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Following is a question by the Hon Kenneth Leung and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (May 28):
Question:
Last month, the MTR Corporation Limited (MTRCL) announced that the project to construct the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL) could not be completed by 2015 as scheduled. According to a paper submitted by the Government to the Subcommittee on Matters Relating to Railways of this Council (the Subcommittee) for its meeting held on the 5th of this month, lags and delays in the construction works of the XRL Project had happened time and again since its commencement in 2010. In a paper submitted to the Subcommittee, MTRCL indicates that it will make every effort to complete the project in accordance with the revised programme and it looks forward to delivering the XRL for passenger service by the end of 2017. There are views that the delay in the XRL Project not only incurs additional expenditure on the works, but also reflects MTRCL's mismanagement of the works, raising doubts as to whether the Government has adequately monitored major infrastructure projects. In this connection, will the Government inform this Council:
(1) whether it knows MTRCL's considerations and justifications for splitting the XRL Project into 20 major civil contracts which were awarded to 17 contractors; given that some engineers have pointed out that the arrangement of splitting projects and awarding them to different contractors will aggravate the difficulties of interfacing and coordination in project management, whether MTRCL and the authorities have reviewed if such an arrangement has resulted in contractors shirking their responsibilities, thus causing an overall project delay; if the assessment outcome is that such an arrangement did result in project delay, whether the authorities have taken any corresponding improvement and remedial measure;
(2) as it was reported by the media as early as May last year that the contractor Gammon-Leighton JV had indicated in its letter to MTRCL in March last year that the work progress in the northern section of the XRL West Kowloon Terminus (WKT) was 310 days behind the original schedule and the overall WKT works were expected to delay for 562 days, and it had made a claim for $1.5 billion, but the aforesaid government paper reveals that MTRCL still told the Government in November last year that despite the difficulties encountered at WKT and the cross-boundary tunneling works, XRL could still be completed and commissioned in 2015, whether the authorities have reviewed if MTRCL had provided false information, and if the Highways Department has endeavoured to perform its duties in monitoring and reporting on the progress of the XRL Project; whether the authorities will strengthen the monitoring and reporting mechanisms for major infrastructure projects in the long run;
(3) whether it has reviewed if MTRCL had carried out the advanced preparatory works of the XRL Project (including geological surveys, etc.) in a hasty and careless manner, and if such works met the standards and complied with the routine procedures for public works of the same nature; whether the authorities will draw up more stringent procedures and monitoring measures for the advanced preparatory works of major infrastructure projects in future, if they will, of the details;
(4) whether it knows the number of XRL works projects to date the works for which have yet to commence even though the latest commencement dates stipulated in the contracts have lapsed; of the respective details of these projects, and the estimated additional daily expenditure or amounts of claims that may be caused by delay in the project as stipulated under the contract terms of various projects;
(5) whether it knows the number of XRL works projects the awarded contracts of which have stipulated that the works concerned have to commence by the end of this year but it has been confirmed that such works cannot commence as scheduled; of the respective details of these projects, and the estimated additional daily expenditure or amounts of claims that may be caused by delay in the project as stipulated under the contract terms of various projects;
(6) whether it knows the number of contractors which have made claims to MTRCL due to delay in commencing the XRL works projects so far and the amount of claims involved as well as the justifications for such claims; and
(7) as a paper submitted by the Government to the Subcommittee in November 2009 revealed that MTRCL allowed a 20 per cent contingency for WKT/Alignment/System-wide electrical and mechanical works in the Project Cost Estimate in August 2009, and reduced such percentage to 15 per cent in its updated Project Cost Estimate in September 2009, whether the authorities had looked into the reasons for MTRCL's reduction of the percentage, the basis and method for calculating the contingency percentage each time when relevant adjustment was made; whether it knows the latest percentage and amount of contingency allowed by MTRCL in the Project Cost Estimate of the aforesaid works, the percentage of such amount in the contingency for the whole XRL Project, and the breakdown of the contingency for the whole XRL Project; whether the authorities have assessed if MTRCL's reduction of that percentage at the early stage of the XRL Project has reflected that MTRCL has all along taken risk management lightly; if the authorities have assessed, of the details and results?
