Contractors keep bilking us for billions in cost overruns because they can

Government should revise the way it handles revenue from land sales, otherwise public works contractors will keep taking us to the cleaners

PUBLISHED : Wednesday, 06 December, 2017, 1:34pm
UPDATED : Wednesday, 06 December, 2017, 11:08pm

The Civic Party’s Jeremy Tam Man-ho would not say whether he would back or reject the funding request [for the cost overrun in the Shatin to Central Link], saying he had insufficient information.

“We need to know the exact breakdown of the cost overrun rather than a lump sum,” he said.

SCMP, December 6

Now that’s what I call not seeing the forest for the trees. Does Jeremy Tam really believe that listening to excuses in detail for yet another huge cost overrun will reveal what is fundamentally wrong with our public transport projects?

I can already tell him what these excuses will be. Wage inflation has been high, archaeologists have insisted on prior dirt-scratching rights along the route of the Shatin to Central Link and the government has not released land when it said it would.

This is all true, and largely predictable, and the engineers made no provision for it in their budgets. They knew they could bid low and plead cost overruns later, as they have always done.

They knew it because they knew that with the project well underway the Legislative Council would have no choice but to cough up the money, whatever the excuse.

What are Jeremy Tam and his colleagues otherwise to do? Can they really tell the contractors walk away, leaving empty tunnels and building sites to grow weeds or become storage sites for rusting containers? Once you start a project like this you have to finish it or kiss good-bye to every dollar you have already spent.

The underlying problem here starts with a hoary old government edict that revenue from capital sources can only be spent on capital projects. It was adopted 35 years ago by a financial secretary who got his capital revenue projections badly wrong and then tried to fudge the error with reclassification.

Why, however, do we still insist on it? Is it law written in the undersides of the clouds that the world will fall apart if any money raised from sale of land leases is used for education or health care?

Don’t ask. Although you will not find it in the Basic Law, this unusual notion has greater force of law than any constitutional provision.

And it encourages the engineers to be wasteful. They know that land revenue is no extraordinary gain in an economy where all land is held on lease, particularly when each lease is tied to a specific purpose that can only be changed on further payment. Land revenue is a recurrent item of every budget.

And they have little difficulty in finding excuses to spend the money. Thus when the administration decided some years ago that we must not allow our container port business to decline, which amounts to the same thing as forbidding the tide from going out, they smacked their lips.

That one decision alone gave them two new big motorways along with tunnels and overpasses and three new big bridges including the giant one to Macau and Zhuhai. The roads are empty, they never filled, and the Macau bridge will in the future be a byword for waste.

Then the high speed rail lobby from across the border came to town one day and asked how far we had come along in meeting our share of the national commitment to high speed rail.

We had not, of course. We had forgotten about this supposed commitment. We have no need for a high speed rail link to the border. But engineers will never waste an invitation to pour away yet more money on concrete pouring.

Suddenly we were committed again and now we are headed, with cost overruns already approved plus those likely yet to come, to a project cost of near HK$100 billion (US$12.8 billion) for a service that we never knew we needed.

I think the Shatin to Central Link stands out from the normal run of these capital projects by having some real value in alleviating commuter congestion in the busier parts of the city. Let’s bring it on.

But instead of nitpicking about how much dirt scratching the archaeologists can really justify, when our legislators start talking money they should address themselves to this silly entitlement we have given the engineers to exclusive use of land revenues.