The Panama Canal Authority said Thursday it will not bow to pressure by the lead contractor in the engineering consortium that is building its new locks to recover an estimated $1.6 billion in cost overruns that are not covered by the terms of its contract.
Sacyr Vallehermoso of Spain, which leads the consortium, Grupo Unidos por el Canal, threatened on Wednesday to suspend operations if it cannot recover those overruns.
The consortium, which also includes Impregilo of Italy, Jan De Nul of Luxembourg, and Constructora Urbana of Panama, submitted the lowest bid — $3.12 billion — in 2009 for the lock-construction part of the canal expansion project. The bid was substantially lower than the canal authority’s target price of $3.48 billion and lower than the bids of the other two bidding groups.
“These companies are going to have a very challenging time to even break even,” said one East Coast port director. “Most of them are going to wind up losing money on the contract.”
The canal authority said Thursday the threat by Sacyr was designed to force it to negotiate outside the terms established in the contract by “demanding to be provided additional funds from those agreed in the contract.”
The consortium said it might suspend operations in a filing Wednesday with Spanish market regulators. It said, “GUPC has formally informed the Panama Canal Authority that it will suspend work if the failures to comply are not put right within the advised period.” It had set the canal authorities a 21-day deadline before suspending the project to install a third set of canal locks.
“No matter what type of pressure is exercised against the ACP, we maintain our request that GUPCSA respects the contract that they accepted and signed,” said Canal Administrator Jorge Quijano in a statement today.
The canal authority said that “to date the contractor has not followed the claims and conflict resolution mechanisms established in the contract to support the claims.”
The canal authority said that the only channels to process claims are clearly established in the contract, under which a third party decides two of the three methods for the resolution of claims. “These contractual clauses were accepted by GUPCSA upon signature of the contract,” the authority said.
The authority said it “trusts that the contractor is able to comply with the terms agreed upon under contract.”
The canal expansion project is 72 percent complete. The project was originally scheduled for completion in October 2014 on the 100th anniversary of the opening of the original canal locks in 1914. But the contracting consortium’s inability to manufacture cement for the locks that would last another 100 years delayed the completion date until the second quarter of 2015. After that first delay, what were described as electromechanical problems delayed the opening of the new locks until the end of 2015.
It was not immediately clear whether the possibility that Sacyr would suspend work would cause a further delay.