Disputes
Arcadis - The Root Cause of Disputes?
I always look forward to reviewing Arcadis annual Global Construction Dispute Report.
The 2022 report starts with the following summary.
“From 2020 to 2021 the average value of disputes declined by 3% across the globe but remains at historically high levels compared to 2019 and earlier. The average time taken to resolve disputes increased significantly, by almost 15%, for the first time in three years. There was also a consensus that the overall number of disputes increased.”
So, the industry hasn't learned much about dispute avoidance. It continues to spend significant time and money on dispute resolution. And, the effects of COVID and the Ukraine conflict is likely to create more challenges in future. It follows that in such circumstances, conflict and dispute will only increase.
Two Leading Causes
It is no surprise that the report identifies the two leading causes of disputes as being:
- Party failures to understand contractual obligations
- poorly drafted or unsubstantiated claims.
Nothing has changed here. Arcadis have highlighted these failures since they began publishing the report 12 years ago.
The report highlights that many contractors have had to absorb increased supply chain costs. It also notes that contractors have had to overrun costs to complete projects. This has a direct impact on their bottom line. Employers should expect to see a rise in change/variation requests and disputes, as contractors attempt to recover unanticipated costs.
Arcadis also identified the most important factors in the mitigation/early resolution of disputes as follows:
- Owner/contractor willingness to compromise.
- Accurate and timely schedules (programmes) and reviews by project staff or third parties.
- Contractor transparency of cost data in support of claimed damages.
The Middle East
In the Middle East, the report advises that “respondents also advised there were more disputes in 2021 and they expect the number of disputes to continue to increase throughout 2022”. Given that we continue to see inadequate contract administration and project controls performed by inadequately trained, experienced, and qualified personnel on Middle East projects, this comes as little surprise to us.
The report states that in the Middle East, “Owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations remained the most common cause of dispute in 2021”. The third most common cause is “poorly drafted or incomplete and unsubstantiated claims” and ARCADIS make the point that “It is common to see extension of time claims using incorrect logic and analysis techniques, meaning the receiving party can easily reject the claim where poor narrative and incorrect logic prevent entitlement to a claim”. This is something that we agree with from hands-on experience.
The report notes that “Adherence to the basics of effective claims management such as early notification, accurate record keeping, correctly updated programs reflecting actual progress, and logically drafted claims based on factual evidence will assist parties to obtain earlier resolution and avoid the perils of this year’s top dispute cause of owner/contractor/ subcontractor failing to understand and/or comply with its contractual obligations.” We agree with this observation, and it echoes advice that we have been giving to our clients for many years.
So, Arcadis continue to report that things are not improving in the world of dispute avoidance, but also consistently identifies the same causes of disputes.
The Root Causes?
Here are my thoughts on the underlying root causes that contribute to this situation:
- Usually, on the advice of their consultants, Employers change a balanced allocation of risk contained in standard forms of contract. This typically obliges contractors to absorb more risk than is sensible or equitable.
- Contract documents are prepared by inadequately experienced individuals. This results in poorly expressed conditions, ambiguities and conflicts.
- Contractors do not carefully examine the contract documents during tender.
- The Contractor often fails to identify risks.
- Contractors do not review the contract documents before signing. As a result, they enter into contracts containing poorly expressed conditions, ambiguities and conflicts.
- The project participants do not invest in adequately trained, qualified or experienced contract administration and project controls staff. The staff they employ are unable to manage such responsibilities to an adequate professional standard.
- Project participants do not invest in advice and assistance from external experts when internal resources are not adequately experienced.
- Teams do not have the time to devote to dealing with challenging matters.
Mistakes Contractors Make...
- Contractors fail to submit notices or fail to submit them in the correct form.
- Contractors do not report progress accurately or truthfully.
- Contractors do not keep adequate records of deployed resources or activities being undertaken.
- Contractors consider claims on the basis of when they discover that they “need” more time and/or money. This is opposed to when they become entitled to compensation.
- Contractors fail to respect time frames for submission of claims and leave them to the end of the project, resulting in:
- Large, complicated claims for multiple events. These are difficult and time-consuming to prepare, respond to and agree.
- The respondent having little incentive to resolve claims equitably when the project is approaching completion.
- Cashflow issues.
- Demobilisation on both sides of the contracting fence of people with knowledge of the project and the events.
- Claims do not contain the required information to prove that entitlement exists or the amount of compensation.
