Dispute - Unforeseen Ground Conditions

The geotechnical challenges encountered, in particular the existence of soft voids in the rock, led to a dispute over the additional costs of pumping in extra concrete (i.e. grouting) to allow tunnelling to continue. A contingency fund had been created as part of the PPP contract as a way of sharing the risk of increased tunnelling costs. The risk was shared by structuring the overall contingency fund in a way so that the Project Company would be liable for the first USD $10 million of additional costs, then the Procuring Authority would be liable for any costs above USD $10 million up to a total of USD $150 million. Where cost overruns exceeded USD $160 million, the Project Company would be liable for another USD $20 million. If USD $180 million was exhausted, the parties would have the right to terminate the contract.

The PPP contract also specifically allowed for 8,000 cubic yards (6,116 m3) of concrete for grouting. However, due to the soft ground conditions (including the voids), an additional 250,000 cubic yards was required. As a result of a claim by the construction contractor, the Project Company submitted a claim to the Procuring Authority for the costs of pumping in additional concrete. This was, however, disputed by the Procuring Authority. As no agreement could be reached on the cause of the claim, nor its value, the claim was escalated to the project's Dispute Resolution Board (DRB), which decided in favour of the Project Company and the construction contractor. However, the DRB's decision was only on entitlement for compensation and not the amount, which was later negotiated between the parties. The value of the settlement figure was well below what the overall contingency fund allowed for the project, and the Procuring Authority was satisfied with this outcome.

The contract did not provide for arbitration as a dispute resolution mechanism, and disagreements are generally escalated to the DRB if negotiations fail to resolve the dispute. The DRB is still used regularly on the project by the parties as a way to resolve disputes. It is costly to set up, however the parties have found it to be an effective way of settling disputes and it has the advantage of reducing the risk of litigation. The DRB also helps with dispute avoidance when used as a regular tool on this type of project. The parties meet with the DRB on a regular basis to discuss potential issues that could become disputes. These meetings are a forum for the Project Company and Procuring Authority to proactively resolve issues before they escalate into disputes.