- The Consumer Council has over time received inquiries and complaints regarding the lift maintenance industry, specifically the lack of choice in obtaining lift maintenance services and allegations of anti-competitive conduct.
- Consumers of lift maintenance services, i.e. tenants, through their property management companies, do not exercise choice in purchasing lifts. In the case of private residential properties, the monthly lift maintenance charge is about 11% -12% of the monthly property management expenses. In the absence of a viable independent maintenance provider sector, tenants' demand for lift maintenance services will be captive to the services provided by the original lift supplier.
- This report provides a summary of the Consumer Council's initiatives in holding a public seminar, producing discussion papers for the Government and industry, arranging meetings between the parties, and holding discussions with the Government and market participants in relation to the building owners' concerns and the allegations of anti-competitive conduct.
- The Council's report highlights the progress that has been made on a number of issues, and indicates what future work can be done. The Council trusts that the report not only informs the public of the progress made in relation to this sector, but also points to areas for further action in the future.
Scope Of Research
- The scope of research in this report has examined the question of relevant market definition and market power in relation to lift maintenance and repair services in Hong Kong, some statistical information on market shares and associated costs for end users. The results of various discussions with industry, government and end users of lift maintenance services are also presented.
- In light of the information obtained and discussions with various government policy bureaux, Electrical and Mechanical Services Department (EMSD) and the industry, the following issues have been addressed through negotiation between the parties:
Access to Business Inputs to Enhance Competition
- A major issue in maintaining a competitive maintenance market is whether parties other than the original lift suppliers can have access to technical information that is necessary to safely and efficiently provide a competitive maintenance service.
- In previous discussions with industry and Government, the Council has recommended that lift suppliers should be required to provide the Government with relevant information necessary to undertake repair and maintenance of lifts, and that the information in the data bank can be made available by the Government to building owners incorporations and relevant lift maintenance service providers. This process of information storage and dissemination is similar in principle to the current requirement whereby some information on electrical, water and gas supply is filed with the relevant authorities and made available to relevant service providers for maintenance and repair purposes.
- The Council considers EMSD's alternative proposal to require lift suppliers to provide Operation and Maintenance (O&M) manuals direct to building owners incorporations is a positive response to the problems that independent maintenance contractors are facing or will face in the future. Nevertheless, the Council suggests that maintaining a data bank should remain a long-term option.
The Role of Property Developers
- Because the eventual consumers of lift maintenance services do not exercise the initial choice in lift supply, the initial competitive pressures relating to maintenance will come from the property developers in the bargaining stage of contracting for supply of lifts.
- Property developers can therefore play a part in attempting to reduce the ongoing costs of lift maintenance by the building's eventual owners or by assisting owner corporations in their future negotiations with regard to lift maintenance. They could do this through a number of alternative means:
- Securing a longer warranty period than currently provided, with comprehensive coverage for regular maintenance work, inclusive of spare parts.
- Ensuring that an indication is given, within tenders for supply of lifts, of the life cycle costing of the particular lift or lifts supplied, and incorporating this as important criteria for selection.
- The supply agreement includes conditions regarding the provision of technical drawings and diagrams to the building owners for the purpose of ongoing maintenance work, after the warranty period has expired.
- As building owners become more conscious of the burden on management fees attributed to lift maintenance, this factor could be a selling point for prospective unit purchasers.
The Role of Government
- Safety must always be the prime concern. According to EMSD it has been exercising close monitoring and exerting tight control on the performance of contractors and technical personnel. It also notes that a high lift/escalator safety level has been maintained in the territory as compared to other major cities. EMSD should continue to vigilantly enforce legislative and administrative safeguards.
Assistance to Building Owners
- EMSD, industry, and Home Affairs Department's District Building Management Liaison Teams can provide a valuable role to assist building owners to choose and negotiate competitive maintenance agreements as follows:
- As far as EMSD is concerned:
- EMSD is now considering the preparation of an Owners' Guidebook to facilitate building owners in maintaining lifts/escalators.
- EMSD issues circular letters to lift contractors on technical matters. The circular letters are also posted on the EMSD Homepage at which interested parties (including building owners) can access.
- EMSD issues and updates the Code of Practice for Lift Works covering the mandatory maintenance requirements for putting lifts in safe working order.
- Both industry associations are willing to provide information on their members' services that can assist building owners in considering their options for lift maintenance; for example, a list of accredited contractors.
