Capital tram crisis as new row erupts

The prospect of a further 18-month delay came as the city council's tram developers said they were now in formal dispute over costs with the construction group building the line.

The move signals an escalation of the row with the consortium led by German firm Bilfinger Berger, which led to a month-long stoppage of work in Princes Street. The acrimonious dispute, in which the contractors were accused of making unreasonable demands for more money and time to complete the work, is unlikely to be resolved until the end of the year.

In a report for next week's full council meeting, council chiefs admitted for the first time that it would be "very difficult" to complete the "full scope" of the Edinburgh Airport-Newhaven tram line within its budget.

Transport sources said the council was considering cutting back the line from Newhaven to Ocean Terminal.

The local authority, which has raised only a small fraction of its own 45m contribution to the project, is thought to be facing a total shortfall of up to 90m.

Officials said options for plugging the expected funding gap included borrowing against future tram and bus profits, leasing rather buying the 50m tram fleet, and cutting other council spending.

However, sources expressed fears that bus profits might have to be increased by raising fares, cutting off-peak services on loss-making routes, or reducing frequencies on others.

The council said completion of the project was now forecast for February 2012 – seven months later than the previously announced date.

However, Stephen Bell, tram project director for city council-owned tram firm TIE, told The Scotsman that if the dispute was not resolved and work was not speeded up, trams would not start running until at least 2013.

He said: "It (the completion date] would get worse if the current work rate continues. It's logical it would be beyond 2012 if we do not resolve the problem."

The dispute started in February, when the construction consortium, led by Bilfinger Berger, refused to start laying the first tracks in Princes Street.

The contractors sought more money and extra time to complete the work, partly because of delays in preliminary work by another firm to divert underground pipes and cables.

The council admitted this week that the utility diversion work would not now be completed until November, nearly a year late, because of problems at Haymarket and Picardy Place at the top of Leith Walk.

It has now admitted this has pushed up costs by 7m – or 12 per cent – and a fifth of the work is unfinished.

Construction work in Princes Street resumed after a month, following agreement being reached over that stretch of the 11-mile tram route.

Mr Bell said he hoped the dispute resolution procedure would settle the problems, so the work could be completed by the current consortium.

However, he said the next stage of track-laying, in Shandwick Place, had been delayed from the end of this month because the contractors wanted the cost of the work to be agreed following completion, rather than for a fixed price in advance.

Mr Bell said tram-line construction was expected to continue throughout the dispute resolution process, which would take up to four months.

However, he ruled out terminating the construction contract while the process continued. This is expected to end with a ruling by an independent adjudicator, although that could be challenged by either side at the Court of Session. The dispute centres on the cost of the large numbers of design changes to the project and work not being completed as quickly as TIE expected.

Mr Bell said: "Their behaviour has been really disappointing. We do not expect an international contractor would behave in such a manner."

However, Mr Bell praised the consortium partner Siemens for its "customer focus" in seeking to resolve problems.

He also said "excellent" progress had been made by the Spanish tram manufacturer CAF in building the 27-strong fleet, the first of which is due to arrive in Edinburgh for testing in April next year.

Jenny Dawe, council leader, said: "It is clearly regrettable the dispute has escalated to this stage, but we are giving TIE our full backing, as we must ensure that contractual obligations on the tram project are met by BSC (the consortium]."

Richard Jeffrey, TIE's chief executive, said: "We have always been clear we will pay for what is just and offer fair recompense to our contractors, as laid out in the tram contract."

However, Mr Jeffrey said the project was not expected to be completed as late as 2013. He said: "No-one is seriously contemplating anything beyond 2012."

A spokesman for the Bilfinger Berger-led consortium said: "We are restricted in making statements, but look forward to reading the detail of the report."

The firm yesterday announced its net profits for the first half of the year nearly doubled to 65m.

Last night, Edinburgh Pentlands MSP David McLetchie said: "This project has been mishandled right from the start by this Lib Dem/SNP council. Reassurances must be given that work will continue and no more taxpayers' money will be spent.

"It would have been better if arbitration had happened six months ago. But there must be no question of TIE rolling over. The contractors must honour their commitments."

The ins and outs of city's planning and building crisis and the results

Who is responsible for the tram project?

The Edinburgh City Council-owned firm TIE, formerly Transport Initiatives Edinburgh, is developing the scheme for the local authority.

Who is building the project?

A consortium comprising German firms Bilfinger Berger and Siemens, and Spanish tram manufacturer CAF, won the contract from TIE to build the tram lines, stops, depot and trams.

Who else is involved?

In a separate contract, Carillion is responsible for diverting underground pipes and cables so they can be accessed in the future without disrupting the trams.

When will the trams start running?

In February 2012 at the earliest, although it has now emerged this could be delayed until 2013. It was originally envisaged that services would have started this year.

Where will the trams run?

Initially on a single line between Edinburgh Airport and Newhaven, via the Gyle, Haymarket, Princes Street and Leith Walk. Other lines to Granton via Roseburn, and south to Newcraighall via Edinburgh Royal Infirmary, have been shelved because of lack of funding.

How much will the project cost?

The budget is 545 million, but the council now admits it will be "very difficult" to complete the line for that sum. Experts believe the final cost may be as much as 600 million.

Who is paying for the scheme?

The previous Labour-Liberal Democrat Scottish Executive agreed to provide 500 million and the city council 45 million. However, the SNP Scottish Government, which unsuccessfully tried to scrap the scheme after coming to power in 2007, has said it will not provide any more money.

Why is there a potential funding shortfall?

The city council has raised only a few million pounds of its contribution, which it had expected to come from developers benefiting from the tram line, because of the recession's effect on building projects. Costs have also increased because of delays in utility diversion work and the dispute between TIE and the construction consortium.

What does the dispute resolution process involve?

Both sides first set out their positions in writing, which is discussed initially between officials, then between chief executives. The next stage of the process is to either go to mediation, or more likely to an independent adjudicator. The adjudicator normally has one month, and up to a maximum of 48 days, to reach a decision. This may not happen until December. Either party can then challenge the decision at the Court of Session.

What is at issue?

The cost of design changes to the construction contract which have occurred since it was originally signed. There is also disagreement about the handling and responsibility for various delays, including relating to late-running utility diversion work.

How do Edinburgh's buses fit into the picture?

The city's main operator, Lothian Buses, which is also council-owned, is due to be merged with the trams to create a streamlined operation with complementary services and through fares. Bus profits are also being counted on to cover the expected 4 million tram losses in the first year. However, there are fears that because bus passenger numbers are falling (because of the recession and tram work disruption), profit levels will be insufficient without more fare hikes or service cuts.