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Court win over fat-fired power project

Beckton Energy has won a court case against a construction firm in a dispute over a delayed fat-fired power plant.

Contractor Murphy Group had sought to prevent £8.27m in damages being claimed by Beckton Energy through an on-demand performance bond because Murphy missed construction targets on the scheme.

Performance bonds are issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.

Murphy was awarded a £70m contract in March 2013 to build a combined heat and intelligent power (CHiP) plant, due to provide up to 18MW of electricity to the National Grid and 1MW of renewable heat to power Thames Water’s Beckton waste water treatment plant using recycled fuels derived from fats, oils and greases.

MRW’s sister title Construction News reported that the job has already been cited as being chiefly responsible for a £9.1m loss accrued by Murphy in 2014.

Beckton funded the scheme through a loan facility of £53m plus VAT facility of £2m, and £17m from its shareholders.

The repayments schedule meant, according to the court papers: “Without payment under the bond, Beckton does not believe that its auditors will be able to give an unqualified opinion as to its solvency, which would have grave consequences for Beckton, being a default event under the facilities agreement and damaging to Beckton’s credit status.”

Murphy’s evidence said a call on the bond “gives rise to a risk of damage to its commercial reputation, standing and creditworthiness, and would be something that might well need to be disclosed in future tenders”.

The contractor said it had suffered significant delays on the project and requested extensions of time on five separate occasions between August 2014 and December 2015.

Mrs Justice Carr ruled that Beckton could “in good faith assert breach on the part of Murphy for delay and claim a sum of delay damages as a consequence of such breach”, and that “it would not be fraudulent for Beckton to make a call on the bond in the absence of agreement or determination by the engineer” as per the contract.

The judge asked that the parties draw up an order accordingly and agree all consequential matters, including costs, so far as possible.

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