowest quote”. In other words, the company that offers the lowest price for its product or service wins the deal, most of the time anyway.

You know what they say, cheap is good, but cheapest not necessarily so.

For those of you who blame Chinese manufacturing for being notoriously slipshod, take note that this current deal involves Kawasaki Heavy Industries [KHI], a Japanese firm, who has been producing MRT train cars for Singapore since 1986. For this project, KHI teamed up with Chinese manufacturer CSR Sifang, itself part of a larger Chinese state-owned entreprise, to produce the faulty trains.

So LTA engaged a Japanese firm who has been producing good quality MRT trains for Singapore since 1986. Good deal right? Wrong.

Take a look at the financials of KHI [courtesy of Reuters].

KHI

Clearly KHI’s not been at its best for quite a few years. So why continue dealing with an aging business? I am told one other criteria for the government’s dealings with private companies is its history of successfully concluded deals with the government. Since KHI’s been doing business with the government for the past three decades, why not continue?

Wrong again. That’s just not how good business deals work. Just because a company’s been your supplier for 30 years doesn’t mean you keep doing business with it “through thick and thin”.

Save that for marriages and relationships, not business.

 

 

Desmond Ho is a young Singaporean in his thirties who sees himself as part of a new breed of Gen Ys. He hopes to see more youths taking bold risks and developing their fullest potential through home-grown businesses. He is part of a group of entrepreneurs who hope to effect change through education and venture capitalism.

Leave a Reply

Your email address will not be published. Required fields are marked *