2. The Chairman advised that as a number of members would be out of town on 5 May 1997, the next meeting would be rescheduled to Monday, 12 May 1997, at 4:30 pm to discuss the two items of "Interim housing" and "Financial backing for Sandwich Class Housing flats".

(Post-meeting note: Upon the Chairmans advice, the subject of "sale price of Urban Improvement Scheme flats" would also be discussed under the latter item.)

Matters arising

3. The Chairman informed the meeting that Hon Edward S T HO had withdrawn from the Panel with effect from 18 March 1997.

Subcommittee on Long Term Housing Strategy Review

4. The Chairman reminded members that the next Subcommittee meeting would be held on Wednesday, 9 April 1997, at 8:30 am to discuss Chapter 3 of the Consultative Document on Long Term Housing Strategy Review on "Increasing flat supply". Members were requested to study the related research reports on "Land supply in Hong Kong" and "Supply of flats" prepared by the LegCo Research and Library Services Division circulated vide LegCo Paper No. CB(1) 1201/96-97.

III Information paper issued since last meeting

5. No information paper had been issued since the last meeting.

IV System for the award of construction contracts by the Housing Authority

(LegCo Paper No. CB(1) 1168/96-97(01))

6. The Chairman advised that the Panel was concerned about the system for the award of construction contracts and had proposed discussion of this item. At the Chairmans invitation, the Senior Assistant Director/Maintenance & Construction Services (SAD/M&CS) advised that there were two components in the system: that of list management, and tendering and the linking of tendering opportunities to performance. Members then proceeded with discussions on the following issues.

Approved list of building contractors

7. Members noted that the number of active building contractors on the approved list of the Housing Authority (HA) was fewer than 30. Having regard to the anticipated high demand for housing developments in the coming years, members were concerned about the adequacy of the choice of contractors. They sought clarification on the criteria for selecting the contractors and if there were plans to expand the list.

8. In response, SAD/M&CS advised that the list was completely open. While some 20 contractors were currently on the major list of contractors, there was a similar number on the list of smaller contractors making up a total of about 50 building contractors. Any firms could apply for inclusion onto the list at any time, and HA had actively encouraged firms to join the list and to move from the list of small contractors to the big one. An average of about eight or nine firms were tendering for HA projects at any time, and HA was of the view that the competition was adequate. On the selection criteria, HA placed emphasis on track record and performance. In order to cast the net wider, the Building Committee (BC) of HA had recently approved a change in criteria in that allowed, firms with construction experience in high rise buildings to be considered rather than only housing experience. Another 10 to 12 firms were currently applying to join the list.

9. On the capacity of the industry in coping with the high demand in the coming years, SAD/M&CS appreciated members concerns. He drew attention to the fact that there had been years of high production in the past, and that HA was confident that the construction industry had the management capacity to handle the volumes of production scheduled subject to availability of labour.

Performance standards and safety records

10. A member made reference to the listing criteria of ISO 9000, and enquired about the number of firms with such standards and if annual reviews were conducted on the maintenance of the standards. SAD/M&CS confirmed that ISO standard was a basic management standard held by all contractors on the HA list; this was also a requirement of departments under the Works Branch of the Government Secretariat for major contractors. HA conducted annual reviews of all contractors on the list to ensure maintenance of standards, and it also conducted monthly checks under the Performance Assessment Scoring System (PASS). In addition, the firms were also subject to independent audit by the Hong Kong Quality Assurance Agency.

11. As regards the number of firms reaching ISO standards, SAD/M&CS) advised that all 50 contractors for building works and another 50 for maintenance works on the HAs list already complied with the criterion. HA was looking at minimum standards and would not inhibit firms from coming onto the list.

12. A member was concerned about safety measurement and sought clarification on the weighting given by HA on this aspect versus other criteria such as performance and past track record. He enquired if the Governments practice of prohibiting firms from tendering for public works projects if the firm had violated safety regulations six times within a period of six months would similarly be applicable to HA. In response, SAD/M&CS stressed that safety was a major criterion. If a firm failed in the safety measurement side, this would be reflected in the performance assessment and in turn affect tendering opportunities. Although HA did not adopt the same criterion as the Government, the element of safety under PASS was such that minor infringements would have dramatic penalty and serious effect on tendering opportunities. He re-iterated that HA would not drop standards in its process of expanding the pool of contractors.

