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Costain tumbles after losing arbitration decision over delayed Welsh road

An arbitrator decided that responsibility and additional costs associated with the building of a disputed retaining wall should be the company's

Costain Group -

Costain Group PLC (LON:COST) will take a £45mln charge and fall to a loss for the first half of 2020 after losing a dispute with the Welsh government over construction of the A465 road. 

The infrastructure construction group had been on the right side of a previous adjudication decision over the building of a retaining wall on the trunk road connecting Neath and Abergavenny.

But, as part dispute resolution mechanism trigged by the Welsh government, an arbitrator decided that responsibility for the design information rests with Costain and so are the additional costs associated with the building of the retaining wall. 

The arbitration award, which determines a matter of principle only and not the quantum of the costs, is non-appealable.

Costain said that although the arbitration decision relates to the extra costs of building one specific retaining wall under the contract, “it has implications for the responsibility for design information under the whole contract and therefore Costain's ability to recover these costs”.

Construction of the stretch of road through the steep-sided Clydach Gorge and through the Brecon Beacons national park, involved building of 12.5km of retaining walls, contributing to the project coming in more than £100mln over budget and more than two years late.

While Costain continues in talks with the Welsh government over a final financial settlement and to seek recovery of other costs under the contract, management have decided that results for the first half of 2020 will include a charge to the income statement of roughly £45mln to adjust the revenue recognised based on the level of cash received to date under the contract.  

The company said this was “on the basis of the uncertainty of recovery of such costs" following the new arbitration award and subject to reaching a final settlement. 

Completion of the A465 is scheduled next year while Costain’s interim results are scheduled next week, having been delayed in order to take account of the arbitration decision.

The construction firm had expected to report a half-year operating profit of £5.7mln, excluding the A465 contract and another where a resolution process is taking place.

Shares in the company fell 23% to 40.31p in early trade on Thursday.

Quick facts: Costain Group

Price: 54.7 GBX

LSE:COST
Market: LSE
Market Cap: £150.4 m
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