Project Controls Test Event: Contract 826

437. We have reviewed Contract 826 Delay Event, ⁴³⁸ the delayed arrival of the two TBMs from the Mainland, to test the application of MTRCL’s project management procedures, mainly:

• Risk Management process;

• Change Control process; and

• Internal MTRCL meetings.

Project Delivery Risk Register

438. Our review of the Project Delivery Risk Register considered the late arrival of the two TBMs from the Mainland. We selected the first instance this risk was recorded on the Contract 826 risk register, and how that first risk changed over time. Subsequently, we considered whether any other associated risks were recorded on the Project Delivery Risk Register and how these changed over time. We did not consider the complete risk registers and periodic changes to these.

438 Refer to Section 2 of this report

439. The risk of the delayed arrival of TBMs from the Mainland, for Contract 826, was first identified and captured on the Project Delivery Risk Register, in December 2010. ⁴³⁹ The risk register described the risk as “Late completion of the cross boundary section” caused by “Delay in completion of the mainland section.” The major consequences are noted as “Programme delay in completion of Contract 826 & 830 as well as System-wide E&M.”

440. The risk is rated with a likelihood rating of 4 (denoting “Likely; >25%; 1/1-5 yrs”) and a consequence severity rating of 1 (denoting “Significant: $10M - $100M” - note that the rating system in use in the Project Delivery Risk Register does not quantify the schedule impact of risks). In accordance with the project delivery risk matrix, this gives an initial overall rating for the risk of P3 (denoting Medium Risk – Should be mitigated if it is cost effective to do so”). ⁴⁴⁰ 441. The risk register notes the controls for this risk as including “apply pressure on China section,”

“optimize the design and shorten the drill and blast section”, “regular meeting with GSG to monitor the progress”, and “make contingency in Pway and other RS E&M tender document to allow the possible delay.” ⁴³⁹

442. This risk appears in each subsequent risk register up to the last available register dated 23 June 2014. It is still noted as an open risk, and has not been modified or updated since it was first identified. The current and residual ratings of the risk are unchanged from the initial P3 rating and no notes are recorded regarding progress/status of mitigating actions. ⁴⁴¹

443. In addition to the risk discussed above, a further risk was included in the contract-specific section of the Project Delivery Risk Register. This risk, numbered 826-06 was added to the register on 17 April 2012 and described as relating to "Delay in Mainland section." caused by delays in launching the TBMs and slower than expected progress rates. The contractual deadlines for the arrival of the two Mainland TBMs were 29 July 2012 and 30 September 2012 respectively, with actual handover occurring on 27 November 2013 and 22 March 2014 respectively.

444. The risk is initially rated as a P2 risk, with a likelihood score of 5 and a consequence score of 1.

Mitigating actions are noted which include close coordination with the Mainland contractor and escalation to Transport and Housing Bureau / Railway Development Office. Unlike the generic risk identified above, this risk entry was updated in the register. The risk rating was raised from P2 (likelihood 5, consequence 1) to P1 (likelihood 5, consequence 2) on 24 September 2013 and lowered again to P2 (likelihood 5, consequence 1) on 5 November 2013. The risk does not appear on the last risk register we reviewed, dated 19 June 2014. Instead an additional risk is included for the first time on this register, numbered 826-07, and described as relating to "Delay in Hong Kong section."

445. Within MTRCL’s PIMS, it is noted that “The SE-PR/SSAM shall generate a consolidated project delivery risk summary report from all projects, summarizing the status of high risk items

439 XRL Project Delivery Risk Register, Risk D3.45, 30 December 2010

440 XRL Project Delivery Risk Register, Project Delivery Risk Matrix, 30 December 2010 – as an example

441 XRL Project Delivery Risk Register: 21 January 2011, 26 June 2011, 23 January 2013, 24 June 2013, 13 December 2013, 28 January 2014 and 23 June 2014

(e.g. Residual P1/P2 risks, or severity class ‘Critical’ or ‘Catastrophic’).” ⁴⁴² Risk rated as P3 are not individually mentioned within the project risk summary reports.

Contract-specific Cost Risk Register

446. As well as being recorded in the Project Delivery Risk Register, quantified cost risks relating to this test event are also captured in the contract-specific cost risk register for Contract 826 included in the monthly Cost Reports.

447. Two separate risks are identified in the cost risk register corresponding to the Contract 826 Test Event. The first is described as “Potential delay claim in Mainland Section due to outside [the contractor’s] control” and the second described as “Allowance for claim for delay due to unforeseen ground and further delay in Mainland Section.” Both risks appear in the first available cost risk register for Contract 826, dated April 2013. ⁴⁴³

448. Table 19 compares the generic risk from the Project Delivery Risk Register with those corresponding risks identified within the cost risk register, showing how each risk varies over time. It can be seen that while the project delivery risk is not updated after its initial identification, the quantified cost risks within the cost risk register are periodically updated, both in terms of the detailed description of the risk and the quantification values associated with it.

