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Panama contractors backtrack on threat to down tools

Work on the $5.2bn (£3.2bn) Panama Canal expansion continued yesterday at reduced pace despite a threat by the contractor to down tools over a massive £991M claim.

Grupo Unidos Por el Canal (GUPC) - comprising Spain’s Sacyr Vallehermoso, Italy’s Salini Impregilo, the Netherlands’ Jan De Nul and Constructora Urbana of Panama - won the design and build contract to build the locks in July 2009. GUPC’s £1.9bn bid was the only one of the three that was less than the ACP’s allocated cost of £2.12bn.

According to GUPC that amount has ballooned due to unforeseen issues beyond its control, prompting it to issue an ultimatum to client the Panama Canal Authority (ACP) (NCE 16 January).

The showdown began late last month when GUPC sent a letter to ACP saying that unless the cost overruns were paid, the contractor would suspend work on the job after 21 days. The 21 days would have been up on 20 January.

On 19 January the contractor announced it would not stop work despite it being well within its rights to do.

However ACP officials said that the threat to stop work “was not valid, lacks merit and goes against what is established in contract for the design and construction of the third set of locks”.

They also noted that activity on site yesterday was considerably slower than normal: between a quarter and a third of the regular amount.

According to ACP, the rate of progress on the project - which is calling for the pouring of a massive 5M.m3 of concrete - has slowed by as much as 40% in recent weeks.

GUPC later struck a more conciliatory tone, proposing a joint-financing scheme to cover the cost overruns pending international arbitration to resolve the matter.

While lacking details of cost or terms, the proposal was roughly similar to a £172M joint-financing scheme put forward by ACP in the first week of January.

ACP officials said GUPC’s proposal had not been formally presented but that it would not be considered if it was outside the terms of the contract.

While ACP and GUPC continue to meet to resolve the crisis, canal officials have signaled they may be moving past working with the contractor.

On two occasions in the past week ACP administrator Jorge Quijano has said the authority has been in contact with potential contractors to complete the work. He did not identify which companies the talks involved.

Additionally, ACP officials said they would meet with Zurich Insurance Group which holds approximately £365M in surety bonds covering the locks project. A previous meeting, scheduled for 13 January, had been postponed.

ACP said that with the bonds there is more than £790M available to continue work on the project if the contractor cannot complete the work.

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