- Responses to claims do not contain sufficient information. They then fail to convince either party that the findings of the claim are fair in accordance with the contract.
- Claims and responses may not be properly or easily understood by the other party.
Let Us Help
Hewitt Decipher Partnership’s expert consultants have been helping clients to avoid disputes for many years. We know how to comply with good practice. As a result, the team can help ensure your project controls and systems are suitable and professionally managed. If you have a justifiable claim, or if you are responding to claims, we ensure that claims are resolved in a timely manner. We also provide training and education to companies and individuals.
Can we help you? To find out how, get in touch.
Are Construction Experts Good Value For Money?
When speaking to clients or submitting proposals for consultancy work, we are often told that that the project is losing money. Therefore, the client can’t afford to employ external construction experts to assist them.
But in these cases, perhaps some clients do not have their eye on the bigger picture. A project in which we were recently involved illustrates this nicely.
One of our clients was working on a large project in the Middle East. They asked us to prepare extension of time claims related to COVID.
This client is a very good contractor. However, their project controls systems leave quite a lot to be desired. They recognised that preparing such a claim was beyond the skill set of their project team and appointed HDP.
A lot more time and effort went into proving the delay than usual. The main cause of this was the client’s inaccurate progress updates. Nevertheless, the time and effort were worthwhile. Ultimately, the claims were successful, resulting in relief for our client from circa US$5M of delay penalties.
Everyone was delighted with the result. The client understood that they would have been very unlikely to achieve such a result on their own. But how much had it cost them?
Our client’s investment in our expertise amounted to significantly less than one percent of the damages had the claims not been successful.
When you put it like this, construction experts seem fairly cheap don’t they?
When there are significant amounts of money involved, either from delay penalties or claimable costs, you look at the cost of external expertise differently. It should seem obvious from the above example: the decision to employ experts was the right one. But, you should base that decision on the potential return of money, rather than the upfront cost of external expertise.
When you look at it this way, you’ll be able to make much better decisions, leading to a better chance of profitable projects.
Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to comply with good practice to ensure that you have a justifiable claim. Where you do have entitlement, we will ensure that your claims are accepted in a timely manner.
Can we help you? To find out how, get in touch.
Andy Hewitt
FICCP, FCIOB, FCInstCES, FQSi
Managing Director
Hewitt Decipher Partnership
Dedicated Solutions from Trusted Professionals
Email: andy.hewitt@hewittdecipher.com
Constructive Acceleration Successfully Claimed
Outside of the United States, claims for constructive acceleration usually fail. However, in a recent Australian case such a claim succeeded. Does this now open the way for contractors to deploy constructive acceleration claims?
Introduction
'Constructive acceleration' describes a scenario when a contractor claims an extension of time ("EOT") for completing its works, but the employer wrongfully fails to grant an EOT. The consequence is that the contractor decides to accelerate the works in order to meet the unadjusted contractual completion date. A claim based on constructive acceleration is one for the additional costs a contractor incurs in taking measures to accelerate. This may include using additional labour or plant resources, or paying a premium for overtime working.
The predominant legal theory of a constructive acceleration claim is that the failure by the contract administrator to grant an EOT constitutes a breach of contract attributable to the employer. The additional cost incurred by the contractor in accelerating represents a loss recoverable as damages. The acceleration is "constructive" because it does not arise from any express instruction given to the contractor to accelerate. It comes about because the contractor has attempted to complete the works by the unadjusted date, to mitigate what would otherwise be the delay to the project.
Third-Party Contract Administration - The Problem:
A potential difficulty with constructive acceleration claims arises if a third-party consultant administers the contract. It may be the case that the contract does not (expressly or by implication) make the contract administrator the agent of the employer in respect of the assessing of EOT claims.
If that happens, a problem may arise where the contract administrator fails to grant an EOT when one should have been granted. Contractually, it may not amount to conduct which is attributable to the employer, and for which the employer can be liable in damages.
This potential difficulty does not arise, however, where
- (i) the contract is administered by the employer or its representative.
- Or: (ii) the employer and the contract administrator have wrongfully colluded with a view to denying the contractor its true EOT entitlement.
The latter situation arose in a recent Australian case.
V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849
The case concerned a dispute between V601, the Principal, and Probuild, the Contractor. It relates to the development and construction of a residential and commercial development project in the state of Victoria, Australia.
- The contract was an amended Australian Standard Contract AS4902-2000 form (the "Contract").
