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Keith Woolford

Cost Overruns in the Canal Expansion Project Lead to Claims, Counterclaims, Lawsuits, and Arbitration

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Grupo Unidos por el Canal claims $3.5 billion in cost overruns

The consortium Grupo Unidos por el Canal (GUPC) delivered the completed third set of locks to the Panama Canal Authority (ACP) on June 25.

But it also submitted something else, a $3.5 billion bill for additional costs.

The claims exceed the value of the original contract, which was awarded to the consortium in 2009 for $3.1 billion.

There are $569 million in claims pending before a conflict resolution board and $527 million pending before an international arbitration panel, the final step in the claims process.

The ACP so far has paid the consortium the original $3.1 billion, plus an additional $364 million in additional costs it has recognized as valid.

The rest of the claims are yet to be submitted to the conflict resolution board or they are still being considered by the ACP.

http://www.prensa.com/in_english/ruta-reclamos-Canal_21_4535006455.html

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Bidding low in order to obtain a construction project with an eye to making a profit on the extras is a pretty common tactic at any level.   

It seems that the Canal Authority put a lot of diligence into contract preparation for the expansion so many of these claims will likely be disallowed.

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The ATP announced that they have won the first round of arbitration hearings with the GUPC consortium, builders of the third set of locks in the Canal, over extra charges and claims.

Disallowed was the constructor's claim for $228 million in relation to a dam. GUPC also has to indemnify the ATP $22 million and pay the International court costs.

http://www.telemetro.com/nacionales/ACP-arbitraje-Grupo-Unidos-Canal_0_1049595566.html

Background from Miami Herald is here:

Arbitration on Canal dispute to begin in Miami

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Arbitration on the first claim in a dispute over billions in cost overruns for the $5.5 billion expansion of the Panama Canal is scheduled to get underway Monday behind closed doors in a Miami hotel.

The claim deals with construction of a temporary cofferdam on the Pacific side of the expansion and is among about $3.5 billion in claims for cost overruns that must be hashed out between the international construction consortium that worked on the expansion and the Panama Canal Authority.

The project took seven years to build and came in nearly two years behind schedule.

Grupo Unidos por el Canal (GUPC) — a consortium that includes Spain’s Sacyr Vallehermoso, Italy’s Salini Impregilo, Jan De Nul of Belgium, and Constructora Urbana, a Panamanian construction company — claims the geology at the dam site was not what was expected, necessitating a change in design and making the original $120 million cost unrealistic. GUPC is seeking an additional $218 million for the dam.

Jorge Quijano, administrator of the Panama Canal Authority, said GUPC should have done more field explorations before bidding on the project: “This is a design-build project. We didn’t give them the design. They determined the method for building the dam.”

Both sides will present their positions in Miami and it will be up to a three-arbitrator tribunal to make the final decision — a process that could take several months.

There is no appeal. In their contract, both sides agreed to binding arbitration to resolve their differences using International Chamber of Commerce rules with Miami as the arbitration venue if they failed to reach agreement under two other dispute mechanisms.

Relations between the two sides remain tense. Some consortium executives refer to the canal authority as the “no-machine” and said the authority has refused to cover requests that would be considered reasonable and normal on any other job. Consortium executives said that between 2009 and 2013, the authority said no to 90 claims.

“We’ve been to the DAB [Dispute Adjudication Board] for things that in any normal job site would be settled,” said Giuseppe Quarta, GUPC chief executive. “Some of [these denials] are beyond reason.”

But with Panama’s immediate past president, Ricardo Martinelli, facing corruption charges and the taint of scandal over the Panama Papers still fresh, sources say canal authority executives don’t want to be perceived as spending one dollar more than the amount in the original contract.

The dispute became so acrimonious in 2014 that it paralyzed work on the canal’s new locks on Feb. 5 of that year. Workers employed by GUPC walked off the job for 15 days. The canal authority covered past invoices and advanced $100 million and GUPC put in $100 million to get the work restarted.

“The main objective was to complete the locks project,” said Manuel E. Benítez, deputy administrator of the canal authority. “Both the contractor and the authority found a way to continue to work and stay within the contract.”

The next claim over the concrete mix for the massive project is expected to be heard next year in Miami. DAB, the second level of dispute resolution, decided late last year that GUPC should be awarded $233 million and be given a six-month contract extension. The consortium had sought $463 million.

