The project is at the Great Western Royal Hotel in Paddington, west London. The firms are due to hand it over next month – more than a year after its original completion date.
The two firms declined to quantify their losses on the design-and-build refurbishment, but one source said that it would be in the £10-20m range.
He said: "It's a highly complicated job. Being next to a railway station is never easy – there are a lot of safety issues. You also had three roads surrounding the job, and the contract was quite stringent. The contractors bore a fair degree of risk."
Another source said: "The management changes have been a concern to the client. It's been a key factor in the problems." The scheme has had four project managers during its history.
A statement issued by the joint venture confirmed that the job, which was awarded to the firms in July 1999, had been a troubled one.
It said: "There were delays with this project and it has proved to be a challenging contract. The quality of the finished product should not be in doubt and the project team deserves praise for overcoming a series of testing circumstances."
The team deserves praise for overcoming some testing circumstances
The project source confirmed that the work was of a high standard. He said: "The quality is first class. That has been the great attribute of Costain and Skanska – they have never let the quality drop."
Building was unable to contact the client, Muirgold, which bought the hotel in 1998 and oversaw the refurbishment. The hotel is due to become the Hilton London Paddington when it reopens in January.
Skanska and Costain this year declared losses on a number of projects, which they did not name. Skanska took a £13m hit in September on joint venture schemes begun before it bought Kvaerner for £358m last year.
The projects are understood to include the £124m A2/M2 road-widening scheme for the Highways Agency, which was a three-way joint venture between Costain, Skanska and Mowlem.
Costain said, when it announced its contract losses in March: "Recent underperforming has occurred mainly where we undertook large projects for previously unknown clients, or where the work was in relatively unfamiliar market segments."
The perils of refurbishmentRefurbishment projects are notoriously risky. The Royal Court Theatre and the Great Eastern Hotel in London both turned into nightmares. Here are some of the problems:
- The building can be different to the information on the original drawings.
- Access can be difficult, particularly for large pieces of plant.
- Non-standard sizes and imperial measurements mean special parts are needed.
- Even comparatively recent buildings are not suitable for modern requirements, with low floor-to-ceiling heights and lack of space for a raised floor.
- Poor quality construction and use of materials below modern standards.
- Structural capacity is not suitable for modern equipment.
- Difficult to bring the building up to thermal and fire safety standards.
- Dangerous materials can cause safety hazards, such as asbestos and lead paint.
- Hidden deterioration of the structure, such as corrosion behind a stone facade.
- Damp, insect and fungal attack.
- Listed buildings, where even the floor joists could be untouchable.