opinion, these costs will be higher than the direct costs of accepting the risks which I have

identified as candidates.

23.4 I cannot prove the cost equation by empirical evidence, and I do not believe that others
can. Moreover, I do not fully trust surveys of contractors, even though the contractors have the
best information. But, I can say that many who have studied these issues agree with my
conclusions.

23.4.1 To begin with, every Government, every international employer and every financing
party (such as the World Bank) that has adopted GCCs with risk allocations congruent with
those I recommend has done so not out of altruism but because of a conclusion that there is
financial justification.

23.4.2 The sponsors of the international forms of contract identified in paragraph 3.5 (ICE,
FIDIC, etc.) can be taken to agree.

23.4.3 The Mass Transit Railway Corporation can be taken to agree.

23.4.4 The Construction Industry Institute, the Center for Public Resources, the American
Society of Civil Engineers, and the Risk Allocation Subcommittee of a Joint Working Party of
the Australia National Public Works Conference and the National Building and Construction
Council all agree.

23.4.5 A plethora of respected industry savants 42/ have expressed agreement in their
published works.

23.5 To the contrary, however, many employers take the view that their interests are best
served by transferring as much risk to the contractor as the market will bear. I suggest that
there usually are special reasons for this which do not apply to Government public works.
Certainly the rationalia are different for the one time or occasional employer than for a repeat
employer on the scale of the Government of the Hong Kong SAR.

CONCLUSION

24. These recommendations need not be viewed as a package; each will stand on its own
feet. However, three of them -- ground conditions, utility interferences and impossibility -- are
interrelated and lend themselves to joint consideration. I also think that the recommendations
work well together as a group. In general, the recommendations assign unfathomable risks to
Government while tightening the compensation rules so as to avoid unwarranted recoveries. If
adopted, they will appropriately balance risk allocation on Hong Kong public works projects.

25. I trust and hope that Government will find this Report to be worthy of consideration and
implementation.

For more information about the issues covered in this report, please contact Paul
Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or
contact your Thelen attorney.