From: HM THOMAS, DS(Overseas)
DEPARTMENT OF THE ENVIRONMENT
(XXXXXX
TJ Brock Esq Treasury Chambers George Street
London SW1
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HILIL 19/G
HONG KONG DEFENCE ACKIEMENT
2nd April 1971
Before John Smith departed on a few days leave he asked me to follow up with you his conversation earlier in the week about the bridging arrangements for works services which we have just heard that the FS Department has put to Soper, our“ Regional Director.
I understand that Smith told you of the amiable discussion which he and Soper had with Sir John Cowperthwaite and of the assurance which the Financial Secretary gav● them that orders for capital works would be accepted on a "without prejudice" cost basis ie avoiding a specific undertaking by HMG to pay. Sir John also said that the existing restrictions about the acceptance of orders for minor works to be carried out in 1971/72 were due to a misunderstanding and would be removed, and that there were no difficulties about maintenance,
This was very satisfactory since it had seemed to us quite likely in view of the dificulties in which the Hong Kong Government is placed in making adequate provision in its estimates, that we would be asked to give an undertaking to pay for works services in future, subject to whatever provisions may ultimately be agreed in a new defonce agreement.
It now appears that our prognostications were correct and that the Financial Secretary has had second thoughts, for Soper has now been informed that the Hong Kong draft estimates only contain sufficient provisions to meet all bills arising on maintenance and minor works for all three Services committed during 1970/71. Such works will be regarded as covered by the 1967/71 Agreement and costs shared according to formula. The Finance Committee of the Hong Kong Government is prepared to continue to undertake other maintenance and minor works for all three Services but only on a fully re-imbursable basis within the limits of HK $16.117m for maintenance and HK 8.787m for minor works. (These sums would cover our requirements for the whole of 1971/72). Regarding capital works the Finance Committee has agreed as part of the interim arrangements that if HMG asks the Hong Kong Government to undertake capital works on a re-imbursable basis the approval of the Finance Committee will be sought on a project by project basis. The letter from the FS Department goes on to say that these interim arrangements "will apply until such time as either a new agreement is reached or the UK Government has built up its staff in Hong Kong to a level sufficient to enable it to take over this work from the Public Works Department".
While this development is somewhat surprising in view of Sir John Cowperthwaite's assurances to Smith and Soper, the difficulties in which the Hong Kong Government is placed pending a new defence agreement can be appreciated and it does not seem unreasonable that we should provide a suitably worded undertaking that we will pay for new works services (maintenance, minor works and capital works) fed in after
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