The Hong Kong construction industry can expect a period of uncertainty and change, as the Government has adopted the use of the NEC3 forms of contract over more traditional forms of construction contracts.
Traditional Form of Construction Contract
The traditional construction contract serves one principle purpose, and that is to allocate risks between the employer and the contractor. A traditional contract determines the rights and liabilities of the parties when there is a problem. As a result, most people put the contract into the drawer after it is signed, only to be taken out if a dispute arises.
The NEC3 contract is conceptually very different. The purpose of the contract is to set out procedures for parties to identify risks as early as possible, and to resolve problems together. The fundamental basis of the NEC3 contract is that the parties work together in the spirit of 'mutual trust and cooperation,' and it is envisaged that the contract is used as a project management tool, with parties working collaboratively, in a non-adversarial manner, to mitigate and manage risk, and so enhance efficiency.
NEC3 in Hong Kong
Considering the widespread use of NEC3 for government contracts in the UK, the Development Bureau decided to trial NEC3 in public work contracts. In 2009 the Drainage Services Department ("DSD") launched the first Hong Kong pilot project - the HK$50M Fuk Man Road nullah improvement works. This project was a success, and so in 2012 the DSD launched the Government's second pilot, the HK$272M village sewerage project in Sha Tau Kok, New Territories. By 2013 there were 26 pilot NEC3 projects in the pipeline, as well as pilot projects under the CLP and the Jockey Club. The largest of these pilots was awarded in February 2013, the HK$2.97 billion contract for the design and building of Tin Shui Wai Hospital. Impressed with the performance of the NEC3 on these projects, the Development Bureau issued a directive that the Works Departments should adopt the NEC3 form in all public works contracts put out for tender in 2015/16, as far as possible.
2014/2015 should then have seen a significant number of NEC3 projects take off, however, there was a substantial fall in the number of construction projects, due in no small part to filibustering at LegCo. Although the Development Bureau's directive got off to a slow start, as public works begin to come through in 2016, we can expect to see more Government contracts using...