Speech by Secretary for Development at the International Construction Law Conference 2010 (English only)

The Secretary for Development, Mrs Carrie Lam, today (December 6) delivered a speech at the International Construction Law Conference 2010 on the Government's efforts to prevent and resolve construction disputes. She also gave an update on Hong Kong's infrastructure development to the conference participants.

The conference, with the Development Bureau as the major sponsor, is being held from December 5 to 7. More than 200 construction lawyers and professionals from all over the world attended the conference to exchange ideas on issues of interest and importance to the industry worldwide.

Following is the full speech delivered by Mrs Lam:

Honourable Judges, distinguished speakers and delegates, ladies and gentlemen,

Let me begin by giving you a very quick overview of Hong Kong's infrastructure development as this will set the context for the application of construction law and related matters.

In delivering the infrastructural projects, the right choice of contract form and proper preparation of the construction contracts is an essential element.  The HKSAR government has promulgated a comprehensive set of General Conditions of Contracts for use in different types of public works and updated them from time to time.  Right now, we are reviewing the current version of the general conditions for buildings and engineering works contracts which have been in use since 2000 to look into the risk sharing mechanism, take into account the policy initiatives introduced in the intervening years and dovetail the evolution of the statutory framework, such as the new Arbitration Ordinance which was passed last month.  We trust that this new edition (planned to be published in mid-2012), congruent generally with risk allocation practices followed in other jurisdictions, will be accepted internationally as one of the major standard forms for procuring infrastructure works.

Apart from the conventional Architect/Engineer-Design- Contractor-Build form of contracts, Design-Build contracts have already been adopted for many of our building and civil engineering projects, notable examples are the new cruise terminal at the previous Kai Tak airport site and the new Central Government Office Complex at Tamar.  We are working to actively promote the wider use of Design-Build contracts in our civil engineering works.  Other forms of contracts like Design-Build-Operate contracts, e.g. for sewage treatment works projects, are also being used for specific types of works to meet their specific requirements.  Further, the Housing Authority has piloted the use of a three-envelope tendering system with one envelope on technical submission, one on price and the other on innovative proposal.  Tapping into their valuable experience, we are actively planning the trial use of similar procurement arrangement in both consultants and contractors selection with a view to encouraging innovation.  Besides we are also using the New Engineering Contract (NEC) form in selected contracts, which adopt a contractual partnering approach and proactive project management procedures to deliver the construction works within time as well as in a quality and cost effective manner.  We are in due course considering the adoption of a contractual partnering approach for engaging consultants as well.
However, no matter how much endeavours we made to perfect the preparation of our construction contracts, disputes would still arise due to differences in interpretation and some unforeseen circumstances.  With so many large and complex infrastructure projects in hand, the conventional way of resolving disputes sometimes just ends up with costly and lengthy processes.  In the past five years, a total of 37 arbitration cases have been invoked to resolve disputes between the government and public works contractors.  Among these cases, 17 cases have been completed, 14 cases are in progress and 6 cases have been withdrawn, suspended or deferred.  It is therefore necessary to have an effective dispute avoidance and resolution mechanism in our public works contracts.

Prevention is better than cure.  The best way to handle disputes is to prevent them from arising in the first place.  However, this is easier said than done, in particular for construction disputes which often involve very complex factual, technical and legal issues with large amounts of public funds at stake.  I trust that the application of partnering approach can help minimise claims and resolve differences between the contracting parties in a speedy and cost effective manner before they become contractual disputes.  Non-contractual partnering was introduced to public works contracts back in 1997.  Contractual partnering using the NEC form is now being tried out. For example, we have applied NEC contract to one of our drainage projects adopting a target cost with pain-share-gain-share arrangement.  We have just awarded another highways contract in November 2010 using the NEC form to further strengthen our experience on its local application.

Apart from the partnering approach, and in furtherance of the "preventive" philosophy, the concept of employing Dispute Resolution Advisors (DRA) to avoid construction disputes was practised by the public sector since early 1991.  The Architectural Services Department adopted the DRA system in some 70 building works contracts since December 1991 and the Housing Departments has adopted the DRA system in all of their building and foundation contracts since 2004.  In 2005, the DRA system was extended to civil engineering works with more than 30 civil engineering works contracts adopted the system.  Our experience in using the system to avoid disputes has been very positive.

We have recently completed a comprehensive review on the DRA system and improved the system in respect of list management, selection, appointment, and performance reporting system of DRAs.  In addition, we have also organised a DRA workshop in March this year to share experience among frontline project staff and enhanced our monitoring and evaluation of the effectiveness of the DRA system in civil engineering works contracts.  However, without adequate supply of good quality DRAs to meet the increasing demand, the effectiveness of the DRA system as a whole will still be hampered.  To encourage enlisting of potential candidates, we invited the Hong Kong International Arbitration Centre to organise training courses for potential DRAs.  As a result, two training courses were organised by the Centre in October 2009 and January 2010 respectively.  With these concerted efforts, the number of listed DRAs has recently hit a record high figure.

Even though it is our wish to avoid disputes as far as possible, there is still a need to re-examine our dispute resolution mechanism to ensure that an effective process can be put in place.  Before 1980s, arbitration was the only means for dispute resolution in public works contracts.  In the early 1990s, the Government introduced mediation for public works and mediation has since been extensively used in public works contracts, in particular under the Airport Core Programme (ACP) in 1990s.  Over 80% of the disputes in ACP contracts were settled by mediation.  In recent years, we have continued to achieve a high success rate to settle disputes in public works by mediation.  I have no doubt that mediation is still one of the most effective methods to resolve construction disputes, the success of which has been well tried and proven over the last 20 years.

That said, the Government has also explored to adopt other alternative dispute resolution (ADR) methods in public works contracts. We have introduced voluntary adjudication in selected public works contracts since 2005.  Adjudication, as you know, is an expedited form of dispute resolution in which issues are considered and determined by an adjudicator within an expedited timeframe as and when a dispute arises.  In the United Kingdom, Australia and Singapore, adjudication is described by law as the designated process to resolve payment-related disputes in construction contracts.  With the benefit of the experience from a recent adjudication case encountered by one of our works departments, we are preparing internal guidelines to facilitate our colleagues to have a better understanding on the adjudication process and to consider its adoption to achieve an expedited decision on the dispute during the course of the construction works.  We aim at deriving a simplified procedure in collaboration with industry stakeholders to settle disputes.

As the need for efficient and effective dispute resolution should not be confined to public sector construction works, the Construction Industry Council (CIC), a statutory body set up to raise the quality of Hong Kong’s construction industry, has promulgated a set of "Guidelines on Dispute Resolution" in September this year to set out good practices about the use of different dispute avoidance and resolution methods for reference of industry participants.

Ladies and gentlemen, to conclude, completion of the 10 major projects and other public works contracts on time and within budget calls for collaboration of every party in the industry.  We shall continue to encourage the use of the partnering approach and DRA system in public works for resolving differences in opinions before formal disputes arise.  When disputes arise, the Government will aim to see them being resolved in a speedy and cost effective manner so that justified payments to contractors can be secured as soon as possible. Since its establishment in 2001, the Society of Construction Law Hong Kong has worked to promote for the public education, study and research in the field of construction law, ADR, arbitration and adjudication subjects.  The Development Bureau is happy to be a supporter of this 3-day International Construction Law Conference which I am sure will make significant contribution to the ongoing exchanges and debate on construction law matters.

Thank you.

Ends/Monday, December 6, 2010
Issued at HKT 19:04