Panama Canal Cost Overrun Claim Rises $2 Billion

Courtesy ACP

Published Jan 11, 2017 1:06 PM by The Maritime Executive

Grupo Unidos por el Canal (GUPC), the contractors' consortium that built the Panama Canal Expansion, may claim a total of up to $2 billion in additional cost overruns from the Panama Canal Authority, according to figures published Monday by Spanish newspaper El Pais

The Canal was originally bid at $3.2 billion, but GUPC has now reserved the right to claim up to $5.4 billion more, potentially tripling the canal’s final cost. The group, led by Spanish construction giant Sacyr, expects at least six more years of litigation before its claims are resolved. The new maximum figure alllows GUPC the flexibility to make future claims in spite of an approaching contract deadline, and it may decide not to file for the full amount. 

In a statement, the canal authority pushed back, suggesting that GUPC had skipped over a first step in the arbitral process. “Without prejudice of the merits of these claims, the ACP rejects the admissibility of several of these new claims that GUPCSA submitted directly and without complying with the dispute resolution mechanism of the Contract, to ICC arbitration.”

Panama Canal administrator Jorge L. Quijano said that "the ACP has been actively addressing these issues in the respective instances, as it has all the legal arguments and support to assert its rights."

The cost dispute is highly controversial in Panama, and GUPC may even face criminal charges in a complaint filed by Panama's National Bar Association: The association's vice president, Juan Carlos Arauz, told media service EFE last year that “we're asking for an investigation into the possible defrauding of the nation's resources” in GUPC's claims. 

GUPC asserts that Panamanian authorities gave it faulty information on the region’s geology, leading it to underestimate the difficulty of the project. In addition, labor disputes, the quality of the underlying rock strata and regulatory issues led to further delays. 

Even before the beginning of the canal's construction, Panamanian authorities questioned whether GUPC's bid was realistic and achievable. The 2010 Wikileaks diplomatic cable release revealed that then-Vice President Varela doubted GUPC's ability to perform the task: he told the U.S. consulate's deputy chief of mission that “when one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong. Of course I hope for the best, but I’m afraid that [the APC] has made a big mistake.” The next lowest bid in the competition for the Canal's construction, from the Bechtel/Taisei/Mitsubishi consortium, came in at $4.2 billion.