- Home Affairs Department has indicated that if details for constructing a tender specification and the ways to negotiate competitive maintenance agreements are provided by professionals in the lift maintenance industry, and the details are described in layman terms, it will put the materials for reference of the public in Building Management Resource Centres.
- In light of the Government's sector specific approach to competition policy, the Government should consider to devote more resources to promote competition in the market for lift maintenance.
Building Owners Obligations
- Building owners have an obligation to ensure maintenance programmes are up to the best standards possible and to put in place a plan for long-term maintenance programmes and budgeting for major refurbishment work to lessen the financial burden of substantial one-off costs.
- Owners incorporations should take initiatives to acquire the necessary information that will enable them to choose and negotiate competitive maintenance agreements, by making full use of both EMSD's information service and that of Home Affairs Department district building management liaison teams; and to have dialogue with building management companies to have the best interest of all building owners in mind. The more informed that consumers of lift maintenance services are, the more pressure there will be on service providers to satisfy demand for lower prices and a high quality of service.
Issues For Further Consideration
- Safety, choice and price are issues of major concern to consumers when making decisions in the market for lift maintenance services. The Council puts forward the following suggestions for further deliberation by the concerned parties, recognizing that gauging public feedback and industry response on the viability of these suggestions takes time.
Consumer Price Information
- A common concern for owners incorporations and management companies (more so for the former) is whether the maintenance cost quoted is reasonable. Where building owners are unable to obtain competing quotes from a range of lift maintenance service providers and they are captive to the services provided by the original lift supplier, those building owners will not be in a position to determine whether the maintenance service charge is reasonable.
- The inverse can also sometimes be a problem. For example, where a price quoted is too low to be realistically capable of providing a sufficiently professional service, and consumers need to be aware of potential problems in taking the cheapest quote.
- As for pricing disputes where the concern is that consumers might have paid too much, the Council considers that the industry should explore offering a service to members of the public, on request and at reasonable cost, administered by an industry association secretariat that delegates an independent body to provide some indication as to whether the maintenance charges quoted are reasonable. This is similar to the process of taxation of the costs billed by a solicitor, where a dissatisfied party is entitled to require any costs to be 'taxed' (i.e. examined) by the court. The Council considers that having regard to the current economic climate there is an opportunity for the development of independent consultancy services for lift maintenance.
Industry Code of Practice
Competitor access disputes
- In view of the Government's preference for self-regulation and administrative measures to address competition issues, the Council considers that in the absence of a competition law administered by a competition authority (which is its first preference) a joint code of practice for the lift industry could address the means by which disputes, if any, over supply of spare parts, and technical information, can be resolved.
- For instance, the relevant industry associations could construct a code of practice introducing competition safeguards such as the ability for a competitor to seek arbitration where it claims it is being unreasonably denied access to inputs necessary to compete in the repair and maintenance market. While it is up to industry to work out the means by which a code can come about, EMSD, as the industry's supervising agency, could play a facilitation role in this aspect.
- The industry code of practice should also include a general exhortation to association members requiring that where building owners are unable to obtain competitive quotes and are thereby locked into the services of a particular lift maintenance contractor:
- an association member is not to take advantage of any position of market power by levying unreasonable charges; and
- where a complaint is made to the association by a building owner in the position described above, the association member should submit its charges to independent cost assessment, as described above. (Paragraph 24 refers)
Data Bank for Operation and Maintenance Manuals
- With regard to the Council's suggested data bank option, both LECA and EMSD have raised doubts on its feasibility. For example, EMSD notes that the proposal would not be feasible without the cooperation of the lift suppliers; there are liability issues as to the accuracy of the information kept by the operator of the data bank; and there may be conflicts of interest for the Government to operate the data bank and to act as a service provider as well as a regulator at the same time.
- The Council notes the position of both parties, but considers that the option should remain an ongoing matter for long-term consideration. The extent to which this becomes a more pressing matter will depend on how effective the current agreed positions on the development of O&M manuals for use of maintenance contractors will provide positive results for competition in the industry.
