CONSTRUCTION of a third set of locks on the Panama Canal is to continue after the contractor withdrew a threat to stop work on January 20 unless the Panama Canal Authority (ACP) paid US$1.6 billion in cost overruns.

The contractor, Grupo Unidos por el Canal (GUPC), plans to meet the ACP and insurers to discuss the status of the work, including its $600 million bond on the $3.1 billion locks project.

Meanwhile, the Panama Canal Authority has turned down an offer by the European Commission (EC), reported Reuters. The EC said GPUC had requested European mediation.

Canal Administrator Jorge Quijano said the ACP is in discussions with other contractors in case it cannot resolve its dispute with the GUPC. He estimated the remaining work would cost $1.5 billion.

An unnamed Panamanian official close to the bidding process said within months of the project being awarded, Sacyr executives were saying the work would not stay on budget.

"The ACP knew some years ago that Sacyr authorities were saying that openly, but felt they were protected by the contract," the official told Reuters.

The Panama Canal Authority warned on its website that a work suspension by GUPC "is not valid, lacks merit and goes against what is established in the contract for the design and construction of the third set of locks".

The ACP also had productivity complaints: "Currently, the production levels are low in the new locks project without any justification."

The ACP said GUPC was involved in a "wrongful application of sub-clause 16.1 of the [locks construction] contract, because this clause provides the right to suspend work only when the employer has failed to issue payment to the contractor".

ACP said this is "not the case" and that it pays GUPC "within the first 15 days after the invoice is presented, significantly in advance of the contractually-stated period of 56 days."