LegCo Paper No. CB(1)349/96-97
(These minutes have been
seen by the Administration)
Ref : CB1/PL/PLW/1

LegCo Panel on Planning, Lands and Works

Minutes of Meeting held on Tuesday, 15 October 1996 at 4:30 p.m. in Conference Room B of the Legislative Council Building

Members present :
    Hon Edward S T HO, OBE, JP (Chairman)
    Hon Albert CHAN Wai-yip (Deputy Chairman)
    Hon Ronald ARCULLI, OBE, JP
    Hon James TO Kun-sun
    Dr Hon Samuel WONG Ping-wai, MBE, FEng, JP
    Hon CHOY Kan-pui, JP
    Hon IP Kwok-him
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon TSANG Kin-shing
    Dr Hon John TSE Wing-ling
Member absent :
    Hon LAU Wong-fat, OBE, JP
Public officers attending :
For Item IV
    Mr H S KWONG, JP
    Secretary for Works
    Mr Billy LAM, JP
    Director of New Airport Projects Co-ordination Office
    Dr Henry Townsend
    Chief Executive Officer, Airport Authority
    Mr Clinton Leeks
    Acting Project Director
    Airport Authority
    Mr Alistair Thomson
    Head of Construction
    Airport Authority
    Mr K C TSUI
    Project Manager - E & M Works
    Airport Authority
For Item V
    Mr P J Berry
    Principal Assistant Secretary for Works (Contracts & Cost Control)
    Mr A H Lamont
    Assistant Director of Buildings (Quantity Surveying)
Clerk in attendance :
    Miss Odelia LEUNG
    Chief Assistant Secretary (1) 1
Staff in attendance :
    Miss Pauline NG
    Assistant Secretary General 1
    Mrs Mary TANG
    Senior Assistant Secretary (1) 2

I. Confirmation of minutes of meetings and matters arising

(LegCo Paper No. CB(1)92/96-97)

The minutes of meeting held on 2 October 1996 were confirmed.

II. Date of next meeting and items for discussion

2. It was agreed that the following items would be discussed at the next regular meeting of the Panel scheduled for Tuesday, 19 November 1996 -

  1. Demographic projections;
  2. Territorial Development Strategy Review; and
  3. Consultation paper on Town Planning White Bill.

III. Information papers issued since last meeting

(LegCo Paper No. CB(1)1995/95-96)

3. Members noted that an information paper on slope safety had been circulated on 27 August 1996.

IV. Supplemental agreements for the construction of passenger terminal building

(LegCo Paper No. CB(1)19/96-97, 88/96-97(01) and 88/96-97(02))

4. A paper entitled "Supplemental agreements with contractors for Passenger Terminal Building (PTB) works" was tabled at the meeting.

5. Dr Henry Townsend explained that the purpose of the two supplemental agreements was to settle all variation orders and contractual claims up to 30 June 1996 for the BCJ Joint Venture (BCJ), the contractor for the PTB structure and up to the end of August 1996 for the AEH Joint Venture (AEH), the contractor for PTB services. The agreement with BCJ would also re-establish contractual responsibilities for nominated subcontracts under the BCJ contract, thereby preserving April 1998 as the target opening date for the new airport.

6. According to Dr Townsend, the Airport Authority (AA) had taken into consideration a number of reasons for negotiating commercial settlements with the contractors concerned. Record rainfall, flooding of the site and successive monsoon in 1994 as well as unforeseen adverse ground conditions in the original island of Chek Lap Kok had delayed the contractors’ timely access to the site. In an effort to maintain the momentum of works, the handing over of the site to BCJ was split into many more phases than originally planned. The piecemeal handover of work sites had disrupted BCJ’s working programme and made it difficult for BCJ to plan their resources and manage their contract. There had been subsequent modifications of the design to take into account evolving user requirements. As a result, BCJ had submitted a large number of claims. Moreover, the programmes for the nominated fit-out subcontracts were considerably compressed and BCJ had objected to these nominated subcontracts collectively. Given the delays already experienced under the PTB contract, the potential impact on other contracts, the claims situation and the programme risk, the AA Board agreed at its meeting on 5 September 1996 to enter into supplemental agreements with BCJ and AEH. The agreements required the two contractors to work to an integrated construction programme prepared by the AA which ensured that all key activities including fitting-out, testing and commissioning to be completed within the terminal building were linked through a common programme. Through this settlement, BCJ was committed to recovering the progress of the roof works, achieving weathertightness of the PTB by the end of 1996, and accepting back the contractual liabilities for the nominated subcontracts. Most importantly, BCJ had agreed to complete all essential works by 31 October 1997.

