The International Information Center for Structural Engineers

Wednesday, 16 July 2014 10:36cat

UPDATE: Panama Canal Dispute Headed to Arbitration Court

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The Panama Canal expansion project is currently $1.6 billion over budget The Panama Canal expansion project is currently $1.6 billion over budget Panama Canal

The first of several claims related to the Panama Canal’s $1.6 billion in cost overruns will begin arbitration in Miami next week. The first dispute to be heard by the arbitration court will be a $180 million claim over the cost of draining an area to create work space near the Pacific locks of the 50-mile (80-km) long canal. The project’s contract states that if a disagreement between two parties arises during any part of the project, the two sides must first analyze the other side’s claim and then head to an adjudication board. In the event that these two measures cannot bring an agreed upon solution, the dispute would then head to arbitration. 

There are currently two other claims being discussed at the moment. The first is an $888 million claim for work stoppages while the second is a $497 million claim for the quality of aggregate used for the concrete mix. Each party is still analyzing the first claim and the adjudication board is currently hearing the second claim. 

The financial dispute arises from the $1.6 billion in cost overruns on the project. The GUPC (the contractor) had their bid of $3.1 billion win the project contract and began working on the canal in 2007. The Panama Canal Authority has offered to pay $100 million of the $1.6 billion the GUPC is asking for.  The Canal Authority believes, though, the GUPC's claims are unsubstantiated. A diplomatic cable from losing bidder Bechtel released by Wikileaks states that the GUPC’s bid would not even cover the costs to pour the concrete for the expansion. In fact, Bechtel also said that they expect the contractors to attempt to renegotiate the price with the Canal Authority during the project.

Work on the project came to a halt in February over the dispute of who would bear the cost overruns. The delays that have occurred have far reaching economic effects. Many U.S. cities have already invested millions of dollars to increase the size of their docks in order to handle the larger ships passing through the expanded canal. Liquefied natural gas producers from the Gulf of Mexico who are shipping their product to Asian markets must still travel around South America at Cape Horn, a two-week delay compared to crossing the Panama Canal. Also, Panama will be able to increase its annual toll revenue from the canal from $1 billion to $4 billion once the project is finished. The Panama Canal expansion project began on September 3, 2007 and once completed in 2015, it will double the capacity of the original canal and allow for larger ships to cross the 50-mile route connecting the Pacific and Atlantic Oceans.  Panama Canal Administrator Jorge Quijano said in June that 76% of the engineering project was complete, and that a third set of locks, allowing bigger ships to pass through the waterway, should open in January 2016.

Sources: Reuters, SeaTradeGlobal

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