THE saga of a giant floating jetty for nuclear submarines at Faslane naval base took a step closer to closure with the builders putting aside money to pay for one third of the near £100 million overspend on the project.
Morgan Sindall issued a statement before its AGM yesterday saying it had decided to take a £35m exceptional charge on its balance sheet in regard to two contracts at Faslane.
The company had bought the design and project services unit of Amec in 2007 which also meant they took on responsibility for completing new and refurbished accommodation at the base as well as the floating jetty – the biggest of its kind in Britain at 44,000 tonnes.
The jetty, known as Valiant after the first British-designed and built nuclear submarine, was built at Greenock to service the Astute class of nuclear hunter-killer submarines which do not carry nuclear weapons but are nuclear powered.
In 2011, former Coalition Government defence secretary Liam Fox singled out the jetty as a “project of concern” after it ran years overdue and came in at £92m more than the original estimate of £134m.
At the time, Fox said: “ I am not satisfied with the progress of the Valiant Jetty Project. It is almost four years late and over budget.
“We must learn from the mistakes of the past and move away from the culture of optimism. Too frequently projects ran over-budget and over-time, without any meaningful remedial action. Real budgetary discipline can only be achieved through the effective real-time control of project budgets. Our Armed Forces and our country simply cannot afford anything less.”
The jetty was ordered in 2003 and only floated from Greenock’s Inchgreen dry dock to Faslane in May 2009, seven months later than its original estimated completion date of October 2008. It only passed its trials in October, 2013, more than 10 years after the order was placed.
A long legal battle over the delay and overspend has since ensued, but yesterday’s announcement seems to indicate that Morgan Sindall are preparing to accept the £35m “hit”.
Morgan Sindall is one of the UK’s leading construction groups with a turnover of £2.2 billion. The firm employs around 5700 in its five divisions of construction and infrastructure, fit out, affordable housing, urban regeneration and investments.
The group’s committed order book at March 31 was £2.7bn, up two per cent from the year-end.
In the Morgan Sindall Group results for the year ended December 31, 2013, a charge of £14.7m was taken in relation to four old construction contracts on the company’s balance sheet.
In its statement yesterday, Morgan Sindall accepted that it had taken the exceptional charge at that time due to “legal advice and opinion on the recoverable amount at that time, taking account of progress toward recovery and the expected time, cost and associated risk of pursuing legal remedies to achieve recovery.”
However, a further legal setback for the company means they had now taken a further exceptional charge of £35m – an admission that the Ministry of Defence’s strong stance against paying all the overspend had been at least partly successful.
The company told the Stock Exchange: “Of the four contracts, commercial resolution was achieved on one, whilst another was impaired to reduce the carrying value to nil. The remaining amount held on the balance sheet related to amounts due on two contracts which were transferred as part of the acquisition of the design and project services division of Amec in 2007.
“Both contracts have the Secretary of State for Defence as the overall employing party. One contract relates to the design and construction of a floating jetty, the other to the design and construction of living accommodation and infrastructure, both around the Faslane Naval Base in west Scotland.
“The group has now received a specific court judgement on one discrete issue in advance of a future arbitration hearing on one of these contracts, which is at variance with the legal basis underpinning the current carrying value of the corresponding receivable. The board has considered the implications of this court judgement on that contract, its relevance also to the other contract and reviewed its available options.
“An exceptional charge of approximately £35m will be recorded in the half-year results to June 30, 2015, which reflects the board’s best current assessment of the likely outcome on both contracts. The charge is non-cash in nature.
“The board is, however, also reviewing its options to mitigate and maximise ultimate recovery levels.”
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