For discussion PWSC(96-97)32
on 1 July 1996

ITEM FOR PUBLIC WORKS SUBCOMMITTEE
OF FINANCE COMMITTEE

HEAD 703 - BUILDINGS
Food Supply - Abattoirs, wholesale markets, and other territory-wide food
supply facilities
41FS - Sheung Shui Slaughterhouse

Members are invited to recommend to Finance Committee the upgrading of 41FS to Category A at an estimated cost of $1,793.18 million in money-of-the-day prices for the construction of a slaughterhouse in Sheung Shui.

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PROBLEM
PROPOSAL
PROJECT SCOPE AND NATURE
JUSTIFICATION

Environmental Benefits
Land Use Benefits
Cost Benefits in the Provision of Slaughtering Services

FINANCIAL IMPLICATIONS
PUBLIC CONSULTATION
ENVIRONMENTAL IMPLICATIONS
LAND ACQUISITION
BACKGROUND INFORMATION

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PROBLEM

The existing abattoirs in Kennedy Town and Cheung Sha Wan are located in densely populated areas and give rise to environmental and planning problems.

PROPOSAL

2. The Director of Architectural Services (D Arch S), with the support of the Director of Regional Services (DRS), the Secretary for Works and the Secretary for Planning, Environment and Lands, proposes to upgrade 41FS to Category A at an estimated cost of $1,793.18 million in money-of-the-day (MOD) prices for the construction of a slaughterhouse in Sheung Shui.

PROJECT SCOPE AND NATURE

3. The project involves the construction of a new slaughterhouse in Area 2B of Sheung Shui to replace the Kennedy Town and Cheung Sha Wan abattoirs, as well as the Yuen Long slaughterhouse as part of a plan to rationalise the location of slaughterhouses in the territory. The slaughterhouse will have a slaughtering capacity of 5 000 pigs and 400 cattle per day¹ . It will be a low-rise building and will comprise the following -

1. lairages with a holding capacity of 12 000 pigs and 2 200 heads of cattle;
2. a slaughter hall where pigs and cattle are slaughtered, dressed and inspected;
3. blood coagulation and dewatering facilities;
4. a liquid waste treatment plant to treat effluent discharged from the slaughterhouse;
5. an administration and amenities block to house offices, shower and changing facilities, mess rooms and kitchen;
6. a meat dispatch area with carparking for meat despatch vehicles, livestock lorries and private cars;
7. a railway platform and holding pens; and
8. landscaping.

Subject to the conclusion of formal agreements with the Government, the Kowloon Canton Railway Corporation (KCRC) will fund and construct a railway siding on the site to facilitate the direct delivery of animals from China to the slaughterhouse, and the future operator (to be selected through an open tender exercise as explained in paragraphs 8 and 9 below) will be responsible for the management and operation of the new facility. The site and buildings of the slaughterhouse will remain under the Government's ownership.

JUSTIFICATION

Environmental Benefits

4. We built the existing abattoirs in Kennedy Town and Cheung Sha Wan in 1968 and 1969 respectively. They are located in densely populated parts of the urban area. The transportation of food animals, the slaughtering operation, and the running of the by-products plant (BPP) cause serious environmental nuisances. The abattoirs also limit development potential in the vicinity. We have made repeated efforts to address the environmental problems but with only limited success owing to the type and age of the plant and equipment installed. We consider that the only solution to the environmental problems created by the abattoirs is to relocate them as soon as possible. This has the strong support of the relevant District Boards and the Urban Council. In addition, the location of a new slaughtering facility close to the border serviced by a rail link will obviate the need for animals to be transported to slaughterhouses in the urban areas which , causesing environmental nuisances on the way.

Land Use Benefits

5. The presence of the abattoirs has also limited the redevelopment potential in the vicinity. Upon commissioning² of the new slaughterhouse, we can release the existing sites of the Kennedy Town Abattoir (1.25 hectares), Cheung Sha Wan Abattoir (1.8 hectares), Yuen Long Slaughterhouse (0.44 hectare) as well as the Ma Tau Kok Cattle Depot (0.7 hectare) currently run by the Agriculture and Fisheries Department for the wholesaling and storage of cattle, for new development more compatible with the surrounding areas.

