RESTRICTED
they are instead actively now looking at ways to reduce their requirements, and hence the overall cost of the project. I therefore conclude and recommend that we should proceed with the project at a total estimated cost of £29 million, continue to scrutinise every aspect of the building for further cost savings, and provide for any non-British Council excess costs over the PES provision to be met from OED's capital programme.
9. If this recommendation is accepted, I further recommend that OED should, with RMD, bring the Treasury up to date, include a risk analysis of the project, and seek their formal approval to proceeding.
10. The three main risks are:
(a)
(b)
(c)
11.
The British Council's Direct Teaching of English Operations could be vulnerable after 1997 e.g. closure of the English classes by the Chinese or a British Council marketing decision. This would reduce their requirements by 80% and would subsequently mean that less than 2 floors of the proposed Council wing would be needed for the remaining functions. The Private Treaty Grant for the Colvin House site prevents us from sub-letting any future surplus space to outside commercial companies. We could in theory, therefore, be left with large areas of expensive surplus space. But HKD consider that the risk is minimal of political relations deteriorating to the point where the Council's operations were jeopardised. CRD and British Council see very little risk of a decision to end the lucrative English classes. In the worst of scenarios, it would be possible to convert surplus space to residential use.
Escalating construction costs resulting from increased activity in the local construction market, once the airport and other major works take off, are a danger. If we can maintain our current programme, for the building to be ready for occupation in mid-1996, we should avoid the worst of this. As a final resort, we could omit the UK staff flats.
Expropriation of the site and new buildings by the Chinese is a possibility, but HKD consider the risk is minimal and the recent introduction of a satisfactory compensation clause in the PTG would protect our investment.
We need to move quickly to maintain our programme for occupation on 1 July 1996. In particular, we need to submit
SC1860.HK
RESTRICTED
No comments yet.
Private notes are available after approval.