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.
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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.