Sai On Cheung

Construction Mediation Landscape in the Civil Justice System in Hong Kong

Alternative dispute resolution techniques as means to speedily and economically resolve certain types of disputes have been well recognized. In this regard, some jurisdictions have opted to use mandatory adjudication to deal with construction, in particular payment-related disputes. The situation in Hong Kong is a bit different. The Government of the Hong Kong Special Administrative Region aspires to make Hong Kong a hub for arbitration and mediation services for the region. Voluntary mediation has been introduced in the civil procedures rules of the High Court as part of the newly launched Civil Justice Reform. Adverse cost order is used to discourage “refusal to mediate” and “failing to attempt to mediate.” While the new measures that came into effect on April 2, 2009, sound sensible, a better picture on the actual impacts will unfold as more cases reach the Court. Nonetheless, the cost sanction may be able to make the voluntary use of mediation less voluntary.

Concentration Analysis to Measure Competition in Megaprojects

AbstractThe 2008 financial turmoil hit hard on many economies. Many countries and regions have since instigated major infrastructure developments to boost their economies. In this connection, the Government of Hong Kong began the Ten Mega Projects program. However, significant differences between tender prices and budget estimates have been reported, with the increases far exceeding the inflation factor. In view of the relatively large contract value and the available contracting capacity, lack of competition might have been one of the causes leading to the increase in tender price. This study investigates this phenomenon. To evaluate market concentration, four-firm concentration ratios (CR4) and the Herfindahl-Hershamann Index (HHI) are used. Employing data from the Ten Mega Projects market and drawing insights from competition laws on concentration thresholds, it is found that the CR4 results indicate a moderately concentrated market and HHI results suggest that the market is unconcentrated. The final r...

Opportunism in construction contracting: minefield and manifestation

Construction is a very competitive business in Hong Kong. Very often, no contingency is provided for the risks and uncertainties that may arise during the onsite production stage. It is therefore not uncommon to find contractors making use of the loopholes in the contract to raise claims and practise opportunistic acts to recoup loss due to excessive risk-taking. These phenomena can be found in transaction cost economics (TCE). The behavioural assumptions employed in TCE are bounded rationality and opportunism. Opportunism is of particular concern for transactions that involve asset specificity. Building on these conceptualisations, this study aims to enhance the understanding of opportunism in construction contracting through the identification of its minefield and manifestation as well as their occurrence likelihood. This study therefore posits that in construction contracting, incomplete contracts are minefield of opportunism and asset specificity informs opportunism manifestation.

Special Issue on Green and Sustainable Construction Projects: The Facets of Sustainability

Green and sustainable projects have become the norm for new developments. With the increasing environmental consciousness and the aim of combating global warming, many countries are devising policies to promote green and sustainable developments. The primary focus is incentivizing the efficient use of energy. Notably, various concessions are now available for energy saving by using design innovation, choice of materials, and alternative energy sources. Against this background, Azizi et al. reviewed energymanagement strategies reported in literature and developed a framework for assessing the practice of energy management in buildings in Malaysia. The framework includes 19 measures. Using a certified building, a noncertified building, and a conventional building as case studies, it was found that the certified building adopted 18 out of the 19 measures included in the framework. Perhaps that is the main reason the building is certified. More significantly, the case studies also suggest that having a framework provides a convenient start for facilities managers to devise energy-management measures. This, in turn, would make more likely the chance that the facilities managers would employ energy-saving design initiatives. Many governments have taken proactive moves to demonstrate their commitment to reduction of carbon. In Australia, a carbon tax was introduced in 2012. While its effect has not yet been fully realized, Wong et al., with reference to the experience in the European Union project, note that end-users will have to bear the inevitable rise in construction costs. Carbon reduction is now a global trend, and so, the authors remind us, the endeavor for attitude change as a means of understanding is an important part of this process. Nonetheless, a delicate balance has to be maintained between the betterment of humankind and the preservation of the nature. Tam and Zeng developed a set of sustainability-performance indicators to assess residential buildings in Australia. These indicators are artifacts that exemplify the sustainability potential of a building. A survey that the authors took identified that, among the indicators, access to daylight is perceived by the respondents as the most significant connotation of sustainability. In New Zealand, incentivizing schemes are in place to encourage sustainable design. Olorunkiya et al. used the example of lowimpact design (LID) in storm water management to illustrate the paradigm shift. Incentives, in whatever format, can serve as catalysts to boost stakeholders’ interest in implementing LID. This interest can be extended to other sustainable and green construction initiatives. Goh and Rowlinson suggest a maturity model to gauge sustainable construction. The model dwells on five domains: (1) performance, (2) culture, (3) management capability and capacity, (4) tactical framework development, and (5) research and development. This conceptual framework offers an initial baseline to track the evolution of sustainable developments. Further work is suggested to validate the framework. A similar type of maturity model has been developed to illustrate the adoption of information technology. In addition, some examples that highlight the relevancy and usefulness of the proposed framework would be useful. Industrialized construction is one of the means to decrease construction costs and indirectly contributes to sustainable construction. An integrated approach that brings together the expertise of constructors and designers would, in general, further enhance the savings; moreover, it would improve constructability. Jelodar et al. used the Malaysian construction industry as an example to illustrate the importance of having contractors’ input to advance the wider use of industrialized building systems. Also, changes in contracting approaches are advocated to fully embrace industrial building systems as one of the means to achieve sustainable construction.

