For discussion PWSC(95-96)82
on 24 January 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 $1,715.4 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
FINANCIAL IMPLICATIONS
CHOICE OF THE FUTURE OPERATOR

Stage One - Expressions of Interest
Stage Two - Tender Submission

PUBLIC CONSULTATION
ENVIRONMENTAL IMPLICATIONS
LAND ACQUISITION
BACKGROUND INFORMATION
41FS - Sheung Shui Slaughterhouse

(I) Breakdown of estimates of independent checkers for construction stage
(II) Breakdown of estimates of site staff cost

41FS - Sheung Shui Slaughterhouse

I. Novation Contract

• (a) Pre-novation stage
• (b) Post-novation stage
II. Independent Checkers

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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) and the Secretary for Works, proposes to upgrade 41FS to Category A at an estimated cost of $1,715.4 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 head of cattle per day. 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 head 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, laundry, 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. The future operator (to be selected through an open tender exercise as explained in paragraph 13 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

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 and planning problems created by the abattoirs is to replace them as soon as possible.

5. Since 1987, it has been the Government's policy to transfer the operation of abattoirs from the public sector to private firms. A private company took over the operation of the Government abattoir at Kennedy Town in 1990 under a lease, and the only Government-operated abattoir is now at Cheung Sha Wan¹.

6. Accordingly, in parallel with the transfer of abattoirs to the private sector, we plan to rationalise the location of slaughterhouse facilities in the territory. We plan to replace the Kennedy Town and Cheung Sha Wan Abattoirs and the slaughterhouse at Yuen Long by a new slaughterhouse in Sheung Shui. The new slaughterhouse will have a slaughtering capacity equivalent to the current combined throughput at the Kennedy Town Abattoir, Cheung Sha Wan Abattoir and Yuen Long Slaughterhouse, that is approximately 5 000 pigs and 400 cattle per day². Upon the commissioning³ 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.

FINANCIAL IMPLICATIONS

7. We estimate the capital cost of the project to be $1,715.4 million in MOD prices (see paragraph 8 below), made up as follows -

A breakdown by man months of the estimate for consultants' fees for the construction stage is at Enclosure 2.

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

9. 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 novate 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.

10. We will apply a similar arrangement in respect of procuring the slaughtering equipment, which forms an essential part of the project. A lengthy lead time is required to obtain detailed information and invite tenders from the overseas suppliers before we can place orders for the delivery of the equipment. In order to speed up completion of the project, we will invite the tenders for the slaughtering equipment at an early stage and the successful tenderer will become a pre-selected sub-contractor of the main building contractor on award of the works contract.

11. The Cheung Sha Wan Abattoir, which is operated by the Urban Council, ran at a deficit of $104.6 million in 1994/95. The BPP run by the Urban Council within the Kennedy Town Abattoir operated at 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 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 plant.

12. Subject to an acceptable financial arrangement being agreed with the Government, the future operator will operate and manage the new slaughterhouse. We believe that a contract with the future operator could be modelled on the existing lease of the Kennedy Town Abattoir. We intend that the Government will bear the annual recurrent costs estimated to be $3 million of maintaining the building structure, with the future operator being responsible for the operation and management of the slaughterhouse, including maintenance of all machinery and equipment provided under the project. We also intend that the future operator will pay a licence fee to the Government for operating the new facility.

CHOICE OF THE FUTURE OPERATOR

13. Members previously commented on the management of the slaughterhouse when they considered the earlier funding request for the detailed design consultancy for the project in July 1995. We have decided that we should award the management contract for the new slaughterhouse by way of open tender. We will conduct a two-stage exercise as follows -

Stage One - Expressions of Interest

We will invite expressions of interest by placing public notices in the Government Gazette and in the local and overseas press. After receipt of all registrations of interest, we will form an assessment panel consisting of senior representatives from relevant Branches and Departments to shortlist companies suitably qualified to be invited to submit tender proposals. We will then seek the approval from the Central Tender Board (CTB) to issue tender invitations to those qualified companies.

