Court clears way for Caan to seize security deposit of contractor

  • int’l airport improvement project
- Post Report, Kathmandu

Dec 21, 2016-

The Patan High Court ruled on Monday that Constructora Sanjose, the dismissed contractor for the Tribhuvan International Airport (TIA) improvement project, had no legal right to prevent the Civil Aviation Authority of Nepal (Caan) from seizing its security deposit.

The decision handed down by Justices Jeevan Hari Adhikari and Pramod Kumar Shrestha Baidya has cleared the way for Caan to seize the security deposit made by the Spanish company, said Registrar Narayan Prasad Panthi of the Patan 

High Court. The court will now issue a final verdict on the case.

Constructora Sanjose had filed a petition seeking prohibitory orders after Caan decided to seize the advance payment guarantee of Rs1.05 billion and a performance bond of Rs600 million after cancelling the contract citing nonperformance. Caan, TIA Improvement Project Directorate, Nepal Investment Bank and Laxmi Bank had been named as defendants.

Two weeks ago, Caan said adios to the Spanish firm for lack of progress on the improvement project by issuing a ‘notice of termination’. Caan is the executing agency for the $92-million Asian Development Bank (ADB) funded project.

The civil aviation regulatory body had seized the advance payment guarantee and the performance bond after the contractor failed to perform its obligations under the contract. Both bonds are commonly used in the construction industry as a means of insuring a client against the risk of a contractor failing to fulfill contractual obligations.

The Spanish company had been given two deadline extensions and a number of ‘notice to correct letters’, but it showed no interest in moving the project forward.

Following Monday’s court order, Caan asked the two Nepali banks holding the money to transfer it into its account, sources said.

A high-level Caan source said that a dispute board, independent of the contracting parties, would be formed to assess the execution of the project and the contract. “Its primary function is to assist the parties to avoid disputes if possible and seek an amicable settlement. Finally, there will be arbitration.” 

The $92-million air transport capacity enhancement project, which has been declared problematic, has the longest duration contract. Originally, the project was expected to be implemented in about 67 months following its launching in December 2010.

The project’s completion deadline was extended to 2015 and then to 2016, but after even that looked unachievable, the date was moved forward to 2018. As of now, the project has achieved only 17 percent physical progress.

The ADB has provided $80 million in loan and grant and the government has put up $12 million for the scheme. After the completion of the project, TIA will be able to handle more than 5.85 million passengers annually and accommodate bigger aircraft.

Published: 21-12-2016 08:52

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