- The Principal commenced litigation seeking liquidated damages under the Contract. In its defence, the Contractor argued that the project manager, acting on behalf of the Principal, failed to allow its EOT claims. The Contractor therefore counterclaimed for the cost of accelerating its work to meet the unadjusted completion date. In effect, it made a constructive acceleration claim.
- The Contractor contended, among other things, that it 'accelerated' the performance of the works. This was to try to reduce or overcome one or more of the delay events in its EOT claims. Or, alternatively, to try to achieve practical completion by the date for practical completion certified by the project manager.
- The Contractor argued it had a right to recover the costs incurred in accelerating these works, because of the project manager's failure to
- (i) approve updated versions of programmes.
- And/or (ii) grant in full the EOT it should receive.
Claim Allowed:
The court allowed the Contractor's constructive acceleration claim, finding that:
- The Principal, through its project manager, breached the Contract by not awarding and compensating the Contractor for its EOT claims. It was important to the court reaching this conclusion that the Principal and the project manager had engaged in "contractually wrongful conduct". They colluded with a view to denying the Contractor its proper EOT entitlements;
- The Contractor could in principle recover the additional costs it incurred in its efforts to overcome and minimise delay to the works;
- The Contractor's acceleration costs were necessary and reasonable costs incurred in mitigating the delays to the works;
- The Contractor's acceleration costs were within both parties' contemplation; and
- The Contractor took the necessary and reasonable measures to accelerate the works and overcome or reduce delay to achieve practical completion by the dates for practical completion.
Commercial Implications
The facts of V601 v Probuild were relatively uncommon:
The Principal and the project manager had evidently colluded with a view to defeating the Contractor's justified EOT claims. Wrongful interference by an employer with a contract administrator's functions constitutes a breach of contract. This, in turn, opens the employer to a claim for damages for what foreseeably flows from that breach. The breach may include (as here) a claim based on constructive acceleration.
We may distinguish V601 v Probuild from other, more usual cases. Cases where the employer and the contract administrator do not wrongfully collude together. Perhaps the contract administrator, acting genuinely but mistakenly, will simply "get it wrong".
The laws in England, Australia and other common law countries (the US aside) don't take the line that failure to grant an EOT by a contract administrator (where it should happen) opens the door to a constructive acceleration claim.
For this reason, as the Society of Construction Law Delay & Disruption Protocol noted in 2002, "it is not recommended that a claim for so-called constructive acceleration is made". The 2017 edition of the Protocol cautions that constructive acceleration is "rarely recognised under English law".
Nevertheless, conceptually the common law does permit constructive acceleration claims in certain circumstances. This is vividly illustrated by V601 v Probuild where a constructive acceleration claim succeeded. The case also illustrates the empirical notion that wrongfully denying a justified EOT claim simply stores up a problem for another day.
This guest piece was authored by Julian Bailey, Partner, and Caitlin Lloyd, Associate, at White & Case.
Can we help you? To find out how, get in touch.
Help! I'm Going to Finish Late and I'm Losing Money
Recently we have had several contractors approach us who have advised us that they are going to finish late and/or are losing money. When they do, they tell us they need to submit a claim.
The first thing we do when approached about such matters is ask about the reasons for the delays and losses. In many cases, we find these events happened much earlier in the life of the project. However, no claims have been submitted.
It is astounding that some contractors don't realise that they will finish late and lose money until the project is nearing completion. I don’t believe that is the case. In reality, these contractors have a complete misconception as to the reasons to submit claims.
A claim is simply an assertion of a party’s rights under the contract. The trigger as to whether to submit a claim should not rest on whether the contractor needs extra time or payment. The trigger should be whether the contractor has entitlement to extra time and/or payment. Waiting to see if you will finish on time or lose money at the end of the project will inevitably place the contractor at a huge disadvantage.
Most construction contracts make it an obligation to submit claims within a set time frame from the occurrence of the event which gives rise to the claim.
There are good reasons to submit claims on time:
- To ensure you deal with claims as the project progresses.
- So that each event is the subject of a separate claim, as opposed to consolidated claims for several events.
- Keeping matters simple: Several bite-sized claims are easier to prepare and to respond to than one huge, complicated claim.
- So that the Engineer and Employer can make timely financial provisions.
- To ensure the Employer is aware of revised completion dates and may make appropriate arrangements.
- So that the project has a new completion date that all participants may work towards.
