MTR Corp Express Rail facing $3.64 billion unresolved claims

MTR Corp Express Rail facing $3.64 billion unresolved claims

Danny Chung

Railway operator MTR Corporation (0066) is facing at least HK$3.64 billion worth of unresolved claims from contractors over additional work and expense for the troubled Express Rail Link.

According to a paper compiled by the Transport and Housing Bureau for a meeting last Friday of the Subcommittee on Matters Relating to Railways of the Legislative Council’s Panel on Transport, the bureau said the number of unresolved claims stood at 221 cases as at 31 December last year.

Contractors however can expect a long wait for reimbursement as only HK$311 million as interim payment has been paid by the MTRC against the total claimed value of HK$3.64 billion.

It is most likely though, given the difficulties reported in earlier media reports, that the total number of claims and the accompanying claimed value has increased since the end of last year.

Out of the 221 claims, 120 claims were for the West Kowloon Terminus with a claimed value of HK$1.69 billion.

Claims for the railway tunnels totalled 99 cases with a claimed value of HK$1.95 billion.

Claims against electrical and mechanical works numbered only two with no claimed value as yet.

Secretary for Transport and Housing Anthony Cheung Bing-leung sought to reassure legislators at the panel meeting saying that claims from contractors were a normal course of events in a construction contract.

“The amount claimed may not be the amount finally agreed by the two parties. In large construction projects, it is normal to see a large number of claims,” Cheung said.

He said the government’s latest assessment was that it was still possible to complete the Express Rail Link in 2015 as originally intended with expenditure within the approved project estimate.

The Finance Committee approved funds totalling HK$66.82 billion at money of the day (MOD) prices for both railway and non-railway work for the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link in January 2010.

Included within the approved project estimate was a sum of HK$5.4 billion for contingency.

“We estimate that the amount claimed can be fully covered by the contingencies of the project and will not result in cost overrun,” the bureau’s paper to legislators said.

Digging a very big hole. The government is still insisting that the Express Rail Link will be completed on time in 2015 and on budget. (Danny Chung)

Digging a very big hole. The government is still insisting that the Express Rail Link will be completed on time in 2015 and on budget. (Danny Chung)

While 221 claims may still be unresolved, the MTRC has settled 97 claims paying HK$1.05 billion against a total of HK$1.98 billion claimed by contractors.

Railway tunnels accounted for 47 of the settled cases while the West Kowloon Terminus had 46 claims with the balance of 4 claims being related to electrical and mechanical works.

Meanwhile the paper acknowledged the progress of foundation and site formation works has been affected by unexpected ground conditions.

The paper said MTRC was discussing feasible measures with the contractor, Leighton-Gammon Joint Venture, to cope with the situation and to catch up with project schedule.

The concession approach by which the project was awarded to MTRC means ultimately the government will be picking up the bill for the contracted work and the claims arising from the project.

Although Highways Department is supposed to be monitoring the MTRC’s work on the project, the paper said it has hired an external consultant to assist in monitoring of the project and undertake regular audits covering construction safety, technical, procedural and financial aspects plus the way in which the MTRC handles the contractural claims.

All this handwringing over delays and cost overruns by the media and legislators was, for some people, merely a storm in a teacup.

“I do not see this as something that needs so much discussion amongst the public. People [in general] do not know about the industry. They should ask experts in this field rather than talking without a proper understanding of how this industry works,” one company boss at a listed contractor said.

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