TNAG-2472-FCO40-3599-Confidential-talks-between-the-UK-and-China-regarding-financ-1992 — Page 29

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P.27

4. Probable

causes

Paper 6 (P. 3 0f 13)

underspending on capital

07

expenditure

On PWP :

J

-

Works Departments

expenditure in any

perception that actual

one year must remain within

the year's provision, even though it is the

'approved project estimates

overall

that is the controlling factor rather than the annual expenditure (cash flow) target. This misleading perception arises in

in part from the fact that estimates submitted by departments

departments are almost always trimmed by Finance

Finance Branch.

There is

therefore psychological pressure on departments to inflate their estimates of cash flow

requirements

for anticipated reductions

to

cater

this reflects the need of matching

a sensible view on physical progress of works with a realistic view on cash flow requirements.

The

perception problem in the Works Departments may have been strengthened by a directive to

them in mid-1991 to reduce 20% from the

resources allocated to each programme area. This, combined with the delay in the decision in

the Airport Core Programme, contributes to underspending in the last 2 years.

In addition, until this year, it was the Finance Branch practice to provide for inflation in preparing annual estimates and an anticipated

full

the

year's inflation was added uniformly onto estimated cash flow requirements put forward by the Works Departments, without due regard to the physical progress of the works in question. This has resulted in a degree of over-provision.

Other major Factors include:

include statutory delay,

provision of land, objections and changes

in clients requirements etc.

e.g.