The legislation governing procurement and public-private partnerships (PPP) is general in the sense that no specific legislation covers PPP. There is no general enabling framework or legislation in Hong Kong, similar to the UK.
For 50 years (from 1997-2047) the doctrine of ‘One Country, Two Systems’ applies to Hong Kong. This doctrine is set out in the Basic Law of the Hong Kong Special Administrative Region of China (Basic Law). Article 12 makes it clear that Hong Kong is a local administrative region of China, which shall enjoy a high degree of autonomy and comes directly under the Central People’s government. Article 106 of the Basic Law provides for Hong Kong to have independent finances, and article 110 states that its monetary and financial systems shall be prescribed by law.
As regards ports in particular, article 127 of the Basic Law states that ‘[p]rivate shipping businesses and shipping-related businesses and private container terminals in the Hong Kong Special Administrative Region may continue to operate freely’. Article 124 allows the government of Hong Kong Special Administrative Region to ‘on its own, define its specific functions and responsibilities in respect of shipping’.
The Public Finance Ordinance (Chapter 2) provides for the control and management of the public finances of Hong Kong. The government procurement process is governed by the Stores and Procurement Regulations (SPR), issued by the Financial Secretary under the Public Finance Ordinance. The SPR are supplemented by Financial Circulars and Financial Services and the Treasury Bureau Circular Memoranda. The SPR are applicable to stores purchased or acquired on behalf of government, excluding land and buildings, as well as services performed by firms and/or organisations for and on behalf of government and revenue contracts that generate revenue for and on behalf of government. Chapter 3 of the SPR provides the tender procedures for government procurement.
In addition, certain projects are subject to specific legislation. For example, Tung Chung Cable Car Ordinance (Chapter 577), and various tunnel ordinances contain provisions covering issues such as restrictions on assignment or disposal of rights and obligations, restrictions on mortgages and charges, claiming damages to make good defects or upon the service provider’s failure to perform obligations, compensation to the service provider for added value, control over change in equity ownership and shareholding, etc.
Government procuring entities
Construction services are procured by works departments, under the overall supervision of the Development Bureau. In addition to giving general guidance and technical advice on tendering procedures and contract administration matters in respect of works contracts, the Development Bureau maintains lists of public works contractors and a central performance reporting system of public works contractors and provides support for financial vetting where necessary.
Subject to any relevant legislation in any particular situation, the government has extensive constitutional and common law powers to enter into commercial contracts, including PPP contracts. However, the government retains its basic accountability and responsibility to the public for the delivery of public services. In addition, the government may have a continuing, non-delegable duty of care to recipients of certain services provided by private companies - particularly those recipients in a position of vulnerability, to whom government owes a duty of care (eg, the Housing Authority or schools). This non-delegable duty of care may arise at common law or under legislation.
Therefore, before executing PPP contracts, the relevant legislation needs to be checked. Sometimes enabling or amending legislation may be required. For example, Hong Kong’s Legislative Council debated the need to create new primary legislation for the Kai Tak Cruise Terminal (KTCT), which was eventually passed as the Kai Tak Cruise Terminal Ordinance (Chapter 627), with one of the reasons being that, having regard to the limitations of the regulation making powers under Shipping and Port Control Ordinance (SPCO, which is defined below), it was necessary to enact new primary legislation with an express ‘fee-charging’ provision to reflect the intention for the relevant fees and charges to be collected on a commercial basis and beyond cost-recovery level. The Kai Tak project is interesting in that it was initially intended that the terminal be built using PPP, but ultimately the Commissioner for Tourism became the operator, but could subcontract to commercial operators.
As regards the selection of port operators in particular, Hong Kong has made use of a variety of approaches, including:
- open tender;
- closed tender; and
- negotiated agreement (ie, private treaty).
Legislation for the regulation of port facilities includes the SPCO (Chapter 313). Section 55 of the SPCO allows the Secretary for Transport and Housing, by order published in the Gazette, to declare any area of the waters of Hong Kong to be a port.
In 1974, the Port Control (Cargo Working Areas) Ordinance (Chapter 81) established PCWAs to meet the demand for berthing spaces for barges to load and unload containers and other cargoes taken to and from ocean-going vessels. Though before 1998 berths were allocated on a first-come-first-served basis under a permit system, the berths were then allocated through restricted tender to operators by fixed-term agreements. Unallocated berths were then distributed by open tender, and re-tendering was carried out to re-allocate the PCWA berths upon the expiry of the relevant agreements. With the first tendering exercise taking place at the end of 1997, berths were allocated for a term of three years, and the monthly fee was adjusted annually. The term was extended to five years in the tendering exercise of 2011. Currently, six PCWAs remain in operation:
- Western District;
- Stonecutters Island;
- Chai Wan;
- Rambler Channel;
- Tuen Mun; and
- New Yau Ma Tei.
Security arrangements for port facilities are covered by the International Ship and Port Facility Security Code (ISPS Code), and the Port Facility Security Plan (PFSP), as implemented in Hong Kong from 2004, through the Merchant Shipping (Security of Ships and Port Facilities) Rules (Chapter 582A). The ISPS Code was issued by the International Maritime Organization (IMO) and is an amendment (1988) to the international Safety of Life at Sea Convention (1974) on minimum security arrangements for ships, ports and government agencies. Having come into force in 2004, in response to the terrorist attacks on 9 September 2011 in the US, the ISPS Code requires that contracting governments, local administrations and the shipping and port industries cooperate in detecting security threats and taking preventive measures against security incidents. There are 33 designated port facilities in Hong Kong, including:
- container terminals;
- oil terminals;
- river trade terminals;
- cross-boundary ferry terminals;
- passenger terminals;
- shipyards; and
- power station jetties.
A PFSP must be prepared for each designated port facility based on its security assessment. The designated authority (namely the Director of Marine) is responsible for examining the security assessments and PFSPs, issuing the statement of compliance, annual audits and renewing certificates. In compliance with the ISPS Code, all designated port facilities are required to have security exercises and drills carried out regularly.
Container terminal operators must also comply with the laws and regulations in respect of dangerous goods, which include requirements to maintain records of dangerous goods. For example, terminals must be gazetted as an approved container terminal where dangerous goods may be loaded and discharged, and freight containers containing dangerous goods may be stored. In addition, container terminal operators must apply for environmental permits for the construction or operation of container terminals under the EIA Ordinance.
Further, there are various general operating licences in Hong Kong that may be required including, among others:
- general bonded warehouse licences to store dutiable goods and licences to deal with controlled chemicals from the Customs and Excise Department;
- licences to store dangerous goods from the Director of Fire Services;
- licences to handle cargoes containing radioactive substances from the Radiation Board;
- operating licences from the Marine Department for certain vessels;
- radio system and radio paging licences from the Telecom-munications Authority to use radio communications apparatus; and
- waste production and disposal licences from the Environmental Protection Authority.
In addition, the Hong Kong and Kowloon Wharf and Godown Company Limited By-Laws (Chapter 1023) Ordinance (and subsidiary legislation) and the KTCT Ordinance (Chapter 627) both cover access and various prohibitions, (eg, entering and leaving without permissions, smoking and nuisances).
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