Lawyers see gains in shift to partner contracts

PUBLISHED : Monday, 10 February, 2003, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

Members of the legal profession feel companies can play a key role in providing public services and lessen the financial burden of a government faced with a rising deficit.

Partnerships between the government and the private sector in providing long-term public services could create significant savings and bolster efficiency.

There is an apparent need for public private partnership (PPP) in Hong Kong, given the government's HK$600 billion planned spending on public works for the 10 years to 2012 and its lingering deficit problem.

Hong Kong is testing the PPP waters on sewage treatment, catering services at hospitals and recreational facilities.

Lovells partners John Hartley and Rupert Sydenham believe the PPP approach to public works - proven economically viable in Britain - would help strike a balance between cost and risk, and risk and reward.

'Over the life of a piece of infrastructure, the basic premises are you get efficiency through getting the private sector to apply its own specialised skills and innovation to the projects it is doing. The premises of those skills and innovation are better coming from the private sector than the public sector and that is where you get savings,' Mr Sydenham said.

'The private sector is forced to consider the 'whole-life costing' of a project. Cheap construction may lead to high maintenance costs, and so there is an incentive not to cut corners.'

Mr Sydenham cited last month's landmark PPP in London, which involved private consortium Tube Lines being responsible for the maintenance and upgrading of the Jubilee, Northern and Piccadilly underground services in a GBP4.4 billion (about HK$55.78 billion) deal. Lovells took an advisory role in the tender process.

Mr Hartley said PPP could be an alternative to the conventional build-operate-transfer model in Hong Kong. That model, which involves the private sector building an infrastructure project and operating it for a period of time before transferring it back to the government, encourages bids at the lowest prices and at the expense of quality.

It led to unexpected cost overruns and, in many cases, havoc.

Toll roads provided a prime example.

Mr Hartley cited a case in which a private entity was chosen to build a toll road because it had come in with the lowest bidding price.

However, during the operating period, the toll road operator was forced to raise tolls due to the unrealistic traffic forecast. At the end of the day, the public had to pay the extra cost, he said.

'The traditional build-operate-transfer model does not necessarily stand up because the incentive is for private entities to cut corners to maximise profit, which creates a conflict with the government,' Mr Hartley said.