If the Contractor leaves the submission of claims until it is apparent that they need extra time or payment, they will most likely face the following problems:
- The Contractor may not have kept the contemporary records to substantiate your claims.
- The Contractor may not have submitted notices which may be conditions precedent to an award.
- The Contractor’s own staff and those of the Engineer who have knowledge of the events may have moved on.
- The preparation of the claim is likely to be a huge, complicated, and daunting task which will take time and expertise.
- The review and assessment of the claim is likely to be huge, complicated, and daunting task for the Engineer, which will take time.
- The settlement of a single, huge claim can stall because parties cannot agree a few items.
- The Employer will probably not have made any financial provisions for additional payment.
- The Employer may feel ambushed and that the claim is adversarial which will cause him to be defensive.
- Once the project has been handed over, there is little incentive to the Employer to settle claims amicably or in a timely manner.
Points to Remember:
The time to submit claims is as soon as an event arises which provides entitlement to an award. Do not wait until you have reached the end of the project and already run out of time and money.
Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to comply with good practice to ensure that you have a justifiable claim. If you do have entitlement, we can help you ensure your claims are accepted in a timely manner.
Can we help you? To find out how, get in touch.
Webinar - International Arbitration in India and Around the World
On 7th September 2021 we hosted an 'in-conversation' style webinar on international arbitration. Chaired by Paul Gibbons, four world-class experts in construction, law and dispute resolution examined the latest developments in construction and dispute resolution.
You can watch the video here, or read the write up from the event below.
Construction contracts around the world end in dispute if not done correctly from the start and working on international projects can raise unique challenges. Rupa Lakha, disputes lawyer at Charles Russell Speechlys advises that minimising the risk of disputes is completely dependent on what you put in at the outset.
There is a tendency to want to get things started quickly. However, slowing down and carefully considering things like the appropriate procurement model, level of resources priced for and whether the programme is realistic, can pay dividends in the long term.
It is important early on to pay heed to warning signs. If it looks like the price of a project is too cheap, this could be a red flag. Be realistic and invest time at the beginning and during every stage. Don’t take unnecessary risks. Set the contract up to deal with every factor, the legal aspect, the risk and the technical aspects. Consider what the project is aiming to deliver and ensure everyone is on the same page.
Minimising Risk
Looking at minimising risks from the contractor’s perspective, Mitesh Vekaria notes that it is important to use a pre contract services agreement if you can. As an Employer, it may be tempting to put all the risks onto the contractor but it is not always the best way forward.
Spend the time you have early on. Make use of workshops, education and training for everyone and ensure they spend time on this stage. If employers put time in their Gantt chart specifically for this, it would make such a difference.
Mitesh goes on to say you can avoid having to go down the litigation route by ensuring clear communication with all stakeholders and CEOs. Nobody wants to end a project in dispute. Clear communication can help the people involved stay detached enough to work things out without the need for any use of litigation and a shooting match.
Warning Signs
As a project progresses, there can often be warning signs that a dispute may arise. Rupa warns us to take notice if notices start being fired off or letters start coming in. If use of the contract becomes defensive, you know there is a problem. People are trying to protect themselves rather than work with others and use the contract as a tool.
Once disputes become inevitable, delay analyst Tom Francis explains that the biggest issue often becomes a lack of good records. People seem to not keep their records. That can make the difference between winning and losing. If you keep a good trail of evidence any claim is likely to be more successful. Photographic evidence is very important. The culture of construction needs to evolve so evidence keeping and record keeping becomes the norm.
On the subject of notices, Tom thinks attitudes need to change. Giving notice should be a positive thing, a warning sign.
Experts
So what is the role of an expert in a dispute? In Tom’s experience it is important to be clear what your instructions are. Are you a claims consultant/expert, an advocate at an early stage? What is your exact role and what input do clients want? Advocate and expert roles are very separate and the difference needs to be clear especially when it comes to arbitration and litigation.
Formal Dispute Resolution
David Brynmor Thomas QC of 39 Essex Chambers explains what our options are in the event that a dispute does arise. He says every contract should have a final and binding form of dispute resolution included, usually either litigation or arbitration.
If you do not include any clause, then you line yourself up for the potential of immediate litigation in court. FIDIC, the construction contract widely used on large international projects, uses arbitration as its default form of dispute resolution. Another option is expert determination - this is often seen as 'cuddlier' than arbitration and litigation to many. David explains this is in fact wrong.
