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LCQ4: Selecting by ballot of decoration contractors who will be permitted to do business in new housing estates and courts ready for intake
     Following is a question by the Hon Kwok Wai-keung and a reply by the Acting Secretary for Transport and Housing, Dr Raymond So Wai-man, in the Legislative Council today (January 10):

     At present, eligible decoration contractors (DCs) may apply to the Housing Department (HD) for being listed on the Reference List of Decoration Contractors (the Reference List).  When new public housing estates or Home Ownership Scheme courts are ready for intake, HD will select, by ballot from the Reference List, a certain number of DCs who will be permitted to do business in such housing estates or courts.  However, the tenants and property owners concerned may engage other DCs.  It was reported that earlier on, the Competition Commission (the Commission) had found after investigation that a number of selected DCs of a new public housing estate were allegedly engaging in anti-competitive practices of market sharing and price fixing as indicated by the fact that the printed quotations for decoration packages provided by them looked very similar in terms of layout and prices.  The Commission therefore commenced legal proceedings against them.  In this connection, will the Government inform this Council:
(1) whether it has put in place standing measures (such as regular and surprise inspections) to check if the selected DCs have engaged in anti-competitive practices; if so, of the details; if not, the reasons for that;
(2) of the number and details of the complaints received by the authorities in the past three years about DCs on the Reference List allegedly engaging in anti-competitive practices such as market sharing and price fixing, and the follow-up actions taken; and
(3) of the justifications for selecting by ballot a small number of DCs who will be permitted to do business in new housing estates and courts that are ready for intake, which has resulted in reduced competition; whether it has consulted the Commission on guarding against the selected DCs engaging in anti-competitive practices; if so, of the details; if not, the reasons for that?

     My reply to various parts of the question raised by the Hon Kwok Wai-keung is as follows.
     On the first part of the question, according to the regulations of the Hong Kong Housing Authority (HA), residents in newly completed public housing (including public rental housing and subsidised sale flats) are required to submit applications before commencing decoration works.  During the period of flats intake and conducting of the decoration works, HA staff would inspect flats under decoration.  If any decoration contractor (DC) is found to have breached the laws (including the Competition Ordinance (CO)), the staff member will report such acts to the relevant law enforcement department/authority for follow-up as appropriate.  If any DC is confirmed to have contravened the laws, HA would take appropriate regulatory measures, including issue of warnings, suspending the licences/agreements of the contractor to undertake decoration works in estates/courts, or even removing it from the Reference List of DC.  In the past three years, the Housing Department has not received any complaints against DCs on the Reference List in estates/courts for suspected anti-competitive behaviours such as market sharing and price fixing.
     Regarding the second part of the question, according to the Competition Commission (CC), the First Conduct Rule set out in the CO has stipulated that an undertaking must not make or give effect to an agreement of which the object or effect is to prevent, restrict or distort competition in Hong Kong.  Under the CO, market sharing and price fixing are serious anti-competitive behaviours.  CC will handle cases involving these behaviours with high priority.   In fact, since the full implementation of the CO in December 2015, CC has received a total of over 2 600 enquiries and complaints.  Among them, 60% were related to First Conduct Rule.  Concerted behaviours involving market sharing and price fixing was one of the prime concerns.  For enquiries and complaints on market sharing, the three industries that involved the highest number of cases were estate agents and property management, machinery and equipment as well as telecommunications.  In August 2017, CC lodged a case on market sharing and price fixing to the Competition Tribunal, alleging ten building works companies to have involved in market sharing and pricing fixing activities while providing decoration service in a public housing estate in Hong Kong.  The actual hearing of the said case is scheduled for November 2018.
     Regarding the third part of the question, having taken into account various factors, HA considered it necessary to set up the Reference List of DC System.  Reasons include (i) before the set-up of the System, there were DCs of varied quality flocked to the newly completed estates/courts to scramble for orders for decoration works, which caused disturbances to the residents; (ii) some contractors with unstable financial backup were not able to complete the decoration works, which caused the residents to suffer financial loss; and (iii) some contractors aimed to maximize profits by inducing residents to demolish substantial fixed fittings in their flats, thus caused damages to the structure of the flats.  To alleviate the above problems, HA has established a set of registration eligibility criteria through the Reference List of DC System.  Only decoration companies fulfilling the entrepreneur, technical and financial assessment as well as passing a checking conducted by the Police can be included in the list.  
     While implementing the Reference List of DC System, HA has made clear to the DCs on the list that they do not have the exclusive right to carry out decoration works in public housing.  HA has also made clear to the residents that the DCs on the Reference List do not have such exclusive right to carry out decoration works in public housing.  In fact, residents can choose their own way of decorating their flats, including conducting the decoration works by themselves (including assisted by relatives/friends) or engaging other decoration companies in the market to carry out the works.
     HA has all along been liaising with the relevant organizations on the implications of the Reference List of DC System on competition.  Recently, after consulting CC, HA has sent letters to all companies on the Reference List to seriously remind them to comply with HA's requirements and the laws and regulations of Hong Kong (including the CO).  HA has also posted notices at new estates/courts to further remind the residents that they could choose their own DCs, and at the same time to introduce the CO to them.  To further protect the residents who have newly taken up their flats and prevent anti-competitive behaviours, HA invited representatives of CC in September 2017 to give a briefing on the CO to DCs in new estates and remind them not to involve in activities involving market sharing or price fixing.
     In addition, HA has in 2017 revised the decoration handbooks which are delivered during flat intake, the video clips which are broadcast at the intake briefing sessions and the decoration undertakings which are to be signed by residents, to further remind those who have newly taken up their flats that they can make their own decoration arrangements and are free to choose their DCs.  Residents, who suspect that any DCs are involved in activities in contravention of the CO, can report to CC directly or contact the Estate/Court Office for referring to CC.  We believe that through the above enhanced measures, residents who have newly taken up their flats and DCs would have a more thorough understanding on the CO, which may help residents to prevent anti-competitive behaviours, protect their interests, and prevent DCs from conducting anti-competitive behaviours. 
     HA will continue to pay attention to the operation of the Reference List of DC and views expressed by the stakeholders, and conduct review and follow-up actions in a timely manner.  Taking the case of ten building works companies being suspected of contravening the CO as an example, HA has conducted a review immediately, and decided to, prior to the completion of the legal proceedings, stop arranging these contractors to be stationed in estates/courts and revoked their licence/agreements for undertaking decoration works in other estates/courts.  After the completion of the trial, HA will make reference to the ruling of the Competition Tribunal and take appropriate follow-up actions.
Ends/Wednesday, January 10, 2018
Issued at HKT 17:00
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