on 26 November 1997
ITEM FOR PUBLIC WORKS
SUBCOMMITTEE OF FINANCE COMMITTEE
HEAD 704 - DRAINAGE
Environmental Protection - Sewerage and sewage treatment
286DS - Strategic Sewage Disposal Scheme Stage I : completion of sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong and from Kwun Tong to Stonecutters Island
Members are invited to recommend to Finance Committee the creation and direct inclusion of a new item in Category A at an estimated cost of $2,000 million in money-of-the-day prices for completion of the sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong and from Kwun Tong to Stonecutters Island.
Funding under the Capital Works Reserve Fund is necessary before contracts can be awarded for the completion of the sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong and from Kwun Tong to Stonecutters Island of the Strategic Sewage Disposal Scheme (SSDS) Stage I.
2.The Director of Drainage Services, with the support of the Secretary for Works, proposes to create and include a new item directly in Category A at an estimated cost of $2,000 million in money-of-the-day (MOD) prices for completion of the sewage tunnel system in question.
PROJECT SCOPE AND NATURE
3.This project involves the completion works for four sewage tunnels from Chai Wan to Kwun Tong (Tunnel BA), from Tseung Kwan O to Kwun Tong (Tunnel C), from Kwun Tong to To Kwa Wan (Tunnel D) and from To Kwa Wan to Stonecutters Island (Tunnel E). A location plan of these four uncompleted sewage tunnels is at Enclosure 1. They comprise the eastern sewage tunnel system which represents about 82% of the total length of sewage tunnels under the SSDS Stage I. These sewage tunnels will convey sewage from the catchment covering Chai Wan, Shau Kei Wan, Tseung Kwan O, Kwun Tong and To Kwa Wan to the Stonecutters Island Sewage Treatment Works (SCISTW) for treatment. A location plan of the main works of Stage I is at Enclosure 2. The main works includes the four tunnels mentioned above as well as a tunnel from Tsing Yi to Stonecutter's Island (Tunnel F) and a tunnel from Kwai Chung to Tsing Yi (Tunnel G).
4.The scope of the project comprises -
- completion of a 4.8-kilometre sewage tunnel between Chai Wan and Kwun Tong (Tunnel BA) via Shau Kei Wan and the installation of sewer pipes within the tunnel. A tunnel section of 0.6 kilometre has already been excavated by the defaulting contractor under Contract DC/93/13;
- completion of a 5.3-kilometre sewage tunnel between Tseung Kwan O and Kwun Tong (Tunnel C) and the installation of twin sewer pipes within the tunnel. A tunnel section of 0.2 kilometre has already been excavated by the defaulting contractor under Contract DC/93/13;
- completion of a 3.6-kilometre sewage tunnel between Kwun Tong and To Kwa Wan (Tunnel D) in which a tunnel section of 0.2 kilometre has already been excavated by the defaulting contractor under Contract DC/93/14;
- completion of a 5.5-kilometre sewage tunnel between To Kwa Wan and Stonecutters Island (Tunnel E) in which a tunnel section of 0.1 kilometre has already been excavated by the defaulting contractor under Contract DC/93/14;
- completion of shafts and ancillary site works. This includes the completion of -
- drop shafts from the ground level to the tunnels at Chai Wan Preliminary Treatment Works and Shau Kei Wan Preliminary Treatment Works, each approximately 130 metres deep (about 60% of the work has been completed by the defaulting contractor under Contract DC/93/13);
- drop shaft from ground level to the tunnels at Kwun Tong Preliminary Treatment Works and To Kwa Wan Preliminary Treatment Works, each approximately 140 metres deep (about 20% of the work has been completed by the defaulting contractor under Contract DC/93/14);
- finishing works for the shafts at Kwun Tong Pumping Station and Tseung Kwan O Preliminary Treatment Works, and the production shafts at Chai Wan and To Kwa Wan (excavation of these shafts has been completed under separate advance works contracts);
- ancillary site works at Kwun Tong Pumping Station and the above sites; and
- site facilities for resident site staff.
5.We awarded two contracts (DC/93/13 and DC/93/14) at a total sum of $1.3 billion under the Sewage Services Trading Fund (SSTF) to a contractor in 1994 for the construction of the sewage tunnel system (six tunnels, namely: BA, C, D, E, F and G) for the Strategic Sewage Disposal Scheme Stage I. Works commenced in January 1995 and were scheduled for completion in May 1997. However, progress of the works deteriorated significantly from early 1996 onwards. In June 1996, the contractor unilaterally suspended work in the tunnel sections from Tseung Kwan O to Kwun Tong (Tunnel C) and from Tsing Yi to Stonecutters Island (Tunnel F). Works in the other four tunnels also ceased in July 1996.
