The conflict between the Mannheim-based engineering and construction firm Bilfinger and its former Turkish subcontractor Tubin continues to escalate.
Both sides have confirmed to Handelsblatt that Tubin has had payments from Bilfinger subsidiaries in Belgium, France and the Netherlands to the German headquarters frozen while it pursues its damages for a failed project in Qatar.
At issue is a bitter fight over the construction of the Doha Expressway dating back to 2008. For months, Bilfinger failed to pay its subcontractor at all, or just a fraction of its costs, and the project ended in catastrophe. In 2008, Tubin terminated the collaboration, and in 2009 Bilfinger was thrown off the project by the Qatari building authorities.
Bilfinger and Tubin agreed to solve their dispute through an international arbitration court. This panel largely ruled in favor of the Turkish subcontractor in November 2011, and instructed Bilfinger to pay $60 million, or €53 million, to Tubin.
Bilfinger has yet to fulfill the ruling, and with the added interest the amount has now risen by $10 million. It is also unclear whether Bilfinger is properly documenting this constantly rising burden – a concrete description of the situation is missing from the pertinent reports to the financial markets.
For the Mannheim-based firm, payment is still not an option.
Since the arbitration ruling, the parties have met in courts around the world. After Bilfinger lost on the issue, it has concentrated on preventing the carrying out of the Turkish claims. In Germany, this has been successful.
But in Qatar, Bilfinger has applied pressure through settlement negotiations with Qatari authorities to be paid $125 million that has not yet flowed from the highway project. The building authorities have the money ready for the German company, a judge has arranged for $70 million to be transferred to a court account. However, Bilfinger cannot access the money without paying its debts to Tubin at the same time.
As a result, the German firm is on the defensive, and in the past few months Tubin has increased the pressure by demanding the freezing of payments by Bilfinger subsidiaries in Belgium, France and the Netherlands.
Internal payments will become more difficult, and Bilfinger cannot sell the subsidiaries without paying the debts to its former subcontractor. The fact that the legal costs for Tubin are rising into the millions can only result in making the final bill for Bilfinger higher.
The legal wrangling will be an unwanted distraction for Bilfinger’s newly designated boss, Per H. Utnegaard, who was tipped this week to lead the beleaguered company out of its misery.
But for the Mannheim-based firm, payment is still not an option. The payment freeze against the Bilfinger subsidiaries are “of a manageable size, so they do not involve significant restrictions on internal payments,” said a company spokesman. In addition, he said, they are only temporary in nature and must be confirmed by the court, in order to take effect.
A lot seems to be "temporary" in Bilfinger’s business practices. In 2008, the company was temporarily involved in the prestigious project in Qatar, before it was thrown out. In 2011, Bilfinger wanted to temporarily subject itself to an international arbitration panel, until it ruled against the Germans. And since then, it has prevented with temporary measures everything that would have amounted to a payment of the overdue invoice to Tubin.
In doing so, Bilfinger has probably earned a reputation for itself in Qatar, and in Turkey, as a company temporarily not to be recommended.
Sönke Iwersen is a reporter for Handelsblatt. To contact him: [email protected]