The Panama Canal Authority (ACP) on Sunday indicated that the international consortium in charge of building the locks for a new entrance to the Panama Canal has begun to drag its feet because of unhappiness with the terms of its contract and the ACP's unwillingness to cover what it claims are unforeseen, but justifiable, new expenses.
The dispute threatens to further delay one of the world's largest, and most anticipated, infrastructure projects, which would make it possible for vessels three times the current size limit to transit the waterway. This would increase shipping efficiency between countries in the Pacific and the east coasts of North and South America.
In the past week, the Grupo Unidos por el Canal team sent a two-page letter to Canal authorities threatening to suspend work on the project on Jan. 19 if it is not reimbursed for $1.6 billion in cost overruns. The ACP has rejected GUPC's tactics, saying the letter did not include much supporting evidence for why it deserved compensation and that the consortium has not gone through proper claims procedures established in its $3.2 billion contract. GUPC subsequently made its grievances public.
In a statement Sunday, the ACP said it warned GUPC on Dec. 13 about staying on task after noticing evidence of a possible work slowdown, including a reduction of personnel at the construction site, lack of progress with three dams which are part of the contract, significant delays in delivery of the lock gates, and lack of progress in rectifying construction defects.
GUPC, which is led by Spanish construction firm Sacyr, has said it is willing to work within the contract and Panamanian law to find a negotiated solution to finish the work in less time and cost.
The ACP said "there is nothing in Panamanian law or in the contract signed that gives the contractor any grounds for suspension of the work" and repeated that the contract "should be fulfilled according to the rules and regulations of the Panama Canal."
It also argued that GUPC has improperly interpreted a clause in the contract, which allows a contractor to stop working if the employer fails to pay the contractor. The ACP said it continues to pay invoices for work performed almost four times faster than required under the contract and has even paid $150 million to $160 million more in extra expense claims it determined had merit.
One of the areas of contention involves problems GUPC had with concrete for the massive lock chambers. The ACP rejected the concrete mix the consortium had originally planned to use because of concerns that it met specifications for a 100-year lifespan. The consortium is now claiming it should be reimbursed for having to use a different mix.
In a conference call with reporters on Thursday, ACP Administrator Jorge L. Quijano said the fixed-price contract included escalation clauses for price increases in structural steel, rebar, diesel fuel, cement and labor, and criticized the contractor for trying to get reimbursed for items beyond its scope.
The ACP reiterated that GUPC should submit detailed claims for additional expenses to its contract office and that it can appeal any decision to a third-party dispute adjudication board and then to an arbitrator.
The agency also insisted that it has the capability to complete the project even if the contractor walks off the job, but has not stated that doing so would allow the project to be completed on time. The project schedule has already slipped by a year to the fourth quarter of 2015 because of GUPC's concrete problems. The locks are actually supposed to be completed by June 2015, but must undergo several months of testing before commercial operations can begin. Quijano said the agency would be able to bring in another contractor to finish installation of the locks, which is about 65 percent complete.
Four lock gates in Italy are ready to be shipped to Panama, another four have been assembled and should be ready for delivery in another month, and two more are being assembled, he said.
Meanwhile, Spain's government is in talks with Panama and Sacyr to settle the dispute, Agence-France Presse reported.
Panama's President Ricardo Martinelli has said he would visit Europe to stress that the consortium — which includes Italy's Impreglio and Belgian dredging company Jan de Nul Group — should honor the contract to expand the canal.
In related news, ACP spokeswoman Monica Martinez confirmed that Rodolfo Sabonge, the vice president of planning and business development, retired in October for personal reasons after 28 years with the agency. Sabonge, an engineer by training, helped the Canal develop its new business model after the transfer from the United States to Panama and led the initiative to restructure the toll schedule after the expansion is completed. He also initiated several studies to show how Panama could leverage the Canal to become a logistics hub for the region. Sabonge was the face of the expansion to many in the maritime industry, traveling around the world to explain the project and urging ports to prepare their infrastructure to handle the larger vessels that would now be able to reach their docks.
Oscar Bazan, manager for marketing and forecasts, has been appointed to replace Sabonge on an interim basis.