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To reap early rewards:sort out disputes

Eurotunnel recorded its first ever profit this week. It is a very significant milestone for the company but also a very serious reminder to the construction industry of the importance of avoiding cost and time overruns.

Much of the Channel Tunnel’s operational problems have, of course, to some extent stemmed from government policy failings. The delayed decision to build a high speed rail link, the failure to develop rail freight and the on-going tax incentives to encourage low cost airlines have all taken slices out of
its business.

But despite all of this, and despite the impact of the 1996 fire, the ultimate burden on the Eurotunnel business over the last 14 years has been its massive debt. A debt which came as a direct result of construction costs spiralling from £3bn to £10bn. Regardless of increasing demand for cross-Channel travel, the owner of this amazing piece of public infrastructure was simply not able to meet its interest payments.

The spiral of decline was inevitable. New investment was impossible. Operating costs had to be cut. Bankruptcy loomed in 2006. But having bitten the bullet and started the process of getting its vast debt burden under control – albeit by persuading shareholders to write off a large chunk last year – the firm is now showing that it does have an extremely viable business.

And it is a lesson that has been learned since by much of the construction industry. Once it finally got going, the Channel Tunnel Rail Link was built pretty much on time and to budget. Heathrow Terminal 5, despite its opening troubles, was delivered without a hitch. But it is by no means the universal construction industry picture. Disputes are still the norm in construction and contractors are just as, if not more, adversarial today as a decade ago.

It is therefore significant to mention another first this week, the decision by the Olympic Delivery Authority (ODA) to form a new Independent Dispute Avoidance Panel. It is an unusual move for a construction project because it accepts that despite the optimism of professionals and their faith in others to deliver as programmed, in reality not everything goes to plan.

Clearly the ODA is very keen to ensure that it avoids construction disputes. Not least because of the very clear end date looming over the project but also because of the hugely public and hugely political budget to which everyone is now committed.

Nevertheless it is a brave move. Every consultant and contractor will agree that disputes are bad for business. Now hopefully the ODA has come up with a process that will ensure the London 2012 Olympics – and all future construction projects – are a success from day one rather than year 14.

■ Antony Oliver is NCE’s editor

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