Stage Two - Tender Submission

We will invite tenders from the shortlisted companies in accordance with the established competitive system. The assessment panel will select the most suitable tender using a common technical and financial points system approved by the CTB. Upon approval of the CTB of the recommended tenderer, we will, within any parameters laid down by the CTB, finalise details of the contract with the selected tenderer.

14. The public notice inviting expressions of interest was published in the Government Gazette and in the local and overseas press on 12 January 1996. We expect the whole tendering process to be completed by about May 1996, and to finalise discussion of contract details with the selected tenderer by July 1996.

PUBLIC CONSULTATION

15. 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 impact of the project. In response to these concerns, following the completion of the Supplementary Environmental Impact Assessment (SEIA) in November, we gave the North District Board and 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.

16. 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

17. In August, 1993, we appointed consultants to undertake a preliminary environmental impact assessment (EIA) 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 then 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.

18. 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.

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

20. For short term impact, 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. We completed site investigations, engaged consultants to undertake detailed design, and set up a project planning team in RSD to oversee the project and charged the costs under 43FS "Sheung Shui Slaughterhouse - consultants' fees, site investigations and project planning team" with an approved project estimate of $131.8 million in MOD prices ($113.4 million at December 1994 prices). The consultants are preparing drawings and tender documents for the project. We plan to start piling work in August 1996 for overall project completion in October 1998.

23. When considering the funding for a consultancy on the detailed design of the Sheung Shui Slaughterhouse on 29 July 1995, the Finance Committee suggested that the Administration consider the possibility of expanding the capacity of the Sheung Shui Slaughterhouse in order to accommodate the Tsuen Wan facility. We have undertaken an assessment on the relocation of the Tsuen Wan Slaughterhouse and presented the findings to the Legislative Council Panel on Planning, Lands and Works on 19 December 1995. The Panel noted the need to retain the Tsuen Wan facility at its present location and that we will inform the Panel on measures that we propose to take to abate environmental nuisances.

1 -- These two abattoirs in the urban area currently produce 30% and 23% of the total fresh meat supply respectively. In the New Territories, there are three privately-operated slaughterhouses. Those at Tsuen Wan and Yuen Long were built by the operators themselves. The remaining slaughterhouse on Cheung Chau was built by the Government and then handed over to the Cheung Chau Meat Merchants Association to operate under a lease. The three NT slaughterhouses produce respectively 32%, 14% and 1% of the territory's fresh meat supply.
2 -- See Enclosure 1 for background statistics on the number of food animals, slaughtered over the past 15 years and for calculation of slaughtering capacity.
3 -- In this context, the word "commissioning" means when the slaughterhouse is ready to begin slaughtering operations.
4 -- Please refer to Enclosure 3 for details of independent checkers.
5 -- 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 - consultants' fees, site investigations and project planning team" at an approved project estimate of $113.4 miillion (at December 1994 prices). We have increased the total project estimate of $1,358.4 million (i.e. $1,245 million + $113.4 million) due to additional requirements identified during the design stage. The reasons for the increase of $150.4 million are as follows -

1. $61 million for environmental engineering works;
2. $35 million for upgrading the proposed sewage treatment plant to meet domestic standards so as to save an annual cost of $4.29 million by pre-empting the need for Trade Effluent Surcharge;
3. $30 million for site staff cost; and
4. $24.4 million for various costs risks anticipated before completion of the project.

6 -- See Enclosure 3 for a detailed explanation of the concept novation.
7 -- We charged the cost of the premlinary EIA under 34DP "Consultants' fees for an environmental impact assessment on the proposed Sheung Shiu Slaughterhouse" with an approved project estimate $1 million to 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 2 to PWSC(95-96)82

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(95-96)82

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 :-

(a)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.

(b) 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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