7. Dr Townsend said that the AA Management had critically reviewed its contingent liabilities and was confident that the AA would have sufficient fund to meet all the requirements for completion of Phase 1a works within the original budget of $49.8 billion. He assured members that the AA Board would continue its best efforts to manage and control cost and claims, so that the airport could be completed in the most cost-effective manner and in time for opening in April 1998.

8. Members expressed dissatisfaction with the way the AA had entered into commercial agreements with BCJ (under Contract 302) and AEH (under Contract 320). They called for a detailed explanation for the delay in handing over the site to BCJ since inclement weather conditions should have been covered by the terms of the contract and adverse ground conditions should have been revealed in previous consultancy studies. Members asked for detailed information on the consultancy company commissioned to carry out the site investigation works, the extent of the works done and the costs for the consultancy. Given that the Administration was well aware that there would be a delay in handing over the site to contractors due to adverse ground conditions as revealed by the progress of foundation works under Contract 301, members questioned why the Administration still went ahead in signing Contract 302 with BCJ in January 1995. Members also queried the basis for reaching commercial settlements with C302 contractors since they should have been prepared for piecemeal handovers and the target completion date for C302 had already been deferred from June 1997 to October 1997 to make up for the delay in handing over the site.

9. In response to members’ queries and comments, Dr Townsend and Mr Alistair Thomson made the following points -

Site investigation for foundation works under Contract 301

  1. When Contract 301 for the foundation works was awarded, there were two months of heavy rain at Chek Lap Kok. As the responsibility to overcome the effect of inclement weather conditions rested with the contractor, measures were taken to pump out the water from the site with no added compensation. Concurrently, upon opening up the ground, it was discovered that the ground conditions were very much different from what was originally anticipated. Design changes were thus necessary. The AA and the contractor had to recognize the financial risk due to adverse ground conditions.
  2. Access to carry out site investigation for foundation works was limited by blasting and excavating works underway at the time the hills in Chek Lap Kok were levelled. Given the size of the project and the expanse of the geophysical exploration, the preliminary investigation, though extensive, could not necessarily precisely match with the detailed design. There would be considerable distances between various borings and other measurements taken. To obtain a full picture of the ground conditions, site investigations had to be done on each and every location. This was not normally done in engineering contracts and would not have been possible for such a large site as considerable money and time would be involved.
  3. Upon discovering in the course of site preparation that the site was an area of variable ground, the AA had made a decision to shift the PTB 190 meters to the west to ameliorate some of the effects of the worst ground conditions. The other benefits of shifting the PTB included the preservation of the eastern coastline as well as major savings in reclamation contract costs. An economic overall approach for Contract 301 was pursued. The contract, though delayed, was finalised within budget.

Delay in access to site for Contract 302 works

  1. As the original intention was to complete the airport project before 30 June 1997, there was a requirement to keep up the momentum in works. Thus, notwithstanding that there was knowledge of the problems in foundation works, Contract 302 for building the PTB was signed in January 1995 with BCJ at a cost of $10.1 billion. The plan was to handover progressively the site to BCJ in a number of sizeable portions, in an attempt to avoid delay.
  2. However, the exceptional variations of ground conditions had caused a resultant delay in giving possession of the site to BCJ for the commissioning of C302. This had disrupted BCJ’s works programme and made it difficult for BCJ to plan for its resources and manage their contract. In addition, due to the inability to raise outside funding prior to the establishment of the Airport Authority and the signing of the Financial Support Agreement, the award of the fit out subcontracts, which exceeded 20, could not commence until early 1996. This significant delay, coupled with the delay in handing over the site for C302 works, made it necessary to extend the C302 construction programme to October 1997.

The signing of supplemental agreements

  1. The AA Board agreed at its meeting on 5 September 1996 to enter into supplemental agreements with BCJ and AEH. The supplemental agreement with BCJ was settled at $1.5 billion. About two-thirds of this agreement was to cover claims arising from events such as unforeseen ground conditions and related matters, including variations in design. The remaining one-third was to correct situations arising from nominated subcontracts and to ensure that the PTB structure could be completed in October 1997. The supplemental agreement with AEH was settled at $396.8 million for the timely provision of PTB services. These two agreements, totalling $1.9 billion, were covered well within the overall budget of $49.8 billion, for the AA’s works.

