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Property and Building Management Law Alert - September 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
22 September 2017


Building Maintenance: Recent Developments in the Bid-rigging Saga

Introduction

As Hong Kong is a city with a high density population, most people live in private multi-storey buildings or private residential estates with severed blocks of buildings. Naturally, the need to renovate and maintain the common parts of buildings arises. The problem of 'bid-rigging' in building repair works of the common parts has become increasingly prevalent within the community.

Under the Competition Ordinance (Cap. 619), bid-rigging (
圍標) essentially means two or more competitors, without the knowledge of the person calling for bids or requesting a tender, agreeing that they will not compete with each other for tender. Put in the context of building repair works, this may involve building consulting firms / renovation contractors / sub-contractors / property management companies / the Incorporated Owners of the building and even triad members colluding in an attempt to manipulate the tendering process by unlawful means (including significantly inflating maintenance costs) and making secret profits at the expense of property owners. As a result, property owners are forced to pay exorbitant costs for such maintenance / repair works, especially in circumstances where they are unable to assess the reasonableness of the cost as a result of their lack of professional knowledge in the field.

First Ever Conviction in Hong Kong

In September 2016, a sub-contractor was sentenced to 35 months of imprisonment for offering bribes to secure renovation contracts for two residential estates. Remarkably, it was the first ever successful conviction in Hong Kong for bid-rigging in building repair works. The Judge noted that the practice of bid-rigging was 'rampant' and people need to be more aware of it. As observed by Mr. Lam Cheuk-ting, Democratic Party lawmaker and former anti-graft investigator, the conviction has "…marked an "important step" in eradicating tender rigging practices, as it set a precedent and raises public awareness on the issue".

Call for Legislative Amendments

The case demonstrates the lack of protection / regulation in place and calls for amendment to the Building Management Ordinance (Cap. 344) ("Ordinance").

Recently, members of the Legislative Council ("LegCo") expressed their views and concerns over the need to combat bid-rigging to defend the rights and interests of property owners, and urged the Government to take further action. For instance, to "…expeditiously plug the relevant loopholes under the Building Management Ordinance to safeguard the rights and interests of property owners…" as "...bid-rigging seriously undermines the fairness and impartiality of the tendering process of building maintenance works, and also causes the price of the successful bid in maintenance works to far exceed the reasonable market rate, thus greatly increasing the maintenance expense of property owners while the quality of maintenance works cannot be safeguarded".

In response, in the Legco meeting on 8 June 2017, the Secretary for Home Affairs, Mr. Lau Kong Wah indicated that following its previous consultation with the Panel on Home Affairs ("Panel") in May 2016, the Home Affairs Department recently had another consultation with the Panel in March 2017 regarding proposed legislative amendments and the relevant administrative measures proposed to be put in place.

Seeing as the passing and implementation of legislative amendments take time, and as an immediate next step to address the concerns of the public, the Home Affairs Department intends to issue a further Code of Practice in late 2017, incorporating certain proposed amendments to the Ordinance (which are consistent with the current legislation). All Incorporated Owners are encouraged to comply with the Code of Practice.

Comment

As a topical issue in the recent years, any steps towards combatting tender rigging would be in the public's interest. Interested parties are encouraged to keep a close eye on the details and scope of the upcoming issue of the Code of Practice and / or legislative amendments and seek independent legal advice (where necessary). HWB will continue to monitor any future legislative developments.

 

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