The Gauteng Provincial Government will pay Gautrain developer Bombela Concession Company (BCC) a total of R1 274 million to settle all outstanding claims relating to the development phase of the rapid rail project.
Listed construction group Murray & Roberts (M&R), that holds a 33% share in BCC and 45% share in the Bombela Civils Joint Venture (BCJV) which was subcontracted for the design and construction of the system, will receive around R585 million of the settlement payment, based on its contribution to the construction cost.
This will confirm the R885 million Gautrain related uncertified revenue reflected earlier minus the R300 million provision for possible further construction work to rectify the tunnel water ingress problem and will therefore have no income statement effect.
At the same time it will remove material uncertainty from the business.
This brings an end to a protracted and very costly legal battle on many fronts between the parties. M&R spokesperson Ed Jardim told Moneyweb that BCC spent around R1 billion on legal fees over the last eight to nine years on the matter.
M&R’s share price jumped from R11.00 to R12.87 after the company announced the news on the JSE’s Sens at 10:00 on Friday. An hour later it was trading at R11.90.
M&R stated: “Due to the extended time, significant costs and uncertain outcomes involved in these legal processes, the parties agreed to explore an amicable settlement of all development period disputes.” The settlement will be subject to certain conditions.
“The settlement includes the following disputes:
- Sandton Station ‘cavern’;
- John Vorster and Jean Avenues cantilever bridges in Centurion;
- delay and disruption;
- and water ingress in the tunnel section between Park Station and Emergency shaft E2.”
The Sandton station cavern claim relates to additional cost BCJV incurred as a result of a change in construction method from the one BCC tendered for. It was earlier ruled in favour of BCJV following an arbitration process.
The John Vorster and Jean Avenues cantilever bridges claim for additional costs incurred, following a design change to the bridges over John Vorster and Jean Avenues in Centurion, was also ruled in favour of BCJV on the merits of the case. The quantum hearing was heard during October 2016.
The complex delay and disruption claim that was often referred to as a ‘multibillion-rand claim’ entailed over 140 individual claims relating to the late handover of land for construction purposes, which resulted in additional cost for the contractor. M&R said due to the complexity of this claim, the initial arbitration hearings were focused on addressing the legal interpretation of various clauses in the Gautrain Concession Agreement. The claim itself, the merit and the amount to be paid was scheduled to be heard in calendar years 2017 and 2018.
The water ingress claim related to the Gautrain tunnel, as a drained tunnel, that had to be built to meet the concessionaire’s water inflow specifications. “On completion, the water ingress was found to be in excess of the contract specification, which led to a dispute between the parties,” M&R stated. In November 2013 the arbitration panel of the Arbitration Foundation of Southern Africa ruled in favour of the Gauteng government.
The Gauteng government will pay BCJV R980 million after the fulfilment of all conditions, which is expected to occur by mid- December. A further capped amount of R294 million will be paid over two years “in full and final settlement of all development period disputes between the parties.”
BCJV will not be required to do any further work to address the water ingress into the tunnel. M&R stated that “although the water ingress is not in line with the contract specification, the functionality and safe operation of the system is not threatened by the inflow of water into the tunnel and the system continues to be safe for use.”
Jardim said M&R will benefit greatly from the certainty given by the settlement, as it removes concern about possible huge liability for closure of the Gautrain tunnel for up to two years, if BCJV is compelled to do further construction work to remedy the water ingress.
BCC has a concession to operate the Gautrain for 15 years.
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