Fehmarn link approved but intial bids “too high” 28 Apr 2015

The Danish Parliament has this week approved construction of the fixed link immersed tube Fehmarn crossing with Germany. At the same time, intense negotiations continue to bring down construction bids that have came in at about 20% over budget. While confidential talks with bidders progress over the design-build offers that are seen as “too high”, the client confirms that start of construction has been pushed back to early 2016 but that the Danish Parliament has passed the Construction Act to build the international undersea crossing.

Cross section of the road-rail immersed tube link

Main construction for the 17.6km long road and rail fixed link was planned to start in late 2015. However, before contracts can be signed, the final construction budget needs to be approved in September.

Procurement for the major tunnel contracts started in late 2012, and about a year later the prequalified contractors were issued with tender documents for each of the main contract packages. To comply with the Femern A/S staged procurement process, contractors first submitted Technical and Administrative bids a year ago, in April 2014.

The client then had a confidential, competitive dialogue with each group in preparation for them submitting their Priced bids, which they all did at the close of 2014. Further competitive dialogue was already allowed for in the process, but the Preliminary bids came in much higher than had been expected by the client.

In March, the client’s Chief Executive Claus Baunkjaer said the bids were too high and needed to be negotiated down “significantly”. He noted, however, that “our form of tender with its competitive dialogue allows for reducing prices”.

Although the bids were submitted in December 2014, the sensitive talks remain ongoing. “Several suggestions have been put forward to help cut bid costs without impacting functionality or safety,” said a spokesman for Femern A/S.

The client said the ongoing negotiations over the budget-busting bids means it cannot sign contracts by the autumn (about the third quarter), as had been hoped to get main construction started later this year. Advance works for the overall scheme are already underway.

Fehmarnbelt is part of a TEN-T European corridor

In late 2014, Femern A/S updated its earlier construction costs, mainly by inflation adjustment, to get ready for submitting the project budget data as part of information needed for the Construction Act to be assessed in the Danish Parliament. The total development cost of the tunnel-only section of the scheme was then given as €6.2 billion (2014 prices). The core construction cost was recast at €4.3 billion in 2014 prices.

The client said then that the new baseline would be combined with the tender information from the market priced bids, and these would solidify the pricing data to reduce budget uncertainty significantly. According to the client, the Parliament would then have greater budgetary certainty than is normally the case.

Femern A/S did note, however, that the work would not be quick or simple. Among its many tasks, the client would need to realign the inflation-adjusted construction estimate to the contract structures of the tender documents employed, and include any changes that arise from the competitive dialogue with bidders. Input from the German consultation process would also be needed.

The Construction Act was filed on schedule in Denmark in late February and, despite negotiations with bidders continuing, it has been adopted.

“We expect to start construction on the tunnel in 2016,” said the spokesman. He added that the duration of the construction phase is subject to the ongoing negotiations – “schedule is one of the topics being discussed.”

The main tunnel contract tenders have a 20-month validity period, and it has been planned for the project to be completed by late 2021.

Separate contracts are under procurement for other packages, including for the track, power, mechanical, electrical and architectural lighting packages, and the contract for the toll plazas.

The fixed link project is being funded on a state-guarantee basis by Denmark and with proposed contributions from the European Union as a link in one of the TEN-T strategic cross-Europe transport corridors.