5 Laser's shareholders divided the main contracts between them. Laser awarded John Laing plc's subsidiary, John Laing Construction Limited (JLC Ltd), a fixed price contract to design and build the new facilities (Figure 1). Serco Limited, a subsidiary of Serco Group plc, entered into a contract with Laser to manage the completed facilities (Figure 1).
6 Laser and JLC Ltd designed the main facilities around 13 construction phases, with completion spread from October 1999 to March 2001.3 This approach was intended to provide Laser with early cash flow from the Department's payment of the unitary charge for completed phases.
7 Problems in constructing the new facilities delayed completion of all the phases by between seven and 46 months. Problems stemming from JLC Ltd's designs for achieving stringent temperature and/or stringent sub-audible noise controls in 30 key laboratories were particularly intractable. Problems with eight of these laboratories have still to be fully resolved.
8 Initially, the fixed price design and build contract with JLC Ltd protected Laser from increases in construction costs, and compensated it for lost revenue resulting from the delays. However, Laser lost this protection in November 2001, when John Laing plc sold JLC Ltd, took on responsibility for the contract with Laser, and concluded a Supplemental Deed with Laser which replaced JLC Ltd's obligation to construct facilities that met the Department's performance specification with one of completing an agreed list of work. The Department was not party to the deed and registered its objection to it. Laser considers that the Supplemental Deed protected the project from a larger downside that would have materialised if John Laing plc had pulled out of the project.
9 When it signed the Supplemental Deed, John Laing plc was in serious financial difficulties and needed to satisfy its bankers that it had put a limit on its losses on the contract. However, the Supplemental Deed exposed Laser to the full financial impact of any further construction problems and delays. When these materialised, they sapped Laser's financial strength so much that, in July 2004, Laser recognised that it could not complete the project. In Laser's view, the key problem was the financially open ended obligation to solve design issues with the eight laboratories that had to meet the most stringent sub-audible noise requirements. Laser therefore proposed a negotiated, early termination. After negotiations, the Department and Laser signed the termination agreement in December 2004.
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3 A fourteenth construction phase covered construction of car parks and other ancillary works, with a planned completion date of September 2001.