The West Kowloon Terminus North contract for the troubled Express Rail Link project could be at least one and a half years late if an extension of time claim (EOT) by the MTR Corporation’s contractor proves to be correct.
Local Chinese newspapers Ming Pao and Apple Daily yesterday published extracts of documents received by them that purportedly show a delay of 562 days based on an estimate by the main contractor Leighton-Gammon Joint Venture.
In addition, the estimate of cost for additional work and costs arising from delays stood at HK$1.55 billion.
One extract of a progress report for March 2013 published by Ming Pao showed the contractor telling MTRC that its delay programme showed an entitlement of 562 days and that MTRC has confirmed in writing that many claims were valid.
Apple Daily, which broke the story last week, published extracts from a Delay Recovery Measures (DRM) document that said: “A series of DRM meetings has resulted in DRM 02 Programme which shows completion in 2016 and was presented to MTR and JV senior personnel on 17 April 2013, while the end date was not accepted by MTR, the contractor was requested to focus on deliverables for the next three months (up to June 2013) as identified in the programme.”
The Transport and Housing Bureau reiterated that it was committed to completion of the Guangzhou-Shenzhen-Hong Kong Express Rail Link on time in 2015 and to budget.
It however admitted that while there were delays experienced on individual contracts, the MTRC was coordinating efforts by the contractors to recover time such as by rescheduling the construction sequence of individual contracts and facilitating concurrent works by different contracts.
It reiterated that the estimate of HK$4.45 billion for railway works and HK$950 million for non-railway works included in the approved contingency estimate at September 2009 prices was enough to meet all additional costs and claims by contractors.
A spokeswoman for MTRC, which is 77 percent government owned, also towed this line saying: “For a large scale infrastructure project like the Express Rail Link, additional resources and alternate design and work methods would be required from time to time to deal with any unforeseen condition during the project delivery. The process will inevitably involve commercial discussion to which, I am afraid we have no further information to offer”.
One quantity surveyor at a listed contractor agreed that Leighton-Gammon had to push for a supplemental agreement on acceleration to meet a date and cover the costs of doing so.
DRM is one of the project risk management strategies used by MTRC to avoid project overrun in time and cost.
The QS said every month the consulting engineer for the project would monitor milestones and if there was delay, then DRM would be started in order to avoid delay and reduce disputes after project completion.
“I guess the JV is just using the 562 days of delay to negotiate the acceleration cost with MTRC,” the QS said.
A company boss at another listed contractor said causes of delay could originate from the client or the contractor or both, in addition to inclement weather.
“In particular in early stage of the contract, naturally the contractor will have to include all delays so as to protect his position,” the company boss said.
A cost consultant said the big issues causing the delays were late release of design information from MTRC and movement or flexing in the existing diaphragm walls arising from missing ring beam supports.
Asked what would be the advice to the main contractor, he said he would notify the MTRC that a claim would be forthcoming and see how they would respond.
“In the meantime, I would be making sure all my documents are in order and briefing a claims team, either direct hire or consultancy to start putting a claim together,” he said.
“A large contractor will be able to fight his corner for some time but will need to consider support after a while, possibly following legal advice. Timing, of course, is everything but this is such a large claim that I would surprised if external people are not already involved. However this is a government contract (subvented to MTR) so the traditional ways hold sway, ie, wait as long as you possibly can till you agree, with all the costs this entails,” another cost consultant said.
The rail project is being constructed using the concession approach whereby the government pays for the cost of the infrastructure and receives service payments by the MTRC for operating the railway under a concession agreement.
That means the government, with Highways Department overseeing the railway projects, ultimately picking up the tab for any increase in costs for additional works and claims.
The Finance Committee of the Legislative Council approved funds totalling HK$66.82 billion at money-of-the day (MOD) prices for both the railway work and non-railway work in January 2010.
In a paper submitted by Transport and Housing Bureau in November 2009 to the Legislative Council Panel on Transport Subcommittee on matters relating to railways, the bureau released details of a review by independent engineering consultants of the MTRC’s cost estimates for the railway project.
On the estimate for contingency allowance, consultant Jacobs China agreed with MTRC’s reduction in the global allowance of 20 percent for this item of cost to 15 percent as it was “too high for a mega sized project and thus a downward revision is considered reasonable”.
It said 15 percent was still high compared with the contingencies allowance on previous railway projects and that it could be reduced further to 10 percent if suitable procurement and contract strategies could be adopted to manage risks such as dispute resolution advisory system.