LC Paper No. CB(1)1902/98-99
(These minutes have been
seen by the Administration)

Ref: CB1/PS/1/98/1

Legislative Council
Panel on Economic Services

Subcommittee to follow-up the recommendations
of the three inquiry reports on the opening of the new airport

Minutes of meeting held on
Tuesday, 11 May 1999, at 2:30 pm
in the Chamber of the Legislative Council Building

Members present :

Hon James TIEN Pei-chun, JP (Chairman)
Hon Kenneth TING Woo-shou, JP
Hon LEE Wing-tat
Hon Ambrose CHEUNG Wing-sum, JP
Hon HUI Cheung-ching
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon SIN Chung-kai
Hon Howard YOUNG, JP

Members attending :

Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon Emily LAU Wai-hing, JP

Member absent :

Hon Fred LI Wah-ming

Public officers attending :

For Agenda Item III

Mr Arthur HO
Deputy Secretary for Economic Services

Mr Howard LEE
Principal Assistant Secretary for Economic Services
(New Airport)

Mr Danny MOK Yick Fan
Government Engineer (Infrastructure Co-ordination
Office), Works Bureau

Mr Alex AU
Acting Director of Civil Aviation

Attendance by invitation :

For Agenda Item III

Airport Authority

Mr Billy C L LAM
Acting Chief Executive Officer

Mr Richard A SIEGEL
Management and Operations Adviser

Mr Joseph B LAI
Head of System Services

Mr Eric W L WONG
General Manger - Operations Support

Y2K Contingency Planning Project Manager

Hong Kong Air Cargo Terminals Ltd (HACTL)

Mr Anthony WONG
Managing Director

Mr Johnnie WONG
General Manager - Operations

Asia Airfreight Terminal Co. Ltd (AAT)

Mr Andrew LIM
Chief Executive Officer

Ms Debbie HO
General Manager - Finance & Administration

Clerk in attendance :

Ms Estella CHAN
Chief Assistant Secretary (1)4

Staff in attendance :

Mr Daniel HUI
Senior Assistant Secretary (1)5

I. Election of Chairman

Members agreed that Mr James TIEN Pei-chun should preside over the election of Chairman of the Subcommittee.

2. Mr James TIEN was nominated by Mr LEE Wing-tat and seconded by Mr CHAN Kam-lam to be the Chairman of the Subcommittee. Mr TIEN accepted the nomination. There being no other nomination, Mr TIEN was announced the Chairman of the Subcommittee.

II. Terms of reference

3. Members agreed the following terms of reference for the Subcommittee :

"To follow up the recommendations of the three inquiry reports on the opening of the new airport and related issues.�

III. Meeting with the Administration, Airport Authority and related organizations

(LC Paper No. CB(1)1278/98-99(01) - Information paper provided by the Administration
LC Paper No. CB(1)1278/98-99(02) - Information paper provided by the Airport Authority on Y2K Compliance Programme
LC Paper No. CB(1)1278/98-99(03) - Information paper provided by the Airport Authority on Access Control System)

Progress of Y2K Compliance Programme of the Airport Authority

4. Noting that Y2K compliance was not specified as a term in the purchase agreements of various equipment/computerized systems for the new airport, Ms Emily LAU Wai-hing queried the Airport Authority (AA) on the incongruity of this practice with the Civil Aviation Department (CAD)'s purchase contracts for equipment to be used in the new Air Traffic Control Centre. She also asked about the financial loss caused by the omission of a Y2K compliance clause in AA's purchase contracts.

