SECRET
Foreign and Commonwealth Office London SW1
Telephone 01-
Your reference
Overseas Finance and Planning Division Our reference
F W Glaves-Smith Esq
DTI
1 Victoria Street
Date
file
187
DKK 21/4
23 August 1973
Dear Frank,
MASS TRANSIT SYSTEM
1. On looking at the papers on my return from leave I am struck by the fact that the Hong Kong Government have apparently taken a firm and public decision in favour of a package deal and that they are talking of a ceiling price of HK/5,000 million.
2.
This figure has clearly been plucked out of the air, (although it purports to relate to the expected return on the project), but Mr Haddon-Cave talks of it as a firm requirement.
3. The public commitment to a consortium approach seems to make it difficult to go back to the idea (originally mooted from Hon Kong), that they would break up the package if our offer was significantly worse than the Japanese. The price ceiling, however unreal, also seems to put us at a disadvantage, especially since our first estimate of the price range was apparently significantly worse than our three competitors and about 30% above the Hong Kong "ceiling".
4. We realised from the beginning that if the Hong Kong Govern- ment made a fixed price their determinant we were likely to lose out against those who were prepared to cut their price to get the contract, or who were less scrupulous than we about quoting unrealistically low figures until the competition had been eliminated. Moreover the hesitations of the civil side in the UK consortium, which you have reported, about getting locked into an unprofitable contract, presumably make it unlikely that a significant reduction in their target price will be forthcoming.
5. There may be other aspects of which I am unaware; but on the face of it it looks as if the factors on which we were concentra- ting, (credit terms, expertise, ability to carry out the whole contract, experience of Hong Kong etc) are dropping away, and that our chances have measurably worsened.
SECRET AND PERSONAL
16.
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