- Lift safety is governed by the Lifts and Escalators (Safety) Ordinance. As at November 2002, there were 48 registered lift contractors in Hong Kong. Information provided to the Council indicated that in 1999 there were close to 50,000 lifts in Hong Kong, of which about 6,000 (i.e. approximately 12%) were being serviced by contractors who were not the original installers of the lifts (independent contractors). As at end of 2001, EMSD stated that there were about 7,000 lifts out of over 50,000 (14%) that were maintained by independent contractors. It is likely that the percentage of independent maintenance is higher for older lifts, rather than for the latest generation of lifts that have a higher degree of computerisation.
- The Council understands that the cost of entering into maintenance agreements can vary according to various factors, e.g., the number of lifts in an estate or building, the age of the lifts, and the degree of complexity (especially for newer lifts). Initial information provided to the Council was that maintenance charges are generally discussed as a percentage of the current cost of supply for an equivalent lift.
- Information provided to the Council indicates that in Hong Kong the annual maintenance charges tend to be around 7.5% of price for supply, which is similar to the percentages for Singapore and Taiwan, lower than in Japan and higher than Indonesia.
- The following estimates of the cost of lift supply and maintenance charges in residential developments over the last four decades were provided to the Council in November 2002 by REECA. LECA considered that the figures provided in the following table were not particularly informative due to the fact that pricing information is quite dated and may vary depending on models, and the table might not reflect a correct maintenance cost/price ratio. Also, the coverage and quality of maintenance services may vary widely. Nevertheless, the Council considers that the information is indicative of price movements in the industry over time.
Lifts installed in residential developments
in 60s (<15 floors)
in 70s (25 floors)
in 80s - 90s (>35 floors)
(a) Price of lift (HK$)
$500,000 - $600,000
$600,000 - $700,000
$800,000 - $1,000,000
(b) Annual maintenance charge (HK$)
$65,000 - $110,000
$45,000 - $63,000
4.8% - 5.5%
4.8% - 5.8%
6.0% - 9.7%
Note: Figures are for reference only.
Source: Figures are provided by REECA.
- The issue of limited choice of service contractors, and difficulty in obtaining spare parts and technical information, was first referred to the relevant policy bureau for this sector, the Trade and Industry Bureau (TIB), in October 1997.
- TIB's response at time was that limited choice did not necessarily reflect anti-competitive practices in the market, but might simply reflect the dynamics of the market. More research was undertaken by the Council and a public seminar on the subject was held in May 1999 in conjunction with the Home Affairs Department. A copy of a speech outlining the Council's preliminary findings and recommendations at the time, made at the seminar can be found at.
- Following the seminar, a Council discussion paper was provided to the recently formed Competition Policy Advisory Group (COMPAG), the then Planning, Environment and Lands Bureau (PELB), and EMSD. That paper served the basis of further discussions with those agencies in the Council's efforts to progress the matter. The paper also forms a part of this report.
- In light of subsequent responses from the Government and industry associations to the paper, further discussions were held between the Council and concerned parties to assess the feasibility of the Council's initial recommendations. More information was obtained from industry and Government, and further recommendations were made, refining the Council's initial views and leading to the position currently reached between industry, the Council and Government.
- In relation to the Council's main recommendations concerning the code of practice and the data bank, LECA remain of the view that an industry code of practice to resolve consumer or competitor disputes is not required, due to its perception of the high state of competition in the industry. EMSD considered that the code option required further study and discussion and in any event required industry agreement. Given the Council's statutory function under Section 4 of the Consumer Council Ordinance to encourage industry associations to develop codes of practice, and the Government's preferred option to use codes of practice to address competition concerns in the economy rather than a competition law, the Council considers the code of practice option is still worth pursuing and is willing to assist in this regard.
- The report has been constructed from information obtained from the following sources.
- Views made to the Council by individual building owners, owners incorporations, business corporations, and independent lift repair and maintenance contractors (i.e. not aligned with lift suppliers).
- Issues raised at the May 1999 seminar by users and service providers, and at subsequent meetings with the Lift and Escalator Contractors Association (LECA) and the Registered Elevator and Escalator Contractors Association (REECA).
- Responses received from related Government bureaus and departments, in particular the EMSD.
- Research on other jurisdictions concerning their approaches to the issue of competition in the lift maintenance industry.
- The Council also conducted site visits by invitation from major lift maintenance and supply companies in Hong Kong.
- The Council wishes to express its appreciation to those persons and corporations who have assisted the Council in its work.
1 With regard to water, electrical and gas network information it is noted that while some information is in the hands of related authorities, other information on those services is also in the custody of the developers or owners, and not kept by the relevant authority.