This is an HTML version of an attachment to the Freedom of Information request 'Capital Works Reserve Fund Resource Allocation Exercise'.

TsyB W 00/530-1/5/0 
17 July 2012 
Capital Works Programme 

Distribution of this Circular is Scale C.  
Directors of Bureaux, Controlling Officers and 
all officers dealing with capital works projects, 
resource allocation and annual Estimates under 
the Capital Works Reserve Fund should read it.) 
This Circular updates the procedures for creating and managing a 
capital works project under the Capital Works Programme (CWP). Financial 
Circulars No. 4/95 and No. 11/2004 are hereby cancelled. 
CWP comprises works projects funded by the following Heads of 
Expenditure of the Capital Works Reserve Fund (CWRF) –  
government works projects under Heads 702 to 707, 709 and 711 
(collectively, they are called the Public Works Programme); and  
capital subventions projects under Head 7081. 
To:  Directors of Bureaux 
Head 708 funds “Capital Subventions” and “Major Systems and Equipment” projects.  Only the part of 
Head 708 relating to capital subventions forms part of the CWP. 

-    2    - 
In accordance with the Legislative Council (LegCo) Resolution 
setting up the CWRF, the Financial Secretary (FS) may delegate his power of 
administration to other public officers.  By virtue of the Interpretation and 
General Clauses Ordinance (Cap. 1), the aforesaid reference to “Financial 
Secretary” also means the Secretary for Financial Services and the Treasury 
The Controlling Officer for each Head in CWRF is specified in the 
Memorandum Note on CWRF in the Annual Estimates.  For expenditure items 
under Heads 701 to 704, 706, 707 and 709, FS has designated various Heads of 
Departments as Controlling Officers. For expenditure items under Head 705, 
Head 708 (part) – Capital Subventions and Head 711, SFST has designated 
Permanent Secretaries as well as Heads of Departments as Controlling Officers. 
There are four categories of capital works projects.  While 
Category D projects cover pre-construction works (such as design studies and 
site investigations) for major projects and standalone minor works items each 
costing not more than the delegated financial limit, the remaining three 
Categories (i.e. Category C, B and A) reflect the different funding status of a 
project under the capital works resource allocation system.  Details of the 
different categories are set out in the following paragraphs.   
/CATEGORY ..... 

-    3    - 
Pre-requisites for inclusion in Category C 
A project would attain a Category C status any time of the year 
upon submission of a Project Definition Statement (PDS) and a Technical 
Feasibility Statement (TFS) 2 approved by the Works Branch (WB) of the 
Development Bureau. The requirements for the compilation of PDS and TFS 
are set out in Financial Circular No. 4/2012.  In case the scope of works/project 
estimate of a Category C project has been revised and becomes substantially 
different from that in the approved TFS, a replacement TFS for consideration by 
WB and re-confirmation of the Category C status of the project by Treasury 
Branch of the Financial Services and the Treasury Bureau (TsyB) is required.   
For a project in Category C, Directors of Bureaux (DoBs) may not 
incur any CWRF expenditure on any pre-construction work3 for the project, 
except with the prior approval from SFST.   
Deletion from CWP register 
DoBs should, in collaboration with the relevant works directors, 
keep a close watch on Category C projects which have not been upgraded to 
Category B within three years from the date of entry into Category C, and 
should provide justification in writing to TsyB for the retention of the project in 
Category C prior to the expiry of a three-year validity period. In the absence of 
any such written request from the relevant DoBs, TsyB will delete such projects 
from the CWP without advance notice after three years.  Reactivation of deleted 
projects for inclusion in Category C should follow the normal procedures 
outlined in paragraph 6 above. 
/CATEGORY ..... 
As set out in Financial Circular No. 4/2012, TFSs are generally not required for projects which are 
themselves studies, non-works items (e.g. purchase of property), or renovation works.  In such cases, 
works agents may apply to WB for a waiver of the TFS requirement.  Irrespective of whether a waiver will 
be granted, the works agent should define the scope of works and work out the project estimate with 
itemized cost breakdown and payment schedule.   
Pre-construction work, which usually includes site investigation, feasibility studies, design and preparation 
of tender documents, ensures that a project will be ready in all respects to start works on site once funding 
for the construction works  is approved.  The costs of pre-construction work can be charged to the 
appropriate works-related block allocations under the CWRF subject to their expenditure ceiling.  Land 
resumption, undertaken by the Director of Lands with funding met from block allocations under CWRF 
Head 701Land Acquisition, is regarded as an enabling factor for the project, but not as part of the pre-
construction work. 

