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Dispute-hit Panama Canal expansion work resumes

Contractor agrees to restart lock work after client agrees interim payment.

A work stoppage that paralysed the $5.2bn (£3.1bn) Panama Canal Expansion for more than two weeks ended on Wednesday with a tentative agreement between the two parties battling over alleged cost overruns.

The contractor building the new locks for the waterway, Grupo Unidos Por el Canal (GUPC), stopped work on 4 February after weeks of negotiations with the owner, the Panama Canal Authority (ACP), broke down. The two sides are disputing claims for cost overruns that GUPC claims have reached £977M.

Canal officials insisted that claims must go through a three-step arbitration process agreed in the 2009 contract for the work.

GUPC, composed of Spain’s Sacyr Vallehermoso, Italy’s Impregilo, the Netherlands’ Jan De Nul and Constructora Urbana of Panama, won the design and build contract for the locks work in July 2009. The consortium’s £1.87bn bid was the only one below the ACP’s allocated cost of £2.08bn.

Last week the two sides reached an agreement in principle over the issue, but continued negotiations until Wednesday on the details. The ACP agreed to pay the contractor £22.1M for December invoices to ensure work can go forward.

The two sides are continuing discussions on key points such as the delivery of the massive lock gates, several of which are completed and waiting for transit from Italy.

While the full financial details of the agreement have not been disclosed, last week canal administrator Jorge Quijano said that any agreement depended on the cooperation of Zurich Insurance Group, which also participated in the negotiations to find a solution to the crisis.

The Swiss insurance company holds a £240M performance bond for the work, issued at the beginning of work on the locks portion of the project.

Quijano said that if an agreement with GUPC was not reached this week, the ACP was prepared to take over the job and complete the project by the end of next year. Currently, the canal expansion is 72% complete and the locks are 65% complete.

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