Cost Benefits in the Pprovision of Sslaughtering Sservices

6. The public sector plays an important role in the provision of slaughtering services. The three Government-built abattoirs (viz. the Kennedy Town Abattoir, the Ccheung Sha Wan Abattoir and the Cheung Chau Slaughterhouse) together produce over 50% of the territory’s fresh meat supply. Operation of the Cheung Chau Slaughterhouse and the Kennedy Town Abattoir was handed over to a private firm under a lease. This is in line with the Government's policy to privatise operations which could be done by the private sector in a more cost-effective manner. At present, the only publicly-operated abattoir is the one at Cheung Sha Wan.

7. The Cheung Sha Wan Abattoir is operated by the Urban Council. It operated with a deficit of $104.6 million in 1994-95. The BPP run by the Urban Council within the Kennedy Town Abattoir also experienced a deficit of $18 million over the same period. The Urban Council has expressed great concern about this situation, and passed a motion in December 1995, and again in June 1996 urging the Government, among other things, to speed up the construction of the Sheung Shui Slaughterhouse so as to enable the Urban Council to wind down early the operation of the Cheung Sha Wan Abattoir.

8. The proposed new slaughterhouse is needed to reprovision three existing slaughtering facilities for optimum land use and environmental considerations. Government will fund the construction of this new facility which should be built to meet present day hygiene, environmental and animal welfare standards. However, in line with the policy that operations of abattoirs should best be undertaken by private firms, we will contract out the operation and management of this Government-funded facility upon its completion. This arrangement would significantly reduce the burden on public funds in providing slaughtering services to the community. We will award the management contract through open and competitive tendering. Under the contract, the operator will have to pay for the use of the facility. This payment may take the form of a rent or a percentage of the gross income or a combination of both. The financial return will depend on the competitive bids from tenderers based on their assessed businesses and operating expenses.

9. The future operator will have to operate and maintain the facility up to specified environmental and service standards, including maintenance of all machinery and equipment provided under the project. Thus, in the assessment of the tenders, we intend to accord weightings to both the technical aspects, namely the capability, experience and expertise of the tenderers in the management of large-scale slaughterhouses, and the financial return aspects. The pre-determined assessment criteria and the weightings will be subject to approval of the Central Tender Board.

FINANCIAL IMPLICATIONS

10. We estimate the capital cost of the project to be $1,793.18 million in MOD prices (see paragraph 11 below), made up as follows -

A breakdown by man months of the estimate for items (i) and (j) fees for the construction stage is at Enclosure 2.

11. Subject to approval, we will phase expenditure as follows -

12. We derive the MOD estimate on the basis of the Government's forecasts of trend labour and construction prices over the period between 1996 and 2001. We will carry out the works by a lump-sum contract without provision for price fluctuation. Taking into consideration the complexity of the project, the very specific technical requirements and tight time schedule, we will adopt a new implementation strategy. We have employed a design team under a lead consultant to carry out design and documentation to the extent that the Government's functional and future operational needs and intent are clearly identified and documented. On the basis of these documents, we will call tenders and select a building contractor. The Government will then novate⁵ the design team consultancy agreement to the contractor who will take over full responsibility for building the project, including undertaking any further detailed design. Such an arrangement can facilitate implementation of the project by providing the benefits of design continuity combined with the contractor's practical experience of building works, single point responsibility, co-ordinated works programming and a reduced risk of claims by the contractor.

13. Since the site and buildings will remain under Government’s ownership, we intend that Government will bear the annual recurrent costs for maintaining the building structure, estimated at about $3 million per year. We expect this to be more than offset by rental payments from the operator.

PUBLIC CONSULTATION

14. We consulted the North District Board and the Sheung Shui Rural Committee twice, first in mid-1995 and then again in late 1995, on the Government’s plan to construct a new slaughterhouse in Sheung Shui. They have not raised any objection to the choice of the site for the project but have expressed concerns about the possible environmental impacts of the project. In response to these concerns, following the completion of the Supplementary Environmental Impact Assessment (SEIA) in November 1995, we gave the North District Board and the Sheung Shui Rural Committee detailed briefings on the various environmental measures that we would adopt at the construction and operational stages, and re-assured them that all these mitigation measures will ensure that the new slaughterhouse will meet the established standards and guidelines. The District Board and Rural Committee are generally content with the proposed arrangements.

15. We presented the findings and recommendations of the SEIA report to the Advisory Council on the Environment in December 1995. The Council endorsed the report.

ENVIRONMENTAL IMPLICATIONS

16. In August 1993, we appointed consultants to undertake a preliminary environmental impact assessment (EIA)⁶ based on a conceptual layout provided by us. The consultants completed the preliminary EIA in February 1995 and concluded that there would not be any insurmountable environmental problems. As we further developed the design of the project, there were substantial changes to the layout and design criteria. In May 1995, we commissioned another consultant to carry out a SEIA based on the latest design information and the findings of the preliminary EIA. The consultants completed the SEIA in November 1995 and worked out specific mitigation measures for various environmental impacts.

