LegCo Paper No. CB(1)725/96-97
Ref: CB1/PL/PLW/1
(These minutes have been
seen by the Administration)

LegCo Panel on Planning, Lands and Works

Minutes of special meeting held on Thursday, 12 December 1996 at 8:30 a.m. in Conference Room A of the Legislative Council Building

Members present :

Members absent :

Public officer attending :

Mr Billy LAM, JP: Director, New Airport Project Co-ordination Office

Attendance by invitation :

Airport Authority, Hong Kong
Mr Douglas Oakervee: Project Director
Mr Clinton Leeks: Corporate Development Director
Mr Alistair Thomson: Head of Construction
Mr David Myles: Senior Manager - Trends & Controls
Mr Jaya Jesudason: Divisional Manager - Planning & Scheduling

Clerk in attendance :

Miss Odelia LEUNG: Chief Assistant Secretary (1)1

Staff in attendance :

Mrs Mary TANG: Senior Assistant Secretary (1)2

Supplemental agreements with the contractors for Passenger Terminal Building works and other related issues

Relationship between C301 and C302

Role of consultants

Award of nominated sub-contracts

Supplemental agreements with the contractors for Passenger Terminal Building works and other related issues

(LegCo Paper No. CB(1)242/96-97)

1. At the invitation of the Chairman, Mr Douglas Oakervee, Project Director of the Airport Authority (AA) explained the background to the signing of two supplemental agreements with the key contractors for the Passenger Terminal Building (PTB) by highlighting the salient points of the information paper.

2. In gist, the construction of the PTB had been split into several fundamental contracts, namely the substructure (C301), the superstructure (C302) and the building services (C320). Inclement weather and exceptional variations of ground conditions under C301 had disrupted the phased handover of the site to C302 albeit the first area to be handed over was on time. In addition, due to the inability to raise outside funding prior to the establishment of the AA and the signing of the Financial Support Agreement (FSA) in December 1995, it was not possible to go out to tender for the fit-out works until after this event resulting in the first nominated sub-contracts being awarded in May 1996, 11 months behind the planned award date. The significant delay coupled with the delay in handing over the site for C302 works had seriously disrupted the works programme and made it difficult for the contractors for C302. The programme for the nominated sub-contracts was also considerably compressed. Despite being fully involved in the selection process and also agreeing to the selection of each individual sub-contractor, BCJ upon nomination of the first seven sub-contractors objected to them collectively. The objection was primarily the product of the programme being compressed for all seven sub-contractors. In order to maintain programme, the "Project Manager under the Contract" after seeking advice from the Employer (AA), overruled BCJs objections and instructed them to enter into a contract with each of the sub-contractors. It became clear from the contractors behavior prior to this event and his aggressive attitude to claims that he was endeavoring to place time and cost at large under the contract. This would mean the AA would have neither a fixed programme nor a known price of the works which was unacceptable. As a consequence the "Employer-under-the Contract" considered it wise to intervene to rectify the problem before the delays compounded themselves. Accordingly, the AA management proposed and the AA Board agreed to enter into commercial settlements with the BCJ and other key contractors. The supplemental agreements signed on 18 September 1996 brought the matter back in an acceptable manner both in cost and time. They also wrapped up all claims up to the end of June 1996 (for the BCJ), settled all variation orders and other contractual issues, thereby preserving April 1998 as the target opening date of the New Airport.

3. Members expressed dissatisfaction over the overall project management. They called into question the competence of the AA and their consultants in the supervision and management of the airport project, and the New Airport Projects Coordination Office (NAPCO)s ability to monitor AAs works effectively. The AA had commissioned a large number of consultants who had repeatedly assured that the progress could be kept on schedule and within budget, yet the project had been delayed and vast sums of money spent for commercial settlements in order to have the project completed within an extended period. The AA put the blame on inclement weather and adverse ground conditions for the delay and in this way no party was seen liable for it. Given the assurances given to members, the credibility of NAPCO as an effective monitoring agent was in doubt. A member suggested that both of them be reproved for incompetence in the discharge of their duties.