-    4    - 
Pre-requisites for obtaining Category B status 
DoBs may seek to upgrade a Category C project to Category B by 
submitting bids in the annual capital works Resource Allocation Exercise 
(RAE).  Bids for upgrading a project to Category B must be supported by a TFS 
which has been approved by WB .  For TFS completed three or more years ago, 
the information contained therein should be updated as appropriate. DoB should 
also comply with the requirements as set out in the annual Capital Works RAE 
call memo.   
Bids approved by the Star Chamber for capital funding will attain a 
Category B status.  TsyB will notify DoBs of the capital resources allocated for 
successful bids under their respective policy portfolio during the entire project 
period as well as the RAE planning horizon (the latter being normally a six-year 
span covering the current and subsequent five financial years).  For 
exceptionally urgent projects which need to acquire a Category B status in 
between two annual RAEs, an in-year bid will need to be made.  Please refer to 
paragraph 31 below for the relevant requirements. 
Pre-construction work chargeable to block allocations 
Once a project has attained a Category B status, works directors, 
with the support of DoBs, may undertake the necessary pre-construction work 
as so to render the project ready in all respects for upgrading to Category A and 
subsequent commencement of construction works.  If funding for such 
pre-construction work is estimated to exceed the delegated financial limit of a 
Category D item and cannot therefore be charged to the relevant CWRF block 
allocation, part of the Category B project would need to be upgraded to 
Category A for funding the pre-construction work. 
/Changes ..... 

-    5    - 
Changes prior to upgrading to Category A 
DoBs who intend to substantially vary the scope4, project estimate 
or programme of a Category B project should consult TsyB as early as possible, 
irrespective of whether there will be consequential capital and recurrent cost 
implications.  The Star Chamber may need to be consulted depending on the 
degree of variation, particularly when the change involves an increase in project 
estimate and raises the issue of whether it is justifiable to pursue the project.  If 
additional resources are required, the DoB concerned is expected to first meet 
these from within the total resources allocated for Category A projects under his 
policy portfolio.  Failing that, the additional resources should be sought from 
the RAE.  
Downgrading from Category B 
If there is a change in policy, user requirements and/or delivery 
programme which necessitates a revised TFS, or if there is no longer any 
justification for a project (or the remainder of a partially-upgraded project) to 
retain its Category B status (i.e. the project may be downgraded to Category C 
or deleted from the CWP), the lead DoB, in consultation with the works director 
concerned, should notify TsyB as soon as possible so as to release the 
earmarked resources to the Centre for re-allocation. Where the pre-construction 
work of the to-be-deleted project has been outsourced to consultants, the 
Controlling Officer of the project should take steps to discontinue the related 
consultancy agreements immediately or as early as practicable.  If the 
Controlling Officer does not consider it appropriate to do so, he should consult 
the relevant DoB(s), WB, TsyB and possibly the relevant consultant selection 
/CATEGORY ..... 
4   Please refer to Environment, Transport and Works Bureau Technical Circular (Works) No. 30/2003 
“Control of Client-Initiated Changes for Capital Works Projects” for details of the procedures on the 
control of changes in scope of works. 

-    6    - 
Upgrading to Category A 
DoBs may schedule to seek the endorsement of the Public Works 
Subcommittee (PWSC) and approval of the Finance Committee (FC) to upgrade 
a project to Category A when all necessary pre-construction preparation has 
been completed or substantially completed. Statutory procedures and public 
consultation required for a project should have been completed before putting 
forth the funding proposal to PWSC and FC. Guidelines for preparing PWSC 
submissions are set out in Financial Circular No. 4/2010.   
Upgrading of projects costing $15 million or less each to be funded 
under Head 708 (part) –  Capital Subventions to Category A can be approved 
by TsyB under delegated authority from FC. 
Money-of-the-day project estimates 
All PWSC/FC papers should provide estimates at constant prices 
and their money-of-the-day (MOD) equivalents5. Once approved, the project 
estimate in MOD prices will form the approved project estimate (APE) of the 
project. TsyB will normally announce price adjustments factors to be used for 
converting constant prices into MOD prices twice a year (in March and 
The relevant rules in using MOD estimates and the method in 
deriving MOD prices are set out in Annex A. 
LegCo Panel consultation 
DoBs should consult the relevant LegCo panels prior to submitting 
a funding proposal to PWSC.  Prior discussion at Panel meetings enables the 
Administration to be alert to LegCo Members’ concerns and to provide 
clarification and supporting information as needed in the PWSC submission. 
Panel papers on capital works projects should be cleared with TsyB. 
/19. ..... 
5   The same requirement applies to funding proposals submitted to TsyB for approval under delegated 

