An adjudication decision on 10th December 2021 found in Costain’s favour in three of four disputed compensation events on its Peterborough & Huntingdon gas compressor contract. But the one reveral will cost.
The adjudicator has chosen not to determine the financial amounts, leaving Costain to pursue a financial settlement with National Grid in respect of these compensation events. “As not all compensation events have been decided in our favour, we now expect there to be an overall cash outflow in respect of the contract,” Costain said in a trading update today.
“Under the terms of the termination agreement with National Grid, there is an expected requirement to make a payment of £53.5m in January 2022, which now represents the maximum cash outflow under the contract. Given the recent adjudication decision, we have an entitlement to recover a proportion of this payment and will be discussing the timing and amount with National Grid. The payment, if made, will not affect our banking arrangements and we will continue to have a strong balance sheet that enables us to deliver our business plan. There will be an associated charge to the income statement for the current financial year reflecting such payment.”
The long-running dispute arose after Costain agreed to leave the Peterborough & Huntingdon gas compressor project following a significant change in scope.
On the plus side, adjusted operating profit is expected to be in line with market expectations, the company said, and year-end net cash would be be ahead of market expectations at around £100m.
“We are making good progress on our journey to transform the business, reduce risk and improve returns. This, combined with the considerable government investment in infrastructure, allows us to look forward with confidence.”
Costain made a £96m pre-tax loss in 2020 and a £6.6m loss before tax in 2019.