Legal disputes are a critical element of effective risk management. Disputes have the capacity to completely derail a project; blowing out the time, budget and the political capital (or social license to operate). Just like other risks on a project, there are factors that increase the likelihood of disputes occurring, and there are processes that can be implemented to mitigate the extent of their occurrence and impact on the project.
A few general observations can be made about construction and engineering disputes:
(1) Uncertainty combined with large sums of money is a recipe for disputes.
(2) Most disputes turn primarily on their facts.
(3) Time-pressures often undermine the ability of contractors to properly examine the contract or site conditions before work commences.
(4) Lawyers are often seen as an expense (rather than an insurance) and will more readily be engaged to fight claims, rather than prevent them.
(5) Legal disputes have the capacity to multiply the cost of a project.
Dispute Risk Management – Addressing Uncertainty
Therefore, an effect risk management strategy requires setting up systems and practices to mitigate the likelihood and duration of disputes. This is done primarily by addressing sources of uncertainty:
(1) Uncertainty in time limits and notice requirements for claims (e.g. extension of time, delay costs, variations, progress payments etc etc)
As soon as possible, make a list of all the prerequisites for making claims and extending time under the contract and keep it handy. You want to avoid having to rely on a verbal assurance from the other party that they won’t hold you to the strict contract time limits.
(2) Uncertainty of scope or performance requirements.
At the earliest opportunity, identify and clarify any points of uncertainty in the customer’s expectations (e.g. vague elements of the spec, boundaries of the scope etc etc) and confirm this with them in writing (be as specific as possible).
It is all well and good to just ‘leave the contract in the draw’, but if a dispute arises all that good will and mutual understanding will evaporate. If you have not thoroughly documented these mutually agreed departures from (or clarifications of) the contract, the other party will pull that contract out of the draw and rely on it with impunity (or you’ll be facing their own documentation of what you supposedly said you would do).
(3) Uncertainty in your ability to prove the facts you rely on should a dispute escalate.
It is a lesson that many learn the hard way – ‘document everything’. Don’t rely on verbal assurances (at the very least confirm them in writing by sending that person an email with any relevant pictures or documents attached). When a disagreement arises it will be critical that you can provide a clear and reliable documented chronology of what was said, who said it, what their authority was to say it, when it was said, and the circumstances of the communication that impacted on how it was understood.
Benefits of Effective Dispute Risk Management
The best way to address this is by having effective systems to keep you organised and make it easy to reliably document everything. This way, when a dispute does escalate you will have records of everything, and be able to quickly identify the relevant documents. This will:
(1) Allow your lawyer to more quickly advise you of the strength of your position.
(2) Reduce the legal costs involved in case preparation.
(3) Allow quick and comprehensive responses to claims (e.g. security of payment, EOT, delay etc etc).
(4) Minimise uncertainty over the strength of your position, allowing your lawyer to take a more forceful and decisive approach in negotiations.
(5) Ensure that you are able to meet the timetable set by the dispute resolution clauses.
As a result, the average cost and duration of disputes will reduce, you will establish a reputation that discourages other parties from ‘trying it on’ which will reduce the number of disputes, and you will have more time and energy to devote to growing your business.
Tools to Manage Dispute Risk
Much of the above revolves around having robust systems to document everything and keep you organised. Two project management tools that were prominent at the Sydney Build Expo this year (30-31 March 2017) were Procore and Aconex (Aconex also integrates with BidContender).
Critically, tools like these are:
(1) Cloud-based: So you won’t lose your data if you lose your device.
(2) Optimised for mobile devices: So you can document developments on the fly while on site.
(3) Simultaneously accessible by multiple parties: So you can ensure that everyone is kept on the same page as the project inevitably evolves.
(4) Designed to keep you organised: Maintaining a clear filing system and chronology of project developments so that you (and your lawyer) can quickly find those critical documents.
Remember, disputes are not resolved on the basis of what actually happened, they are resolved on what can be proved by hard evidence. The best response to that letter of demand from the other party’s lawyers is solid documentary evidence showing their case to be baseless.
Document everything, be specific, your lawyer will thank you – and most of all, you will place your self in the best possible position to protect your interests and resolve disputes economically.
Contact Us for assistance with dispute resolution and advice.
- Practical Tips from “Tracing a Construction Dispute” Seminar at the NSW Supreme Court
- 5 Keys for a Productive Mediation
- Outline of the Building and Construction Industry Security of Payment Act