-    7    - 
For proposals of a lesser magnitude in terms of project estimate 
and the likelihood of controversy, DoBs may consider circulating such 
proposals to the relevant Panels for Members’ comments with an offer to 
discuss at the panel meetings before putting them to PWSC/FC for 
FC approval 
FC is the ultimate authority for approving the project estimate 
(which becomes APE after approval) and scope of works of a capital works 
project.  PWSC is established for the purpose of assisting FC in examining 
capital works proposals. Unless FC has formally approved a funding application 
from the Administration, the relevant DoB or works director concerned should 
not commit funding on the project being upgraded, even if PWSC has clearly 
expressed support.  
After the upgrading of a project to Category A by FC or under 
delegated authority, the relevant works director should follow the procedures in 
Financial Circular No. 2/2012 on making changes to the estimates of CWRF 
and apply to TsyB for the release of funds and/or creation of a subhead in the 
estimates for the project.  To ensure timely delivery of capital works projects, 
DoBs should adhere to the works commencement date as specified in the PWSC 
funding submission in general; and where possible, strive to commence works 
as soon as practicable. 
DoBs and works directors must ensure that works expenditure 
stays strictly within the APE for each Category A works project and in strict 
accordance with the scope of the project as approved by FC or under delegated 
authority.  The Controlling Officer of a project should seek to increase the APE 
once he is aware that the project estimate is expected to exceed the APE.  
Controlling Officers should alert TsyB once an increase in APE or change in 
approved project scope appears to be likely.  SFST may approve, under 
delegated authority from FC, minor changes to project scope or increase in APE 
which does not exceed $15 million.  No contractual commitments may be 
entered into prior to obtaining the necessary FC approval or approval under 
delegated authority for an increase in APE and/or change in approved project 
scope.  Under section 32 of the Public Finance Ordinance (Cap. 2), the 
Controlling Officers of project votes may be subject to surcharge if they have 
improperly incurred expenditure.  For details of the responsibilities of 
Controlling Officers, please refer to Financial Circular No. 1/2004. 
/Deviations ..... 

-    8    - 
Deviations from FC approval 
Where the APE and/or the approved scope of a project in 
Category A require a substantial change6, the lead DoB should seek approval 
from the PWSC and FC. 
Completion of projects, finalisation of accounts and deletion from CWP 
DoBs and their works directors should finalise project accounts as 
soon as possible and in any event no later than three years after commissioning 
of the facilities7.  Works directors must consult TsyB when this timescale could 
not be met due to special circumstances. Upon settlement of all outstanding 
balances and the finalisation of accounts, works directors should confirm with 
TsyB in writing the readiness for deleting the projects from CWP.  In turn, 
TsyB will notify the Treasury of the deletion of the project votes, and compile 
an annual report to PWSC listing out such projects with finalised accounts and 
the respective outturn expenditure. 
Cancellation and curtailment of projects 
The Administration has hitherto maintained a good track record of 
being able to complete virtually all projects in Category A.  For projects which 
the approved scope of works can only be partially completed (i.e. curtailment) 
or cannot be completed at all (i.e. cancellation), DoBs and works directors 
should provide detailed explanation to TsyB and WB, apply to TsyB for 
deletion of the projects from the CWP register, and consider informing 
PWSC/FC of the cancellation/curtailment with justification.  
/ANNUAL ..... 
Substantial change includes all changes causing an increase in APE by more than $15 million or changes 
which, albeit not increasing the APE by more than $15 million, constitutes a significant deviation from the 
scope of the project approved by FC.  
7   For a Design-Build-Operate contract (e.g. landfills), DoBs and works directors should finalise the 
accounts of the “Design and Build” portions of the contract as soon as possible and in any event not later 
than three years after the completion of the “Design and Build” portions. 

