Costain writes off £45m on Welsh road job after arbitration

The costly ruling has prompted the contractor to rub out £45m from its half-year income statement.

Costain is converting 8km of the A465 Heads of the Valley between the Glanbaiden junction at Gilwern and the Brynmawr roundabout to two lanes in each direction. Construction started at the end of 2014 and was supposed to have finished in September 2018. It is currently set for completion next spring, two and a half years late.

The initial contract price was £159.5m. Today, total costs are currently put at £336m.

The works have included the construction of over 10,000 metres of retaining walls and installation of over 14,000 soil nails.

After problems with one specific retaining wall, Costain sought to claim the costs from the client. The client, the Welsh government, thought it was Costain’s fault.

They took the dispute to arbitration and the arbitrator's decision found that responsibility for the design information rests with Costain and, consequently, the additional costs associated with the building of the retaining wall is not a compensation event under the contract.

Costain said that it was “disappointed by the arbitration award which reverses the ruling of previous adjudication awards”. The arbitration award, which determines a matter of principle only, and not quantum, is non-appealable.

Although the arbitration award relates to the liability for the additional costs associated with the building of a specific retaining wall under the contract, it has implications for the responsibility for design information under the whole contract and therefore Costain's ability to recover these costs.

Costain is working with designers Atkins, Jacobs and RPS on this job.

Talks between contractor and client continue in an attempt to reach a final financial settlement.  But on the basis of what has happened so far, Costain said that it would include a £45m charge to its income statement in its half-year results (set to be published on 14^th September 2020) to adjust the revenue recognised based on the level of cash received to date under the contract.

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