17. In order to control odour, noise, wastewater, and solid-waste impacts to within the established standards and guidelines, we shall implement mitigation measures as recommended in the SEIA.

18. We have considered the concern expressed over possible contamination from the nearby Shek Wu Hui Sewage Treatment Plant. The Director of Health has advised that the potential for possible contamination of the meat product of the new slaughterhouse by micro-organisms from the nearby Plant would not be a matter of concern, since micro-organisms can easily be killed on exposure to sunlight. There is no scientific evidence that air-borne organisms from this route will cause any public health hazard. Furthermore, our design of the slaughterhouse will incorporate three preventative measures recommended by consultants which will minimize any theoretical risk. We will ensure that the whole unloading operation in the meat dispatch area will be carried out in an enclosed environment. We will air-seal all openings as far as possible and maintain a positive pressure inside the meat dispatch area by the installation of a ventilation system to prevent ingress of untreated outside air. We will also build a 3-metre high boundary wall to segregate the meat dispatch area from the adjacent sewage treatment works.

19. In addition, the operator will also implement an Environmental Management System to ensure satisfactory environmental performance during operation.

20. To counter short term impacts, we shall control dust, noise and site run-off during construction by implementing the mitigation measures recommended in the SEIA.

LAND ACQUISITION

21. This project does not require land acquisition.

BACKGROUND INFORMATION

22. We upgraded 41FS to Category B in July 1995. On 29 July 1995, the Finance Committee approved the upgrading of part of 41FS, entitled “Sheung Shui Slaughterhouse - consultants’ fees, site investigation and project planning team” (now identified as 43FS), to Category A at an estimated cost of $131.8 million in MOD prices. We completed site investigations, engaged consultants to undertake detailed design, and set up a project planning team in RSD to oversee the project.

23. On 24 January 1996, we invited Members to recommend to Finance Committee the upgrading of 41FS to Category A at an estimated cost of $1,715.4 million in MOD prices for the construction of a slaughterhouse in Sheung Shui. This was negatived by Members on the grounds of concerns about the proposed site’s proximity to the Shek Wu Hui Sewage Treatment Plant and the cost-effectiveness of the proposed management contract arrangement. We have addressed these concerns in the above paragraphs.

24. In the course of discussions on the proposed SSSH project over the past 12 months, Members have raised a number of issues and concerns. We have taken these on board in the planning of the project as far as practicable. We summarised in Enclosure 4 the Administration’s response for easy reference.

25. The consultants have completed the drawings and tender documents for the project. We originally planned to start piling work in August 1996 for overall project completion in October 1998. We have now revised these dates to February 1997 and June 1999 respectively. Separately, we will shortly complete Stage One of the tendering exercise for the management contract. This involves the shortlisting of companies to tender for the management contract. In response to the invitation to express interest, we have received a total of five responses, from both local and overseas firms. We are in the course of seeking the Central Tender Board’s approval of the shortlist of qualified companies. We will invite these shortlisted companies to tender in Stage Two. We expect the whole tendering process to be completed by about February 1997, and to finalise discussion of contract details with the selected tenderer by April 1997.

26. If Members do not approve the proposed funding, all the above preparatory work will be abortive or put to a halt. We would not be able to facilitate the Urban Council to wind down the Cheung Sha Wan Abattoir operation without affecting fresh meat supply to the community. We would have no adequate response to the Central and Western District Board and the Sham Shui Po District Board over their long-standing complaints of environmental nuisances caused by the Kennedy Town Abattoir and the Cheung Sha Wan Abattoir. Recently, the Concern Group on Environmental Problems Generated from Kennedy Town Abattoir petitioned the Legislative Council on delays in the construction of the SSSH.

