Little known government procurement rules used
Government auditors have slammed the government for getting itself into a muddle over regulations governing negotiations with contractors on tender prices during procurement of the showcase Tamar development project in 2008.
In an Audit Commission report released Wednesday, the Architectural Services Department, the Administration Wing and the Chief Secretary for Administration’s Office were taken to task over the procurement, implementation, management of variations and commissioning of the Central Government Complex and the Legislative Council Complex at Tamar.
Auditors in particular singled out the procurement process for criticism.
After all four tenders submitted were found to be higher than the internal cost estimate of HK$4.92 billion, the government decided to approach the contractor who obtained the highest score and negotiate to reduce his price.
In the event the original submitted price, which was not revealed in the audit report, was reduced to HK$4.94 billion.
The government signed the contract with the contractor, Gammon-Hip Hing Joint Venture, in January 2008.
However auditors found that criteria to select contractors for further negotiation on price in the tender documents were not clearly stated.
Although Hong Kong is a signatory to the WTO Government Procurement Agreement, and a government press release in September 2006 announcing the tender said so as much, it was found the government also used a little known regulation, the Stores and Procurement Regulations (SPR) under the Public Finance Ordinance in its negotiations with the contractor.
The commission said since SPR was not stated in the tender, they might not be binding conditions in the tendering exercise.
“In this connection, as stated in the tender document, the provisions of the WTO Government Procurement Agreement would apply to this tendering exercise,” the commission’s report said.
Using WTO rules would entail all tenderers being informed of all modifications to technical requirements and not just the contractor selected for negotiations.
“Audit however found in this case that some works items originally included in the tender document have been modified or removed during tender negotiation with [the contractor] but the other three tenderers were not informed of such modifications or removals,” the report said.
Instead the government decided to adjust the prices of the other three tenderers to reflect the contents of the negotiations with Gammon-Hip Hing Joint Venture.
“The [Tender Negotiation Team] found that the ranking of the four tenders would remain unchanged after making the adjustments,” the report said.
In short then, not only did the government fail to adhere to WTO rules, it used another set of rules that contractors had little idea about and unilaterally adjusted the tender prices of the other tenderers without informing them.
In response, the Administration Wing said a Special Selection Board had complied with WTO rules and SPR rules during contract negotiations while the Financial Services and the Treasury Bureau supported the same explanation.
On reading the audit report, a veteran industry consultant said: “I could well be wrong here, but I cannot remember having heard of these [SPR] regulations before and wonder if they have ever been expressly incorporated into the tender documents for the government’s public works programme?”
He added there were not many occasions, other than the Tsing Ma Bridge, where the government rejected a tender for being too low, which appeared permissible under the SPR rules.
“What [the report] has not mentioned is that under WTO rules an aggrieved tenderer could have launched a bid appeal process. Whilst we cannot say what the outcome of that process would have been, it undoubtedly would have delayed the award of the contract by many months and caused the government extreme embarrassment, as well as delay the project and put up its cost,” the consultant said.
According to a government gazette notice issued in May 2006, the government announced there were four applicants who had prequalified for tendering.
They were China State-Leighton-Yau Lee Joint Venture, DHK-CRCC Tamar Joint Venture, Gammon-Hip Hing Joint Venture and Paul Y-Shui On Joint Venture.
While Gammon-Hip Hing may have won the tender and went on to do the work, it did suffer some mishaps such as that caused by procrastination in instructing the construction of a footbridge and the inexperience of ASD in handling work in busy traffic areas with many underground utilities.
The patience of the department and the contractor were probably also severely tested by a utility company which insisted its underground cables could not be relocated so the foundations of the footbridge had to avoid it.
It was only when the design had been revised for the third time that construction could proceed.
The project was completed in early September 2011, four months later than originally scheduled.
Disputes over the making good of minor defects have ensured that the contractor is still waiting to be paid in full.
According to the audit report, as of August 2013, two years after substantial completion, the final account was still outstanding due to ASD not issuing the maintenance certificate because of the non-rectification of minor defects.