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COFFIDENTIAL
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Japanese pre-emptive bid. When they came to do the comparison they had not found it possible to put the Anglo/Italian or the Anglo/Franco/German bid on the same level as the Japanese (although they were fairly closely comparable with eachother taking all elements together); the price cap was very wide no matter how they manipulated the figures. I asked him whether they had used the ceiling price of the Anglo/Italian Group's bid or their much lower "best estimate" of the actual cost which would have been fairer and which, if the Anglo/Italian Group had been less honest, they might well have quoted as the "fixed price". He ducked round this simply by saying that they tried all possible combinations including reducing the Anglo/Italian's figure to the basis of 5% instead of 10% escalation but whatever they did it still came to over $5,000 million plus "force majeure" (this suggests to me that they did not in fact use the lowest figure since with a 5% escalation this would have been under $5,000 million even including the extra station and ventillation).
true but
misleads
He then gave an explanation which I think provides the key to the way things went. He said that the Steering Group had not put a recommendation to EXCO but had merely stated the facts. And the fact that they had to state was that neither of the two counter bids could be compared with the Japanese bid since it offered a price within the desiderata and there was therefore no basis on which a worthwhile competitive negotiation could be conducted between the Japanese bid and the other two. Moreover, if it was decided to enter into such a negotiation they would in effect be going back to the "main sequence" with the Japanese withdrawing their offer and perhaps producing a higher price in due course, with further delay in getting to the final figures, and with no certainty of what the figures would be. In other words the choice was between the Japanese bid or uncertainty. He commented that he thought that the Japanese had probably been hoping that ECO would decide not to accept their bid because they probably wanted to get off the hook of $5,000 million in view of the cost escalation caused by the fuel crisis they would probably have been only too glad to return to competitive negotiation in the longer "main sequence" arrangement. But they had now been caught and the Steering Group were determined not to let them get away (he was clearly very proud of having pulled this off).
He admitted that ("in one of the longest XCO discussions I can remember on any subject") doubts had been expressed about whether the Japanese would be able to honour the price. He also referred to messages received from London suggesting that the fixed price was "a dream" and that the Japanese night - having clinched the contract - withdraw in the middle of the job holding the Hong Kong Government to ransom for a higher price. He stressed that it would be the Steering Group's intention in the negotiations to ensure that the Japanese stuck to the price and the desiderata. If they should fail to meet any of the desiderata then the Steering Group would have no hesitation in call- ing the negotiations off and despite the suggestion to the contrary which (he implied) had been received from London he did not consider that there would be any loss of face for the Steering Group in being proved to have been wrong in accepting the Japanese bid. As to the risk of the Japanese pulling out in the course of the contract and holding the Hong Hong Government to ranson he said that he did not consider that companies of the reputation of those in the Japanese Consortium could risk behaving in such a way nor would the Japanese Government allow them to do so ("and I do not necessarily mean by that that the Japanese Government would subsidise them").
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CONFIDENTIAL
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