Voluntary subcontractor registration scheme

5.2.1 About the VSRS

The declared objective of the voluntary subcontractor registration scheme (VSRS) is to build up a pool of capable and responsible subcontractors with specialised skills and strong professional ethics (see PCICB’s website: www.pcicbvsrs.com.hk). The VSRS aims to elevate the standard of trade subcontractors taking on part of building or engineering development and, for achieving this aim, the VSRS should cater for (PCICB, 2003):

(a) A convenient source of reference for players actively engaged in the subcontracting business;

(b) A launch-pad of new initiatives aimed at improving the professionalism and upgrading the management training of subcontractors; and

(c) A system of capability assessment, performance tracking and disciplinary procedures for the subcontracting trade.

The original intention was to structure the scheme such that it can provide an indication on the type, size and complexity of projects that each subcontractor can undertake. Developing such a scheme, however, would take time. Therefore, a phased approach was taken, which has started off with a Primary Register. A second layer, tentatively referred to as the Premier Register, may be incorporated to form a two-tier system in due course. Currently, registration is based on trade classifications for the Primary Register. Individual subcontractors may also indicate their specialties.

The requirements for registration are (PCICB, 2005):

Requirement R1: Completion of at least one job within the last five years as a main contractor/subcontractor in the trades and specialties for which registration is applied OR comparable experience by the applicant or its proprietors, partners or directors within the last five years.

Requirement R2: Listings on one or more Government Registration Schemes relevant to the trades and specialties for which registration is sought.

Schedule 3 in the Rules and Procedures for the Primary Register of the VSRS (PCICB, 2005) makes clear that registration can be sought through either one of the two requirements above.

Approved registration will be valid for two years from the approval date, whereas the registration can be renewed, which will be assessed based on the same requirements.

Renewed registration will also be valid for two years.

5.2.2 Current status of the VSRS

As at 2 June 2006, the status of registration with the VSRS is as follows (as summarised at PCICB’s website: www.pcicbvsrs.com.hk):

No. of applications submitted: 3,130 No. of applications fully approved: 2,686 No. of applications partially approved: 167 No. of applications not approved: 138

Partial approval refers to cases where only part of the applied trades or specialties was approved.

The following summarises the status on formulation/implementation of complementary measures, which are for boosting participations in the VSRS:

• Airport Authority Hong Kong has introduced contractual provisions requiring its main contractors to include appropriate terms in their subcontracts to require subcontractors to apply for registration under the voluntary subcontractor registration scheme (VSRS) within one month upon the official launching of the scheme.

• Environment, Transport and Works Bureau (ETWB) is drafting new contractual provisions requiring public works contractors to engage domestic subcontractors (excluding nominated subcontractors and specialist subcontractors who will be selected under the ETWB Approved Lists only) who are either registered under the VSRS or will complete their registration under the VSRS before the execution of the relevant subcontracted works. Subject to consultation with the relevant parties, ETWB targeted to introduce the new requirements by mid-2004.

• Hong Kong Housing Authority (HA) will mandate the employment of registered subcontractors in all new building, maintenance and improvement contracts and intended to implement the requirement in all new contracts to be tendered out from 1 April 2004 onwards.

• Kowloon-Canton Railway Corporation (KCRC) will include mandatory requirement for employment of registered subcontractors in its new construction contracts.

• With effect from 1 January 2004, Mass Transit Railway Corporation (MTRC) will require main contractors and their subcontractors to employ registered subcontractors to undertake works covered by the trade classification of the VSRS.

• The Real Estate Developers Association of Hong Kong (REDA) has requested its members to lend support by encouraging subcontractors to register and specifying the engagement of registered subcontractors for future contracts.

• Hong Kong Construction Association (HKCA) will continue to encourage its members to engage registered subcontractors and to convince subcontractors in the lower tiers to do so.

• Hong Kong Federation of Electrical and Mechanical Contractors (HKFEMC) will continue to encourage its members to engage registered subcontractors and to convince subcontractors in the lower tiers to do so.

It can be seen that the strongest support for the VSRS has been from the public sector although the private sector has also shown their warm support. It can be seen that the remarkable number of subcontractors already registered with the scheme is a result of the complementary measures.

5.2.3 Comments on the VSRS

As stated in the Operational Framework of the VSRS (PCICB, 2003), the entry requirements for the Primary Register were set to be “accommodating”, so as to attract a critical mass of subcontractors at the outset. The Primary Register, therefore, will function mainly as a general directory of subcontractors. The requirements for the tentative Premier Register will be more demanding, which would cover duration of experience, qualifications and experience of key managerial and technical staff, manpower resources and financial capability, historical performance records, internal quality assurance systems, referees and strategic partners, etc.

Apparently, the Primary Register of the VSRS, as it is, can contribute little to the realisation of the aim of the scheme, i.e. to elevate the standard of trade subcontractors taking on part of building or engineering development. The greatest function that it can serve is limited to function (b) mentioned above, i.e. being “a launch-pad of new initiatives aimed at improving the professionalism and upgrading the management training of subcontractors”. Given that various government departments and many private developers already maintain lists of qualified contractors and subcontractors, or will establish one based on recommendations of consultant architects and engineers on a project-by-project basis, which are based on assessment procedures and criteria that are typically far more extensive and stringent than the requirements for registration with the VSRS, being listed in the Primary Register will add little value to subcontractors.

When the Premier Register is launched, the influence of the scheme will remain limited unless the registration schemes that various government departments currently maintain will be absorbed into the VSRS and the requirement is also imposed that contractors and subcontractors qualified to undertake public works can only employ domestic subcontractors who are also on the list, which may be a lower-tier list. Private developers are likely to prefer using their own lists for project procurement but may require their contractors and

subcontractors to sublet works only to subcontractors registered under the VSRS. The usefulness of the scheme, however, would still hinge on whether the assessment criteria are effective and reliable in reflecting the ability of subcontractors to turn out quality works and their financial capacity.

It should be understood that what the VSRS can do at best is to provide information for reference about the technical and financial capacities of registered subcontractors as well as their past job references; registration under the scheme can hardly be taken as an assurance of adequate performance and professional ethics. Therefore, although registered subcontractors may be preferred, clients of subcontractors are unlikely to relax on the terms and conditions in the contracts with the subcontractors and on the requirement for the subcontractors to provide warranties.

The scheme, as it is, does not permit companies without prior experience to register, not even on a provisional basis. The only possible route for a new company to gain registered status with the scheme is to employ one with suitable experience as a partner or director of the company. This may become a problem when registration with the scheme becomes a universally adopted requirement for tendering for subcontract works, as it will become a barrier to entry to new companies.