LegCo Paper No. CB(1) 591/96-97
(These minutes have been seen by the Administration)
Ref : CB1/PS/8/95/1

LegCo Panel on Transport
Subcommittee on Western Corridor Railway

Minutes of the Meeting
on Friday, 2 August 1996 at 8:30 a.m.
in the Chamber of the Legislative Council Building

Members present :

    Hon Mrs Miriam LAU Kin-yee, OBE, JP (Chairman)
    Hon LEE Wing-tat
    Hon Zachary WONG Wai-yin
    Hon CHAN Wing-chan
    Hon Albert HO Chun-yan
    Hon Lawrence YUM Sin-ling

Members attending:

    Hon Eric LI Ka-cheung, OBE, JP
    Dr Hon Samuel WONG Ping-wai, MBE, FEng, JP
    Hon Ambrose LAU Hon-chuen, JP

Members absent :

    Hon Mrs Selina CHOW, OBE, JP
    Hon Edward S T HO, OBE, JP
    Hon Albert CHAN Wai-yip
    Hon CHEUNG Hon-chung
    Dr Hon LAW Cheung-kwok
    Hon LEE Kai-ming
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon TSANG Kin-shing

Public officers attending :

Mr Paul LEUNG, JP
Acting Secretary for Transport
Mrs Jenny Wallis
Principal Assistant Secretary for Transport
Mr Trevor Keen
Principal Assistant Secretary for Planning, Lands and Works (Lands)
Mr John Allen
Deputy Crown Solicitor(Commercial)
Legal Department
Mr C K MAK
Acting Government Engineer/Railway Development, Highways Department
Mr George LAI
Chief Engineer/Territory Transport Planning
Transport Department

Attendance by invitation :

From Kowloon-Canton Railway Corporation
Mr Ian McPherson
Director, West Rail

From Johnson Stokes & Master
Mr Richard Russell
Solicitor

From HSBC Investment Bank Asia Limited
Mr Conrad S L MA
Associate Director, Project Finance

From Chesterton Petty Ltd
Mr Alan Child
Director

From MVA Asia (Transportation, Planning and Management Consultant)
Mr Martin Read
Regional Director

From Pacific Bechtel Corporation
Mr Malcolm Snody
Deputy Project Manager, Engineer & Construction

Clerk in attendance:

    Miss Pauline NG

Staff in attendance :

Mr Jimmy MA
Legal Adviser
Mr Billy TAM
Senior Assistant Secretary (1)4

I Issues Outstanding from Previous Meetings

Mr Ian McPherson of the Kowloon-Canton Railway Corporation (KCRC) apologized that Mr Kevin Hyde, the Chairman of the Corporation, could not attend the meeting.

Award of Contracts

2. In response to a member on the reasons for not arranging for open tenders for the engineering technology consultancy contracts and on whether KCRC had consulted the Independent Commission Against Corruption (ICAC) and the Central Tender Board (CTB) on its tendering policies and procedures, Mr McPherson advised that the firms concerned offered specialist skills which were not available readily. The contracts were a series of contracts of relatively small value and as such did not require approval of the Managing Board. The tenders however did go through the Corporate Tender Board which was chaired by the KCRC Chairman and included the Executive Directors. Mr McPherson also confirmed that KCRC had consulted ICAC on the tendering procedures but not CTB. The ICAC conducted a review on both the single source tendering and open tendering procedures, but had not scrutinized individual contracts. Mr Paul LEUNG advised in response to members that the Administration had not checked all contracts awarded through single tendering but that a KCRC Subcommittee had recently been formed and would be responsible for vetting future Western Corridor Railway (WCR) contracts so as to reinforce public confidence. In reply to a member on whether International Bechtel, Inc. had been engaged on account of its having provided free services to KCRC, Mr McPherson said that he was not aware of such a situation. He confirmed that KCRC first had contact with Bechtel in 1993, and that a total of $24 million had been expanded from 1991 to 1993 when KCRC commenced examination of the development of the port passenger line. At the Chairman’s request, Mr McPherson undertook to provide a breakdown by contracts of the consultancy expenses prior to January 1995.

3. Members expressed concern on the award of consultancy contracts by KCRC through single tenders and some suggested moving a motion for endorsement by the Transport Panel for the Administration to provide a report on the circumstances involved. The focus would be on contracts obtained by the 14 consultants by single tenders in relation to studies on the WCR and related matters between 1991 and June 1996, with particular reference on:

  1. the procedural arrangements in the award of contracts by KCRC, including the vetting and approving mechanism; whether ICAC’s advice had been sought on the appropriateness of the procedures; the difference in practices with Government’s normal procedures; whether the arrangements normally applicable to public bodies were similarly applicable to KCRC and whether the Government was aware that contracts were awarded by single source appointments to the 14 consultants;
  2. the reasons for waiving open tendering procedures for the contracts in question; a breakdown of the cost for individual contracts; the need for such consultancy services and the scope of knowledge and expertise required; and
  3. the commencement date of the services provided by the consultants and whether any services had been provided to KCRC, with or without charges, prior to award of the contracts.

