Denver pulls the plug on Ferrovial-led airport PPP

A dispute involving cost overruns, delays and 'weak' concrete has derailed the Great Hall PPP project at Denver International Airport.

Denver International Airport (DEN) is terminating a $1.8 billion public-private partnership agreement with a consortium led by Spanish developer Ferrovial after unexpected costs and delays derailed the project.

DEN said that it and Great Hall Partners, the consortium which also includes JLC Infrastructure and Saunders Construction, “have been unable to reach an agreement on the cost and schedule impacts” of setbacks to the renovation of Jeppesen Terminal, also known as the Great Hall Project, at Denver International Airport.

In a letter to the consortium, DEN’s senior vice-president of special projects Michael Sheehan said the termination of the partnership “is in the best interest” of the airport. A notice of the termination said “the City exercised its right to terminate the [development agreement] for convenience”, citing a clause in the contract that allows one or both parties to terminate the agreement without a specific reason.

At issue was the discovery in November, four months after the renovation broke ground, of weak concrete used in the terminal’s original construction in the 1990s. The two sides have not been able to agree on safety, cost and the project’s completion schedule going forward.

GHP has said in recent months it expected the terminal modernisation to take longer to complete and cost millions more than expected.

In a news conference on Tuesday, DEN chief executive Kim Day said the airport and GHP were “very far apart” on the future of the project. Denver Mayor Michael Hancock said in a statement: “We will always prioritise passenger safety and experience and will never compromise those values. In the end, we did not have a partner who shared those values.”

A spokeswoman for GHP said the consortium was “disappointed” and strongly disagrees with DEN’s characterisation of the dispute.

“We categorically reject their allegations around safety and change directives,” the statement said. “The project’s time and cost overruns are a direct result of the discovery of weak concrete in some areas of the terminal, which [DEN] did not disclose to GHP at the outset of the project.”

DEN said it would repay GHP the portion of funding they contributed to the project – approximately 25 percent of the design and construction cost, for which DEN had budgeted $770 million, including $120 million for unexpected issues. GHP had said it would invest $378 million in the project.

The contract’s termination takes effect on 12 November, 90 days after DEN notified GHP of the termination in accordance with the contract terms. During that time, DEN will seek a new contractor to complete the project, who will only be responsible for construction, not financing or operations and management. Instead, DEN “will be assuming greater control of the project” by funding it and by operating any commercial development and retaining 100 percent of the revenues, according to its statement.

The 34-year PPP agreement became effective in August 2017. DEN had for years sought to revamp Jeppesen Terminal, which covers 1.5 million square feet at the US’s fifth busiest airport. Renovation works were planned to include consolidating ticket counters, relocating security screening counters, modifying the baggage handling system and redesigning shopping and dining areas.

Fitch Ratings said in a report that the cancelled contract “will not adversely affect either the airport’s ratings or those tied to the project itself”.

When awarding the PPP, some on Denver’s city council raised questions about Ferrovial’s track record dealing with workers as well as bribery allegations surrounding some of the Spanish company’s executives in Spain. Other questions were raised about Cintra, the developer’s subsidiary which operated a 41-mile toll road in Texas that filed for Chapter 11 bankruptcy in 2016.

DEN and GHP declined to comment beyond their respective statements.