FC03 2020.pdf

TsyB E 00/810-6/23/0
GOVERNMENT SECRETARIAT
TsyB W 00/555-1/1/0
HONG KONG
28 September 2020
FINANCIAL CIRCULAR NO. 3/2020
Parallel tendering for contracts
(Note :  Distribution of this Circular is Scale C.
Directors of Bureaux, Controlling
Officers, Resource Management Unit
officers of policy bureaux and all officers
dealing with procurement should read it.)
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Introduction

This Circular announces changes to the Stores and
Procurement Regulations (SPRs) consequential to a change in the practice
and requirements in relation to the adoption of parallel tendering for works
contracts and works-related consultancies funded under the Capital Works
Reserve Fund (CWRF).
2.
Financial Circular No. 5/2016 “Parallel Tendering for All
Contracts” is hereby superseded.
Background
3.
Traditionally, Controlling Officers (COs) would initiate
tender procedures or consultant selection exercises after securing funding.
In the interests of expediting the procurement process, since 2016, COs1
have been allowed to adopt parallel tendering, i.e. to invite tenders or
initiate consultancy selection exercises prior to or in parallel to (rather than
after) securing funding (e.g. obtaining approval from the Finance
Committee (FC) of the Legislative Council (LegCo)).    This applied to all
works and non-works contracts and related consultancies funded under the
1  For the projects with the estimate exceeding $30 million, prior approval from respective Directors of
Bureaux (DoB) are required.

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Capital Works Reserve Fund (CWRF) and the General Revenue Account
(GRA).
New requirements for works contracts and works-related
consultancies funded under the CWRF
4.
The time required for securing FC/LegCo’s funding approval
for capital works projects has become increasingly unpredictable in recent
years.    This seriously affects the timely delivery of projects and the
accuracy of the annual capital works expenditure forecast.    To address the
problem, the Development Bureau (DEVB) decided as a matter of policy
to  require COs to adopt parallel tendering in the procurement of works
contracts and works-related consultancies funded under the CWRF.
5.
To facilitate timely delivery of projects and reduce the risks
of cost overrun or unnecessary lock-up of public resources, COs shall adopt
with immediate effect parallel tendering for the procurement of all works
contracts 2  and works-related consultancies funded under the CWRF,
unless they consider, upon the conduct of a risk assessment, that the risks
outweigh the benefits involved or, where justified, have sought exemption
from the relevant authority. In other words, COs are generally required
to invite tenders or initiate consultants selection exercises prior to securing
funding approval.    DEVB’s guidelines for the adoption of parallel
tendering for works contracts and works-related consultancies funded
under the CWRF are at Annex A.
Requirements for other procurements
6.
The regime of allowing parallel tendering for other
procurement (i.e. non-works contracts and non-works-related
consultancies funded under the CWRF and GRA) remains unchanged.
In other words, provided that COs are satisfied, upon the conduct of a risk
assessment, that the benefits outweigh the risks involved, COs may invite
tenders and initiate consultants selection exercises prior to funding
approval.    These tenders and consultancies may relate to the procurement
of goods or services (including consultancy services and standing offer
agreements), irrespective of whether the item procured is recurrent or one-
off in nature.    Guidelines for the adoption of parallel tendering in these
cases are at Annex B.
2    For classification of works contracts, please refer to DEVB Technical Circular (Works) No.5/2012
(as may be updated from time to time) and guidelines issued by the DEVB.