5. In response, the Director of Civil Aviation (Acting) (DCA(Atg)) advised that as far as CAD was concerned, purchase contracts signed since 1996 had been required to include a Y2K compliance clause. The new Air Traffic Control systems purchased had been verified to be Y2K compliant. At the moment, only one telephone system was yet to be rectified to become Y2K compliant. Mr Billy LAM, Acting Chief Executive Officer of the Airport Authority, further advised that in deciding to use a "fitness for purpose�clause instead of a Y2K compliance clause in AA's purchase contracts for the new airport's equipment/systems, AA had taken into account three factors. Firstly, when the specifications for the equipment/systems were drawn up in 1993-95, the standard operating systems of the relevant equipment/systems available at the market were not yet Y2K compliant. In this regard, he noted that the British Standards Institute (BSI) issued the Y2K compliance standards only in 1997. Secondly, the Provisional Airport Authority at that time, being very cost conscious, was concerned that inclusion of a Y2K compliance condition would substantially inflate contract prices for the equipment/systems. Thirdly, AA considered that inclusion of the 'fitness for purpose�clause would also serve the purpose of ensuring the proper functioning of the equipment/systems supplied during their designed life beyond year 2000. He also advised that in accordance with the 'fitness for purpose�clause, contractors had been willing to rectify those equipment/systems which were not Y2K compliant.

6. On whether AA's approach of including a 'fitness for purpose�clause in purchase contracts was better than CAD's approach of specifying the requirement for Y2K compliance in the purchase contracts, Mr Richard A. SIEGEL advised that AA and CAD had adopted different approaches under different circumstances and had achieved their respective objectives. CAD had specified the Y2K compliance requirement in the contracts and the equipment were made Y2K compliant during the procurement process when the relevant standards were available in late 1996 and 1997. AA adopted a wide approach of using a 'fitness for purpose�clause which was a conscious decision because the designed life of the equipment extended beyond year 2000. AA's approach had been proved effective as evidenced from the contractors�willingness to rectify the equipment/systems.

7. Referring to Appendix 1 of the information paper provided by AA (LC Paper No. CB(1)1278/98-99(02)), Mr LI Wing-tat noted that the target compliance dates of some of AA's systems was August/September 1999. He wondered whether the tight schedule of AA's Y2K compliance programme would compromise quality, in particular with respect to Y2K verification tests. He requested assurance from AA that the standards used in AA's Y2K verification tests would not be less stringent than the BSI standards. Mr Billy LAM agreed that AA had a tight Y2K compliance programme as substantive work in relation to the programme could only start in October/November 1998 after having resolved various problems related to the airport opening. In view of the tight time schedule, AA had lined up as much resources as possible in tackling the problem, including the employment of an external Y2K consultant, KPMG, to advise the Authority on the development of its Y2K strategy; and secondment of staff from a consultant group, DMR Consulting Group to manage and support the Y2K testing effort. Apart from taking heed of the recommendation of the Legislative Council Select Committee to replace the Head of its Information Technology Division and reinforce the professional team in the Division, AA had also established a Central Programme Office to oversee the progress of the Y2K compliance programme. Moreover, experts seconded from the Electrical and Mechanical Services Department were available to assist in the testing of equipment with embedded systems. As at end of April 1999, AA had achieved Y2K compliance in respect of 61.3% of its systems and by end of June 1999, it was expected that 96.8% would achieve Y2K compliance. AA aimed to achieve 100% Y2K compliance by end of September 1999. As regards the standards used in Y2K compliance verification tests, he confirmed that the tests were conducted in accordance with the requirements of BSI.

8. Mr LEE Wing-tat enquired whether progress reports prepared by DMR Consulting Group on AA's Y2K compliance programme were made available to the Economic Services Bureau (ESB) and whether ESB had technical expertise to examine the reports. The Deputy Secretary for Economic Services (DS/ES) advised that ESB had through various channels monitored AA's Y2K compliance programme. He said that ESB participated in a Y2K compliance Task Force which was chaired by CAD and comprised representatives of AA and relevant parties. The task force closely monitored the Y2K compliance progress of security and safety related systems of key aviation related organizations. He further advised that ESB received monthly progress reports from AA setting out the latest position with respect to its Y2K compliance programme and highlighting potential problem areas. These monthly reports were also sent to the Information Technology and Broadcasting Bureau. Moreover, the AA Board received progress reports from AA's external consultant, KPMG, which provided an independent view on AA's progress in its Y2K compliance programme. The Secretary for Economic Services, as one of the members on the Board worked closely with other Board members to keep under review the progress. ESB, therefore, received a lot of information to monitor AA's progress in its Y2K compliance programme. Whilst ESB did not have the necessary technical expertise, it could approach the professional departments such as the Civil Aviation Department, Information Technology Services Department and Electrical and Mechanical Services Department for technical advice.

