Engineering firm Downer EDI’s earnings will be hit by the company’s settlement of a legal dispute over a tunnel contract in Singapore.

Downer will pay $S50 million ($40 million) to Singapore company SP PowerAssets as part of a settlement of an arbitration claim commenced by SP PowerAssets in 2009.

The claim related to a contract Downer won in 2003 for the construction of an electrical services tunnel in Singapore.

Downer has held a provision of $28 million against the claim made by SP PowerAssets, and an additional $12 million cost will be incurred in the first half of the 2012/13 year, the company said on Tuesday.

That will reduce full year earnings before interest and tax, but underlying earnings before interest and tax is still expected to be about $370 million for the full year, it said.