449. It can also be seen in Table 19 that while the cost impact of the project delivery risk (in the range HK$ 10 million – HK$ 100 million) does correspond to the total cost impact of the cost risks, the recorded likelihood is significantly higher within the cost risk register. This higher likelihood, if reflected in the Project Delivery Risk Register, would cause this risk to be elevated from a P3 (“Medium Risk”) to a P2 (“High Risk”) event. ⁴⁴⁰

Risk Description Notes Date

Likeli-hood in completion on Contract 826 &

830 as well as System-wide Degree 1 Completion of Tunnels (3 Months Later)

August 10 70% 5.0 9.0 12.0

October

2010 70% 2.0 3.5 5.0

July 2011 [Removed after this date]

Delay Completion of Launching

Shaft at Huangguan ^{July 2010} 70% TBA TBA TBA

442 MTRCL PIMS – Project Delivery Risk Management (PN/04-1/A2), paragraph 5.3.5, March 2012

443 XRL Monthly Design/Construction Cost Report, Contract 826 Section – Huanggang to Mai Po Tunnels, April 2013 and June 2014

Further Delays of 2 Months to

Generic Allowance ^{April 2012} 50% 10.0 17.8 36.0

Allowance for claim for delay due to unforeseen ground and further delay

Table 19: Summary of risks identified by MTRCL relating to Test Event for Contract 826

Internal MTRCL discussion

450. For a comprehensive discussion of the reporting of delays to Contract 826 by the contractor and by MTRCL to Government, see Section 3. This Section will consider only discussions recorded at internal MTRCL meetings.

451. A review of all MTRCL Board Meeting minutes and ExCom minutes identified minimal discussions within these groups regarding the delayed arrival of TBMs from the Mainland. At the ExCom meeting on 24 October 2013, it was noted in relation to the XRL Project that

“further delay has been seen in the cross-boundary construction programme as advised by the mainland contractor, and the first TBM under the latest forecast would only reach the boundary by end of November. This has posed a significant impact on the overall timetable for completing the XRL by 2015.” ⁴⁴⁴

452. At the New Railway Projects – Half-yearly Updates for MTRCL Board Meeting on 10 December 2013, it was recorded that, in relation to the Project’s progress, “The two TBMs procured under the Hong Kong section continue to excavate north of the Shenzhen River. The progress of these two TBMs is significantly behind the agreed programme, and putting a serious

444 MTRCL Progress Report to ExCom, 24 October 2013

risk on the project 2015 programme.” Despite this remark, the meeting concludes that “With the current construction progress, overall master programmes of all projects could still be achieved.

Various Delay Recovery Measures are in place to mitigate the delays.” ⁴⁴⁵ Change control procedure

453. At the Project Control Group Meeting on 20 January 2011, two proposed changes relating to the Test Event for Contract 826 were submitted and approved. The first was a proposal to revise completion obligations on Contract 826 due to “3 month deferral of TBM arrival at Boundary by Mainland Contractor.” ⁴⁴⁶ Regarding the cost implication of this change, a redacted contractor’s cost estimate is described as being under review along with the statement “The Project team will negotiate and agree with the Contractor at a mutually agreeable cost in accordance with the Contract.” ⁴⁴⁶ Regarding the programme implication of this change it is noted that “There will be no impact on the overall XRL Project Programme.” ⁴⁴⁶

454. The second relevant Project Control Group Paper, presented at the same meeting of 20 January 2011, is a closely related proposal relating to a “Revision of Construction Sequence and Three Months Deferral of TBM Tunnel breakthrough by Contract 826.” ⁴⁴⁷ The paper proposes

“adoption of a revised construction sequence under which the southbound (downtrack) TBM tunnel will be constructed first followed by the northbound (uptrack) TBM tunnel and a 3 month delay in the breakthrough to the TBM shaft by Contract 826.”⁴⁴⁷⁴⁴⁷ Regarding cost implication, it is noted that “The Contractor has indicated an additional cost of HK$ 2.3M to cover disruption, resource idling and prolongation costs associated with the above changes, which is now under review.” ⁴⁴⁷ In relation to this cost estimate, it is noted that “The Project team will negotiate and agree with the Contractor at a mutually agreeable cost in accordance with the Contract.” Regarding programme implication it is noted that “There will be no impact on the overall XRL Project Programme.” ⁴⁴⁷

455. It is not noted within either of the Project Control Group Papers referred to in paragraphs 453 and 454 above that these changes relate to the occurrence of a previously identified Project delivery risk. It is not noted whether the acceptance of these changes mitigates or closes out a risk on the Project Delivery Risk Register.