For discussion PWSC (95-96)76
on 10 January18 July 1996

ITEM FOR PUBLIC WORKS SUBCOMMITTEE
OF FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 702 - PORT AND AIRPORT DEVELOPMENT
AIR AND SEA COMMUNICATIONS - SUPPORTNew Airport Works Project Management Phase IV

Members are invited to recommend to Finance Committee the upgrading of -8AG to Category A of the Public Works Programme (PWP) at an estimated cost of $298 million in money of the day (MOD) prices to allow the Government to continue into the fourth phase (Phase IV) of the overall project management consultancy for the Airport Core Programme (ACP).

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PROBLEM
PROPOSAL
PROJECT SCOPE AND NATURE
JUSTIFICATION

Phase IV
Comparison with Phase III

FINANCIAL IMPLICATIONS
ENVIRONMENTAL IMPLICATIONS
BACKGROUND INFORMATION
DETAILED BREAKDOWN OF THE ESTIMATED COST OF NEW AIRPORT WORKS PROJECT MANAGEMENT PHASE IV
Proforma funding report ACP Project : Utilities and Others

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PROBLEM

The existing agreement for Phase III of the project management consultancy for the ACP will expire on 31 January 1996. Unless a new agreement is put in place with effect from 1 February 1996, the Administration will no longer have access to the professional services it requires beyond that date to facilitate completion of all ACP projects on time and within budget, and to monitor the drawing up and implementation of the Airport Operational Readiness (AOR) programme.The Provisional Airport Authority has reached the final stage in its negotiations with the two franchisees for the provision of air cargo services at the new airport and expects to finalise the franchise agreements soon. We must seek funds for the fitting-out of government facilities within the Air Cargo Complex (ACC) now so that we can make commitments for these facilities as soon as an agreement with the franchisees is reached.

PROPOSAL

2. The Director of the New Airport Projects Co-ordination Office (D, NAPCO), with the support of the Secretary for Works, proposes to upgrade 8AG to Category A at an estimated cost of $298 million in MOD.

PROJECT SCOPE AND NATURE

3. Phase IV is the last phase of the project management consultancy for the ACP. It will cover the period from 1 February 1996 to 31 July 1998 to tie in with the scheduled April and June 1998 opening dates for the Airport and Airport Railway respectively.

4. The main duties of the consultants, who will continue to work alongside government staff in NAPCO will include -

1. intensifying programme management and co-ordination aspects to ensure timely delivery of ACP projects, and planning for the opening and operation of ACP facilities and infrastructure;
2. enhancing the level of cost monitoring and control on all ACP projects including those undertaken by the Mass Transit Railway Corporation (MTRC) and the Airport Authority (AA) to ensure ACP costs are within budget;
3. assisting departments concerned in drawing up their own programme for the various major tasks in accordance with requirements of the AA in respect of the Airport Operational Readiness and monitoring progress such that problems are dealt with expeditiously to achieve the planned operational dates;
4. assisting departments in the expeditious resolution of claims and disputes in a cost effective manner;
5. reviewing and updating policies and standards applicable to all ACP projects, which include site safety, quality assurance, environmental overview and contractual dispute resolution;
6. updating and expanding the ACP information management system; and
7. transferring experience and technology in managing large scale projects to government staff, including handing over of project and system information to Government for ready retrieval and reference by Government for subsequent use.

