FCR(98-99)23
For discussion
on 31 July 1998
ITEM FOR FINANCE COMMITTEE
CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Government Supplies Department
New Subhead "Upgrading of the procurement computer system of the
Government Supplies Department"
HEAD 47 - INFORMATION TECHNOLOGY SERVICES DEPARTMENT
Subhead 001 Salaries
Members are invited to approve -
- the creation of a new commitment of $31,500,000 to upgrade the procurement computer system of the Government Supplies Department for Year 2000 compliance and for providing enhanced procurement management functions; and
- an increase in the ceiling placed on the total notional annual mid-point salary value of non-directorate posts in the permanent establishment of the Information Technology Services Department in 1998-99 from $446,367,360 by $681,180 to $447,048,540 to create one non-directorate post for managing the project and providing technical advice.
PROBLEM
The computer-aided Procurement Management System (PMS) of the Government Supplies Department (GSD) is not Year 2000 (Y2K) compliant. If not rectified in time, this will impair the operations of the department and its procurement services to Government and other public sector organisations. The PMS is also out-of-date in both technology and design. It requires upgrading for more effective delivery of services.
PROPOSAL
2. The Director of Government Supplies, in consultation with the Director of Information Technology Services and with the support of the Secretary for the Treasury, proposes a non-recurrent commitment of $31,500,000 to upgrade the PMS so that it is Y2K compliant and is able to meet GSD's requirements.
JUSTIFICATION
The existing PMS and its problems
3. GSD is the Government central procurement agent. It serves over 80 government departments, subvented organisations and certain non-government public bodies. The PMS is a computer system which assists GSD in performing its various procurement activities, including processing of tenders, contracts and orders; maintaining records of suppliers and contractors; monitoring contractors' performance and compilation of procurement statistics.
4. The PMS was developed more than ten years ago. It now suffers from the following limitations and deficiencies -
- it is not Y2K compliant;
- its hardware and software are approaching the end of their product life cycles;
- it does not cover some of the activities in the procurement process and needs to be supplemented by a great deal of manual checking, filing and photocopying;
- it is mostly operated in batch mode, thus precluding timely data preparation and compilation;
- it is inadequate in terms of its on-line functions, e.g. it cannot make available for enquiry on-line reports on price trend of key commodities, contractor performance reports and other management information;
- it can only support 11 concurrent users in GSD, and does not provide on-line links with users outside GSD;
- it does not provide functions to monitor drawdown rate against bulk contracts and contractor performance;
- it does not provide Chinese characters processing function; and
- it is not sufficiently interfaced with the other GSD computer system - Goods On-line Ordering, Distribution, Stock Management and Accounting Network (GOODSMAN). As a result, relevant information is redundantly kept in both systems.
The proposed system and its benefits
5. In March 1998, the Information Technology Services Department (ITSD) commissioned a feasibility study to assess the present PMS and recommend a desirable solution. The study recommended adopting an application package commonly used in the procurement sector with customisation to meet GSD's requirements and expanding the network to better serve its users. The proposed PMS will bring about the following benefits -
- it will be fully Y2K compliant and provide a ready platform for further extension to cope with new business needs;
- it will include some new functions to simplify the requisition procedure, facilitate supplier registration and evaluation of offers, monitor contractors' performance and generate timely management information thereby reducing the need for manual checking and processing;
- it will fully adopt the on-line processing mode, with efficient enquiry functions to enable GSD to answer queries promptly;
- it will have a capacity to support no less than 87 concurrent users, including 20 remote users in other departments/organisations;
- it will establish an electronic linkage between user departments/organisations and GSD. This will provide an efficient means of information interchange, e.g. the time for issuing Direct Purchase Authority to departments will be reduced from two days to instantaneous on-line notification;
- it will enable GSD to better monitor the draw-down rate of bulk contracts and contractor performance. It will alert GSD staff to take contract renewal action when the drawdown quantity reaches a certain level or at a certain period of time before expiry of the contract. It will also facilitate GSD to implement a point system to assess the performance of contractors on a fair and objective basis;
- the lead time for identifying unresponsive suppliers will be shortened from four days to within one day. The communication to suppliers will also be speeded up. Notification letters to unsuccessful tenderers for collection of samples can be issued within one week after the contract is awarded, from an average of six weeks at present;
- it will provide Chinese character processing function to facilitate the receipt and issue of information in Chinese; and
- it will interface with GOODSMAN and will be capable of interfacing with any new systems to be implemented in GSD. The existing GOODSMAN network can be used to link up the PMS electronic exchange between GSD and the user departments/organisations.
Cost and benefit analysis
6. The proposed PMS Upgrade will improve efficiency and therefore achieve annual staff savings of $5,936,000, made up as follows -
|
| HK$'000
|
|---|
| Realisable savings
|
|---|
| (a)
| Deletion of seven posts
| 2,334
|
| Notional savings
|
|---|
| (b)
| Reduction in staff efforts, which can be released for other duties
| 1,657
|
| Cost avoidance
|
|---|
| (c)
| Elimination of the need to create six posts to cope with the increasing demand in Chinese processing
| 1,945
|
|
| ________
|
|---|
| Total annual savings
| 5,936
|
|---|
|
| ________
|
|---|
7. In addition, there will be one-off cost avoidance totalling $18,273,000, which will otherwise be required to rectify the existing PMS for Y2K compliance and for replacement of the obsolete hardware and software when they reach the end of their serviceable life. A detailed cost and benefit analysis is at the Enclosure. It shows that the proposed system will break even in Year 2004-05.
