View from City Road: Pound for pound on Eurotunnel

Last year Eurotunnel and TML finally decided to swap their brickbats for calculators, and work out how much should be paid by whom to whom.

At the end of December TML said it wanted pounds 1.95bn. Less than three months later, and apparently without any of the old acrimony, it said it was accepting pounds 1.14bn (both in 1985 money, a relatively minor confusion in the affair).

Who can happily bargain away pounds 810m, and come up saying it is happy with the result? The answer: the British contracting industry.

There is a strange culture among contractors, in which a pound does not mean a pound, it means ask for a pound, then change it to three, and settle for two.

Neville Simms, head of Tarmac and co-chairman of TML, cheerfully admitted yesterday that there was no difference between the Channel tunnel project and a strip of motorway, except for the number of noughts involved. How can anyone know what their real costs are going to be on this sort of project, he asked.

Contractors can point to the history of Davy as a horrible warning to anyone who believes a fixed price should be just that.

Davy said it would convert an oil rig for a set price, and after over-running by more than pounds 200m had to be rescued by Trafalgar House, which is still trying to digest the bitter fixed-price pill.

For TML, the pounds 1.95bn was never more than a bargaining price, to be hacked away at merrily by Eurotunnel's lawyers.

For TML too, the pounds 630m originally quoted was also a bargaining price, to be added to when necessary.

The contractors' mentality has a certain cavalier attraction but it is one that the bankers and investors - who rashly thought pounds 630m meant pounds 630m - could do without.

That is worth bearing in mind when circulars for Eurotunnel's long-awaited pounds 500m to pounds 750m right issue, now cleared for launch, come through investors' letter boxes.