4. The Legal Adviser advised members to check the terms of reference of the Subcommittee, and reminded them that resolutions passed by the Subcommittee would not have any binding effect. He added that members were free to express their views but the Administration could decide on the course of action to be undertaken. In response to the Chairman, Mr Paul LEUNG agreed that the Administration and KCRC would jointly provide members with the information outlined above. In addition, Mr McPherson undertook to provide a breakdown by individual contracts, of consultancy expenses expended prior to January 1995.

5. On the practices adopted by other statutory bodies and Government departments for single source tendering, Mr C K MAK reported that open tenders were called for normally and single source tendering was used in exceptional and special circumstances. He could not recall right away examples of single source tendering in the Government but undertook to check on the records with particular reference to the conditions which would have to be satisfied.

6. A member sought clarification on the different modes of appointment of two public relations consultants - the Hill and Knowlton Asia Ltd engaged through public tender, and Burson Marsteller contracted through single source tendering. In response, Mr McPherson explained that the two consultants were undertaking different jobs. Hill and Knowlton was responsible for ongoing services in public communications to the community and the press, while Burson Marsteller provided occasional specialist advice such as those on crisis management and strategy for community relations, and was also developing a strategy for community relations for WCR. This accounted for the different modes of appointment.

Monitoring mechanism

7. In response to a member on whether the Administration had undertaken a cost estimate on the project, Mr Paul LEUNG advised that no such estimates had been made since the Administration had not yet formed a view on the proposals. As regards the rationale for the Administration to agree with KCRC for not paying dividends to shareholders consecutively for two years, Mr LEUNG clarified that the funds were necessary to enable KCRC to carry out improvements to KCRC equipment and launching of the WCR project.

8. A member considered the legal empowerment for KCRC to undertake the WCR-related activities too loose and did not facilitate cost control by the Administration. He called for tighter scrutiny in the future. To make-up for the deficiency, the member suggested that the Director of Audit should audit all KCRC accounts and submit these to the Public Accounts Committee for vetting by LegCo. The suggestion had been made on the ground that the Corporation, being a public body, was using public money. In reply, Mr LEUNG emphasized that KCRC’s externally-audited accounts were submitted to the Financial Secretary for subsequent tabling at the LegCo. He nevertheless undertook to consider the members’ views and provide a written response. A member re-iterated a previous request for the Administration to set up a body similar to the Provisional Airport Authority to be responsible for the construction and future operation of WCR.

Market Share

9. A member noted that the market shares given in the newly devised modelled mode choices (based on more direct express bus and feeder bus services) indicated a substantial drop when compared with figures derived from earlier models, but that the estimated rail market share remained at 55 - 60% by 2011. He sought clarification on the rationale and enquired if KCRC would consider reducing WCR fare in order to increase the market share. Mr Martin Read of MVA Asia advised in response that the updated model still supported that scale of market share, and that the consultants had considered the fare factor as well as the passenger forecast. As regards a member’s assertion that WCR patronage would drop substantially with the availability of direct bus services, Mr Read confirmed that direct bus services and feeder bus services had been added to the updated model and the indications were that feeder bus services would actually help to attract more WCR patronage. He advised that one should not just take the average of the typical examples in working out the market share but would need to consider data in every single zone in the area. He emphasized that the figure of 55-60% was for the year 2011 and this was significantly higher than that for the 2001 figures. He added that the data presented to members was only part of a full model and that full data listings could be provided if members so wished. In summary, Mr Read advised that the model, which had been used for the last 15 to 20 years, produced figures that were highly realistic and he was confident of the figures being able to reflect the situation now and in the future.

Just-in-time mechanism

10. A member expressed doubt on the fairness for the WCR to enjoy priority cargo handling through for example building special ramps and putting special identification marks as mentioned in the full proposal. He was worried that other operators’ interest would be threatened, and that political pressure might force the Administration to disapprove the proposed scheme. Mr McPherson explained that the objective of the proposal was to boost freight throughput through Kwai Chung by building a freight link into the port rail terminal and the just-in-time mechanism would allow the capacity of Hong Kong’s port and the throughput to increase. He admitted that if the mechanism could not operate, the efficiency of the railway would go down. Mr Read supplemented that WCR would excel through its proximity to the Port Rail Terminal and that there would be dedicated fleets of vehicles to transfer loads when ships were ready.

Level of Consultantcy Fees

11. At the request of a member, Mr LEUNG undertook to compare the rates of the KCRC consultant staff for undertaking the technical studies with those derived from the formulae used by the Secretary for the Treasury in computing the costs of consultancy work for comparable jobs in capital works projects.

II Way Forward

12. In response to the Chairman, members unanimously decided that the Subcommittee should continue with its work. Members agreed that the next meeting should be held on 24 September 1996 at 10:45 a.m. to consider the Administration’s report on the circumstances regarding the award of consultancy and services contracts by KCRC by single tenders, and also to follow-up on matters arising from previous meetings. Mr LEUNG thanked members for their time in attending past meetings, and for their advice and co-operation in examining the various issues.

(Post-meeting note: A special meeting was held on 6 September 1996 at 10:45 a.m.)

13. There being no further business, the meeting ended at 10:10 a.m.

Legislative Council Secretariat
30 December 1996

Last Updated on 21 Aug, 1998