MIAMI — Arbitration of the first claim in a $1.6 billion dispute over cost overruns that have held up expansion of the Panama Canal begins Monday.
A Spanish-led consortium temporarily stopped work on the canal this year, as Ports throughout the Americas avidly follow efforts to expand the canal to handle ships that are too long, too wide and too heavy for the current canal. And they’ve made big plans of their own based on the canal expansion.
The money dispute pits the Panama Canal Authority, which oversees operations of the 50-mile-long canal, against Grupos Unidos por el Canal (GUPC), a consortium of international construction companies that is the main contractor on the $5.25 billion expansion.
GUPC won a $3.1 billion contract in 2009 to build a third set of bigger locks for the canal. Its bid was $1 billion lower than its closest competitor, and there has been criticism that it was a lowball bid. GUPC says it needs more money to finish the project because, among other things, it ran into unanticipated geological conditions at the work site.
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The canal’s current locks will be used in conjunction with the new locks when the project is finished. Originally, the canal authority had hoped the expansion would be completed this year — in time for the 100th anniversary of the canal in August.
But the completion date has been pushed back several times, and it may be early 2016 before big ships begin moving. The canal authority says the expansion project is now more than 76 percent complete.
The tribunal will work though the dispute claim by claim, said Carolyn Lamm, an attorney for White & Case, who is representing GUPC. “Both sides are interested in completing work on the canal as quickly as possible and moving forward on this dispute,” she said. “Both parties do want a quick process.”
GUPC — which includes Sacyr Vallehermoso (Spain), Salini Impregilo (Italy), Jan del Nul Group (Belgium), and Constructora Urbana (Panama) — walked off the job for two weeks in February after several weeks of negotiations failed.
On Dec. 30, Sacyr, the leader of the consortium, gave the canal authority 21 days to cover its additional costs or face a work suspension. The canal authority contends that the contract gives the contractor no grounds to suspend work.
Work on the expansion resumed Feb. 20 after the canal authority agreed to pay $37 million to cover December invoices. GUPC also agreed to deliver all rolling gates for the new locks by February 2015, and both sides signed off on a financing structure that allows construction to continue while the dispute is resolved.
“In parallel to this, the dispute resolution is going on,” Lamm said.
In their contract, both sides agreed to arbitration to resolve their differences using International Chamber of Commerce rules and Miami as the arbitration venue. Private arbitration in a neutral location is growing in popularity as a way to resolve cross-border disputes among multinationals.
Ultimately, the canal dispute will be settled by a tribunal composed of Bernard Hanotiau, of Hanotiau & Van den Berg in Brussels; Bernardo Cremades from Madrid (appointed by GUPC); and Robert Gaitskell of London (appointed by the canal authority).