For discussion
FCR(96-97)117
on 21 March 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Government Secretariat : Trade and Industry Branch
Subhead A008XV Electronic data interchange system
Information Technology Services Department
Subhead A064XS Bureau computer service 1997-98

Members are invited to approve -

  1. an increase in commitment from $64,470,000 by $62,854,000 to $127,324,000 under Subhead A008XV Electronic data interchange system for the acquisition of computer hardware and software required by Census and Statistics Department, Customs and Excise Department and Trade Department to expand and enhance the existing Government electronic data interchange system; and

  2. an increase in commitment from $3,777,000 by $90,745,000 to $94,522,000 under Subhead A064XS Bureau computer service 1997-98 for the acquisition of computer hardware and software to be installed at the Information Technology Services Department Bureau for the electronic data interchange system.



PROBLEM

We need additional resources to expand and enhance the existing Government electronic data interchange (EDI) system in order to take forward further our plan to introduce the Community Electronic Trading Service (CETS) in Hong Kong.

PROPOSAL

2. The Secretary for Trade and Industry proposes to expand and enhance the existing Government EDI system to cater for the projected increase in caseload in respect of Restrained Textiles Export Licences (RTELs) and Trade Declarations (TDECs) up to 2000-01, to provide for new functions and to facilitate the processing of TDECs submitted in Chinese.

JUSTIFICATION

The Original Core System

3. On 16 April 1993, Members approved a total commitment of $121,021,000 for setting up a core system for Census and Statistics Department (C&SD), Customs and Excise Department (C&ED), and Trade Department (Trade D) to process RTELs and TDECs submitted via EDI (FCR(93-94)11). As the system runs on both the Information Technology Services Department (ITSD) Bureau computer and the computers installed in the relevant user departments, Members approved the following two commitments -

Subhead

Approved commitment

$’000

A008XV Electronic data interchange system (which provided for the computer systems installed in the relevant user departments and the employment of contract staff by ITSD)

64,470

A017XS Bureau computer service 1993-94 (which provided for the computer systems installed in the ITSD Bureau)

56,551


________

Total

121,021
________

4. We then informed Members that the core system was able to process 212 250 RTEL and 1 610 000 TDEC submissions made through EDI. This accounted for 25% and 10% respectively of the projected total caseload of these two types of submissions for the first full year of commercial operation of the CETS. We also advised Members that we would need to expand the core system to meet the increase in demand for the CETS.

Expansion required

5. We launched a trial CETS for RTEL applications under a carefully controlled environment in September 1996. The service came into commercial operation on 1 January 1997. We will begin to accept TDEC lodgements via EDI from April 1997. To implement the recommendations of the financial consultancy on Tradelink1 conducted in early 1996, we will accelerate Government’s programme and close counters for receiving paper lodgements of RTEL and TDEC in 1999 and introduce full EDI for these two types of submissions in 2000. We have to increase the capacity of the core system to cope with the projected total caseload while phasing out the use of paper forms.

1One of the objectives of the consultancy was to develop a forward plan for Tradelink covering the scope of services, implementation timetable, funding needs and sources of funds, project structure, interface requirements between Government and Tradelink, and trading community obligations.

6. Based on the implementation timetables for full EDI and the likely increases in RTEL applications and TDEC lodgements, we estimate that the caseload levels for the core system from 1997-98 to 2000-01 will be as follows -


1997-98

1998-99

1999-2000

2000-01

RTEL





Total applications

577 200

582 900

588 700

594 600

Paper applications

432 900

145 700

-

-


_________

_________

_________

_________

EDI applications

144 300

437 200

588 700

594 600

TDEC





Total lodgements

16 200 000

17 100 000

18 000 000

19 000 000

Paper lodgements

14 600 000

10 700 000

3 200 000

-


_________

_________

_________

_________

EDI lodgements

1 600 000

6 400 000

14 800 000

19 000 000

7. To cope with the projected caseload for 1998-99 and beyond, we need to expand the system at an estimated cost of $116,537,000. The projected cumulative increases in RTEL applications and TDEC lodgements submitted through CETS are as follows -



