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CONFIDENTIAL
Minister
236
114/x
Mr Youde
PS Mr
Royle
HONG KONG MASS TRANSIT SYSTEM
M. Strank
n
Goodfell
Meifor
1. The position is very fluid. Soon after the Governor's
talks here the UK consortium broke up because of the unwilling-
certing ness of the civil side to accept Hong Kong's fixed price concept.
GEC, on behalf of the Mechanical and Electrical members of the
consortium, then approached the Italians proposing a new
partnership under which the UK would in effect look after the
hardware while the Italians dug the tunnels. This was what the
Governor suggested to Lord Aldington. The Italians responded
with enthusiasm but they said that, because the financial terms
which they had been able to get for the civil part of their bid
were less attractive than for the mechanical and electrical part,
they could not agree to give the whole of the M & E work to GEC
or to undertake the whole of the civil work themselves. They
therefore proposed that GEC should take a majority of the M & E
work while British civil contractors accepted a minority share
(they suggested 30%) of the civil contract. GEC were in favour
of this but could not persuade the remains of the British civil
consortium to take even a 30% share of the civil work on Hong
Kong's terms. Lazards then explored alternative ways of
providing finance for the civil contract with the aim of getting
Italian agreement to take 90% of the civil work, leaving only 10%
to the British civil contractors. Costains were prepared to go
/along
CONFIDENTIAL