Statutory adjudication is an option for quick simple disputes. However, David advises that one of the better options for large international projects would be the use of dispute review boards or DABs. However, he warns that many put these boards in place but then they are not used correctly. Effective dispute review boards visit the project regularly. They ask what is happening, is the programme on time, is anything slipping, are there any problems? By asking the right questions, they can see if the project is going wrong anywhere.
Be Prepared
Rupa stresses the importance of getting your advisors in early, in preparation for the dispute resolution process. You need legal advice pre contract and continue working with your advisors throughout the life cycle of the project. That way they can help tackle any problems that may arise in any stage of the project.
If you allow a problem to grow, then only bring an advisor in at the end, it becomes very difficult and very expensive. It also means you take valuable resources away from the project.
Formal dispute resolution is sometimes necessary and appropriate. However, there is value to having lawyers involved from the start. Little and often is when advisory works best, helping you avoid problems getting too big.
David agrees and advises to work with the legal team who put the contract and the project together continually. Having an expert or a consultant like Tom on the programming makes matters better as well. They can make sure you are using notices correctly and appropriately. A programmer can make the barrister's job much more straight forward should disputes arise later.
Mitesh adds that for his larger projects, he advocates for them to demonstrate due diligence little and often with the use of delay analysis and programmers throughout.
Clear Roles and Responsibilities
Construction disputes are different to other disputes. Rupa explains that they need an interface between the lawyer and the expert. A good close relationship is essential between the sharing of information and knowledge. The legal knowledge and the technical knowledge need each other to work, they rely on each other and that is fundamental. That is very particular to construction disputes.
Tom warns us to be wary of blurring the line between being an advocate and expert. He asks can you honestly put yourself forward as an independent expert if you were involved in the writing of the contract? The key here is being open and clear with your past and present roles. Make sure your role is clear from the start before you get into a tricky situation.
Thank you to all the speakers and attendees. Should you need any help with any of the issues raised in this webinar, please get in touch today.
Disputes in the Energy Sector: Problems, Disputes and Solutions
Claims and disputes are a fact of life in the energy sector. With the highly complex nature of energy projects, things are bound to go wrong. However, that doesn’t always mean disaster.
Being prepared will make it far less likely you will end up in a formal dispute. And even if you do face a dispute, if you are prepared, the dispute is much more likely to be resolved or settle early.
Latest reports show that the average dispute costs in the order of £22m and takes around fifteen months to resolve. That’s fifteen months of very involved work with lawyers and experts. When you are running a large energy dispute, the legal and expert costs can easily reach around £250k per month. This highlights the scale of the complexity and cost.
What are the Problems?
Whilst every project is different, there are common issues we see time and time again. Parties often try to renegotiate the terms of the contract during the project. We find misunderstandings around termination rights, payment and cost overruns, poor workmanship, unsubstantiated claims which damage relationships. There is often a failure to administer contract or understand and abide by contractual obligations. These are just a few of the issues we see regularly!
What Can be Done to Avoid Energy Disputes?
First things first, parties need to be sure they understand the contract. Even when faced with a limited negotiating position, understanding your risks will allow you manage them. The techniques to avoid disputes are often enshrined in the contract. It is critical to understand your obligations properly, and manage claims and disputes throughout the lifecycle of the project.
When you spot a dispute on the horizon, even if you believe it to be a straightforward claim, consider bringing experts and legal advisers on board early. Their advice is useful and can help you understand your rights to avoid you compromising your legal position. You may think you are saving money by handling things in-house. However, expertise, even when pricey, can save you a lot in the long run. When you bring the team on later, you may find mistakes have been made in the handling of claims. Years into a dispute, nobody wants to hear that things could have been done better.
Another tip is to take the dispute away from those directly involved. This can help remove the temptation to bring blame or emotion into the process. An impartial team handling the dispute can allow it to be resolved without emotion, in a practical and commercially sensible way.
Project Records and Witnesses are Key
Throughout the project, be sure that you preserve documents – even the ones that don’t put you in the best light. It is said time and time again by those managing disputes, but records really are key. You will be repeatedly asked for contemporaneous documents. When it comes to the disclosure stage, problems often occur. Late disclosure of documents can change the risk profile of the dispute – for better or worse.
Witnesses of fact need to be spoken to early. Make sure they still remember what took place and that you get copies of any documents in their possession. Individuals often move on to a new role at the end of a project. When this happens, they will naturally forget what happened on your project or may have deleted or lost track of important records.