-    9    - 
At the request of PWSC, the Administration has undertaken to 
provide an annual forecast of PWSC submissions to PWSC at the beginning of 
each LegCo session.  Our target is to issue the forecast before the first PWSC 
meeting every year.  DoBs are reminded to ensure that the items included or 
explanations given in the forecast are consistent with all relevant government 
commitments (e.g. Policy Address, papers to LegCo).  The forecast will be 
circulated to all relevant LegCo Panels.  Furthermore, we need to provide 
PWSC an exception report by the end of each LegCo session to account for 
deviations between actual submissions and the forecast.  DoBs/client 
departments or organisations are accountable for any slippage, be it due to 
changes in policies, priorities, programmes and user requirements. 
Category D projects funded under various block allocations cover 
thousands of minor works items, works-related studies and site investigations, 
e.g. pre-construction work for Category B projects, and standalone minor works 
items each costing not more than $30 million.  Every year, FC approves the 
allocation for each block allocation on a lump-sum basis.  Except for slope 
works under Landslip Preventive Measures (Subhead 5001BX) and land 
acquisition items (Subheads 1004CA and 1100CA) for which the delegated 
authority from FC is without limit, the expenditure ceiling per Category D item 
is $30 million.  For projects with estimates beyond the threshold, DoBs have to 
go through RAE and seek specific funding from FC for each project (by 
upgrading to Category A ultimately). To avoid nugatory expenditure, DoBs and 
works directors shall not create Category D items to fund detailed feasibility 
studies or advanced planning work for major projects before the major project is 
upgraded to Category B of the CWP, unless with the prior approval by SFST as 
described in paragraph 7 above.  Details on the procedures for creating and 
managing Category D items are set out in Financial Circular No. 3/2011.  For 
the PDS / TFS for major projects, details are set out in Financial Circular No. 
/LAND ..... 

-    10    - 
Expenditure on land resumption should only be incurred for 
projects in Categories A and B. 
For standalone Category D minor works items, an assessment on 
the overall development cost (i.e. land resumption cost and construction cost) 
should be conducted.  If a proposed item involves disproportionately high land 
resumption cost (i.e. compared with construction cost), the DoB who gives the 
policy support, Director of Lands who controls the block allocations for land 
resumption, and the relevant Controlling Officer(s) of the block allocations to 
fund the construction cost should scrutinise the item and decide if it is worthy of 
Normal RAE bid 
The annual capital works RAE normally falls on the third quarter 
of the calendar year.  All capital works RAE bids will be processed in one 
composite exercise so that the Star Chamber can have a comprehensive 
overview of the funding requirements for all capital works projects. 
In-year RAE bid 
Where a project proposal is found to be exceptionally urgent, the 
lead DoB may submit an in-year RAE bid with full justifications and a TFS 
approved by WB (for TFS completed three or more years ago, the information 
contained therein should be updated as appropriate).  The lead DoB must 
demonstrate that the wait till the next annual RAE will compromise the project 
delivery programme.  Unless otherwise justified, the resources required for the 
in-year bid would normally be met from within the total allocation for Category 
A projects under the lead DoB’s own policy portfolio. 
/Savings ..... 

-    11    - 
Savings and administrative cap 
To avoid locking up resources unnecessarily, TsyB will internally 
“freeze” all savings arising from contracts awarded at prices substantially lower 
than the provision earmarked for these contracts in the APE8.  DoBs/works 
directors should not spend against the savings.  For RAE purpose and 
monitoring of project spending, the updated requirement for the project (i.e. the 
reduced project estimate) will be the administrative cap on the project 
expenditure.  Should there be any subsequent increase in the estimated project 
expenditure, DoBs/works directors can apply to TsyB for an additional 
allocation of funds within the APE or an increase in the APE (increases in APE 
exceeding $15 million must be approved by FC). In considering such 
applications, TsyB will take into account the administrative cap of the relevant 
projects. Any increase in project estimate (and the administrative cap) beyond 
the APE should normally be met by offsetting savings identified from within 
the administrative cap on other Category A projects.  Where the cost of a 
project turns out to be substantially lower than the APE, DoBs/works directors 
should apply to SFST to reduce the APE of a project, or keep TsyB informed of 
the reasons for not applying for a reduction in the APE. 
Recurrent cost 
To best utilise existing resources, DoBs/project proponents should 
first try to absorb the recurrent consequences arising from new capital works 
projects through redeployment of resources within their operating expenditure 
envelopes.  If that is not possible, DoBs/project proponents may include the 
request for recurrent cost in the RAE bid.  The RAE bids would be considered 
taking into account the merits of the proposals as well as the Government’s 
affordability from both capital and recurrent resources angles.  The detailed 
arrangements will be set out in the annual Capital Works RAE call memo. 

