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.