Tuesday, 24 February 2009

Funny Money


Jersey could lose £55m if a contract for a new waste incinerator is cancelled, the minister for transport and technical services says. The planned £100m plant at La Collette is set to replace the existing Bellozanne incinerator and was approved by the planning minister last autumn. Critics say the new facility is not needed and will be too large.

Minister Michael Jackson said £30m had already been spent on the project and backing out would cost the island more. He said: "On top of that [£30m], other equipment has been ordered which will have to be added on to that figure because the contractor will not be able to do anything else with it and he will have to be recompensed. "There will also be the question of damages being claimed by the contractor; and then, of course, we get into the unknown legal field. "This is the area which causes great concern because no-one ever knows how much it is going to be."

But Deputy Daniel Wimberley, one of the politicians hoping the States will reverse its decision to go ahead with the plant, said he believed that the estimated cost to cancel had been exaggerated. He said: "First of all he added £5m to the figure this morning, which shows the kind of joke world we're in. The price last week was £50m, now it's up to £55m. "In any case, the cost of the alternative is so much less that even with the cost of cancellation that it will make a saving to the island of roughly £10m in capital costs." If built, the new plant is expected to be cleaner and generate electricity for about 8,000 homes through burning waste, with an expected lifespan of up to 30 years.

Actually the figure than amazes me is not the way in which the figures have jumped up so rapidly, as

(1) The 30 million pounds spent on a one hundred million project, and not for "equipment ordered". What precisely has it been spend on, as it accounts for nearly one third? As far as I can tell, just the foundation work - digging a very large hole - has begun. If has been spent on work done, where is the work? If it has not, what precisely was it spent on?

(2) The casual way in which large round figures are thrown about. I know it might be convenient for PR to round figures up or down, but this gives the impression that they are just plucked out of a hat, and if asked for a supporting breakdown of costs, that would not be forthcoming. Figures to the nearest pound may still not be accurate, but at least if a politician is standing up and giving them, one feels that he must have something to back them up, because he would be held accountable if he lied in the States. It is hardly any wonder that that Daniel Wimberley calls it a "joke world".

(3) The unknown legal field is wonderful, because here we are in the land of dreams - or nightmares, and we can bid reality goodbye. Actually, the obvious thing to do is what Daniel Wimberley has done - and no doubt will given evidence of - other cases where contracts have been rescinded and where this kind of legal nightmare did not in fact emerge. I find it amazing that they cannot specify whether the contract itself has a cancellation clause which gives details of the sums involved. It must be an extremely poor contract if it does not; most contracts contain clauses giving details of what will be charged in the event of cancellation.

Here is an example of the kind of thing one would expect - it is part of a Dragon Energy From Waste Plant:

11.2 In the event of a determination by Dragon of the Contract in accordance with Clause 11.0.1 or 11.0.3 above or any cancellation and/or repudiation
of the Contract by the customer, Dragon shall be entitled to recover damages as follows.
11.1.1 The value of any work completed or goods manufactured at the date of the determination.
11.1.2 The value of any work begun or goods begun to be manufactured at the date of the determination.
11.1.3 The value of any work begun or goods begun to be manufactured but not completed at the date of determination including the cast of materials, labour, overheads and profit connection therewith.
11.1.4 A sum representing any further profit which Dragon would have made on the contract but for its determination such profits to be determined by Dragons auditors whose decision shall be conclusive and binding on the Customer.

Now 11.1.4 clearly has dangerous implications for any cancellation, but Mike Jackson has so far not come out with any specifics like that, or indeed, mentioned what the precise terms of cancellation are. He might have good grounds if our contract has a clause like 11.1.4, but the way in which the case is being presented at the moment against cancellation does not mention this kind of clause, and the TTS comments on the States website do not mention exact clauses either. Why not? Either they forgot when producing their detailed comments against Daniel Wimberley, or no such clauses exist (which would be a sloppy contract). If they exist, can we see them in detail please, so that we can see just what is involved, instead of fantasy and funny money?


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