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LCQ7: Problem of rising construction costs

Following is a question by the Hon Abraham Shek and a written reply by the Secretary for Development, Mr Paul Chan, in the Legislative Council today (November 20):

Question:

The Cost Escalation in the Hong Kong Construction Industry Report (the Report) published by the Department of Real Estate and Construction of the University of Hong Kong has pointed out that a consultancy firm has identified Hong Kong as the most expensive construction location in the world. Regarding the construction costs in Hong Kong in the past three years, materials accounted for the largest share at 43 per cent, followed by labour costs at 34 per cent, while other costs such as administration, insurance, statutory requirements, profit and overheads, etc. made up the remaining 23 per cent. Over the past three years, material costs recorded an accumulated increase of 24 per cent, while labour costs rose by 27 per cent, with concretors and rebar workers getting the most notable wage increases by around 70 per cent and 30 per cent respectively. The Report has also pointed out that most of the factors contributing to the cost escalation, such as market exchange rates, pay movements and a series of additional requirements imposed on contractors (including those on safety, environmental protection, quality assurance, employment terms and design procedures, etc.), are beyond the control of contractors. In respect of the Government's indication that it would enhance the listing of contractors with a view to attracting more local and overseas contractors to the local construction market, the Report has cited examples illustrating that such policy will not be able to bring down the construction costs, but will instead intensify the competition among contractors for the already tight labour resources. Regarding the problem of rising construction costs, will the Government inform this Council:

(1) whether it has reviewed if the strategies and measures currently in place can effectively address the problem of surging construction costs brought about by rising material costs and labour wages as well as increasingly stringent quality requirements;

(2) as the authorities have projected that over 30 000 additional construction workers will need to be employed in the coming several years, yet only about 3 200 semi-skilled workers completed training in 2013, whether the authorities have assessed the manpower shortage situation in different trades of the construction industry and adopted corresponding measures; if they have, of the details, together with a breakdown by trade;

(3) given that the programmes offered by the Construction Industry Council, which only aim at training semi-skilled workers, are unable to provide timely solution to the problem of acute shortage of skilled workers in various trades, whether the authorities will expedite the vetting and approval procedures for the importation of foreign labour, so as to practically address the problem of shortage of skilled workers at present and in the coming several years;

(4) given that the expenditure incurred by the authorities on the training of construction workers amounted to about $350 million last year, yet only about 3 200 semi-skilled workers completed training during the year, whether the authorities have assessed the cost-effectiveness of the training provided for local construction workers, the average total cost for training a semi-skilled worker in the past three years (including the expenditures on teaching staff, training venues, documentation, administration, performance evaluation and allowances, etc.), and the percentage of trainees who left the construction industry within a year after they had completed training; and

(5) whether the authorities will, before deciding to impose additional requirements on contractors in new public works contracts in future, duly consider and assess if such requirements are appropriate and necessary, as well as their impact on the construction costs?

Reply:

President,

The Government has all along been committed to implementing public works projects in accordance with work schedule and within budget with a view to improving the quality of life of members of the public and enhancing the long-term competitiveness of Hong Kong. To meet the challenges arising from rising construction costs, the Government has liaised closely with the construction industry and implemented a series of measures in recent years.

My reply to the five parts of the Hon Shek's question is as follows:

(1), (2) & (3) To address the manpower demand of the construction industry, the Government and the Construction Industry Council (CIC) have all along been actively implementing a host of measures to enhance training for construction workers, including:

(a) To increase the number of training places - There were about 12 800 trainees graduating from various full-time training programmes organised or subsidised by CIC between 2009 and end-September 2014. The programmes include:

(i) The Enhanced Construction Manpower Training Scheme (ECMTS) (Note: For trades with problems of labour shortage, acute ageing and difficulties in recruiting new trainees) jointly launched to attract more new entrants to join the industry with enhanced training allowances. As at end-September 2014, about 5 500 trainees have completed taking ECMTS.

(ii) The Contractors Cooperative Training Scheme (CCTS) launched by CIC, under which trainees were hired and then trained on-site by contractors so as to acquire site experience at an early stage.

(b) Subsidies are provided by CIC for trade tests. For those trades with relatively lower passing rates in trade tests, skill enhancement courses are provided to facilitate in-service workers possessing relevant skills to register as semi-skilled or skilled workers. Besides, CIC provides subsidies for specified training courses to encourage workers having relevant experience to register as skilled workers.

(c) The Government and CIC, in collaboration, launched the "Build Up Publicity Campaign" in 2011. Coupled with enhancements to the working environment and construction site safety, the overall image of the industry is uplifted with a view to attracting new entrants, particularly young people, to join the industry.

