Members expressed concern at the tabling of the Administrations report on The Tendering Practice and Procedures of the Kowloon-Canton Railway Corporation (KCRC) at the meeting. They requested the Administration to provide information papers simultaneously in English and Chinese at least two days ahead of Subcommittee meetings. In response, Mr Gordon SIU explained that the Administration needed time to go over KCRCs records over the past seven years and the report had only just been completed.

Report by the Administration

2. At the Chairmans invitation, Mr Paul LEUNG brief members on the report which had been prepared at members request for a detailed investigation into the policies and procedures adopted by KCRC in their award of single tender contracts since 1991. Mr LEUNG advised that a working group under the Government Engineer (Railway Development) of the Railway Development Office of the Highways Department had gone through files and minutes of the Managing Board on administrative actions of KCRC since 1989 relating to the tendering policies and procedures of the Corporation. Comparisons of the tendering systems of KCRC, in particular on single tenders, were made with those adopted by three private companies and two public corporations. For the 51 contracts awarded through single tendering, KCRC was requested to provide such details as approval process, reasons for engagement, comments by the KCRC Chairman and involvement of the Managing Board in the approval process. The senior management and legal advisors of KCRC were, where necessary, requested to make clarifications and provide evidence.

3. Mr LEUNG said that the study concluded that KCRCs tendering policies and procedures were generally in line with those of Government and other organisations covered in the study. KCRC management had adopted a cautious stance in awarding all contracts since 1991 and these complied fully with established policies. However, the Administration disagreed with a management decision in 1989 to exclude on grounds of flexibility consultancy from the corporate tendering policy, as the Administration was of the view that flexibility could still be achieved by requiring consultancies to be tendered except in exceptional circumstances. This had also been recognised by KCRC. Mr LEUNG also affirmed that the Independent Commission Against Corruption (ICAC) had been involved in various stages:

ICAC had offered comments to KCRC on corporate policies on the Purchasing and Tender System from 1991 to 1994;
in June 1994, KCRC and ICAC commenced discussions on the principles and procedures in appointing consultants by competitive tendering for the Detailed Feasibility Study on the Western Corridor Railway (WCR);
in 1995, ICACs efforts centred on the Corporations general procurement procedures; and
in 1996, ICAC had commented on the administration procedures of general tenders.

4. Mr LEUNG concluded that drastic changes to KCRCs tendering policies and procedures were not deemed necessary, but certain procedural adjustments aimed at introducing more checks and balances into the system had been recommended by the Administration. These had been accepted by KCRC.

5. Mr SIU supplemented four major points as follows:

the Administration was of the view that the decision for excluding consultancy from the corporate tendering policy should have been made by the KCRC Managing Board rather than the management;
when scrutinizing the 51 contracts awarded through single tendering, the Administration had used normal procedures for single tendering adopted by the private companies and public organizations referred to in para 2 above as a yardstick and not the one adopted by KCRC management in July 1989;
while contracts awarded to the International Bechtel Incorporated were in line with normal practices for single tendering, it would have dispelled misunderstanding if such contracts were let by competitive means; and
the Administration agreed with ICACs advice that consultancy should be let by competitive means, and that direct appointment should only be considered in exceptional circumstances.

Mr SIU emphasized that the Administration would send a copy of the report to the Chairmen of the Airport Authority and the Mass Transit Railway Corporation to draw their particular attention to the relevant procedures and the recommendations.

6. In response to the Chairman, Mr Kevin Hyde confirmed that the KCRC Managing Board had studied the report and would take on board the recommendations made by the Administration.