9. Mr LEE Wing-tat requested that reports prepared by KPMG and DMR Consulting Group be provided to Members of the Legislative Council. Mr Billy LAM agreed to consider Mr LEE's request having regard to terms of the contract between AA and the consultants concerned.

(Post-meeting note : KPMG's report provided by the Airport Authority has been circulated to members vide LC Paper No. CB(1)1825/98-99.)

10. Mrs Selina CHOW LIANG Shuk-yee pointed out that the worst case impact due to systems failure as listed in Appendix 2 of LC Paper No. CB(1)1278(02) would be disastrous to the operation of the airport. She requested an elaboration on measures taken by AA in ensuring Y2K compliance of various systems, in particular the Baggage Handling System (BHS). Mr Billy LAM remarked that the worst case impact was an assessment conducted by AA at the request of members of the Panel on Economic Services. He hoped that such situations could be avoided with AA's due efforts to ensure Y2K compliance of all the systems. Moreover, there would be contingency plans in case of systems failure during the roll-over to year 2000. He supplemented that as at early May 1999, 65% of the systems had been verified to be Y2K compliant. Rectification and testing on the remaining systems were at an advanced stage and by June 1999 only four systems including BHS, which were very large and complicated systems, were yet to be fully verified. AA considered that in addition to simulated tests on different components of the BHS, a live test in a real operation environment should be conducted to verify the system's Y2K compliance. The live test which would involve AA's business partners could only be conducted at the final stage of the compliance programme because it was time consuming to co-ordinate with the relevant participating parties. Mr SIEGEL supplemented that as the 18-hour live test on the system would last through the night and part of the operation during the day, there had to be thorough co-ordination with airlines and ramp handlers. Despite all these difficulties, AA was determined to carry out the live test to make sure that the BHS could roll over to year 2000.

11. Mr SIEGEL further said that AA had learnt from the lessons of the opening of the new airport in handling the Y2K issue. It saw the need to be transparent and honest, not to take things at face value and to address issues openly and thoroughly. In accordance with these principles, AA had conducted thorough verification tests on various systems despite contractors�confirmation that the systems were Y2K compliant. In addition to the verification tests conducted, AA was also focusing on the command and control structure which had to be in place to implement contingency measures if necessary. Work on developing of the contingency plans would be completed by August 1999.

12. Referring to paragraph 2 of the information paper provided by AA (LC Paper No. CB(1)1278/98-99(02)), Ms CHAN Yuen-han pointed out that the 76 systems which had been verified as Y2K compliant included systems with non-compliant components in them. She sought clarification on this seemingly contradictory statement. Mr Billy LAM explained that there were three categories of systems verified to be Y2K compliant, including firstly those systems confirmed Y2K compliant by the suppliers and subsequently verified by AA, secondly those systems which had been rectified by the supplier and subsequently verified by AA, and thirdly those systems with some non-compliant components which would not affect the useful functioning of the system. He supplemented that AA was currently focusing on verification of the Flight Information Display System (FIDS) and BHS, which were the two most complicated systems in the airport. As regards the progress in respect of FIDS, Mr Joseph LAI, Head of System Services of AA, advised that rectification and enhancement of FIDS had completed and verification tests were at an advanced stage. He hoped that FIDS could be confirmed as Y2K compliant by mid-May 1999. Regarding progress with respect to the BHS, Mr Eric WONG, General Manager (Operations Support) of AA, reiterated that simulated tests could be completed by end May/early June and an on-site live test on the system would be conducted in August.

