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In Surprise, Fluor Loses Arbitration Over U.K. Wind Farm Claim

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A U.K. arbitration panel surprised Fluor Corp. and its investors last month with a ruling against the contractor's $480-million claim for additional compensation from owners of the Greater Gabbard wind farm off the coast of England. As a result, Fluor said on Nov. 17 it will take a $400-million charge in the fourth quarter but says the action will not materially affect cash flow.

"Fluor delivered a quality project, and we are extremely disappointed with this unexpected decision," said company Chairman and CEO David Seaton. He noted owner statements acknowledging that the $1.8-billion lump-sum project's 140 turbines are commissioned and exporting electricity and that performance "is more than 10% ahead of the client's expectations."

The dispute centers on faults, thought mainly to concern welds, in 35 of the project's large-diameter, 600-tonne steel-tube "monopile" turbine foundations. Owner Greater Gabbard Offshore Winds Ltd. claims 52 steelwork sleeves, or "transition pieces," which fit over the monopiles to support the turbine towers, are faulty. The firm is co-owned by Scottish utility SSE plc. and the U.K. unit of Germany's RWE Innogy GmbH.

Fluor's claim was for additional testing and repairs on faulty steelwork. The owner's counterclaim, set for a hearing next year and believed to be at least as large, arises partly from its own testing of suspect structures to determine if they meet "required contractual standards," it says in a statement.

The owner declines to elaborate further on the problems or remedies. But SSE claims the project operator has introduced "a number of risk control measures, allowing the turbines to function." It notes "access restrictions" at the disputed turbine sites. The 500-MW field has been in full operation since September, producing 132, 200 MW per hour that month and the next, says SSE.

Jamie Cook, managing director at Credit Suisse, termed the ruling and counterclaim "discouraging, as most thought Fluor was in the clear." She says the firm "has traditionally been viewed as one of the higher-quality E&C names that is more immune from charges of this size and projects of this risk profile." A published report says Fluor and SSE remain in a joint venture to build two 525-MW wind projects off the coast of Scotland.

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