4. As regards site management, members reiterated their reservations about the fast track approach whereby design works and actual construction works were undertaken concurrently. There was an apparent lack of coordination in the construction process. Members queried the role of consultants in the project and whether they should involve in site management. They were particularly concerned about the apparent lateness on the part of the management in realizing the extent of the problems. Members opined that should site management have been better, the problems could have been detected at an earlier stage. The whole situation had been poorly handled and had provided an opportunity for the contractors to put up a large number of claims.

5. Members also opined that the way the contracts had been awarded was a cause for concern. Referring to the programme assessment chart at Annex E to the information paper, members pointed out that since C302 was awarded in January 1995, the AA should have full knowledge of the foundation problems and progress of works of C301, and should have taken into account the problems associated with delays in possession of site. Members questioned why the BCJ had not raised objections to the award of nominated sub-contracts until May/June 1996 after they had been awarded.

6. In response to members comments and criticisms, Mr Douglas Oakervee made the following points -

Relationship between C301 and C302

The first area handover of C301 was made on 13 February 1995 in accordance with the programme of C302. Subsequent handovers were split into many more phases than planned. The 24 staged handover areas were further broken down to 76 smaller areas. As a result, partial possession of site to smaller areas was provided. The foundation problems encountered in C301 manifested themselves in the latter stages of the contract which in turn disrupted the handover of smaller areas of the site. This created problems on the interfaces between C301 and C302 with both contractors undertaking their respective works and endeavoring to keep within the terms and conditions of their respective contracts.
Although problems were envisaged at the time C302 was awarded, it was thought that they could be contained. The full extent of the problems were not known until at a later stage. The problems exacerbated and grew on an exponential curve rather than a linear one. Changes to the original design from pad footing to piles and vice versa in different locations were necessary. The contractor of C301 was awarded an extension under his contract to overcome ground conditions. It was not that problems were not fully understood at the award of C302 but that they had become worse, hence a resultant delay in the phased handover of the various parts of the site to C302. C302 received an extension of time of 15 weeks to cover these delays.

Role of consultants

The consultants employed by the AA were required to undertake design works, not to manage contracts. This type of consultancy contract was consistent with other major infrastructural contracts including the Mass Transit Railway contracts. The role of these consultants in design works would last until the completion of the construction in order to ensure that integrity of the design was maintained throughout. Furthermore, some of the consultancy staff were seconded to the construction supervision teams. It was unfortunate that the problems associated with variations in ground conditions could not have been detected through boreholes.

Award of nominated sub-contracts

The contractors did not object to the award of the nominated sub-contracts on an individual basis but on a collective basis. Legal advice was sought and it was decided that the objection, if left unresolved, could place time at large under the contract with costs being paid on a quantum merit basis.

7. Mr Oakervee added that when C302 was awarded in January 1995, the AA was under the firm instruction that the airport project should be completed to the maximum extent possible before 30 June 1997. It was not until June 1995 that the target completion date was relaxed until April 1998. The Chairman asked whether the Government had given instructions to the AA to complete the airport project before 30 June 1997 irrespective of costs. In response, the Director of NAPCO clarified that under the Memorandum of Understanding signed between the British Government and the Chinese Government, the Hong Kong Government was obliged to complete to the maximum extent possible the ten Airport Core Programme (ACP) projects by 30 June 1997. This was the guiding principle and overall ambit under which all ACP projects were operated. As a major shareholder, the Government had asked the Provisional Airport Authority (PAA) to abide by the obligation. Given that the construction works for the PTB would take 29 months to complete and the tender price received was good, the PAA Board decided to sign the contract in January 1995 aiming at completion before June 1997.

8. In response to the Chairmans further query about what advice the Government had relied upon in assessing the feasibility of achieving the target completion date by 30 June 1997, the Director of NAPCO stated that the decision was made by the PAA Board based on the deliberations of its Project Committee which was chaired by the then Secretary for Works, and after relevant factors had been taken into consideration. NAPCOs role in the new airport was on its overall cost and programme implications on a macro level. This was achieved by examining written information submitted by AA. Given that AA was an independent statutory body, it would be inappropriate for NAPCO to get involved in AAs day-to-day management. The decision of awarding C302 was made by the PAA Board, which had considered all relevant factors, upon the recommendations of its Management and on the ground of value for money.

