2.13 In November 1999, Arteos told the FCO that it expected there would be a nine-week delay (from 29 February to 2 May) to the completion of the Embassy resulting from a change to the Berlin building regulations. Arteos argued that the change constituted a change of law, thus constituting a risk largely retained by the FCO. The FCO argued that the issue was a health and safety matter and so was a risk retained by Arteos.
2.14 After negotiation, the FCO and Arteos negotiated an alteration to the original provisions for liquidated damages. Under these provisions Arteos would have paid the FCO 1.92 million German marks for a nine-week delay. Instead of paying liquidated damages, Arteos withdrew its claims that the issue was subject to change of law provisions and agreed to meet all the capital and financing costs of the building regulation changes. Arteos also agreed to absorb the full costs of all changes to the contract since signature; the FCO estimates this is worth 850,000 German marks.
2.15 In addition, if Arteos did not deliver the Embassy before 3 May, a lump sum of 420,000 German marks and 45,000 German marks per day liquidated damages (50 per cent higher than the original agreement) would be payable. And if Arteos failed to deliver the Embassy by 2 June Arteos would pay 60,000 German marks per day thereafter (i.e. double the original liquidated damages). The FCO obtained advice from its lawyers, its PFI advisers and the Treasury taskforce that the dispute had been settled "in a manner beneficial to the FCO, producing a good example of PFI working in practice". The FCO considers that these arrangements maintained its good relationship with Arteos, improved provision for any FCO changes; obviated the risk of these causing delays; and ensured that the later the supplier delivered the building, the greater the financial compensation which the FCO will receive.
2.16 The building was not handed over on 2 May 2000. Liquidated damages are therefore being applied under the terms of the "settlement agreement." It is expected that the building will be handed over in June, in advance of the official opening, by The Queen, on 18 July 2000.