1998-99

1999-2000

2000-01

RTEL





Design capacity of existing system

212 250




Number of applications


437 200

588 700

594 600

Cumulative percentage increase


+106%

+177%

+180%

TDEC





Design capacity of existing system

1 610 000




Number of applications


6 400 000

14 800 000

19 000 000

Cumulative percentage increase


+298%

+819%

+1 080%

New functions required

8. In addition to expanding the core system, we need to add new functions to the system to support new measures in tightening up the control of textiles export, and the newly launched trade surveys to meet the requirements of the World Trade Organisation. Specifically, to facilitate sharing of information we need to provide for the interface of the RTEL Sub-system and the newly introduced Production Notification System, as well as the interface of the TDEC Sub-system and the Import Survey System. We estimate that we will need $1,531,000 to provide these new functions.

Facilities to process TDECs in Chinese

9. At present, about 35% of the TDEC are in Chinese. As the core system can only handle TDEC submitted in English, we propose to enhance the TDEC Sub-system at an estimated cost of $29,685,000 to deal with submissions in both languages before we introduce full EDI for TDECs.

Other enhancements

10. Based on our experience in operating the RTEL Sub-system since September 1996, we consider it necessary to enhance the core system so as to shorten the turnaround time for processing licence applications and to improve the effectiveness of the licensing control system. This would involve extending the scope of computer validations to reduce the need for manual checking and providing additional reports for better control and management of the system. We estimate the cost involved to be $5,430,000.

11. In addition, the original commitment for setting up the core system (Project code A008XV) has been insufficient because we had incurred an unexpectedly large amount of resources in working and finalising with Tradelink the interfacing specifications and demarcation of the functions of Government’s and Tradelink’s systems. Furthermore, we had to redirect resources to support the extended testing period for RTEL. As a result, we are not able to take forward, within the approved commitment, the Carrier Notification and Consignment Check Referral functions, originally included in the core system. We estimate that we will need $14,543,000 to reinstate these functions in the core system.

FINANCIAL IMPLICATIONS

Non-recurrent expenditure

12. We estimate that the proposed expansion and enhancement of the Government EDI system will give rise to a non-recurrent expenditure of $167,726,000 over four years from 1997-98 to 2000-01. This comprises $62,854,000 for the purchase of equipment for the C&ED, C&SD and Trade D and the employment of contract staff by ITSD; $90,745,000 for the purchase of equipment for the ITSD Bureau; and $14,127,000 for in-house development staff of C&SD and ITSD. Details of the non-recurrent expenditure are as follows -



($’000)



1997-98

1998-99

1999-2000

2000-01

Total

Non-recurrent expenditure under Subhead A008XV Electronic data interchange system

(a)

Computer hardware and software *

4,100

1,346

-

-

5,446

(b)

Start-up consumables

37

10

-

-

47

(c)

Site preparation

1,040

531

-

-

1,571

(d)

Implementation service for Chinese language support *

8,382

4,415

-

-

12,797

(e)

Contract staff *

21,950

12,072

6,052

2,919

42,993



_______

_______

_______

_______

_______


Sub-total

35,509

18,374

6,052

2,919

62,854



_______

_______

_______

_______

_______

Non-recurrent expenditure under Subhead A064XS Bureau computer service 1997-98

(f)

Computer hardware and software *

15,419

32,658

18,377

17,158

83,612

(g)

Implementation service for the EDI Communication Sub-system *

506

6,028

-

-

6,534

(h)

Start-up consumables

12

27

3

-

42

(i)

Site preparation

107

227

23

-

357

(j)

Training and documentation

-

100

100

-

200



_______

_______

_______

_______

_______


Sub-total

16,044

39,040

18,503

17,158

90,745



_______

_______

_______

_______

_______

*Including a 10% contingency

Other non-recurrent expenditure

(k)

Staff costs







(i) C&SD

-

864

-

-

864


(ii) ITSD

7,534

4,940

422

367

13,263



_______

_______

_______

_______

_______


Sub-total

7,534

5,804

422

367

14,127



_______

_______

_______

_______

_______


Total

59,087

63,218

24,977

20,444

167,726



_______

_______

_______

_______

_______

13. As regards paragraph 12(a), the $5,446,000 is for acquisition of file servers, workstations, printers, communication equipment and software for the relevant user departments.

