CONFIDENTIAL
BY A QUOTE FIRM PRICE UNQUOTE BID WE MEAN A LUMP SUM PRICE FOR THE EXECUTION OF THE WHOLE JOB, SUBJECT TO AGREEMENT BETWEEN THE ANGLO-ITALIAN GROUP AND THE MASS TRANSIT AUTHORITY UPON CONDITIONS OF CONTRACT. ESCALATION IS CLEARLY ONE OF THE MOST IMPORTANT FACTORS IN THIS SITUATION AND THERE ARE A NUMBER OF DIFFERENT SUGGESTIONS WE CAN MAKE. COMMON TO ALL OF THEM, HOWEVER, IS OUR VIEW THAT ESCALATION OF COSTS IN HONG KONG SHOULD BE RECOVERED BY THE APPLICATION OF FORMULAE SINCE CHANGES IN THESE COSTS CANNOT REASONABLY BE ASSESSED BY US, BUT CAN BE REFLECTED TO SOME DGREE
IN THE FARE-STRUCTURE OF THE SYSTEM. AS FAR AS ESCALATION OF
COSTS IN THE UK AND ITALY ARE CONCERNED, THEY CAN EITHER BE COVERED BY FORMULAE ALONG THE LINES OF THOSE ALREADY SUBMITTED BY US TO
YOU IN JUNE OR THEY CAN BE COVERED BY AN APPROPRIATE CONTINGENCY
IN THE LUMP SUM PRICE, WITH THE POSSIBLE EXCEPTION OF CERTAIN
MATERIALS WHERE PRICE VARIATIONS ARE UNPREDICTABLE.
WE FORESEE NO DIFFICULTY IN FITTING TOGETHER THE BRITISH AND
ITALIAN FINANCIAL PROPOSALS, WHICH HAVE ALREADY BEEN OUTLINED TO
YOU, INTO ONE COHERENT FINANCIAL PLAN FOR THE PROJECT AS A WHOLE.
THERE WILL INDEED BE SOME ADVANTAGES TO BE GAINED IN THIS RESPECT
FROM THE MERGER OF THE BRITISH AND ITALIAN GROUPS, SINCE A CERTAIN
NUMBER OF THE OFF-SHORE PURCHASES OF EQUIPMENT AND SERVICES
ENVISAGED BY THE ITALIAN GROUP CAN BE DIRECTED TOWARDS THE UK AND WOULD, UNDER THESE CIRCUMSTANCES, QUALIFY FOR THE LONG TERM EXPORT FINANCE GUARANTEED BY ECGD.
WE LOOK FORWARD TO RECEIVING YOUR AGREEMENT TO THE PROPOSAL.
MACLEHOSE
FILES:
HKIOD
TRED
YOURS FAITHFULLY,
DOUGLAS CLAGUE UNQUOTE.
PS/MK. ROYLE
SIR D. WATSON
MR. YOUDE
M. MARSHALL MR. TAYLOR
- 3- CONFIDENTIAL