Who gets the bill?

Glendoe Hydro Electric Scheme is one of the biggest such schemes to be built in Scotland for many years. SSE Generation Ltd (SSE) gathered around them the very best and most experienced folk to design and construct the major tunneling works. HM Queen Elizabeth officially opened the scheme on 29 June 2009.

Next day the engineer heard unusual thumping noises. He didn’t know then but the main tunnel had collapsed. SSE was “shell-shocked”. It was just eight months since Hochtief Solutions AG had completed this £126m design and build prestige project. It had gone so well. The bill for a new tunnel is £130m. Who pays? The contract document was based on NEC2 Option A, signed back in 2005.

Shall we come back to who carries the can shortly?

Start, if you will, with the endeavour to avoid the confounded disaster altogether. It’s easy. You gather around you the best in the business. That’s what happened here. SSE (the employer) owns and operates 80 hydroelectric power stations and 214 tunnels (a total of 320km). True, SSE took a limited role in Glendoe design and build contract. Instead it went to one of the world’s top contractors and engaged one of the world’s top consultants to supervise the works. There were geology consultants, designers for the civils works, and a top M&E subcontractor. And on top of that, reflect please, that the science of tunnelling dates back to antiquity. The modern history of using unlined tunnels (as here) is over 50-years old. There are several thousand kilometres of unlined tunnels. The tunnel-boring machine is tried and tested.

Initially the toing and froing between SSE and Hochtief was amicable. There were meetings galore. Then relations began to cool

At Glendoe water from a reservoir flows down a tunnel to a turbine deep underground, from there it flows through another tunnel into Loch Ness. The combined length of both tunnels is 8km. They each have a diameter of five metres, roughly the same size as that of a London Underground tunnel. The water travels at high speed and creates high pressure within the tunnel. Very little tunnel lining is needed. That water drives the runner wheels on the turbine and makes your tea.

Having taken possession of the site in early 2006, Hochtief completed on time December 2008. The work had been scrutinised by many experienced tunnellers both during and after the tunnel boring machine drive. They included geologists, tunnel designers, engineers and tunnel boring machine crew. All were actively looking for problems. None of them saw signs of faults that might threaten tunnel stability. Nothing in the detailed records evidences behaviour that would potentially cause the catastrophic collapse that occurred.

Initially the toing and froing between SSE and Hochtief was amicable. There were meetings galore. Then relations began to cool. A representative of SSE said: “There was an awful lot of talk going-on and not a lot of meat coming out of it.”

The two stumbling blocks were: (1) “What’s to be done?” and (2) “Who pays?”. Hochtief said the collapse was an employer’s risk event. SSE said it was the contractor’s risk event.

As to the contract document, the promise in NEC, is that the contractor will carry-out the works in accordance with the works information. A “defect” is a part of the works, not in accordance with the works information or a part of the works designed by the contractor. And, if a defect arises, the contractor must correct it before the expiry of the defects liability period without compensation, unless it is an employer’s risk event. Hochtief dug in here. It wanted SSE to agree payment or else it would not carry out the remedial works. SSE said it would agree a 50:50 cost share until liability had been determined. Hochtief refused. SSE now went to four contractors for the “recovery project”. Bam was selected. There was no time to investigate a formal tender. Bam said, and SSE accepted it, that it would construct an 830m by-pass tunnel on NEC Conditions being Option E, known as the “Cost Re-imburseable” contract. The indicative price was £30m. The works began: it seems to have grown arms and legs, and new indicative prices arose. Then Bam agreed a fixed price of £109m, once the design was made final. The final account was £114m. Who pays? That same question came.

The reason the Hochtief tunnel collapsed was poor rock, insufficient shotcrete and rock bolts. SSE argued that the NEC contract pointed liability at Hochtief. The tunnel was not in accordance with the contractor’s design. Wrong, said Hochtief. The contractor is not liable for defects in his design so far as he proves that he used reasonable skill and care, to ensure that it complied with the works information. This is NEC Option M. That is an obligation to use reasonable skill and care.

SSE wanted the court to decide Hochtief was promising tunnels fit for their purpose; strict liability. The words in NEC don’t go that far. The remedial cost is not down to Hochtief. But Hochtief was wrong to refuse to do the works. Did SSE pay Bam more than it would have paid Hochtief? That’s a difficult call, with liability on Honchtief. It remains to be seen whether it will require yet more litigation to decide whether it has to stump up any money to SSE.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple