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Fiasco in Panama

The stoppage in the project to widen the canal reveals serious miscalculations by Sacyr

Sacyr's problems completing the expansion of the Panama Canal within the agreed budget do not seem to have caught industry observers by surprise. From the moment construction of the third set of locks was awarded in 2009, thanks to an offer that was over a billion dollars lower than the following bid, there were doubts about whether the work could be successfully completed in the specified time.

Construction companies have all too often fallen prey to the temptation of producing very low bids in the hope of achieving profitability through modifications and extensions; unexpected expenses and contingencies are a regular occurrence in major construction projects, but the fact that the international consortium led by Sacyr is now talking about cost overruns of over 50 percent above the initial budget suggests a serious miscalculation by the building group, then presided by Luis del Rivero. The cables obtained by WikiLeaks showed that the rival bidders — and even the government of Panama — had serious reservations about the project.

The consortium’s allegations regarding a series of project deficiencies may be partly right, even though the budget had allocated money for such contingencies, as well as incorporating mechanisms for price corrections (as a result of variations in raw material prices or wages, for instance) that the Panamanian authorities have respected. However, it is also very striking that the Panama Canal Authority (PCA) has failed to address any of the consortium’s requests, falling back instead on the mediation and arbitration mechanisms contemplated in the contract.

It would now be desirable for all parties involved to reach an agreement to unblock a crucial project for Panama. The consortium must accept its share of responsibility for its miscalculation, but the Panamanian authorities should be somewhat flexible in the release of funds to allow the work to continue, before the corresponding agencies decide who is ultimately right.

Bad for Spain’s image

On the other hand, Sacyr has shown little respect for the market in its answer to a request for explanations from the market watchdog. Although formally the company answered the questions, it failed to mention that the amounts the consortium had put down as real revenue were in fact still up in the air. The company also asserted that the project was getting underway within the agreed deadlines, when work has in fact been notoriously delayed, as the consortium itself has admitted.

The fiasco of the ongoing canal project is, in any case, bad news at a time when construction groups are seeking refuge abroad in the face of a decline in public works projects in Spain.

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