The Civil Aviation Authority of Nepal has won $20 million in damages from the Spanish contractor it had fired for non-performance after the case went to the Singapore International Arbitration Centre which ruled that it was within its right to do so, officials said.

The centre had issued its decision in the arbitration procedure last December stating that the contractor failed to perform its obligations under the contract causing a loss of income. The full text of the final verdict was released in March.

The Singapore International Arbitration Centre found Constructora Sanjose liable for gross negligence and ordered it to pay $2.56 million in damages, in cash, and also told the aviation authority to keep the performance guarantee deposited by the contractor, which it had confiscated following the cancellation of the contract in 2017, said Murari Bhandari, chief of the Air Transport Capacity Enhancement Project, formerly known as the Tribhuvan International Airport Modernisation Project.

“The money has been deposited in our account. In total, as per our estimate, we have won $20 million (Rs2.3 billion) in damages, including the company’s equipment and construction materials left on the premises of Tribhuvan International Airport,” he said.

Bhandari said that they would auction off the equipment left by the company while the construction materials would be used in the ongoing airport improvement project.

“Had the judgment gone against the civil aviation authority, it would have had to pay $30 million (Rs3.5 billion), which is one-third of the project’s cost,” said Bhandari.

The Civil Aviation Authority of Nepal had awarded Constructora Sanjose a $92 million contract in December 2012 to implement improvements at Tribhuvan International Airport.

Slated to be completed in March 2016, the modernisation project entailed extending the runway by 300 metres, erecting a new international terminal, building a parallel taxiway and international apron, and conducting soil filling works at the northern end of the runway.

At the end of four years, the project had made only 17 percent physical progress, and on December 9, 2016, the civil aviation body sent the Spanish company off by officially issuing a notice of termination. The termination of the contract became effective on December 27, 2016.

Subsequently, the civil aviation regulatory body seized the advance payment guarantee of Rs1.05 billion and the performance bond of Rs600 million put up by Constructora Sanjose for not performing its obligations under the contract.

Both bonds are commonly used in the construction industry as a means of insuring a client against the risk of a contractor failing to fulfil contractual obligations.

Constructora Sanjose then filed a petition at the Patan High Court seeking prohibitory orders after the civil aviation authority seized the advance payment guarantee and the performance bond.

The court ruled that the Spanish construction company had no legal right to prevent the Civil Aviation Authority of Nepal from seizing its security deposit.

In June 2017, the company filed a Rs2.91 billion compensation claim with the dispute settlement board, an independent arbitrator chosen by both sides, arguing that it had been ‘wrongfully’ fired. The dispute settlement board also ruled in favour of the civil aviation body.

In July 2017, the Public Procurement Monitoring Office blacklisted the ousted Spanish contractor for a period of two years due to its failure to complete government projects within the deadline, non-cooperation with authorities and failure to furnish a satisfactory explanation as to why the project was not completed on time.

The Spanish company then moved to the Singapore International Arbitration Centre in 2018 as per the agreement of the contract for dispute settlement.

The Civil Aviation Authority of Nepal received the notice of arbitration on March 16, 2018. The Spanish company had filed a $100 million claim against the civil aviation body demanding return of its guarantee money and compensation for losses resulting from the termination of the contract. The company later revised its claim to $28 million.

On July 17, 2019, the Civil Aviation Authority of Nepal submitted its final counterclaim of $130 million for loss of income at the Singapore International Arbitration Centre against Constructora Sanjose.

The counterclaim amount was later revised to $56 million for losses incurred from 2016, when the contract was terminated, to 2022, the project's extended deadline. The figure includes price escalation or inflation costs, said Bhandari.

“The hearing was conducted through virtual means due to Covid-19. The arbitrator has addressed the concerns of both parties.”

According to Bhandari, administrative costs, arbitrators' fees and fees paid to lawyers amounted to Rs600 million.

The Asian Development Bank has provided $80 million in loan and grant, and the government has put up $12 million for the expansion of the country’s sole international airport. After the completion of the project, the airport will be able to handle more than 5.85 million passengers annually and accommodate bigger aircraft.

The civil aviation body invited fresh bids for the project in June 2017 to get the stalled project moving. It broke up the project undertaken by the Spanish company into four different packages. Currently, soil-filling work on the northern side of the airport, which is the major component of the project in terms of duration and cost, is ongoing where 22 international parking bays have been planned.