The consortium claimed it was unable to obtain the quantity and quality of basalt rock that the canal authority promised would be available at the construction site. Crushed basalt was an essential ingredient to make the concrete needed for the project, and GUPC claimed the canal authority’s reluctance to give timely approval for the concrete mix put the project seven to nine months behind schedule.

The consortium plans to seek additional compensation for the basalt/concrete claim and the canal authority is appealing the award.

The Dispute Adjudication Board also is looking at other claims dealing with construction delays, and penalties could be assessed depending on which side is held responsible.

If GUPC prevails on its claims, it could push the current $5.5 billion price for the canal expansion even higher.

http://www.miamiherald.com/news/business/international-business/article90019057.html

Edited by Keith Woolford

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Canal wins $25 million arbitration hearing

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THE PANAMA  Canal  Authority (ACP) coffers  will increase by $25 million after winning an arbitration hearing over a claim filed by the Grupo Unidos por el Canal (GUPC) consortium that built the Canal’s third set of locks, which opened in June last year.

GUPC, made up of Sacyr, Impregilo, Jan de Nul and Constructora Urbana SA, will have to pay  compensation of $25 million to the CanalAuthority and pay the arbitration fees to the International Chamber of Commerce, in London.

The consortium had filed a claim of $200 million. The ACP says it  will issue a statement with more details on this process, which ended up in favor of the Authority.

In August 2016, the consortium lost another $90 million lawsuit, after the after  its claim against the ACP was rejected.

 

http://www.newsroompanama.com/news/panama/canal-wins-25-million-arbitration-hearing

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Canal expansion consortium must repay $548 million

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Grupo Unidos por el Canal (GUPC), the consortium that built the expansion locks of the Panama Canal must return $548 million to the Panama Canal Authority (ACP), according to an award from the International Chamber of Commerce in Miami.

Sacyr, which has 41% in GUPC, must pay  $255 million (225 million euros, at the current exchange rate), say  Spanish media reports.

The payment date of the advances of $548 million – whose disbursement is guaranteed by letters of credit – was established by June 2018. However, GUPC filed an arbitration to question the date of payment of all the advances.

In January 2017, GUPC requested “an arbitration to unequivocally determine that the repayment of these advances must be produced in accordance with the arbitration awards that must dictate which party is responsible for the unforeseen costs that arose over the course of the year.” of the project”.

GUPC, which in addition to Sacyr includes the Italian Impregilo, the Belgian Jan de Nul, and the Panamanian Cusa, was awarded the construction of the third set of locks in 2009 for $3.118 billion. However, after completing the work it submitted claims for alleged cost overruns that exceed $5 billion.

 

https://www.newsroompanama.com/business/canal-expansion-consortium-must-repay-548-million

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Another Judgment in Favor of the Panama Canal

GUPC, the consortium in charge of the Canal expansion, must return $848 million in advances to the Panama Canal Authority.

Friday, December 14, 2018

From the Panama Canal Authority press release:

December 12th, 2018. Contractor of the Design and Construction Contract for the Third Set of Locks of the Panama Canal Expansion Program, Grupo Unidos por el Canal, S.A. (GUPCSA) and its shareholders filed an appeal against the ACP under the Rules of Arbitration of the International Chamber of Commerce (ICC), based in Miami, United States. Through this arbitration, GUPCSA requested the Arbitral Tribunal to declare that the Advances granted by the PCA for the execution of the Contract had not expired and were therefore not effective and enforceable until all its claims were resolved in arbitration.

Today, December 12th, 2018, the Panama Canal Authority has been notified of the Arbitral Award issued within such Arbitration, in which the Arbitral Tribunal established that:

-GUPCSA shall pay the ACP the first advances totaling USD547,958,819.42; and the additional advances totaling USD299,671,507.68, totaling USD 847,630,327.10 million.

Read full press release (In Spanish).

 

https://www.centralamericadata.com/en/article/main/Another_Judgment_in_Favor_of_the_Panama_Canal

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I didn't think it was just sour grapes when I was told that my previous employer stated that the canal job couldn't be done for less than the $4.8 billion it had bid.

The winning bid of $3.1 billion was met with derision at the time. Now I read that we are at $5 billion or so...

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As far as I know, the cost to the ACP is still the contract price of $3.118 billion.  Claims for $5 billion in 'extras' by GUPC have gone to arbitration.

This decision by the arbiters forcing the return of advance payments to the consortium before decisions on these 'extras' have been made, may be an indication of who will be favored.

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