Now is time to overhaul SAR government’s tendering system

Hong Kong’s recent emigration wave has been a subject of heated debate, whose impact on the city’s industries, including the Architectural, Surveying, Planning and Landscape (ASPL) sector I represent in the Legislative Council, is undeniably problematic. 

Along with the shrinking workforce, the growth and development of small and medium-sized enterprises (SMEs) has been declining. Professional consultancies of the ASPL sector have similarly been losing business.

Confronted by these worsening problems as well as the severe housing shortage, the chief executive, Mr John Lee Ka-chiu, has rightly prioritized the objective of enhancing the city’s competitiveness while striving to increase the housing supply by all means, including raising the efficiency of housing construction. In my view, one of the most effective ways to boost competitiveness and the housing supply is to reform the government’s procurement and tendering system to offer stronger support to local enterprises. Not only does this help revitalize the vital ASPL sector and other sectors, but also eases Hong Kong’s longstanding problem with attracting talents.

In the past, the government’s tendering system has been based on the criterion of “lowest bid wins”. Such a selection mechanism has often led to a phenomenon known as “fee diving”. However, an unreasonably low bid often comes with unpleasant surprises in the form of project delays, nondelivery, cost overruns, and safety and quality issues. In the third and fourth quarters of last year, at least 10 of the major public-works contract bids are only 50 to 60 percent of the approved project budget. Whether these contracts will deliver an acceptable quality with such low bid prices is doubtful.

One of the most effective ways to boost competitiveness and the housing supply is to reform the government’s procurement and tendering system to offer stronger support to local enterprises. Not only does this help revitalize the vital ASPL sector and other sectors, but also eases Hong Kong’s longstanding problem with attracting talents

Concerning housing, fees for construction-related professional consultancy services, including architectural and landscape design, and land and quantity surveying, are crucial to the project’s overall design, quality, progress and cost control. The tendering system of “lowest bid wins” may end up with a “lose-lose” to both the government and the professionals concerned for the following reasons:

First, unreasonably low bids have often led to long working hours and low compensation for the workers, discouraging new talents from entering the sector and adding to the sector’s “brain drain” problem. Besides, to tackle the resulting low quality of the contracted projects, the government has had to expand the relevant civil service department to step up project supervision, thus incurring more expenditures. The recruitment of more high-paid civil servants has then attracted more workers to leave the private sector, adding to the labor shortage in private firms. The vicious cycle thus repeats itself.

Second, the government has tried to resolve the quality issue by toughening the contract and tendering terms, resulting in unnecessary clerical work or unreasonable demands for the consultancies. Again, worker hours have been prolonged, and the flexibility of professional maneuvering has decreased, hurting the quality of the public works.

Third, the government has often attempted to protect itself by passing the responsibilities and risks to the consultancies. Unforeseeable delays in project construction unrelated to the consultancy’s performance, such as the Legislative Council’s extensions of approval time, pandemic outbreaks, protests or inclement weather, can prolong the original contract period and extend the working period. However, contractual agreements do not provide a mechanism allowing consultancies to claim compensation or additional fees. As a result, many in the sector have been discouraged from working with the government.

In the last few years, the government has attempted to optimize the tendering system to reduce the weighting of the “lowest bid wins” criterion in response to the sector’s and my own appeal. The two-envelope system, which emphasizes the technical competence and experience of the bidders, as well as adjustments to the scoring criteria, have been well-appreciated in reducing the problems of unreasonably low bids. This change, however, facilitates another problem: the domination of large multinational companies that restricts the development of SMEs and local startups.

Further, the practice of “bundled tenders”, which unnecessarily bundles smaller projects into a single project for tendering, further prevents the participation of SMEs in the bidding process, which has seen a shrinking number of SMEs. As SMEs account for 90 percent of local enterprises, their hindered development will significantly hurt Hong Kong’s competitiveness.

The modified system also fails to address the lack of digitalization. The construction industry is required to apply various innovative technologies, such as modular integrated construction and building information modeling, in its works. However, the government has not made the tendering, approval, monitoring and payment process electronic. As a result, the sector is forced to deal with both electronic and paper documents. This no doubt has increased the workload and operating costs, and reduced the efficiency of development works.

To resolve these issues, the government must first set a “lowest reasonable cost” to eradicate “cutthroat bidding”. This prevents consultancies from being incentivized to cut corners or hide costs. Secondly, it must adopt a “local enterprises first” policy in awarding contracts and protect the interests of SMEs by avoiding “bundled tenders”; it must also develop a compensation mechanism for the prolongation of consultancy services, abolish out-of-date and unfair contract terms, and place greater emphasis on creativity and innovation. Lastly, the government must expedite the implementation of electronic services for all relevant procedures to speed up the digitalization of the government system.

The goals of “improving Hong Kong’s competitiveness” and enhancing the “efficiency” and “quantity” of the housing supply may seem to be challenging under the current circumstances. However, with these practical and cost-effective solutions, I am confident that the government can effectively achieve these objectives. As President Xi Jinping stated in his speech delivered on the 25th anniversary of Hong Kong’s return to the motherland, “the government must strive to improve its governance and take on its responsibilities to deliver better performance”. The government’s tendering and procurement systems have long stunted the city’s development; it is now more imperative than ever for us to reform this system once and for all.

The author is a member of the Legislative Council representing the Architectural, Surveying, Planning and Landscape Functional Constituency.

The views do not necessarily reflect those of China Daily.