The result of changing the conditions was that the contractor which submitted the lowest bid, China Harbour Engineering Company, failed to be awarded the contract, which went to a joint venture between Leighton Contractors, China State Construction Engineering (Hong Kong) and Dutch marine works firm Van Oord ACZ, whose bid was worth $3.8 billion.

While the ruling of the Review Body on Bid Challenges is not legally binding, it has recommended the project be retendered. The ruling has added a new twist to the controversy surrounding the project, which has been mothballed pending the outcome of a legal challenge by the Society for the Protection of the Harbour that the Central-Wan Chai reclamations breach the Protection of the Harbour Ordinance. The bone of contention involved the cost of works related to the Central-Wan Chai bypass. The government originally required the cost of building the bypass to take up at least 33.7 per cent of the total cost of the phase three reclamation.

When the tender was closed on November 8, 2002, four contractors - Leighton, China Harbour, Penta-Ocean-Paul Y-BSGL Joint Venture and Gammon Skanska - put in their bids, but only China Harbour complied with the condition. But after learning that the reclamation might be jeopardised by a legal challenge from environmentalists, the Territory Development Department (TDD) proposed to the Central Tendering Board in January this year that the bypass cost be excluded from the evaluation.

The board took the advice. As a result, Leighton, whose tender scored highest in the assessment exercise after the tendering conditions were changed, was awarded the contract on February 6. On February 8, China Harbour requested a meeting with the TDD, hoping to raise an objection. The TDD did not reply and issued a letter of acceptance to Leighton on February 10.

China Harbour then challenged the tendering decision, saying it had not been told about the changes of the tendering conditions before the close of tender.

A three-member panel, chaired by Neil Kaplan, QC, was set up in April to consider the complaint.

The panel said while it did not dispute that the government must reserve the right to accept a non-compliant tender in some circumstances, the administration 'did not act fairly or transparently'.

'[China Harbour] complied with the condition. They were the lowest tenderer. Then without the [government] going back to them, the rug is pulled from under their feet,' the panel said. It concluded there was 'too much haste' in the tendering process and the government had violated the WTO's Government Procurement Agreement, which aims to maintain a fair, and transparent procurement process.

While the government's decision to change its tendering condition had effectively turned China Harbour's bid from the lowest to the highest, the tenderer was never made aware of it.

'The panel considers it unrealistic to recommend that the contract be given to China Harbour in place of Leighton, even though that is the inevitable conclusion of the panel's finding,' it said.

'The panel considers that a fairer way of proceeding would be to ask both China Harbour and Leighton, to retender in the light of the position as it is now.'

However, the panel conceded that the ruling was not legally binding and the government had to make its own decision on what course of action it had to take.

The government said last night it was still studying the ruling. China Harbour also said it was seeking professional advice.

A Leighton spokesman said the government had not discussed the option of retendering so far, but the company would be disappointed if such a decision were made.

Engineering sector legislator Raymond Ho Chung-tai said the government has a dilemma as it would face huge claims whether it decided to retender or not.