TNAG-0563-FCO40-658-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 186

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the Authority had exerted constant pressure, the Consortium told the Provisional Authority on 17th December 1974 that it was unable to proceed. A summary of the nine meetings during this period is at Annex C.

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The Japanese Consortium's pre-emptive bid was accepted principally because it offered a price within the Government's ceiling of $5 billion without cost escalation and held out the opportunity of an early start and completion of the project. Neither of these advantages have materialised because the Consortium has asked for a revised price ceiling of $6 billion together with provision for price escalation and has put forward design proposals which were incompetently drawn up and were totally unacceptable. The Japanese Consortium have said that they cannot keep the price within the original ceiling because of unforeseen difficulties that hit the Japanese economy as a result of the oil crisis, although the effects of the oil crisis were becoming quite apparent in Japan between the Government's acceptance of the pre-emptive bid on 11th December 1973 and the signing of the Letter of Intent on 15th February 1974. The Consortium could have with- drawn from negotiations or asked for a re-negotiation of the ceiling price during this period, but only now has chosen not to honour its moral and commercial obligations. These points were put to the Japanese Consortium in recent discussions and have not been refuted, except to the extent that -

(a) the Consortium alleged that the adverse effects of

the oil crisis went far beyond their expectations; and

(b) the Letter of Intent does not legally bind the

Consortium to build the Railway.

That (b) is the case is not in doubt but the Provisional Authority told the Japanese Consortium that it saw no reason why the Consortium should pass its errors of judgement on to the Provisional Authority nor why such errors should constitute an 'adequate reason for the Consortium withdrawing from its moral and commercial obligations under the Letter of Intent.

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By the terms of Letter of Intent the Consortium were re- quired to produce detailed design solutions that would meet the Provisional Authority's design and performance requirements. The Consortium failed to do this, but offered instead a "Basic Plan" which would em- body all detailed design solutions. The "Basic Plan" was not received until mid-November 1974. It was thoroughly examined by the Public Works Department, the consulting engineers, the engineering officers (designate) of the future Corporation and the Provisional Authority itself and it became clear that it was unacceptable because it was

either (a) inadequate or incomplete compared with the

Provisional Authority's specifications for engineering requirements or the attainment of revenue objectives;

or

(b) unsuited and, in some cases, almost irrelevant

to Hong Kong's conditions.

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