Energy disputes are expensive, long term and a huge diversion from your real job. If you can, try to avoid them or nip them in the bud. Get your team ready early so you can plan and prepare appropriately.
This article is based on a talk given by Theresa Mohammed of Trowers & Hamlins at a recent Hewitt Decipher webinar. You can view the recording of the event here.
Energy Projects and Disputes - Webinar & Recording
Hewitt Decipher Partnership hosted a webinar focussing on energy projects, risks and disputes. Paul Gibbons, Andy Hewitt and Tom Francis of HDP join Theresa Mohammed of Trowers & Hamlins, Philip Boulding QC of Keating Chambers and John Shenton of Hitachi, for a look at energy projects, the risks and contractual / commercial challenges that might arise from disputes in the energy sector.
Speakers:
- Tom Francis – our head of project controls and delay expert will look at some of the challenges faced in analysing and proving delay on energy projects.
- John Shenton – Contract Manager at Hitachi ABB examines the inside perspective from live projects and his work at Hitachi.
- Theresa Mohammed – Solicitor at Trowers and Hamlins, gives a legal perspective. What does the law say and how does it work?
- Philip Boulding QC of Keating Chambers looks at disputes and international arbitration.
A full write-up will follow shortly, but for now, the recording of the session is available to watch:
Do you have a $10 head?
I have been a keen motorcyclist for many years and I recently had cause to recall an advertising slogan that Bell Helmets ran during the 1980s. Their powerful message was: If you have a $10 head, wear a $10 helmet.
Bell helmets were not cheap, but it was no coincidence that a significant number of motorsport competitors could be seen with the Bell logo on their helmets.
How does this relate to the construction industry?
A couple of years ago I was asked to present a training course on procurement for a property developer. Part of my presentation focussed on the selection of suitable consultants for their projects. I asked the attendees to help me to do some calculations and give me some advice. The exact figures I don’t remember, but the following is a reasonable synopsis of their input:
- I first asked them to tell me the average total project cost of their projects. Let’s say this was $10,000,000.
- I then asked what percentage of the total project cost they would budget for consultancy fees. The answer was 10%, which works out at $1,000,000.
- My next question after that was, what is the cost difference between engaging the very best consultants and the worst? The reply was that there was maybe a cost difference of 30% between the two extremes.
- We then worked out that with a $1,000,000 budget for consultancy fees, hiring the cheapest consultants would, on the face of it, save the project $300,000. As a percentage of the total project cost this translates to a 3% ‘saving’.
- I then asked how consultants were selected and was advised that although the project delivery team carried out pre-qualifications and checked on consultants’ past performance, the services were put out to tender and company policy dictated that the work would invariably be awarded on the basis of the most competitive fees.
I explored a little further into their experience on past projects...
- Do we agree that the consultants that you engaged are probably the most competitive on price, because they pay lower salaries than the more expensive consultants? Yes.
- Can we agree then, that the consultants that you appoint are able to pay low salaries, because they employ poorly qualified and experienced personnel? Yes.
Having established the procurement methodology, I asked more questions, this time related to existing projects...
- Do you ever get design problems that result in additional costs for your projects? Yes, frequently.
- Do the consultants appointed to supervise, manage and administer the contracts on your projects ever fail in their duties and responsibilities which results in additional costs for your projects? Yes, frequently.
- Do the consultants appointed to manage and respond to claims on your projects do so in accordance with the contract and in such a way that claims are agreed amicably and in good time? No, we often have contentions with regard to claims.
- Do disputes arise on any of your projects? Yes, we have had several arbitrations.
- Are arbitrations costly? Yes, very costly and time-consuming.
And finally I asked the group...
- Are total project cost budgets ever exceeded? Yes, most of our projects come in considerably over budget.
You Get What You Pay For
The point here is that buying a $10 helmet is probably not a great investment. Particularly if something goes wrong and you have an accident on your motorcycle.
The same applies to $10 consultants.
$10 consultants are actually worse. They often cause the ‘accident’ in the first place and will then not protect you properly. Similarly, if you have a commercial matter, contractual problem, claim or dispute of significant value, is it better to engage the best or the cheapest consultants to help you avoid or resolve matters?
Whilst Hewitt Decipher Partnership is not a $10 consultancy, our business model allows us to be very competitive for the high level of expertise that we offer to our clients. Our expert consultants are appropriately qualified and experienced in their particular disciplines, so we provide excellent value for money when assisting our clients. Can we help you? Get in touch.
