French-Japanese JV Campenon Bernard/Maeda (CBM) is facing a bill of millions of dollars for damages after it largely lost an arbitration against the Hong Kong government which sacked the consortium from its sewer tunnel contract.
The contract, for the construction of 23.5km of tunnels up to 122m deep on Kowloon and Hong Kong Island, formed part of the first phase of the government’s strategic sewage disposal scheme. Construction should have finished in May 1997 but is still under way.
In a statement to legislators, Kim Salkeld, acting secretary of the government’s environment and food bureau, said: "The three arbitration hearings to determine liability have now been concluded. The outcome of the liability hearings has been substantially in government’s favour in relation to most of the significant issues in the dispute. While the contractor has the right of appeal, so far, the government has been successful in resisting the contractor’s claim and largely successful in its own counterclaim. On that basis the government would expect to be able to recover very substantial damages," from CBM.
He said it is unclear how much the government would be owed until the three completion contracts were finished at the end of this year or early 2002.
Insiders believed that CBM’s liability could be limited to the cost of rebidding the contracts after CBM was sacked in December 1996, plus the cost of replacing cranes and other machinery which was said to be defective.
Officials have already said the cost of building the tunnels has risen from US$256M to US$385M, but this is set to soar further as the three contracting teams completing the tunnels claim for extra work to overcome poor ground conditions.
The government is about to seek legislative approval for a further US$8M to cover claims and associated costs.
Just how much of this additional cost can be laid at CBM’s door remains to be seen, largely because the contractual relationship between the original three contracting groups (Gammon with Kvaerner; Paul Y–Seli; and Skanska), the Drainage Services Department and its consultant, Montgomery Watson, has changed markedly since CBM was sacked.
The decision surprised both CBM and the government, which had suggested in statements to local legislators that it was likely to lose the case.
Announcing the arbitrator’s decision to legislators Salkeld said: "Members will have noted that each of the two previous statements about costs have been qualified by the assumption that the government is not successful in recovering costs arising from the dispute," with CBM.
But one insider said: "The arbitrator took the view that CBM was wrong to shut down all its six tunnel drives and stop work when it was having serious problems on just two bores. The judgement means that, no matter how difficult parts of the job get, contractors have to continue working."
CBM is believed to be pondering grounds for an appeal, although sources suggest that the entire contract wrangle, including the arbitration, have left Campenon Bernard and Maeda deeply divided. One senior Maeda executive told the arbitrator that the firm had not wanted to continue with the arbitration proceedings.
CBM had claimed that the huge ingress of groundwater on two of the six drives made it commercially impossible, and extremely dangerous to continue.
As a result it progressively stopped work on the six drives of its 23.5km sewage tunnel contract from mid-1996. The government re-entered the site in December 1996 and then rebid the job.