KCRCs Tendering Policy and Procedures

7. Members questioned the appropriateness of the KCRC managements decision in 1989 for excluding consultancy from the corporate tendering policy. They were concerned that the management had not informed the Managing Board of this decision, and that the two representatives of the Administration who had been on the Managing Board since April 1995 had not taken any action before the Panel took an active interest in the issue in June 96. They asked if the KCRC Chairman in 1989 had given verbal or written consent to the decision and if he had considered notifying the Managing Board. A member further suggested that the Managing Board members should be replaced. Mr SIU said that while the management did inform the Chairman in writing, there was no record which suggested that the Managing Board had been notified; the latter was also confirmed by Mr Hyde. As regards the role of the two representatives from the Administration, Mr SIU advised that major contracts between 1994 and 1996 were awarded through open tenders and the decision made in 1989 was not applicable under such circumstances. He nevertheless undertook to make further investigations on what happened back in 1989 and would provide a written reply in due course. On members concern on whether Managing Board members had raised queries since 1989 regarding the over-delegation of power to KCRC management, Mr Hyde undertook to provide a written response to the Subcommittee.

8. On the formalities in awarding contracts, Mr Hyde acknowledged that certain procedures in tendering exercises such as the issuing of letters of appointment for consultancy contracts might have been omitted. KCRC had however introduced a new policy for formalizing all contracts. At members request, Mr Hyde undertook to confirm the effective date of the new policy and whether disciplinary actions would be taken against staff concerned for the omission.

9. Members also noted that the authorization limits for consultancy contracts by KCRC management had, with the consent of the KCRC Managing Board, been raised in January 1991 and November 1994 to $10 million and $20 million respectively. They sought the Administrations comments on this revision. Mr SIU said in response that such levels of authorisation limits were acceptable if the contracts were let by competitive tendering. The Administration had however recommended to KCRC that all single tenders should, irrespective of the contract values, be justified and approved by the Corporate Tender Board. KCRC had accepted this recommendation. Mr SIU also revealed that on-going consultancy agreements would be reviewed to ascertain whether these could be provided in a more cost effective manner through competitive tendering; KCRC would be requested to carry out this exercise as a matter of urgency. Mr Hyde added that KCRC had obtained assistance from the Administration for access to different database to enrich the Corporations knowledge of the consultancy firms market, and this would help KCRC in tendering in the most efficient way in the future.

Admin

10. A Member queried the impartiality of consultancy reports in view of the single tendering process. Mr SIU assured members that the Administration would not rely solely on the findings of these reports in making policy decisions. The Administration had conducted a series of studies since 1980s and data from both sources would be mutually considered. All relevant information would be analysed and a decision on the WCR project made by the end of 1996. A member remarked that the term private negotiation rather than single tender was more appropriated in this case.

11. Members expressed dissatisfaction with KCRCs response concerning the Detailed Feasibility Studies, i.e., that KCRC would only incorporate comments from ICAC on the principles and procedures in appointing consultants where appropriate. They requested the Administration to ask ICAC to review critically the 51 contracts awarded without competitive tendering since 1991, with particular emphasis on those contracts awarded after October 1994, and to advise if the procedures involved were in accordance with the ICACs recommendations. At members request, Mrs Jenny Wallis also undertook to provide members with KCRCs manual on purchasing procedures, with details on the operational guidelines and authorisation arrangements.

Admin

Corporate Structure of KCRC and Consultancy Contracts awarded since 1991

12. Upon confirmation by Mr Hyde that no Managing Board members were members of the Tender Board, members were worried about the exercise of authority by the KCRC management in awarding contracts in view of the high authorisation limits set for single tendering. Members concern was heightened by the fact that some consultancy firms, after having obtained contracts of relatively small sums initially, were subsequently awarded contracts of progressively significant amounts. Such arrangements were contrary to the prudent commercial principles which KCRC had claimed to be observing. Mr SIU emphasized that the Administration had already made a recommendation for all consultancy contracts to be notified to the Managing Board and be subject to internal audit for monitoring purpose. However, in order to address members concern, he undertook to consider if the absence of Managing Board members in the Tender Board required review.