14. As regards paragraph 12(b), the $47,000 is for the acquisition of start-up consumables such as printer toner and stationery for the relevant user departments.

15. As regards paragraph 12(c), the $1,571,000 is for site preparation work for installing the file servers, workstations, printers and communication equipment at the relevant user departments.

16. As regards paragraph 12(d), the $12,797,000 is for out-sourcing the development and implementation of the software required for Chinese language support of the TDEC Sub-system. It comprises 105 man-months of staff resources

2. 2.Including 20 man-months of Project Manager, 29 man-months of Systems Analyst and 56 man-months of Analyst/Programmer.

17. As regards paragraph 12(e), the $42,993,000 is for the employment of contract staff to supplement the ITSD staff in developing and implementing the systems required for the expansion and enhancement of the EDI system as well as the testing and implementation of Chinese language support for the TDEC Sub-system. It comprises 802.5 man-months of staff resources 3 for project control and monitoring, change management, quality assurance and control, systems analysis, design, implementation and testing.

3. Including 81.5 man-months of Project Manager, 291.1 man-months of Systems Analyst, 104.4 man-months of Senior Systems Programmer, 12.4 man-months of System Programmer and 313.1 man-months of Analyst/Programmer.

18. As regards paragraph 12(f), the $83,612,000 is for the acquisition of additional hardware and software for the EDI system installed in the ITSD Bureau, including the mainframe computer, UNIX midrange computers, communication servers, file servers and the expanded and enhanced EDI Communication Sub-system to cater for the projected 180% increase in caseload for RTEL and 1 080% increase in caseload for TDEC ($77,289,000) and the additional processing capabilities to handle TDECs submitted in Chinese ($6,323,000).

19. As regards paragraph 12(g), the $6,534,000 is for out-sourcing the modification of the software and installation of the hardware and software required for the expanded and enhanced EDI Communication Sub-system. It comprises 54 man-months of Systems Engineer resources.

20. As regards paragraph 12(h), the $42,000 is for the acquisition of start-up consumables such as tape cartridges, printer ribbons, toner and stationery for ITSD.

21. As regards paragraph 12(i), the $357,000 is for site preparation work for installing the computer equipment in the ITSD Bureau.

22. As regards paragraph 12(j), the $200,000 is for training the ITSD project team staff on the upgraded versions of software and for the acquisition of EDI related standard documentation.

23. As regards paragraph 12(k)(i), the $864,000 represents staff costs in 1998-99 for 18 man-months of Statistics Supervisor and four man-months of Clerical Officer I required by C&SD to support the expansion, enhancement and the implementation of Chinese language support for the TDEC Sub-system. The staff would be involved in system design, development, implementation and testing and end-user training.

24. As regards paragraph 12(k)(ii), the $13,263,000 represents staff costs required by ITSD to support the expansion and enhancement of the EDI system as well as the testing and implementation of Chinese language support for the TDEC Sub-system. It comprises 208.8 man-months of resources 4 . We have included the necessary provision in the 1997-98 draft Estimates pending approval of this proposal.

4. Including six man-months of Chief Systems Manager, 19 man-months of Senior Systems Manager, 43.9 man-months of System Manager, 98 man-months of Analyst/Programmer 1,40.8 man-months of Analyst/Programmer II and 1.1 man-months of Computer Operation Manager.

Recurrent expenditure

25. We estimate that the annually recurrent expenditure for the proposed system will be as follows -



($’000)



1998-99

1999-2000

2000-01

2001-02

Recurrent expenditure





(a)

Maintenance of hardware and system software for ITSD

2,006

7,157

11,693

16,297

(b)

Maintenance of hardware

and system software for the relevant departments

300

380

380

380

(c)

Consumables for ITSD

394

789

967

1,022

(d)

Consumables for the relevant departments

79

115

121

126

(e)

Maintenance service for TDEC Chinese application software

1,439

1,919

1,919

1,919

(f)

Contract staff

279

363

363

363



______

_______

_______

_______


Sub-total

4,497

10,723

15,443

20,107



______

_______

_______

_______

(g)

Staff costs






(i) C&SD

688

688

688

688


(ii) C&ED

283

283

283

283


(iii) Trade D

585

585

585

585


(iv) ITSD

4,213

8,634

8,634

8,634



______

_______

_______

_______


Sub-total

5,769

10,190

10,190

10,190



______

_______

_______

_______


Total

10,266

20,913

25,633

30,2975



______

_______

_______

_______

5. The full annual recurrent cost will increase to $ 37,517,000 in 2005-06 and annually thereafter. Please see paragraph 26.

