For discussion FCR(96-97)16
on 24 May 1996

ITEM FOR FINANCE COMMITTEE

HEAD 43 - CIVIL ENGINEERING DEPARTMENT
Subhead 700 General other non-recurrent

Members are invited to approve an increase in commitment from $59 million by $14.6 million to $73.6 million for engaging consultants to identify the maintenance responsibility of man-made slopes in the territory.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION

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PROBLEM

The approved commitment of $59 million is insufficient to meet the consultancy cost of the systematic identification of maintenance responsibility of man-made slopes in the territory (SIMAR) and associated expenses.

PROPOSAL

2. The Director of Civil Engineering (DCE), with the support of Director of Lands (D of L), proposes to increase the approved commitment for the SIMAR project from $59 million by $14.6 million to $73.6 million.

JUSTIFICATION

3. On 2 February 1996, Members considered FCR(95-96)118 and approved a new commitment of $59 million for a consultancy on SIMAR. The approved commitment was smaller than the original $70.8 million sought in the paper. This is because, in response to Members’ request, we agreed for the purpose of estimating the the consultancy fees to use a multiplying factor of 2.5 instead of 3. Members agreed at the meeting that should the outcome of the tender exercise indicate that a multiplying factor of 2.5 was on the low side, we should make a separate submission for an increase in commitment.

4. We have recently completed the tendering exercise for the selection on a competitive basis of a consultant for the SIMAR study. The lowest bid, which the DCE recommends to accept, is for a lump sum fee of $58.4 million plus an allowance for adjustment of the periodic payments under the contract for inflation in accordance with the movement of Hang Sang Consumer Price Index (HSCPI). Assuming an 8.2% annual increase based on the movement of the HSCPI from March 1995 to March 1996, we estimate that the inflation allowance will account for an additional $4.7 million over the four-year period of the project. As a result, the revised estimated consultancy cost together with the associated Land Registry service fees and contingencies will amount to a total of $73.6 million. This exceeds the approved commitment of $59 million by $14.6 million. We are therefore seeking Members’ approval for an increase in the approved commitment to enable us to engage the selected consultant to commence the study as soon as possible.

FINANCIAL IMPLICATIONS

5. Based on the tender results and on the advice of D of L, DCE estimates that the total project cost will be $73.6 million, broken down and phased as follows -

6. A comparison of the cost breakdowns of the original project estimate proposed in FCR(95-96)118 and the revised project estimate is as follows -

7. As regards paragraph 6(a), we use the lowest bid received in the actual competitive bidding as the basis for the revised estimate. The increase of $5.7 million, or 9.9% of the original estimate, reflects the higher costs as quoted by the recommended consultant in the lowest bid.

8. As regards paragraph 6(c), the decrease of $2.9 million is due to the reduction of contingencies from 10% to 5% as the level of the actual consultancy fee is now available.

BACKGROUND INFORMATION

9. We submitted this item to the Finance Committee, vide FCR(95-96)118, for a proposed commitment of $70.8 million on 2 February 1996. We used a multiplying factor of 3.0 in estimating the consultancy fees for consultants working in their own offices. Members questioned the inconsistency in adopting different multiplying factors in different submissions and requested that the standard factor of 2.5 be used for this item - the factor which was adopted in another consultancy submission considered at the same meeting. After discussion, Members approved a reduced commitment of $59 million for the project based on a factor of 2.5.

Works Branch
May 1996

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