How forming joint ventures may affect market concentration in construction industry

ABSTRACT The construction activities in Hong Kong are at unprecedented high level since the launching of an ambitious infrastructural development programme that involves the construction of ten mega projects (TMP hereafter). Since the commencement of the programme in 2008, the tenders returned for these projects have exceeded the respective project budgets significantly and far beyond the inflation factor. Major concerns have, therefore, been raised over if there is an issue of insufficient competition. Concentrated market is considered less competitive and can be futile ground for bid manipulation. This study employs the contract values of the TMP to calculate concentration measures including four-firm concentration ratios and Herfindahl–Hirschman Index. Furthermore, contractors are categorized into active and occasional group. The effects of forming joint ventures (JVs hereafter) on these two groups are examined. The findings are as follows. For active contractors, due to the network among them, forming JVs lowers market concentration. For occasional contractors, forming JVs increases market concentration. It is suggested that for projects of lower technical complexity and value, project segmentation would enhance market competition.

A Macro-Micro Framework of ADR Use in the Malaysian Construction Industry

Inspired by Coleman’s scheme, this paper presents a theoretical framework on decision making process in a macro-micro perspective for Alternative Dispute Resolution (ADR) in the Malaysian construction industry. Macro conditions influence the overall level of ADR use in the construction industry, not directly, but through the myriad of decisions made by construction practitioners in using ADR. By drawing on Theory of Planned Behaviour (TPB) and Institutional Theory, this paper demonstrates how micro outcomes (actual ADR use behaviour) is linked with micro-level decision making process, embedded in a macro-level configuration that influences overall macro outcomes (overall level of ADR use in the construction industry). Overall, decision making process in ADR use can be conceptualized with the process of forming intentions; while macro conditions, through institutional isomorphism such as coercive pressures, normative pressures, and mimetic pressures systematically influence intention. Both coercive and normative pressures would influence subjective norm; while mimetic pressures would influence descriptive norm. The combination of attitude, perceived behavioural control, subjective norm and descriptive norm would form intentions that further predict the use of ADR. Optimistically, the overall framework could offer practical premise for useful policies and interventions that yield favourable micro and macro outcomes.

Understanding Intention to Use Alternative Dispute Resolution in Construction Projects: Framework Based on Technology Acceptance Model

AbstractThis study developed and tested a conceptual model based on the technology acceptance model (TAM) that explained selection behavior in alternative dispute resolution (ADR) methods in constr...

Are Agreements Not to Compete Anticompetition

AbstractRising construction costs are of great concern in all development projects. Cost increases may be the result of inflation but can also be attributable to malpractice, such as bid rigging. This paper first discusses bid rigging in general and focuses on agreements not to compete to illustrate the pitfalls of this relatively more subtle form of bid rigging. Decided cases from Hong Kong and the United Kingdom are used to illustrate that the common law approach to knock-out agreements, whereby potential buyers agree not to bid at an auction, finds them lawful. However, these cases were decided with regard to criminal charges of conspiracy to defraud and deceive. An agreement not to compete per se is insufficient to constitute conspiracy and deceit in common law. This study revisits the nature of such agreements from an anticompetition perspective and in light of the Hong Kong Competition Ordinance (CO). It is argued that agreements not to compete are anticompetition. Notwithstanding that such agreemen...

