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LCQ19: Monitoring expenditure of public works projects

Following is a question by the Dr Hon Kwok Ka-ki and a written reply by the Secretary for Development, Mr Paul Chan, in the Legislative Council today (December 10):

Question:

Regarding the monitoring of the expenditure of public works projects, will the Government inform this Council:

(1) of the following information about each of the public works projects completed in the past five years: (i) the name of the project, (ii) the date on which funding approval was granted, (iii) the amount of approved funding for the advance works, (iv) the consultancy fees for conducting advance works study, (v) the name(s) of the consultant(s) responsible for carrying out the advance works study, (vi) the commencement date of the works, (vii) the completion date of the works, (viii) the name(s) of the works consultant(s), (ix) the name(s) of the works contractor(s), (x) the initial cost estimate, and (xi) the actual cost, set out in a table according to the date on which funding approval was granted by the Finance Committee (FC) of this Council;

(2) of the following information about each of the public works projects to be submitted to FC in the coming two years: (i) the name of the project, (ii) the date on which funding application will be submitted, (iii) the amount of funding to be sought for the advance works, (iv) the name(s) of the consultant(s) responsible for carrying out the advance works study, (v) the anticipated commencement date of the works, (vi) the anticipated completion date of the works, and (vii) the cost estimate, set out in a table according to the date on which the authorities intend to submit the funding application for approval;

(3) of the specific criteria adopted by the authorities for selecting consultants and contractors for works projects and the relevant tendering procedure;

(4) of the following information about each of the public works projects completed in the past five years which involved consultants/contractors submitting claims to cover additional expenditures: (i) the name of the project, (ii) the commencement date of the works, (iii) the completion date of the works, (iv) the name(s) of the consultant(s)/contractor(s) submitting the claims, (v) the originally approved amount of funding, (vi) the date on which application for supplementary provision was submitted, (vii) the date on which approval for supplementary provisions was granted, (viii) the amount of the approved supplementary provision, and (ix) the justifications for applying for supplementary provisions, set out in a table according to the date on which application for supplementary provisions was approved by FC;

(5) of the specific procedures adopted by the authorities for handling claims lodged by consultants or contractors to cover additional expenditures of works projects; the specific policy and legal basis adopted by the authorities for deciding whether or not to approve such claims, as well as the standards and calculation method based on which they determine the claim amounts to be accepted; how the authorities determine whether or not the companies concerned have abused the claims procedure;

(6) whether the authorities initiated any criminal investigation in the past five years into cases of consultants or contractors suspected of defrauding the authorities of project costs; if they did, of the details; whether the authorities instituted any legal proceedings against consultants or contractors in those cases involving illegal practices in the past five years; if they did, of the details; and

(7) given that several major infrastructure projects have experienced significant cost overruns and delay in recent years, whether the authorities have, in the selection process of consultants and contractors, taken into account the past performances of the relevant companies, including whether there are records of the projects in which they participated experiencing cost overruns or delay; whether the authorities will consider drawing up a blacklist of consultants and contractors or introducing a demerit point system in this respect; if they will, of the details?

Reply:

President,

The Government adheres to the principle of prudent management for public funds in managing the implementation of public works projects including the advance works.  There are fully established mechanisms for administering the procurement and delivery of works contracts/consultancy agreements as well as monitoring and auditing project costs, so as to ensure that contracts are implemented in accordance with the contract terms for acquiring the required services and in compliance with the relevant Government internal procedures to achieve satisfactory completion.

My reply to the seven parts of the Dr Hon Kwok's question on monitoring the expenditures of public works projects is as follows:

(1) There are in total 410 public works projects, which had been approved by the Finance Committee (FC), with account finalised in the past 5 financial years (2009-10 to 2013-14). The details of these projects, including the Approved Project Estimate and the final outturn expenditure, have been included in the regular reports on completed projects submitted to the Public Works Subcommittee.  In view of the large number of completed projects, we provide the details of those completed projects with final outturn expenditure over $500 million, including information on advance works, in Table 1.

(2) Tentatively, there will be 89 public works projects to be submitted to FC in the financial year 2014-2015 for approval. The information available with regard to these 89 items, including advance works, is provided in Table 2. The items to be submitted to FC in 2015-16 are under preparation. Information cannot be made available at this moment.

(3) Public works projects are procured through open, fair and impartial procedures conforming to the Agreement on Government Procurement of the World Trade Organization and the procurement regulations promulgated by the Government of the Hong Kong Special Administrative Region.