13. As to whether ESB was satisfied that AA had adequate expertise and data in monitoring its business partners�progress in their Y2K compliance programmes, DS/ES agreed that it was important for AA to maintain close contact with its business partners and monitor their progress since non-compliance in the partners�systems could impact on AA's systems. Apart from requesting the business partners to provide relevant progress reports on Y2K compliance, AA would conduct joint tests with these partners to verify the Y2K compliance of the relevant systems and work out contingency plans in consultation with them.

14.. Mr SIN Chung-kai pointed out that the risk of airport operation being disrupted by the Y2K issue could not be entirely eliminated despite the precautionary measures and contingency plans. He opined that if the number of flights scheduled for 31 December 1999 and 1 January 2000 could be reduced with resulting less passenger flow, the size of the problem might be correspondingly reduced even if airport operation was disrupted during the roll- over to year 2000. In this regard, he enquired whether the Administration would consider, as a matter of policy, encouraging airlines to reduce the number of flights in those two days. DCA(Atg) noted Mr SIN's comments and advised that CAD had discussed the issue with airlines and no decision had been taken yet. The airlines had indicated the need to assess the situation having regard to the bookings for flights scheduled for late December 1999 and early January 2000. If flights were reduced on 31 December 1999 and 1 January 2000, additional flights might be required before and after these two days. He supplemented that the decision on reducing the number of flights remained commercial decision to be made by airlines.

15. In reply to the Chairman's question on the methodology adopted by AA in testing Y2K compliance of its systems and developing contingency plans, Mr Billy LAM advised that systems in AA's five major operational areas, namely, passenger flow management, baggage handling, air side operation, air cargo handling and air mail handling would be individually tested and then followed by joint testing to ensure their Y2K compliance. As regards development of contingency plans, Mr Jhan SCHMITZ advised that 11 workshops had been conducted for operational and system staff of AA and its business partners in preparation for the Y2K compliance programme. The operating characteristics of different systems were defined before drafting relevant contingency procedures. There would be drillings on the draft contingency procedures before they were finalized. He further advised that AA had established a Millennium Task Force comprising representatives of AA and its business partners which oversaw, inter alia, the progress of drafting contingency plans. Drilling on the contingency plans would start in May 1999.

16. At Mr LEE Wing tat's request, Mr Billy LAM agreed to provide further information on results of Y2K compliance tests on AA's major systems including FIDS and BHS when completed.

(Post-meeting note : Further information provided by AA has been circulated to members vide LC Paper No. CB(1)1607/98-99 dated 28 June 1999.)

17. As regards ICAO's role in addressing the Y2K issue, DCA(Acting) said that ICAO had developed a contingency plan which would become operational as from 31 December 1999. ICAO's Asia Pacific office in Bangkok would co-ordinate contingency measures adopted by airports in the region and different airlines. Among various contingency measures, ICAO had recommended increased longitudinal separation between aircraft which would have the effect of reducing the number of aircraft in the sky during the roll-over to year 2000.

18. On Mr LEE Wing-tat's enquiring about the report provided by AA to the International Air Transport Association (IATA) on its Y2K compliance programme, DCA(Atg) and Mr Billy LAM confirmed that AA had responded to a questionnaire prepared by IATA in this regard. Mr LAM said that he would consider Mr LEE's request for a copy of the report.

(Post-meeting note : A copy of the report to IATA made available by the Airport Authority has been circulated to members vide LC Paper No. CB(1)1722/98-99.)

Y2K Compliance of the air cargo terminal operators

19. Noting that HACTL had indicated in its report that the last drilling on its contingency plan would be conducted in mid-December 1999, Mr HUI Cheung-ching was concerned whether the timing for the drilling was too late. He also enquired about the number of drillings which would be carried out preceding the last drilling in mid-December. Mr Anthony WONG, Managing Director of HACTL, advised that HACTL's contingency plans developed in co-operation with airlines would be completed in June 1999 and drilling on the contingency plans would commence in July/August. Drilling on the contingency plans should have been carried out a few times before the last time in mid-December 1999.

