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Case Studies
Award of contracts
The Wealthy Restaurant Group (the Group) consisted of a chain of ten restaurants in Hong Kong. The Director of the Group, CHENG, was highly experienced in the food and beverage business but had no knowledge about construction and engineering works. Hence, he relied on the expertise of Engineer WONG when there were selections of construction and engineering contractors.
WONG was authorised to approve decoration and renovation works up to a value of $300,000 and those above $300,000 would require CHENG’s endorsement. According to company policy, contracts below $300,000 should be let by quotation and those above $300,000 by way of tender. Contracts should then be awarded to the bidder who offered the most competitive price, irrespective of quotations or tenders.
In January 2000, WONG approached one of the contractors KWAN. WONG convinced KWAN to offer him a commission (5% of the contract price) in return for supplying KWAN with quotation information submitted by other bidders every time when there was a quotation exercise. With the information, KWAN could always submit the lowest bid and be awarded the contract on every occasion. WONG also split contracts of $300,000 or above into two or more contracts to avoid CHENG’s involvement in the award.
As the Group had no internal audit section, the malpractice was not discovered. During the period from January 2000 to December 2001, most renovation contracts of the Group totalling $10 million were awarded to KWAN and WONG received over half a million dollars as commission in return.
WONG and KWAN were later arrested by the ICAC and convicted of offering/accepting advantages, contrary to Section 9 of the POBO. They were each sentenced to imprisonment and WONG was also ordered by the court to return the illegal commission to the Group.
As a registered engineer, WONG was sanctioned by his professional institution and was removed from the membership list.
Questions
- Why were WONG and KWAN convicted of corruption offences?
- What measures should be taken to prevent malpractice in tendering?
- What can the management of the company do in order to prevent the splitting of orders?
- What is the possible consequence of corruption?
Case Analysis
Section 9 of the Prevention of Bribery Ordinance
WONG solicited an advantage from KWAN to supply KWAN with quotation information submitted by other bidders was an offence under Section 9(1) of the POBO. In the circumstances, KWAN also committed an offence under Section 9(2) of the POBO. The section (Section 9) states that:
- an agent (normally an employee) cannot solicit or accept an advantage without the permission of his principal (normally the employer) when conducting his principal’s affairs or business; and
- the person who offers the advantage also commits an offence.
Quotation and Tendering System
A company should establish a good quotation and tendering system to enable the selection of the best contractor for the job required. A good quotation/tendering system should prevent tender and quotation information from leakage. Quotations or tenders received should not be opened before the deadline to reduce the likelihood of information leakage. Furthermore, the opening of the tenders and quotations should be carried out by at least two persons to prevent tampering with the prices submitted.
Split Orders
Procedures for awarding contracts should be clearly laid down in manuals with specified approval authorities and their corresponding financial limits. No works should be split to avoid going through the laid down approval process. Where possible, an internal audit section should be established to conduct periodic checks to detect and deter any non-compliance with laid down procedures. Checks carried out by the internal audit section could help detect any possible malpractice at an early stage.
Career Ruined
Being a construction professional, one should think twice before committing a corruption offence as the consequence could be serious. Greediness would not only make one liable to criminal sanction but would also pose risk to one’s professional career.