26. As regards paragraph 25(a), the expenditure is for the software licences and maintenance of the computer equipment installed in the ITSD Bureau. The existing terms and conditions of the computer bulk contract allow a special discount for some equipment for the first four years. The maintenance cost will increase from $16,297,000 in 2001-02 to $23,517,000 in 2005-06, bringing the full annual recurrent expenditure to $37,517,000 in 2005-06 and annually thereafter.

27. As regards paragraph 25(b), the expenditure is for the software licences and maintenance of the computer equipment installed in the relevant user departments.

28. As regards paragraph 25(c), the expenditure is for consumables such as tape cartridges, printer toner and stationery used in ITSD.

29. As regards paragraph 25(d), the expenditure is for consumables such as printer toner and stationery used in the relevant user departments.

30. As regards paragraph 25(e), the expenditure is for out-sourcing the maintenance service for the application software for Chinese language support of the TDEC Sub-system. It comprises 11.9 man-months of staff resources 6 for 1998-99 and 15.8 man-months of staff resources 7 each year for 1999-2000 and onwards.

6. Including 2.5 man-months of Project Manager, 2.9 man-months of Systems Analyst and 6.5 man-months of Analyst/Prorammer.

7 Including three man-months of Porject Manager, 4.4 man-months of System Analyst and 8.4 man-months of Analyst/Programmer.

31. As regards paragraph 25(f), the expenditure is for the employment of contract staff to supplement ITSD staff for the maintenance and on-going support for the EDI system. It comprises 5.1 man-months of staff resources8 for 1998-99 and seven man-months of staff resources 9 each year for 1999-2000 and onwards.

8. Including 3.8 man-months of Systems Analyst and 1.3 man-months of Analyst/Programmer.

9. Including four man-months of Systems Analyst and 3 man-months of Analyst/Programmer.

32. As regards paragraph 25(g)(i), the expenditure is to meet the staff cost for the creation of one Clerical Officer I and one Clerical Officer II posts in C&SD for the administration, management and operation of help desks for the TDEC Sub-system arising from the more extensive use of the CETS.

33. As regards paragraph 25(g)(ii), the expenditure is to meet the staff cost for the creation of one Clerical Officer II post in C&ED to handle collection of under-payment and refund of over-payment of charges/penalties waived.

34. As regards paragraph 25(g)(iii), the expenditure is to meet the staff cost for the creation of one Computer Operator I and one Computer Operator II posts in Trade D for the operation and maintenance of the RTEL Sub-system, as well as to provide support for the additional interface requirements with the existing computer systems already installed in that department.

35. As regards paragraph 25(g)(iv), the expenditure is to meet the staff cost in ITSD for the maintenance and on-going support for the expanded EDI system, including the enhancements implemented. It comprises 154.7 man-months of staff resources 10 each year for 1999-2000 and onwards.

10 .Including two man-months of Chief Systems Manager, 5.7 man-months of Senior Systems Manager, 21 man-months of Systems Manager, 90 man-months of Analyst/Programmer I, 24 man-months of Analyst/Programmer II and 12 man-months of Senior Computer Operator.

36. The commitment approved under Subhead A017XS Bureau computer service 1993-94 was to provide for the computer systems installed in the ITSD Bureau for the operation of the core system. As we have completed the work covered by this commitment, we will freeze the unused balance of $5,141,000 in due course.

Cost benefit analysis

37. To remain a competitive international business centre, Hong Kong cannot afford to be left behind in the use of electronic trading methods. The business community has called on the Government to take the lead in this area and to take forward the implementation of the CETS. By implementing the proposals in this paper, we expect to accelerate the pace of implementation of other electronic trading initiatives for the Government as well as the industry sectors (such as certificates of origin, cargo manifest, purchase orders and shipment of goods). We also expect the community as a whole to enjoy the full benefits of electronic trading services.

