The soaring cost of the firm’s contract to strengthen the Olympic Stadium’s roof is a case of history repeating, but does Balfour face the same risks as those of previous stadia deals?
- Why stadia are so problematic
- Who bears the risk of innovation?
- Balfour engineers more favourable deal
- Was Tottenham Hotspur’s idea better?
The news that Balfour Beatty has been promised a further £36m to cover the costs of extra roof-strengthening work as part of the Olympic Stadium conversion so it can be used by West Ham may sound uncannily familiar.
Back in the late 90s, John Laing managed to lose £26m building Cardiff Millennium Stadium and the company was sold shortly afterwards to Ray O’Rourke for £1.
A few years later Multiplex ran into difficulties with Wembley Stadium, leading to one of the most expensive and protracted court battles in an industry that is no stranger to bitterly fought litigation.
Why stadia are so problematic
So what is it about sports stadia that leads so often to spectacular legal disputes?
These projects often incorporate new and, therefore, untested design features, which are also technically complex – especially when it comes to the roof.
The Millennium Stadium used a complex retractable roof and Wembley incorporated an iconic, load-bearing arch.
“Innovation in design, of course, means risk – but the key question from a contractual and legal perspective is: who takes that risk?”
These novel design features underpinned many of the difficulties experienced by the contractors and drove the delays and cost increases.
The problems now being experienced with the Olympic Stadium rebuild also seem to emanate from the roof.
To be used as a football stadium, the seating needs to extend over the athletics track area; this, in turn, means the roof needs to be extended.
This involves constructing the largest cantilever roof in the world. Indeed, the project reportedly involves the use of technology similar to that incorporated on North Sea oil rigs.
Who bears the risk of innovation?
So, yet again, we have a stadium project involving a pioneering and cutting-edge roof design.
Innovation in design, of course, means risk – but the key question from a contractual and legal perspective is: who takes that risk?
Cardiff and Wembley were both largely ‘fixed-price’ projects with the contractor taking design risk.
With such contracts, if the design development proves problematic, resulting in alterations to the method of construction and delay, then the contractor picks up the tab.
Balfour engineers more favourable deal
But with the Olympic Stadium, the press reports suggest there is some flexibility with the contractor’s costs, hence the additional chunk of cash being paid to Balfour to resolve the roof problems.
“There are many factors associated with this project which indicate that even in the context of football stadiums, it is a high-risk job”
It is hardly surprising, in view of the disastrous history of football stadium projects, that Balfour has managed to negotiate a more favourable risk allocation in relation to the roof design.
It seems likely that design risk will have been left largely in the hands of the employer, with Balfour being compensated for costs and delays arising because of the necessary changes and design development.
There are, after all, many factors associated with this project which indicate that even in the context of football stadiums, it is a high-risk job.
Was Tottenham Hotspur’s idea better?
The stadium was not originally designed with this subsequent transformation in mind.
Bolting on such a major roof extension is therefore not something a contractor would ever, in its right mind, have proposed to begin with.
It should be remembered that Tottenham Hotspur’s rival bid effectively involved dismantling the stadium completely and starting again.
That proposal received a lot of public criticism because it appeared wasteful and extravagant. But it can often be the case that starting from scratch is cheaper in the long run.
Michael Sergeant is a partner in the construction team at HFW and the author of Construction Contract Variations