TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 69

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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

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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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