Using a number of false invoices, a company's lift maintenance engineer conspired with two maintenance supervisors and a sub-contractor to defraud his company by claiming that certain jobs were carried out by the sub-contractor whereas the jobs were actually done by the maintenance engineer's subordinates.  The offences came to light when one of the company’s workers who carried out the jobs suspected irregularities and reported to the ICAC.

In January 2001, Lee & Wong Holdings Ltd (LW) awarded a $1,000 million contract to a main contractor for constructing four 40-storey residential blocks, a commercial complex and a car park.   The main contractor then sub-contracted  the  piling  work  to  another  company.    The  latter  in  turn awarded the work to Saar Piling Company Ltd (Saar) by simply deducting 15% of his original successful bid.  LW also appointed a consultant firm Joe & Partners (JP) to oversee the construction work.   The project was scheduled to be completed in twenty months and five months were allowed for the piling works.

JP deployed an engineer as the Project Manager (PM) to oversee the project but he was not required to be resident on site.   Occasionally, he would go to the site for meetings but did not carry out site inspections himself. Routine site inspection was left to an Assistant Inspector of Works (AIoW) and a Works Supervisor (WS) who were resident site staff appointed by JP. However, the AIoW had very limited experience in piling work.

As there were only two supervisory staff on site responsible for overseeing the whole piling works, the AIoW and the WS found it difficult to check every detail during the work process.  They could only rely on the records of Saar and sign the completion forms taking the face value without checking.

Due to unexpected difficulty encountered during the placing of reinforcement casings, LAM, Director of Saar, found that the piling work was behind schedule and a one-month delay was anticipated.   Saar, being a small sub-contracting company, found it difficult to bear possible substantial liquidated damage (LD) of $800,000 per day as stipulated under the main contract.

LAM then discussed the making of shortened piles with the foreman and site agent of the main contractor, who were always away from work and thus failed to monitor the work progress.  They thought that the specifications stipulated in the contract were conservative and shortened piles should cause no severe harm to the completed buildings resting on top of the piles.   They believed that the buildings would not be structurally affected.

LAM instructed his workers not to excavate the pile bores as deep as the proposed founding levels.   Instead, after the length of the reinforcement casings had been checked by the supervisory staff of JP, LAM asked his workers to cut the casings during night time when the consultant site supervisory staff were off duty.   LAM then manipulated a measuring tape by removing parts of its central portion so that it gave a reading longer than the actual measurement.   When the supervisory staff of JP measured the pile bore depth using the manipulated measuring tape provided and re-examined the reinforcement casing, they were not able to detect that the piles had been shortened.

One day, the WS of JP discovered that the length of the constructed piles did not match with the concrete delivery records for the piles.   He suspected that some of the piles might have been shortened.   He immediately approached LAM for an explanation for the irregularities discovered and the proposals for remedial actions.

LAM, after discussion with the foreman and site agent, went to the WS’s office to hand him an envelope containing $300,000 and plead him to turn a blind eye to the substandard piling works.   The WS immediately refused LAM’s request.

The WS immediately  reported LAM’s  offering of bribes to the ICAC. LAM, the site foreman and site agent of the main contractor were arrested and convicted of conspiracy to offer an advantage to the WS as a reward for turning a blind eye on substandard piling work.

Questions

1. Why were LAM, the foreman and site agent convicted of corruption offences? What actions should you take when being offered bribes?
2. How devastating would the damages be if a construction professional accepts advantages for turning a blind eye to substandard works? What are the consequences of such behaviour?
3. What is the importance of site supervision at a construction site?

David worked in a construction company as a junior engineer after graduation. Through work, he became close with a subcontractor Mr. CHAN who often treated David lavish dinners and free trips to Macao. The two got along famously.

Recently, David’s company was conducting an open tendering exercise for a multi-billion project in Lantau, which Mr. CHAN was very keen. David was responsible for collecting the price quotation documents for the project. One day, Mr. CHAN invited David to a lavish dinner over which he made a proposal to David. He asked David to go through the quotations secretly and leaked him the price of the lowest bid. Then he would submit an even lower price just before the closing time to ensure the winning of the tender.

Knowing that David needed help for the down payment of his new flat, Mr. CHAN promised David a handsome contribution to the down payment if David helped him out. He also persuaded David that he was just as good as anyone else and that it would be a ‘win-win’ situation for both of them. David really needed a hand financially, and he did not want to sabotage the excellent relationship with Mr. CHAN.

Should David say yes to Mr. CHAN?  Would this be illegal?  Would it harm anybody in anyway?

A Government Department (the Department) awarded a slope maintenance  contract  to  Chongs  Construction  Company  Ltd,  which  then sub-contracted the works to JKW Subcontracting Company (JKW), of which CHEUNG was the proprietor.

From time to time, the Department issued to the contractor works orders (WOs) describing the work required, location and estimated value of the work. Upon completion of work, an Inspector of Works (IoW) of the Department would physically inspect and verify whether the work done was in compliance with the required standard.   Based on the recommendation made by the IoW, the project engineer would approve payment to the contractor by signing on the WO concerned.   He was not required to physically inspect every piece of work completed as over a hundred WOs were issued every month.

