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Following is a question by the Hon Albert Chan and a written reply by the Secretary for the Treasury, Miss Denise Yue, in the Legislative Council today (March 13):

Question:

The Kowloon-Canton Railway Corporation has been involved in a number of scandals about its awarding of contracts, among which the adoption of single tender has caused much criticism. In this connection, will the Government inform this Council whether:

(a) various government departments, the Airport Authority, the MTR Corporation Limited and the Hong Kong Housing Society have awarded contracts of over $10 million by single tender over the past three years; if so, of the number of such contracts awarded, the details and justifications;

(b) it has assessed if it is proper for these departments and organizations to award contracts by single tender; if it is considered proper, of the reasons for that; and

(c) measures are in place to ensure that these departments and organizations will refrain from awarding contracts by single tender in future so as to uphold the principle of impartiality and fairness in the tendering of contracts; if so, of the details; if not, the reasons for that?

Reply :

Madam President,

(a) Over the past three years, government departments have awarded, through single tendering, 72 contracts of over $10 million each (see Appendix A). Of these, 60 contracts were awarded by the Government Supplies Department, including 49 contracts for the procurement of medical equipment and medicine and 11 contracts for the procurement of other items. The main reason for adopting a single tender approach was that the purchased items were patent or proprietary products or they could only be acquired from the relevant suppliers. The remaining 12 contracts included nine service contracts and five construction and engineering contracts. The nine service contracts were awarded by single tendering as the contractors had exclusive rights or were the sole service providers. As for the construction and engineering contracts, a major reason for single tendering was to avoid technical problems or contractual disputes that might arise from the employment of different contractors on the works. Another main reason was that the works required were of extreme urgency : for example, the works had to be completed before the typhoon or rain season; open tendering in these circumstances would delay the works and prejudice public or security interests.

According to information supplied by the Airport Authority and the MTR Corporation Limited (see Appendix B), over the past three years the Airport Authority has awarded or extended a total of six contracts of over $10 million each by single tendering. The MTR Corporation Limited has awarded nine contracts of over $10 million each by single tendering. The two organizations adopted the single tendering approach for reasons similar to those quoted by government departments. The Hong Kong Housing Society has not awarded any contracts of over $10 million each by single tendering over the past three years.

(b) The practice of and justifications for government departments adopting a single tender approach are in line with the Government's internal procurement procedures as well as the Agreement on Government Procurement of the World Trade Organization (WTO GPA). We believe such an approach is appropriate. According to information provided by the Airport Authority and the MTR Corporation Limited, the two organizations have followed their own procurement procedures and have not infringed the relevant provisions of WTO GPA in adopting the single tendering approach.

(c) We agree that open tendering should be adopted as far as possible in normal circumstances and single tendering should only be considered in exceptional circumstances on a case-by-case basis. We have specified in the Stores and Procurement Regulations that single or restricted tender procedures should only be used in circumstances when open competitive tendering would not be an effective means of obtaining the requisite supplies or services, for example -

(i) where there is extreme urgency brought about by unforeseeable events and where the delay that would arise as a result of open tendering would seriously harm the public or security interests of the Hong Kong Special Administrative Region;

(ii) where for reasons connected with the protection of copyrights or technical reasons, the products or services can only be supplied by a particular supplier and where no reasonable alternative or substitute exists;

(iii) where there is no response to an open or selective tender, or when the tenders submitted have been collusive, or not in conformity with the essential requirements in the tender, or from suppliers who do not comply with the conditions for participation, on condition that the requirements of the initial tender are not substantially modified in the contract as awarded;

(iv) where the equipment or services to be purchased must meet requirements of compatibility or interchangeability with already existing equipment or services;

(v) where it can be demonstrated that "patent" or "proprietary" items are the only items which can meet the specification;

(vi) where services are to be provided by utility companies;

(vi) where maintenance is to be executed on patent or specialized equipment and where the warranty of the equipment gives the supplier of the equipment the exclusive right to carry out the maintenance service; and

(viii) where lease terms require that work must be executed by a particular firm.

The Agreement on Government Procurement of the World Trade Organization also allows the use of "limited tendering" (including single tendering) in circumstances similar to those mentioned above. Except for procuring stores and services of a value not exceeding $1,300,000 or for procuring construction and engineering services of a value not exceeding $3,000,000, government departments may only initiate the single tendering procedure with the prior approval of the Secretary for the Treasury. When seeking approval to adopt the single tendering procedure, departments are required to describe the background of procuring the stores or services required, state the estimated costs, explain why open tenders should not be invited, and describe the professional capability and experience of the contractors recommended. These regulations and procedures ensure that government departments will only adopt the single tendering procedure in appropriate circumstances. As explained, there is the need for the adoption of the single tendering procedure in special circumstances. Hence, the Government has no intention to debar government departments from awarding contracts by single tendering.

The Airport Authority, the MTR Corporation Limited and the Hong Kong Housing Society have established their own procurement procedures. If they are subject to the WTO GPA, they are also obliged to adhere to the provisions in WTO GPA relating to limited tendering.

End/Wednesday, March 13, 2002

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