TNAG-0563-FCO40-658-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 125

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A multi-contract procedure is recommended for the construction of the railway, as this will allow an earlier start and a shorter construction period. Reversion to the two remaining consortia is not recommended, as this would substantially reduce competition and preclude receiving quotations from numerous international contractors now interested in quoting, bearing in mind the reduction in constructional activity generally with the continued world recession.

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International contractors will almost certainly now require price escalation in view of the serious difficulties of anticipating the effect of world inflation. However, contracts with escalation are quite usual in the civil engineering industry, and there are established methods of control. Fixed prices for the simpler civil engineering work should still be obtainable from local contractors, and there is a possibility of a reasonable fixed price for E & M work.

The level of export credit available has reduced compared with a year ago, and this has been allowed for by assuming a credit level of 40% of the total contract price with repayment over 7 years from completion, and interest at 8%. A multi-contract arrangement could result in credit terms marginally inferior to those available for a single contract, but this does not offset the greater advantages of increased flexibility, an earlier start and a shorter construction period inherent in multi-contract arrangements.

The withdrawal of the Japanese Consortium and the consequent loss of a ceiling price arrangement results in uncertainty as to final price and the extent of export credit available. It will how- ever be possible to compare estimated base prices with tendered prices for selected contracts in July/ August 1975 when such tenders are received. During that same intervening period of approximately

7 to 8 months, more accurate indications of available credit will also be obtained. · Agreement to the current proposals for the modified initial system should therefore be subject to confirmation when price comparisons and finance indications are available in July/August. The initial local contracts for the simpler civil engineering work can then be placed.