FINANCIAL IMPLICATIONS
Non-recurrent expenditure
8. The capital cost of the proposed system is estimated to be $31,500,000, and the cost of additional staff required to develop the system is estimated to be $3,282,000. We set out below details of the cost estimates -
|
Non-recurrent expenditure
|
Cashflow (HK$'000)
|
|
| 1998-99
| 1999-2000
| Total
|
|---|
|
(a)
|
Hardware
|
4,566
|
-
|
4,566
|
|
(b)
|
Software
|
6,540
|
-
|
6,540
|
|
(c)
|
Implementation services
|
7,780
|
7,780
|
15,560
|
|
(d)
|
Training
|
-
|
1,224
|
1,224
|
|
(e)
|
Site preparation
|
126
|
-
|
126
|
|
(f)
|
Consumables
|
248
|
372
|
620
|
|
(g)
|
Contingency
|
1,926
|
938
|
2,864
|
|
| _______
| _______
| _______
|
| Sub-total
| 21,186
| 10,314
| 31,500
|
|---|
|
| _______
| _______
| _______
|
|
(h)
|
Staff costs
(i) ITSD
(ii) GSD
|
641
653
|
1,007
981
|
1,648
1,634
|
|
| _______
| _______
| _______
|
| Sub-total
| 1,294
| 1,988
| 3,282
|
|---|
|
| _______
| _______
| _______
|
| Total
| 22,480
| 12,302
| 34,782
|
|---|
|
| _______
| _______
| _______ |
9. As regards paragraph 8(a), the cost of $4,566,000 is for the acquisition of computer hardware for replacing non-Y2K compliant equipment and upgrading the present network to cater for more than two hundred user terminals.
10. As regards paragraph 8(b), the cost of $6,540,000 is for the acquisition of computer system software for replacing the non-Y2K compliant software and upgrading the present functions.
11. As regards paragraph 8(c), the cost of $15,560,000 is for the customisation of a standard software package to meet GSD's requirements.
12. As regards paragraph 8(d), the cost of $1,224,000 is for training of about four hundred staff to use the new system.
13. As regards paragraph 8(e), the cost of $126,000 is for site preparation work, including the installation of conduit facilities and the provision of power points.
14. As regards paragraph 8(f), the cost of $620,000 is for the acquisition of consumables such as backup tapes and paper toners.
15. As regards paragraph 8(g), the cost of $2,864,000 represents a 10% contingency on the cost items set out in paragraphs 8(a) to (f).
16. As regards paragraph 8(h)(i), the cost of $1,648,000 represents the staff cost for 18 man-months of Systems Manager effort required by ITSD for services acquisition, project management and provision of technical advice during system implementation, data conversion and on disaster recovery planning. To enable the creation of a non-directorate post required in 1998-99, it is necessary to increase the notional annual mid-point salary value of ITSD from $446,367,360 by $681,180 to $447,048,540.
17. As regards paragraph 8(h)(ii), the cost of $1,634,000 represents 23.5 man-months of GSD staff cost to support system development and implementation (1.8 man-months of Principal Supplies Officer, 8.2 man-months of Senior Supplies Officer, 7.5 man-months of Supplies Officer, two man-months of Supplies Supervisor I and four man-months of Supplies Supervisor II). GSD will meet the staffing requirement by redeployment of existing resources.
Recurrent expenditure
18. The estimated recurrent cost of supporting the proposed system on full implementation is $1,550,000 for the first year, $3,101,000 for the second to the fifth year and $4,431,000 thereafter. The staff cost for providing ongoing support is estimated to be $936,000 per year. Details are as follows -
| Recurrent expenditure
|
Cashflow (HK$'000)
|
|---|
|
| 1999-2000
| 2000-01 to 2003-04
| 2004-05 and onwards
|
|---|
|
(a)
|
Hardware maintenance
|
191
|
381
|
1,482
|
|
(b)
|
Software maintenance
|
115
|
230
|
459
|
|
(c)
|
Maintenance and upgrade of the customised software
|
734
|
1,469
|
1,469
|
|
(d)
|
System support service
|
401
|
802
|
802
|
|
(e)
|
Consumables
|
109
|
219
|
219
|
| ______
| ______
| ______
|
| Sub-total
| 1,550
| 3,101
| 4,431
|
|---|
| ______
| ______
| ______
|
|
(f)
|
Staff costs
(i) ITSD
(ii) GSD
|
163
305
|
327
609
|
327
609
|
| ______
| ______
| ______
|
| Sub-total
| 468
| 936
| 936
|
|---|
| ______
| ______
| ______
|
| Total
| 2,018
| 4,037
| 5,367
|
|---|
| ______
| ______
| ______
|
19. As regards paragraph 18(a), the expenditure is for the maintenance of computer hardware equipment. The vendor is likely to offer a 80% discount up to the end of the fourth year (Year 2003-04). An increase of cost for Year 2004-05 and onwards will therefore be required.
