Why Did SCEE’s Heyday Lose a $22m Arbitration Claim Over WestConnex?

• Heyday’s $22m claim dismissed due to contract time-bar provisions
• $19m contract asset to be written off, no cash impact
• $15m repayment to CPB Dragados Samsung JV required, impacting cash and profit
• FY26 EBITDA guidance slashed from $65-$68m to $21-$24m
• Board emphasizes one-off historic nature and expects FY27 recovery

Arbitration Outcome and Contractual Hurdles

Southern Cross Electrical Engineering Limited (SCEE) has revealed a significant setback for its subsidiary Heyday, which has lost an arbitration claim against the CPB Dragados Samsung Joint Venture (CDSJV). The dispute centered on additional costs Heyday incurred during its work on the WestConnex M5 motorway tunnel project in Sydney. Despite pursuing $22 million in claims for delay, disruption, and unpaid variations, the arbitrator ruled that Heyday’s claims were time-barred under strict contractual provisions.

Heyday had anticipated some flexibility in enforcing these time limits based on CDSJV’s conduct during the project. However, the arbitrator’s Partial Final Award, issued on 28 November 2025, dismissed all claims and ordered repayment of $15 million previously recovered through security of payment processes. This ruling underscores the critical importance of adhering to contractual notice and timing requirements in large infrastructure projects.

Financial Impact and Write-Offs

The arbitration outcome carries a substantial financial impact for SCEE. The company will write off a $19 million contract asset previously recognised by Heyday, although this will not affect cash flow. More immediately impactful is the $15 million repayment to CDSJV, which will reduce both profit and cash reserves. Additionally, the Board estimates that interest and costs related to the repayment could total around $10 million, further weighing on first-half FY26 results.

These amounts are pre-tax and expected to be reflected in the upcoming half-year accounts. While the exact timing of cash outflows remains uncertain, SCEE anticipates payments will occur early in the second half of the financial year, funded from existing cash reserves.

Guidance Revision and Strategic Outlook

In light of the arbitration award, SCEE has dramatically revised its FY26 EBITDA guidance downward from $65-$68 million to a range of $21-$24 million. Chairman Karl Paganin expressed the Board’s disappointment but stressed that the matter relates to historic events from six years ago and is isolated in nature. He highlighted that the Group’s underlying business remains robust, with operational EBITDA excluding arbitration impacts expected to meet original forecasts.

Significant enhancements to commercial management processes have been implemented since the WestConnex project to prevent recurrence of similar issues. Looking ahead, the Board remains optimistic about FY27, anticipating a return to normalised profitability driven by growth opportunities in the data centre and renewables sectors.

Market and Investor Implications

This arbitration loss serves as a cautionary tale about the risks inherent in complex infrastructure contracts, particularly around strict contractual clauses like time bars. For investors, the sizeable earnings downgrade and cash repayment obligations will require recalibration of valuation models and risk assessments. Nonetheless, SCEE’s strong balance sheet and strategic focus on growth markets provide a foundation for recovery beyond this one-off event.

Bottom Line?

SCEE faces a tough FY26 but aims to rebound strongly in FY27 amid improved commercial safeguards.

Questions in the middle?

• What will be the exact amount of interest and costs awarded in the Final Award due 22 December?
• How will the cash repayment and write-off affect SCEE’s liquidity and capital allocation plans?
• Can the Group’s new commercial management processes fully mitigate similar risks in future projects?