Reply:
President,
My reply to the respective parts of the Hon Kenneth Leung's question is as follows:
(1) Due to the large scale and the complexity of the relevant work processes, major public infrastructural works often require contractors of multiple specialties to take up and be in charge of the implementation of the various parts of the works. The Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL) is no exception. For instance, construction of the tunnels at different sections of the XRL requires tunnel boring machine, cut-and-cover and drill-and-blast specialist contractors; construction of West Kowloon Terminus requires foundation, building, steelworks contractors; and the installation of electrical and mechanical (E&M) facilities for the XRL requires track laying, signaling system and communication equipment contractors, etc. The MTR Corporation Limited (MTRCL) stated that when it invited tenders for different works, it followed the established, open and fair process inviting tenders internationally and complying with the requirements of the Agreement on Government Procurement of the World Trade Organization. During the tender process, MTRCL will carefully examine all tenders taking into account criteria such as their relevant experience, capability and past performance, so as to ensure the successful tenderer has adequate capability, expertise and experience to complete the works in accordance with the contract requirements. Each contract clearly states the works which the contractor is required to complete, and stipulates that the contractor is required to coordinate with other related contractors to facilitate their respective works sequence and progress. These arrangements have also been successfully adopted in other major infrastructure projects. MTRCL, as project manager, has followed its set of project management system during the construction period. MTRCL also maintains close liaison with the various contractors and coordinates the works plan of the various contractors to ensure implementation of the works according to the works programme. During the design phase of the project, the Highways Department (HyD) and the Monitoring and Verification (M&V) consultant had examined the overall tendering design and strategy of the project, and considered that dividing the project into multiple contracts could increase the competition among the tenderers, reduce the risks associated with contract oversize, and tally with the timetable of the availability of works areas and sites. As such, it was considered that the tendering design and strategy were reasonable.
HyD, by engaging the M&V consultant, has all along been performing the "check the checker" role to systematically monitor MTRCL in the implementation of the XRL project. The monitoring regime includes conducting monthly site visits to XRL works contracts and conducting site meetings with the site supervisory staff of MTRCL. During the visits and meetings, the M&V consultant would examine the progress of the contracts, review on whether there are any potential construction risks and provide advice as necessary. HyD and the M&V Consultant also attend the monthly Contract Review Meeting (CRM) with the site supervisory staff of MTRCL, in which HyD and the M&V Consultant would enquire about the latest situation on the works contracts and discuss the issues which may have potential impacts on the progress and programme of the XRL project (including interface issues among contracts as well as delay mitigation and recovery measures). In addition, HyD attends the monthly Project Coordination Meeting with the management team of MTRCL to monitor the progress of various contracts and coordinate issues concerned with the delivery of the XRL project (e.g. coordination with various government departments). The Director of Highways (DHy) chairs the monthly Project Supervision Committee (PSC) meetings with the Projects Director of MTRCL and his team to review the project progress.
Through the above multi-level monitoring mechanism, HyD has better understood the progress of the works contracts and progress delay in different sections of works. When HyD realised the inadequacies in the site works by the contractors, eg inadequate labour resources and work fronts, logistics and site coordination problems, etc, HyD and the M&V consultant would urge MTRCL to follow up and implement effective mitigation measures to avoid further delay of works.
(2) We understand that the document reported by the media in May last year was a claim document submitted by one of the contractors of the XRL to MTRCL. According to the contract, the contractor is obliged to complete the relevant works within the specified time in accordance with the contractual requirements. When there are unforeseeable circumstances, the contractor might make claim(s) in accordance with the relevant provisions under the contract. MTRCL has to assess each claim in a prudent manner, and the contractor would have to provide sufficient justifications and information to support the claim. HyD and its M&V consultant would also examine MTRCL's processing of the relevant claim to ensure the award of each of the major claims is substantiated with sufficient justifications and complies with the relevant procedures. It is not appropriate for the Administration to comment on the individual claims made by individual contractors.
