Pinned straw:
Discl: Held IRL 1.21%
WestConnect Arbitration Fail
Following @GazD and @Colflan's comments 4 months ago, had a closer look at the WestConnex Arbitration failure as the fallout from a trend perspective in FY26 was pretty stark.
Having been directly involved in an acrimonious software-related arbitration before, the mindset going into arbitration prep was very simply akin to going to war. You prep to go into combat firing your best shots and you prep to defend what will be the enemy’s best shots.
I thus find the commentary that SXE “expected from the conduct of CDSJV ... that the time-bar provisions would not be strictly enforced” as one of the basis for pursuing the claim, completely diabolical. No wonder they got their butts kicked and more. Not succeeding in the extra claim is one thing, paying back what had already been received is quite another - the price of being greedy, really.
But based on the CFO’s commentary in the last SM meeting, this should be a one-off event. Lessons have been learnt, policies and procedures have since been put into place, so it should be all good from here.
My buddy Chat keeps banging on about project risk being one of the key risks for SXE. I am not overly concerned with this given the sheer volume of projects that SXE has been, and is currently, involved in. Shit happens, but hopefully the new processes implemented since this debacle will mitigate the risk of future legal stuff ups like this.
Apart from the blip in the price on the day the Arbitration decision was announced, the SXE price just kept going as if nothing had happened - a good sign that the market saw this as a one-off, with all the promise of SXE growth still very much intact
@jcmleng excellent set of reports on SXE. Thank you so much. I've been a long-term holder and knew their marketing strategy was solid, but it's so good to see how much order there is in your analysis, which proves it's working effectively.
This report on the WestConnect fiasco shows that issues across multiple project clients can/will be extremely expensive. Think about the reputational damage of a stuff-up on a Multiplex or BHP project.
Also, I do wonder about the pricing power of these large firms and the dollar trade-off for getting multiple projects. Large firm cost accountants do have quite a bit of sway, and I’m sure they are remunerated for having a sharp pencil when it comes to contracts let. It’s logical to use the multiple-contract-award scenario as a bargaining chip when agreeing on a final all-in price. They will want some of the gains from the SXE efficiencies achieved. Maybe we might surrender some margin going forward, and it’s a matter I will be watching closely.
Final Point: I hope they have more robust systems that will prevent WestConnect-type scenarios. Two thoughts: Check out who was on the other side of this scenario, and you will find they have a history of being litigious. That said, this was an own goal, and I wonder whether SXE was poorly advised by their legal team?