Works Contracts
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For public works contracts, works departments normally only invite contractors who are on the List of Approved Contractors for Public Works or the List of Approved Suppliers of Materials and Specialist Contractors for Public Works (hereinafter referred as Lists of Approved Contractors) to submit tenders and the tender notices will be published on works departments' websites. Works departments may also adopt prequalified tendering or open tendering for individual contracts case by case to invite contractors meeting the relevant experience and other qualification requirements to submit tenders.  Besides, contractors on the Lists of Approved Contractors are allowed to form joint ventures with other contractors not on the lists to submit tenders.

To select the best value-for-money tender, we adopt either "Formula Approach" or "Marking Scheme Approach" in tender evaluation.  Usually, "Formula Approach" will be adopted for ordinary works contracts while "Marking Scheme Approach" will be adopted for works contracts of high value, complex in nature and requiring a high level of co-ordination.

(i) The "Formula Approach" to tender evaluation takes into account the tender prices and the past performance of the tenderers in public works contracts to calculate an overall score for each tender according to a prescribed formula. It may be taken as a simplified system.

(ii) The "Marking Scheme Approach" to tender evaluation will first evaluate the technical capability of the tenderers by marking the attributes such as experience, past performance in public works contracts, resources deployed and technical submissions to get a technical score according to a pre-set marking scheme. An overall score for each tender is then worked out by using the technical score and the tender price of the tender according to the pre-set relative weights.

Normally, the tender with the highest overall score would be recommended for acceptance. However, the tenderer is subject to financial checking to ensure that he is financially capable of fulfilling the contract requirements. Besides, tenders with unreasonably low price will not be recommended.

On completing the tender evaluation, the works department will submit a tender report to the relevant tender board to consider acceptance of tenders.

Consultancy Agreements
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For consultancy agreements, works departments publish tender notices on their website and invite relevant consultants in the market to make expression of interest submissions.  After going through a shortlisting process, suitable companies will be invited to submit detailed proposals to bid for the consultancy agreement. In the process of assessment, we will consider the technical approach, expertise, manpower input, past performance and bid prices to ensure that the most cost-effective tender is selected.

For details of the procedures for tender invitation and evaluation for works contracts and consultancy agreements, please refer to the following documents uploaded to the website of the Development Bureau and the concerned works departments:

(i) Development Bureau Technical Circular (Works) No. 4/2014 "Tender Evaluation Methods for Works Contracts" (DEVB TC(W) No. 4/2014)
(ii) Engineering and Associated Consultants Selection Board Handbook (EACSB Handbook)
(iii) Architectural and Associated Consultants Selection Board (AACSB Handbook)

(4) and (5) Works contracts and the concerning consultancy agreements are specialised and complicated.  During the implementation of public works projects, changes to the construction works, study or changes of other circumstances are not uncommon. There are provisions in the works contracts and consultancy agreements to deal with the claims and monetary compensation or extension of time. All claims and compensation will be assessed independently by competent professionals. If there are differences in opinion on the claim assessment, either the Government or the contractor/consultant can request a review on the claim assessment.  If the differences remain, either party may refer the dispute to mediation or arbitration for resolution.

In order to protect the interest of the parties and the confidentiality of information, either party cannot divulge the contract information without the consent of the other party.  All the information on claims and compensation shall not be disclosed. As such, we cannot provide the requested information of claims in projects.

In case a contractor abuses the claim system, under the established system, the concerned works department would reflect this in the contractor's performance report to guard against such mal-practice.

(6) In the past five years, we did not have any case on criminal investigation or legal proceeding regarding suspected defrauding in connection with project costs.

(7) The works departments will monitor and evaluate the contractors' performance throughout the contracts period. The report on performance covers many respects, including works progress, justifications for applications of extension of time and claims, etc. A contractor who has been given two consecutive adverse performance reports under the same public works contract will be asked to suspend from tendering. Should the poor performance persist, further regulating actions may be considered, such as mandatory suspension from tendering, downgrading or even removal of the contractor from the Lists of Approved Contractors.

In addition, the ratings given to a contractor in his performance report will affect his Performance Rating and directly affect his chance of winning tenders in future.

As for consultancy agreements, the consultants' performance is evaluated at quarterly intervals. The assessment covers instances of additional expenditures and failure to adhere to programme targets, etc. Under the established system, consultants' past performance is also a basis for consultant selection.

Attachments:  

Ends/Wednesday, December 10, 2014
Issued at HKT 16:51

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