TNAG-0425-FCO40-471-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 32

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4.

BY CONTRAST THE ANGLO-ITALIAN COUNTER-BID PROVIDES FOR A BASE PRICE OF HK DOLLARS 4,385 MILLION (TO BE RECALCULATED IN A FEW MONTHS' TIME AS THE INITIAL CONTRACT PRICE), FOR A CEILING PRICE OF HK DOLLARS 6,121 MILLION (INCLUDING UP TO 10 PER CENT FOR ESCALATION) AND FOR COST ESCALATION IN EXCESS OF 10 PER CENT TO BE REGARDED AS IN THE NATURE OF FORCE MAJEURE (1.E. FOR THE CLIENTS ACCOUNT) IT IS TRUE THAT THIS APPROACH HOLDS OUT THE POSSIBILITY OF THE FINAL CONTRACT PRICE (AS DETERMINED BY ACTUAL RATES OF ESCALATION) BEING NEAR OR BELOW THE JAPANESE FIGURE. BUT IT COULD ALSO BE VERY MUCH HIGHER, AND AS YOU KNOW OUR CONCERN IS TO LIMIT OUR LIABILITY TO A FIGURE CONSISTANT WITH OUR CASH-FLOW

ANALYSIS. SO THIS WILL NOT DO AS IT STANDS,

5.

SAY,

HOWEVER, IF THE RATE OF ESCALATION ASSUMED WERE ONLY TO BE,

5 PER CENT PER ANNUM AND ASSUMING THE BASE PRICE WHEN RECALCULATED AS THE INITIAL CONTRACT PRICE WERE NO MORE THAN HK DOLLARS 4,305 MILLION, THE FINAL CONTRACT PRICE WOULD BE OF THE- ORDER OF HK DOLLARS 5,200 MILLION. THIS WOULD BE WITHIN SHOUTING DISTANCE OF THE JAPANESE BID, NOTWITHSTANDING THE INCLUSION OF COST ESCALATION IN EXCESS OF 10 PER CENT PER ANNUM UNDER THE HEADING OF FORCE MAJEURE (AND WE COULD POSSIBLE PERSUADE EXECUTIVEE COUNCIL TO REGARD THIS AS A QUID PRO QUO FOR THE JAPANESE INSISTENCE

ON A GUARANTEE.

6.

THE QUESTION IS, THEREFORE, WHETHER THE ANGLO-ITALIAN GROUP IS PREPARED TO REDUCE THE CEILING PRICE TO, SAY, HK DOLLARS 5,200 MILLION (1.E. THE GROUP WOULD BE ACCEPTING THE RISK OF THE ACTUAL RATE OF ESCALATION BEING BETWEEN 5 PER CENT AND 10 PER CENT AS WELL AS THE BASE PRICE BEING MORE THAN HK DOLLARS 4,305 MILLION), IF SO,

I THINK I COULD PERSUAGE EXECUTIVE COUNCIL TO INSTRUCT THE STEERING GROUP EITHER TO ENTER INTO A COMPETITIVE NEGOTIATION WITH THE TWO CONSORTIA OR, TO INFORM ALL CONSORTIA THAT NO DECISION IS TO BE TAKEN AT THIS TIME AND THAT IT WAS OUR INTENTION TO PROCEED WITH THE SEQUENCE OF EVENTS ORIGINALLY ENVISAGED (WHEREBY ALL

CONSORTIA WOULD BE EXPECTED TO PUT IN FIRM BIDS BY THE END OF MARCH BASED ON DETAILED DESIGNS AND KNOWN SOIL CONDITIONS).

7. THE SECOND ALTERNATIVE ABOVE IS NOT ONE THE HONG KONG GOVERN--

MENT WOULD LIGHTLY ADOPT. THIS IS BECAUSE IT WOULD RESULT IN THE WITHDRAWAL OF THE JAPANESE PRE-EMPTIVE BID (WHICH YOU WILL AGREE

M

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