A conflict of interest situation arises when the private interest of a public servant competes with or is in conflict with the interest of the government or his public duties. This sort of thing happens in India every day. Lokayukta is the only solution

In 1998, the Independent Commission against Coruption of Kong Kong received a tip-off about the chief property manager of the Government Property Agency (GPA). The manager had, it seemed, received a big bribe from a property management company for improperly awarding it government contracts valued at over HK$100 million. An investigation was subsequently mounted.

It emerged that another $10 million management contract had been awarded to a company called Onclever. The company had got most of the department's short-term contracts. The investigators found it strange that such a small company without much management experience could get contracts time and time again.

Between 1994 and 1996, the GPA had progressively outsourced the day-to-day management of quarter units and joint-user office buildings to private property management companies. The outsourcing was done using management contracts awarded by "open tendering", "quotation contracts" or "pre-qualified tendering".

ICAC investigations revealed that between 1994 and 1998, Onclever, a medium-sized security company had, through the strong recommendation of a chief property manager, obtained the following from from GPA:
Pre-qualification; two management contracts valued at over $100 million; over 90% of the short-term contracts valued at some $13 million in total.

Did the company deserve to be awarded these contracts or was there a secret behind it all?

In August 1994, the Central Tender Board (CTB) of the Hong Kong government granted approval to GPA to invite companies interested in tendering for management contracts of government properties to take part in a qualification assessment exercise. Pre-qualified companies would then have a chance to bid for eight three-year high-value management contracts which GPA would let out later.

To qualify, GPA requires an applicant company to possess at least five years' experience in property management.

In October 1994, GPA received an application from a company called Onclever, which claimed providing security and management services to some 6,000 residential units in Discovery Bay, Lantau Island. However, the documents submitted by Onclever showed that it was only a security company. The chief property manager suggested carrying out an on-site inspection at Discovery Bay with two senior property managers. Their inspection confirmed that Onclever employed only 80 guards for security duties in Discovery Bay.  Onclever was in fact just a medium-sized security company and not a property management company at all!  

Although all information showed that Onclever was not eligible for pre-qualification, the chief property manager still requested his subordinates to give this small company a chance, saying that obtaining pre-qualification did not mean it would obtain contracts from GPA.

At the assessment panel meeting, Onclever failed to be approved for pre-qualification for non-residential premises, but due to the chief property manager's strong recommendation, including his personal testimony that Onclever had got highly favourable comments from their clients, Onclever was finally granted pre-qualification for residential premises

Along with seven other companies that obtained pre-qualification, Onclever could now bid for major residential building management contracts from the government.  

In March 1997, GPA sought to appoint a company to manage 10 former military sites through open tendering. The chief property manager supervised the tendering process.

In May 1997, the chief property manager proposed adjusting the content of the tender notice on the grounds that these former military sites would be sold or re-developed for other purposes in the near future. He contended a top-notch property management company was not required and the contract should be awarded to the lowest conforming bidder.  

In July 1997, the chief property manager recommended to CTB that the contract valued at $56 million be awarded to Onclever-the lowest conforming bidder that was excluded from the pre-qualification list by another chief property manager in July 1995.

As a result, the CTB awarded the three-year contract to Onclever.  

In April 1998, GPA outsourced the management of the old Kai Tak Airport site through open tendering, and this brought a new business opportunity for Onclever.

In July the same year, the chief property manager recommended in his memorandum to CTB that the $87 million contract be awarded to Onclever, the second lowest bidder. The CTB once again awarded the contract to Onclever on the recommendation of the chief property manager.

The chief property manager had intentionally, on two separate occasions, used inaccurate information to mislead CTB into believing that Onclever was the right company to get the two contracts valued at over $100 million.
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However, the ICAC could find no solid evidence to prove that the chief property manager had accepted advantages. Could it be that he was truly innocent?

Subsequent ICAC investigations discovered that the managing director-cum-major shareholder of Onclever was the brother of the chief property manager's sister-in-law. They were in fact relatives as brothers-in-law.  

A conflict of interest situation arises when the private interest of a public servant competes with or is in conflict with the interest of the government or his public duties.  

Hence, Civil Service Branch Circular No. 19/1992 on Conflict of Interest (effective on 4 December 1992) stipulates that a government officer's duty to declare a conflict of interest should go beyond the disclosure of interests that are definable in pecuniary terms.

The chief property manager never revealed his relationship with the contractor. This appeared to be in contravention of the CSB circular.  

If the chief property manager was a relative of Onclever's boss, the reason for his intentionally not declaring their relationship and strongly recommending Onclever in the selection process began to make sense.  

Although there was no evidence he had accepted advantages to help Onclever get pre-qualified and obtain management contracts worth over $100 million, favouritism was obvious and had seriously damaged the fairness of the government tendering system.

On 19 December 2000, the chief property manager was found guilty of four counts of misconduct in public office and sentenced to nine months' imprisonment.  

On 21 August 2001, the Court of Appeal dismissed his appeal and increased his jail term from nine to 30 months. He was granted leave to appeal to the Court of Final Appeal (CFA), which dismissed the appeal.

Since the conviction of the chief property manager, there are 33 prosecutions for the offence of misconduct in public office through May 2010.  

Upon conviction, the chief property manager he not only lost his job with a monthly salary of HK$ 98,000 but also a pension amounting to $6 million.
This sort of thing happens in India every day. Lokayukta is the only solution.

(This is the second part of a three-part series on the subject)

(R Vijayaraghavan has been a professional journalist for more than four decades, specialising in finance, business and politics. He conceived and helped to launch Business Line, the financial daily of The Hindu group. He can be contacted at [email protected].)