Being risk ready and winning disputes in a post-pandemic world

Mail Manager 15 Jun, 2021

Given the unknown of the world at the moment and the pandemic being a poignant topic, Mail Manager put together a panel discussion to discuss how the AEC will approach the post-pandemic climate. We were joined by Ellie Greatholder, Head of Commercial and Legal - Buildings and Disputes at Buro Happold, James Morris, Partner in Construction, Engineering and International Arbitration Practices at Mayer Brown, and Rob Horne, Partner, Head of Construction and Engineering Disputes & Risk for the UK at Osborne Clarke.

 

 

Setting the scene

The latest Arcadis 2020 Global Construction Disputes Report suggested that the average cost of global disputes was US$30.7 million, with the average dispute lasting around 15-months. The report also indicated that the overall volume of disputes also increased in the last 12-months, with poorly drafted or incomplete, unsubstantiated claims becoming the number one cause for construction disputes, which was a change from the year before.

In our own research, the 2021 State of the AEC Project Management Report, Mail Manager found that two-thirds of respondents had some form of legal disputes since the beginning of the pandemic. Of these disputes, the most common causes were timeline changes, payment issues, and project scope changes. In most of these cases, the information needed to win these disputes was evidence of correspondence, contract management, and project information.

What does a post-pandemic climate look like?

COVID will continue to have a significant impact on firms and construction supply chains. We’ve seen so far this year that there's been a notable increase in notifications and claims, partly to chase up on legacy issues, and partly to chase the recovery of commercial positions due to the direct impact of the COVID pandemic on current projects.

Ellie Greatholder commented: “2021 brought the perfect storm of a negative economic environment with Brexit, reduced construction activity, material shortages, the end of government support schemes and the introduction of the reverse charge. All of that carried risk of the industry becoming embroiled in really costly and long-running disputes.”

She continued: “One of the major positives that we can take from the last year is that there's been a real positive and increased level of collaboration, particularly in public sector contracts. There’s reason to hope that the pandemic really can be a catalyst for transformation and probably already has been.”

The pandemic has shown that in looking at engineering and construction disputes, collaboration is a viable alternative to disputes, a change in the adversarial mindset is possible, and contracts can help push this process along. Pre-COVID, the industry became acutely aware that a lot of major industry contracts were not set up to deal with a pandemic and its effects. There was a huge mismatch between what the contract allowed, and what felt right at the time, including completion dates. Very few contracts allowed for financial compensation for the delay and disruption that we saw throughout the peak of COVID and are still seeing today.

Again, Ellie commented: “As a result of this, I’ve seen evidence that parties have been looking outside the contract for a solution, discussing alternative proposals on or without prejudice basis to find workarounds. For instance, what would happen in the event of a site shutdown? Someone has agreed to work collaboratively with contractors and agree financial compensation, just to ensure that the project was completed. My hope is that this collaboration is not temporary but can be taken forwards.”

Rob Horne added: “One thing that I think is going to be really important, this year in particular when you start looking at the post-pandemic climate, is the impact of insolvency across the sector. Once the restrictions on wanting applications fall away, how much are we going to see? Where is it going to impact the supply chain where supply and demand are already outstripping supply by a fair margin? If you start seeing a lot of insolvencies, that for me could be a driver away from that collaborative effort we saw a lot of last year, and a swing back to a more aggressive, combative stance that’s been the mainstay of construction unfortunately for a long time.”

The importance of proper contract management as we enter a period of unknowns

The industry has seen increased competition for projects since the pandemic has begun. Largely, there seems to be more pressure on fees, and as a result there are fewer projects around because investors are being more cautious. We have also seen less demand for traditional collaboration spaces such as conference centres, which creates a risk that there may be increased pressure placed on project leads accepting onerous or unfavourable contract terms, causing project leaders to circumvent company protocols when it comes to accepting onerous terms.

On this, Ellie commented: “The overall effect of this is the need for those working on projects to have a really good understanding of what they’ve signed up to, along with a comprehensive risk register, so that contingency is allocated and a plan put in place to deal with issues, should they arise. This puts the project team on the front foot so ensure there are no surprises to distract from the delivery of the project. Contract administration is absolutely key now, and it’s not the time to put contracts in a drawer to collect dust.”

The importance of preparation, email and document in a hybrid working world

Ellie Greatholder Quote

As with many industries, there are murmurings of concern floating around the AEC about the risks that hybrid working might bring. There’s a huge difference between all employees working remotely or all employees in an office, compared to people doing half-and-half or moving around. There is an increased risk of disconnect within teams, unengaged people working on projects, and the potential for the quality of work produced to suffer.