13. On the comparability of the level of safety with Government projects, SAD/M&CS explained that it was difficult to compare HA initiatives with those of the Government, especially since many Government programmes were on civil works where accident rates were less when compared with those for high rise buildings. Accident rates on HA sites had reduced by 75% in the past six years, and the rate currently was only one-third of that in Hong Kong as a whole. HA placed great emphasis on the safety aspect and was proactive in preventing accidents from happening.

14. A member remarked that the standard of some public rental housing (PRH) blocks completed in recent years were unsatisfactory; another member pointed out that some Housing Managers had detected poor workmanship when inspecting newly completed housing blocks. SAD/M&CS affirmed that quality assurance was as important as timely completion of projects. HA aimed to achieve quality through PASS and contractors overall were getting high scores. HA would also ensure that the rising standard in expectations of citizens were met, and would strive for further improvement. Senior management in the Housing Department (HD) met every two weeks and examined in detail the types of problems encountered including workmanship and feedback on defects. Follow-up actions would be taken if problems were detected.

Admin

15. At the Chairmans request, SAD/M&CS undertook to provide statistics on cases of improvements achieved and substandard performance.

Penalty system

16. A member enquired about the penalty that would be applicable in the event of delay or failure in completion of projects, and the mechanisms in place to deter recurrences. SAD/M&CS replied in response that cases of total default which called for re-entering of contracts were rare; the re-entry usually came in cycles associated with periods of inflation and labour shortage. In the event of delays in completion of projects, HA would impose costs on the firm concerned. Such a record would also be taken into account in the performance assessment, and the firms tendering opportunities would be affected. If the situation was serious, the firm could be removed from the approved list altogether. At the Chairmans request, SAD/M&CS agreed to provide in the past three years:

Admin

the percentage of cases of delay in completion of projects; and
information on cases under the three categories of substandard performance, non-compliance with requirements, and suspension of contracts.

17. For prospective tenants of Home Ownership Schemes, SAD/M&CS said that HA had the obligation to compensate owners for the delay as HA had made a commitment on the completion date.

18. As regards firms convicted of employing illegal immigrants, SAD/M&CS said that it was HAs policy to suspend the contract if a firm was so convicted twice within a period of twelve months. For firms removed from the list but which might apply to re-join the list under a new name, HD would look at the names of the company directors and would probably not re-admit those whose directors names were the same.

19. In response to a member, SAD/M&CS confirmed that appeals could take place in two ways. If HD were to recommend disciplinary actions on a firm to the BC, HD would invite the firm to provide explanations. Secondly, contractors had the right under the Listing Rule to appeal for a review of the decision made.

Sub-contractors

20. Members were concerned with the performance of sub-contractors. They enquired if there were means to monitor the performance of sub-contractors, and whether penalties could be imposed on sub-standard performers. SAS/M&CS explained that in the absence of a direct contractual relationship, penalties could not be applied on sub-contractors. Nevertheless, HD did include sub-contractors in educational and training programmes to enhance their standards. The main contractors were responsible for their sub-contractors, and the former would be penalized heavily if things went wrong. HD was monitoring the performance of sub-contractors closely and would request their removal by the main contractor if their performance was failing. For practical reasons as explained above, it was not possible to maintain a list of sub-contractors. SAS/M&CS confirmed in response to a member that assignment of contracts was not permitted but sub-contracting with prior approval by HA was allowed.

ICAC reviews

21. In reply to a member on reviews on the system by the Independent Commission Against Corruption (ICAC), SAD/M&CS advised that assessments by the ICAC were an on-going process. HD was working closely with the Corruption Prevention Department which conducted three or four studies a year on construction related issues. Moreover, representatives from the ICAC also sat on the committee which developed and reviewed PASS. The latest review on the overall mechanism for the letting of contracts was conducted about two years ago.

Tendering policy

22. Noting that contracts were normally granted to the lowest bid, a member expressed the view that quality assurance should be as important as tender price. He suggested that the Administration should review the tendering policy so that a firms suitability and technical standards were considered before tender price.

23. SAD/M&CS pointed out that HA was not building a one-off project but was responsible for a continuous programme of housing production. As such, it would only engage firms with a good track record and the capability to deliver. In addition, HD would re-evaluate the management capability of firms every year and assess their overall performance and finances. He assured members that quality assurance was a major concern of HA and contractors in the lower quartile did not even get the invitation to tender. SAD/M&CS added that BC was also considering the introduction of a double-penalty system to further minimize sub-standard performance. The member suggested that HA could try out his suggestion in the form of a pilot scheme and then evaluate its effectiveness.

