Murphy Group has lost a case in which it sought to prevent more than £8m in damages being claimed through an on-demand performance bond by Beckton Energy Ltd on its delayed fat-fired power plant.
In papers filed at the High Court, it was revealed Beckton was seeking to call on the bond for £8.27m in liquidated damages due to Murphy missing construction targets on the scheme.
A performance bond is a bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.
Murphy was contracted in March 2013 under a £70m EPC contract to build a combined heat and intelligent power (CHiP) plant.
The plant is expected to provide up to 18 MW of electricity back into the National Grid and 1 MW of renewable heat to power Thames Water’s Beckton Waste Water Treatment Plant using recycled fuels derived from fats, oils and greases.
The job has already been cited as chiefly responsible for the £9.1m loss accrued by Murphy in 2014.
In its results for the year to 31 December 2014, Murphy highlighted “difficulties with design, cost escalation, supply chain and engine-related technical breakdowns at its Beckton CHP scheme”.
Beckton Energy Ltd has pursued its £8.27m in damages after it claimed Murphy missed several targets.
Murphy was contracted to reach a ROC Accreditation Milestone by 2 November 2014. This equates to Ofgem awarding Renewables Obligation accreditation to the scheme based on completion of tests that showed the plant was capable of commercial operation.
It was also expected to complete works by 31 January 2015 and the project has still to be handed over.
The scheme had been funded with the aid of a loan facility of £53m plus VAT facility of £2m, while Beckton’s shareholders committed £17m.
The first repayment was due on 30 September 2015, which Beckton has paid, and is due every six months thereafter.
According to the papers, Beckton has “now exhausted all possible sources of committed funding and needs payment of delay damages”.
It says its net position as of 31 March 2016 will be an indebtedness of £1.4m and rising.
The court papers state: “Without payment under the bond, Beckton does not believe that its auditors will be able to give an unqualified opinion as to its solvency, which would have grave consequences for Beckton, being a default event under the facilities agreement and damaging to Beckton’s credit status.”
Murphy said a call on the bond “gives rise to a risk of damage to its commercial reputation, standing and creditworthiness, and would be something that might well need to be disclosed in future tenders”.
But Beckton said “it will suffer dire consequences if it is not able to make a call on the bond, by 23 March 2016 at the very latest”.
Murphy had sought injunctive relief against Beckton preventing it from making a demand on the bond until there had been agreement or determination from the project engineer, Christopher Turner of Capita Symonds.
Beckton claimed Murphy failed to achieve the ROC Accreditation Milestone and to achieve the taking over date as required in its contract.
It also alleged Murphy’s claims for extensions have not been granted by the engineer “on the basis that Murphy had not demonstrated that any event or circumstances giving rise to a claim for extension of time or payment had occurred”.
Murphy said it had suffered significant delays on the project and requested extensions of time on five separate occasions between August 2014 and December 2015.
The contractor also said it is entitled to an extension of time and that Beckton is deemed to have taken over parts of the works, a claim contested by Beckton.
Mrs Justice Carr ruled Beckton could “in good faith assert breach on the part of Murphy for delay and claim a sum of delay damages as a consequence of such breach” and that ”it would not be fraudulent for Beckton to make a call on the bond in the absence of agreement or determination by the engineer” as per the contract.
Justice Carr asked that the parties draw up an order accordingly and agree all consequential matters, including costs, so far as possible.