The threshold for determining “substantially lower” contract prices is set at $15 million.  Please refer to 
TsyB’s memo of 18 March 2010 on “New mechanism for calculating the administrative cap of capital 
works projects”. 

-    12    - 
Shadow bids 
There are times when the Government wishes to have non-
government developers to fund and construct public facilities (e.g. a public open 
space) and surrender the facilities upon completion for management and 
maintenance by the Government.  In such cases, policy bureaux of departments 
responsible for the management and maintenance of the facilities may submit a 
“shadow” bid (“shadow” in the sense that no capital funding by the Government 
is involved) for the recurrent cost required and such bid will be considered on a 
competitive basis as if it were a regular Capital Works RAE bid.   
If the capital cost of the public facility concerned is $30 million or 
less, project proponents are required to absorb the recurrent cost from within 
their existing allocations as with other minor capital works projects funded 
under CWRF block allocations.  Bureaux and departments must not commit the 
Government to shoulder the management and maintenance responsibility of any 
such public facilities constructed and paid for by the private developer without 
first confirming availability of the necessary recurrent resources either from 
within their own envelopes, or from the Centre through RAE.  
From the procurement perspective, a request to entrust a capital 
works project to a non-government party such as a private developer, a utility 
company or a public corporation (including but not limited to the Housing 
Authority and the MTR Corporation Limited) is, in effect, a request for waiving 
the tender procedures to entrust the project to the entity concerned.  Such a 
request requires the prior approval of TsyB, and Controlling Officers should 
submit detailed justifications and the entrustment details to TsyB for 

Financial Circulars relating to the CWP are set out at Annex B.  
For an update of the Financial Circulars in force, please refer to the Financial 
Circular on “Retention of Financial Circulars” issued at the beginning of each 
calendar year. 

-    13    - 
Please contact ‘W’ Division for capital works projects procedures, 
resource divisions on recurrent resources for capital works projects, and Tender 
Division of TsyB on entrustment covered in this circular. 
Professor K C Chan 
Secretary for Financial Services and the Treasury 

Annex A 

Converting project estimates in constant prices  
to money-of-the-day prices 
Rules in using money-of-the-day estimates 
Money-of-the-day (MOD) approved project estimates (APE) 
represent the total cash payments estimated for a project.  We can make 
MOD APE the cash-limited budget for the project when seeking funding 
approval from the Legislative Council Finance Committee (FC).  Bureaux 
and departments should complete all works under the approved project 
scope within the MOD APE.  If the APE is insufficient to meet the total 
estimated cost of a project, bureaux and departments should carry out 
relevant measures to strive to remain within the APE1, or seek approval for 
an increase in APE from the FC or by the Treasury Branch of the Financial 
Services and the Treasury Bureau (TsyB) (under delegated authority)   
2.       All PWSC papers should provide project estimates at constant prices 
and their MOD equivalents, including the calculations for deriving MOD 
equivalents.  The MOD project estimate will form the APE of the project 
for approval by the FC.  The following rules will apply - 
(a)  all PWSC submissions should quote the project 
estimate (including the contingency sum), as 
endorsed in the latest Resource Allocation Exercise 
(RAE), subject to any changes agreed by TsyB.  
MOD project estimates should be derived with 
reference to constant price estimates and the 
prevailing price adjustment factors as explained in 
paragraphs 4 and 5 below;   
Finance Committee’s prior approval is required for substantial change to the approved project scope, 
regardless of whether the change will lead to an increase in the APE of the project. 

-    2    - 
(b)  the cost breakdown for the project should include 
an item named “provision for price adjustment”, 
which is the difference between the constant price 
project estimate (including the contingency sum) 
and the MOD project estimate.  The contingency 
sum should be shown at constant price separately 
from provision for price adjustment; 
(c)  we should endeavour to use the provision for price 
adjustment only for meeting inflationary price 
increases during the construction period, and 
should refrain from using it as a secondary 
contingency item to pay for real increases in the 
cost of the project due to unforeseen works items 
as far as possible; and 
(d)  we can award contract(s) under a project only if the 
cumulative total of all tender prices for the 
contract(s) plus allowance(s) for inflation 2    falls 
within the ceiling of the MOD APE.  
3.       Provision for price adjustment is designed to meet inflationary price 
increases and should be used primarily for this purpose.  The above rules 
should help ensure that the costs of additional works under the project will 
not be met from provision for price adjustment unless it is justifiable to do 
so.  Additional costs for unforeseen works items which are within the 
approved project scope should first be met from contingency and savings in 
construction costs.  Only if there is genuine surplus in the provision for 
price adjustment (e.g. lower-than-expected actual contract price fluctuation 
payments) and no other project sum (including the contingency) can be 
identified to meet additional cost should the provision for price adjustment 
be used for meeting the additional cost for unforeseen works items.  If the 
combined effect of higher-than-expected contract fluctuation payment and 
construction costs is such that the original MOD APE will be exceeded, 
FC’s approval should be sought.     