Progress of construction

  1. The southern runway and taxiways were substantially completed and the planned paving completion date was by the end of 1996. The concrete structure of the PTB was also essentially completed. There were no signs of structural problems with the runways nor the concrete structure. The design changes fully complied with the building regulations. The works were of high quality, constructed to the satisfaction of the Buildings Department, and had been reviewed by the Government.

10. In response to members’ further queries that the AA should not have entered into the contracts as signed given its knowledge of the progress of foundation works, Mr Billy LAM explained that following the signing of the Airport Committee Agreed Minute on 4 November 1994, considerable efforts had been made to achieve the target of completing the airport project to the maximum extent possible before mid-1997. The foundation works were originally scheduled for commencement on 6 June 1994 and for completion on 19 March 1995. The Provisional Airport Authority was at that time aware of the adverse ground conditions and also anticipated further slippage from the heavy rains in 1994. Given the facts that the construction works for the PTB would take 29 months to complete and the tendering price received for Contract 302 was very favourable, it had become necessary for the contract to be signed in late January 1995. In an effort to maintain the momentum of works, it was decided that Contract 302 should be awarded first and that the handing over of the sites would be done in phases. The decision was taken with the objective of completing the airport in time and in a most cost-effective manner.

11. Referring to Government’s role in the matter, Mr LAM supplemented that New Airport Project Co-ordination Office (NAPCO) had undertaken a review of the proposed settlements with BCJ and AEH when the negotiations reached an advanced stage. As regards the overall picture, it was noted that the total number of outstanding claims had risen from 1,148 in March 1996 to 2,090 in June 1996, and AA’s corresponding assessed liability increased from $1.152 billion to $1.886 billion. Having examined the contractors’ information supplied by the AA, the Government considered that there was a need for commercial settlements with the contractors. In so doing, both the AA and the contractors would be able to concentrate their efforts and resources on substantive airport works rather than diverting their time and efforts to claims resolution. Commercial settlements were therefore the optimum way forward and the level of settlements represented the most reasonable commercial deal in the circumstances. The AA Board had also set up a working group chaired by the Vice-Chairman and comprised of the Secretary for works, Director of NAPCO and some non-official members to examine the various issues before endorsing the settlements. Mr LAM reiterated that an integrated and binding works programme had now been re-established with BCJ and AEH to meet the target opening date in April 1998. The payment terms of the supplemental agreements had included provisions for penalty for liquidated damages in respect of delay in the completion of works.

12. Mr LAM added that for a project of such magnitude, slippage in works was not uncommon. Every effort had been made to remedy the situation so that the project would be completed on time and within budget. NAPCO had also made recommendations to the AA Board on means to improve the monitoring of works progress, the resolution of claims and the control of budget. The working group chaired by the Vice- Chairman of the AA would follow up on these matters.

13. Notwithstanding the explanations given by representatives of the Administration and the AA, members remained dissatisfied with the way the issue had been handled. They opined that the Administration had been striving at all costs to fulfil the commitment to complete the airport project before the handover. They requested a more detailed account of the issue, including the following information -

- the details of the initial works programme under Contract 302 as compared with the updated programme, preferably illustrated with a bar chart;
- the difference in terms of cost incurred and time needed had a more conservative design for Contract 301 been adopted;
- the details of site investigation works done prior to the award of Contract 301 and their cost; and
- the amount of consultancy fees incurred for site investigation works.

14. As to the way forward, some members suggested that the Governor be requested to appoint the Director of Audit to conduct an audit report on the award of the supplemental agreements.

15. Mr H S KWONG stated that the commercial settlements were considered the most practical solution under the present circumstances. He, however, acknowledged the need for the AA to provide a detailed report explaining the circumstances surrounding the award of C302 and the signing of the supplemental agreements. He undertook to provide a report in two weeks’ time. Mr LAM added that more information on the work site could be provided by Mr Douglas Oakervee, Project Director of the AA on his return to Hong Kong.

Internal Discussion

16. Members agreed to await the Administration’s report before deciding on the way forward. They suggested that the Administration be advised to make reference to the format in Chapter 9 of the Director of Audit’s report, March 1996 in compiling the report.

V. Design-build contracts administered by the Government

(LegCo Paper No. CB(1)88/96-97(03))

17. Due to the time constraints, members agreed to defer the discussion of this item.

18. The meeting closed at 6:15 p.m.

Legislative Council Secretariat
18 November 1996

Last Updated on 21 August 1998