13. A member noted that the corporate structure of KCRC consisted of a significant number of staff from consultancy firms. This arrangement was different from those of other corporations such as the Airport Authority. He was worried that this composition might undermine KCRCs impartial authority in awarding consultancy contracts. Mr SIU reckoned that although such an arrangement might not be ideal, it provided KCRC with flexibility in deployment in the early stage of the WCR project. The corporate structure would be reviewed at the end of 1996 when details of the WCR project could be finalised. Mr SIU affirmed that staff of consultancy firms were responsible mainly for consultancy studies and would not be involved in the vetting and approval of contracts. Mr L N Parker also confirmed that all personnel involved in approving consultancy contracts belonged to the senior staff structure of KCRC.

14. A member noted that International Becthel Incorporated was currently employing 210 staff for the project. He questioned if their appointment would be terminated by the end of 1996 when details of the WCR project would be finalised, and if this would have an impact on the corporate structure of KCRC. Mr SIU advised that Bechtel was conducting several consultancy studies on land requirements and would need to continue with this work after 1996. He agreed to provide details of the work undertaken by these staff. On the termination of contracts for staff, Mr Hyde confirmed that in accordance with contractual agreements, one months notice was required for the termination of appointment.

Admin

15. On whether consultancy firms within the existing corporate structure of KCRC had any advantage in obtaining new contracts, especially for those follow-on works to previous activities, Mr Hyde advised that such experiences were discounted; an example was the Port Passenger Line Project awarded through competitive tendering in January 1995. KCRC had provided all tenderers with reports of previous consultancy studies for reference, and this was particularly so in the case of core consultancies. In response to members, Mr Hyde confirmed that the tender for the Port Passenger Line Project which was awarded to International Becthel Incorporated was based on the unit cost for employing the required number of staff to work on the project instead of a lump sum amount. KCRC would constantly review the workload and adjust the number of staff required. Mr SIU added that all the contracts were let by competitive tendering and the Managing Board had been duly notified.

16. Upon members request, Mr SIU undertook to provide the following information regarding the Project Management Consultancy for the Port Passenger Line project in January 1995:

Admin

the tender invitation documents;
an assessment of the tenders received and the justifications for selection of the successful bid; and
whether Managing Board members were involved in this particular tendering exercise.

17. Concerning contracts awarded to AT Kearney in January 1991, Mr Parker confirmed that these contracts were approved by the KCRC Chairman and the Managing Board. KCRC had considered four companies for the task and AT Kearney was awarded the contract on account of its specialised background in freight rail, particular knowledge of intermodal operations, extensive experience with China, and its Putonghua speaking consultants. A member considered competitive tendering more appropriate for this case and that the selection process should not be restricted to four companies chosen by KCRC.

II Matters Arising from Previous Meetings

(LegCo Paper No. CB(1) 2085/95-96(02))

18. The Chairman reported that responses from the Administration and KCRC to the concerns raised by members at the last meeting on 6 September 1996 had been circulated vide LegCo Paper No. CB(1) 2085/95-96(02).

III Way Forward

19. The Chairman advised that this was the last Subcommittee meeting in the 1995/96 LegCo session, and that the future of the Subcommittee would have to be decided by the LegCo Panel on Transport in the new session.

IV Any Other Business

20. There being no further business, the meeting ended at 12:50 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 Tuesday, 24 September 1996 at 10:45 a.m. in the Chamber of the Legislative Council Building

I Consultancy contracts awarded on a negotiated basis

Report by the Administration

KCRCs Tendering Policy and Procedures

Corporate Structure of KCRC and Consultancy Contracts awarded since 1991

II Matters Arising from Previous Meetings

III Way Forward

IV Any Other Business

LegCo Panel on Transport
Subcommittee on Western Corridor Railway

Minutes of the Special Meeting
on Tuesday, 24 September 1996 at 10:45 a.m.
in the Chamber of the Legislative Council Building

KCRCs Tendering Policy and Procedures