Question

Panama Canal, which took 10 years to build and opened in 1914, handles 5% of world trade.
The government of Panama recently initiated a project to expand the canal in order to
increase its share of global shipment, boost job creation, stimulate economic growth and
boost foreign exchange and tax revenue. Among other things, the expansion project involves
the building of a third set of locks that can accommodate mega cargo ships carrying up to
12,000 containers; at the moment the biggest ships that can navigate the canal carry 5,000
containers. The work was awarded to GUPC (Grupo Unidos por el Canal), a consortium of
international construction firms led by Sacyr of Spain. Others are Impregilo of Italy, Belgian
firm Jan De Nul and Constructora Urbana, a Panamanian firm. Work began in 2009 and was
expected to be completed in September 2014 at a total cost of $3.2 billion, according to the
contract.
As of January 2014, the work was already nine months behind schedule (with project
completion now expected in June 2015) and a cost overrun of $1.6 billion had been incurred
as of January 2013. According to GUPC, the cost overrun and schedule slippage were due to
“many and varied unforeseen costs which came up during these gigantic works... They are
technical matters, questions over cement ingredients, geotechnical matters, geological
questions, taxes matters, financial matters, labour issues and weather conditions". However,
Panama Canal Authority (APC), the Panamanian state-owned company responsible for
managing the canal and overseeing the project, attributed the problem partly to a delay of
four months shortly after the project began as a result of GUPC’s attempt to use low-quality
cement, which was rejected by the canal authority.
Since January 2013, there had been an escalating dispute over who should bear the additional
cost of $1.6 billion. The position of APC was that GUPC should respect the existing contract
by absorbing the additional cost, arguing that the cost overrun was due to events that were
"normal" in such a construction project. But GUPC said the cost overrun was due to
"unforeseeable" circumstances and delays caused by APC. On December 30, 2013, the
dispute had become so bad that GUPC threatened to halt work unless the Panamanian
government paid the money within 21 days. In response, the president of Panama, President
Ricardo Martinelli, threatened to go to Europe to demand that the governments of the
member firms of GUPC “take moral responsibility for what happened, because it is not
possible that a company puts such a huge extra charge on expansion work."
News of the suspension threat sent Sacyr’s shares plunging by more than 18% on the Madrid
stock exchange. On January 4th, 2014, Spain's minister for public works, Ana Pastor, flew to
Panama for an emergency meeting with President Martinelli and also met all the parties
involved to try to resolve the impasse. According to a spokesperson for Spain's foreign
ministry, "Panama is a country that is close and friendly towards Spain, and we share the
desire and interest to find a solution as soon as possible". Spain's ambassador to Panama,
Jesus Silva, added that all stood to lose out if the contract fell through.
Question
What was the justification (business case) for the project from the perspective of the
government of Panama? And according to GUPC, what was the estimate at completion? Justify your answer.

Answer 1

As the project regarding expanding of panama canal is very vast and has high budget, there is full probability of causing of any dispute as usually these kind of large projects tends to cause the problems like delaying or providing of quality product and the cost of project also Overruns as many years pass and the rate of ingredients may increase more than expected at the beginning so we'll discuss how the dispute is being related to different aspects of the projects :

1) Project Scope : The term project scope means functioning of the project in the future time. As this project is being done to increase the capacity of the canal and the cargo amount being transported. But by the occurrence of the dispute and time extension in completion of the project it is not expected to provide the quality functioning as it was being discussed among them earlier. But if the delivering of the service is compromised then it would not be appreciated as the cost of the project is also increased.

​​2) Project Quality : As written in the given content it is clearly observed that the quality of cement ingredient being used in construction was also not of that good quality and that would reflect in the strength of structure and in project quality as well. This dispute would surely affect the project quality as for good quality projects or structures the materials requires should be of very high quality and that is the fault of GUPC that if the quality materials are not being provided for construction.

3) Project Schedule : It was obviously seen that the project may take more time than the expected which was five years but after the dispute the scheduling of project is affected more and more as some times GUPC has also given threat to halt the work and once it delayed as government took 21 days to pay the overrun amount and it is not possible that if any dispute occurs it would not affect the project Schedule as the work done is slowed down due to the dispute and would not progress rapidly until it is solved.

4) Project Risks : The main risk of the project was that it may not be completed or structure of less quality is being provided as the overrun cost was 50% of the cost assigned to the project at which the deal was done initially among the two companies. The problem was that who is going to pay the extra amount of cost and if GUPC leaves the project in midway it would not be that easy to hire any other corporation to complete the project and the charge would increase day by day as the project is on halt so the main risk of not completing of project is being solved even after the dispute. It doesn't matter as the authority of panama canal has to bear the loss the good thing is that the project is finally being completed and there are no more issues left regarding the construction work of the project.

5) Project Procurement : Procurement is an act of obtaining all the materials and service that are very essential for the completion and running of the project. The project procurement process should be successful as the work would only proceed as if the supply of goods is on time. The dispute has let down the work speed and incoming of the goods and materials which would result in continuous decrease in speed of construction and would be the reason of delaying of the project. So it is adviced to carry on the procurement process as this would be very important for the completion of the project as soon as possible.