For information
on 19 April 1999

Information Paper for
Legislative Council Panel on Housing
Legislative Council Panel on Public Service

Corporate Reform of the Hong Kong Housing Authority

Consultancy Study on Review of Private Sector Involvement in
Estate Management and Maintenance Services

This paper informs Members of the background to the consultancy study on Review of Private Sector Involvement in Estate Management and Maintenance (EMM) Services, the findings of the study, and the proposed way forward.

Background

2. On 4 January 1999, after considering LP Paper No. CB(1)692/98-99(06), Members requested the Administration to consult the Legislative Council Panel on Housing once the consultancy study on "corporatisation" was completed. A similar request was also made by Members of the Legislative Council Panel on Public Service at its meeting on 16 November 1998.

3. The Housing Authority (HA) and Housing Department (HD) have launched a series of reforms, collectively called the Management Enhancement Programme (MEP) aiming at improving internally the efficiency and externally the quality of services since January 1997. The launching of the Tenants Purchase Scheme (TPS) last year which is progressively transforming HA's tenants into owners who will have the right to choose whether to continue to retain HA/HD management services or to hire private management agencies (PMAs) has created urgency to speed up the reform process.

4. Furthermore, as explained in our previous LP Paper No.CB(1)692/98-99(06), with the increasing number of alternative service providers in the private sector and their involvement in HA's work, it has raised the questions of whether HD, which has been the sole supplier of many HA's services, provides best value to the HA and its customers; whether the same or even better services can be procured more cost-effectively from the private sector. It is in this context that a consultant was commissioned last year to explore the possibility and opportunities for greater private sector involvement for the HA with particular reference to the EMM services.

CONSULTANCY REPORT

5. The consultant submitted his report to HA on 4 March 1999. A copy of the report has also been sent to each Legislative Council Member on the same day. The main findings and recommendations are -

1. the HA and HD should establish a clear "client-contractor" split and HD, as service provider, should compete with the private sector for providing services to the HA. There would be substantial potential benefits to the HA, in terms of cost effectiveness, service quality and responsiveness, from bringing in more competition;

2. it is difficult for HD to compete with private sector EMM service providers in terms of operating cost, drive for service improvement, and scope for business development;

3. having regard to the cost competitiveness and perceptions about the quality of service, the consultant is of the view that most if not all of the TPS owners will decide to use private sector management agents. The HD will have to face surplus staff problems as a result. If the HD does nothing, the number of surplus staff may reach some 4,000 in ten years' time. Natural wastage may only reduce the figure to 1,300;

4. the consultant has explored five possible options for greater private sector involvement, viz. subsidiary, joint venture, privatisation, management buy-out (MBO) and phased service transfer. The consultant concludes that only the phased service transfer could best meet HA's and HD's needs. The option of MBO should also be considered if staff come forward with an actionable proposal;

5. after balancing all factors, the consultant considers it more manageable and less risky by phasing out the transfer of all existing EMM services within a period of 5 to 7 years. After taking one year to complete the necessary preparation, the first phase of the transfer can take place in 2000; and

6. the consultant notes the impact to HD staff caused by his recommendation. He however believes that there is capacity for the private sector to absorb HD staff on a phased arrangement given the healthy growth of this industry in the past 10 years and the construction programmes for residential flats in both the public and private sectors.

6. The recommendations in the consultant's report represent the consultant's views only. We will examine the consultant's findings and recommendations before submitting recommendations to the HA for consideration on the way forward in May 1999. Views of the HD staff and other parties concerned, including the Legislative Council Panels on Housing and Public Service, will be sought before recommendations on the way forward are submitted for discussion by the HA.

7. The consultancy report does not cover staffing arrangements. Staffing issues will be carefully addressed after the HA has decided on the direction forward. Affected staff will be consulted on the staffing arrangements in accordance with existing guidelines.

COMMUNICATION WITH STAFF

8. To facilitate communication with staff on this subject, the Department has made available an information pack to each staff containing a summary of the consultancy report and answers to some frequently asked questions on the subject. A feedback form is also provided for staff to send their views to the HD. In addition, a short video to brief staff on the highlights of the report has been shown to all staff. Interested staff can also gain access to the full report through the HA/HD intranet.

9. The Department has also organised briefings and discussions with staff union representatives and the departmental staff consultative committees. Two open fora have been held to exchange views with individual staff directly.

COMMUNICATION WITH RELATED PARTIES

10. As one of the options recommended by the consultant necessitates involvement of the PMAs, the Department has also made available to PMAs copies of the report. Briefings have also been organised to gather feedback from them on the consultant's recommendations.

WAY FORWARD

11. The following work plan has been agreed by HA for taking forward the consultant's recommendations -

Housing Department
April 1999