(5)
They would not include allowances to cover escalation, and escalation
would accrue based on formulae to be negotiated and on actual rates
of increase of costs and prices. It will be noted that with this
form of contract, escalation charged would be that actually taking place
and not that assumed in calculating the ceiling price, hence the possi-
bility of a final contract price lower than the ceiling price.
Alternative Two
Under this alternative we now bid a contract price of HK$5,178M.
This contract price is also a ceiling price except as regards the
part of the contract payable in HK dollars, which is to be adjusted
as set out below. The contract price represents the sum of several
lump sum prices, respectively for the civil works and for the complete
M & E works and supplies (certain of which such as the ventilation
system will be assessed at this stage as provisional sums); in each
case covering adverse physical conditions and quantity overruns.
The contract price also covers all European escalation.
About 32% of the contract price, or HK$1,670M represents the HK
dollar part of the contract (Hong Kong labour and materials payable '' in Hong Kong dollars). This portion of the contract price contains
no allowance for escalation and the price bid for Alternative Two is
conditional upon agreement to escalate sush portion of the contract
price, without limit, in accordance with the variations of an
index to be negotiated.
The index should be meaningful in respect
of the cost of living, as well as of the cost of this type of project
construction, in Hong Kong. Our thinking in making this proposal is
that the Government is better able to evaluate, and to some extent
More importantly, control, the oscillations of costs in Hong Kong.
inasmuch as the logic of requesting a fixed ceiling price rests
on the need to preserve the adequacy of the planned fare system,
it should follow that increases in Hong Kong costs may be paid
without jeopardizing the self-liquidating nature of the MTS, as
cost of living increases would from time to time both justify and
require fare adjustments,
Page 195Page 196