LCQ7 : Measures to strengthen selection of public works contractors

Following is a question by the Hon Albert Chan Wai-yip and a written reply by the Acting Secretary for Works, Mr Keith Kwok Ka-keung, at the Legislative Council meeting today (June 12) :

Question :

It is learnt that the Mainland registered Guangdong Water Conservancy and Hydro-power Engineering Development Company Limited ("GWCH-PRC") and the Guangdong Water Conservancy and Hydro-power Engineering Development Company Limited ("GWCH-HK") bear a holding and subsidiary relation. Although GWCH-HK, the subsidiary company, is not one of the contractors approved by the authorities, it has undertaken many SAR Government public works projects with the authorization of its parent company. In this connection, will the Government inform this Council:

(a) of the reasons for allowing GWCH-HK, which was not on the List of Approved Contractors for Public Works, to enter into contracts to undertake public works projects;

(b) given that GWCH-HK, the subsidiary company, has gone into voluntary liquidation, of the progress of the Government's actions to recover from the parent company in the Mainland the losses arising from works that were unfinished;

(c) of the current number of public works projects formerly undertaken by GWCH-HK which have to be re-tendered, and details of these projects, including the project titles, the estimated delay in time, additional costs arising from the delay and the names of the new contractors; and

(d) whether, drawing on the experience in this incident, the Government will stipulate new requirements and work out new measures in future reviews, with a view to preventing the recurrence of similar incidents; if so, of the details; if not, the reasons for that?


Madam President,

(a) GWCH-PRC became an Approved Lists of Contractors for Port Works, Roads and Drainage, Site Formation and Waterworks on 26 October 1981. It appointed GWCH-HK as its authorized representative in Hong Kong for the execution and performance of these contracts. During the period from 1982 to 1999, it has been awarded 25 contracts of which 21 have been successfully completed with satisfactory performance and the remaining 4 contracts have been re-entered as a result of the Contractor's poor performance during 2001.

(b) There are compulsory winding up proceedings relating to GWCH-HK which are continuing. The Government is currently reviewing all its options in relation to the recovery of its losses arising from the re-entered contracts.

(c) There are four former public works contracts with GWCH-PRC which have to be re-tendered. Details of these contracts are tabled at Annex.

(d) Drawing on the experience in previous contracts with poor performance of the contractors, we have recently completed a review on tightening the control of public works contractors. These measures are progressively being implemented.

The measures include tightening the financial criteria for the admission to and retention on the approved lists of contractors. Failure to comply with these criteria with render the contractor liable to regulating action. These financial criteria include:

(i) carrying out a profit trend analysis before a tender is recommended;

(ii) raising the capital requirements of a contractor for retention on the approved lists of contractors; and

(iii) requiring the contractor to provide additional information for auditing, besides annual audited accounts and management accounts.

To strengthen the selection of contractors and evaluation of tenders, we will introduce a new marking scheme later this year. The new marking scheme will take into account both the tender price and the quality of work including the past performance of the tenderer. This provides an incentive for contractors to complete their contracts successfully.

We have tightened the criteria for taking regulating actions. A contractor will be suspended from tendering when he receives two consecutive adverse performance reports under the same contract instead of the previous criteria of three consecutive adverse reports.

We will regularly review our contractor management system and look for areas for improvement. We will, if necessary, stipulate further requirements and introduce additional measures to tighten the control on contractors and to ensure proper project delivery.

End/Wednesday, June 12, 2002