6.We held a number of meetings with the contractor's senior management. The contractor claimed that the water inflows encountered in the tunnels were unexpected and were beyond those envisaged in the contracts and put forward proposals to change the engineering design, construction methods and payment terms which were unacceptable to Government. Despite the fact that only two tunnels had water seepage problems, the contractor stopped work in all six tunnels without explaining the problems experienced in the other tunnels.
7.We appointed external legal advisers and independent tunnelling experts to give expert opinion and advice. As a result of investigations, we instructed certain technical changes to facilitate resumption of construction works. We also held several meetings with the contractor to discuss the technical changes and any technical impediments to resumption of works in the tunnels. However, the contractor did not cooperate and took no action to resume work but continued to seek re-negotiation of the terms of the contracts relating to both technical and financial matters.
8.In view of the contractor's failure in proceeding with the works with due diligence, we had no choice but to re-enter the sites on 4 December 1996. We subsequently engaged separate contractors to provide maintenance and security services for the existing tunnel sites pending the re-start of construction to complete the works.
Technical viability of the project
9.On review, we consider that the technical design for the tunnels is adequate and the feasibility study has been comprehensively undertaken. Indeed, an outfall tunnel at Stonecutters Island has already been constructed under rock conditions similar to those experienced in some of the six sewage tunnels. Furthermore, a completion contract for the two western tunnels (from Kwai Chung to Tsing Yi and from Tsing Yi to Stonecutters Island) was successfully awarded in July this year based on the original design and tunnelling methods.
The need to fund the project under the Captial Works Reserve Fund
10.Funding for the six tunnels was originally provided from the SSTF. We estimate that funds available under the SSTF capital account will not be sufficient to cover the revised project cost of $3,330 million for completing all the six sewage tunnels. A comparison of the cost breakdowns of the original project estimate ($1,308 million) and the revised project estimate ($3,330 million) is at Enclosure 3. The increase of $2,022 million in the revised project estimate is mainly due to the need to re-mobilise resources, re-provisioning of tunnel boring machines, price increases due to retendering of the contracts, inflation and the special contractor selection requirements.
11.Taking into account the actual expenditure already paid to the defaulting contractor for the work done, the cost of maintenance and security services for the partially completed tunnels and the legal costs for dispute resolution, the remaining funds available under the SSTF capital account will only be sufficient to cover the cost of completing the two western tunnels from Tsing Yi to Stonecutters Island (Tunnel F) and from Kwai Chung to Tsing Yi (Tunnel G) ($550 million). We need additional funding of $2,000 million to complete the remaining four eastern sewage tunnels from Chai Wan and Tseung Kwan O to Kwun Tong (Tunnels BA and C) and from Kwun Tong to Stonecutters Island (Tunnels D and E).
12.We forecast that the SSTF will have an operating deficit in the coming years and there is no prospect of a turn around in the financial position in the foreseeable future. The fund will not therefore be able to fulfil its statutory obligation of meeting its expenses from revenue. Consequently, on 19 November 1997 we placed a resolution before the Provisional Legislative Council seeking to wind up the Fund with effect from 31 March 1998. The resolution was passed. As a result, we propose that the completion works for the eastern tunnel system should be funded instead under the CWRF.
Urgency of the project
13.We have completed the detailed design for the outstanding works of the eastern sewage tunnels. In order to complete the sewage tunnel works to enable early achievement of the objective of the High Priority Programme, we plan to commence the proposed completion works in December 1997 for completion in early 2000. We consider it necessary to directly include this project in the Public Works Programme as a Category A item now for the following reasons -
Measures to improve the tendering process
- the four tunnels are essential components of the SSDS Stage I. Prompt implementation of the project will avoid further delays to the improvement of water quality in the Victoria Harbour;
- the SCISTW, commissioned in May 1997, currently operates at 25% of its designed capacity to treat sewage from the North West Kowloon areas through an existing sewerage system. Its utilisation rate will increase to 50% after completion of the two western tunnels in August 1999. However, we shall only be able to fully utilise the facility's maximum capacity under SSDS Stage I and achieve the objective of the High Priority Programme to reduce the flow of pollutants into the Victoria Harbour by 70% upon completion of the proposed eastern tunnel system; and
- we are spending $5.5 million every month on maintenance and security services for the existing tunnel sites. Early resumption of the works will save further expenditure on these services.
14.We have reviewed the tendering process and found no problem with the selection procedures. The defaulting contractor, considered in a pre-qualification exercise to have adequate experience and a good track record in similar tunnelling works, submitted the lowest conforming tender for both contracts but prices were comparable to the second lowest (2% cheaper in one case and 11% cheaper in the other).
