29 January 2002
KCRC welcomes appointment of external auditors
Following up on a statement made by Michael Tien, Chairman of the Managing Board of the Kowloon-Canton Railway Corporation (KCRC), KCRC Chief Executive Officer K Y Yeung welcomed the appointment of KPMG, the Corporation’s external auditors and added that Management will co-operate fully with them. He made the following additional points:
• The Corporation’s contract strategy in relation to the construction of West Rail, Phase I, is based on lump sum contacts.
• Contracts have generally been awarded to the lowest conforming tenderers.
• The form of contract chosen by the Corporation tries to strike an equitable balance of risk between the Corporation and the Contractor.
• On the one hand, the Corporation achieves value plus a large measure of certainty in respect of price, after competitive tendering.
• On the other hand, the contractor is able to price the works against detailed specifications, but is protected by the contract against unforeseen ground conditions and additional works (such as the final depth of piles).
• These conditions of contract are clearly understood and used extensively in Hong Kong and in other parts of the world.
• It follows from this that where a West Rail contractor encounters ground conditions which caused him additional time, work and costs, he may have an entitlement under the contract to claim on the Corporation for extra time and cost.
• The Corporation has always carefully assessed these claims, where the contractor’s entitlement to additional costs is established under the contract, the Corporation would pay.
• Where the contractor’s entitlement to extra time is established under the contract, then the Corporation will ask the contractor to deploy additional resources to catch up on time lost, and pay the contractor accordingly. In so doing, the Corporation would have carefully evaluated and rejected the alternative choice of giving the contractor extra time because the consequences would be to delay the timely completion of West Rail beyond the end of 2003.
• Over the past few years, the Corporation has reviewed some 18 contracts on this basis and adjusted upwards contract prices by approximately $1,536 million, representing about 9.2% of the aggregate of the original contract values.
• It must be stressed that these adjustments have not caused and will not cause the overall West Rail programme estimates of $46.4 billion to be exceeded
• It should also be stressed that these adjustments in contract prices will not affect the way in which West Rail fares will be determined. These will be fixed much later, near the time for opening West Rail, having regard to the state of the economy, the fare levels of competing modes of public transport and forecast patronage.