1 -- See Enclosure 1 for background statistics on the number of food animals slaughtered in Hong Kong over the past 15 years and for calculation of the proposed slaughtering capacity at the SSSH.
2 -- In this context, the word "commissioning" means when the slaughterhouse is ready to begin slaughtering operations.
3 -- See Enclosure 3 for provision of independent checkers.
4 -- We originally estimated the total capital cost to be $1,208 million (at December 1994 prices), including the part upgraded to Category A as 43FS "Sheung Shui Slaughterhouse - consultans' fees, site investigations and project planning team" at an approved project estimate of $113.4 million (at December 1994 prices). We have increased the total project estimate to $1,509.4 million (i.e. $1,396 million + $113.4 million) due to inflation from December 1994 to December 1995 and additional requirements identified during the design stage. The reasons for the increase of $301.4 million ($1,509.4 million - $1,208 million) are as follows : -

1. $133.2 million for inflation from December 1994 (Tender Price Index 666) to December 19995 (Tender Price Index 747);
2. $68.5 million for environmental engineering works;
3. $39.3 million of upgrading the proposed sewage treatment plant to meet domestic standards;
4. $33 million for site staff cost; and
5. $27.4 million for various cost risks anticipated before completion of the project.

5 -- See Enclosure 3 for a detailed explanation of the concept of novation.
6 -- We charged the cost of the prliminary EIA under 34DP "Consultants' fees for an environmental impact assessment on the proposed Sheung Shui Slaughterhouse" with an approved project estimate of $1 million to the block allocation Subhead 3003GX "Minor building works, other than fitting-out works, selected from items in Category D of the Public Works Programme".

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Enclosure 1 to PWSC(96-97)32

The charts are not attached.

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Enclosure 2 to PWSC(96-97)32

41FS - Sheung Shui Slaughterhouse

(I) Breakdown of estimates of independent checkers for construction stage

(II) Breakdown of estimates of site staff cost

Notes :

1. The average estimated cost per professional man month is about equivalent to a Professional on Master Pay Scale (MPS) point 44.
2. The average estimated cost per Senior Clerk of Works, Clerk of Works, Assistant Clerk of Works and Works Supervisor man month is about equivalent to the appropriate ranks on MPS points 37, 33, 23 and 16 respectively.
3. The figures given above are based on estimates prepared by the Director of Architectural Services.
4. The estimated cost of independent checkers and site staff cost represent 0.9% and 2.4% respectively of the total project estimate.

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Enclosure 3 to PWSC(96-97)32

41FS - Sheung Shui Slaughterhouse

I. Novation Contract

We will implement the project using a novation contractual arrangement which is split into two stages, namely a pre-novation stage and a post-novation stage :-

1. Pre-novation stage

We have appointed a leading consultant responsible for the architectural, structural, building services, electrical and mechanical engineering, slaughtering equipment engineering and environmental engineering design of the project in a manner similar to the traditional system. The role of the leading consultant is to produce a design where all our requirements can be adequately documented to a level of legal clarity and suitable for the purpose of invitation of tenders. On completion of the documentation, we will call tenders and tenderers for the contract will be required to adopt and develop the design and submit tender proposals in order to undertake the completion of the design and construction process. The contractual arrangement at this stage is similar to the traditional system.

Under such arrangement, we have the advantage of retaining control of the initial design and ensuring that our specific requirements and needs of the project can be fully met.

2. Post-novation stage

On signing of the contract, we will then novate¹ the consultancy agreement to the contractor who then has a direct contractual link with us and the leading consultant. The contractor becomes the designer and will be required to take full responsibility for the design as well as the construction under the contract. The contractor, rather than the Government, will pay the leading consultant for the detailed design development.

As the detailed design development will be the responsibility of the contractor and any modification to the details will not be treated as a variation, we envisage that variation works will be minimal and we can obtain the benefit of better financial control.

II. Independent Checkers

Under the novation contract, which is similar to the design and build contract, there is a contractual provision to employ a design checker to check the contractor’s design submission. This may either be done on the independent checker employed by the contractor under the contract or by the Government’s in-house resources, depending on the complexity of the project and the availability of in-house resources. Usually we prefer the contractor to employ the independent checker who will be responsible for ensuring the approval of drawings in accordance with the programme of works. If we use in-house checking staff, experience has shown that the contractor will try to justify delays in the contract by shifting the responsibility onto the in-house checkers.

In addition, the detailed design and construction of the slaughterhouse is a complex task which needs to be completed within a tight timetable. ASD has little experience in such slaughterhouse works, especially on the environmental engineering aspects. The use of independent checkers with appropriate experience will help to facilitate the completion of the works on time, within budget and minimise the possibility of contractual disputes.

1 -- In layman terms "novate" means to hand on the agreement with the consultant from the Government to the contractor who then assumes the Government's role as the employer of the consultant.

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Enclosure 4 to PWSC(96-97)32

41FS - Sheung Shui Slaughterhouse

Summary of the Administration’s Response to Members’ Concerns