For discussion
on 4 May 1999



INTRODUCTION

This paper informs Members of the Administration's intention to seek approval to increase the approved project estimate (APE) for item 312 DS for construction supervision of some of the main works for Stage I of the Strategic Sewage Disposal Scheme. Measures to limit the increase in supervision cost have been taken. The main reason for seeking the increase is that the delay in completion of the works means that site supervisory staff have to be provided for longer periods. Current forecasts indicate that the overall estimate of $8.2 billion for completion of the Stage I works will not be exceeded even if the allocation for construction supervision is increased.

BACKGROUND

2. The SSDS Stage I works comprise upgrading of existing preliminary treatment works; construction of a series of deep sewage collection tunnels to convey sewage from urban Kowloon and north east Hong Kong Island; and building a new centralized sewage treatment works at Stonecutters Island to treat the sewage. The treated effluent is to be discharged via an interim outfall to the more open waters west of Victoria Harbour.

3. In view of the size and complexity of the civil, electrical and mechanical works involved, the SSDS Stage I was implemented under 15 construction contracts comprising four advance works contracts and 11 main works contracts. These contracts commenced in stages in 1994 and 1995 respectively.

4. The construction of the sewage tunnel transfer system was included in two of the 11 main works contracts. Owing to the unilateral suspension of works in all six sewage tunnels by the first contractor, the two tunnel contracts were forfeited in December 1996. Subsequently, the tunnel completion works were re-let in three separate contracts (two tunnels in each contract) in July 1997 and January 1998.

5. The construction supervision of the main works of SSDS Stage I was originally funded by the Sewage Services Trading Fund (SSTF) under 018SS with an APE of $610.0 million. As preparation was made to wind up the SSTF, it was estimated that, up to 31 March 1998, $491.8 million would have been spent. On the basis of this estimate, FC on 27 February 1998 approved the inclusion of 312DS in Category A under the Capital Works Reserve Fund (CWRF) with an APE of $118.2 million to fund the costs of the construction supervision of the outstanding main works of SSDS Stage I, with the exception of the supervision of two contracts for the four eastern tunnels, which is covered by project item 286DS.

PROJECT SCOPE

6. 312DS covers the expenditure on the construction supervision of 12 project items created under the CWRF for the outstanding main works of the SSDS Stage I (except the eastern tunnels) after the closure of the SSTF. These items and their respective APEs are listed at Enclosure 1.

JUSTIFICATION

7. DSD prepared the current project estimate for 312DS in late 1997 based on the forecast completion dates of the works available at that time. These indicated that the main works covered by the project item would be completed by August 1999. This was before the problems with the mucking system left by the first contractor and the extent of poor ground conditions in the Tsing Yi to Stonecutters tunnel route were known. It is now envisaged that the whole of the main works covered by 312DS will be substantially completed in November 2000. It is therefore necessary to retain some resident site staff to supervise the works over the longer construction period. In addition, the consultants' fee for the construction stage of the contracts will be increased as a result of the extended period of supervision of the contracts.

8. The main reasons for the extensions and delays in completion of the works involved are:-

1. the completion works for the two western tunnels has been delayed by the need to replace the faulty mucking system left behind by the default contractor and by the poor ground conditions;
   
   
2. the forfeiture of the two tunnel contracts in December 1996 has caused knock-on disruptions on the completion and commissioning of other main works contracts. The completion dates for six contracts need to be extended to various degrees. The details of the impacts on each of the contracts are summarized at Enclosure 2; and
   
   
3. the completion of the works related to the SSDS Stage I chemical dosing facilities, including works essential for the testing and commissioning of the facilities, has been delayed due to poor performance of the contractor.

The original and revised completion dates of the works are also listed at Enclosure 2 with brief reasons for the extensions and delays.

9. Following a review of the financial position of 312DS and the construction supervision necessary for the completion of the main works, it is considered necessary to increase the APE from $118.2 million by $98.8 million to $217 million. A summary breakdown of the proposed increase is as follows:-

Factor	Amount of Increase(Decrease) $ million	% Increase/ (Decrease)
(a)Consultants fees	12.0	12.1
(b)resident site staff costs	99.0	100.2
(c)contingencies	(12.2)	(12.3)
Total	98.8	100

The contingencies amount allowed in the original project estimate has been reviewed and reduced in view of the higher degree of estimation certainty at the current stage. The proposed net increase of $98.8 million represents an increase of about 16% over the original APE of $610 million under 018SS. A comparison of the cost breakdowns of the APE and the revised project estimate for 312DS, together with the breakdown of the additional costs attributable to the extensions and delays explained in paragraph 8, is included at Enclosure 3 for reference. In addition, a breakdown of the estimates for the consultants' fees is at Enclosure 4.

