For discussion
FCR(97-98)28
on 23 July 1997

ITEM FOR FINANCE COMMITTEE

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

Members are invited to approve an increase in the approved project estimate of 8001EN from $2,312 million by $240 million to $2,552 million in money-of-the-day prices.

PROBLEM

The approved project estimate of 8001EN for the development of the campus of the Hong Kong Institute of Education (HKIEd) is insufficient for the works under the project due to determination of the contract for the construction of student hostels and staff quarters as a result of non-performance of the contractor and the need to award a new contract to complete the remaining works.

PROPOSAL

2.With the support of the Secretary for Education and Manpower, the Secretary-General, University Grants Committee proposes to increase the approved project estimate of 8001EN from $2,312 million by $240 million to $2,552 million in money-of-the-day (MOD) prices.

PROJECT SCOPE AND NATURE

3.The scope of the project comprises -

1. academic accommodation;

2. administrative accommodation and central services;

3. staff and student amenities;

4. car parks;

5. sports facilities; and

6. staff and student residences.

JUSTIFICATION

4.The construction contracts for the main campus were awarded in December 1995 and early 1996. The original schedule for completion of the student hostels and staff quarters were June 1997. However, the contractor for the construction of the hostels and quarters did not provide sufficient workers on site to proceed with the works despite repeated warnings by the Director of Architectural Services (D Arch S). This resulted in slippage of almost seven months in the completion date of the hostels and quarters. Owing to a labour dispute, works on the hostels and quarters had virtually stopped from mid-March 1997. In late April 1997, we had to determine the contract.

5.The determination of the construction contract due to non-performance of the contractor was not foreseeable when we last sought Members' approval of the project estimate in December 1995, and the contingencies set aside then for the project had not provided for an increase in project cost under such circumstances. To complete the remaining works, D Arch S estimates that the additional cost involved is $240 million if the new contractor can start work on site in August 1997 with a target completion date of July 1998. We will impose liquidated damages on the original contractor for non-completion of his contract which, if recovered, will offset part of the additional cost arising from the new contract and the delayed completion of the student hostels and staff quarters.

FINANCIAL IMPLICATIONS

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

7.As regards paragraphs 6(b) and (c), construction works under separate main contracts are progressing according to schedule and within budget. In order to complete the construction of the HKIEd campus before the start of the 1997-98 academic year, HKIEd had awarded the contracts based on bills of quantity, which contained many provisional items. The increase of $67 million is due to the adjustment of the tender prices of sub-contracts and to the variations found necessary during the construction of the main campus. We have funded these additional requirements from the approved project contingencies.

8.As regards paragraphs 6(d) and (e), of the substantial increase of $259 million, $215 million is attributable to the determination of the original contract and the higher cost in completing the remaining works which is due partly to inflationary increase and partly to remobilisation and additional work resulting from the determination of the construction contract. We have invited tenders for the early completion of the contract because when assessing Government's claims for damages against the contractor, we will need to produce evidence to show that Government has tried its best to limit the extent of damages by re-tendering the contract as soon as possible. We have based the above increase on the lowest tender we received. The remaining increase of $44 million is due to the adjustment of the tender prices of sub-contracts and to variations found necessary during the construction of the student hostels and staff quarters. We have funded these additional requirements from the approved project contingencies.

9.As regards paragraph 6(f), the resolution of objections to the gazetted access road on safety and environmental grounds, which is still pending, will delay the completion of the sports centre by at least 24 months. Assuming we could take forward the construction work in the near future, the current estimate of the cost of the delay is $25 million, which is solely due to inflationary increase. We calculated the original estimate of $101 million on the basis that the contract for the sports centre would be tendered in September 1996. We may need to seek a further increase in the approved project estimate if we cannot invite tenders for the construction of the sports centre in the near future or the $30 million remaining for project contingencies is insufficient to meet unforeseen requirements.

10.As regards paragraph 6(g), the increase of $16 million is due to the additional professional services required as a result of the determination of the student hostels and staff quarters contract and the increased value and duration of the completion contract on which we base the consultancy fees.

11.As regards paragraph 6(h), the reduction of $127 million is due to the advanced stage of the construction of the project, requiring less allowance for uncertainty except for the completion contract for the student hostels and staff quarters and the tendering of the sports centre.

12.Subject to approval, a revised cashflow for the project is as follows -

13.If work on site can resume in August 1997, the staff quarters are due for completion in July 1998. This delay requires a net additional recurrent provision of $19 million to cover the rent for the leased staff quarters for the period from August 1997 to July 1998. If work on the access road of the sports centre and on the sports centre itself can begin in August 1997 and July 1998 respectively, we will need a net additional recurrent provision of about $672,000 to cover the cost of hiring sports grounds and the transportation of students between the sports grounds and the Tai Po campus from July 1997 to July 1999.

URGENCY

14.We need to seek Members' urgent approval for the increase in the approved project estimate of 8001EN so that we can award the completion contract for the construction of the staff quarters and student hostels as soon as possible in order to -

1. minimise the additional expenditure arising from the determination of the original contract including the rent for the leased staff quarters; and

2. show that Government has tried its best to limit the extent of damages when assessing Government's claims for damages against the contractor.

PUBLIC CONSULTATION

15.No further consultation is necessary as we do not intend to propose any change in the scope of the project.

ENVIRONMENTAL IMPLICATION

16.The increase in the approved project estimate does not result in additional environmental impact.

LAND ACQUISITION

17.The increase in the approved project estimate does not require additional land acquisition.

BACKGROUND INFORMATION

18.On 16 December 1994, Finance Committee approved a project estimate of $2,094 million for the development of the HKIEd's campus at Tai Po (FCR(94-95)87). On 8 December 1995, Finance Committee further increased the approved project estimate by $218 million to $2,312 million to cover the inflationary increases over the construction period of the project (FCR(95-96)92).

Education and Manpower Bureau
July 1997

(1)The approved estimate was based on actual contract prices for site formation works, the lowest acceptable tender prices for various building works for the main campus and MOD prices for the sports centre.

(2) The revised estimate for the student hostels and staff quarters is based on the lowest tender received. The revised estimate for the sports centre is based on MOD prices assuming work on the access road and the sports centre can begin in August 1997 and July 1998 respectively.

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Enclosure to FCR(97-98)28

8001EN - Development of the campus of the Hong Kong Institute of Education

Breakdown of the revised estimates for consultants' fees

Details of the additional consultants' fees resulting from the determination, re-tendering, delay and site supervision for the completion contract for the student hostels and staff quarters.

Contract determination and re-tendering and administration during delay period

Consultants’ staff costs		Estimated man-months	Average MPS salary point	Multiplier factor	Estimated fee ($ million)
Architectural	Professional	18	40	3.0	3.2
	Technical	24	16	3.0	1.4
Building services	Professional	8	40	3.0	1.4
	Technical	12	16	3.0	0.7
Structural	Professional	11	40	3.0	2.0
engineering	Technical	12	16	3.0	0.7
Quantity	Professional	5	40	3.0	0.9
surveying	Technical	8	16	3.0	0.5
					10.8

Site supervision

Consultants’ staff costs		Estimated man-months	Average MPS salary point	Multiplier factor	Estimated fee ($ million)
Architectural	Professional	15	40	2.1	1.8
	Technical	14	16	2.1	0.6
Building services	Professional	12	40	2.1	1.5
	Technical	15	16	2.1	0.6
Structural	Professional	4	40	2.1	0.5
engineering	Technical	4	16	2.1	0.2
					5.2
Total					16.0

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