SINGAPORE - A strict assessment and review process is in place to ensure that funds used for public funds are used prudently, Senior Minister of State for Finance and Transport Josephine Teo said on Monday.

The review system also subjects major public projects valued above $500 million to extra scrutiny with emphasis on fiscal prudence, transparency and accountability, she added.

She explained that after a major project proposed by a ministry or statutory board passes its review by the Finance Ministry, budget approval must then be obtained from a committee comprising the Minister for Finance, Minister for Trade and Industry and the minister overseeing the ministry which submitted the project proposal.

When a tender is eventually called by a ministry or statutory board in charge of the project, there is also independent assessment before an award decision is made.

"To ensure impartiality and transparency, the tender approving authority comprises individuals who are neither involved in project proposal or implementation," Mrs Teo said.

"And officers handling procurement must declare and excuse themselves if there is conflict of interest. For instance, if they are related to any of the bidders. This helps to ensure that the tender process is a fair and transparent way for true price discovery."

She was replying to questions from Non-Constituency MP Yee Jenn Jong from the Workers' Party, who asked about safeguards to ensure judicious use of public funds, and about cost overruns in public projects.

"If a project is estimated to cost above $500 million, it is put through the Gateway Process where it is subject to a series of further reviews before it is submitted to the development planning committee (DPC) for budget approval," she said.

"We've found the Gateway Process to be highly relevant in providing a useful second opinion to agencies' project plans. For example, the gateway review of the Singapore University of Technology and Design campus project helped to reduce the footprint of the campus, thus freeing up land for other purposes. This was achieved through the re-routing of a service driveway and the relocation of the tennis courts to the roof of the indoor sports hall instead of on the adjacent ground."

Complex major projects of smaller values may be subjected to the same process before they are allowed to proceed, she said.

Mrs Teo also explained that for higher value projects any cost increase exceeding 10 per cent or $100 million, whichever is lower, will be scrutinised again by the Finance Ministry to ensure that there are valid reasons for the budget revisions.

"For proper accountability, the agency must also seek re-approval from the three ministers in the DPC. Taken together there is a well functioning system of checks and balances to ensure prudent use of public funds," she said.

In the last decade, there were 12 public sector projects with original budgeted cost of $100 million or more which experienced more than 50 per cent increases in project cost, said Ms Teo.

"The total value of cost increases was $13 billion, of which nearly 80 per cent was attributable to the Downtown Line and Marina Costal Expressway," she said, adding that expenditure for public infrastructure over the same period was over $100 billion.

In those projects, global supply and demand factors led to a sharp increase in construction cost that was significantly above prices used in the original budget estimates, she said.

For example, prices for key materials such as steel bars increased by 60 per cent from late 2007 to mid-2008, leading to higher costs for the Downtown MRT Line.

Unforeseeable findings are another key reason for cost increases, she said.

Soil investigations for the Marina Coastal Expressway, for instance, revealed that some parts of the proposed highway would be built in soil that was weaker than originally thought. Additional work was thus required.

"The relevant agencies... had to go back to the DPC, explain the process of verifying the items that led to the cost increases that had already been scrutinised by the MOF and then proceed only if the DPC grants re-approval," she said.

She added that there were also occasions when project costs were lower than originally estimated. In the case of the Land Transport Authority's provision of barrier-free access to MRT and LTA lines, for example, the budget used was almost $30 million lower than the original approved budget of $116 million.

To Mr Yee's follow-up question on whether the $500 million threshold to trigger the Gateway Process review is too high, given that Australia's cut-off is A$30 million for projects, Ms Teo said the current threshold is working reasonably well.

"If there is a need to revise the threshold we would consider doing so," she said.