Unless there is good sales evidence of the market value of an unformed site, a premium for such a site must be based on the value of the site when formed less the costs of forming it. Sometimes these costs have to be based on estimates agreed between Government and the developer, but where a tender has been let, Government normally uses the lowest tender figures on which to base the amount to be deducted.
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In this present case, the Kowloon Electricity Supply Company Limited has gone to tender, but the tenders have rather unexpected results in that the two lowest tenders received are very substantially below the estimates prepared by the company's consulting engineers, which are also considered to be reasonable by Government. The situation can be summarised as follows:
(a) consulting engineers estimate
$280 M
(b)
lowest tender (adjusted)
$173 M
(c)
second lowest tender (adjusted)
$223 M
(d)
other tenders received are all
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fairly close to the $280 M estimated by the consulting engineers.
The lowest tender is described by the company's consulting engineers as a "calculated reduced bid" while the second lowest an
opportune low bid" which takes into account the tenderer's available resources upon the completion of a major contract with the Government.
"
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Before accepting any of the tenders, the company approached Government to ascertain Government's attitude towards its accepting the lowest tender. In order to keep prices down it was prepared to accept the additional risks of accepting the lowest tender, provided that Government made an appropriate allowance for this risk in assessing the costs to be deducted from the formed market value. If Government was not prepared to make such an allowance, the company would not accept the risk of accepting the lowest tender. The Government representatives agreed that in the circumstances, it would be fair to allow for an additional allowance for contingency in assessment of deductible costs.
CONFIDENTIAL #2