PWSC(97-98)128
For discussion
on 17 February 1998

ITEM FOR PUBLIC WORKS
SUBCOMMITTEE OF FINANCE COMMITTEE

HEAD 709 - WATERWORKS
Water Supplies - Fresh water supplies
164WF - Stanley and Repulse Bay water supply - stage 5

Members are invited to recommend to Finance Committee an increase in the approved project estimate of 164WF from $180.2 million by $21.8 million to $202 million in money-of-the-day prices.

PROBLEM

The approved project estimate of 164WF is insufficient to meet the cost of settling outstanding contract payments and contractual claims under the project.

PROPOSAL

2. The Director of Water Supplies (DWS), with the support of the Secretary for Works, proposes to increase the approved project estimate of 164WF from $180.2 million by $21.8 million to $202 million in money-of-the-day (MOD) prices.

PROJECT SCOPE AND NATURE

3. The approved scope of the project comprises -

1. an extension to the So Kon Po pumping station to accommodate additional pumping equipment for the transfer of additional water to the south-eastern part of Hong Kong Island;

2. construction of a new service reservoir with a storage capacity of 10 000 cubic metres and a pumping station with a daily output of 13 300 cubic metres at Repulse Bay;

3. installation of additional pumping equipment at the Wong Chuk Hang pumping station for the transfer of additional water supply from the Sha Tin water treatment works; and

4. laying of associated mains in Wong Chuk Hang, Repulse Bay, Stanley and Red Hill areas.

4.We have completed most of the works under this project except the mainlaying of about 300 metres of fresh water main of 300 millimetres in diameter at Ma Hang. This section of mainlaying was entrusted to the Housing Department and will be completed in June 1998.

JUSTIFICATION

5. As some sections of the mainlaying works along South Bay Road, Tai Tam Road, Island Road and Shouson Hill Road described in paragraph 3(d) above fall within the project boundaries of a drainage project 100DS "Hong Kong Island South sewerage improvements and sewage treatment and disposal facilities", we have entrusted the mainlaying works in these sections to the Drainage Services Department (DSD). The construction works of these mainlaying works was implemented in two DSD standard remeasurement contracts (i.e. DR/89/03 and DR/89/04) under 100DS to minimise traffic disruption and avoid interface problems arising from different contractors working on the same site. We started the mainlaying works under these two contracts in July 1991 and completed the works in May 1995.

6. Owing to an unexpected large quantities of rock encountered in trench excavation and a change in design by increasing the depth of the watermains to suit the unexpected site conditions and the price fluctuation for the contracts, the approved project estimate is insufficient to meet the anticipated contract payment due. In addition, the contractor of the two contracts has asked for arbitration to resolve a dispute on extension of time under Contract DR/89/03 and on revised rates for rock excavation under Contract DR/89/04. As regards Contract DR/89/03, the arbitration is in progress. As regards Contract DR/89/04, the Arbitrator ruled in favour of the contractor and we settled a partial award in favour of the contractor on 19 January 1998. If the Government loses the arbitration under Contract DR/89/03, we will need to satisfy the arbitration award within a short period of time, normally 14 days, after the ruling.

7. Following a review of the financial position of 164WF, DWS considers it necessary to increase the approved project estimate from $180.2 million by $21.8 million to $202 million in MOD prices in order to meet anticipated contract payments due and contractual claims under this project. A summary of the proposed increase in project estimate is as follows -

Factor		Amount ($ million)		%
(a) Additional works under Contract DR/89/04 due to unforeseen underground conditions		13.34		61.2
(b) Price fluctuation payments under Contract DR/89/04		1.98		9.1
(c) Arbitration awards		4.26		19.5
(i) remaining part of the claim made by the contractor under Contract DR/89/04	2.57
(ii) potential award under Contract DR/89/03 if the Government loses the arbitration	0.75

(iii) costs for the arbitration	0.94
(d) Consultants' fees and charges		2.20		10.1
(i) additional consultants' fees as a result of the increase in construction cost under Contracts DR/89/03 and DR/89/04	1.40
(ii) consultants' charges for the arbitration	0.80
(e) Less reduction of costs for -		(2.7)		(12.4)
(i) site investigation and construction of Repulse Bay service reservoir, So Kon Po pumping station, Repulse Bay pumping station, Wong Chuk Hang pumping station, and monitoring and control systems	(0.80)
(ii) mainlaying materials	(0.10)
(iii) contingencies	(1.80)
		_____
Sub-total		19.08	(at December 1996 prices)

(f) Inflation allowance		2.72		12.5
		_____		____
Total		21.80	(in MOD prices)	100
		_____		____

8. A comparison of the cost breakdowns of the approved project estimate and the revised project estimate in MOD prices is at the Enclosure.

