Morgan Sindall has been hit by the fall-out of two problem contracts for the MOD, acknowledging in a statement to the London Stock Exchange yesterday that it would record an exceptional charge of £35m in its half-year results to 30 June 2015.
The £35m write-down is its estimate of the likely outcome on ongoing negotiations on two contracts at the Faslane naval base in west Scotland (above) – one to build a floating submarine jetty and the other to construct living accommodation and infrastructure – with the statement prompted by a legal judgement that went against Morgan Sindall’s position.
According to Construction Enquirer, the jetty was originally a £96m project that finished almost four years late and at an outturn cost of £235.7m. It was delivered under a guaranteed maximum price contract, although the GMP was later fixed at £142m.
The design and build jetty contract was first awarded to Amec as sole contractor. But after Morgan Sindall acquired Amec’s construction arm for £26m in 2007, the job became a 50:50 joint venture between the two firms.
A 2009 report by New Civil Engineer describes how the concrete jetty, providing berths for six submarines, was mainly constructed in a dry dock in Greenock, then towed to Faslane and anchored with 85m long piles.
The cost overrun led both contractors into a legal wrangle with the MOD over the proportion of the cost overruns each should incur. However, the statement said that the £35m write-down was a forecast, and that “the board is, however, also reviewing its options to mitigate and maximise ultimate recovery levels”.
The statements also provided an update on the trading position announced at its full year results announced on 19 February, with a forewarning that “the performance of Construction and Infrastructure has been held back by the performance of a number of construction contracts in London and the South”, which is expected to impact on the half year results.
In better news, the company said that “the increased volumes in Fit Out which were experienced in the second half of 2014 have continued into 2015 which, coupled with improved operational efficiency, are driving strong growth in performance.”
While margins in both construction and services contracts were “challenging”, the company said they were beginning to improve.
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