(d) Semi-skilled workers who have completed the courses provided by CIC would need to undertake on-the-job training for two to four years after joining the industry to advance their skills to the levels of skilled workers. To encourage semi-skilled workers to stay in the industry and acquire on-the-job training, CIC, in collaboration with contractors, rolled out the "On-The-Job Training Subsidy Scheme" in 2013. Under the Scheme, on-the-job subsidies were provided by CIC for six months to contractors who employ ECMTS graduates, while the contractors undertake to continue to employ these graduates for at least 12 months after the subsidy period. This initiative aims to provide about 3 000 training places by end-2016. CIC is also deliberating further training initiatives to upgrade the skill levels of semi-skilled workers to that of skilled workers.

(e) CIC has been, from time to time, deliberating with the industry and taking measures to increase the number of training places and enhance the quality of training in an effective manner. For instance, training places for trades with manpower shortage have been duly increased. Existing training programmes are fine-tuned as necessary.

Besides, the Government and the industry have deployed a series of measures to strive to address rising construction costs, which include:

(a) In the light of the rising wages of workers, the Government has put in place an enhancement to the Contract Price Fluctuation System early this year to reimburse contractors labour cost increases due to rising wages in an effective manner. This measure also helps reduce the need for contractors to raise their tender prices to cover their anticipated labour cost increases. Further, it reduces the likelihood of the cash flow problem of contractors arising from their under-estimation of the scale of increase in wages, which will in turn affect the works progress. To date, response from contractors is generally positive.

(b) The New Engineering Contract (NEC) has been adopted in some public works contracts. The NEC promotes mutual trust and cooperation between the contracting parties on sharing risk management. It seeks to enhance efficient contract management and reduce risks and thus project costs arising from risk incidents. Target cost contract, one of the options of NEC, can help the contracting parties to achieve the common goals of controlling project costs and completing the works as early as possible, such that the project costs can be reduced and construction periods be shortened.

(c) The Government has let out a piece of land for an operator to set up an automated and mechanised prefabrication yard that will provide prefabricated cut and bent steel reinforcement bars for local construction projects. This measure can reduce material wastage and alleviate the problem in shortage of bar benders and fixers.

(d) The requirements in respect of works safety, environmental protection and quality assurance in the public works have been enhanced but they have not entailed noticeable increase in costs. However, to curb unnecessary rise in construction costs, the works departments have been required to review the various provisions in works contracts to ensure that the relevant requirements are set at a reasonable level.

(e) The Government has commissioned a study on the costs of construction works in Hong Kong to provide reference for formulation of polices in future.

The Government will continue to keep track of the market trend of the construction industry, and study and formulate effective measures to control project costs.

As regards the situation and assessment of manpower shortage of various trades, the Government and the industry have reviewed and assessed the manpower demand for construction workers from time to time. According to the latest report on manpower forecast for construction workers released by CIC in September 2014, the construction industry still needs additional skilled workers of about 10 000 to 15 000 from 2015 to 2018. This has taken into account the forecast construction output, number of in-service workers and their age distribution, training and its limitations, and other relevant factors. CIC will regularly update the manpower forecast and promulgate its findings.

For the labour shortage situation of individual trades, the manpower demand for each trade varies with work progress, which is in turn affected by various factors. Thus we have difficulty in making more accurate projection or estimation on short-term manpower shortage of individual trades. Nonetheless, CIC set up a Task Force on Short-term Labour Supply (the Task Force) (Note: The Task Force comprises representatives of the Hong Kong Construction Association, the Hong Kong Federation of Electrical & Mechanical Contractors Ltd., the Hong Kong Construction Industry Employees General Union, the Federation of Hong Kong Electrical and Mechanical Industries Trade Unions, the Construction Site Workers General Union of the Hong Kong Confederation of Trade Unions, Mass Transit Railway Corporation Limited, the Hong Kong Housing Authority and the Development Bureau) in early 2014. Having considered the relevant manpower studies (including the aforementioned manpower forecast conducted by CIC), surveys and training schemes, and following thorough discussions, 26 shortage trades have now been identified by the Task Force. CIC will duly review the list of shortage trades to reflect the latest market situation and adjust its training measures to cope with the manpower demand. Please refer to Annex I for the list of these trades.

Although various training initiatives have been implemented smoothly and have attained certain results, the shortage problem of skilled workers has yet to be fully resolved. With due regard to the principle of not affecting the employment and not lowering the wages of local workers, the industry needs to import skilled workers in a timely manner. This will not only help meet the manpower demand of the industry but will also make room for the local in-service skilled workers to nurture semi-skilled workers.

