Delivering Public Works Contracts by NEC. Ir Daniel K W CHUNG, JP Director of Civil Engineering and Development

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1 Delivering Public Works Contracts by NEC Ir Daniel K W CHUNG, JP Director of Civil Engineering and Development

2 NEC in United Kingdom London 2012 Olympic Park London 2012 Olympic Stadium Crossrail Paddington Station 2

3 NEC in Other Countries Australia Mt Mercer wind farm South Africa Improvement Works to the University of the Witwatersrand, Johannesburg New Zealand Christchurch International Airport airside civil works 3

4 NEC in Government s Public Works Contracts Drainage Services Department Highways Department Civil Engineering and Development Department Improvement of Fuk Man Road Nullah in Sai Kung Retrofitting of Noise Barriers on Fanling Highway (MTR Fanling Station to Wo Hing Road) CEDD Maintenance Contract for Seawalls and Navigation Channels 11/11/2015 NEC Contracts 4

5 NEC in Hong Kong Private Sector CLP Power Hong Kong Limited Hong Kong Academy MTR Corporation Limited Electricity Substation at Tseung Kwan O New Campus at Sai Kung Swimming Pool Reprovision Project, Kennedy Town 5

6 Weakness in Conventional Contract Form Focus on allocation of obligations Create unfriendly relationship Lead to dispute and delay 6

7 Benefits of NEC Cultivation of partnering culture Stronger driver for contracting parties to pursue common goals Good risk management mechanism Reduction of disputes 7

8 NEC Projects in Drainage Services Department Improvement of Fuk Man Road Nullah in Sai Kung Pak Hok Lam Sewer and Sha Tau Kok Village Sewerage Happy Valley Underground Stormwater Storage Scheme 8

9 NEC Projects in Other Government Departments Highways Department Architectural Services Department Water Supplies Department Retrofitting of Noise Barriers on Tai Po Tai Wo Road near Po Nga Court Tin Shui Wai Hospital Improvement of Fresh Water Supply to Cheung Chau 9

10 NEC Projects in Civil Engineering and Development Department Improvement Works at Mui Wo, Phase 1 Landslip Preventive and Mitigation Works Provision of Universal Access Facilities for Highway Structures Maintenance of Port Works Facilities Operation of Public Fill Facilities 10

11 No NEC Public Works Contracts in Government 0 No. of NEC Works Contracts No. of NEC Works Contracts (Forecast) 2016 (Forecast) Year of Tender Invitation Value ($HK billion) Value of NEC Works Contracts Value of NEC Works Contracts (Forecast) 2016 (Forecast) Year of Tender Invitation 11

12 Observation a) Saving in Construction Cost Happy Valley Underground Stormwater Storage Scheme Highest G.W.L. +5mPD Alluvial silt and clay CDG / HDG G.L. +5mPD Storage Tank Storage Tank Piles Bedrock Highest G.W.L. +5mPD Alluvial silt and clay Cut-off wall CDG / HDG Bedrock G.L. +5mPD Time saving: 7 months Cost saving: HK$ 72 M Storage Tank Subsurface drainage Subsurface drainage Original Design Cut-off wall / Sub-soil Drainage System Cost Saving Design 12

13 Observation b) Proactive Management of Risk Risks identified earlier and problems resolved promptly through early warnings and risk reduction meetings Existing Footbridge Example Improvement Works at Mui Wo, Phase 1 risk of damage to existing footbridge 13

14 Observation c) Efficient Management of Changes Prescribed time frame for notification, assessment and settlement of compensation events Timely assessment of impact and early settlement of changes 14

15 Observation d) Enhanced Collaboration with Contractors Contractual timeframe expedites problem solving process Collaborative environment Example Improvement Works at Mui Wo, Phase 1 Joint site office 15

16 Observation e) Shorter Time for Contract Finalization Time for finalization of NEC contracts in general shorter than that normally required in conventional contracts 16

17 Challenges View/Concern a) More human resource is required in administering NEC contracts NEC procedures require quick and intensive administration Demand on human resource diminishes towards the end of contract Initial increase in resource is paid off by improved efficiency and effectiveness 17

18 Challenges View/Concern b) In Government s NEC target contracts, contractors are required to observe specific requirements on procurement of subcontractors Procurement procedures in place to ensure competitiveness and competency To obtain the most value-for-money subcontracts Adequate check and balance 18

19 Challenges View/Concern c) At the beginning of NEC target contracts, contractors may encounter negative cash flow as payment is made to contractors by actual cost approach Prices for preliminary items do not help alleviate contractor s cash flow Actual cost payment approach Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 With careful financial forecast and planning, construction practitioners will adapt to this new cash flow pattern 19

20 Challenges View/Concern d) Difficult to get realistic prior quotations from specialist subcontractors during preparation of tender submission for NEC target contracts Competent specialist subcontractors Long-term business and good working relationship With more experience gained over time, contractors and subcontractors will get used to the rules for target contracts 20

21 Concluding Remarks More and more Government s NEC projects to come Our observations on pilot NEC contracts are generally positive Appeal for your support to actively participate in NEC 21

22 THANK YOU 22