TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 115

CONFIDENTIAL

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(a) this form of contract was especially suited to the

need for an early start on the project;

(b) target rates would be agreed for any piece of work

before it was undertaken;

(c) the initial target price would be developing through-

out the contract period into the final target price;

and

D

(d) because cost savings or overruns would be shared

between the client and the contractor, the contractor

would have a strong incentive at all times to keep costs

to a minimum.

(A copy of a document describing the target form of contract

is at Annex D: the document was tabled by the British Group at a meeting held in Hong Kong with the TSG on 28th June 1973).

18. Mr. Robertson wondered whether the initial target price

(ITP) would have any meaning, given that it might bear little or

no relation to the final target price (FTP) or to actual costs.

Mr. Newall explained that the ITP would be significant as а

starting point, and as a form of constraint on the contractor

to keep the FTP as close as possible to the ITP. Broadly speaking,

some 90% of the series of target rates would be likely to be fixed

within the first 18 months of the contract (assuming that the

contract would be signed very early in 1974), and would thereafter

remain fixed apart from the application of agreed escalation

formulae. Additional target rates could only be fixed by agree-

ment to cover what both sides agreed would be different types of

work. The exact role of the ITP would depend largely on when it

was fixed and on the amount of detailed engineering data upon

which it was based.

What was certain was that the ITP could at

no stage be used as the sole objective criterion upon which to

CONFIDENTIAL

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