9. Having noted that part of the problem rested with BCJs reluctance to accept the nominated fit-out sub-contracts whose programmes were seriously compressed, members queried why tenders for these sub-contracts, which were awarded in May 1996, could not have been awarded earlier. Mr Oakervee explained that the PAA was not in a position to award contracts until the FSA was signed in December 1995 and further funding was available. The Chairman opined that notwithstanding, some preparatory work in inviting tenders could have been done in advance. The potential claims could have been reduced if more time was allowed for these nominated sub-contracts to be completed. Mr Oakervee replied that it was the decision of the PAA that tenders should not be invited until the FSA was signed. At members request, the Director of NAPCO agreed to check with the AA against records to confirm if the PAA could invite tenders before the FSA was signed.

NAPCO

10. Referring to paragraph 27 of the report, which stated that the contractor contended that the AA Project Managers had under-estimated the value of claims and variations, a member asked about the ranking of project managers and whether they had the experience to handle such matters. Mr Oakervee explained that there were several project managers responsible for different areas, namely PTB works, electrical and mechanical works, and civil engineering works. They reported directly to the head of construction. All these project managers were fully qualified and had extensive experience in Hong Kong.

11. As regards the basis upon which NAPCO had agreed to endorse the settlements, the Director of NAPCO stated that the decision was made on the basis of information provided by the AA. Normally statement of claims was a commercial negotiation between the AA which was an independent body operating on prudent commercial principles and their contractors. It would be inappropriate for the Government who was not a contractual party to intervene in the negotiation. Nevertheless, upon the invitation of the AA Board, NAPCO had undertaken a review of the supplemental agreements based on information supplied by the AA management and were generally content that they were the best way forward in the circumstances.

12. Members pointed out that when funding approval was sought from the Finance Committee for the commissioning of consultants to assist in coordinating and providing professional assistance to the ten ACP Projects, the Administration had advised that the Bechtel Consultants were chosen because of their expertise in the settlement of claims. Members doubted any expertise shown by the Bechtel Consultants in the way the issue had been handled. In response, the Director of NAPCO maintained that the commercial settlement was a matter between the AA and contractors and the Bechtel Consultants were not involved in the negotiation.

13. On members concern about further potential claims, Mr Oakervee assured members that the two supplemental agreements signed on 18 September 1996 wrapped up all claims up to the end of June 1996 for BCJ and end of August 1996 for AEH, the contractor for the PTB building services. They also settled all variation orders and other contractual issues. Since the signing of the agreements there had been a few minor variation orders which had come about by the need to resolve interface problems between fitting-out works and the electrical and mechanical contractors, but the cost involved were very small in comparison.

14. As to whether additional costs were incurred as a result of frequent changes in design by consultants, leading to the proliferation of variation orders, Mr Oakervee stressed that this had not been the case because stringent measures were in place to control design changes. There were changes in the scope of PTB to meet the commercial requirements and the changing demands of the aviation industry. He would provide further information on this matter.

15. Regarding members concern about reports in the press over problems with the PTBs steel roof, Mr Oakervee explained that the problem could have been serious if it had not been identified by the AA staff and dealt with swiftly and effectively. The problem involved cracks in some of the node plates at the junction of several steel elements brought about during welding. The roof contains approximately 11,000 such node plates of which some 9,700 had been completed and examined. Some 93 had been found at fault and these had now been repaired. Both BCF and AA engaged the services of separate independent engineers to check the integrity of the structure and determine the reason for the defects. The remedial measures proposed by the contractor were agreed and accepted by the designers and the independent engineers were also aware of the situation. The Board had also been informed. As the matter was known prior to the signing of supplemental agreements, the costs of repair were covered under the agreement. Whether the faults in the roof steel node plates were due to problems in manufacture or design and whether any party should be held responsible had yet to be determined. The AA would provide members with information on the results of the investigation in due course.

16. Members requested NAPCO and AA to provide the following information before deciding on the next course of action:

NAPCO
AA

The site progress report of C301 in early January 1995 before signing of C302;
The advice given by the NAPCOs consultants (Bechtel) on the delay in C301 works in January 1995;
The design costs of the PTB and any additional consultancy fees on top of the $563 million already paid arising from the commercial settlements; and
The terms of agreement AA signed with the consultants relating to their role in and responsibility for the airport project.

17. There being no other business, the meeting closed at 12:45 pm.

Legislative Council Secretariat
18 January 1997

Last Updated on 21 August 1998