20. Ms CHAN Yuen-han noted that as at 19 April 1999, six mission-critical systems of HACTL were still not yet Y2K compliant. She enquired about the current status of these six systems. Mr Anthony WONG advised that HACTL had 28 mission-critical systems, of which 22 had been verified to be fully Y2K compliant. Of the remaining six systems, system amendment and testing had already been completed. They would be declared as Y2K compliant subject to results of live tests, which were expected to be completed in May 1999.

21. Noting that HACTL's Y2K compliance programme covered "assessing customers�Year-2000 compliance� Mr Howard YOUNG enquired whether HACTL's objective was to assist its customers to achieve Y2K compliance and whether HACTL would refuse to provide service to those customers whose systems were non-Y2K compliant. Mr Anthony WONG said that HACTL's Y2K compliance programme had been prepared in accordance with the Y2K compliance programme of its parent company, John Swire & Sons (HK) Ltd. The main purpose of assessing customers' Y2K compliance was to ensure better communication with customers and to resolve common issues on Y2K compliance. HACTL's decision on whether to continue provision of service to customers with non-Y2K compliant systems would be based on commercial considerations.

22. In reply to Ms Emily LAU's question regarding Asia Airfreight Terminal (AAT)'s progress in its Y2K compliance programme, Mr Andrew LIM, Chief Executive Officer of AAT, said that when AAT purchased its system in 1995, the purchase contracts had stipulated that the systems supplied had to be Y2K compliant. Of the nine mission-critical systems in AAT, five had been tested to be Y2K compliant and testing on the remaining four systems would be completed in June 1999. AAT was preparing its contingency plan in co-operation with its business partners and drilling was expected to take place in July/August 1999. As requested by Ms LAU, Mr LIM agreed to provide a written report on AAT's progress in Y2K compliance.

(Post-meeting note : AAT's report provided through the Administration has been circulated to members vide LC Paper No. CB(1)1607/98-99 dated 28 June 1999.)

23. In response to Ms Emily LAU's question on AA's mechanism in monitoring the air cargo terminal operators�progress in Y2K compliance, Mr Billy LAM advised that based on the recommendation of the Legislative Council Select Committee Report, AA had been working with HACTL and AAT on an enhanced monitoring system which would enable AA to be kept informed of the overall performance standards of the air cargo terminal operators and be alerted of any potential problems. As regards monitoring of the progress in their Y2K compliance programme, Mr LAM re-iterated that the air cargo terminal operators, like AA's other business partners, had provided regular progress reports to AA. Moreover, HACTL and AAT were also members of AA's Millennium Task Force which provided a forum for discussion of Y2K problems. AA had also been working closely with HACTL and AAT in conducting joint tests on Y2K compliance and in drafting the contingency plans.

Access Control System (ACS) in the new airport

24. Noting that as a result of the failure of ACS, the cost of employing external security companies to perform static guard duty between 6 July 1998 and 12 April 1999 was HK$44.5 million, Ms Emily LAU enquired whether the contractor concerned or AA was responsible for the failure of the system and whether the contractor was liable for the additional cost incurred. She also doubted the rationale for conducting confidence trials and site acceptance tests of the ACS in May/June 1999, which should have been conducted before the airport opening date (AOD). In response, Mr Billy LAM advised that the ACS was a complicated systems integrated with other airport management systems such as the closed circuit television system. As some components in this integrated system had not yet been fully completed on AOD, the ACS could not be fully tested before AOD. Nonetheless, the local sub-contractor of the system had now deployed a team of experts to fix problems related to the ACS and conduct Y2K verification tests on the system. AA would fully test the rectified system before acceptance. As regards additional cost paid to the external security companies, he said that the expenditure was necessary in order to ensure airport security. AA would endeavour to claim damage from the contractor subject to conditions stipulated in the relevant purchase contract.