38. In more concrete terms, the proposals will bring about the following benefits -

  1. a realisable saving of about $70 million per annum mainly through the deletion of 255 posts; and

  2. an additional notional saving of about $3 million per annum of a total of about nine man-years of resources.

In addition, as the relevant computer systems are fully in place, the departments will have a bigger capability to cope with further increases in workloads in a cost effective manner than the present paper systems.

39. A cost-benefit analysis showing the additional benefits and additional cost is at the Enclosure. A net benefit will start to accrue in 1999-2000 and the break-even point will occur in 2003-04.

Impact on fees and charges

40. The proposal will have no immediate effect on the current fee levels for RTEL. At present, we maintain a price differential between paper and EDI RTEL applications to encourage the submission of applications through EDI. We will examine the longer term fee levels for RTEL when full EDI is in full operation in 1999, having regard to possible cost savings to be achieved from streamlining of procedures and the need to achieve full cost recovery.

41. To encourage the use of the CETS, we plan to reduce the TDEC charges payable to Government in such a way that the total Government and Tradelink charges using the CETS will, as far as possible, be less or no more than the current charge. We also plan to increase the declaration charges payable to Government for paper lodgement in order to provide a disincentive for the continuation of paper lodgement. We aim to introduce the fee amendment regulation into the Legislative Council for approval in April 1997. We will review the rates of declaration charges in 1998-99 with a view to setting the flat or initial rate of charge at a level that reflects Government full collection costs in 2000-01.

Implementation plan

42. Given the scope and complexity of the project, we plan to increase the capacity of the Government EDI system in steps to meet the projected increase in caseload. The EDI system will deliver the proposed functions by phases as follows -

Functions

Date

Consignment check referral

1997

Other new functions and enhancements in four batches

1997-98

Chinese TDEC

1998

Carrier notification

1999

BACKGROUND INFORMATION

43. Government entered into an agreement with Tradelink in December 1992, requiring the company to provide a CETS in Hong Kong. As part of that agreement, Government became a shareholder of Tradelink (now holding 48% of the shares) and undertook to use the CETS for a range of Government trade-related documents. RTEL and TDEC are the first two of these documents.

44. In May 1996, Members approved a convertible loan of up to $425 million for Tradelink as working capital to enable the company to continue its operation after June 1996 when the company exhausted its funding (FCR(96-97)15 and 17). We informed Members then of the findings and recommendations of the financial consultancy on Tradelink conducted in early 1996, the action being taken by Government to improve the management of Tradelink and to accelerate the implementation of the CETS, the delays experienced and the revised implementation timetable. We have been able to adhere to the revised timetable throughout.

Trade and Industry Branch
March 1997


Enclosure to FCR(96-97)117

Cost-Benefit Analysis for the Expanded Government EDI System (at 1996-97 prices)




1997-98

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04




($000)

($000)

($000)

($000)

($000)

($000)

($000)

Cost of the proposal included in this paper

Non-recurrent











Expenditure


51,553

57,414

24,555

20,077

-

-

-


Staff cost


7,534

5,804

422

367

-

-

-


Sub-total


59,087

63,218

24,977

20,444

-

-

-

Recurrent











Expenditure


-

4,497

10,723

15,443

20,107

20,966

24,963


Staff cost


-

5,769

10,190

10,190

10,190

10,190

10,190


Sub-total


-

10,266

20,913

25,633

30,297

31,156

35,153












Total cost

(A)

59,087

73,484

45,890

46,077

30,297

31,156

35,153

Savings











Realisable savings

(B)

-

10,051

44,327

70,352

70,352

70,352

70,352


Notional savings

(C)

-

811

1,769

2,896

2,896

2,896

2,896


Total savings

(D=B+C)

-

10,862

46,096

73,248

73,248

73,248

73,248

Net savings











Net savings

(E=D-A)

(59,087)

(62,622)

206

27,171

42,951

42,092

38,095


Net cumulative savings


(59,087)

(121,709)

(121,503)

(94,332)

(51,381)

(9,289)

28,806


Last Updated on 5 August 1999