Special Issue on Practices and Resolution of Progress Payment Claims

Are some disputes more important than others? Perhaps this is a matter of opinion depending on your position, capacity, and the quantum at stake. Nonetheless, it is generally accepted that cash flow is the lifeblood of construction contracting. Security of payment legislations have been enacted in many jurisdictions, with the primary aim of ensuring that payments due to the contractor and subcontractors are duly honored. This intention has been warmly received by the industry. Adjudication provides the platform for more timely decisions whereby the aforementioned legislative intent can be effected. It is therefore common to have mandatory adjudication linked with security of payment legislations. This special issue includes six articles that discuss the benefits and unintended side effects of Security of Payment legislations in the United Kingdom, New Zealand, Australia, and Singapore. The United Kingdom (U.K.) is possibly the first Common Law jurisdiction that has introduced legislative measures to deal with mandatory adjudication and payment issues under construction contracts through the enactment of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA). Akintoye et al. state that the three key aims of the HGCRA are (1) to allow swift resolution of disputes, (2) to reduce unreasonable payment delays, and (3) to make the legislation more effective at improving cash flow in construction supply chains. Amendments to the HGCRA were made through Part 8 of the Construction Act 2009. The key changes include, inter alia, mandatory adjudication extensions to cover oral contracts and abolition of the pay when certified clause. Through an online questionnaire, the authors examined the impacts of the 2009 Act. It was found that small-sized, medium-sized, and large-sized contractors welcome the proposed changes in the tightening of contract payments so that a more balanced level playing field can be achieved. Moreover, according to the case study by Atkinson and Wright, the cost of adjudication in complex cases has escalated in the U.K. to the extent that the adjudicatory process is masked by the extensive use of experts and lawyers. This is reminiscent of the phenomenon of how arbitration becomes a replication of civil proceedings in court. Ramachandra and Rotimi conducted a study of the 40 construction payment cases that reached the High Court of New Zealand. Five major sources of payment dispute were identified: (1) delay in progress and final payment, (2) nonpayment of amount certified, (3) disagreement over valuation, (4) noncompliance of payment provisions, and (5) argument over prolongation and acceleration costs. The authors found that these types of payment disputes are common and require prompt action of the industry to ensure that the construction supply chain is not affected. The authors also raised the concern of bankruptcy and insolvency issues that may arise if the payment disputes in construction are not addressed properly. On the subject of insolvency, McCagh suggests the use of trusts to facilitate security of payment in Australia. In Australia, there has been a surge in insolvencies among construction entities. The New South Wales Government instigated an inquiry into how such insolvencies can be prevented. Although this issue was proposed some 20 years ago, no legislation was enacted. Forms of construction trusts are operating in Canada and the United States. The proposed construction trust shall require contractors to hold funds received from the principal on the trust for the benefit of (1) the contractor and all subcontractors, or (2) the principal for the purpose of advancing the construction project. In addition, a project-specific bank account shall be established for which the principal and contactor shall act as trustees for the benefit of the entire supply chain. The author is adamant that the proposed trust regime be part of the security of payment legislation. Wong et al. indicate that Australia had looked into the payment issue in light of the HGCRA; the state of Victoria enacted its own Building and Construction Industry Security of Payment Act (SPA) in 2012. The SPA was amended in 2012. The authors studied the cases related to the SPA from the Australasian Legal Information Institute database. The authors suggest that certain issues need to be ironed out if the SPA is to fulfill its intended effect. Notably, the use of adjudication appears to raise the most concern according to the authors’ research. For example, the roles of the adjudicator and the adjudicatory process have to be evaluated in order to maintain the original design of professional judgment for a speedy decision. There is a tendency of growing formality in the process. Furthermore, the decisions of the adjudicator are refuted quite extensively. This undermines the creditability of adjudicators, as adjudication is seen as a rehearsal of arbitration. Lim discusses the pros and cons of having a security of payment legislation with reference to his study in Singapore. The author examined the legislation in light of some major cases decided in the Singapore courts. One of his key proposed reforms is that the entirety of the adjudicated amount should first be paid by the respondent to the claimant even if the adjudicator determination is challenged. It is found that if the respondent—in most cases, the employer—resists payment on technical grounds, then the adjudicator does not have jurisdiction in the matter. The collection of papers in this special issue neatly emphasizes the need for legislative intervention to address payment issues in construction. Security of payment legislations have been enacted in a number of Common Law jurisdic0tions. They share commonalities in intentions and provisions. The operation of the legislation also highlights the areas that need further action.

Construction project dispute negotiation: a conflict-trust mapping framework

Trust between negotiating parties has been identified to have a positive impact in achieving negotiated settlements. This study aims to test this proposition in the context of construction project dispute. To achieve this, bases of trust and conflict types are identified through literature review on the respective subjects. As a result, three trust bases: cognition, behaviour and affect are listed. Two major conflict types; C-type and A-type conflicts are translated into five construction project dispute scenarios. With these, five conflict-trust relationship frameworks are developed. With data collected from Hong Kong construction professionals, these frameworks are confirmed by structural equation modelling (SEM). Data sufficiency for SEM is augmented by bootstrapping analysis. Affect-based trust is found to be the most versatile while cognition-based trust is the least instrumental. Despite construction project disputes are content specific, the human aspect during negotiation cannot be under-estimated. It is also found that robust contract governance puts parties on a legality-trusting platform. The main message from this study is that negotiated settlements are more likely if the negotiating parties can establish common ground through effective information exchange - a situation where trust would prove to be instrumental.