Dispute Resolution in the New Normal
The past year has seen radical changes in the way we live our lives, socialise, work and play. Dispute resolution has been no exception in this regard. Dispute resolution by the means of virtual or online hearings is increasingly common. Parties stay in different locations or their own homes and resolve their disputes remotely.
Before the arrival of COVID-19, there were 10 million people using zoom worldwide. By April 2020, there were 300 million users using the platform. This is great news for Zoom’s shareholders if nothing else (source: unifysquare.com).
HDP’s Head of Contracts and Commercial, Bill Bordill, took part in a discussion on the use of virtual hearings and adapting to the ‘new normal’ in the UK statutory adjudication system. Panellists agreed the pattern has opened up a new way of dealing with disputes. They concur it is now likely that many more disputes will find resolution in this way in future.
Many dispute resolution forums allow for virtual hearings now. These include Abu Dhabi Global Markets, who notably proclaimed themselves as one of the first tech-enabled dispute resolution centres. In London, the International Arbitration Centre set up a similar standard. The centre focussed heavily on the security systems in place to ensure secure hearings were a feature from their opening. Other forums such as IDRC allow for virtual hearings and the DIFC in Dubai were holding remote hearings in 2017, long before COVID.
In the courts in the UK, the country’s first ‘zoom trial’ was much publicised earlier in the year. Paul Darling OBE QC represented clients in a virtual forum, using the video-conferencing platform, ‘Zoom’. One of the biggest concerns often cited is that parties will not be able to interact with each other as they would in a physical environment. There are fears that parties will not have a fair hearing or be on a fair footing if not in a neutral physical environment. Rules of 'natural justice' have been questioned.
Another concern is that of influence; the worry that in an uncontrolled environment, witnesses may be ‘fed’ answers to questions or influenced in other ways. In a non-COVID scenario, this can be resolved by sending a third, independent party to be with the witness. It is slightly more difficult to control in the current environment.
Nevertheless, Paul Darling noted, “What the trial has proved beyond reasonable doubt, however, is that none of the intimacy of the physical courtroom is in fact lost with a remote trial. Rather, video sharing can in fact heighten our ability to dissect testimony, whilst opening up proceedings to the public.”
Another concern highlighted has been that of security. Zoom in particular, as one of the most popular platforms, has been a victim of security attacks. There have been high-profile issues with the ability of the platform to prevent hackers or others accessing meetings:
https://www.theverge.com/2020/4/3/21207134/zoom-recordings-exposed-thousands-identical-naming-search
https://www.tomsguide.com/uk/news/zoom-security-privacy-woes
Equally, commentators have noted that even a modestly tech-savvy operator ought to be able to remove such risks. They only need enable the relevant settings on the platform, before a hearing begins.
Procedure
Under most systems of Arbitration law, usually there is nothing to preclude you using technology. The Arbitration stays the same, the rules and procedures are the same.
Erik Schafer, one of Germany’s leading arbitrators noted long before the arrival of COVID, on the subject of technology in arbitration: “in the vast majority of cases all participants will collaborate as required”. He notes that this does need a consensual approach - parties need to agree to the process.
Why bother?
Notwithstanding the current virus, there are many reasons to consider remote hearings, in the same way there are many reasons to consider other uses of technology.
- The cost should reduce, with no need to hire rooms, provide catering, welfare facilities etc.
- There will be no need for travel and accommodation costs and the associated costs of travel time.
- The convenience of a remote hearing means it should be possible to arrange the hearing at more convenient times. This should allow those required to attend to plan other activities around the hearing, rather than block full weeks and months of time out of their diaries.
- Finally, there is the benefit to the environment. Sacing many air-miles on travelling between arbitrations and projects around the world. By eliminating the extensive need to travel, the carbon footprint of arbitration will reduce.
Practicalities
To allow such a hearing to happen, a key requirement is a stable internet connection. Even the most experienced broadcasters have, at some point in recent months, experienced a lost line or a poor connection. The connection for all users should be strong.
Users of the system should be able to be heard and hear. So, good quality audio, and a microphone separate to the default laptop microphone will be helpful.
A system should be ‘platform agnostic’. Try to avoid systems that favour one manufacturer or another. Microsoft for example, seem to favour their own Windows operating system, allowing only limited functionality on devices not running Windows. The website ‘Capterra’ can be very helpful for businesses trying to identify which platform to use.
