The Chairman reported that the next meeting of the Subcommittee had originally been scheduled for 24 September 1996 to discuss matters arising from previous meetings and in particular, the Administrations report on the circumstances regarding the award of consultancy and services contracts by the Kowloon-Canton Railway Corporation (KCRC) by single tenders in relation to studies on the Western Corridor Railway (WCR). However, arising from recent press reports on KCRCs revelation that consultancy firms over and above the 14 previously made known to the Subcommittee had been awarded with contracts without going through the open tender process, the special meeting had been called in order to receive a full picture on the subject by the Administration and KCRC.

2. The Chairman drew members attention to the Reference Manual tabled at the Subcommittees meetings. The Manual contained questions on the WCR project raised by members, and all responses provided by the Administration and KCRC. She asked members to quote the relevant pages from the Manual when referring to a particular question to assist the location of the right pages by all parties concerned.

3. At the invitation of the Chairman, Mr Kevin Hyde of the KCRC advised the meeting that there were 22, instead of 14 consultancy firms having contracts totalling $110.1 million which had been awarded without going through the open tender process. He apologized for the inadvertent omission of eight firms in the previous submission to the Subcommittee. Mr Hyde confirmed in response to members that the report prepared by KCRC for the present meeting had been circulated to KCRC Board members and would be the subject of discussion at the forthcoming Board meeting. Mr Gordon SIU added that Mr Hyde had reported the matter also to the KCRC West Rail Project Steering Committee.

4. Mr SIU re-iterated that the Administration would provide a report on the subject before the next Subcommittee meeting scheduled for 24 September 1996. The report would cover all the 22 consultancy firms and their contracts mentioned above, compare the tendering practices of KCRC with one public and two private companies, and provide an analysis on the procedures as well as recommendations for change. He added that the possibility of requesting the KCRC Chairman and the KCRC Board to amend tendering principles and procedures would not be ruled out.

5. Hon CHAN Kam-lam, on behalf of the Democratic Alliance for the Betterment of Hong Kong, expressed regret at the KCRCs award of consultancy contracts without going through the open tender process. He considered that there was insufficient monitoring on KCRCs award of consultancy contracts by the Administration, and suggested that Administration should increase its monitoring while at the same the approval of the KCRC Managing Board should be required for all consultancy contracts to be awarded in the future.

Approving authority and approval limits

6. A member asked for information on the approval dates and the approving authority of the contracts for the 22 consultancy contracts. Mr Hyde undertook to supply the requisite data. He informed that prior to October 1994, the delegated authority from the Board was such that contracts below $10 million were approved by the Chief Executive Officer (CEO), division heads or executive directors. In October 1994, the Board took the view that the upper limit of approval by the CEO should be raised to $20 million to reflect inflation. Mr Hyde emphasized however that there were many occasions on which the management went back to the Managing Board for a direction on contracts which were below $20 million. He also undertook to identify those contracts which were reported to the KCRC Managing Board before contracting out, those which were reported after contracting out, and those which had never been reported to the Board. Mr SIU advised that the same information would also be included in the Administrations report.

7. As regards the composition of the Managing Board, Mr Hyde informed that apart from the Chairman, there were eight members of whom two were from the Administration. The Board met once a month while its subcommittee, the West Rail Project Steering Committee, met twice a month. Mr Hyde agreed to provide further information on the membership list, power and responsibility of the Project Steering Committee.

8. A member asked if any inflationary adjustments to the approval limits on contract sums had been made prior to 1994. Mr Hyde said in reply that to his best knowledge, the increase in approval limit from $10 million to $20 million in 1994 was the only adjustment. Nevertheless, he undertook to check on the records and revert to the Subcommittee. Mr Hyde also confirmed that the adjustment had no connection with the expected significant expenses of contracts for the WCR project.

Review of tendering policy

9. In response to a member on the review on tendering policies conducted by the Independent Commission Against Corruption (ICAC), Mr Hyde advised that the policies and procedures for KCRC tendering had changed three times over the last five years, the latest one being in June 96. The current position was that whenever the Corporation recommended the award of single source tenders, recommendation from either the Divisional or Corporate Tender Board would be required, depending on the sums of money involved; the recommendation would be considered by the Managing Board if the sum was high. This policy provided an additional mechanism of checks and balance. Overall, Mr Hyde considered that the KCRC tendering policy had improved over the past few years. At the request of members, Mr Hyde undertook to provide details of the review on tendering policies conducted by ICAC.

Appointment of Bechtel International Inc.

10. A member noted that International Bechtel, Inc. (Bechtel) had not been engaged through open tender by KCRC but that the company had been appointed by the Administration through open tender for works on the new airport project. Members criticized the KCRC for adopting the same tendering principle as the Administration but was applying different interpretations of the philosophy. Mr Hyde emphasized that he could not speak for Bechtel for other cases of appointment and neither was he aware of Bechtel having been chosen through open tender in the airport project. He explained that the WCR was not an approved project and KCRC was developing a concept for the project. To this end, KCRC had employed the services of a variety of experts to build up knowledge, rather than contracting them to design or to build the railway. An adviser was required to provide an independent view of what KCRC and its various consultants had done to check if there were omissions or risk elements. Mr Hyde confirmed that Bechtels contract for appointment as a chief technical adviser received the Boards prior approval before the contract was signed.

11. Dr Hon Samuel WONG requested the Administration and KCRC to give an early reply to his letter of 20 August 1996 concerning the engagement of Bechtels services. He further requested the Administration to provide information on the date of privatization of the KCRC, the exact period during which the two Government officials were on the KCRC Managing Board, when the two officials left the Board in the early 1990s and when they re-entered the Board recently, as well as the date and the rationale for the two posts of Chairman and CEO of KCRC to be assumed by one person.

Criteria for single source appointment

12. Members sought elaboration on the authority and the means for deciding on whether the criteria for single source appointments had been fulfilled. They were worried that subjective personal views, rather than objective criteria, would override. In reply, Mr Hyde explained that single source appointments were normally resorted to when the services required were of an urgent nature or when particular knowledge was involved. KCRCs corporate culture was to get jobs done expediently, and the Corporate Tender Board or the Managing Board would have to be convinced of the suitability of consultants. Mr SIU emphasized that this particular aspect would also be covered in the Administrations report. He added that it was not uncommon for private sector companies to use single source tendering, but the important point was whether the decision made at that point in time was appropriate and whether the decision should be made by one person or by a group.

Competitive advantage

13. Noting that prior to 1994, many non-core consultants were awarded contracts without going through open tender, a member expressed worries that a companys prior involvement in consultancy studies might give it an edge over other competitors in future open bids. Mr Hyde denied such an allegation and affirmed that the tendering process was fair and open. Tenders were invited worldwide, and consultants could have access to the reports of other consultants before submitting their tenders. The prime considerations of KCRC were the availability of suitable staff and the cost, and not knowledge of WCR nor previous participation in the project.

Date of next meeting

14. The Chairman reminded members that the issue would be followed-up at the next meeting on 24 September 1996. There being no further business, the meeting ended at 11:40 p.m.

Legislative Council Secretariat

30 December 1996

Last Updated on 21 Aug, 1998

LegCo Panel on Transport Subcommittee on Western Corridor Railway

Minutes of the Special Meeting on Friday, 6 September 1996 at 10:45 a.m. in the Chamber of the Legislative Council Building

I Briefing on consultancy contracts relating to the Western Corridor Railway project which have been awarded without going through the open tender process