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LCQ20: Information on public works

Following is a question by the Dr Hon Kwok Ka-ki and a written reply by the Secretary for Development, Mr Eric Ma, in the Legislative Council today (March 29):

Question:

Regarding information on public works, will the Government inform this Council:

(1) of the following information (if applicable) of 15 major infrastructure projects (namely (a) construction of the Shatin to Central Link, (b) the Hong Kong-Zhuhai-Macao Bridge and the Hong Kong projects, (c) the Tuen Mun-Chek Lap Kok Link and Tuen Mun Western Bypass, (d) the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, (e) the Hong Kong-Shenzhen Western Express Line, (f) the Lok Ma Chau Loop, (g) the West Kowloon Cultural District project, (h) Kai Tak Development, (i) the Liantang/Heung Yuen Wai Boundary Control Point project, (j) seven rail projects: Northern Link and Kwu Tung Station, Tuen Mun South Extension, East Kowloon Line, Tung Chung West Extension, Hung Shui Kiu Station, South Island Line (West), and North Island Line, (k) the Ex-Lamma Quarry Area at Sok Kwu Wan of Lamma Island, (l) artificial islands in the central waters, (m) the Central-Wan Chai Bypass and Island Eastern Corridor Link, (n) the North East New Territories New Development Areas and the Hung Shui Kiu New Development Area, and (o) housing sites in Yuen Long South, as well as the public works projects which commenced in the past five years and involved a total project cost of $30 million or above) (set out in a table according to the date on which funding approval was granted by the Finance Committee (FC) of this Council):

(i) initial and latest cost estimates, and actual cost;

(ii) date on which funding approval was granted;

(iii) actual or anticipated commencement date of works;

(iv) initially anticipated, latest anticipated and actual completion dates;

(v) anticipated usage or economic benefits to be achieved for the first five years;

(vi) amount of funding for advance works;

(vii) fee for the consultancy study for advance works;

(viii) name(s) of the consultant(s) responsible for carrying out advance works;

(ix) name(s) of the consultant(s);

(x) name(s) of the contractor(s); and

(xi) sub-contract(s) involving a sum of $30 million or above and name(s) of the sub-contractor(s);

(2) among the works projects mentioned in (1), of the following information of each of those projects for which claims involving project cost were received from the consultant(s) or the contractor(s) and supplementary provisions were approved by the FC, in the past five years;

(i) total contract sum;

(ii) name(s) of the consultant(s) or the contractor(s) submitting the claim(s);

(iii) the respective total amounts of claim(s) submitted and approved;

(iv) justification(s) for the claim(s); and

(v) dates on which applications for supplementary provisions were received and approved by the FC;

(3) whether the authorities have maintained a list of the works consultants and contractors in respect of those works projects which experienced cost overruns or delays in the past five years; if so, of the respective consultants and contractors involved in the top 10 works projects with the severest cost overruns or delays;

(4) of the latest outcome of the authorities' assessment of the impact of the demand and supply of skilled personnel and engineers in the construction industry on the cost and completion dates of various major infrastructure projects in the coming few years;

(5) how the authorities ensure the quality of various major infrastructure projects so as to guard against shoddy construction standard; and

(6) of the following information of the Project Cost Management Office since its establishment in 2016:

(i) progress in monitoring the works projects mentioned in (1);

(ii) whether the Office has formulated criteria and guidelines for cost control; if so, of the details; if not, the reasons for that;

(iii) whether there are works projects still experiencing cost overruns under the monitoring of the Office; if so, of the relevant details, including (1) names of the consultants or the contractors submitting the claims, (2) the amounts of and justifications for the claims, and (3) the amounts of the claims approved; and

(iv) whether it has drawn up a blacklist of consultants and contractors and introduced a demerit point system for use as reference information for the selection of consultants and contractors for works projects in the future?

