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LCQ14: New Engineering Contract

     Following is a question by the Hon Tony Tse and a written reply by the Secretary for Development, Mr Paul Chan, in the Legislative Council today (January 22):


     It has been learnt that the Government has adopted the mode of "new engineering contract" (NEC) since 2009 to draw up a number of public works contracts in order to enhance project efficiency and lower the costs.  In this connection, will the Government inform this Council:

(1) of the number of public works projects awarded by the Government which have adopted NEC (including construction and consultancy contracts) in each year since 2009; the following information of various projects: (i) the government departments involved, (ii) project titles, (iii) project locations, (iv) names of contractors and consultants responsible for the projects, (v) approved project estimates, (vi) actual project expenditures, and (vii) the latest progress of the projects;

(2) of the criteria and factors of consideration for determining whether NEC is to be adopted for a particular public works project, and whether project price is one of the factors of consideration; the weightings of various criteria and factors of consideration in the decision-making process;

(3) as some small and medium-sized contractors have criticised that the tendering system of NEC is not conducive to the participation of those contractors with less resources and lacking expertise in bidding for projects, whether the authorities have reviewed the tendering system; if they have, of the review results, as well as the measures to improve the tendering system of NEC in order to make the tendering procedure fairer and enable more small and medium-sized contractors to participate in tendering; if not, whether they will conduct such a review as soon as possible; and

(4) whether it has conducted reviews on other aspects of NEC, including (i) the funding mechanism, (ii) objectives and (iii) effectiveness; if so, of the review results and the improvement measures proposed, and whether there is any impact on the attitude taken by the Government towards the adoption of NEC; if there is impact, of the details; if it has not conducted any review, of the reasons for that and whether it will conduct such a review in future?



     The NEC form emphasises mutual trust and co-operation between the contracting parties, and collaboration in risk management.  It enhances the efficiency in contract management.  The contract form is applicable to different types of engineering contracts, including construction contracts, maintenance contracts and consultancy contracts.   It also provides various payment options that suit different needs, such as priced contracts, target contracts and cost reimbursement contracts, etc.

     Since 2009, the Development Bureau (DEVB) has adopted the NEC form in some public works contracts.  They cover contracts of different types and works categories and adopt different payment options of the NEC form, in order for DEVB to assess the performance of using this form in public works contracts comprehensively.

     We have consulted the construction industry extensively on our use of the NEC form and received general support.  We will continue to keep in communication with the industry on this issue.

     The NEC form has been used in Britain since 1993.  It has also been used for many years in more than 15 other countries, including New Zealand and South Africa.  Indeed, the British authorities concerned have recommended that public sector organisations use the NEC form when procuring construction works.

     My reply to the four parts of the question is as follows:

(1) The following table shows the number of construction contracts using the NEC form awarded by us since 2009:

2009: 1
2010: 1
2011: 0
2012: 6
2013: 2

     Details of the relevant public works projects are shown in Annex 1.

     To date, we have not awarded any consultancy contract using the NEC form.  But two consultancy contracts using this contract form are in the process of tendering/assessment and are expected to be awarded in the first half of 2014.

(2) The NEC form advocates collaboration in risk management by the contracting parties.  It introduces a risk management mechanism which includes risk mitigation measures such as early warning notification and conducting risk reduction meetings.  In deciding the adoption of the NEC form for the public works contracts shown in Annex 1, we have considered a range of factors, including the risks that might arise in the course of works, works scale, complexity, and schedule.  In addition, to facilitate a comprehensive performance assessment, we have used the NEC form in different works categories (including building works, civil engineering works etc.), contract types and contracts of different prices.

(3) The awarded construction contracts using the NEC form were open to tendering by contractors of the highest group (Group C) on the List of Approved Contractors for Public Works.  The tendering process for these contracts was smooth and the number of participating contractors was comparable to those tendering for conventional contracts.  Hence, we consider that the contractors in this group have the requisite resources and expertise to engage in competitive tendering for contracts of this form.

     In fact, there should not be much difference in terms of the resources required from contractors for tendering contracts of the NEC form or conventional contracts.

     With regard to training, we have been liaising with local training providers to ensure that there are sufficient training courses on NEC for the industry and we keep the industry informed about these courses.  There are also forums and seminars organised by DEVB, works departments and relevant organisations for sharing knowledge and experience in NEC with the trade practitioners.  We believe that the industry should already have many practitioners with the relevant knowledge.

     Moreover, the works departments hold pre-tender briefings to help contractors understand the NEC form and the items to note in the tender exercise.  When necessary, mock tendering exercises are also held by the works departments to assist contractors to understand the items that need special attention in the tender exercise.

     In the light of the above, we consider that contractors in other groups on the List of Approved Contractors for Public Works should also be capable of bidding competitively for construction contracts using the NEC form.  As such, adopting the NEC form would not undermine the fairness in tendering process.

(4) To date, only one construction contract using the NEC form has been completed and there is no consultancy contract using the NEC form.  We need to use the NEC form in public works contracts more extensively to build up experience before a comprehensive review on its performance in various aspects in public works contracts can be conducted.

     A steering committee under DEVB with members comprising representatives from DEVB, various works departments and the Independent Commission Against Corruption is tasked with monitoring the implementation of NEC and taking timely follow-up actions as and when necessary.  We will keep in communication with the industry and listen to their views.

     According to our experience, adopting the NEC form would not affect the funding mechanism for public works projects.

Ends/Wednesday, January 22, 2014
Issued at HKT 12:30


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