New Engineering Contract New Management Culture
To continuously improve citizens’ quality of life, enhance Hong Kong’s long-term competitiveness and promote our economic development, the Government has been implementing a wide range of public works projects in an orderly manner. Along with other places in the world that are striving to enhance the quality and performance of construction projects through continuous improvements to project management, Hong Kong has been developing world-class infrastructures, and in the quest we cannot afford to become content and should reinforce our strengths to maintain the leading edge. The Development Bureau (DEVB) has all along been promoting “collaborative partnership” in the implementation of public works projects, including the adoption of the “New Engineering Contract” (NEC) form to enhance management efficiency and cost effectiveness, thereby introducing a new project management culture in the construction industry. The NEC form has been implemented in public works projects for some time and it has begun to blossom and bear fruit with encouraging results.
Accumulating experience from pilot trials
Since 2009, the DEVB has promoted the pilot implementation of the NEC form in public works projects, and encouraged the active participation of the works departments and industry stakeholders namely consultants and contractors to accumulate relevant experience. Since the first NEC pilot project, the Improvement of Fuk Man Road Nullah in Sai Kung, was successfully completed by using the new form, the works departments have progressively extended the use of this new form to other works categories, including land supply, building, roadworks, drainage and sewerage works, submarine pipelines, electrical and mechanical works, geotechnical works, and operation and maintenance.
At present, more than 70 capital works and maintenance contracts have adopted the NEC form. The new form was also used in a number of mega projects in a progressive manner, such as the Tin Shui Wai Hospital project, the Happy Valley Underground Stormwater Storage Scheme (HVUSSS) project, and the Tseung Kwan O – Lam Tin Tunnel – Road P2 and Associated Works. I am delighted to see the encouraging results of these projects.
Clear objectives and collaborative risk management
In contrast to traditional contract form, the NEC form contains contract provisions which promote collaborative partnership between the contracting parties for building up mutual trust and co-operation so as to avoid or reduce disputes. In our pilot trials, the contracting parties including works departments and contractors have both abandoned the zero-sum thinking and pursued “win-win” solutions for the projects with the use of collaborative risk management. If one party is aware of any risks that may increase project costs or cause delays, the concerned party has the obligation to notify the other as soon as possible in order to prevent the transformation of risks into crisis eventually. Both parties should also work out solutions to reduce the chance of cost overruns or delays.
Our preliminary analysis shows that the NEC form can help improve the performance of works contracts in terms of cost and time management. Take the Tin Shui Wai Hospital project by the Architectural Services Department as an example, the $3 billion project includes the design and construction of large-scale and extremely complex medical facilities. In the decision-making process, the project team fully demonstrated the spirit of collaborative partnership and properly tackled many difficulties and risks encountered during construction, so that the project was completed last year according to schedule and within the approved project estimate. The hospital has also started serving the community in early this year.
Enhancing co-operation and encouraging innovation
Last week, I shared with you the flood prevention works of the Drainage Services Department (DSD). This time, I would like to talk more about its successful implementation of the HVUSSS project. The department took the lead in using the “target cost option” under the NEC form which is more suitable for large-scale and complex projects. Under this option with a pain/gain share mechanism for cost overrun and saving, there will be a common goal for the contracting parties to control project costs and incentives provided for the contractor to explore more innovative and cost-effective construction proposals so as to save costs and complete the project ahead of schedule.
Furthermore, the DSD introduced innovative contract clauses to promote the tripartite co-operation of the DSD, the contractor and its subcontractors with a view to optimising the construction process in a collaborative manner, which in turn helped improve the quality of works and accelerate the progress of construction.
The HVUSSS was fully commissioned in March this year and ahead of committed schedule. In addition, a saving in the administrative costs due to the shortened construction period, together with some other cost savings, amounted to some $60 million, which is approximate 5 percent of the final target cost of the works contract. With its commissioning, the HVUSSS has served the designed purpose on numerous occasions by temporarily storing significant amount of the stormwater collected during heavy rainstorms, and substantially enhanced the flood protection level of the Happy Valley and Wan Chai areas.
Remarkable performance with international appreciation
The DEVB has recently been honored with the Winner Award in the NEC Client of the Year category and the Highly Commended Award in the Contract Innovation Through Additional Clauses category of the NEC Awards 2017 in the United Kingdom (UK). In addition, the DSD has won the Winner Award in the Contract Innovation Through Additional Clauses category. The NEC Awards were established in 2015 by the NEC, an organisation under the Institution of Civil Engineers in the UK, with the objective of commending excellent performance and innovative practice in project delivery through collaborative partnership by organisations across the world. The awards we received illustrate our remarkable achievements in the implementation of public works projects through innovative means, and demonstrate that Hong Kong’s professional standards attain worldwide recognition and appreciation.
Continual exchange and striving for excellence
The international awards have certainly boosted our confidence in further promoting collaborative partnership in the project implementation. To promote the wider use of the NEC form in the public works projects, including the adoption of the target cost option for large-scale and complex projects, we have promulgated the practice notes applicable to engineering and construction contracts, professional service contracts and term service contracts for sharing with the works departments and industry practitioners. Going forwards, we will continue to work with industry stakeholders to optimise contract management workflow for more efficient delivery of a rich array of livelihood-related projects, so as to build Hong Kong into a better place for living and working together.
Details of the NEC Awards 2017 in the UK are available on the following website: www.neccontract.com/NEC4-Products/NEC-Awards/Awards-2017/Awards-2017-Shortlist
30 July, 2017