5.

CPFS Options The Risk Proportion Approach is suitable for contracts which have fewer major cost elements and where the Employer has a limited appetite for risk sharing. Because of its simplicity and ease of application, it can be applied to all types of contract including civil, building and E&M. Please refer to Worked Examples 1.1 to 1.3 on the following pages for demonstrations of this approach.

A sample of the fluctuation clause is shown in Appendix A1.

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5. CPFS Options

Worked Examples 1 - Risk Proportion Approach

Calculation of Fluctuation Adjustment 1.1 - SCENARIO A - Change in index below minimum threshold
Proportion of Non-Adjustable Elements Minimum threshold of Fluctuation Risk-Sharing Ratio (employer:contractor) 40% 15% 50:50 Base Month Current Month CPI (or any specified index) Calculation of Fluctuation Adjustment Total Value of Work Done to Date (before adjustment for fluctuation) Less: Total Value of Work Done up to last valuation period (before adjustment for fluctuation) Value of Work Done in this period Deduct portion of Non-Adjustable Elements 40% x HK$2,000,000 Value of Work Done adjustable for fluctuation Net change of CPI (or any specified index) above threshold 10.0% - 15.0% = -5.0% < 0 Fluctuation Amount for this period Risk-Sharing Proportion borne by contractor Net Fluctuation Adjustment payable for this period 10,000,000 8,000,000 2,000,000 800,000 1,200,000 0% 100 110 % Change 10%

Worked Example 1.1

Applicable for Fluctuation Adjustment? No

Note:Sincethe%changein theCPIislessthanthe minimumthresholdof fluctuation,noadjustmentwill beapplied

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5. CPFS Options

Worked Example 1.2

Risk Proportion Approach Calculation of Fluctuation Adjustment 1.2 - SCENARIO B - Change in index above minimum threshold
Proportion of Non-Adjustable Elements Minimum threshold of Fluctuation Risk-Sharing Ratio (employer:contractor) 40% 15% 50:50 Base Month CPI (or any specified index) Calculation of Fluctuation Adjustment Total Value of Work Done to Date (before adjustment for fluctuation) Less: Total Value of Work Done up to last valuation period (before adjustment for fluctuation) Value of Work Done in this period Deduct portion of Non-Adjustable Elements 40% x HK$2,000,000 Value of Work Done adjustable for fluctuation Net change of CPI (or any specified index) above threshold 18.0% - 15.0% = 3.0% Fluctuation Amount for this period Risk-Sharing Proportion borne by contractor Net Fluctuation Adjustment payable for this period 10,000,000 8,000,000 2,000,000 800,000 1,200,000 3.0% 36,000 50% 18,000 100 Current Month 118 % Change 18% Applicable for Fluctuation Adjustment? Yes

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5. CPFS Options

Worked Example 1.3

Risk Proportion Approach Calculation of Fluctuation Adjustment 1.3 - SCENARIO C Employer taking 100% of Risk
Proportion of Non-Adjustable Elements Minimum threshold of Fluctuation Risk-Sharing Ratio (employer:contractor) 15% 20% 100:0 Base Month CPI (or any specified index) Calculation of Fluctuation Adjustment Total Value of Work Done to Date (before adjustment for fluctuation) Less: Total Value of Work Done up to last valuation period (before adjustment for fluctuation) Value of Work Done in this period - Effective Value Deduct portion of Non-Adjustable Elements 15% x HK$2,000,000 Value of Work Done adjustable for fluctuation Net change of CPI (or any specified index) above threshold 30.0% - 20.0% = 10.0% Fluctuation Amount for this period Risk-Sharing Proportion borne by employer Net Fluctuation Adjustment payable for this period 10,000,000 8,000,000 2,000,000 300,000 1,700,000 10.0% 170,000 100% 170,000 100 Current Month 130 % Change 30% Applicable for Fluctuation Adjustment? Yes

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