HONG KONG MASS TRANSIT SYSTEM
NOTES ON MEETING BETWEEN THE SECRETARY OF STATE AND MR HADDON-CAVE 6 SEPTEMBER 1973.
Mr Haddon-Cave explained that the Governor had asked him to see Mr Walker, given the difficulty of fixing a meeting with the Governor himself. He described the position much in the terms that we have already heard from Wilford, FCO. The steering committee have now had discussions with the Anglo/German/French group as well as the Italians. Briefly, these two groups have said that they would be willing to go along with conditions laid down by Hong Kong though they would pull out if at any time they recognised that they were not going to be able to stick to the principle of a ceiling price. The British group on the other hand had made it clear that they did not believe the idea of setting a ceiling was realistic. There was however, he said, a clear divergence between the E & M side who felt that something might be worked out here, and the construction people who plainly thought that, given the geological uncertainties, no ceiling could be set.
On the subject of "unforeseen circumstances" it appears the British group are not to be shifted from their stand, though Hong Kong have agreed that normal force majeure provisions would be allowed. However the British group had not formally withdrawn from the competition. Haddon-Cave expected that I would receive a compliant offer from the Japanese, and the I intention was to go on feeding out technical information in the period between now and March 1974 for engineering and costing by the remaining competitors. It may be that one or more would fell by the wayside and I would be left in the end with only one; if they were left with more than one then a final decision would be made strictly on a competitive basis. So far as the next place of negotiation won concerned Huddon-Cave said that the groups had indicated to him that the costs of doing the design and costing would be around £3m. Hong Kong might be prepared to think in terms of reimbursing to the contractors that portion of this cost which represented exceso expenditure over what would normally be involved in tendering to detailed specifications and documento.
The Secretary of State questioned the validity of the German-led consortium and of the Italiens' abilities to take on the conditions talked of. He believed that if long long proceeded this way they would be likely to find themselves in three year's time either having to renegotiate the contract or to face the withdrawal of the contractor and negotiate afresh with new contractors. If the Japanese Government firmly guaranteed the Jannese consortium against overrumming a ceiling price then thin would be an illegal subsidy and it would become an issue which Britain would take up.
Haddon-Cave said that whever transpired in the building of the MTS I must not get themselves into the position where they had to increase the standard rate of tax under duress. Accordingly they would have to re-assess the scheme's viability once they were
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