Hong Kong police said Monday they have arrested two people over a suspected scam involving a water supplier that may have cheated the government in a contract worth nearly $7 million.

A company named Xin Ding Xin won a deal in June to provide 1.88 million bottles of water which would go into dispensers in some government offices -- the first time such a contract went to a Chinese brand, according to local media.

But police said the firm was found to have relied on false documents during the tender process, claiming to source its water from another mainland Chinese supplier when in fact they had no business ties.

Officers arrested a 61-year-old man and a 57-year-old woman for fraud on Sunday, seizing around 2,600 bottles of water in a warehouse along with documents and electronic devices.

The arrests have prompted water-cooler discussions across the Chinese finance hub on how bureaucrats missed the telltale signs of a scam when awarding a 36-month contract worth HK$52.9 million ($6.77 million).

Payment for the delivered batches has not yet been settled, according to police.

The Government Logistics Department said on Monday that it terminated its bottled water supply contract with Xin Ding Xin, as well as "three other contracts for supply of chemicals which were affiliated with XDX's owner".

Christopher Hui, Hong Kong's secretary for financial services and the treasury, set up a dedicated task force following an urgent meeting on Sunday.

Hui also ordered "remedial actions" and invited the Audit Commission to review the tender exercise.

"The incident has brought up concerns among government colleagues and drawn extensive attention from the public," he said in a press release.

Aside from the two arrests on Sunday, one mainland Chinese man remains at large, police said.

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