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Conditions for contract award involving parallel tendering
7.
All invitations for tenders and consultancy proposals issued
prior to funding approval must state clearly that funding approval has not
been obtained, and that Government will not be responsible for the cost of
preparing tenders.    COs should not award a contract and should not
indicate to the successful bidder that Government would accept its bid
unless and until funding is secured.
8.
Funding is deemed to have been secured in the following
circumstances –
(a)
for a contract to be funded under CWRF: when the project
estimate for the item covering such contract has been
approved by FC/LegCo or by a designated officer under
authority delegated by FC;
(b)
for a contract to be funded under GRA Subhead 000:
(i)
when resources for that contract have been earmarked
from within the overall expenditure envelope
provision of the relevant envelope holder/DoB, or
secured through adjustment to the annual envelope
provision approved by Star Chamber/Financial
Secretary under the established resource allocation
mechanism.    Envelope holders are reminded to plan
ahead for multi-year contracts and should not pre-empt
the outcome of resource allocation exercises (i.e.
should not presume that additional allocations would
be approved); and
(ii)
in case FC/LegCo approval is needed, when LegCo
has approved the resources in the context of the
Appropriation Bill or when FC or a designated officer
under authority delegated by FC has approved the
resources; and
(c)
for a contract to be funded under other GRA Subheads:
when the specific non-recurrent financial commitment has
been  approved by LegCo as part of the relevant
Appropriation Bill or by FC or a designated officer under
authority delegated by FC.

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Cancellation of tenders/consultants selection exercises
9.
In case FC/LegCo does not approve the funding required
before the expiry date of the tender validity period or extended tender
validity period (if applicable), procuring departments adopting parallel
tendering will have to cancel the tender exercise in question.    Prior
approval of cancellation of tenders due to this reason is not required.
10.
In case FC/LegCo approves the funding in part and/or varies
the scope of the procurement, the procuring department will have to
consider whether the tender exercise needs to be cancelled or modified with
a revised scope, or a re-tender exercise needs to be arranged.    Prior
approval of the relevant tender board or departmental tender committee is
required if the procuring department chooses to cancel the tender exercise
or negotiate with bidders on the revised scope under the circumstances.
Changes to the Stores and Procurement Regulations
11.
Relevant amendments to the SPRs are set out at Annex C,
and will be effective upon promulgation of this Circular.
Trading Funds
12.
This Circular applies to Trading Funds.
Enquiries
13.
For enquiries, please contact -
(a)
the Project Strategy and Governance Office of the Works
Branch of DEVB for matters related to the policy for works
contracts and works-related consultancies;
(b)
E  Division of the Treasury Branch (TsyB) of the Financial
Services and the Treasury Bureau (FSTB) for matters related
to non-works procurement policy;
(c)
T Division of TsyB of FSTB for matters related to non-works
procurement procedures;

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(d)
W Division of TsyB of FSTB for works-related funding
matters; or
(e)
relevant Resource Divisions of TsyB of FSTB for other
funding matters.
( Christopher HUI )
Secretary for Financial Services and the Treasury

Annex A
The Development Bureau’s guidelines on parallel tendering
for works contracts and works-related
consultancies funded under Capital Works Reserve Fund
Controlling Officers (COs) shall adopt parallel tendering3
for works contracts and works-related consultancies funded under the
Capital Works Reserve Fund (CWRF) unless exempted by relevant
approving authority with justifications, with the aim of reflecting the
returned tender price in the Approved Project Estimate and commencing
the works contract/ works-related consultancy as early as practicable in,
say, around one month following the funding approval of the Finance
Committee of Legislative Council (FC/LegCo).
Considerations
2.
COs should conduct a risk assessment, taking into account
the benefits and risks involved, for example, the possible lapse of tender
validity, given the time required to secure funding approval from
FC/LegCo and the controversy of the projects, etc.    In doing so, COs may
also wish to refer to the relevant considerations set out in paragraphs 1 and
3(b) of Annex B.    In case the CO considers it inappropriate for a project
to adopt parallel tendering (for example, the risks outweigh the benefits
involved), the CO shall obtain prior approval from the respective approving
authority (see paragraph 3 below) for exemption.
Approving authorities for exemption
3.
The authority to approve exemption from parallel tendering
for works contracts and works-related consultancies funded under CWRF
is as follows –
3    For projects seeking funding approval with multiple works contracts / works-related consultancies,
the first works contract / works-related consultancy shall adopt parallel tendering.    For avoidance of
doubt, tendering for subsequent works contracts / works-related consultancies may be initiated after
funding is secured.