System choice should be determined on the functionality and meet security requirements outlined above. Most systems are now able to provide a secure discussion. ‘Zoom’ in particular have been keen to close the various loopholes highlighted earlier in this piece.
The ability of certain platforms to provide breakout rooms is a particular advantage. Such rooms enable private discussions during a hearing or as directed by a tribunal. Surprisingly few systems seem to offer such functionality, but there are at least two that we are aware of.
Recording and storage should be a consideration when it comes to security. If a hearing or meeting is recorded, where is the data stored, is it secure? As an example, in surveys, Teams comes out well on security, if set up correctly.
Like so many choices in life, it seems choice of platform and whether to conduct a dispute resolution process virtually or not will be a trade-off. The loss of ability to see parties face-to-face is compensated for in other ways. Different platforms offer different strengths and weaknesses. However, it seems that no matter what the future holds, the world has become far more comfortable with working from home. As more money becomes available for research and development, the technology will improve commensurately to help us to do so.
Hewitt Decipher Partnership’s expert consultants have been both managing disputes and acting as experts in dispute resolution proceedings for many years. We have also quickly adapted to managing our services and managing our client’s expectations remotely, wherever the projects and clients may be located.
Paul Gibbons, HDP Director wrote this article. If you'd like to speak to Paul about any help that you require, please get in touch.
How Technology can help to avoid Construction Disputes
Construction is lagging behind.
This is not our opinion, but that of renowned research and consultancy organisation, McKinsey & Co. The industry’s productivity rate is lower than most other sectors almost universally around the world. With a few notable exceptions, such as China and India, productivity is poor and growth is slow. For an summary, check out McKinsey’s report Reinventing Construction.
Why is this?
There appear to be a number of reasons - not least our specialist subject, construction disputes. But the challenges posed by the construction dispute are compounded by poor management, poor organisation of data and limited collaboration and communication. Disputes need not occur and if they do, they need be as costly as they are.
We’ve mentioned before, in our 10 Top Tips blog, ARCADIS’ report which highlights the huge cost of disputes. The McKinsey report also notes that large projects are typically 20% over time and 80% over budget. In the US, disputes cost over $12bn each year. In the United Arab Emirates, where construction disputes are notoriously costly, a similar figure would equate to $248,400,000 or more than AED 9M lost each year to dispute resolution.
What Can We Do?
Adoption of technology and improvements in innovation and communication would be a positive first step. It may surprise some readers to find that at Hewitt Decipher Partnership, we don’t want to spend excessive amounts of time resolving disputes. It isn’t productive and doesn’t make for happy clients. If you do find yourself in a dispute, it is far better to be in a good position to resolve that dispute and minimise the cost, than to have to spend more than is necessary.
Technology
There are a number of systems available, but hitherto, a lot have been focussed on one aspect of construction or geared towards solving one problem. For example, Oracle’s primavera provides a great project planning tool with potential for planning in resources and cost. But rarely is it used collaboratively or pro-actively during the project.
There are tools for managing documentation and site records. Software is available for design and safety management. Rarely though, do all the stakeholders come together and invest in a coordinated fashion in the right software for the job.
Investing in technology is important. Records, plans and schedules, design documents and anything that might affect progress should all be coordinated. Whilst this article does not seek to recommend a particular software over another, there is useful research material out there. For example, this article from venture capital investors, Talis, looks at products which have the potential to create change in our sector. There are events, such as ‘project controls expo’, ’futurebuild’ and ‘glimpse of the future’. Each seeks to showcase innovators and technology providers in construction technology, “ConTech”.
Other Innovations
There are a host of other innovations we have seen in recent years. The use of virtual reality to re-create construction projects, the use of 4D modelling to identify where and how site instructions and variations led to a change in programming and cost, drones for surveying - to name just a few. As time progresses and technology is adopted, it is likely that the cost of dispute resolution will reduce. Our aim at Hewitt Decipher Partnership is to harness that technology and minimise costs to our clients.
If you have already sought to harness technology organise data before you need us. Our job is likely to be easier and less time-consuming. The result will be a less costly and more efficiently resolved dispute. We urge clients to seek out technologies to better manage records, improve communication between stakeholders and reduce the potential cost of construction disputes.
Hewitt Decipher Partnership’s expert consultants have been supporting clients though dispute proceedings for many years. We know how to comply with good practice to minimise disputes and if they do occur, ensure that they are resolved in a timely and cost-effective manner. Can we help you? To find out how, get in touch.