It’s technical ability and price that counts

It’s technical ability and price that counts

Knowledge of MTR internal procedures not a sure-win in tenders

Experience gleaned from co-operation with rail operator MTR Corporation (0066) on tendering for overseas rail projects is unlikely, if ever, to be an advantage when tendering for the MTR’s construction projects, according to industry experts.

According to a story last Friday, Chinese language newspaper Apple Daily, a popular paper known mainly for its sensationalist news copy and anti-establishment stance, claimed that Australian contractor Leighton Contractors (Asia) was able to benefit after working with MTR.

The paper pointed to a joint venture between MTR and John Holland, a subsidiary of parent Leighton Holdings, and United Group Rail Services, that won the concession to operate a railway in Melbourne in June 2009.

Subsequently Leighton, either as sole contractor or in joint venture, went on in 2010 and 2011 to win four contracts on the Express Rail Link, a contract on the Shatin-Central Link and two contracts on the South Island Line.

The combined value of all the contracts was HK$25.2 billion, according to the MTR’s records.

Apple Daily claimed Leighton’s advantage was such that the company, in a joint venture with Gammon Construction, was able to win the West Kowloon Terminus Station North contract despite its tender of HK$8.91 billion being HK$1.2 billion higher than the lowest bid that came from mainland giant China State Construction.

“I think that the allegation is totally preposterous,” a veteran industry consultant said.

One way to learn about MTR procedures that a contractor reckoned would give him an advantage in tendering was to recruit MTR staff or consultants or have worked at MTR.

But in any case, the contractor would learn about MTR procedures during procurement for its capital projects of which there are three methods: build only, design and build and target cost.

In each case, contractors have to undergo rigorous prequalification checks as to suitability for the project, such as appropriate experience, adequate resources and strong enough balance sheet.

Tenders from prequalified contractors are evaluated on a combination of price and technical compliance and competency.

In target cost projects, MTR staff would be embedded with the tender teams of the contractors.

On contract award, the staff from MTR and the contractor would work together and inevitably they would learn about each other’s procedures and requirements.

This would be whole basis for partnering and collaboration in construction.

“I cannot see that Leighton working with MTR in Australia is going to help them gain a favourable advantage in Hong Kong,” the consultant said.

The West Kowloon Terminus Station North construction site on 22 October 2013. According to Apple Daily, China State's price for this project was HK$1.2 billion cheaper than the HK$8.91 billion price of Leighton-Gammon Joint Venture   (Danny Chung)

The West Kowloon Terminus Station North construction site on 22 October 2013. According to Apple Daily, China State’s price for this project was HK$1.2 billion cheaper than the HK$8.91 billion price of Leighton-Gammon Joint Venture (Danny Chung)

Indeed, the relationship of MTR and Leighton was such that Apple Daily referred to Leighton as acting as a “mang gung dzuk”, Cantonese slang for blind walking stick, for MTR on overseas projects.

Currently, MTR is in joint venture with John Holland, Leighton, Plenary Group and UGL Rail on a bid for the rail operating concession for the North West Rail Link in Sydney.

The joint venture is one of two bidders that were shortlisted in May this year by the New South Wales government.

Apart from claims of being able to tender successfully for MTR projects, Apple Daily said MTR was treating Leighton with kid gloves.

“[Earlier] our colleagues at a project meeting pointed out a problem in the construction drawings. Our superior unexpectedly turned around to us and told us to be more lenient,” a MTR project staff member working on the West Kowloon Terminus station was quoted as saying to Apple Daily.

“I have never heard of any allegations of any special treatment by MTR for any contractor, and certainly not for Leighton in terms of contract administration, tendering or anything else,” the consultant said.

As to the claim of China State submitting a cheaper price, the consultant reiterated that tenders were evaluated on both technical ability as well as price.

The board of directors of the MTR would have studied carefully the tender evaluation reports and considered why the cheaper tender should not be accepted.

“It is the board of MTRC, many of whom are non-executive and who therefore do not have a working relationship with Leighton, which makes the decision and the board is answerable to the shareholders,” the consultant said.

Another cost consultant pointed out Leighton was in joint venture with other contractors on some projects so any benefits or favouritism would also have to apply to the joint venture partners.

“As for Leighton knowing the tendering process, and using it to their advantage, the tendering process is very open and normally detailed on the MTR’s own website,” he said.

On reading the Apple story, a company boss at a listed contractor criticised sensationalist stories.

“The problem now in Hong Kong is too many people want to speak out just to attract attention without really understanding the picture. This is very dangerous,” he said.

Danny Chung



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