15.In view of the experience with the previous contractor, we have introduced the following measures as safeguards in our retendering exercise -
- tenderers are required to provide Performance Bonds amounting to 10% of the tendered sums (instead of 1% in normal contracts including forfeited ones) in order to increase the contractors' financial commitment;
- tenderers are required to provide Parent Company Guarantees in order to increase commitment of the contractors' corporate groups;
- limiting the award of no more than two of the three completion contracts (for the six tunnels) to one tenderer so as to spread the risks; and
- fully brief the pre-qualified tenderers during pre-tender meetings about the contractual arrangements.
These measures have been successfully applied in the letting of the re-tendered contract for the two western tunnels.
16.We estimate that the capital cost of the project will be $2,000 million in MOD prices (see paragraph 17 below), made up as follows -
|(a)|| Completion of the sewage tunnel from Chai Wan to Kwun Tong (Tunnel BA)|
|(b)||Completion of the sewage tunnel from Tseung Kwan O to Kwun Tong (Tunnel C)|
|(c)||Completion of the sewage tunnel from Kwun Tong to To Kwa Wan (Tunnel D)|
|(d)||Completion of the sewage tunnel from To Kwa Wan to Stonecutters Island (Tunnel E)|
|(e)||Completion of shafts and ancillary site works|
|(f)||Site facilities for resident site staff|
|(g)||Consultants' fees for-|
|(i) construction stage|
|(ii) resident site staff cost|
A breakdown by man-months of the estimates of consultants' fees is at Enclosure 4.
17.Subject to approval, we will phase expenditure as follows -
|1997 - 98||310||1.06750||331
|1998 - 99||760||1.16358||884
|1999 - 2000||510||1.26830||647
|2000 - 01||100||1.38244||138
18.We have derived the MOD prices on the basis of the Government forecasts of trend labour and construction prices for the period between 1997 and 2001. We plan to complete the remaining works under two standard re-measurement contracts with major lump sum items. We have included the major part of the works such as tunnelling equipment, excavation of tunnels, installation of sewer pipes within tunnels and shaft completion works under lump sum items as their scopes are well defined. We have provided re-measurement items for others such as geotechnical works, ground support within tunnels and miscellaneous drainage and pipe works as they are subject to variation during construction depending on the actual site conditions encountered. The contracts will not allow for adjustments to the tender price due to inflation.
19.We estimate the additional annually recurrent expenditure arising from the proposed sewage tunnel works to be $3.5 million.
20.Based on the current level of sewage charges and water consumption, it will be necessary to increase sewage charges by about 0.5% in real terms by 2001 to recover the additional recurrent expenditure in full.
21.We presented the proposed works for the sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong to the Environmental Improvement Committee of the Eastern District Board on 1 March 1994, the Kwun Tong District Board on 7 March 1994, and the Sai Kung District Board on 21 April 1994. We also presented the proposed works for the sewage tunnel system from Kwun Tong to Stonecutters Island to the Kwai Tsing District Board on 18 February 1994, the Sham Shui Po District Board on 23 February 1994, the Kwun Tong District Board on 7 March 1994, the Mongkok District Board on 15 March 1994 and the Kowloon City District Board on 18 March 1994. All District Boards had no objection to the implementation of the project.
22.We gazetted the works for the sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong under the Sewage Tunnels (Statutory Easements) Ordinance on 11 March 1994. Objections were received from the owners of Laguna City Phase 3, Kwun Tong on 21 April 1994. After discussion and clarification of project details with the objectors, they withdrew the objections on 27 June 1994. We also gazetted the works for the sewage tunnel system from Kwun Tong to Stonecutters Island under the Sewage Tunnels (Statutory Easements) Ordinance on 25 February 1994. Objections were received from two container terminal operators in the Kwai Tsing areas. After discussion and clarification of the works details with the objectors, they withdrew the objections on 15 July 1994.
23.We submitted briefing notes to the Legislative Council on 26 November 1996 and 7 January 1997 informing Members of the delay in the tunnelling works, the re-entry of the tunnel contracts and the need for additional funds to engage new contractors to complete the remaining works. We consulted the Environmental Affairs Panel on 19 September 1997 on the need to close the SSTF by 31 March 1998, and the need to seek approval from the Finance Committee for additional funds to complete the underground tunnels. We also consulted the Planning, Lands and Works Panel on 26 September 1997.
24.As the works under this project are within the scope of works on which the concerned District Boards have been consulted and the statutory procedures have been completed, we do not consider it necessary to carry out further public consultation on this project.
25.Consultants engaged by the Environmental Protection Department completed a full Environmental Impact Assessment Study for the SSDS Stage I which was endorsed by the Advisory Council on the Environment in June 1996. The study concluded that during construction stage, the environmental impacts could be mitigated to within the established standards and guidelines. Upon commissioning, the Scheme will bring substantial improvements to water quality in the main Harbour areas.