Ellie mentioned: “There’s also a piece around the fact that home working can provide a tendency for people not to adhere to policies and procedures in the same way they would in offices. Standards have the potential to slip and the same level of checking may not happen.”

Preparation is more important than ever. James Morris added: “One of the best ways of preparing for disputes is to have the right team in place, instructed at the right time, who have made sure that your records and correspondence files are as complete as they possibly can be. Assembling the right team in the midst of a big dispute landing on our desk is not the best time to be doing that.”

When discussing the importance of contracts, Ellie noted: “Records are king. Keeping a written record of communications that are made and having clear audit trails is always going to stand you in good stead whether formal disputes arise later or not.”

James later continued: “There’s been a huge increase in the amount of email traffic since we moved away from face-to-face meetings.” When discussing webinar fatigue and working in isolation from peers, James added: “More is being put on email, and really some things are better not to be on email and in letters. I think there’s probably something in Ellie’s point earlier about not having that formality leading to not complying with policies that otherwise people would be reminded of if they were in the office.”

Ellie added: “The most successful projects I’ve seen in this regard are ones that have got good email management systems in place, where parties are prompted, and it’s very difficult for them not to do the right thing.”

Maintaining document records in a pandemic isn’t always easy, especially when everyone is working remotely and has different ways of filing emails and correspondence. James added: “You need to think about the different places in which you’ve got data that you might not necessarily have had prior to the pandemic. Lots of people have started using chat functions and other apps, so there is more business data in different sources than there ever has been, which makes preparing for disputes tricky and expensive. Having particular procedures with folders, filing and good administration management will make dealing and preparing for disputes so much more straightforward.”

“There has also been a lot of staff movement in the industry over the last six months or so, and this leads to real evidential issues with disputes, especially if a person who was the key project manager on a site for a project that’s run on for many years, and they’ve left to go to a competitor. If you’re in the middle of a dispute, this can lead to real issues later on in terms of collecting the evidence that you might need.”

The three threads of construction, and the new dimensions to risks and disputes

The three threads of construction, time, cost and quality, have changed drastically since March 2021. The pandemic has created new dimensions to risks and disputes. Rob commented: “In order to deliver a good project, what you’re looking for is one that finishes on time, to budget, with the right quality. I think from my perspective, all three of those threads have been significantly impacted through COVID one way or another.”

All construction and AEC firms experienced some form of disruption throughout the pandemic, and some were impacted more than others. Some companies were able to keep worksites open, full steam ahead, while others had to shut down completely. Those that stayed open had to manage when their contractors were going to be onsite, manage break times to allow for social distancing and so on. These changes would have had significant costs that would have been passed up the supply chain, and have significantly changed the way programs worked in the sector.

Rob also added: “We’re seeing lots of issues in the supply chain at the moment. Materials are hard to come by. It’s very unusual to see problems in the delivery of construction materials hitting the mainstream media which is what we’re seeing. Brexit also happened in this middle of all this which created more barriers to getting goods into the country quickly and effectively which has made things more difficult.”

While time and cost have been prevalent in people’s minds, the third thread of construction, quality, tends to be forgotten. Rob continued: “When you have a period of not just lockdown but limited access or changed access to a project, the ability to carry out those quality assurance checks, on-site testing, visual inspections as a project being built has been limited, disrupted, hampered and altered.”

He continued: “In the normal run of events where you see that level of disruption to the quality assurance procedures, you tend to get projects that have higher than average failure rates on all sorts of components and building infrastructures, but now we’ve got that as an industry. Not just one project, we’ve got it across the entire industry. How are we going to deal with that at an industry level? How are we going to unpick and assure ourselves that the construction took place properly?”

James added: “It might take many years for some of the issues that arise out of that period to become named, that tends to be the way these things work, certainly with latent defects. That’s something that the industry is already struggling with, as we all know, with all the things that have come out as a consequence, fire safety at Grenfell and the like. The last thing the industry needs is more of that, but as Rob said, it wouldn’t be at all surprising if the impact of the pandemic and restrictions in carrying out works has affected quality.”

Actionable insights from our panelists

At the end of our panel discussion, our three panelists were asked to share their number one piece of actionable advice that the listeners could take away.

Ellie:

“I think the training piece is vital. Training can obviously cover a wide range of things, but if there’s anything you do, make sure your business understands the importance of everything we’ve talked about today. Why you need a contract, why you need to know what’s in your contract, how to manage a contract, and how to record the things in your contract.”

Rob:

“I think mine is that there’s no absolute, particularly in this post-pandemic world, so take care, be proactive and be realistic in what you’re trying to achieve.”

James:

“And I think mine is good records and good leaders.”

Thank you to all our panelists for providing their insights on a very interesting discussion. If you’d like to hear more about what was discussed, you can access the full webinar via our YouTube channel.

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