Concluding remarks

24. The Chairman considered that many constructive ideas had been brought up during the discussions, and advised that a copy of the minutes of the meeting should be forwarded to the Building Committee of HA for reference.

V Housing (Amendment) (No. 2) Bill 1997

(LegCo Brief on Housing (Amendment) (No. 2) Bill 1997 and LegCo Paper No. CB(1) 1168/96-97(02))

25. The Chairman advised that the Administration had proposed to brief the Panel on the Housing (Amendment) (No. 2) Bill 1997 which would be introduced into LegCo on 9 April 1997.

26. The Deputy Secretary for Housing (DS for H) said that the Bill aimed at amending the Housing Ordinance to provide for the contracting out of premium assessment work to qualified estate surveyors in the private sector, and for an additional fine against false declarations of income and assets to HA. The amendments were mainly of a technical nature with no policy implications.

Contracting out of premium assessment work

27. A member was concerned about the premium assessment and enquired about possible cases of over or under-assessment. The Chief Estate Surveyor (CES) said in response that HD would continue to assume a monitoring role upon contracting out of the service, and would make reference both to its past experience in assessments and to the transaction price of similar units in the market and similar schemes. As there was normally a time lag between an application for premium assessment and the actual transaction, it would be difficult to make a direct comparison of the assessment and the sale price.

28. Another member suggested that two assessments should be conducted so that a median figure could be used in case of arguments. CES explained that HD had considerable reference materials and that the assessments made should be reliable. Double assessments would incur double charges and were not recommended. HD had in place a review mechanism for owners who disagreed with the assessments, and owners could also bring their cases to the Lands Tribunal. CES pointed out that of the 9,000 cases of assessments processed by HD, only one case went to the Lands Tribunal which ultimately ruled in favour of the original decision.

29. CES confirmed in response to a member that the contracting out would, if proved successful, be a long-term arrangement. While an assessment would normally take six to eight weeks to complete currently, it was anticipated that the time would be reduced upon contracting out. As regards the future of the 15 staff in the HD responsible for the assessments, the Senior Assistant Director/Housing Administration (SAD/HA) said that retention of the posts was required initially to undertake a monitoring role. However, the staffing complement would be reviewed at a later stage if the scheme proved successful.

Penalty against false declarations of income and assets

30. Members were not convinced of the need to increase the penalty by three times for tenants making false declarations. They sought clarification on the rationale and basis for the change, and the trend for such cases.

31. DS for H said that the existing level of penalty was an insufficient deterrent. With the introduction of the policy on better-off tenants effective from 1 April 1997, the Administration was concerned about a likely increase in the number of tenants making false declarations. SAD/HA added that while upholding the principle of safeguarding the rational allocation of public housing resources, HD had no intention to incur excessive administration costs nor disturb tenants unduly. To tie in with the decision of honest declarations by tenants, legislative amendments for heavier penalties would be required.

32. The Legal Adviser (LA) of HD reported that there were 51 cases of successful convictions in 1994, 64 in 1995, 59 in 1996, and 10 in the first three months in 1997. While acknowledging that there was no indication of an increased trend of offences at the moment, LA said that penalties imposed were only a few thousand dollars and the courts might not be fully aware of the losses to HA. These was a need to increase the deterrent effect and HD had accordingly proposed an additional fine of three times the rent undercharged. On a members concern about unintended false declarations, LA stressed that all such cases must be proved to be intentional. No prosecution would be undertaken if the false declarations were not intended.

33. LA further advised that the proposal for imposing a fine of three times was made having regard to provisions in the Inland Revenue Ordinance and was not considered excessive. DS for H supplemented that the proposed amendment was aimed at providing for a range of level of penalties to allow for flexibility. He highlighted the fact that penalty policy was a matter of the Attorney Generals Chambers (AGC) and the current proposal had been made on the basis of the AGCs advice.

Concluding remarks

34. The Chairman concluded that in the light of members doubts on the proposed amendments, the Bill would most likely require closer scrutiny by a Bills Committee. In the meantime, the Administration was requested to provide statistics on the penalties imposed on offenders in previous cases, and the amount of rent due to HA as a consequence of the false declarations.

Admin

35. The meeting ended at 1:00 pm.

Legislative Council Secretariat
29 April 1997

Last Updated on 20 August 1998