10. Up to end March 1999, the total expenditure on the SSDS Stage I was $5.4 billion, of which $4.4 billion was spent under the SSTF before its closure. At the time the related SSTF projects were transferred to the CWRF, it was forecast that the whole SSDS Stage I, comprising 19 project items, including 312DS, would be completed within an overall estimate of $8.2 billion. According to current forecasts, the overall estimate of $8.2 billion for the completion of SSDS Stage I by late 2000 will not be exceeded even if the proposed increase in the APE for 312DS is approved. Offsetting savings can be identified in other items. Besides the reduction in contingencies amount as noted in paragraph 9 above, unspent contingencies of other projects can be released as the final costs have now become more certain as the works involved are nearing completion.

11. The establishment of resident site staff has been kept under close review to ensure that staffing levels are commensurate with workload. Whenever a substantial part of the construction works is completed, the strength of the resident site staff is reduced and different teams are combined to achieve best utilization of staff resources. The details of the resident site staffing level for the main works of the SSDS Stage I in the previous 18 months and coming years until completion are listed at Enclosure 5.

12. As part of the additional construction supervision cost arises from the forfeiture of the two tunnel contracts, it is intended to pursue a claim for losses arising from re-entry of the two tunnel contracts through arbitration. These losses will be ascertained after completion of the tunnelling works.

FINANCIAL STATUS

13. Subject to approval, expenditure will be phased as follows:-


14. The MOD estimates are based on the Government forecasts of the trend labour and construction prices for the period 1998 to 2002.

15. The proposed increase in the APE will not give rise to additional recurrent expenditure.

ENVIRONMENTAL IMPLICATIONS

16. The proposed increase in the APE does not have any adverse environmental implications.

LAND ACQUISITION

17. The project item does not require land acquisition.

Secretary for Planning, Environment and Lands
Secretary for Works
April 1999

Enclosure 1 to EA & PL&W Panels

A list of outstanding SSDS Stage I works of which the construction supervision are covered by 312DS is as follows:-

Item No.	Title	Expenditure up to 31.3.98 under SSTF $ million	Approved Project Estimate under CWRF $ million
288DS	Chemical Dosing Facilities	$104.1	$39.2
304DS	Sewer Tunnel System from Chai Wan and Tseung Kwan O to Kwun Tong	$306.1	$36.3
305DS	SCISTW Sludge Treatment Facilities	$231.3	$43.7
306DS	SCISTW Sedimentation Tanks Civil Works	$347.6	$24.5
307DS	Pumping Station E & M Equipment	$223.1	$214.3
308DS	SCISTW Pumping Stations, Buildings and Site Development	$299.8	$97.3
309DS	Upgrading Existing Preliminary Treatment Works	$607.6	$234.1
310DS	SCISTW Sedimentation Tanks E & M Equipment	$276.4	$125.1
311DS	Sewer Tunnel System from Kwun Tong and Kwai Chung to Stonecutters Island	$389.7	$39.4
315DS	Outfall	$445.1	$117.6
316DS	Construction of Sludge Transfer Facilities and Supply of Sludge Containers	$28.8	$23.7
320DS	Completion of Sewer Tunnel System from Kwai Chung to Stonecutters Island	$51.5	$487.6
Total		$3,311.1	$1,482.8

Note :

(1) SCISTW denotes Stonecutters Island Sewage Treatment Works.

(2) 304DS and 311DS are project items covering the works under the original tunnel contracts. After their forfeiture in December 1996, these project items provide funds for the tunnel maintenance contract for maintaining the unfinished tunnels and taking security of all the tunnel sites before commencement of the completion works. With the completion of the tunnel maintenance contract in January 1998, the works under these project items are substantially completed.

(3) The construction supervision of the completion of the four eastern tunnels is funded by 286DS entitled SSDS stage I: Completion of Sewage Tunnel System from Chai Wan and Tseung Kwan O to Kwun Tong and from Kwun Tong to Stonecutters Island".

Enclosure 2 to EA & PL&W Panels

Forecast completion dates of projects which construction supervision are covered by 312DS

