File Ref. : FIN P6/9

INTRODUCTION

Members have requested the Administration to provide information on the way in which the expenditure on public works projects can be monitored.

BACKGROUND

2. The Public Works Programme (PWP) is the programme of works through which the Government invests in Hong Kong's publicly owned facilities and infrastructure. The PWP consists of a wide range of projects. Typical projects are the construction of roads, bridges, public buildings, water treatment facilities, sewage treatment facilities, flood control schemes, schools, port facilities and land formation works. In size, they range from very large scale projects such as the construction of the new towns and the new airport at Chek Lap Kok to smaller items such as minor building and refurbishment projects. The number of projects contained in the PWP at any one time runs into several thousands.

The funding of public works projects

3. For administrative convenience, we fund projects in the programme in two ways according to their size: small projects costing not more than $15 million each, and larger projects costing more than $15 million each.

4. Projects costing not more than $15 million each are funded from sums of money set aside for that purpose, known as "block allocations". Each year, we ask the Finance Committee (FC), via the Public Works Subcommittee (PWSC), to approve global sums under each block allocation to cover expenditure on a number of small projects in the following financial year. For the 1999-2000 financial year, FC will consider on 15 January 1999 PWSC's recommendation to allocate $7.97 billion for expenditure under block allocations.

5. We seek funding for larger projects, i.e. those costing more than $15 million each, on an individual project basis. For these, we seek the approval of FC, via PWSC, for funds to cover the cost of preparatory studies, site investigations, preliminary and detailed design and construction. Following a positive recommendation from the PWSC and approval of FC of the scope and estimated cost of the project, tenders for the works are then invited and after award of contract, construction is allowed to proceed.

The post-funding situation

6. After FC has approved the scope and the cost estimates for a project, no further submission is made to PWSC and FC, unless the project cost appears likely to exceed by more than $15 million the project estimate approved by FC. In this context, FC has delegated to the Secretary for the Treasury the power to approve cost increases up to a maximum of $15 million per project. Above that ceiling, any increase in the cost estimate requires a submission to FC via PWSC. For changes to the scope of a project, we normally seek FC and PWSC's approval only if the change in scope constitutes a material departure from the original scope agreed by FC. We do not seek the approval of FC and PWSC for minor changes of scope.

INFORMATION AVAILABLE FOR MONITORING PURPOSES

7. The majority of public works projects have expenditure profiles which run over a number of consecutive years. The Government publishes financial information on individual project expenditures throughout the life of a project. This information can be found in two main sources.

Annual Estimates, Volume II - Funds Accounts

8. Subsequent to the approval of a project by FC (i.e. upgrading to Category A), the primary source of information available to help Members monitor the financial progress of a project is the published Estimates, Volume II - Funds Accounts. This document contains a section on the Capital Works Reserve Fund which is the source of funding for the PWP. This section provides all essential information in respect of on-going approved projects and any new projects that are anticipated to be upgraded to Category A in the coming financial year. The projects listed are categorised under specific expenditure heads. Information is presented in an identical format under each head. A typical page taken from 'Head 709 - Waterworks' of Volume II of the 1996-97 Estimates is shown at Enclosure 1. Under the listing for each project, information on the approved project estimate, the cumulative expenditure up to the end of the previous financial year, the revised estimate for the current financial year and the estimate for the next financial year are provided. For all on-going projects, the amounts in the 'Estimate' column is the amount of money that may be spent in the fiscal year in question. However, should additional funding be required during the year the Controlling Officer may seek an additional allocation of funds. The Financial Secretary can approve such allocations under delegated authority, provided the total amount spent on a project does not exceed the approved project estimate shown in the first column. Projects which are scheduled to be upgraded to Category A have the words 'Cat. B' shown under the approved project estimate column and an obelisk shown against the estimate figure to signify that the amount is reserved until formal approval of the project has been given by FC.

The Annual Accounts of the Government

9. A second source of financial information on on-going PWP projects is the 'Accounts of the Government'. These are published around September / October of each year by the Director of Accounting Services. This report contains accounting summaries of the CWRF as a whole, as well as a listing of individual projects with actual payments made during the financial year covered by the annual report. A typical list of projects extracted from the 'Accounts of the Government for the Year ended 31 March 1997' is at Enclosure 2. Information provided on each project includes the original estimate (taken from the Estimates for the fiscal year in question), the amended estimate ¹ and the actual expenditure during the financial year which is the subject of the report.

Quarterly Report on the Public Works Programme

10. In addition to the two sources of information mentioned above, a third source of reference is the Quarterly Report on the Public Works Programme published by Works Bureau. This report provides financial and other information on the progress of selected major projects in the PWP, excluding Airport Core Programme projects. The projects included in this report are all in Category A of the PWP. They are selected for inclusion in the report having regard to their cost, importance, complexity and other factors which suggest that they may be of interest to Members and the public alike. While the list is not exhaustive, these projects account for some 80% of the forecast total annual expenditure on all public works projects. Key information provided for each project includes the latest forecast of project costs against the approved project estimates, start and completion dates and a Note on Progress. The projects are listed in the Report in sequential order of the programme area of each Policy Secretary. The Administration provides a copy of this Report to Members on a quarterly basis via the Legislative Council Secretariat. An extract from the Quarterly Report for Oct. - Dec. 1997 is attached at Enclosure 3.

Report on projects finalised during a fiscal year

11. One piece of information which is not made public at present is the outturn expenditure for each project when the project account has been finalised and closed. At Members' request, we provided an information note PWSCI(98-99)5 in May 1998 to the PWSC with financial information in respect of PWP projects completed and closed during the financial year 1997-98. We intend to issue such information to Members on an annual basis in the form of the sample pro-forma attached at Enclosure 4. Members are asked to note, however, that this report will be historical in nature and will relate to projects which were substantially completed some years in the past.

ADVICE SOUGHT

12. We welcome Members' comments on the information provided above.


Finance Bureau
Works Bureau January 1999

1. The amended estimate is the revised cashflow figure for the year in question, in cases where the original approved estimate has been supplemented by an additional allocation of funds.

Enclosure 4

Head	Project code and title	Date of upgrading to Cat. A	Approved Project Estimate (APE) ($ million)	Actual total expenditure ($ million)	Ratio of expenditure to APE (%)	Remarks
709	9126WF 'Treatment and disposal of sludge from the Sha Tin water treatment works'	July 1987	197.000	194.242	98.60	The project was completed within budget.