competitive environment and on the Government being able to make an accurate and independent assessment of the reasonableness of the prices in the tenders submitted. The Marine Department, which is responsible for providing harbour moorings and lighted aids to navigation, invites tenders annually for two contracts, one for the over of harbour moorings and buoys and the other for the overhaul of minor moorings and buoys. In a recent review contracts, totalling over $3 million a year, I drew attention to the small number of firms willing to tender and to weaknesses in the tender practices which had reduced the competitiveness of the tenders and raised doubts about whether the Government was getting full value for the expenditure incurred on these services.
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98. When inviting tenders for the contracts, tenderers are given a schedule of items of work, with the Marine Department's estimate of the frequency that each item of work will need to be done during the contract period, and they are asked to quote a unit rate against each item. In evaluating the tenders, each unit rate is multiplied by the estimated frequency to give a price for that item and these are then aggregated to give the total price for each tender. The accuracy of the evaluation will depend on the accuracy of the frequency estimates. Unfortunately, the Marine Department's estimates of frequencies for the 1983-84 and 1984-85 contracts were inaccurate and this fact might not have gone unnoticed at the time of tendering by the successful contractor who had annually been awarded both contracts for the four to five years up to 1985–86. In tendering for the contracts the successful contractor, with his past experience of the work requirements, was able to take advantage of the inaccuracy in the frequency figures by loading his prices, that is quoting a higher price for those items where the frequency had been underestimated and a lower price for those items where the frequency had been overestimated. Thus, in two of his tenders he was able to submit what were in theory the lowest bids, and so win the contracts, but which in practice were not. I have suggested to the Director of Marine that the way to counter this price loading practice is firstly, to ensure that the estimated frequencies are as accurate as possible, secondly, to make use of the provision in the Terms of Tender that would allow the Government to split the contracts on the basis of the lowest prices quoted for the individual items of work and thirdly, to obtain independent cost estimates of each item of work to test the reasonableness of the tenders.
99. An example of the undesirable effect of these price loading practices is illustrated by the Government's unexpected need in 1985 to relocate nine harbour mooring buoys to make room for the Kwai Chung Container Port Extension and the Northwest Kowloon Sewage Treatment Disposal Project. Scheduled contract rates existed for this work and the contractor was requested to carry out the work at the contract price of $13,500. However, the contract rates for this work were well below cost and, as the contractor had earlier taken the precaution of qualifying his tender to restrict the application of the scheduled item to overhaul work, he refused to accept the work at the contract rates and instead, negotiated with the Director of Marine to do the work for $620,000. The Director of Marine maintained that the negotiated price was reasonable despite the fact that the price was about 55% higher than what it would have cost under the current 1986–87 contract which incorporated a new special condition requiring contractors to carry out work that was not necessarily related to the annual overhaul operation. In giving this work to the contractor the Director of Marine failed to seek the prior approval of the Deputy Financial Secretary which he is required to obtain in the case of urgent single tender contracts.
100. In reply to my observations the Director of Marine accepted that competition was not keen and that price loading in tenders was a problem which was against the interest of the Government and should be stopped. He accepted the need to provide better information on the frequencies of each item of work and for the 1986-87 tenders he informed tenderers of the actual frequencies for the two preceding years. However, the Director thought that it would be difficult to work out cost estimates for each work item and opposed the splitting of the contracts because this could create conflict between contractors, causing disruption in service with disastrous effects on marine safety and loss of revenue. He said that contract specifications would be reviewed on a yearly basis to make the requirements more precise and to remove anomalies. He also pointed out that a Harbour Mooring Working Group had been formed within the Marine Department in March 1985 to review all aspects of procurement, including tender documentation, special conditions and specifications, maintenance and record documentation and to give consideration to the Government Dockyard taking over the construction and repair of mooring buoys. In order to improve the competitiveness in tendering for these contracts, which require the deployment of expensive specialized equipment, he is considering the possibility of extending the period of the contracts from yearly to a longer period.
101. Head 122 - Police: Royal Hong Kong Police Force. Maintenance of law and order on roads. The Central Traffic Prosecutions Unit of the Traffic Wing of the Royal Hong Kong Police Force was formed in 1974 to take over responsibility for the processing of traffic prosecutions. The Unit is divided into four sections and Section D deals with all matters arising from the fixed penalty system for stationary offences under the Fixed Penalty (Traffic Contraventions) Ordinance (Chapter 237). However, the Central Traffic Prosecutions Unit was not officially established until 1980 when the Organization and Methods Division of the Royal Hong Kong Police Force was asked to examine and reassess the manpower requirements of the Unit and in its reports of 1980 and 1981 it recommended an establishment of 35 staff for Section D, excluding six supernumerary posts to deal with the write-off of arrears of revenue. This establishment was based on the estimated 1981 workload of 1.6 million fixed penalty parking tickets to be processed and on the assumption that the clerical work would be reduced by the enhanced facilities of the new computer system which was to become fully operational in 1982. One of the objectives of the new computer system was to reduce the workload of the Police and the Judiciary in processing the documents under the fixed penalty system. Allowances of 10% for relaxation and 10% for contingency were added to the working time and incorporated in the recommended establishment. The Organization and Methods Division study was intended to provide a realistic formal establishment on which any future revisions of manpower could be based. The recommendations of the Organization and Methods Division were accepted.
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