Allowances for inflation mainly take the form of estimated contract price fluctuation payments. 

-    3    - 
Derivation of MOD prices 
4.       MOD prices are derived by –  
(a)  splitting up a project estimate in constant price into a cashflow 
forecast showing the estimated expenditure in each financial 
year; and 
(b)  multiplying the constant price forecast in a certain year by the 
price adjustment factor for the same financial year. 
5.       The Government Economist forecasts the trend rate of change in the 
prices of public sector building and construction output, based on which 
TsyB derives price adjustment factors for converting project costs at 
constant prices into MOD prices.  Sample calculation is provided in the 
Enclosure to this Annex.  TsyB normally announces the price adjustment 
factors half-yearly (in March and October).   
6.        To determine the amount of savings in constant prices available for 
funding new projects or covering increases in MOD APE, 
bureaux/departments should determine the difference in dollar terms 
between the original MOD APE and the latest forecast outturn MOD cost. 
Bureaux/departments should then apply deflation factors to deflate the 
MOD savings to the constant price base of the current RAE to determine the 
constant price savings that can be quoted to fund new projects or cover real 
cost increases of other projects.   
7.       In preparing proposals for increase in APE, bureaux/departments 
should provide TsyB the calculation of savings for vetting purpose. Sample 
calculation is provided in the Enclosure to this Annex. 
Annual Resource Allocation Exercise
8.       Although APEs approved by the FC will be in MOD prices, the 
annual RAE for capital works projects will continue to be on a constant 
price basis.  During RAEs, we will update constant price estimates for 
projects with reference to the constant price estimates approved in the 
previous RAE and the prevailing price adjustment factors.   

-    4    - 
Enclosure to Annex A 
Sample Calculations 
The following sample calculations illustrate:  
(a)   how project estimates in constant prices are converted into 
project estimates in MOD prices; and 
(b)   how to determine the amount of savings in constant price 
required for supporting a proposed increase in APE in MOD 
(a) Converting constant price project estimates into MOD price project 
The following example is extracted from PWSC(2009-10)83 on “30LJ 
–  Additional courtrooms and associated facilities in the High Court 
We estimate the capital cost of the project to be $50.9 million in MOD prices, 
broken down as follows – 

$ million 
(a)  Site works and demolition  
(b)   Building 
(c)   Building  services 
(d)   Drainage 
(e)   External  works 
(f) Additional energy conservation 
(g) Furniture and equipment 

-    5    - 
$ million 
(h) Consultants’  fees 
(i) contract 
management of resident site 
(i)  Remuneration of resident site 
(j) Contingencies 
 2009 prices) 
(k) Provision for price adjustment 
50.9  (in MOD prices) 
Subject to approval, we will phase the expenditure as follows – 

$ million 
$ million 
(Sept 2009) 
2010 – 11 
1.02000 5.1 
2011 – 12 
26.0 1.04040 27.1 
2012 – 13 
11.5 1.06121 12.2 
2013 – 14 

2014 – 15  
Total 48.5 
We have derived the MOD estimates on the basis of the Government’s latest 
set of assumptions on the  trend rate of change in the prices of public sector 
building and construction output for the period 2010 to 2015.  We will 
award the contract on a lump-sum basis because we can clearly define the 
scope of the works in advance.  The contract will provide for price 

-    6    - 
(b)  Example to illustrate how to determine the amount of savings in 
constant prices required for supporting a proposed increase in APE in 
MOD prices 
Table I. Cashflows in MOD prices ($ million) 
APE / 
in APE / 
exp up 
10/11 11/12 12/13 13/14 14/15 15/16 
to Mar 
(APE & 
0  10 20.9 32.8 23 12.1 12.7 
Project X  
(APE & 
0  10 26.1 38.3 23 12.1 12.7 
(APE & 
10  10 20.9 32.8 23 12.1  0 
Project Y 
10  10  20.9 27.4 17.2 12.1  0 
10/11 11/12 12/13 13/14 14/15 15/16 
Price adjustment factor (as of March 2011) 

