TNAG-0563-FCO40-658-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 103

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XCS(73)12

V(c) (Grace period)

V(d)

(Repayment period)

V (g) (Guarantee)

VII(a)(i) (Construction period)

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All three consortia meet this requirement, but the Japanese Consortium have offered a period of grace after the completion of construction one year longer than the other two consortia.

Within the Anglo-Italian Group, only the British element is able to meet this requirement; the Italian element can only offer a repayment period of nine years,

Whereas the other two consortia have definitely stated that they do not require a Government guarantee, the Japanese Consortium are still insisting on this. They have stated, however, that the guarantee would not result in a specific charge being created on the Colony's assets. It would only be a general guarantee of the repayment of the debt.

The Anglo-Italian Group envisage a construction period of six years, whilst the other two consortia have under- taken to meet the requirement for a five year construc- tion period.

As regards pricing, only the Japanese Consortium in their pre-emptive bid meet all the requirements in Section III of Annex E.

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The Anglo-Italian Group have submitted a ceiling price which is at least $1,000 million above the Government's required ceiling price of $5,000 million. Their ceiling price is based on a maximum contract price, plus an assumed rate of cost escalation of 10% per annum. However, they claim that, by early next year, they should be able to quote a lower contract price which, after taking into account the assumed rate of cost escalation of 10% per annum, would produce a lower ceiling price. On this basis, their lowest ceiling price would be about $5, 200 million. The actual price paid would be lower than this figure if the average rate of cost escalation over the construction period turned out to be lower than 10% per annum. On the other hand, the Group insist that any cost escalation above 10% per annum should be considered as "force majeure" and be charged to the client's account. It follows that, given the most favourable assumptions, i. e. a contract price at or close to their lowest estimate and a rate of cost escalation below 10% per annum (say, the 8% assumed in the calculations in memorandum XCS(73)8), the Group might be able to complete the project at a cost at or below $5,000 million. However, on more unfavourable assumptions as regards the initial contract price and/or the actual rate of cost escalation, the final price could be much more than $5,000 million. (As the Group's two alternatives explained in paragraph 12 above virtually amount to the same thing, the foregoing analysis refers to Alternative 1 only).

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