Amec fails in bid to limit exposure on submarine job

Amec and Morgan Sindall have been dealt a further blow in their attempt to limit their losses on their high-profile £142.1m nuclear submarine jetty project in Scotland after a High Court judge refused a bid by Amec to limit its liability for the project’s £93.6m cost overruns.

As exclusively revealed in Building last November, Amec and Morgan Sindall could be forced to bear a combined total of at least £50m in costs due to ongoing delays to £142.1m Faslane SSN Berthing Project - also known as the Valiant Jetty - which started in May 2004 and was due for completion in October 2008, but is still unfinished.

The project has run £93.6m over its initial budget of £142.1m, and under the terms of the contract the contractor is liable for the first £50m of that overrun, with the liability for the remaining cost to be determined between the contractor and the Ministry of Defence.

Amec was originally sole contractor for the jetty. Morgan Sindall acquired Amec’s construction business for £26m in 2007, which had been part of the team working on the job. This left the project a 50:50 joint venture between Morgan Sindall and the remaining independent Amec business.

Amec has been engaged in a long-running battle with the MoD of the extent of its liability for the cost overruns under the contract.

In 2010, an adjudication decision ruled that Amec was liable to pay costs that exceeded the £50m cap, but that liability was “limited to actual costs properly incurred in excess of that figure”.

That decision was challenged by Amec last year, with Amec arguing it was entitled to paid “any costs however so incurred once the maximum price plus £50m was exceeded”, with the MoD arguing it “had no liability at all or, alternatively, a liability limited to actual costs reasonable and properly incurred”.

Last October the Disputes Resolution Board (DRB) ruled that MoD was liable for costs beyond the £50m cap that were “reasonably and properly incurred” - a decision that was then appealed by Amec.

However, the High Court has now refused permission for Amec to appeal the DRB’s ruling, with the decision stating that if the MoD was made liable for “all costs, however so incurred” beyond the £50m cap, then Amec would “not be liable for the costs caused by its own breaches of contract”.

The decision leaves Amec and the MoD to settle on what costs were “reasonably and properly incurred” over and above the £50m cap.

According to the judge’s decision, the original contract value of the project was around £89m, which rose to £142.1m. But that then rose again to £235.7m - £93.6m over the current agreed maximum price and £146.7m over the original agreed maximum price.

Morgan Sindall declined to comment.

Amec said it was working with the MoD to bring the project to a “successful conclusion in the very near future”.

The MoD said it was working with Amec to complete the project “as soon as possible” and it was “anticipating handover in the coming months”.