Since the commencement of the works, HyD and its M&V consultant have been monitoring MTRCL in the implementation of the XRL project through various monitoring mechanisms, and has been aware of the different degrees of delay in some civil works contracts of the XRL project, including the delay of the works of the northern section of the West Kowloon Terminus. Once HyD became aware of the above situation, it urged the MTRCL to follow up and implement effective mitigation measures. In November last year, MTRCL and its contractors discussed the feasible measures to resolve the problem of progress delay with a view to catching up with the target programme. At that time, according to the report from the M&V consultant and the information provided by MTRCL, HyD conducted an analysis and was of the view that the construction works of XRL could still be completed within 2015 if MTRCL could implement the relevant delay recovery measures.
(3) Safety has always been of top priority during the implementation of the XRL project. MTRCL stated that during the design phase and before works commenced, MTRCL had conducted site investigation and impact assessment of the buildings along the XRL alignment. MTRCL had conducted a thorough review of the relevant drawings and records so as to obtain geological information and to formulate the most suitable construction method. For example, the site investigation works for the West Kowloon Terminus site were conducted in phases between 2008 and 2010. MTRCL obtained the information of more than 600 borehole logs in the whole works area during the period before and after MTRCL took possession of the site. In other words, information of borehole logs was obtained at a spacing of 14.4 metres on average. This density complies with relevant Government guidelines and HyD is of the view that the relevant work is in order.
(4) and (5) All major civil works contracts and E&M contracts have been awarded and the associated works have commenced. From time to time, MTRCL would conduct internal assessment on the impact on costs due to possible issues and changes in future. Based on MTRCL's revised project programme, MTRCL is now conducting a detailed assessment of project total cost, which is expected to be completed by July this year for reporting to the Government. Not until MTRCL submitted the details of its final estimate, we are not able to comment at this juncture. Upon receipt of MTRCL's full assessment report, we will critically review the information therein and report to the Legislative Council and the public.
(6) MTRCL is conducting detailed assessments on the claims made by the relevant contractors, and at the same time discussing the contents and details of the claims with the relevant contractors. For substantiated claims, the reasons of claims mainly involve unforeseeable ground conditions, coordination and changes in design, inclement weather and other external factors, etc.
As at March 31, 2014, MTRCL has received 611 substantiated claims and the amount claimed in total was about $10,756 million. MTRCL would process each claim in a prudent manner, and the contractors would have to provide sufficient justifications and information. As at March 31, 2014, 137 cases were resolved and, comparing to the original total claim amount of $2,505 million, about $1,393 million in total was awarded. Among the 474 cases yet to be resolved, taking into account the needs of individual works and the progress of assessment and negotiation, interim award amounting to about $925 million was made for some of the cases. The MTRCL would continue to handle the other remaining cases cautiously.
(7) At the preliminary design phase when there were uncertainties in the design of part of the works or when there might be more than one scheme under consideration, there was often a need to set the contingency sum at a more prudent level. With the completion of the design schemes of the tunnel section and the West Kowloon Terminus, changes and uncertainties of the works were reduced and the proportion of contingency were lowered accordingly. The document the Government submitted to the Legislative Council in 2009 (LC Paper No. CB(1)503/09-10(01)) has also explained that the contingency percentage of 20 per cent was considered, at that time, too high for such a large-scale project and thus should be revised downward. Besides, there were also other allowances such as daywork, sundries and unmeasured items in MTRCL's cost estimates, which were essentially other forms of contingencies. Furthermore, the level of contingency percentage for this project was higher than that for other recent railway projects. For instance, the contingency percentage for West Island Line was 13.5 per cent, whereas the percentages for Tseung Kwan O Line and Disneyland Line were 12.6 per cent and 11.7 per cent respectively. Taking into account the above, the conclusion at that time was provided that MTRCL could adopt suitable procurement and contract strategies and measures for the project, and with the economies of scale associated with large-scale projects, it was conceivable to reduce the contingency percentage.
As at March 31, 2014, of the $65 billion allocated to MTRCL for the XRL project, the remaining amount of contingency is about $3,749 million; or about 5.6 per cent of the overall project estimate of the XRL project of $66.8 billion. The contingency is mainly used to settle costs arising from future works amendments, including those for unforeseeable circumstances or costs that could not be currently estimated.
Ends/Wednesday, May 28, 2014
Issued at HKT 12:45
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