Andfjord Salmon lodges NOK 1bn claim against main contractor

According to a stock exchange announcement from Andfjord Salmon on Wednesday evening, the NOK 1 billion (£74.3 million) claim is directed against AF Hæhre & Contur Ans (AFHC) following what the fish farmer claims is gross negligence and breach of contract in the work on the land-based facility at Kvalnes on the island of Andøya, Norway.

Andfjord Salmon further states that the claim includes costs related to the contractor's recommended but - according to Andfjord - incorrect work methods, inadequate cost control, inadequate project management and incorrect invoicing. 

The company also believes that the contractor has committed a willful breach of contract. The claim reflects previously communicated budget increases, including the capital expenditure adjustment of NOK 500 million from May 28.

The company emphasises that the construction method itself is good, but that the contractor was unable to deliver within the agreed cost framework.

See what the contractor says to LandbasedAQ at the bottom of the article.

Lack of project control

Andfjord Salmon chief executive Martin Rasmussen explained to LandbasedAQ what the company means by the terms gross negligence and intentional breach of contract.

"By this we mean that AF Hæhre & Contur has recommended construction methods that they have not been able to implement within the agreed time and budget, as well as having shown a severe lack of project control and ability to prioritise work on the facility."

He also points to a lack of information about costs along the way.

"Andfjord Salmon has not received correct calculations for the final product along the way, or been informed of cost consequences before the costs have actually been incurred. Furthermore, it appears that they may have incorrectly invoiced us in relation to the contract."

According to Rasmussen, the contractor did not complete the agreed work before withdrawing.

"In addition, they have committed a breach of contract when they ended their work at Kvalnes before the agreed scope of work has been completed."

Operations are running as normal

Despite the conflict, Andfjord Salmon reports that operations are proceeding as planned. In recent months, the company has released smolt worth NOK 1.1 billion into pools K0 and K1, with good results in both survival and growth.

"It is true that the farming operations are not affected. We have relatively recently released smolt in K0 and K1," Rasmussen told LandbasedAQ. 

He emphasised that the company has plenty of time before the next construction phase must be in place.

"Although K3 is almost complete, the need for additional pools for splitting/laying will not come until spring/summer 2026, so we have plenty of time to get things in place. We are already in good dialogue with contractors who want to contribute as quickly as possible at Kvalnes."

According to Rasmussen, a change of contractor will not cause delays in production, and he points out that this will have an insignificant effect on Andfjord's production plans.

Also read:

'It’s very positive to see the systems performing as intended'

'High quality, but costs too high'

Rasmussen explained that the challenges with the main contractor relate particularly to the method used in prefabrication of concrete elements for the pools, where the alternatives are cast-in-place pools.

He says that the end product itself is of high quality, but that the costs and time spent were too great.

"This is due to a lack of cost management at the construction site."

Rasmussen believes that the contractor did not have the competence that was the basis for the contract award.

"AFHC won the original competition with a product and methodology that it later turned out they did not have sufficient expertise to implement."

'No negotiations'

After Andfjord Salmon filed the billion-kroner claim, there have been questions about whether the parties are attempting to resolve the dispute out of court. Rasmussen said this is not currently the case.

"As of now, there are no ongoing negotiations between the parties. Our claim and the reasoning behind it are supported by our external legal advisors. It is in the nature of the matter that this could end up in court."

The company estimates mobilisation costs of around NOK 20 million if it becomes necessary to bring in a new main contractor.

"We already have good dialogue with contractors who want to contribute as quickly as possible at Kvalnes. We expect a quick clarification on this and a correspondingly quick start of the work. We are still operating according to revised budgets that we communicated on May 28 this year."

'Claim is related to gross negligence'

Rasmussen has a clear message for investors and partners about the background to the situation.

"It is important to understand that the claim is related to increased costs incurred as a consequence of gross negligence on the part of AF Hæhre & Contur. This includes, among other things, the cost increase of NOK 500 million that we announced on May 28 this year and previous budget changes, incorrect invoicing in relation to the contract, additional costs we incur as a result of having to change contractors, as well as alleged costs that AF Hæhre & Contur claims have been incurred, but which they are unable to account for when we ask for a sufficiently detailed basis," he elaborated. 

Andfjord Salmon has therefore stopped payments.

"As our claim significantly exceeds the amount AF Hæhre & Contur believes it is owed, we have stopped further payments to them," he said. 

Disputing claims

In a statement to LandbasedAQ, AFHC press contact Espen Andersen said that it was the contractor that had chosen to terminate the contract with ANdfjord Salmon.

"We can confirm that AF Hæhre & Contur ANS (AFHC) has terminated the contract with Andfjord Salmon for the construction of the fish farming facility on Andøya. AFHC has built, delivered and invoiced according to contract, but is still not being paid," he wrote.

"There was therefore no choice but to terminate the contract with the builder and stop the work."

He also made it clear that the company does not recognise any claim from Andfjord Salmon.

"Andfjord Salmon claims to have a claim against AFHC. We dispute this."

According to Andersen, the parties have tried in recent weeks to avoid the work coming to a complete halt, but without success.

"The parties have been negotiating in recent weeks in an attempt to avoid a halt in construction work."

The contractor is now preparing to withdraw from the facility.

"We will now rig down and secure the facility in a safe manner," he said.