LCQ13: Claim mechanism for consultancy contracts

     Following is a question by the Hon Tony Tse and a written reply by the Secretary for Development, Mr Michael Wong, in the Legislative Council today (June 22):
     It is learnt that at present, unlike in the case of public works contracts, the conditions of engineering and architectural-related consultancy contracts awarded by the Government generally do not provide that the consultancy firms engaged may submit claims for additional costs or compensation to the Government in respect of delays caused by factors unrelated to their performance (e.g. weather, epidemics, demonstrations, and the vetting and approval procedures of the Government and the Legislative Council), resulting in the consultancy firms concerned having to submit claims to the Government through other channels. Some members of the architectural, surveying, planning and landscape sectors are of the view that such practice is unreasonable and unfair, and has caused some of the consultancy firms affected by project delays to suffer losses and insufficient cash flow. In this connection, will the Government inform this Council:
(1) of the information such as the number and the amounts of claims submitted in the past three years to the Government through other channels by the consultancy firms engaged for engineering and architectural-related consultancy contracts;
(2) how it handles cases in which the claims are reasonable but the amounts of compensation calculated exceed the amount of approved funding for the projects, including whether it will reject such claims as a result; and
(3) whether it has, in respect of the cases of claims mentioned in (1), formulated handling procedures as well as the criteria and guidelines for calculating the amounts of compensation; if so, of the details; if not, whether it will, by drawing reference from the practice of public works contracts, include conditions relating to the application for extension of time and the submission of claims in consultancy contracts, so as to institutionalise and standardise the relevant procedures?
     The Government all along attaches great importance to the partnership with engineering and architectural-related consultants, maintains regular communication with relevant trade associations and professional institutions on procurement and contractual terms of public works consultancies, and where necessary enhances the related procedures with a view to creating a more favourable business environment for the sector. When preparing architectural, engineering or associated consultancy agreements, departments will clearly specify the scope of consultancy services, details of deliverables and submission timetable, as well as relevant technical, manpower and experience requirements, etc., so that consultants can have sufficient information to determine the consultancy fees required. In the implementation of consultancy agreements, we will remunerate consultants for tasks completed according to the mechanism in the agreements. Where consultants are required to provide services that are not specified in the agreements or when there is a delay due to unforeseen reasons in construction works contracts under the management of the consultants, rendering the consultants to incur additional costs, there are established mechanisms and procedures in the prevailing agreements to deal with such matters. In general, if the above situations occur, the consultants can serve notices of claim to the departments in accordance with the mechanism in the agreements, and the departments will examine the relevant justifications in an objective manner. Once the claims are substantiated, the departments will reasonably determine and pay the compensation to the consultants.
     The reply to the three parts of the question raised by the Hon Tony Tse is as follows:
(1) In the past three years, departments received a total of 23 compensation claims lodged by engineering or architectural consultants through the mechanism in the consultancy agreements, as a result of additional costs incurred due to projects not being implemented as planned. Two of the claims have been satisfactorily settled. As for the remaining claims, the departments are still awaiting further information and records to be submitted by the relevant consultants so that they can assess the validity of the claims as well as the compensation amounts if substantiated. As these claims involve third-party information, we are not able to disclose the details. On the other hand, departments did not receive any claims lodged by engineering or architectural consultants through other channels outside consultancy agreements.

(2) When departments apply for funding approval (including payment for consultants' fees), they will allow certain contingencies to cover some unforeseeable expenditures. With respect to consultancy agreements, the contingencies reserved by departments are generally sufficient to cover additional costs incurred under the agreements, including costs incurred by consultants for additional services requested by departments or other reasonable claims made by consultants. However, even if the Approved Project Estimate is not sufficient to cover these additional expenses, departments will not reject the reasonable claims and will apply for additional funding following the established procedures.

(3) There are established mechanisms under the prevailing public works consultancy documents to deal with claims submitted by consultants. If consultants consider that they have incurred additional expenses due to the provision of additional services which fall outside the scope of the agreements or other reasons such as project delays, etc., they shall file claims to departments in writing, detailing the additional services involved, the reasons giving rise to such additional services and the claimed amounts. Departments will review the reasonableness of the cases based on the information provided by consultants to assess whether they are justified, and examine the information submitted by consultants to evaluate the compensation to be paid. In addition, the Development Bureau has issued internal guidelines to departments outlining the principles and procedures in handling of such claims, so that departments can handle the matter more effectively. For example, if there is a delay to the consultants' services due to funding not being approved as scheduled, departments should reasonably review and assess the circumstances, including whether the consultants have carried out additional work during the delay period, and if so, the departments should pay the consultants for the associated additional expenses.
      The aforementioned mechanism can effectively and properly handle consultants' claims arising from project delays. All in all, we have no plan at this stage to introduce additional contract provisions similar to the "extension of time" provisions in public works contracts for consultancy agreements.
Ends/Wednesday, June 22, 2022
Issued at HKT 14:40