Report No. 32, March 1999

Chapter 6

Construction of the Hei Ling Chau Typhoon Shelter

Summary and key findings

A. Introduction. In April 1993, the Government endorsed a proposal for the construction of the Hei Ling Chau Typhoon Shelter (HLCTS) to provide about 50 hectares of typhoon shelter space to meet the forecasted shortfall in 1996. In November 1995, the Civil Engineering Department (CED) awarded a contract (the Contract) for the construction of the HLCTS to the lowest tenderer (the Contractor) in the sum of $319 million. The works were scheduled for completion in October 1997. In December 1998, the Government re-entered the sites of the Contract due to the Contractor failure to proceed with the works with due diligence. Nevertheless, a large part of the works had been completed (paras. 1, 2 and 5). B. As Hei Ling Chau was a restricted area under the control of the Correctional Services Department (CSD), the CED had to consult the CSD about its security requirements. The CSD specified the security requirement of providing a 100-metre buffer zone between the shoreline and the HLCTS anchorage area. However, in mid-1994, the CED had to revise the general layout because the original one did not comply fully with the CSD security requirement. After the award of the Contract, the general layout was further revised in March 1996 (paras. 3 and 6). C. Audit review. Audit recently conducted a review to ascertain why design changes were required after the award of the Contract and whether there were inadequacies in the identification of client requirements when planning for the Contract. The findings of the audit are summarised in paragraphs D to H below. D. Design changes after completion of the site investigation. Audit noted that the CED circulated the general layout plan of the HLCTS to the CSD and the Marine Department only after the site investigation had commenced. In April 1994, a month after the completion of the site investigation, the CSD objected to the general layout plan because it did not comply fully with the CSD security requirement of providing a 100-metre buffer zone. Consequently, the CED had to revise the general layout by shifting the south and west breakwaters 250 metres seawards and by adding an additional east breakwater. The CED also considered that an additional site investigation was necessary to ascertain the seabed conditions of the revised layout area. The additional site investigation was subsequently completed by the Contractor at a cost of $4.5 million. The expenditure of $6 million incurred on the first site investigation completed in March 1994 was therefore largely nugatory (paras. 13, 14, 17 and 19). E. Additional site investigation not carried out prior to tendering of the Contract. Notwithstanding that the CED considered that an additional site investigation was necessary, the site investigation was not carried out prior to the tendering of the Contract. In response to the Secretary for Works' comments about the need for the additional site investigation, the CED accepted that the original site investigation carried out for the planning of the project was inadequate and agreed that, with hindsight, more comprehensive site investigations should have been carried out (paras. 20 and 21). F. Further design changes after award of the Contract. After the award of the Contract, the CED further revised the design of the HLCTS by extending the length of the south and east breakwaters by 250 metres, and by shifting the alignment of the east breakwater ten metres northwards. The design changes were made to address concerns over wave protection for vessels inside the HLCTS. In Audit view, the wave condition inside the HLCTS was a key factor which should have been considered in the design of the HLCTS. However, at present, there are no specific criteria for determining what constitutes acceptable wave conditions inside a typhoon shelter (paras. 23 to 28). G. Significant increase in cost of dredging and filling. Due to uncertainty about the seabed conditions of the revised layout area, the Contractor was required to carry out an additional site investigation. The additional site investigation revealed that there would be a significant increase in the quantities of dredging and filling as compared with those in the Contract. As a result, the Contractor contended that the original rates were no longer applicable. The CED had to determine new rates for such works, which were higher than those in the Contract. If the additional site investigation had been carried out before the award of the Contract, more accurate dredging and filling quantities would have been provided to tenderers. Audit estimates that savings of up to $13 million would have been achieved if more accurate sand fill quantity had been included in the Contract (paras. 30 to 37). H. Approved project estimate not reduced to reflect the lower contract sum. The CED did not seek the approval of the Secretary for the Treasury to reduce the approved project estimate (APE) to reflect the lower project cost. As the APE of $622 million was $160 million (35%) higher than the revised project cost of $462 million in money-of-the-day prices, Audit considers that the APE was excessive and should have been reduced accordingly (paras. 41 and 42). I. Audit recommendations. Audit has made the following main recommendations to the Administration: (a) the Director of Civil Engineering should ascertain client departments' detailed requirements at an early stage to ensure that their requirements are fully met (first inset of para. 22); (b) if major changes in a project occur after the completion of site investigation, the Director of Civil Engineering should critically assess the need for additional site investigations before tenders are invited and ascertain, in conjunction with clients, the extent and impact of the delay in project completion (third inset of para. 22); (c) the Director of Civil Engineering should take action to ensure that the detailed design of a works contract is complete before tenders are invited and should avoid significant changes in design after the award of a contract (first and second insets of para. 29); (d) if design changes occur before the invitation of a tender, the Director of Civil Engineering should review and amend the quantities in the tender to properly reflect the changes (second inset of para. 38); (e) where the tender sum is significantly lower than the APE, the Secretary for Works should ensure that works departments take early action to seek the approval of the Secretary for the Treasury to reduce the APE (para. 43); and (f) the Secretary for Works should consider informing all works departments of the audit recommendations and take appropriate action to obviate occurrence of similar cases in future (para. 48). J. Response from the Administration. The Director of Civil Engineering agrees with all the audit recommendations (para. 49). The Secretary for Works has agreed to draw the attention of the relevant works departments to the audit recommendations (para. 50).