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Approving authority
Financial limit
(a)
Directors of Bureaux of
No financial limit
the project proponent
(or their Permanent
Secretaries if authorised
by the Directors in
writing)
(b)
Controlling Officers of the
Not exceeding $30 million
project proponent
After obtaining approval from the relevant approving authority for
exemption from adopting parallel tendering, the procuring department shall
notify the Project Strategy and Governance Office of Works Branch of the
Development Bureau in writing on the approval for exemptions with
detailed justifications.
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Annex B
Guidelines on parallel tendering for contracts and consultancies
other than works contracts and works-related consultancies
funded under the Capital Works Reserve Fund
Considerations for adoption
For the procurement of contracts and consultancies not
funded under CWRF, COs may consider adopting parallel tendering if the
benefits outweigh the risks involved.    Parallel tendering is intended to
expedite government procurement process.    It also allows Government to
set more realistic cost estimates of the procurements before approaching
FC/LegCo, thus reducing the risk and scale of cost overruns.    On the other
hand, in case FC/LegCo were to vote down the funding application, vary
the scope of the procurement or delay its processing, the relevant tender or
consultants selection exercise could be held up if not aborted, the scope of
procurement could be subject to re-negotiations, and validities of prices
offered could lapse.    It is not unlikely that bidders could build in a risk
premium when bidding for procurements which have yet to secure
FC/LegCo’s funding approval.
Approving authorities for adoption
2.
The authority to initiate parallel tendering and consultants
selection exercises for all contracts funded under GRA and CWRF
contracts (except works contracts and works-related consultancies funded
under CWRF) is as follows    –
Approving authority
Financial limit
(a)
Directors of Bureaux of
No financial limit
the project proponent
(or their Permanent
Secretaries if authorised
by the Directors in
writing)
(b)
Controlling Officers of the
Not exceeding $30 million
project proponent

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Conditions precedent
3.
The approving authorities concerned should satisfy
themselves,  before granting the approvals to proceed with parallel
tendering, that the following conditions are met –
(a)
the scope of the consultancy assignment, and the detailed
specifications for the contract have been finalised and agreed
by all relevant parties within the Government; and
(b)
a  project-specific risk-appraisal has been conducted.    The
approving authority concerned should assess the risks to the
Government of having to delay or abort the procurement
exercise due to lack of funding or substantive last-minute
changes to the scope of the consultancy brief or proposed
project.    The risks of FC/LegCo imposing unexpected
conditions on the project scope, or holding up funding
approvals and/or blaming Government for pre-empting FC
should be assessed.    The approving authority should only
agree to proceed with parallel tendering where such risks are
assessed as  low, or where the merits of parallel tendering
have been assessed as outweighing the potential downside
risks.
Parallel tendering encouraged
4.
To expedite project delivery and minimise the possibility and
quantum of cost overrun, procuring departments may consider more
positively the use of parallel tendering for less controversial procurements
and reflect the tender sums in the funding applications for FC/LegCo
(where needed).    The assessment of whether a project is controversial
needs to be done before the funding application is submitted to FC/LegCo.
The following types of non-works procurement may be ready candidates –
(a)
computerisation projects that seek to replace or upgrade
existing systems; and
(b)
procurement of systems and equipment that support existing
functions or operational needs.
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Annex C

Changes to SPRs

CHAPTER III – TENDER PROCEDURES

337.
(a)  For works contracts funded under the Capital Works
Reserve Fund, COs shall adopt parallel tendering, i.e. invite
tenders before funding is secured, unless they consider,
upon the conduct of risk assessment, that the benefits of
parallel tendering (in terms of time saving, greater certainty
in the Approved Project Estimate to be sought, etc.) are
outweighed by the risks involved (in terms of abortive
tendering work in case the approving authority does not
approve the project concerned or impose conditions not
envisaged in the tender, risk of Government being seen to
be pre-empting Finance Committee/ Legislative Council,
etc.).    For procurements of estimated value exceeding $30
million, prior approval from the relevant Directors of
Bureaux (or Permanent Secretaries if authorised by the
Directors in writing to do so) is required for exemption from
parallel tendering.