FINANCIAL IMPLICATIONS

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

Year	$ million (Dec 1996)	Price adjustment factor	$ million (MOD)
up to 31.3.97	164.45	-	164.45
1997 - 98	23.75	1.06750	25.35
1998 - 99	10.48	1.16358	12.20
	198.68		202.00

10. We derived the MOD estimates on the basis of the Government's forecast of trend labour and construction prices over the period between 1997 and 1999.

11. The proposed increase in the approved project estimate will not give rise to annually recurrent expenditure.

12. The increase in water charges due to the proposed increase in the approved project estimate is negligible.

PUBLIC CONSULTATION

13. We consider it unnecessary to carry out public consultation on the proposed increase in the approved project estimate.

ENVIRONMENTAL IMPLICATIONS

14. We have completed most of the works under this project. The proposed increase in the project estimate will not cause additional environmental implications. For the remaining works, we will continue to control dust, noise and site run-off nuisances during construction to comply with established standards and guidelines by implementing mitigation measures in relevant works contracts.

LAND ACQUISITION

15. This project does not require land acquisition.

BACKGROUND INFORMATION

16. On 29 June 1990, Finance Committee (FC) approved the upgrading of 164WF to Category A at an estimated cost of $123 million in March 1990 prices for the provision of a new fresh water transfer system from So Kon Po, north of Hong Kong Island, to the south-eastern part of Hong Kong Island, and for making improvements to the present system of supplying water from the Tai Tam group of reservoirs to meet the increasing demand in the Repulse Bay, Stanley and Red Hill areas.

17. Owing to increased costs of mainlaying and price fluctuation for the contracts, unexpectedly large quantities of rock encountered in trench excavation, and frequent alignment adjustments of the water mains to avoid existing underground utilities, FC approved an increase in the project estimate from $123 million by $48 million to $171 million in June 1994.

18. DWS has entrusted part of the mainlaying works under item (d) of paragraph 3 above to DSD under Contract DR/89/04. Disputes have arisen on the Engineer's decision relating to the rate for rock excavation. The matter was referred to arbitration. The Arbitrator ruled in favour of the contractor and authorised a partial award in his favour on 5 January 1998 with a payment deadline of 19 January 1998. The share of the partial award attributable to 164WF is $9.2 million.

19. Payment of the arbitration award is obligatory and late payment will carry interest at the current judgement debt rate of 12.06% per annum. To avoid late payment interest of about $3,030 per day, the Secretary for the Treasury approved under delegated authority on 15 January 1998 an increase in the project estimate from $171 million by $9.2 million to $180.2 million in MOD prices to settle the arbitration award.

Works Bureau
February 1998

(DD1182)

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Enclosure to PWSC(97-98)128

164WF - Stanley and Repulse Bay water supply - stage 5

A comparison of the approved project estimate and the revised project estimate in MOD prices is as follows -

		Approved Estimate (MOD prices)	Revised Estimate (MOD prices)
		$ million
(a)	Site Investigation
(b)	Repulse Bay service reservoir
(c)	So Kon Po pumping station
(d)	Repulse Bay pumping station	62.30	61.50
(e)	Wong Chuk Hang pumping station
(f)	Monitoring and control systems
(g)	Mainlaying
	(i) materials	13.70	13.60
	(ii) laying works	93.60	113.18
(h)	Consultants?fee and charges	2.50	4.70
(i)	Contingencies	7.50	5.70
Sub-total		179.60	198.68	(at December 1996 prices)
(j)	Inflation allowance	0.60	3.32
Total		180.20	202.00

2. As regards (g)(ii) (Mainlaying - laying works), of the increase of $19.58 million -

1. $1.98 million is for price fluctuation payments under Contract DR/89/04 for works completed during the period between March 1994 and the completion of the works in September 1995. The Civil Engineering Works Index (CEWI) ¹ increased by 10% during the period;

2. $13.34 million is to cover the increase in cost of the mainlaying under Contract DR/89/04 due to the increase in quantities of works arising from the unexpected large amount of rock excavation and the change in alignment and the increase in depth of the watermain to suit the unexpected site conditions;

3. $2.57 million is for the remaining part of the quantum claimed under arbitration for the works under Contract DR/89/04;

4. $0.75 million is for the potential quantum to be claimed for the works under Contract DR/89/03 if the Government loses the arbitration; and

5. $0.94 million is to cover the costs for the arbitrations.

3. As regards (h) (Consultants' fee & charges), of the increase of $2.2 million -

1. $1.4 million is for the increase in the consultants' fees as a result of the increase in the construction cost under Contracts DR/89/03 and DR/89/04.

2. $0.8 million is to cover the cost for the additional duties carried out by the Consultants in relation to the arbitration for the works under Contracts DR/89/03 & DR/89/04.

(DD1182)

1.The CEWI is a quarterly index complied by the Civil Engineering Department as a means of relating the costs of civil engineering works at current prices to those at 1980. The CEWI is based on the labour and various material costs indices published monthly by the Census & Statistics Department.