Public Works Subcommittee

Minutes of the proceedings of the Meeting held on
17 April 1996 at 10:45 am in the Legislative Council Chamber

Present:

Absent:

In attendance for specific items:

Mr H S TSE, JP	Director of Drainage Services (Acting)
Mr C L AU, JP	Director of Territory Development (Acting)
Mr Keith KWOK, JP	Deputy Secretary for Works (Programme & Resources)
Miss Glenda CHAN	Principal Economist of Financial Services Branch
Mr John CLIMAS	Chief Assistant Secretary of Works Branch (Programme Management)

In attendance:

Mr B P W LEUNG, JP	Secretary for Planning, Environment and Lands
Mr S S LEE, JP	Secretary for Works (Acting)
Mr M J STOKOE	Assistant Director of Environmental Protection
Mr Mike ARNOLD	Deputy Secretary for the Treasury (Acting)
Mr Johnny CHAN	Principal Assistant Secretary for the Treasury (Works) (Acting)
Miss Pauline NG	Assistant Secretary General
Mrs Constance LI	Clerk to the Public Works Subcommittee
Mr Andy LAU	Senior Assistant Secretary (Finance Committee)

Due to Dr Samuel WONGs absence on overseas trip, Mr Albert CHAN Wai-yip, Deputy Chairman, chaired the meeting.

NON-AIRPORT CORE PROGRAMME
Upgrading of projects to Category A
HEAD 704 - DRAINAGE

PWSC(96-97)1

75CD

Stormwater drainage master plan study on northern Hong Kong Island

2. In response to members questions, the Director of Drainage Services (DDS) advised that in addition to the immediate remedial actions to improve inadequate drains at identified blackspots on Hong Kong Island, it would be necessary to have an overall assessment of the existing drainage system on the northern Hong Kong Island for longer-term improvements. Considering the number of catchment areas on the northern Hong Kong Island, and their different topographical characteristics, a comprehensive assessment covering all relevant catchment areas would be required. He further advised that the southern Hong Kong Island, which was on the other side of the watershed and had few drainage problems, was not included in the proposed study

3. A member expressed concern about the long time taken to resolve the drainage problem in the territory and urged the Administration to have more advanced planning for future improvement works. In reply, DDS clarified that the present timetable was considered reasonable having regard to the scale of the project. A prioritised improvement programme would be drawn up after the study, taking into account the magnitude of the problem and its impact on the public. He advised that, where justified, urgent improvement works would also be carried out as identified in the course of the study. In reply to a member, DDS further advised that, pending the outcome of the study, it was not possible to have an estimate of the project costs for implementing the prioritised improvement programme. The Chairman considered that the subject should be followed up at the Panel.

4. On the need to incur $1.1 million as consultancy fees for supervision of the specialist investigations, DDS advised this would be commissioned as a separate contract for the purpose of requiring the Consultants to draw up detailed tender requirements to facilitate the selection of contractors and supervision of contractors work.

5. Responding to a member, DDS advised that a factor of 2.5 was used for the calculation of consultancy fees as in previous cases. In this connection, the Deputy Secretary for Treasury (DS(Tsy)) advised that, in response to members concern on how consultancy fees were calculated, an information paper on the subject would be issued to members shortly. As regards the contingency sum of $1.5 million which represented roughly 10% of the project costs, DDS advised that the estimate was derived from experience and the amount should be sufficient for the project.

6. In reply to the Chairman, DS(Tsy) advised that December 1994 prices were used for all projects included in the 1995 Resource Allocation Exercise (RAE) and these would be updated to December 1995 prices in the 1996 RAE.

7. This item was voted on and endorsed.

Revision in scope/approved estimate of project in Category A

HEAD 707 - NEW TOWNS AND URBAN AREA DEVELOPMENT

PWSC(96-97)2

66CL

Sha Tin New Town, stage II - engineering development, package 23, phase 2

8. Responding to a member, the Director of Territory Development (DTD) explained that the project estimates had been revised a few times since the initial approval given by Finance Committee in 1981, to cover contract price fluctuation payments. The cost adjustments were largely due to the late finalisation of road layout because of change in land use and the absence of a preliminary project feasibility study system which was introduced only in 1994. The present proposal sought an increase of $294.8 million in the project estimate in order to complete the remaining works including landscaping and drainage works and noise mitigation measures for the final section of Road P8.

9. A member asked whether the residents affected had been consulted on the proposed noise mitigation measures. In reply, DTD advised that the District Board was previously consulted of the project, but not specifically on the proposed noise abatement measures. At the request of the member, he agreed to consult the District Board on the present proposal and inform members of the outcome before submitting the item to the Finance Committee for approval. As regards future noise abatement measures in the area, the Secretary for Planning, Environment and Lands advised that these could be considered when more concrete development plans such as population density were available. The Chairman advised that this could be followed up at the Panel.

10. This item was voted on and endorsed.

PWSC(96-97)3

409CL

Sha Tin New Town - stage II : servicing and extension of Chap Wai Kon, Ngau Pei Sha and To Shek Villages in area 35

11. Members expressed concern about the slippage of 33 months in the present project and urged the Administration to review the existing mechanism to minimise undue delays. In reply, DTD explained that the project was delayed due to difficulties encountered in the course of land clearance and some unforeseen work in relation to the residents demands for more facilities. To reduce project delays, the Secretary for Works advised that a revised procedure had been introduced for Public Works Programme projects whereby changes to the project design would not usually be allowed after the project had been upgraded to Category A. Any consultation which might have impact on the detailed design should be done well in advance and before the project was upgraded to Category B. The introduction of the Preliminary Project Feasibility Study system for public works projects had also helped to define clearly the project scope and make realistic estimates on costs as well as the time and resources required.

