Report No. 32, March 1999

Chapter 7

Management of telecommunications
services under the 1988 Technical Services Agreement

Summary and key findings

A. Introduction. For more than 50 years, Company A has been supplying the Government with electronics and telecommunications services at cost. These arrangements were formalised in June 1964 by a Technical Services Agreement (TSA) between the Government and Company A. Under the 1988 TSA, which took effect from 1 January 1988 and will expire on 30 September 2006, Company A provides essentially the same services, on request by government departments, to the Government at cost. Audit has recently conducted a review of the management of TSA services and their cost-effectiveness and has found that there is room for improvement in a number of areas (paras. 1, 2 and 6). B. Requirement for TSA services. For the work carried out by the TSA teams in the Civil Aviation Department (CAD) and the Radio Television Hong Kong (RTHK), 107,838 man-hours were not charged to jobs. Audit estimated that the cost of the unaccounted-for man-hours was about $21.8 million a year. Audit has reservations about the need to use the TSA staff to perform the camera, audio and lighting operations (sub-inset (i) of the second inset of para. 9, paras. 15 and 30). C. Payment of overtime allowance. The CAD and the RTHK paid a substantial amount of overtime allowance to the TSA staff. The total amount of overtime payments was about $29.7 million in 1997-98. The overtime payments could be reduced by better work scheduling (paras. 36, 40 and 44). D. Administration charge. Audit has reservations about the reasonableness of certain components of the administration charge. The basis of the Treasury costing for computing the administration charge under the TSA for the years from 1993 to 1997 was at variance with that of the previous costing for the years from 1988 to 1992. The administration charge was about $29 million in 1997-98 (paras. 53 and 58). E. Recovery of licence fees for transmission sites. The RTHK and the Government Property Agency had not taken positive action to recover the recurrent maintenance costs from the users of transmission sites. Up to 31 March 1998, the total outstanding recurrent costs were about $13.2 million (para. 74). F. Performance measurement for the 1988 TSA. There were insufficient performance indicators for measuring the performance of TSA services. Audit noted that the CAD maintained performance records on the availability of all equipment or systems maintained by the TSA team. As for the RTHK, it did not have any performance indicators for measuring the performance of TSA services (para. 82). G. Cost-effectiveness of the TSA. According to the Treasury cost comparison, the cost of TSA services was 41% cheaper than that of the Government in 1994-95. Audit examined the methodology used by the Treasury and found that for cost comparison purposes, certain costs should not have been included as part of the cost of the Government. Audit estimated that the cost of TSA services was about 6% lower than that of in-house services in 1997-98 (paras. 93 to 95). H. Audit recommendations. Audit has made the following major recommendations: - the Director of Civil Aviation and the Director of Broadcasting should: (i) maintain adequate time records for the utilisation of the TSA staff (para. 18(a)); (ii) in consultation with the Director of Electrical and Mechanical Services, conduct a proper assessment of the manpower requirement for the preventive and corrective maintenance of the major air traffic control or broadcasting systems and equipment and take appropriate action to deal with the TSA staff found to be surplus to requirement (para. 18(c) and (d)); and (iii) examine whether there is scope for re-scheduling the working hours of the TSA staff to match with the work requirement in order to reduce overtime work to the minimum (third inset of para. 45); - the Director of Broadcasting should: (i) review the cost-effectiveness of engaging the TSA staff to carry out the camera, audio and lighting operations (first inset of para. 31); (ii) take early action to replace the TSA staff by contract staff if it is more cost-effective to do so (second inset of para. 31); and (iii) take urgent action to recover all outstanding recurrent costs for the use of transmission sites from users of the sites without further delay (first inset of para. 76); - the Secretary for the Treasury should, in consultation with the Director of Accounting Services, critically review the basis for determining the administration charge and the basis of costing used in the comparison of the cost of TSA services with that of in-house services (paras. 60 and 100); - Heads of Department making use of the TSA services should take early action to define productivity and performance indicators for these services (para. 85); and - the Secretary for the Treasury should, in consultation with the Heads of Department using TSA services, critically explore the possibilities of negotiating a better deal with Company A and examine the viability of using other service providers to replace the TSA services provided by Company A (para. 106). I. Response from the Administration. The Administration agrees with most of the audit recommendations. The Director of Civil Aviation has said that time records, similar to those for maintenance jobs, are not kept for project and technical support, equipment training and general work. However, he considers that the TSA staff are all fully occupied and deployed throughout their working hours in the most cost-effective manner (para. 19).