TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 127

CONFIDENTIAL

THE LAZARD CONTRIBUTION TO THE RESPONSE OF THE BRITISH

GROUP AT THE MEETINGS IN LONDON ON THE 30th/31st AUGUST

1973.

Annex C.

1.

2.

3.

4.

5.

As financial advisers we find ourselves in a position where we are as vitally interested in the viability of the scheme as the Government of Hong Kong.

We have put forward a financial plan to support the British Group's offer and we will be responsible for its implementation in due course if the contract is awarded to the British Group.

We therefore have every incentive to make sure that a path is followed which creates for the Hong Kong Government an efficient Mass Transit System at a cost which, in the absence of the worst combination of unforeseen and uncontrollable circumstances taking place, stands a good chance of being paid for within the time span of the financial plan which we are putting forward.

There are two distinct ways of achieving this objective.

The first is the method requested by you in your letter of 1st August, namely a ceiling price. Lazards believes that in view of the number of unknowns inevitable in a job of this size and complexity it would not be prudent for any Group of contractors to commit themselves to a ceiling price which could at the worst result in bankruptcy.

6.

The alternative route is to abandon the attempt to anticipate and include in the price every conceivable unknown factor and to concentrate instead upon negotiating a contract which will give the contractor an incentive to complete the job at minimum cost and which will allow the unforeseen factors to be dealt with in the most economic way.

7.

8.

It is Lazards' view that this is the right route and we have encouraged the British Group as prudent contractors to follow it.

In the negotiation of a contract of this sort there are of course ways and means of protecting the Hong Kong Government against the effects of events which are within the control of the contractors but this does not alter the basic concept.

9.

There are two other factors which should be borne in mind in any decision upon which route to follow. Both of them contribute substantially to the aim of keeping the overall cost of the job to a minimum.