20. As regards paragraph 18(b), the expenditure is for the maintenance charges of the database software, operation software and other system software. The vendor is likely to offer a 80% discount up to the end of the fourth year.
21. As regards paragraph 18(c), the expenditure is for the ongoing maintenance and upgrading of the customised software.
22. As regards paragraph 18(d), the expenditure is for the ongoing support of the system operation which includes running of a help desk and answering any application usage related problems.
23. As regards paragraph 18(e), the expenditure is for the daily consumables, such as backup tapes and printer toners.
24. As regards paragraph 18(f)(i), the expenditure represents the staff cost of ITSD, comprising one man-month of Senior Systems Manager and two man-months of Systems Manager, for providing technical support to GSD.
25. As regards paragraph 18(f)(ii), the expenditure covers 9.6 man-months of Supplies Officer in GSD to operate and run the system in 2000-01 and onwards. GSD will meet the staffing requirements by redeployment of existing resources.
Implementation plan
26. We plan to implement the proposed system in two phases. The first phase is to provide a Y2K compliant system to perform all the existing functions provided by the PMS as well as some essential new functions by 30 June 1999. The whole project is scheduled for completion in mid 2000. The detailed implementation timetable is as follows -
| Activity
| Timing
|
|---|
|
(a)
|
Tendering
|
August 1998
|
|
(b)
|
Site preparation
|
December 1998
|
|
(c)
|
Procurement of hardware and software
|
December 1998
|
|
(d)
|
System upgrade, programme modification and testing
|
Mid-December 1998 to February 1999
|
|
(e)
|
System testing, user acceptance testing and data conversion
|
May 1999
|
|
(f)
|
Operation of the first phase (a Y2K compliant system together with all the essential functions)
|
June 1999
|
|
(g)
|
Operation of the second phase (implementation of all the remaining functions)
|
June 2000
|
-------------------------------------------
Finance Bureau
July 1998
Enclosure to FCR(98-99)23
Cost-Benefit Analysis of the Upgraded Procurement Management System (PMS)
(at 1998-99 prices)
| 1998-99
| 1999-2000
| 2000-01
| 2001-02
| 2002-03
| 2003-04
| 2004-05
|
|---|
| HK$'000
| HK$'000
| HK$'000
| HK$'000
| HK$'000
| HK$'000
| HK$'000
|
|---|
| Costs
|
|---|
| Non-recurrent costs
| 22,480
| 12,302
| -
| -
| -
| -
| -
|
| Recurrent costs
| -
| 2,018
| 4,037
| 4,037
| 4,037
| 4,037
| 5,367
|
| Total costs
| 22,480
| 14,320
| 4,037
| 4,037
| 4,037
| 4,037
| 5,367
|
|---|
| Savings
|
|---|
|
Notional savings in staff costsNote 1 | -
| 1,801
| 3,602
| 3,602
| 3,602
| 3,602
| 3,602
|
|
Realizable savings in staff costs Note 2 | -
| 1,167
| 2,334
| 2,334
| 2,334
| 2,334
| 2,334
|
|
Rectifying the existing PMS for Year 2000 compliance
| 2,426
| -
| -
| -
| -
| -
| -
|
|
Replacement of the obsolete PMS
| -
| -
| -
| 15,847
| -
| -
| -
|
|
Maintenance of the existing PMS
| -
| 174
| 348
| 348
| -
| -
| -
|
|
Maintenance of the replaced PMS
| -
| -
| -
| -
| 2,260
| 2,260
| 2,260
|
| Total benefits
| 2,426
| 3,142
| 6,284
| 22,131
| 8,196
| 8,196
| 8,196
|
|---|
| Net benefits
| (20,054)
| (11,178)
| 2,247
| 18,094
| 4,159
| 4,159
| 2,829
|
|---|
| Cumulative benefits
| (20,054)
| (31,232)
| (28,985)
| (10,891)
| (6,732)
| (2,573)
| 256
|
|---|
Note 1 : The proposed system, if and when implemented, would enable the Government Supplies Department and Information Technology Services Department to relieve some staff time for other duties including 0.3 Senior Supplies Officer, 0.17 Supplies Officer, 0.52 Assistant Supplies Officer, 0.92 Supplies Supervisor I, 1.34 Supplies Supervisor II, 0.2 Contract Systems Analyst. With the incorporation of Chinese processing function into the proposed system, the need to create six Supplies Supervisor II posts to cope with the increasing demand in Chinese processing would be eliminated.
Note 2 : Seven posts (one Data Preparation Supervisor, one Assistant Data Preparation Supervisor, two Data Processor, one Supplies Supervisor I and two Supplies Supervisor II) dealing with data input and screening of documents can be deleted after the implementation of the proposed system.
