TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 114

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ceiling price would be affected. Mr. Kindersley said the

calculations were relevant to the ceiling price concept to the

extent that there would be scope for raising fares to meet a

situation where inflation of capital and recurrent costs exceeded

expectations. The implication was that the client, who would be

in a position to adjust fares, would be much better able to bear

the risk of inflation than the contractor who had no control

whatsoever over revenue. Mr. Haddon-Cave recognised the strength

of the argument in theory, but pointed out that, in practice,

political considerations arising from the Hong Kong population's

intolerance to changing price levels would severely limit the

ability of a public undertaking to increase its prices, particu-

larly in a situation where other prices were in general rising

fairly rapidly.

The Target Form of Contract

16.

Discussion turned to the target form of contract recommended

by the British Group for the civil engineering works. Mr. Wyatt

said this form of contract was aimed at achieving a price which

would be fair to both the client and the contractor. In view of

the size and long-term nature of the MTR contract, the civil

engineering sub-group would have required a minimum addition of

20-25% to cover cost escalation, unforeseen circumstances and

similar factors if a ceiling price were to be pre-determined.

These additions might well prove to be unnecessary in the event,

and the client would have incurred a substantial amount of

unnecessary expenditure. On the other hand, the provision for

escalation, etc., might not be sufficient, and the contractor

would have lost substantially on the gamble.

17.

Following these general remarks, Mr. Newall described in

some detail the principles underlying the target form of contract,

and emphasised, in particular, that:

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