Reply:

President,

The Government has been implementing public works projects in a continuous and orderly manner with a view to improving people's quality of living, enhance the long-term competitiveness and promote the economic development of Hong Kong.

In recent years, there are some major infrastructure projects experiencing delays or requiring additional funding provisions. In fact, we have maintained a good track record in preparing the estimates of public works projects. The LegCo Finance Committee (FC) approved a total of about 650 Category A projects with total funding amounting to $770 billion over the past ten years. Amongst these approved projects, around 70 required applications to the FC for additional provisions mainly due to unforeseeable reasons which amounted to about $60 billion in total. In other words, increased estimates are required in about 10 per cent of all these approved projects and the additional provisions amounted to about eight per cent of the total funding approved. Although there were projects that required additional funding owing to some individual circumstances, we generally managed to complete the projects under the Capital Works Programme within the original Approved Project Estimates (APE) overall and even with surplus. For example, about 850 Category A projects had the final accounts settled in the past 10 years. Their original approved estimates totalled about $240 billion as compared with the total final expenditure of about $210 billion. Though some projects needed to apply for additional provisions from the FC, the cost overruns were well offset by surpluses from other projects. The balance amounted to about $30 billion. In short, the total expenditures of these projects at final settlement accounted for only about 85 per cent of their original APE.

Hong Kong has been beset by the challenge of high construction costs in recent years. In this connection, the Development Bureau established the Project Cost Management Office (PCMO) in June last year to strengthen management over the construction costs and enhance the cost-effectiveness of public works projects in order to ensure that the public funds are spent properly and effectively. The PCMO formulates cost control measures and cost reduction initiatives, coordinates and monitors related work of the project client bureaux and works departments. In addition, the bureaux and works departments concerned are responsible for the routine project management, expenditure estimation, procurement, site supervision, etc. for the projects. They would collaborate with the PCMO to ensure that the projects are completed in accordance with the original schedule and within the APE.

My reply to the six parts of the Hon Kwok's question is as follows:

(1) The information of the 15 major infrastructure projects requested by Hon Kwok has been set out in the Annex.

About 200 public works projects in total commenced in the past five financial years, i.e. from 2011-12 to 2015-16. The information of these projects requested by the Hon Kwok has been set out in the submissions for funding application, the annual estimates in the Budget and the regular reports on completed projects submitted to the Legislative Council for public enquiry. Due to the huge quantities of data involved, they cannot be reproduced in this reply.

As regards the request for the information of subcontracting under item (xi), in general, the Government will not subcontract the works. A main contractor would subcontract the works based on his needs and considerations. Since the subcontracting involves the commercial arrangements between the main contractor and his subcontractors, the information cannot be provided without the consent of the relevant parties.

(2) Under the terms of contract, without the consent of the other contracting party, neither the Government nor the contractor may disclose information of the contract, including the related claims and compensations.

(3) We have been implementing public works projects in an orderly manner and exercising prudent management to ensure that the public works projects are completed within the APE and by the anticipated completion dates.

From our experience, in general, the main reasons for increases in the APE include increases in the project contingency costs, higher-than-expected tender returns, and increased provisions for price adjustments to cover higher-than-expected increases in labour and material costs. The delays in project completion might be attributed to unforeseen circumstances, including the handling of related judicial reviews, longer-than-expected consultation periods, unforeseen ground conditions or inclement weather, etc. Generally, the cost overruns and project delays were not caused by the performance of consultants or contractors. As mentioned in (2) above, without the consent of consultants or contractors, we cannot disclose the relevant information about the contract.

(4) The Government collaborates with the Construction Industry Council (CIC) in formulating forecast on the overall construction output in both public and private sectors over a 10-year horizon. The results are regularly published for the information of the industry and the public so that the industry can carry out early planning of their resources deployment to meet the future workload. According to the latest forecast published at the end of last year, the total construction output of the public and private sectors in the next five to 10 years will exceed the level of $300 billion, indicating a persistent high demand for construction services. Regarding the manpower, the CIC conducts assessments of the supply and demand of manpower, including the professionals and workers, based on the latest situation. The assessments in 2014 indicated that there was shortage of professionals in some disciplines. But based on the industry's views, the tough shortfall has been slightly alleviated at the moment. The CIC is currently updating the related forecast and will release the results in mid-2017.

