For discussion FCR(95-96)92
on 8 December 1995

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 708 - CAPITAL SUBVENTIONS AND MAJOR SYSTEMS AND EQUIPMENT
Capital Subventions
Tertiary/Other
Subhead 8001EN Development of the campus of the Hong Kong Institute of Education

Members are invited to approve an increase in the project estimate from $2,094 million by $218 million to $2,312 million.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION

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PROBLEM

The approved project estimate for the development of the campus of the Hong Kong Institute of Education (HKIEd) is inadequate to cover the increase in project cost due to inflation.

PROPOSAL

2. The Secretary for Education and Manpower (SEM) proposes to increase the project estimate from $2,094 million by $218 million to $2,312 million.

JUSTIFICATION

3. On 16 December 1994, Members approved a project estimate of $2,094 million for the development of the HKIEd’s campus at Tai Po. The approved project estimate was at December 1994 prices and included no allowance for inflationary increases over the construction period of the project. We tendered the construction contracts for the main campus on a fixed-price lump-sum basis in which the tender prices are not subject to adjustment for inflation. We have awarded contracts for the site formation and foundation works and have recently completed the tendering process for the building works. Based on the actual cost of the site formation and foundation works, the contracts on which had been awarded and the lowest acceptable tenders for the building works received for the main campus at Tai Po, the Director of Architectural Services (D Arch S has revised the total estimate for the project of the campus to $2,312 million. This represents an increase of $218 million over the approved project estimate of $2,094 million.

4. The above increase in project estimate is within the price increase as reflected in the movement of the Tender Price Index (TPI)¹ during the period between December 1994 and the last quarter of 1995. The revised project estimate does not reflect any real increase in cost or any change in scope of the project. Had we adopted money-of-the-day (MOD) prices, which is now the usual practice for projects of this nature which require a number of years to complete, the estimate of the project would be revised estimate projected on the basis of Money-of-the-Day (MOD) prices which is calculated at $2,565 million. In the revised project estimate now proposed, we have used MOD prices only outstanding building contracts, except the one for the sports centre as this part of the project has yet to be tendered.

FINANCIAL IMPLICATIONS

5. A comparison of the approved and revised project estimates is as follows -

6. As regards paragraph 5(a), we have awarded contracts for the site formation, piling and foundation works at a total cost of $165 million have been awarded. The remaining external works include drainage, roads, podiums, landscapes etc. The increase of $12 million is below the TPI adjustment during the period between December 1994 and end 1995.by savings from the site formation and foundation works contracts.

7 As regards paragraphs 5 (b), (d) and (e), the respective increases of $77 million, $30 million and $20 million are well within our forecasts of trend labour and construction prices over the construction period 1995 to 1997.TPI adjustment during the period.

8. As regards paragraph 5(c), the decrease of $3 million is due to a lower than expected tender price received.

9. As regards paragraph 5(f), the increase of $24 million is calculated on the basis of MOD prices as the contract for this item will not be tendered until September 1996.

10. As regards paragraph 5(g), the increase of $28 million is to reflect the increase in consultancy fees required as a result of the increase in the project cost.

11. As regards paragraph 5(h), the increase of $5 million is well within the corresponding increase in the project estimate. We have allowed for a smaller increase as the scope of works is now more clearly defined.

12. As regards paragraph 5(i), the increase of $25 million for furniture and equipment is to allow for inflation7.

13. If Members approve this proposal, construction of the superstructure at the main campus will start immediately in December 1995. D Arch S expects that the project will be completed in mid-1997 for first intake of students in September 1997 as originally planned. A revised cashflow for the project is as follows -

14. There will be no additional recurrent expenditure arising from the adjustment to the project estimate.

BACKGROUND INFORMATION

15. On 23 February 1993, the Governor-in-Council decided that, subject to the provision of necessary funds by the Finance Committee, we should separate the Colleges of Education and the Institute of Language in Education from the civil service and incorporate them as an autonomous Institute of Education. On 16 December 1994, Members approved a project estimate of $2,094 million for the development of a new unified campus for the HKIEd.

Education and Manpower Branch
November 1995

¹ TPI is a quarterly index compiled by the Architectural Services Department as an aid to adjust building cost data for estimating purposes. Between the last quarter of 1994 and the last quarter of 1995, the TPI has increased from 666 to 760 (provisional figure).
²The revised estimate is based on actual contract prices for site formation and foundation works, the lowest acceptable tender prices for various building works for the main campus and MOD price for the sports centre.

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