26.For short term impacts, we will control noise, dust and site run-off nuisances during construction through the implementation of mitigation measures in the works contracts. We will also implement a detailed Environmental Monitoring and Auditing Programme during both the construction and the operation phases to ensure that the relevant requirements will be met.
27.The works under this project do not require any land acquisition.
28.The SSTF was established on 11 March 1994 by resolution of the previous Legislative Council under the Trading Funds Ordinance and became responsible for the provision of all the services specified in the said resolution following the introduction of the sewage charging scheme on 1 April 1995.
29.In July 1994, the SSTF Works Committee approved the inclusion of 010SS, "Strategic Sewage Disposal Scheme Stage I: sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong" in Category A (Trading Fund) for the works under Contract DC/93/13 for the construction of two sewage tunnels from Chai Wan and Tseung Kwan O to Kwun Tong (Tunnels BA and C). In December 1994, the Works Committee further approved the inclusion of 017SS, "Strategic Sewage Disposal Scheme Stage I: sewage tunnel system from Kwun Tong and Kwai Chung to Stonecutters Island" in Category A (Trading Fund) for the works under Contract DC/93/14 for the construction of four sewage tunnels from Kwun Tong and Kwai Chung to Stonecutters Island (Tunnels D, E, F and G). The approved project estimates for 010SS and 017SS were $558 million and $750 million at MOD prices respectively making a total of $1,308 million.
30.We intend to pursue a claim for losses arising from re-entry of the two tunnel contracts including the additional costs for completing the tunnelling works. We will ascertain these losses after completion of the tunnelling works.
Enclosure 3 to PWSC(97-98)82
COMPARISON OF THE ORIGINAL AND
REVISED PROJECT ESTIMATES
A comparison of the original project estimate and the revised project estimate after the re-entry of Contracts DC/93/13 and DC/93/14 is as follows -
|Revised Project Estimate |
after Re-entry of
|To be |
|$ million||$ million||$ million
|(a) Sewage tunnel from Chai Wan and Tseung Kwan O to Kwun Tong (Tunnels BA and C) and ancillary shafts and site works|
|(b) Sewage tunnel from Kwun Tong to Stonecutters Island (Tunnels D & E) and ancillary shafts and site works|
|(c) Sewage tunnel from Kwai Chung to Stonecutters Island (Tunnels F & G) and ancillary shafts and site works|
(in MOD prices)
|(d) Maintenance and security of existing tunnel works|
|(e) Legal expenses for dispute resolution|
|(f) Additional consultants' fees, resident site staff costs and site facilities for resident site staff|
|Total (in MOD prices)||1,308
2.The total estimated cost for completing the six sewage tunnels has increased from $1,308 million by $2,022 million to $3,330 million ($1,330 million + $2,000 million). The reasons for the increase are as follows -
|$ million||% of Total
|(a) Cost for re-mobilisation of site resources and preparatory works|
|(b) Cost of re-provisioning the tunnel boring machines to suit contract requirements|
|(c) Price increases due to retendering of the contracts|
|(d) Price increases due to inflation resulted from deferred completion upon re-entry of original contracts|
|(e) Price increases for remaining works due to the special contractor selection requirements|
|(f) Increase in contingency sum from 3.5% to 8% of the estimated cost of works to allow for possible additional works incidental to the completion contracts|
|(g) Maintenance and security of existing tunnel works|
|(h) Legal expenses for dispute resolution|
|(i) Additional consultants' fees, resident site staff costs and site facilities for resident site staff|
|Total (in MOD prices)||2,022
3.We shall fund the completion work for the two western tunnels as well as items under 2(g) and 2(h) under SSTF before 31 March 1998. We need additional funding of $2,000 million in MOD prices under CWRF to complete the remaining four eastern sewage tunnels.
Enclosure 4 to PWSC(97-98)82
Breakdown of the estimate for consultant's fees
|(a) Consultants' fees for construction stage|
|(b) Site supervision by resident site staff employed by the consultants|
|Total consultants' staff costs||140.02
1.A multiplier factor of 3 is applied to the average Master Pay Scale (MPS) point to arrive at the full staff costs including the consultants' overhead and profit, as the staff will be employed in the consultants' offices. (At 1.4.1996, MPS pt. 40 = $55,390 p.m. and MPS pt. 16 = $18,595 p.m.) A multiplier factor of 2.1 is applied in the case of site staff supplied by the consultants.
2.The figures given above are based on estimates prepared by the Director of Drainage Services. We will only know the actual consultants' fees upon completion of the construction works.