Balfour Beatty has failed to hit deadline on a £45m PFI project to deliver 600 student rooms for Aberystwyth University for the start of the academic year – blaming “severe weather” and a squeeze on subcontractor availability in the Welsh seaside town.
The first phase of the Fferm Penglais project, involving 14 buildings and a central “hub” with a cafe, shop and other facilities, was due to be ready for Fresher’s Week in mid-September.
But the contractor says the programme began to go awry in early 2014, when severe winds and rain closed the site for several days, while the upturn in the local construction sector put pressure on the supply chain.
Now, as well as the heightened cost of completing a project that has run at least six weeks beyond programme, Balfour Beatty is paying compensation to the 600 students inconvenienced, and the temporary accommodation costs of 256 who will be moving in “during the autumn term”.
Balfour Beatty only informed its client of the problems at the end of July, suggesting that Fferm Penglais could have been implicated in the profit over-statement revealed to the market on 29 September.
However, Balfour Beatty told CM that it would not comment on the identity of the projects involved, citing commercial sensitivities.
But Fferm Penglais is not the first student halls to cause Balfour Beatty headaches. In September 2013, its Mansell brand delivered an £18.5m block for University College London on Caledonian Road, where it is understood the contractor struggled to hit the programme.
After New Hall was handed over, Mansell was retained as maintenance contractor for one year. In November, 40 student rooms experienced severe flooding that apparently resulted in the water supply being shut off for four days.
Problems with subcontractors could have led to delays on the scheme.
The building also received the distinction of being awarded Building Design’s Carbuncle Cup for the worst building of the year in August 2013.
Fferm Penglais, which will offer 1,000 bed spaces once phase 2 is completed, is being built by Balfour Beatty Construction Services UK for PFI-arm Balfour Beatty Investments. It is understood that Balfour Beatty has a 10% equity stake, with 90% finance raised from Legal & General.
With the accommodation still unoccupied, Balfour Beatty will be paying finance costs without an income to cover it: the weekly cost of one of the rooms is £120. It is also possible, although not confirmed, that Balfour Beatty is paying compensation to Aberystwyth University for late delivery of the facilities.
BBI was named as preferred bidder in February 2013, reaching financial close in August 2013, creating a tight programme.
During the time the negotiations were taking place, the recovery was uncertain, but forecasters such as the RICS and the Construction Products Association were predicting rising costs and workloads.
CM spoke to contracts consultant Jason Farnell of CR Management, who stressed that he was speaking generally and with no knowledge of the project. But he pointed out that the PFI contract would have left Balfour Beatty with no recourse to extensions of time or price negotiations when things went wrong, and speculates that its problems could lie in failing to procure subcontract packages on terms that reflected this lack of wiggle room.
“If you’ve sublet contracts that are not on back-to-back terms with your own, there’s nowhere to go upstream [to the client]. If you haven’t got the supply chain bolted down to the same terms and conditions you have… then you’ve got obligations you have to deliver that you’re not passing on to your supply chain.”
Another construction consultant, who has had experience of working on a similar accommodation project, agreed with Farnell’s analysis: “It is exactly that – they probably just didn’t have the subcontractors tied up.”
Although most people would consider student halls to be a relatively simple building type, Farnell suggested that it could have presented its own suite of technical issues.
He said: “In student halls, if the sequence [of trade contract packages] goes out, you’re into issues. Or you have a subcontractor that fails, and then the sequence goes out. Then you find people try to make progress for progess’s sake, but then that stores up more sequencing problems.”
