Panama Canal Teams Negotiate Cost Overrun Dispute
In an effort to avoid a threatened shutdown of work on the $5.2-billion expansion of the Panama Canal, the authority that oversees the historic waterway proposed a joint financing scheme to its construction team on Jan. 7 to cover cost overruns. But it is not clear whether a short-term deal will keep building progress on track.
Officials of the Panama Canal Authority (ACP) and contractor Grupo Unidos por El Canal (GUPC) met to hammer out details of the $283-million proposal. No agreement was reached concerning the contractor's recent threat to stop work if ACP did not pay for $1.63 billion in cost overruns.
"This is an important first step," said ACP administrator Jorge Quijano after the meeting.
The proposal—conditional on the contractor withdrawing its notification of intent to suspend work—requires ACP and its construction team to each provide $100 million.
The team, led by Spain's Sacyr Vallehermoso S.A., also includes Italy's Impregilo S.p.A., the Netherlands' Jan De Nul n.v. and Panama's Constructora Urbana S.A.
In a statement, GUPC officials said they were committed to reaching a short-term deal that would allow more time to find a permanent solution to the overruns.
The contractor described the ACP proposal as a "partial solution" and said it asked for a $400-million advance in addition to committing $100 million of its own. GUPC did not address lifting the Jan. 20 deadline to stop work.
The deal would require the contractor to ship four gates—built in Italy and due in Panama last November—for the massive new canal locks.
GUPC won the design-build contract for the locks work in 2009. The canal expansion is 72% complete, with the locks at 65%, says the authority. The estimated completion date is June 2015.
The consortium's $3.12-billion bid, the only one below the ACP's allocated $3.48-billion cost, bested the next-lowest bid by the Bechtel-Taisei Mitsubishi team by more than $1 billion.
There was some media speculation on whether the authority was in contact with the Bechtel team about stepping in to complete work if the current parties cannot reach agreement, but officials declined comment.
According to ACP, the GUPC team has filed a total of 13 claims, valued at about $1.4 billion. A few have been resolved, but most are still at various points in the three-step dispute-settlement process.
These include a $573-million claim, filed in August 2012, challenging the authority's evaluation of the concrete mix for canal structures.
The contractors say the issue created difficulties in meeting contractual standards for concrete quality and held up work on the locks by six months. That claim, which ACP rejected in May 2013, is set for evaluation by an arbitration board in March.
Other claims involved issues with the cofferdams and materials disposal.
The latest, filed on Dec. 23 for $898 million, is for "disruption," citing the growing financial burden of handling the complications of project setbacks. That dispute began in mid-December, when ACP contacted GUPC to request a response to several issues that threatened to delay the project.
These included a sharp cut in contractor staffing, the gates' delay and lack of progress on three dams. A seven-day deadline was pushed back to Jan. 15 at the contractor's request, but it has yet to answer ACP.