1.04250 1.09463 1.14936 1.20682 1.27169 
Table II. Cashflows in constant prices (September 2010 prices) ($ million) 
Change in 
exp up 
10/11 11/12  12/13  13/14 14/15 15/16 
t cost  earmarked 
to Mar 
0  10 20  30  20 10 10 
Project X  
0  10 25  35  20 10 10 
10 10 20  30  20 10 0 
Project Y 
10 10 20  25  15 10 0 

-    7    - 
1.  The original APE and administrative cap (admin cap)3 for Project X is $111.5 
million in MOD prices.  An increase in APE of $10.7 million in MOD prices 
is being sought.   
2.  To determine the amount of savings (at the constant price level of the current 
RAE) 4 that Project X needs to quote from other project(s) –  
(i)  applying the price adjustment factors to deflate the original and proposed 
cashflows in MOD prices to September 2010 prices; and 
(ii)  determining the difference between the original and proposed project 
estimate in September 2010 prices i.e. $10 million in September 2010 
prices (“A” in Table II). 
3.  Owing to lower-than-expected tender prices, the project estimate of Project Y 
has been revised from $108.8 million to $97.6 million5 in MOD prices. To 
determine whether sufficient savings can be quoted from Project Y to cover 
the proposed increase in APE for Project X (i.e. $10 million in September 
2010 prices) – 
(i)  applying the price adjustment factors to deflate the original and revised 
cashflows in MOD prices; and 
(ii)  determining the difference between the original and revised project 
estimate in September 2010 prices i.e. $10 million in September 2010 
prices (“B” in Table II). 
4.  Hence, sufficient savings can be quoted from Project Y to cover the proposed 
increase in APE for Project X.  
To avoid locking up resources unnecessarily, TsyB will internally “freeze” all savings arising from 
contracts awarded at prices substantially lower than the provision earmarked for these contracts in the 
APE. DoB/works directors should not spend against the savings. The updated requirement for the 
project (i.e. the reduced project estimate) will be the administrative cap on the project expenditure.  
The savings required should be deflated to the constant price level of the current RAE.  For the 
present illustration, we have assumed the constant prices at September 2010 level. 
$97.6 million becomes the admin cap for Project Y. 

Annex B 

List of Financial Circulars relating to  
the Capital Works Programme Now In Force 
No. 4/89  
Furniture and Equipment  
No. 9/90 
Furniture and Equipment for Projects in the Public Works 
No. 4/93 
Procurement of "Non-standard" Equipment Items  
No. 9/96  
Estimates of Consultants’ Fees for Projects in the Public 
Works Programme and for Capital Subvention Building 
No. 14/97  
Stores and Procurement Regulations  
No. 2/99  
Estimates of Consultants’ Costs for Projects in the Public 
Works Programme, for Capital Subvention Building 
Projects and for Works-related Studies funded under the 
General Revenue Account  
No. 6/2000   Powers of Write-off – Public Finance Ordinance: Section 38 
No. 6/2001   Use of Trading Fund Services  
No. 1/2004   Responsibility of Controlling Officers  
No. 9/2004   Guidelines on the Management and Control of Government 
Funding for Subvented Organisations  
No. 2/2005   Recurrent Consequences of Capital Project  
No. 6/2006   Fees and Charges  
No. 2/2008   Correctional Services Industries  
No. 2/2009   Initiating Works-related Tendering and Consultant Selection 
Procedures Before Funding is Secured  
No. 3/2009   Simplified Tendering Arrangement for Capital Works  
No. 5/2009   Impact of Funding Proposals on Fees and Charges 

-    2    - 
No. 4/2010 
User Guide on the Finance Committee, Establishment 
Subcommittee and Public Works Subcommittee  
No. 3/2011 
Capital Works Reserve Fund 
Delegated authorities in respect of block allocations 
No. 2/2012 
Procedures for making changes to the Estimates 
of the Capital Works Reserve Fund 
No. 3/2012 
Capital Works Programme 
No. 4/2012 
Requirements for Project Definition Statement and 
Technical Feasibility Statement for Capital Works Projects 
No. 5/2012 
Optimisation of Site Utilisation for Capital Works Projects