The company delivering the tram project for Edinburgh, tie, has begun legal proceedings with the Bilfinger Siemens CAF (BSC) consortium who have been contracted to build Edinburgh's trams network.
The move, backed by the City of Edinburgh Council, is an attempt to resolve a dispute which began in February of this year when the contractor demanded more money and saw a three week delay in work starting on Princes Street.
Further details of the dispute resolution process is contained within a report published by the City of Edinburgh Council today which will be considered by Councillors at the Council meeting on Thursday, 20 August.
Edinburgh's tram link from Edinburgh airport to Newhaven, originally due to be in service by 2011, is expected to be completed late and over budget. However, it is not clear by how much.
The report states: "it is now considered that it will be very difficult to deliver the full scope of Phase 1a within the available project envelope of £545m. Until the key issues are resolved through the contractual and legal process, it will not be possible to forecast accurately a revised budget outturn."
It goes on to suggest that there are several potential contingency options available to the Council if additional funding is required. These could include a controlled amount of prudential borrowing with debt repayments funded through Transport Edinburgh Limited (TEL) profits, potential leasing arrangements or the Council's revenue budget or through identification of future spending from the Council's capital programme.
Leader of the City of Edinburgh Council, Jenny Dawe, said: "It is clearly regrettable that the dispute has escalated to this stage but we are giving tie our full backing as we must ensure that contractual obligations on the tram project are met by BSC. The process may take several months but is crucial that tie enter into these proceedings to ensure we get best value for the project in the long term."
Richard Jeffrey, Chief Executive, tie Limited said: "We have always been clear that we will pay for what is just and offer fair recompense to our contractors as laid out in the tram contract.
"We appreciate that this development is very disappointing for all parties concerned, but equally we know from the support we have had that the Capital would wish us to stand firm in our pledge to the city under the agreed contract.
"The support of City of Edinburgh Council is welcomed in maintaining this stance."
The report also gives an update on the major investment in the hidden infrastructure of the city, which was required to replace pipe work for major utilities such as water, gas, and telecoms. This work was required before tram tracks could be laid from Newhaven to the Airport to minimise disruption to homes and businesses along the route as well as the tram system itself in the future.
Edinburgh is a World Heritage City and as expected a number of discoveries have been made such as ancient burial sites and large air raid shelters. These have caused some delays for the contractors carrying out the utility diversion works. The overall MUDFA programme is now almost complete and work will finish in November. This has led to additional cost pressures of up to £7m which is approximately 12% of the works value.
The report does highlight one bright spot in the trams project: "excellent progress" is being made by CAF who are manufacturing 27 trams for the Edinburgh fleet. The first tram is due to be ready by the beginning of 2010.