To cope with the persistent manpower demand of the construction industry, we have been collaborating with the CIC in launching a host of measures to increase manpower supply and to promote designs and construction methods that require less labour input.

In reviewing and updating the project costs and completion dates, we will consider the latest situation to devise the pragmatic and appropriate project estimates and construction periods.

(5) The relevant bureaux and works departments have put in place and updated comprehensive guidelines and stringent requirements on the procurement, delivery and quality control of works. To guarantee the quality of works in large infrastructure projects, the relevant works departments will strictly enforce these guidelines and requirements in respect of the selection of consultants and contractors, appointment of site supervisory staff, material testing, supervision of works, regulatory control and performance appraisal of consultants and contractors, and acceptance procedures and ensure compliance of them.

(6) My reply to the question about the PCMO is as follows:

(i) The projects mentioned in (1) above are under various stages, including planning and design, construction or finalisation. The PCMO will take various actions according to the stage of project. The PCMO will scrutinise the cost estimates of projects in planning and design stages. Under the over-riding principles of not compromising functionality, quality and safety of works, we explore various design options and construction methods to optimise the project designs based on the principles of "fitness for purpose and no frills" in order to ensure the cost-effectiveness of the projects. During the construction stage, the bureaux and works departments concerned are responsible for the routine supervision, cost estimation, procurement, etc. for the projects. The PCMO will collaborate with the client bureaux and departments of the projects to control total project costs. In the process, we will monitor the expenditures of individual projects. In case of possible deviation from the planned expenditures or major alterations to the project designs, the responsible departments will be required to make notifications as well as formulate and implement practicable measures. For projects at the finalisation stage, the room for collaboration by the PCMO is limited as the works have been substantially completed.

(ii) The PCMO aims to achieve cost control mainly through system re-engineering and multi-disciplinary design optimisation, and will pursue cost management through a 3-prong approach, namely by comprehensive review of the existing works policies and requirements; close scrutiny of project estimates; and enhancement of project management of public works projects.

The PCMO has embarked on a comprehensive review on the works policies and requirements for implementing public works projects. Under the over-riding principles of not compromising functionality, quality and safety of works, we consolidate the works requirements to control the costs. We encourage works departments to optimise the project designs and reduce the construction costs based on the principles of "fitness for purpose and no frills" by exploring various design options and construction methods. As a result, the design and construction works of the projects will become more cost-effective.

The PCMO is also putting in place an indicative cost system for several major categories of new government buildings, including schools, departmental quarters and office buildings. The relevant departments are required to ensure that the unit costs are below the indicative costs in order to achieve cost control during the design stage.

In the near future, we will formulate appropriate guidelines to help related officers to implement cost management more effectively.

(iii) After the establishment of the PCMO in 2016, there has not been any case of cost overrun in the projects that PCMO has vetted their cost estimates.

(iv) The existing mechanism for appraising the performance of contractors and consultants has given due consideration to the expenditures and progress of the projects. Throughout the construction period, the relevant works departments will monitor and evaluate the performance of contractors, including the works progress and possible abuse of the claims mechanism. As for consultancy agreements, works departments assess the consultants' performance at quarterly intervals, including instances of additional expenditures and failure to adhere to the programme of works.

Under the established system, the assessment results would serve as the basis for selection of consultants and contractors for projects and affect their chances of winning tenders in future. In severe cases, contractors or consultants with poor performance will be suspended from tendering or even removed from the approved lists.

Ends/Wednesday, March 29, 2017
Issued at HKT 19:48


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