25. In reply to the Chairman's question on whether there was any retention money held by AA in relation to the purchase of the ACS, Mr Billy LAM confirmed that most of AA's purchase contracts had a retention money clause.

26. Referring to paragraphs 8 and 9 of the information paper provided by AA, Mr HUI Cheung-ching enquired whether AA or the contractor concerned would be responsible for paying the cost relating to replacement of the software of the ACS. Mr Eric W L WONG, General Manager - Operations Support of AA, advised that the existing software used in the ACS had been rectified and an additional software programme would be installed to enhance the smooth operation of the ACS, including a new programme which would allow AA's technical staff to change the configuration of each access door. The relevant works would be considered as maintenance and there would be no additional charge.

Draft "Guidelines for the Development of Major Infrastructure Projects�

27. Referring to the draft "Guidelines for Development of Major Infrastructure Project� Mr Ambrose CHEUNG Wing-sum asked whether the draft Guidelines were applicable to all major infrastructure projects. He also enquired the factors to be considered by the Administration in selecting a delivery agent in respect of different types of infrastructure projects, based on the principles set out in paragraph 1 of the draft Guidelines. In response, the Government Engineer/Infrastructure Co-ordination Office (GE/ICO) advised that the draft Guidelines would be applicable to all types of major infrastructure projects. As regards selection of delivery agents, he said that there were three choices as mentioned in paragraph 1 of the draft Guidelines, namely, designating a Government department, commissioning a statutory organization or involving a private enterprise through a franchise. In making a decision, the Administration would take into account factors such as the degree of control available to Government, the track record of the organization and the experience of the key personnel involved.

28. As requested by Mr Ambrose CHEUNG, GE/ICO agreed to illustrate with an example the application of paragraph 1 of the draft Guidelines.

(Post-meeting note : The illustration provided by the Administration has been issued to members vide LC Paper No. CB(1)1607/98-99(02).)

Aircraft Noise

29. Noting that the second runway was expected to be available for partial use in late May 1999 and full operational use in August 1999, Ms Emily LAU was concerned whether CAD had measured the noise level, taken mitigation measures to reduce aircraft noise and fully consulted the residents living in the affected districts. DCA(Atg) said that since the two runways were in a parallel direction and the descend profile for aircraft on final approach to the second runway would be about the same as the first runway, the expected noise impact arising from operation of the second runway would be similar to that of the first runway. As indicated in paragraph 2 of the information paper provided by the Administration, the Noise Exposure Forecast for the districts affected by the first runway was at an acceptable level. In preparation for the opening of the second runway, CAD had briefed 12 Provisional District Boards of the affected areas on the likely noise level in the affected areas after the opening of the second runway. Furthermore, CAD would continue to implement the noise mitigating measures as set out in paragraphs 6 and 7 of the information paper and closely monitor the situation.

New membership of the AA Board

30. Noting that the current membership of the AA Board was due to expire on 31 May 1999, the Chairman enquired about the progress in considering appointments and reappointments to the AA Board. He opined that in considering reappointment of existing members of the AA Board, the Administration should attach more importance to the quality of advice provided by a member, rather than focusing on the attendance record of the member concerned. DS/ES advised that in considering appointments and reappointments to the AA Board, the Administration would take into account factors such as prospective appointees�personal abilities, expertise, experience, integrity and commitment to public service, in addition to the attendance record. He further advised that members of the AA Board were appointed by the Chief Executive of HKSAR and that the Administration would announce future membership of the Board soon.

The way forward

31. Members agreed that they would review further information to be provided by the Administration arising from the discussion at this meeting before deciding on the need for additional meetings.

(Post-meeting note : Further information provided by the Administration has been issued to members vide LC Paper No. CB(1)1607/98-99 dated 28 June 1999.)

IV. Any other business

32. There being no other business, the meeting ended at 4:30 pm.

Legislative Council Secretariat
13 September 1999