JUSTIFICATION

Phase IV

5. The proposal to extend the project management consultancy to a fourth phase is justified because -

1. the consultancy will provide NAPCO with resources to ensure delivery of all the programme and cost-related undertakings given in the Memorandum of Understanding, the Agreed Minute, Joint Communiqué and Financial Support Agreements, especially the undertakings to complete the seven government-funded ACP projects by mid 1997 and the Airport and the Airport Railway to the maximum extent possible by that date and to avoid or minimise the occurrence of claims. Any interruption in the management and control of these projects could result in project delay which would have serious adverse financial implications;
2. as all ACP projects are now in full swing, it is necessary to intensify our project management efforts in order to ensure completion of these projects in a timely and cost-effective manner. Whilst government staff have over the past years accumulated substantial project management experience, we consider that it would make more cost and programme sense to retain the services of the consultants rather than to commit substantial resources in hiring and training a large number of additional government staff to take over the consultants’ tasks at this stage. In any event, the hiring and training of additional government staff require a considerable lead time which the ACP can hardly afford;
3. the development of modern airports includes many sophisticated electronic systems which are essential in the operation phase. The installation of these complex systems fully integrated with each other and linked to the government departmental systems is an area where government staff have had little experience. To ensure that these systems are installed, tested, integrated and ready for operations, expertise from consultants is necessary;
4. the preparations for the opening of the new Airport at Chek Lap Kok are extremely complex and require long term planning and co-ordination of many different agencies. These agencies include the AA, 28 government departments and many hundreds of outside agencies. To support both the Government and the AA in preparation for the AOR planning and its implementation, we require consultancy staff with requisite AOR experience; and
5. technology transfer is a continuous process. The consultants have transferred invaluable expertise, particularly in the area of project and claims management, to their government counterparts. It is in the best interests of the Government, that these expertise transfers should continue until the completion of the ACP project to ensure the integrity and completeness of the transfer.

Comparison with Phase III

6. We will phase out the consultancy staff during Phase IV to tie in with the completion of the ACP projects. The total key/professional man-months for Phase III and IV are 768 and 686 respectively despite the fact that Phase IV is 6 months longer than Phase III.

7. In nominal terms, the estimated cost of $298 million for Phase IV mentioned in paragraph 2 above is approximately 5% higher than the $283 million approved for Phase III in January 1994 under 6AG. In real terms, the estimated cost of Phase IV is 13% lower than that of Phase III. Using the escalation factors as recommended by the Government Economist, the estimated costs of Phase III and IV at 1995 price levels are as follows -

Phase III : $302 million

Phase IV : $263 million

In real terms, the ratio of man-months to cost is also marginally improved under Phase IV compared with Phase III.

FINANCIAL IMPLICATIONS

8. We estimate the cost of the project to be $298 million, made up as follows -

More details of the breakdown are at Annex A. A funding proforma for the ACP project "Utilities and others" under which this term is accounted for is at Annex B.

9. Subject to approval, we will phase expenditure as follows -

10. We do not envisage any recurrent expenditure. The government staff required to work alongside the consultant in the integrated team are already in place.

ENVIRONMENTAL IMPLICATIONS

11. The consultants will help monitor the environmental impact of the ACP and offer expert advice on how to mitigate the adverse effects the ACP works may have on the environment.

BACKGROUND INFORMATION

12. The Finance Committee approved $90 million under 70AA for the first phase of the consultancy (1 April 1990 to 31 January 1992) at its meeting on 6 April 1990, $237 million under 4AG for Phase II (1 February 1992 to 31 January 1994) at its meeting on 10 January 1992, and $283 million under 6AG for Phase III (1 February 1994 to 31 January 1996) at its meeting on 28 January 1994.

13. The major achievements of the past three phases of the consultancy include -

1. defining the scope and budget of all government-funded transport infrastructure, community facilities and various land formation projects; and developing, in conjunction with the Finance Branch, a cost control system;
2. developing a computerised information system for the efficient administration and management of the ACP;
3. overseeing the setting up of the construction support facilities such as the materials transhipment centre, advising on manpower resources and co-ordinating environmental monitoring measures;
4. setting up standards and procedures on contract management, project insurance, safety requirements etc. applicable to all government-funded ACP projects;
5. setting up cost monitoring and control and reporting procedures;
6. establishing and updating a Master Development Programme against which the progress of individual ACP projects is monitored and updated;
7. resolving critical programming, technical interface and claim issues; and
8. sharing of information and knowledge with government staff by working as an integrated team in NAPCO.

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Annex A

DETAILED BREAKDOWN OF THE ESTIMATED COST OF NEW AIRPORT WORKS PROJECT MANAGEMENT PHASE IV

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Annex B

Proforma funding report ACP Project : Utilities and Others

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