of tendering. This is similar to the provisions in the standard materials fluctuation clause, but whereas in normal cases base prices are determined from information compiled and published by Government, in this particular case no such price statistics have been maintained and I have been informed that the prices against which rises will be measured and on which the contractor's fluctuation claims will be based, have been estimated and projected by the contractor himself from his own sources of information. I have therefore been unable to verify that the base prices adopted represented those ruling at the time tenders were submitted or which could reasonably be extrapolated therefrom. In view of the very substantial sums involved, any understatement in the computa- tion of the base prices could operate to Government's considerable disadvantage, and although I have been advised by the Director of Water Supplies that the consulting engineers engaged on the project consider the prices to be fair and reasonable, I have not yet seen the evidence on which that opinion was based.
42. When approving the ex-gratia award the Finance Committee of the Legislative Council was not advised of the specific materials to be covered by the supplemental agreement but only of the criteria by which they should be determined. In relating the materials to those criteria I have found difficulty in accepting the validity of the inclusion of one item involving an estimated payment of $2.8 million and I have asked the Director of Water Supplies to provide further information in justification of its inclusion. I have also noted that approval was not sought from the Finance Committee for a provision in the supplemental agreement for the contractor to receive in respect of the special fluctuation payments, interest at the rate of 1% per month compounded from a specified date to the date of the agreement, and in my view therefore the payment of interest of $368,000 so made is in- adequately authorized.
43. Head 71-Public Works Non-recurrent: Buildings. Subhead 827. Repairs and refurbishing at Homestead Flats. The "Homestead" block of flats comprises six three-bedroomed apartments, the retention of which had for a number of years been regarded as of doubtful value because of the building's age, high maintenance costs and vulnerability to typhoons. In 1969 the Public Works Programme included an item for the demolition of the building and the construction of a new block on the site as soon as the Government quarters situation permitted the vacation of the flats, but before this could be accomplished Typhoon "Rose", in August, 1971, caused extensive damage to the roof. The initial reaction to this event was to implement the earlier proposal to demolish the block and to build a new one, but this course was discarded in favour of the repair and refurbishing of the existing six flats, partly on the grounds that building restrictions in the area limited to eight (a figure below the original conception) the number of new flats which could be constructed, and partly because it was thought that rehabilitation of the block would be both cheaper and quicker than building a new block, a major consideration at a time of acute shortage of quarters. Advantage was to be taken during the repairs of the opportunity to include improvements which it was anticipated would reduce the previously above-average cost of maintenance.
44. At the time this decision was taken it was estimated that repair and refurbishing, designed to take only about fifteen months to complete, would cost about $580,000, compared with a figure of about $2.1 million and a period of approximately three years to build eight new flats on the site. In the event the rehabilitation pro- ject cost $1,470,000, to which may be added a further $310,000 (additional to normal maintenance) spent within a year of the project's completion to bring the accommodation up to the desired standard. The total cost of $1,780,000 was thus over three times the original estimate and amounted to over $296,000 per flat, compared with the cost of $262,500 per flat estimated for complete rebuilding. Even taking into account an escalation of building costs since the original estimate was prepared, it seems reasonable to conclude that better value would have been obtained had the original proposal to demolish and rebuild been pursued. Lest this be considered as merely the wisdom of hindsight, I should perhaps record that in addition to the opinion expressed in 1969 by the Director of Public Works that "any programme of modernization or major improvements would be both uneconomical and unrealistic”, in October, 1971 the Government Maintenance Surveyor, before the refurbishing project was approved, expressed the view that whatever expenditure was incurred on improving the property it would never be wholly satisfactory, and again in April, 1972, before the works were commenced, he advised that the project was “an unwise use of public funds” and should be reconsidered.
45. The decision to disregard this competent professional advice would seem to have been taken on an incorrect, or at best incomplete, evaluation of the relevant information. As indicated above the original estimate of the cost of repair and refurbishing was $580,000, but this was no more than a rough order of cost prepared over a period of a few days in the aftermath of the typhoon and was not based on any detailed proposals of the extent of the renovation work necessary. Moreover it was based on the rates which were quoted in a maintenance contract due to expire shortly afterwards and which it was already evident from the newly tendered rates, would be considerably exceeded by the time the work got underway. The project was not put out to tender and despite the Government Maintenance Surveyor's further advice that as the original estimate had been formulated before any detailed proposals had been considered, a proper estimate should be prepared before a definite commitment was incurred, the works were apparently ordered with no clear idea of their extent and with little regard to the
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