New renovation body will draw legitimate contractors back to market, sector says

Hong Kong’s new renovation monitoring body will encourage legitimate consultants and contractors previously plagued by intimidation from bid-rigging syndicates to return to the market, industry representatives have said, potentially lowering costs for homeowners in the long run.

Renovation and construction sector players said on Monday that the new Building Maintenance Support and Services Council, headed by Financial Secretary Paul Chan Mo-po, would heighten scrutiny of the tendering process, especially through integrity and background checks by law enforcement to ensure only law-abiding, qualified firms enter the market.

Kenny Tse Chi-kin, vice-president of the Hong Kong Institute of Surveyors, said the new council would sustainably restore order to the building maintenance market and attract more legitimate consultants and contractors in the long term.

“These legitimate firms were previously deterred from entering this market due to bid-rigging practices and the infiltration of triads,” he told a radio programme.

“With the government now proactively implementing a slew of measures and pre-qualification lists, this would give them the confidence to bid again, as this is still a business opportunity.”

The new body, announced last Thursday by Chief Executive John Lee Ka-chiu, was set up to curb malpractice in the industry as part of reforms after the deadly Tai Po blaze that killed 168 people and displaced nearly 5,000 in Wang Fuk Court.

A report by the Independent Committee investigating the fire found that substandard materials used in the estate’s renovation at the time had contributed to the rapid spread of the blaze, and that evidence showed “numerous features” of the project bore the hallmarks of bid-rigging and anticompetitive conduct.

Secretary for Development Bernadette Linn Hon-ho said on Saturday that about 650 applications had been received across the three pre-qualification lists for inspection consultants, supervision consultants and contractors.

The lists for inspection consultants and supervision consultants had each received about 150 applications, while the contractors’ list had received about 350.

Lawrence Ng San-wa, permanent honorary president of the Hong Kong Construction Sub-contractors Association, agreed that due to intimidation, competent contractors had slowly opted out of bidding over the years.

“Those who had previously undertaken or been involved in this type of building renovation work had more or less suffered unfair treatment, including threats, making them shy away from the market,” he said.

“The government’s regulation would provide opportunities to work on projects that they previously couldn’t access. As a result, the number of contractors coming forward has surged.”

Tse emphasised that progress reports submitted to the council by supervisory consultants must be thoroughly scrutinised for site safety and quality.

“Projects very often involve variation or additional works. In the past, there have been cases where these additional works caused property owners to suffer very heavy financial losses,” he said.

He recommended that an independent quality surveyor should be appointed on large projects to prevent owners from being exploited through after-contract additions.

Building renovation projects should adopt a “two-envelope” tendering system to consider both quality and price, Tse added. One envelope would contain the technical proposal, to be evaluated first, while the second envelope, with the price proposal, could only be opened once a minimum score had been met.

Ng agreed, saying that projects should not automatically award tenders to the lowest bidder, as inadequate budgets led to compromised safety and substandard workmanship.

“We have seen the case where contractors cut corners on basic scaffold netting to save money, creating substandard conditions,” he said.

In the Wang Fuk Court fire, the main contractor used non-fire-retardant scaffolding netting to wrap around all eight buildings for a prolonged period, which the independent committee found was the key factor for the fire as it created “secondary ignitions” which formed new sources for the embers.

Ng said the “two-envelope” mechanism should apply broadly regardless of project size, as small estates with fewer resources were often even more vulnerable to predatory low pricing.

He said that the council’s paid services, which might cost a few thousand dollars per household, were an “unavoidable cost” as homeowners would be “paying someone to do the job properly”.

“In the past, owners thought they were saving money by skipping proper supervision. But without oversight, we saw bids that were won at HK$150 million (US$19.1 million) end up doubling to over HK$300 million,” he said.

“If a project is supervised properly throughout the process, overall costs are likely to decrease.”

In the long run, more reputable contractors would foster healthy competition in the market and keep pricing reasonable, Ng added.

Under the reforms put forward by the government, bid-rigging will also be criminalised, with offenders facing a maximum penalty of 10 years’ imprisonment and a fine of HK$10 million.

Barrister and lawmaker Alex Fan Hoi-kit said that the government’s proposed new dual-track mechanism, which would criminalise bid-rigging and enhance the civil regime under the Competition Ordinance, must be clearly spelled out in statutory provisions.

If non-competitive acts fell within the scope of the new offence, under the new law, the government would prioritise considering whether to handle them through criminal avenues, he said.

“If the Department of Justice decides not to pursue criminal prosecution, the Competition Commission can consider pursuing the civil route,” he said.

“This allows different cases to be dealt with appropriately according to their circumstances.”

He said that leniency policies would need to be discussed and included in the new legislation as investigations of covert corruption offences frequently involved a defendant-turned prosecution witness.