What is RM2 Company?
The RM2 company is the company with RM2 as paid up capital. Any RM2 company indicated that the company is not financially strong, the founder of the company or the founding directors only contribute RM2 to form the company. So to establish a limited company, two founding dictors are require, that means RM1 for each director. If any thing will to happen to the RM2 company, which result in the closure or liquidation of the company, they(the 2 directors) will only lost or suffered RM1 each. The net worth is only RM2, the company is only worth RM2.
It is basically a new company when the founder has still no confidence in the company or it may indicated that the company is for temporary period only. Some RM2 company may be a proxy company of its principal or parent company. Some may be company for evasion of tax, especially in tax heaven. Some of this company may be set up for ultimate purpose to conceal the actual owner, the founding directors are all proxies.
Any bankers or loan officers from the bank will tell you, that it is risky to lend money to RM2 company or any company with low capitalization.
What is wrong when you rejected tender of government contract bid by RM2 company? If a RM2 company bid for a contract for RM500 million, from logic they have no financial capacity to do the project. They need to borrow money from the bank, and the bank will not lend them the money unless there are collateral or strong company backing,their parent company. The awarder may asked for Bank Guarantee as Performance Bond, but it is normally a certain percentage of the contract sum.
Many contract or company failed because of RM2 company. If a RM2 is new company, the awarder do no know the background and the financial standing or technical capability of the company to complete the contract. Most of competent contractor will have stand by fund in case of cost escalation or unexpected occurs. There may be variation clause in the contract terms, but any request to increase the contract sum must be mutually agreed between awarder and the contractor. Most of the RM2 company faced cost overrun if they are not financially strong, resulted in abandoned projects or uncompleted contract. Partly they have to pay bank interest, agency cost, and more expensive supplies;they may be delay due to financial constraints.
If the RM2 company is an old company that will be worrying; the company may have been around for long time without viable business, or the owner/directors did not contributed to increase the paid up capital,there is no retained profit for the company to increase their capital, every cent they earned were taken out from the company, technically we said it is capital leakage or actually there is no capital build up, reason only know to them. The dividend paid out will be substantial, directors fee, directors' claims, and may be inter company transaction with the director's other companies to leak out company's money.
So is it wrong when the state reject the RM2 company? The state is merely to protect the state and the people, that the successful bidder is able to complete the job.
Not only RM2 company; the tender committee with integrity will not award contract to related company. Company related to the members of tender committee, directors or relatives of the awarding company. As for government tender, the contract awarded should avoid giving to government linked companies, government staff cooperatives, politically linked companies, tender committee members linked companies, the department staff related companies. This is to ensure the integrity and independent of the awarding process. Exception is when the company is public listed and have proven records of past contracts or projects completion, the related parties and their names must be fully disclosed. The decision of the award should be open to public for the public to view for government contract, a transparent process. It must be cooling period prior to formalization of signing the contract, so that the public can appeal against the award if there is any reasonable and acceptable ground e.g. knowledge of poor financial or technical background; discovery of related parties with no disclosure etc
We have know about the Ali Baba contractor, where a contract was awarded to politically linked company who has no capability to do the work; but he is able to sub contract to the people who are able to complete the job. The first line contractor or main contractor will get some money even before the contract or project is commenced. The sub contractor will continue the work, and to gain profit, some may go for sub standard work, resulted in poor quality completion. This is the norm of the industry, but no body dare to rock the bowl due to symbiosis relationship. Why rock the system?. A responsible awarder will only award contractor who are directly involved in the contract work. You do not give your car repair work to a contractor who are major in supplying plastic bags, will you do that? you will definitely not do that. So the government must give award to people who can do the work,not only can do,can do it well....
So as a responsible citizen, we should not going against this, against that; without any strong justification. It is wasting people's money. We want the state government to concentrate on the affair of the state. No politic should be involved just for the sake of politicking. It is wasting time....wasting people's tax money.
We have heard a long time on the corruption practice of awarding government contracts. Some were awarded to company with strong political or other background; some even reported a large sum have to pay even before the bidding process begin. The award of timber land, state land, utility contracts, supplying contracts; are the opportunities for corruptions and unethical practices and abuses of power. That had been the norm of the days, resulting in many post contract damages e.g. collapse of the buildings, overcharges, sub standard contract works. The award should be given to company who can do it best, regardless of their political or racial background.
The MACC has no big cases on the contract awarding, the auditor should focus on the background of the company successfully bid the contract. To ensure all awarding process are arm length, and transparent with full disclosure.
This country is moving to which direction, we have to decide; if too much political pressure were put into the government who are doing the right things, will forced them to change for political reason. At the end the people suffer. We should support whoever is doing the right things, not against for the sake of opposition.
There is nothing wrong to reject RM2 company.....there is many wrongs to award the contract to RM2 company, MACC will like to know why.....auditor will like to know why, and the people will like to know why?... A responsible government will not do it.