Harland & Wolff said on Friday that it would "rationalize" the number of people working at its Methil facility in Scotland.
This was in response to the contract termination settlement with Saipem over the building of jackets for the Neart na Gaoithe offshore wind farm project in the outer Firth of Forth in Scotland.
Harland & Wolff had, in April 2021, won a contract with Saipem to build and load out eight offshore wind turbine generator (WTG) jacket foundations at it's Methil facility. The company had acquired the facility, previously owned by BiFab, a couple months prior.
However, Harland & Wolff said in September 2022 that the project - which had a 12-month completion period - had encountered delays due to a number of client materials arriving late and being defective in nature, rendering them incapable of being used.
Due to those problems, H&W and Saipem then agreed to "de-scope" the contract from eight jackets to four jackets.
Harland & Wolff then said that in recognition of the investments and fixed costs incurred by the company for fabrication, a revised contract had been agreed for four jackets with a value of £23 million, in place of the original contract value of £26.50 million for eight jackets. The company said at the time it expected to deliver these jackets in sequence through Q1 2023.
On December 30, 2022, H&W and Saipem agreed to terminate the contract, with H&W saying: "The original contract was entered into in April 2021, based on the economic assumptions at that time, and since that date has encountered numerous issues with payments, delays and defective materials, with resultant cost escalations which the company has determined it will not bear given that it has not been possible to find a mutually acceptable methodology to split these additional costs between the parties.
The company has therefore determined that continuing with the project will be sub-economic from a target margin perspective and would, therefore, not be in the best interests of the group."
The two companies then started the process of negotiating and reaching a mutually acceptable commercial settlement in order to evacuate the materials from Methil and make way for other projects.
In a statement on Friday, February 17, 2023, Harland & Wolff said it had successfully completed the negotiations with Saipem, with the contract value finalized at £16m, "representing approximately 70% of the contract value as per the deed of variation signed in September 2022 as part of descoping from eight jackets to four."
"The entire amount has now been paid in full and final settlement of the contract [has been reached]," H&W said.
Following the completion of the settlement with Saipem, H&W said that it would "undertake a process of rationalizing the Methil facility's workforce to approximately 115 core personnel." It did not say how many people would be laid off. Back when the Saipem contract was first signed, Saipem said the deal would "create around 290 direct and indirect Scottish jobs."
Harland & Wolff said Friday that the rationale behind the workforce rationalization was to "align the company's resources and cost base with the level of work being undertaken at the site whilst protecting its margins."
"Given the typical longer-term nature of contracts within the renewables and defense industries, the company continues to ensure that its workforce is appropriately positioned to execute on near term requirements,"H&W said.
H&W also said that further to additional contract wins and workload emerging in the Belfast facility's fabrication halls, some of the fabrication work for the Cory Barges contract would be moved across to Methil.
"It is expected, subject to client approval, that Methil will commence fabrication on four barges in tandem within the next two weeks, in line with the company's strategy of operating across multiple facilities and balancing work as well as skill sets between the yards," H&W said.
"As the company sets it sights on 2024 and beyond, Harland & Wolff expects the renewables market to demand more local fabrication capacity in the UK than is currently available. The Company considers that the lead time to secure contracts in the renewables space takes approximately 12 - 36 months and a number of such tenders have already been submitted for additional work at Methil over the mid-to longer term. Meanwhile, the company is also advancing on a pipeline of nearer term smaller projects which it expects to undertake over the coming months, H&W said.
John Wood, Group Chief Executive Officer of Harland & Wolff said:"The Saipem project was the first project to arrive in Methil after our acquisition of the facility. With the previously announced delays and the changed economic position of this project, it was in the company's best interests to draw the project to a mutually acceptable close.
"The project has been a helpful learning curve for the business in this environment and we will take the lessons learnt forward into our next major project. In the meantime, the teams are focusing on constructing barges whilst contract discussions and negotiations advance for another large project. In the interim, the company is focused on progressing the company's pipeline of opportunities across its different sites and markets and remains steadfast in its approach to executing on contracts which maintain strong and attractive margins."