12. As regards the costs to be recovered from the 126 grantees, DS(Tsy) advised that under the Small House Policy, the Government would recover from the grantees the costs in connection with land resumption and formation, and the construction of internal access roads and drains on the land. The Government would, however, bear the full costs in relation to the provision of open space, community and recreational facilities and other basic infrastructural development such as principal roads, sewers and storm water drains in the area. In the present proposal, the Government would recover $39.7 million from the 126 grantees.

13. Miss Emily LAU indicated that she could not support the proposal as she disagreed with the Small House policy. She urged the Government to expedite the review of the policy and put forward the findings to the Legislative Council for deliberation. The Chairman advised that the subject should be followed up at the Panel.

14. This item was voted on and endorsed. Miss Emily LAU indicated her objection to the proposal.

Note for Finance Committee

FCRI(95-96)43

Money-of-the-day Project Estimates

15. The Chairman advised that members had previously requested the Administration to provide further information on the use of money-of-the-day (MOD) estimates for capital works projects. In this regard, an information note, FCRI(95-96)43, had been circulated to members for discussion at the meeting.

16. Responding to a members question, the Deputy Secretary for Works (DS for W) advised that the objective of using MOD prices was to provide more realistic project estimates together with information on the cash-flow requirements for each year. In coming up with a realistic estimate, the Administration would have to take into account the forecasts of trend labour and construction prices and the latest tender prices in the market. This would in fact give a clearer indication of the project estimates from the outset. To cater for unforeseen expenditure arising from claims for compensation, a contingency sum would be reserved within the project estimates.

17. On the question of whether the use of MOD prices was intended to reduce the need for re-submissions to the Public Works Subcommittee (PWSC) or the Finance Committee (FC) for approval to increase project estimates, DS for W advised that the Administration would not deliberately inflate the project estimates in order to circumvent the need to seek members approval on cost increases, as the Administration still had to seek the authority of the FC or PWSC on any expansion of project scope. Moreover, underspending of individual projects would be reflected in the revised estimates.

18. As regards whether the use of MOD estimates would encourage higher tender prices as contractors might take advantage of the allowances for inflation to raise their bids, DS for W advised that competition for tenders had always been very intense, and contractors were well aware of risks associated with cost increases which had all along been reflected in their bids. The adoption of the MOD prices therefore would not result in any increase in tender prices, and very competitive bids had been received after the implementation of the MOD prices. Responding to a members question, DS(Tsy) advised that the Administration did not require the tender price for a project to fall within a given range in relation to the approved estimate. Only when the tender price appeared to be totally unrealistic considering the works involved, the time allowed for the project to be completed on time and the standard required would a bid be considered for rejection. In this respect, the Administration agreed to provide further information for projects approved since 1992 regarding the approved project estimates, the actual outturn after tendering and the actual final expenditure of those capital projects using MOD prices.

19. In reply to a member, DS(Tsy) explained the difference between the Civil Engineering Works Index (CEWI) and the Tender Price Index (TPI). He explained that the CEWI was based on the changes in labour and various material costs published by the Census & Statistics Department whereas the TPI provided an indication of the level of tender prices for new building projects. Based on these and other indices, the Government Economist would make a forecast of trend changes in labour and construction prices over the years ahead. The current forecast was for a 10% increase per year between 1996 and 1999 and a 7.5% increase per year from 2000 onwards. To calculate the MOD price for a project, the Administration would apply the relevant price adjustment factors to the constant price for forecast of annual cashflow (expenditure) requirements over the project implementation period.

20. As regards whether it was appropriate to apply the trend labour and construction prices for calculating MOD prices of furniture and equipment as proposed in paper FCR(95-96)106 in relation to the redevelopment of the operating theatre block and the rehabilitation block in Queen Elizabeth Hospital, DS(Tsy) advised that the facilities were part of a building project and the application of an uniform index was used to simplify calculations. Whilst he accepted that perhaps a separate index could be developed to calculate the MOD prices for furniture and equipment, he pointed out that for budgetary purpose, the application of many different indices to cater for the different categories of items in a single project would make the calculation very complicated. Moreover, in total budgetary terms, the impact of using different indices was likely to be minimal. He stressed that actual expenditure was subject to the outcome of the tender exercise. However, he agreed to take note of the members point.

21. As regards the calculation of MOD prices for consultancy fees, DS(Tsy) advised that the Administration currently applied the same index to the estimates of consultancy fees. He accepted that the index which was based on trend labour and construction prices might not be applicable to consultancy studies. He agreed that the Administration would consider this point further.

22. The Chairman thanked the Administration for briefing members on the subject and advised that the record of the discussion should also be circulated to other FC members for information.

23. The meeting ended at 12.20 p.m.

Legislative Council Secretariat
9 May 1996

Last Updated on 27 November 1998

Public Works Subcommittee

Minutes of the proceedings of the Meeting held on 17 April 1996 at 10:45 am in the Legislative Council Chamber

Minutes of the proceedings of the Meeting held on
17 April 1996 at 10:45 am in the Legislative Council Chamber