When the engineer signed on the WO, the contractor could apply for payment by submitting the WO to the Accounting Section of the Department. A contractor could only apply for payment on completion of work as certified on the WO.

In conjunction with the payment process, the Quantity Surveying Section of the Department counter-checked the work of the contractor.   However, the Quantity Surveyors of the Section could only randomly check 10% of the WOs issued.   Both the project engineer and the quantity surveyors might therefore not be able to detect abuse in relation to the WOs.

YAU was an IoW of the Department responsible for overseeing the works carried out by JKW.   In March 2000, CHEUNG approached YAU and urged YAU to expedite the checking of WOs. Hence, CHEUNG could receive payment earlier.   In return, CHEUNG offered YAU a part-time job with $8,000 a month.

Between April 2000 and December 2001, YAU accepted a part-time job from CHEUNG as a reward for expediting the checking of WOs issued to CHEUNG.   On many occasions, YAU certified work completion on the WOs though the work concerned had not even commenced.

YAU and CHEUNG were later arrested by the ICAC and were found guilty of offences under Section 4 of the Prevention of Bribery Ordinance (POBO).   Both YAU and CHEUNG were sentenced to imprisonment.

Questions

1. How did YAU and CHEUNG violate Section 4 of the Prevention of Bribery Ordinance?

2. Besides the offer of a part-time job, what else can be classified as an“advantage”?

3. What should be watched out for in site supervision to prevent malpractice?

William is a fund manager who manages a number of Asian unit trusts comprising of low stake portfolios.   Given the keen competition with his fellow fund managers in the company, he sets out to make the unit trusts in his care the star performing funds within a short period of time.

Although his clients have clearly specified a low risk mandate, William still invests a large proportion of the funds of his discretionary clients in emerging Asian countries, ignoring any warning signs of an economic downturn within the region.   He even explains to the trustees of the unit trusts that the financial hiccup in some of the countries will soon be over.   However, the financial turmoil quickly spreads across Asia causing the collapse of several stock markets.   The unit trusts under William’s management suffer a tremendous loss.

Doris  is  an  account  manager  of  a  brokerage  company.    One  day,  a white-collar worker named Kelvin steps into her company with a request to open an account to deal in securities.   He tells Doris that, as he plans to study abroad next year, he wants his savings of one hundred thousand dollars to have a good return so that he can have enough money to reach his goal early.   He asks Doris in what products he should invest.  Doris persuades Kelvin to open a margin account to buy second-line stocks.   However, Doris doesn’t try to explain to Kelvin the difference between margin accounts and cash accounts, nor the risks involved in the former.

Hearing that the Hang Seng Index is dropping rapidly soon after the opening of the stock market, Kelvin calls Doris and places the order to immediately sell all the shares in his account.   Because Doris also receives many other "sell" orders from her large clients that morning, she sets aside Kelvin’s order and busily handles their transactions.   When Doris has time to eventually execute Kelvin’s order, Kelvin has already suffered a great financial loss.

Donald is an account manager of a brokerage company and has been licensed by the Securities and Futures Commission (SFC) to deal in securities. Since his company is keen to develop the futures brokerage business and needs more manpower to handle client orders, Donald is instructed by his supervisor to apply for the related license.  In fact, his company never considers whether Donald possesses the required qualifications and experience to be so licensed.

One day, a regular customer, Gordon, seeks Donald’s advice on index options.   Although Donald has yet to obtain the license, he is confident of providing advice to Gordon because, in preparing for the license application, he obtains plenty of reference material from his colleagues in the futures brokerage division.   He even accepts the order from Gordon to buy in index options contracts.

Raymond  is  a  fund  manager  who  manages  the  provident  funds  in  a medium-sized asset management company.  His wife, Jenny, is an account executive in a brokerage firm.   Recently, Jenny has been under pressure from her employer to generate more business.   Due to the keen competition within the industry, she is unable to meet the quota for finding new clients.   In order to help his wife, Raymond makes use of his official position to place business with her without observing his company policy on the selection of external brokers.

Robert is a fund manager of an international asset management company, who manages the provident funds for certain large corporations.   One day, he receives a research report from an analyst stating that the profit margin of Hydroplane is expected to be high in the forthcoming three years.

Robert, therefore, plans to buy a substantial amount of Hydroplane’s shares for his provident funds portfolios.   Knowing that such a bulk purchase will likely boost its share price, he decides to place an order for himself through an external broker before sending out the purchase instruction to the dealing room for his provident funds portfolios.

Billy is a sales manager of a securities company.  On one occasion, he recommends his client, Joe, to purchase the stocks of Earth Bank at the price of $10 per share because of its favourable development.   Joe thus places an order with Billy to purchase 150,000 shares.   As Billy also wants to buy the stocks of Earth Bank, he therefore aggregates his own order of 50,000 shares with that of Joe’s.

Because of the huge demand of Earth Bank's stocks in the market, Billy can only acquire 150,000 shares.   He then allocates the stocks in the proportion of Joe's order and his own.   As a result, 37,500 shares are allocated into his own account and the remaining 112,500 shares into Joe’s account.