The Panama Canal Authority and the international consortium building the new locks for an expanded Canal announced Friday that they had reached a tentative agreement on a framework for completing the construction project after two months of intense negotiations and work stoppages.
The dispute, however, has pushed the opening of the Canal into the late first quarter of 2016.
Under the agreement, the two sides laid out a schedule for proceeding with work without addressing any of Grupo Unidos por el Canal's claims for reimbursement of cost overruns.
GUPC will pursue claims through the dispute resolution channels outlined in its contract.
"The price of the contract remains the same and is not modified by this agreement," the Panama Canal Authority (ACP) said in a statement.
The 2009 contract for building two sets of locks to handle bigger ships is $5.2 billion. The ACP has already paid $160 million above the contract amount to cover price escalation for materials and supplies, as allowed for under the contract. GUPC is also subject to penalties for not delivering the project on time. Completion was originally set for October.
The ACP remained firm throughout the dispute that it would not negotiate the $1.6 billion in excess costs GUPC claimed it incurred through no fault of its own. It insisted that GUPC go through proper claims procedures and document its case to determine if any costs were justified. Decisions can be appealed to an international arbitration panel.
"The third set of locks will be completed within the terms of the contract, as requested from the very first day," Canal Administrator Jorge Quijano said
The ACP said construction of the third set of locks is now scheduled for completion by December 2015, a change from the previous completion date in June. After that, the lock system and operations will undergo about three months of testing before commercial vessels can begin to use the new access channel.
Under the agreement, the 12 lock gates , which are being manufactured in Italy, must be delivered in stages to Panama by December 2014.
The ACP said the $400 million performance bond held by insurer Zurich North America may only be released to obtain financing to complete the work.
The two sides agreed to co-finance ongoing operations, one of the key demands of cash-strapped GUPC. The ACP and GUPC each said they would advance $100 million to pay contractors and workers so work can regain its normal pace in March.
The ACP said it may extend its moratorium on collecting previous advances until 2018, subject to the fulfillment of certain milestones and other conditions.
"The agreement meets the GUPC aim of a comprehensive approach to provide funding for the project through a co-financing arrangement that facilitates the completion of the works, pending the outcome of arbitration to allocate final responsibility for additional costs impacting the project. The agreement is subject to a documentation process that has is already well underway with signature anticipated in the near future," GUPC said.