I have shared with you twice in my blog this year about the establishment of the Project Cost Management Office (PCMO), which aims to enhance cost management of various public works projects and ensure the proper use of public money. With funding approval from the Legislative Council, the PCMO was established and has made considerable work progress in the past few months. So far, it has made recommendations for improving cost control for nearly 40 public works projects, which will save billions of dollars in expenditure.
In recent years, Hong Kong’s annual capital works expenditure on developing land, traffic networks, hospitals, schools and other major infrastructure exceeds $70 billion, and is expected to remain at similar levels in the next few years. Compared with other places, construction costs in Hong Kong are at a relatively high level, and there are even reports that Hong Kong, London and New York are the three cities with the highest construction costs in the world. Therefore, it is necessary for us to properly manage the costs of public works projects.
We are currently adopting a three-pronged approach to take forward cost management, which includes carrying out a comprehensive review of the public works policies and requirements; scrutinising the estimates for individual works projects; and enhancing project management. After several months of implementation, we have accumulated some experience and would like to share with you here.
Enhancing design
When examining the designs of works projects, we act as a co-ordinator among stakeholders and recommend the most cost-effective proposals based on the design requirements. In some newly-constructed bridge projects, for instance, we have suggested relevant departments discuss different greening proposals with the stakeholders and design greening facilities in accordance with more cost-effective principles. This will not only reduce the construction costs, but also beautify our environment.
I would also like to reiterate that promoting the “no-frills” design principle does not mean suppressing architectural innovation. In fact, simple design, aesthetics and innovation are not mutually exclusive. A number of government building projects have also shown that “no frills”, “design for buildability” and “innovation” are compatible. These buildings are constructed at comparatively low costs and have received public recognition and numerous awards from professional organisations.
Responding flexibly to site restrictions
Take new government building projects as examples, on the premise of not affecting user requirements and the operation of facilities, we have explored different design proposals with various departments to enhance the design layout and fully utilise the plot ratios and building height restrictions with a view to minimising the scale of site formation. For instance, in the Queen Mary Hospital expansion project, we have worked with the departments to relax the building height restrictions in the area and improve the layout of the vehicular access. We have achieved the multiple goals of lowering the high costs of excavation works, reducing construction waste and shortening the construction period. It is estimated that about $1 billion of expenditure could be saved in the project.
Promoting “target cost contract”
Under the“target cost contract” option provided in the New Engineering Contract, the Government will pay the construction costs according to the actual expenditure. With the “target cost” specified in the contract, if the actual construction expenditure turns out to be lower than the “target cost”, the Government will share the difference saved with the contractor. On the contrary, in case of overruns, on the premise that the Government will bear a portion of the capped expenditure and the contracting parties will share the overrun costs. These arrangements can encourage contractors to adopt innovative construction methods and alternative designs to lower costs and enhance efficiency. Take the recent construction of the sewage main between Tung Chung and Siu Ho Wan as an example. The project not only used more economical materials for the sewage main, but also adopted the “target cost contract” option, which resulted in savings of nearly $600 million. We have promoted the “target cost contract” option to other departments and encourage them to use it for major public works projects each valued more than $1 billion as far as practicable.
I must emphasise that we will never compromise construction safety and project quality when controlling the costs of public works projects. Recently, there is a comment that the Government streamlines the Pay for Safety Scheme to save project costs, and the Government is alleged of “putting workers’ lives at stake for the sake of money”. I must clarify that the Development Bureau in fact expanded the scheme at the end of 2013, which increased the payments to contractors with better safety performance. However, since the Pay for Safety Scheme has been in force for many years, some of the arrangements, such as frequent safety meetings and the complicated auditing work on site safety-related costs, have become a mere formality. With the additional administrative work imposed on contractors and project supervisors, the scheme does not go far enough towards improving site safety. In view of this, we consider it necessary to rationalise some outdated practices and re-focus on the actual execution of site safety so as to streamline work and increase efficiency. Currently, the review of streamlining the Pay for Safety Scheme is in progress and is expected to be completed at the end of this year or early next year. There is no direct relationship between the review and our work on project cost control.
Cost management is the fundamental work of every officer in charge of a works project. In the coming three years, the PCMO will continue to review the 300 projects under planning and design to ensure the proper use of public money. We hope that with the implementation of a series of enhancement measures and publicity work, “the cost-driven approach for works projects” will be rooted in the culture of departments, and every colleague will be more proactive in cost management and continue to promote the sustainable development of Hong Kong in a more cost-effective manner.
28 August, 2016
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