(b) For
other
contracts,
COs may adopt parallel tendering, i.e.
invite tenders before funding is secured, provided they are
satisfied, upon the conduct of a risk assessment, that the
benefits of parallel tendering (in terms of time saving,
greater certainty in the Approved Project Estimate to be
sought, etc.) outweigh the risks involved (in terms of
abortive tendering work in case the approving authority
does not approve the project concerned or impose
conditions not envisaged in the tender, risk of Government
being seen to be pre-empting Finance Committee/
Legislative Council, etc.).    If the estimated value of the
procurement exceeds $30 million, COs shall seek the prior
approval of their Directors of Bureaux (or their Permanent
Secretaries if authorised by the Directors in writing to do so)
to adopt parallel tendering.

338.
When parallel tendering is adopted, COs must reflect correctly in
such tender invitations that funding approval has not been obtained and

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remind tenderers that Government is not responsible for their costs of
preparing the bids. As a general principle, COs should not award a
contract and should not indicate to the successful bidder that Government
would accept its bid unless and until funding for that contract is secured.
Conditions for contract award are set out in FC No. 5/2016 3/2020 (as may
be updated from time to time).

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CHAPTER IV – CONSULTANTS SELECTION PROCEDURES
416.
(a)
For
works-related
consultancies funded under the Capital
Works Reserve Fund, COs shall adopt parallel tendering, i.e.
initiate consultants selection exercises before funding is
secured.    The conditions and requirements as laid down in
SPRs 337(a) and 338 equally apply.
(b)
For other consultancies, COs may adopt parallel tendering,
i.e. initiate consultants selection exercises before funding is
secured.    The conditions and requirements as laid down in
SPRs 337(b) and 338 equally apply.
Appendix III (I) – Standard Tender Report Format
C.
Authority to Invite Tenders
—  For prequalified, restricted or single tendering, or when parallel
tendering is adopted for contracts other than works contracts funded under
the Capital Works Reserve Fund, quote the approving authority and
provide a summary of reasons. When parallel tendering is not adopted
for works contracts funded under the Capital Works Reserve Fund, quote
the approving authority and provide a summary of reasons.
J.
Availability of Funds
—  For tenders invited before funding is secured, state the expected date
of obtaining the funding approval.
Appendix IV(A) – Specimen Submission for CCSB Stage 1 Approval
E.
Authority to Employ Consultants
—  Policy support from the relevant Director of Bureau or a public officer
authorised by him, endorsement of the MA Division of FSTB for financial
consultants and EffO for general management consultants, funding
approval, etc.
—  For initiation of consultants selection exercise before funding is
securedState whether the consultants selection exercise was initiated

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before funding is secured (i.e. whether parallel tendering has been adopted).
—  For works-related consultancies funded under the Capital Works
Reserve Fund, if parallel tendering has not been adopted, quote the
approving authority and provide a summary of reasons.
—  For other consultancies, if parallel tendering has been adopted, quote
the approving authority and provide a summary of reasons.
H.
Availability of Funds
—  Confirm the availability of funds and the title of the vote to be charged.
—  For initiation of consultants selection exercise before funding is
secured, state the expected date of obtaining the funding approval.
Appendix IV(B) – Specimen Submission for CCSB Stage 2 Approval
E. Authority to Employ Consultants
—  Policy support, funding approval, CCSB Stage 1 approval, etc.
—  For initiation of consultants selection exercise before funding is
secured,State whether the consultants selection exercise was initiated
before funding is secured (i.e. whether parallel tendering has been adopted).
—  For works-related consultancies funded under the Capital Works
Reserve Fund, if parallel tendering has not been adopted, quote the
approving authority and provide a summary of reasons.
—  For other consultancies, if parallel tendering has been adopted, quote
the approving authority and provide a summary of reasons.
H.
Availability of Funds
—  Confirm the availability of funds and the title of the vote to be charged.
—  For initiation of consultants selection exercise before funding is
secured, state the expected date of obtaining the funding approval.
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