Updated | Skanska cited waiver to refuse paying €200,000

Correspondence being published exclusively by MaltaToday confirms that in 2011, construction giant Skanska had informed the Foundation for Medical Services (FMS) that it would not be honouring a claim on the repair of faulty reservoirs at Mater Dei, because the FMS had signed a waiver agreement in 2009.

The communication resulted after FMS wrote to Skanska Malta Joint Venture (SMJV) to inform them that it would be withholding an outstanding €200,000 balance to cover the cost of  repairs for faulty reservoirs at Mater Dei Hospital, made necessary because of the use of low-grade concrete, whose strength was recorded at 20MPa (megapascals) instead of 30MPa.

The first letter dated 3 March 2011, sent by FMS to Skanska arguing that if the costs were not covered by SMJV (Skanska Malta Joint Venture). FMS would claim the costs under Malta's Civic Code

The correspondence suggests  that FMS chief executive officer Brian St John – today CEO at the Nationalist Party – could have been aware of the existence of low-grade concrete, a serious issue at Mater Dei Hospital, long before being exposed in the media this year.
St John was also aware of the waiver signed in a 2009 project closure agreement with SMJV. But last week, St John referred MaltaToday to former social policy minister John Dalli when asked about his knowledge of this waiver.

More importantly, in a letter dated 24 November 2011 to FMS chairman architect Paul Camilleri, who signed the original Project Closure Agreement in 2009, St John admits and writes:

A letter from Brian St. John to Paul Camilleri, dated 24 November, 2011, where Brian St John insists that withholding the money would be in breach of the project closure agreement

“Moreover, withholding monies contemplated by the project closure agreement, in the light of all outstanding works having been delivered, would be in breach of the same agreement,” referring to the project closure agreement.
Indeed in its letter replying to the €200,000 claim, Skanska make it very clear that any claims for defects which could be claimed under the Maltese civil code were in fact ‘incorrect’.

The FMS had complained of  the quality of water tanks that were constructed prior to October 1996.

FMS minutes dated 5 May, 2010 stated:  “FMS said that water tanks have been found to be affected by defects. The floor has come up by 150mm and the water proofing on the water proofing side has come off the walls... this is a recent development and the extent and reasons behind the apparent failure of the tank/s structure is still being evaluated.”

But in their letter dated 26 July 2011, Skanska told FMS: “In response to your correspondence dated the 3 March 2011, SMJV maintain their position as previously outlined. Any obligation that may have existed for SMJV to rectify the defect, as highlighted in the attached report, was waived by FMS through clause 9.1 of the project closure agreement.”

The response dated 26 July 2011 from Skanska, to FMS making it abundantly clear that SMJV were upholding the interpretation of the waiver signed 2009

The report, undertaken by architects Demicoli & Associates and revealing the defects in the water reservoirs, was submitted by Skanska, which made it very clear to FMS that it was doing so “without prejudice”.

“In SMJV’s considered opinion, FMS’s attempt to claim that a relatively minor leaking water tank constructed prior to the Original Contract Agreement of February 2000 can be claimed under the Maltese civil code, contrary to the Project Closure Agreement, is incorrect.”
Former health minister Joe Cassar, who replaced John Dalli in February 2010, was asked by MaltaToday if he knew about the waiver for Skanksa.

But he suggested we direct our questions to Dalli, even though he was parliamentary secretary for health at the time.
When asked if he was aware as minister that the FMS had minuted on the 5 May, 2010 the serious problems with water reservoirs, he again said that he did not know.

Cassar was also asked whether Skanska had written to FMS, in a communication dated 26 July 2010, insisting that they would not pay any claims since they had been waived by FMS through clause 9.1 of the 2009 project closure agreement.

In all cases Joe Cassar replied that he, as then health minister, was unaware that Skanska had cited the waiver agreement.

Last week, MaltaToday published the waiver clause that effectively exonerated Skanska from any claims for defects at Mater Dei Hospital. The revelation came after technical reports showed that extensive parts of the hospital were constructed with inferior grade concrete and would not withstand seismic activity.

The project closure agreement was signed in February 2009 by architect Paul Camilleri.

Former health minister John Dalli, who claimed he did not know of the waiver, on Friday however told an inquiry board led by retired Judge Philip Sciberras, that he was only informed of the project closure agreement six weeks after the signing. “During this session it was established that I was only informed about the Project Closure Agreement about six weeks after it was signed,” he said in a public statement.

In an email published today in MaltaToday, sent to him two months after the signing of the agreement by Paul Camilleri, it was pointed out that the minister had not been properly informed of the agreement, except for “brief” information.

The email dated April 5, 2009 which John Dalli presented to the inquiry, which shows Paul Camilleri wondering whether he had received the project closure agreement. In his email Camilleri makes no reference to the waiver.

“Dear John, I realise that 1 [sic] have not communicated with you directly regarding the closure of negotiations with Skanska, despite the fact that Brian [St John, then acting chief executive of the FMS] advised me that he had briefly informed you about it,” Camilleri wrote in the email to Dalli.

The email proceeded to list the salient points of the contract, but no mention is made of the waiver.
Brian St John has also faced Judge Sciberras’s inquiry, and was asked a number of questions in the presence of his lawyer, Andrew Borg Cardona.

‘Contract protects FMS’s rights’

On Saturday, former FMS chairman Paul Camilleri said that at no point in time prior to the 2009 closure agreement was any deficiency in the quality and grade of concrete used at Mater Dei brought to the attention of the FMS board.

Had the board known, “it would have been raised in its claims against Skanska, as FMS did and addressed accordingly with regards to any other claim that resulted and was brought to its attention.”

Camilleri said that in December 2008, a ‘decision group’ met to discuss claims raised by Skanska a year earlier of €28 million and claims raised by FMS for works not done according to their agreement. He said the group failed to resolve the respective claims, so they were “were referred to without prejudice settlement negotiations.”

On 15 January 2009, FMS approved detailed terms of a settlement, which were  finalised it with their lawyers  on 19 February – the project closure agreement – which contained waivers on the claims raised by Skanksa and the FMS.

But Camilleri pointed out that the FMS’s lawyers had advised the foundaton on its concerns on retaining the 15-year contractor liability and the liability for hidden and latent defects, that this was protected by the wording in clause 5.1 of the Project Closure Agreement in terms of which: “The Works … are deemed to be completed and accepted in accordance with the Amended Main Agreement saving any rights FMS and SMJV may have under Maltese law….”

“Article 1725 and 1726 of the Civil Code provide that a compromise shall not extend beyond the subject-matter of a contract and shall only settle the controversies which the parties had in view,” Camilleri said yesterday.

He said the result of the agreement was that Skanska ceded the €28 million in claims, save for some €4.7m accepted by FMS as “justified additional works.”