7th May 2013
<Billions in Claims for HKSAR Government to Pay>
Due to the severe delays in the construction of the High-Speed Rail project, the Hong Kong SAR government will face massive claims amounting to billions of Hong Kong dollars (hundreds of millions of US dollars). Albert Lai Kwong-tak, the founding chairman of The Professional Commons and member of the Engineering Sector of the Chief Executive Election Committee, observed that MTR has no incentive to speed up the construction project. He thinks that the substantial claims that the High-Speed Rail project will face from contractors should “not be borne solely by the Hong Kong SAR government but also the MTR”.
No Agreement on Compensation
Based on the High-Speed Rail documents, the contractor for the West Kowloon Terminal (north section) has estimated that it would make a HK$1.2 billion or more (US$155 million) claim because of the delay. The longer the delay, the larger the claim. And this claim is not included in the budget overrun estimate. Some tunnel projects have also been delayed, but MTR has asked the contractors to continue with construction at full speed before reaching any compensation agreements, asking them to prioritise completion of the project and leave the matter of compensation for later. Albert Lai Kwong-tak pointed out this will make it difficult for the government and the public to monitor spending on the project.
A source at MTR said that at the moment MTR’s management “dares not to apply for additional budget from the Legislative Council as this could trigger substantial public outcry”.
MTR has No Incentive to Minimise Costs
Lai pointed out that contractors’ claims on project delays are typically only calculated after the project is completed, “MTR has not paid a huge amount to the contractors. MTR will not seek additional funding from the government until the scheduled completion date in 2015 or later”.
He added that the High-Speed Rail project is funded by the Hong Kong SAR government, and MTR is being paid to manage the project. This means that MTR has no incentive to minimise the overall cost. MTR can, in fact, increase their project management fee if the project is delayed. He urges the government to disclose the project management contract signed with MTR, and to amend the contract if necessary, “now that the project is delayed, and claims will arise. These claims should not be borne solely by the Hong Kong SAR government but also the MTR”. He also urges MTR to enhance the transparency of the project and not to “make decisions before informing (the government)”.