Lucrative deal used tendering loophole

A LOOPHOLE in the conditions of sale of a prime commercial site in Central allowed tycoon Li Ka-shing to build a lucrative 31-storey complex, five times bigger than the low-rise structure the Government intended.

And the then Director of Buildings and Lands Chau Cham-son has been singled out for ignoring the flaw and refusing to order new tenders to be called, according to Director of Audit Brian Jenney.

The Government originally anticipated a development of six or seven storeys at most on the 760-square-metre site near the junction of Garden Road and MacDonnell Road.

''Contrary to the Government's planning intention which envisaged a low-rise building, one of 31 storeys, including four levels of basement, was constructed,'' Mr Jenney said.

He recommended a number of changes to procedure to ensure planning intentions were implemented.

The tender conditions specified that the new building should only be used for non-industrial purposes and that the total gross floor area intended to be used for retail shops and supermarkets should not exceed 2,271 square metres.

But on the day tenders closed, the District Lands Officer spotted that the future developer could easily by-pass the 2,271-square-metre limit by providing ''non-industrial'' accommodation, other than retail shops and supermarket, of a bigger area.

He requested that the Registrar General be asked to redraft a clear and unequivocal revision of this condition to specify the Government's intention of restricting the non-industrial gross floor area to no more than 2,271 square metres.

Mr Chau could have at that time called for new tenders as the Government was not bound to accept any tender.

Instead, he recommended the bid by Hutchison Whampoa to the Central Tender Board after he had received verbal confirmation from the company that ''the development would take the form of a supermarket, a store and a restaurant, all within a plot ratio of three, plus 100 car-parking spaces''.

Mr Li's company offered the highest price of $153.8 million among the 10 tenders, more than twice of the second highest bid of $66.8 million.

On the assumption that the gross floor area would comply with the 2,271-square-metre limit, Mr Chau told the board the sale price of $117,000 per square metre was higher than neighbouring retail developments and compared well with prices achieved in somearcade retail units in the Central District.

The Central Tender Board eventually awarded the tender to Hutchison Whampoa in March 1989, without being told of the loophole in the conditions of sale.

The company has since built a complex containing four storeys of supermarket and other shops, four storeys of restaurants, 18 storeys of beauty parlours, barber shops and medical clinics, four basement-levels of car park and a floor for building services.

The total gross floor area, which is 11,350 square metres and gives a development plot ratio of about 15, far exceeds the Government's planning intentions.

Among others, the building houses the biggest Park'N Shop in Mid-Levels.

''Notwithstanding the identification of the loophole before the award of the tenders, prompt action was not taken by the Director of Building and Lands to amend the special conditions of sale,'' Mr Jenney said.

''Subsequently, the Central Tender Board was not informed of the loophole and the gross floor area assumptions made in the tender analysis,'' he added.

Mr Jenney recommended that in the event that a loophole was identified after the invitation of tender in the future, consideration should be given to re-tendering.

He suggested that important decisions should not be based on verbal confirmation, particularly when dealing with tenderers.

He also suggested that written confirmation involving a point of principle should always be sought.