The Panama Canal Authority and the consortium building the waterway’s new set of enlarged locks met in Panama City Tuesday to try and resolve the contract rift that has jeopardized the project’s timely completion, with the contractor proposing a new arrangement to jointly finance ongoing construction while claims for cost overruns go through the arbitration process.
Grupo Unidos por el Canal, the international consortium in charge of the $3.2 billion lock expansion, said in a statement that the two sides explored “different co-financing alternatives” to keep the project going because GUPC burned through much of its cash cushion paying for cost overruns. The extra expenses are at the heart of the dispute, with GUPC saying it should be reimbursed for up to $1.6 billion in unforeseen costs and the ACP countering that the claims are without merit or supporting evidence.
Insurers backing construction guarantees for the project also participated in Tuesday’s negotiating session, according to GUPC.
“GUPC considers it a positive step that the proposal must focus on a long-term cash flow solution that permits finishing the project on time,” the statement read.
The consortium did not provide any details of its new proposal. Earlier this month it asked the Panama Canal Authority (ACP) to advance $400 million for the project, while one of its members has said the ACP should pay $1 billion now, with the remaining $600 million in dispute to be dealt with at a later date.
The ACP has offered to front the group $100 million, plus delay repayment of $83 million in previous advances if GUPC puts in $100 million of its own to pay subcontractors and suppliers.
GUPC also said it had voluntarily extended the deadline for resolving the dispute. It previously threatened to suspend work on Jan. 21 if its conditions had not been met. It also welcomed the mediation efforts of European Commission Vice President Antonio Tajani.
“GUPC has managed the canal expansion project with diligence and transparency, despite unforeseeable conditions and costs which will be resolved through international arbitration. GUPC reiterated its continued openness to dialogue to find a solution within the contractual framework and Panamanian law that permits continuing the project that is already almost 70 percent complete,” the contractor said.
Among the expenses charged by GUPC are $41 million for two days of rainy weather, the cost of building a temporary dam and other conditions that have been rejected by the ACP’s claims office.
Meanwhile, Manuel Benitez, the ACP’s deputy administrator, reiterated that the agency could implement a contingency plan in as little as two months if the dispute with GUPC can’t be resolved.
Speaking at SMC3’s Jumpstart 2014 conference in Atlanta, Benitez said the authority would use subcontractors currently working on the project to finish the expansion under the supervision of a construction management firm.
The subcontractors currently are not being paid by the consortium.
“We’re probably looking at one month, two months delay. That will still put us in the last quarter of 2015 for completing this project,” he said, noting that the project is 65-percent complete and is “to a point of no return.”
Construction has slowed down to 25 percent due to the financial disagreement, he added. Benitez said he was meeting with a lawyer after the conference to assess the authority’s options for terminating the contract.
“Slow motion is a breach of contract,” he said.
The authority sent a letter to the consortium Jan. 6 asking it to return to full construction within 20 days.
“That puts us at the 27th of January, so unless the contractor starts picking up this work really soon, we have the right to issue a termination letter,” he said. Even after a termination letter is submitted, the contractor will still have 14 days “to clean up its act,” he added.
“After that, Plan B kicks in, and we have everything set up under Plan B to make this transition as short as possible,” Benitez said.
He projected the deadline will most likely be met because the consortium is not likely to simply leave the canal project.
“Nobody leaves a project that advanced in which the technical issues are not really large technical issues,” he said. “My expectation is that they will come to find a solution to complete the project.”
GUPC won the job to build the locks in 2009 in part because its projection came in $300 million below the ACP’s anticipated price for the project. GUPC is led by Spanish construction firm Sacyr, which has suffered financially from risky investments and overbuilding when the Spanish housing market collapsed several years ago.
The financial problems the contractor has repeatedly run into at the canal are not a function of the bid not being high enough, Benitez said, but instead point to poor management.
“The contractor has overspent; basically, that’s the situation. He wants to have a global settlement outside the contract,” Benitez said. “We’re saying, ‘No way.’ ”
Even with these complications, Benitez said the current contractor was the right group for the job. It submitted a plan with superior engineering design that also came in under budget.
"It was a good choice in the sense that the winner… had the best technical offer and had the best price,” he said, adding the two top bids for the contract were separated by $1 billion. In addition, the engineering for the second-place bid would have created a larger workload and may not have been as streamlined.
"They have shown that they have the technical capabilities to do the job, no doubt about it," he added.
A previous version of this article said construction at the Canal has slowed down by 25 percent. It had slowed down to 25 percent.