Hong Kong Politics & Protest

Signs of bid-rigging found at subsidised building maintenance projects, despite official denials

Government-funded building maintenance projects show signs of bid-rigging, according to analysis of a database compiled by FactWire.

The government issued ‘Operation Building Bright’ (OBB) in 2009, investing a total of HK$3.5 billion to carry out building repair and maintenance work on old buildings. Carrie Lam Cheng Yuet-ngor, then Secretary for Development, was in charge of its launch in 2009.

Carrie Lam

Carrie Lam. Photo: CarrieLam.hk.

In 2011, Lam mentioned bid-rigging problems in Hong Kong and reminded flat owners to be wary of projects charging low consultant fees. In 2015, however, Lam, then-chief secretary for administration, said that the Independent Commission Against Corruption (ICAC) Commissioner Simon Peh Yun-lu had told her buildings receiving OBB subsidies showed no signs of bid-rigging.

Lam also mentioned that the OBB was designed to prevent bid-rigging, in that projects would not be subsidized if tender prices were high, and called the scheme a “successful” one. However, FactWire conducted an analysis based on the database and found signs of bid-rigging in government subsidized projects.

operation building bright

Photo: Factwire.

FactWire’s previous report on Tuesday analyzed 223 projects in its database and found signs of bid-rigging. At least 75 out of 223 of the buildings projects, one-third of the projects in the database, secured government funding for their maintenance works, with 67 from OBB and 9 from the Integrated Building Maintenance Assistance Scheme (IBMAS) which replaced the OBB in 2011. One building applied for both.  FactWire’s analysis of the database found that 18 contractors took charge of half of all the maintenance projects in the database, with five of them securing a quarter of the projects.

Two symptoms are associated with bid-rigging in maintenance projects. One is an unusually low fee for consultants, who will preside over the allocation of contracts. FactWire analyzed buildings with subsidized maintenance projects between 2011 and 2015 and found that the proportion of consultant fees compared with maintenance fees was lower than reasonable range for some projects.

Man Fat Building in Sai Wan hired Cordelia Chan and Associates Limited as consultants for HK$30,000, and then hired contractor Tsang Wan Lee Construction Company Limited for around HK$5 million to carry out maintenance works in 2011. The consultant fee took up only 0.6 per cent of the maintenance fee.

Fu On Building in Yuen Long hired Property Society International of Architecture Consultant Hong Kong Limited as consultant for HK$40,000 and paid around HK$4.5 million to Hip Kei Construction Company to perform maintenance works in 2014. The consultant fee took up only 0.8 per cent of the maintenance fee. The fees in these two cases were much lower than the normal standard of 5 to 8 per cent in the construction sector.

Another indicator of possible bid-rigging is unusually high prices.

The Hong Kong Institute of Surveyors (HKIS) and the City University of Hong Kong jointly made a reference list for building maintenance prices in 2012. According to the list, the maintenance fee for 30-year-old buildings with less than seven floors was around HK$51,000 to 68,000 for each household, and HK$44,000 to 54,000 per household for buildings with more than seven floors.

Surveyor and HKIS former president Vincent Ho Kui-yip said the reference list was updated in 2015 and results showed that some costs of maintenance items were raised and some reduced, yet all the changes were minor ones within 10 per cent. ‘The maintenance fee per household is still HK$60,000 to 70,000. The fees for buildings with maintenance works that are more difficult, involving complicated procedures or in a less convenient location, are still HK$80,000 to 90,000. There is still a gap compared with maintenance prices in the market,” said Ho.

Indeed, some maintenance projects with government subsidy had much higher prices. Each household of Mill Reef House in Cheung Sha Wan had to pay an average of around HK$160.000.  Each household’s bill was HK$180,000 for 52 Marble Road, and HK$160,000 for Garland House in North Point

In buildings which recently succeeded in applying for IBMAS, including Sai Wan Ho Building, Hsin Kuang Centre in Wong Tai Sin, and Kam Hing Building in Sai Wan, each household had to pay an average of HK$100,000-200,000. IBMAS is a combination of different subsidy plans designed to replace OBB.

Ho added that the data came from 200 maintenance projects, including common maintenance project items such as external wall painting, external wall tiles, concrete maintenance, drainage pipes, water-resistant rooftops, changing windows in public spaces and removing unauthorized building works. The concept is repair rather than renovation or beautification, he said.

However, since buildings have different conditions, there is a need to consider different project items, the quantity and special needs of each building when accessing the maintenance cost. Ho added that the list should not be referred to as maintenance price standards for flat owners, but it could be used for early reference when estimating the price.

The government set up ‘Operation Building Bright’ (OBB) in 2009 as a response to the global financial crisis, to boost the construction industry. The scheme initially covered buildings more than 30 years old, and offered a grant of up to HK$16,000 for each owner, while the grant ceiling for owner-occupiers aged 60 or above was HK$40,000. In 2011, the government’s ‘Integrated Building Maintenance Assistance Scheme’ (IBMAS) replaced OBB and included building repairs for 20-year-old buildings.

The amount of subsidy is the same as that of OBB. The government invested a total of HK$3.5 billion in both schemes to encourage maintenance of old buildings, including HK$150 million each from the Urban Renewal Authority (URA) and the Hong Kong Housing Society.

Then in 2012, the government brought in the Mandatory Building and Window Inspection Scheme for 30-year-old buildings, randomly picking 2,000 of them every year for mandatory inspection and renovation. This led to a building maintenance frenzy.

Carrie Lam

Carrie Lam. Photo: CarrieLam.hk.

Lam, then Secretary for Development, was in charge of the OBB launch in 2009. On 11 February 2011, Lam said she knew about the problems of bid-rigging in building maintenance and reminded flat owners to pay attention to projects with lower consultancy fees.

Lam said: ‘We have received complaints before. A lot of times the consultant fees are much lower, and something against the rules may occur during the tendering process. Putting focus on these works, we work with the Hong Kong Housing Society and Urban Renewal Authority to inform flat owners that consultant fees should not be too low, and that there may be problems if it is too low.”

“We also inform owners about the normal prices for external wall maintenance or internal maintenance prices for them to get an idea. Most importantly, we’d like to encourage more contractors to participate in the tendering processes in Hong Kong. We received support from the Hong Kong General Building Contractors Association and they would also encourage members to participate in the tendering work, because with more tenders, chances of bid-rigging would be much lower.”

However on 20 November 2015, after visiting a building in Kwun Tong with then Secretary for Development Paul Chan Mo-po and Secretary for Home Affairs Lau Kong-wah, Lam, then Chief Secretary for Administration, said that no signs of bid-rigging were found in buildings which participated in the OBB.

Lam said: “Just now a reporter asked whether there were any signs of bid-rigging for old building maintenance projects in ‘Operation Building Bright’ (OBB). The answer is no. Because I asked Independent Commission Against Corruption (ICAC) Commissioner Simon Peh Yun-lu myself, and he replied that no signs of bid-rigging had been found in old building maintenance projects of OBB. It is because we are not simply giving them subsidies, but to provide technical assistance through the URA and HKHS.”

“Signs of bid-rigging would imply high tender prices, but then we would not provide them with the subsidy. Therefore, the design of the scheme can prevent bid-rigging to occur.”

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Signs of bid-rigging found at subsidised building maintenance projects, despite official denials