Costs could climb in $850m award to OAS

THE ALMOST billion-dollar award to Brazilian construction company Construtora OAS SA (OAS) could climb even higher if the tribunal which determined a trade dispute rules on the issue of damages.

On Tuesday, Prime Minister Dr Rowley raised the issue on a political platform and accused the UNC of including a clause in the days leading up to the general election which benefited OAS.

According to the tribunal report, the contract was amended three days before the general election which mentioned the judicial re-organisation of the company in Brazil and its ability to maintain its contractual obligations, renew bonds guarantees, and remain operational on the project.

From its inception, the project was fraught with controversy over land acquisition, possible environmental damage, protest, and road blockages. Local contractors have been awarded contracts by Nidco to complete segments of the highway still under construction under the PNM.

Now, in a 305-page written ruling delivered on April 16 by the London Court of International Arbitration (LCIA), arbitrators John Fellas, Adam Constable, QC, and Andrew White, QC, have ruled against the National Infrastructure Development Company (Nidco), which terminated the multi-billion-dollar contract to design and build the Solomon Hochoy Highway extension to Point Fortin on June 16, 2016.

On March 11, 2011, OAS was contracted by Nidco, under the former UNC administration, to build 43.5 kilometres of new dual highway between Golconda and Point Fortin and widen two and a half kilometres of two-lane road between Dumfries and Paria Suites for $5.2 billion, with Nidco making a 20 per cent deposit.

After the September 7, 2015 general election, OAS claimed the government froze its funds on the project and paid an outstanding US$7.8 million for work done, leaving a balance of US$12.4 milliion, as it “did not have sufficient funds to pay the remaining balance.”

On advice from project engineers, AECOM, the board of Nidco, on June 16, 2016, decided to terminate the contract, as OAS was unable to justify a work stoppage. On June 21, 2016, Nidco served a termination notice on OAS on the ground that it had abandoned the project. It gave OAS 14 days' notice.

On June 28, 2016, OAS wrote to Nidco denying that it had abandoned the project or demonstrated an intention not to continue, essentially on the ground that all problems with the project were caused by Nidco’s alleged payment defaults and claims of overpayments.

On July 6, 2016, the contract was terminated. OAS claimed on the same day, Nidco began the advance payment and performance securities in the total sum of US$139,572,877.62 for other purposes other than the highway project.

The tribunal still has to determine if OAS is entitled to damages for breach of contract and has invited submissions on the issue and deferred a ruling on who should bear the legal costs, pending the final ruling.

Initially, OAS claimed US$250 million. The tribunal ruled that it was entitled to $126 million for breach of contract, material left on the site and equipment, and deducted US$706,426.70 in overpayment by Nidco.

Nidco had claimed it overpaid US$13 million to OAS, and filed a counterclaim seeking US$40 million.

On August 1, 2016, OAS filed a trade dispute before the LCIA. The State filed its response by August 30 that year, claiming it was not subject to the jurisdiction of the court. Nidco filed its response on September 1, 2016.

Nidco had in its coffers almost US$136 million that OAS had to provide in performance bonds in three separate accounts in local banks. On June 4, 2018, the court held the State was not a proper party to the proceedings.

By April 2015, OAS was in financial difficulty in Brazil and filed for judicial reorganisation, but claimed that had no effect on the contract to build the highway.

Nidco warned OAS that was sufficient grounds to terminate the contract, but was willing to renegotiate to reduce the risk.

In October 2020, OAS claimed before the tribunal that Nidco was drawing down on its letters of credit worth US$134 million “which it has been dissipating at an alarming rate,” and had not taken any steps to complete the project.

OAS claimed that from the outset of the project, Nidco had difficulties acquiring the land that was necessary for OAS to complete its work, which forced AECOM to re-sequence the phases of the work, causing delay and disruption on the project and increasing the costs incurred by OAS.

Nidco, on the other hand, claimed OAS’s performance was slow and not up to the contractual standard and that it was using the slow release of land as an excuse for its allegedly poor contractual performance

The tribunal found that the delays encountered were caused by a combination of factors, some self-inflicted, and some the responsibility of Nidco. Nevertheless, OAS was undoubtedly entitled to some extension of time and compensation for the delays Nidco caused.

The tribunal favoured OAS’s position that it validly exercised its rights under the contract to suspend work over non-payment for work done, and ruled Nidco’s justification for terminating the contract was unfounded.