Item No.	Title	Completion Date Anticipated in the Last PWSC Submission	Actual Completion Date/Latest Forecast Completion Date	Brief Reasons For Delay & Extension
288DS	Chemical Dosing Facilities	Jan 98	Jan 99	Due to financial problems, the contractor has difficulties in mobilizing sufficient resources to complete the works as scheduled. The persistent poor performance of the contractor caused significant delay to the completion of the contract.
304DS	Sewer Tunnel System from Chai Wan and Tseung Kwan O to Kwun Tong	Jul 00	--	Tunnel maintenance work substantially completed in January 1998 (see note (2) of Enclosure 1).
305DS	SCISTW Sludge Treatment Facilities	Oct 97	Sep 97
306DS	SCISTW Sedimentation Tanks Civil Works	Jun 97	Jun 97
307DS	Pumping Station E & M Equipment	May 98	Jun 99	As the result of the delay in completion of tunnel transfer system, significant portion of the sewage from SSDS Stage I catchment cannot be made available for testing and commissioning of the pumping facilities as originally planned. Alternative arrangements have to be worked out and agreed with the contractor hence causing delays to the completion of the contract.
308DS	SCISTW Pumping Stations, Building and Site Development	Mar 98	Mar 99	The delay in completion of the E & M works at SCISTW caused knock-on delays in handing over the associated works areas for the completion of outstanding works under the contract hence causing delay to its completion.
309DS	Upgrading Existing Preliminary Treatment Works	Apr 98	Mar 99	The forfeiture of the tunnel contracts disrupted the interfacing works for diverting the Preliminary Treatment Works flows to the tunnel transfer system. As a result, the scope of works under the contract has to be revised and some of the facilities have to be amended to cope with the changes hence causing delays to the completion of the contract.
310DS	SCISTW Sedimentation Tanks E & M Equipment	Apr 98	May 99	As the result of the delay in completion of the tunnel transfer system, significant portion of the sewage from SSDS Stage I catchment areas cannot be conveyed to SCISTW for testing and commissioning of the sedimentation facilities. Alternative arrangements have to be worked out and agreed with the contractor hence causing delays to the completion of the contract.
311DS	Sewer Tunnel System from Kwun Tong and Kwai Chung to Stonecutters Island	Jul 00	--	Tunnel maintenance work substantially completed in January 1998 (see note (2) of Enclosure 1).
315DS	Outfall	May 98	Nov 00	As the result of the delay in completion of the tunnel transfer system, significant portion of the sewage flow from SSDS Stage I catchment areas cannot be conveyed to SCISTW for treatment and subsequent discharge via the outfall. The effluent produced from the treatment of North West Kowloon sewage is not adequate for commissioning of the outfall and hence the contract is extended to provide an alternative operational arrangement until the availability of the tunnel flow.
316DS	Construction of Sludge Transfer Facilities and Supply of Sludge Containers	May 99	May 00	The interim sludge disposal service under the contract is extended to cope with the latest forecast completion date of the tunnel transfer system.
320DS	Completion of Sewer Tunnel System from Kwai Chung to Stonecutters Island	Aug 99	Nov 00	Replacement of mucking system and poor ground conditions cause delay in completion of the contract.

where SCISTW denotes Stonecutters Island Sewage Treatment Works

Enclosure 3 to EA & PL&W Panels

A comparison of the cost breakdowns of the approved project estimate and the revised project estimate:-

	Approved	Revised
	Project	Project	Increase
	Estimate	Estimate	(Decrease)
	$ million	$ million	$ million
(a) consultants fees	25.0	37.0	12.0
(b) resident site staff costs	62.0	161.0	99.0
(c) contingencies	31.2	19.0	(12.2)
	_________	_________	_________
Total	118.2	217.0	98.8
	_________	_________	_________

The breakdown of the increase in costs of construction supervision and resident site staff with respect to the causes of extensions and delays detailed in paragraph 8 and 9 of the paper is shown as follows:-

		Amount of Increase/ (Decrease) $ million
(a)	Delay in completion of the western tunnels under 320DS	$27.6
(b)	Knock-on disruptions to six contracts due to forfeiture of original tunnel contracts	$72.0
(c)	Poor performance of the contractor for 288DS, "Chemical Dosing Facilities"	$11.4
Sub-total		$111.0
(d)	Reduction in contingencies	($12.2)
Total		$98.8

Enclosure 4 to EA & PL&W Panels

Breakdown of Estimates for Consultants' Fees

	Consultants' staff costs		Estimated Man-months	Average MPS Salary Point	Multiplier	Estimated Fee at Dec 98 prices($ million)	Estimated Fee at MOD prices ($ million)
(a)	Original Estimate
	Construction Supervision	Professional Technical	149 50	40 16	2.4 2.4	$22.5 $2.5	$22.5 $2.5
	Resident Site Staff	Professional Technical	344 705	40 16	1.7 1.7	$36.7 25.2	$36.8 25.2
Sub-total (a)						$86.9	$87.0
(b)	Additional Costs
	Construction Supervision	Professional Technical	67 23	40 16	2.4 2.4	$10.1 $1.2	$10.7 $1.3
	Resident Site Staff	Professional Technical	534 1093	40 16	1.7 1.7	$57.0 $39.0	$58.7 $40.3
Sub-total (b)						$107.3	$111.0
(c)	Revised Estimate
	Construction Supervision	Professional Technical	216 73	40 16	2.4 2.4	$32.6 $33.2	$3.7 $3.8
	Resident Site Staff	Professional Technical	878 1799	40 16	1.7 1.7	$93.7 $64.2	$95.5 $65.5
Sub-total(a)+(b)						$194.2	$198.0

Notes
(1) A multiplier factor of 2.4 is applied to the average MPS point to arrive at the full staff costs including the consultants' overheads and profit, as the staff will be employed in the consultants' offices. (At 1.4.98, MPS pt. 40 = 62,780 p.m. and MPS pt. 16 = 21,010 p.m.)

(2) The figures given above are based on estimates prepared by the consultants. We will only know the actual man months and actual fees after the completion of the works.

Enclosure 5 to EA & PL&W Panels

Detailed Staffing Level of Resident Site Staff (RSS) Covered by 312DS


Note: The RSS expenditure before 1 April 1998 was covered by SSTF item no. 018SS.