Soaring costs of Hong Kong's infrastructure projects demand a system overhaul

Lau Ping Cheung sees the need for an independent cost control authority

PUBLISHED : Tuesday, 12 May, 2015, 12:18pm
UPDATED : Tuesday, 12 May, 2015, 12:18pm

When construction of the high-speed rail link to Guangzhou began in 2010, the cost of the 26km project was estimated at HK$65 billion - a per-kilometre cost already far higher than that of the remaining 116km of express rail link on the mainland.

It didn't help when news of project delays and cost overruns, pushing the estimate to a whopping HK$71.5 billion, broke last year with no prior warning. That led to the resignation of MTR Corporation chief executive Jay Walder and his project director, who were accused of covering up the setback.

With the project's cost recently rumoured to be even higher, at somewhere around HK$90 billion, we can't help but wonder: "What is going on?"

Lawmaker Michael Tien Puk-sun, a former chairman of the Kowloon-Canton Railway Corporation, was quick to attempt to nail down the party responsible for the mounting costs: should the MTR Corp bear the outstanding cost or the government? But Tien has his focus wrong: whichever party is responsible, taxpayers will end up footing the bill, given that the government owns some 76 per cent of MTR's shares.

The focus should have been on what caused the overrun, and whether the cost control mechanism is effective, impartial, transparent and accountable, given that most, if not all, of the rail link will be paid for with public money.

Back in the 1990s, I alerted the government and KCRC as to the inferiority of the infrastructure cost control model compared with the building cost control model, to no avail. In Hong Kong, we have seen many times how there is a much higher chance of cost overruns in infrastructure projects, in comparison to building works.

For instance, it was recently revealed that the Hong Kong-Zhuhai-Macau bridge will also blow its budget. The government cited increased labour costs as the main culprit but what the public may not know is that infrastructure projects tend to be more equipment-, material- and management-intensive than labour-intensive.

And, in any case, with past experience and data on infrastructure projects, contingency plans should have been built in, creating a buffer for potential overshoots.

There is reason why it doesn't happen. In building projects, the architect is responsible for the design, the clerk of works for supervision, and an independent cost control consultant is hired to decide whether the contractor's cost claims are valid. However, in infrastructure projects, the engineering consultant assumes conflicting roles as the one (and only) person who designs, supervises, and decides whether to agree to the contractor's claim, as well as how much and when to pay.

In the case of infrastructure projects, then, there is an obvious lack of checks and balances, creating loopholes for potential collusion, as well as risk of busting the budget. This is not the engineering consultant's fault; it is an inherent defect in the management structure for effective cost control.

At a time when the construction industry worldwide is in recession, and materials and equipment are dirt cheap, it is baffling there is no end to Hong Kong's skyrocketing construction costs. Perhaps the government, and public bodies tasked with major infrastructure projects, like the MTR Corp, should review the infrastructure cost control model.

It's worth mentioning that the role of independent cost control consultant in building projects didn't exist until the 1970s, when the government saw the need for impartiality and transparency in controlling costs.

The current state where the engineering consultant - the "accused" or "defendant" - is also given the role as "judge" to decide whether a claim from the contractor - the "claimant" - is valid, creates a dangerous conflict and goes against the principle of justice.

An independent "judge" needs to be included in the process to ensure an impartial and fair assessment of cost claims, thereby lowering the risk of cost overruns for infrastructure projects which are, it must be remembered, funded mostly by public money.

Lau Ping Cheung is a member of the Economic Development Commission cum convenor of its working group on professional services