Authority paid out HK$1.609 billion for Hong Kong arts hub project despite knowing main contractor was in financial trouble

The authority managing a multibillion-dollar arts hub being built in Hong Kong has defended paying HK$1.609 billion to subcontractors over the course of 18 months, despite knowing the main company was in financial trouble.

Duncan Pescod, chief executive of the West Kowloon Cultural District Authority, justified the decision at a special meeting of the Legislative Council on Tuesday.

“Our logic throughout … [was that] we wanted to keep the project going,” Pescod said, while stressing that it was only confirmed in May that the main contractor was insolvent.

Pescod told lawmakers that Hsin Chong Construction (HCC), which had a HK$5.9 billion contract to build the M+ Museum project, had requested help to pay subcontractors. The chief executive briefed his board about financial difficulties surrounding HCC’s parent company, Hsin Chong Group (HCG), in November 2016.

The special Legco meeting was called once the issue came to light in July, after internal letters about the arrangement were published in the media.

Last month, the authority announced it had sacked the financially strapped main contractor over money problems, and poor management of the project, leading to “significant delays” in construction.

Asked by pro-government lawmaker Holden Chow Ho-ding as to why the authority had not cancelled the contract with HCC earlier, Pescod said doing so was not a simple decision.

West Kowloon Cultural District Authority fires main M+ Museum contractor

“Until it became very evident when they made a statement that they couldn’t pay their debt, we were not in a position unilaterally to take a view that [they were insolvent],” he said, referring to a statement issued in May this year by the construction group’s parent company, Hong Kong-listed HCG, which said it would likely default on a US$300 million payment to bondholders.

Pescod said authority management briefed its 24-member board about the listed group’s financial problems in November 2016.

At that meeting the board authorised management to create a subsidiary, Blue Poles Limited, for the purpose of “protecting the interests of the authority with respect to the M+ project”.

The authority paid 20 subcontractors directly between February 2017 and June 2018, before it decided to stop the arrangement in July. It fired the contractor the following month.

Late last month, HCG filed a notice of dispute with the authority over its “wrongful termination”.

In a letter to lawmakers, HCC accused the authority of being the main cause of the delays to the project, pointing to the 180,000 design changes it said the authority had made to the original plans.

Pescod declined to comment on those accusations.

Civic Party lawmaker Jeremy Tam Man-ho accused Pescod of lying to Legco, and said he had asked about the financial health of the contractor and subcontractors in previous meetings, but was not told the truth.

Pescod said he could not comment on the financial stability of a listed company.

Doing things differently: museum buys artists’ future works

Cherry Tse Ling Kit-ching, Permanent Secretary for Home Affairs, who sits on the authority’s board, defended Pescod, and said as Legco meetings are open to public the CEO had to be aware of the effect of anything he said regarding a company’s financial health.

“If they have told you, it means they have spoken to all Hong Kong and the investors,” she said. But, she agreed the authority could have done more to notify lawmakers.

Gammon Construction Limited has been appointed as the management contractor to oversee the M+ project, which is expected to be completed by the end of 2019, and is expected to open in 2020.