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Following is a question by the Hon Ronny Tong and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (January 8):
Question:
It has been reported that in awarding the leases of two flagship retail shops in East Hall, SkyMart in the restricted area of the passenger terminal building, the Chief Executive Officer (CEO) of the Airport Authority Hong Kong (AA) exercised discretion not to follow the principle of awarding the contracts to bidders offering the highest bids, resulting in AA suffering substantial rental loss. In addition, a group of middle-level management staff of AA have complained to me, alleging that AA has not actively followed up the aforesaid incident so far. In this connection, will the Government inform this Council if it knows:
(a) whether the CEO of AA altered the tender assessment criteria and the weightings concerned (assessment method) in the aforesaid lease tendering exercise; if he did, (i) of the reasons and details for that, (ii) the differences in the assessment methods before and after the alteration, (iii) whether such alteration violated the relevant guidelines issued by the Independent Commission Against Corruption; if so, whether the authorities will take further follow-up actions; if not, the justifications for that, and (iv) whether AA has evaluated the rental loss due to the alteration in the assessment method;
(b) whether AA has set up an independent investigation committee to follow up the aforesaid incident; if not, of the reasons for that; if AA has, of the details, and whether any person has been found to have violated the rules; if violations have been found, whether the authorities have taken follow-up actions; and
(c) whether AA will consider reviewing the assessment method for lease tendering exercises; if so, of the details; if not, the reasons for that?
Reply:
President,
My reply to the various parts of the question raised by the Hon Ronny Tong is as follows:
The Airport Authority (AA) follows a set of established procedures to handle the tendering of retail shop licences. The Retail & Advertising Department is responsible for the tendering of retail shops. Throughout the whole process from planning of tendering to the award of licences, relevant departments will deliberate and report to internal committees in the AA, and final decisions are not made by any single individual. Generally speaking, during the tender vetting process, apart from considering factors such as the tenderers' background, brand, sales performance, industry experience, business concept and licence revenue, the AA also takes into consideration trade mix at the airport, in order to meet the different needs of travellers. The AA will adjust its business strategies as appropriate to cater for the changing market trend and travellers' demand.
In the tender award process of the Icon Shops, after vetting the tenders received, AA management included tenderers' product category and the rental terms of their existing shops in the airport as evaluation criteria. This is to cater for market trends, strike a good balance in trade mix, and optimise revenue for the airport. A final decision was reached after discussion at the internal committee chaired by the Chief Executive Officer of the AA. AA management considered that the decision would bring the greatest overall benefits to the airport.
Tender documents for the Icon Shops stipulated that in tender evaluation, the weighting of financial return accounted for 60 per cent, while non-financial factors accounted for 40 per cent. Tenderers were required to propose a minimum guaranteed rental and a percentage share of business turnover. The successful tenderers were required to pay whichever was higher to AA as the licence fee. The abovementioned weighting ratio (i.e. 60 per cent on financial return and 40 per cent on non-financial factors) remained unchanged throughout the whole tendering and evaluation process.
In terms of business strategy, AA has to take into account the trade mix and rental conditions. However, there were shortcomings found in this concerned tender process. The Internal Audit Department of the AA has conducted an independent review into the tender award process of the Icon Shops. The review pointed out that there were deficiencies in AA's pre-tender planning work, which gave rise to the need for adjusting the evaluation criteria after vetting the tenders received. The Internal Audit Department reported its findings to the AA Board and the Audit Committee and Finance Committee (ACFC) under the AA Board in May last year. The AA Board and ACFC endorsed the concerned review findings and have requested AA management to review and improve the established procedures and specify various key evaluation criteria in the early stage of tender preparation. This is for avoidance of the need to exercise discretion allowed under the tendering procedures to adjust the evaluation criteria after tenders were received in order to protect AA's commercial interests. AA Board has also requested AA management to further strengthen internal controls and corporate governance, and enhance the organisation's compliance culture.
The AA Board has taken the inadequacies identified in the tendering process for the Icon Shops very seriously, and has criticised AA management for not handling the process satisfactorily. AA Board engaged two independent consulting firms to have full review of various aspects of tendering procedures of AA in 2012. With the substantial completion of the reviews, AA has implemented measures to improve the clarity and integrity of the whole tendering process. For instance, representatives from departments other than the Retail & Advertising Department will be involved in tender evaluation process as reviewers to enhance the independence and professionalism of the process. Guidelines are strengthened to ensure that tender evaluation work complies with the improved procedures. Besides, AA management will also enhance staff's understanding of internal controls and corporate governance through training.
Ends/Wednesday, January 8, 2014
Issued at HKT 12:30
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