On the other hand, having regard to the 26 shortage trades identified by CIC, after consulting the Labour Advisory Board, the Labour Department rolled out a new arrangement in mid-April this year to expedite in collaboration with relevant policy bureaux and departments the preparatory works for Supplementary Labour Scheme (SLS) applications submitted by contractors involving the aforementioned shortage trades related to public sector works, with a view to saving time for administrative work. It facilitates timely importation of skilled workers for public sector works with genuine needs, thereby relieving the shortage of skilled workers in the aforementioned shortage trades for the construction industry on the whole. The Labour Department is processing the related SLS applications. The Government will liaise closely with the industry to review the effectiveness of the arrangement in a timely manner and make modifications as appropriate.

(4) CIC has long been providing different types of training for construction personnel (Note: CIC provides training for construction supervisors, technicians and workers, trade tests for the industry, management and safety courses as well as trainee recruitment and job referral service, etc.). According to CIC, in 2013, CIC spent about $260 million on training of semi-skilled workers. The average costs for training a semi-skilled worker in 2011, 2012 and 2013 were about $82,000, $79,000 and $78,000 respectively. Training subsidies for trainees accounted for about 20 per cent to 30 per cent of the costs. The remaining parts of the costs include instructors' costs, material and workshop expenses as well as administration and management costs, etc.

To keep track of the retention situation of graduates of full-time training courses for construction workers, CIC has conducted telephone surveys on the employment situation of its graduates 12 months after graduation. For graduates who completed the full-time adult short courses (including courses under ECMTS as well as regular short courses) in 2012 and 2013, their retention rates at 12 months after graduation are set out in Annex II.

According to the past survey findings of CIC, the main reasons of the graduates leaving the industry include lack of physical fitness to meet job requirements, uncertainties in the prospect of the industry, inability to find suitable jobs, work hazards and dissatisfaction about salaries and benefits.

In the light of the above survey findings, CIC has taken relevant measures to reduce the number of graduates leaving the industry. For instance, CIC has enhanced physical training for trainees in its courses. It has also followed up with the recruitment situation of its graduates and arranged suitable job referrals for them.

As regards site safety, the industry continues to implement various safety management measures and foster a caring and safety culture in the industry. The gratifying increase in the wages for construction workers in recent years and provision of more welfare facilities on site by contractors help attract new entrants to join and continuously remain in the industry after training.

(5) The Government has all along had regard to the appropriateness and necessity of the contractual provisions under public works contracts. In this connection, it has launched various initiatives to enhance procurement strategies and related measures for public works projects in 2013 and 2014. Due consideration is given not only to achieving cost effectiveness, but also to enhancing construction productivity, quality of works, site safety and environment, etc.

On enhancing cost-effectiveness of public works projects, the Government has raised the tender limits of contracts for different groups of contractors on the approved lists and accepted relevant experience in non-government local works contracts for the contractors on probation to acquire their confirmed status. These measures help open up the market and increase competition. The Government has also launched other initiatives to encourage contractors to submit alternative designs that provide better value for money and enhance buildability. Further, the Government has also deleted the original contractual provision that disentitled a contractor to an extension of time if the cause of the delay was shortage of labour, with a view to reducing the associated risks to contractors.

To enhance construction productivity, the Government has modified the procurement procedures for public works to encourage the mechanisation and prefabrication in tender evaluation and performance management for public works consultancies and contracts. In particular, more emphasis is placed on deployment of personnel with relevant experience in design constructability in evaluating tenders for works consultancies. Also, the Government has included tender provisions to encourage works consultants and contractors to adopt innovative design and construction methods in order to deliver quality infrastructures.

To enhance site safety, the Government has placed more emphasis on the safety performance of contractors in previous public works contracts when evaluating tenders for works contracts. A Pay for Safety Performance Merit Scheme has been incorporated into the public works contracts. The Government is committed to improving the environment. The works consultancies' design in respect of environmental protection, heritage conservation and aesthetic appearance will be taken into account in tender evaluation and performance management of public works consultancies. 

Regarding the Hon Shek's concern about attracting more contractors to the local construction market, the Government will, in general, only invite contractors who are on the List of Approved Contractors for Public Works and meet the relevant experience and other qualification requirements to tender for public works. That said, the works departments may also adopt prequalified tendering or open tendering, as appropriate, for individual contracts concerned, and allow contractors that meet the relevant experience and other qualification requirements to submit tenders. Further, the Government may also allow contractors on the List of Approved Contractors to form joint ventures with contractors not on the list to submit tenders. These are long-standing procurement policies. The Government is always open to introduce leading technology and the latest construction practices from abroad to meet the needs of individual projects.

Attachment:

Ends/Thursday, November 20, 2014
Issued at HKT 12:33

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