Downer walks off $US800m project

Downer has terminated its contract with Spanish construction company Tecnicas Reunidas on the Burrup ammonium nitrate project, joining a string of contractors to be hit by contractual disputes on big projects over the past year.

Downer said its decision followed a failure by Tecnicas to remedy a substantial breach of the contract.

“Downer is in the process of demobilising from the site,” the company said in a statement

“Downer has not taken this decision lightly but considers it has no alternative given TR’s conduct.”

Downer was contracted in March 2014 to install pre-fabricated modules supplied by Tecnicas.

The original contract value was $72 million, yet to date the contractor has been paid about $89 million.

Downer said it intends to refer additional claims totalling more than $60 million to arbitration.

“The claims includes costs for the growth in the contract quantities and re-work required as a result of non-conforming free-issue modules as well as costs incurred as a result of extensive delays and disruption,” Downer said.

The contractor said this process was expected to take 18 months.

The company behind the project, Norwegian manufacturer Yara International, said it was unaffected, as the ammonium nitrate plant was being delivered through a lump-sum turnkey contract with Tecnicas.

“Downer’s contract is with TR and therefore a commercial matter between the parties,” Yara said in a statement.

“In the meantime, commissioning continues on the facility and, based on the current advice from the TR,  first production remains scheduled for the end of the year – with product expected to market in 2016.”

The project is jointly owned by Yara (45 per cent), ASX-listed Orica (45 per cent) and US company Apache Corporation (10 per cent).

The lump-sum contract with Tecnicas was worth approximately $US500 million ($A690 million), while the overall project was originally expected to have a capital cost of $US800 million.

The ammonium nitrate plant is being built next to an existing ammonia plant, which is owned by Yara (51 per cent) and Apache (49 per cent) through their entity Yara Pilbara Holdings (formerly Burrup Holdings).

The dispute comes at an awkward time for Tecnicas, which is one of several foreign firms targeting public infrastructure projects in Western Australia.

Spanish multinationals Acciona and Ferrovial Agroman, Italy's Salini Impregilo, and Dutch company BAM International have all been short-listed for major projects.

Tecnicas has teamed up with with local construction company Doric to bid for the new $430 million Perth Museum. It was one of three consortia shortlisted for the project.

Tecnicas’ only other experience in WA was as part of the consortium that built the $1.4 billion Southern Seawater desalination plant at Binningup.

Other contractors in Australia to hit problems on big resources projects over the past year include NRW Holdings, Monadelphous Group, and Laing O’Rourke.

Monadelphous has commenced legal action – for the first time in it 25-year history – after being unable to resolve contractual disputes on the Wiggins Island Coal Export Terminal in Queensland.

Similarly, NRW has taken legal action Samsung C&T after they were unable to agree on wAccionaho was responsible for cost overruns on the Roy Hill iron ore project.

On the same project, Samsung and Laing O’Rourke mutually agreed to terminate a $200 million contract after being unable to resolve a dispute over delays and higher costs.

Goodline and Civmec secured extra work as a result of Laing O’Rourke’s exit.

Closer to home, there have been contractual disputes on the Perth Children’s Hospital project, led by construction company John Holland, and Elizabeth Quay, led by the Leighton Contractors and Broad Construction Services joint venture.