By Vijay Bange
The timeless catch phrase is of course from the famous comedy duo Oliver Hardy and Stan Laurel. Looking beyond the blame game is important. Problems will inevitably arise with complex large infrastructure projects. Understanding the underlying reasons and what the root causes are will perhaps aid in the process of reducing conflict.
Recently a paper was published in Construction Law (August 2021) (co-authored by my colleague Tanya Chadha, and with contributions from US partners Brad Thompson and Jeffrey Hamera, and Paul Mansell of HKA) (“The root cause of evil!” Construction Law, August 2021). An analysis was undertaken of HKA’s integrated research program that collects data on global claims/ disputes across 88 countries. An examination was undertaken of trends emerging across the UK, Middle East, US, Caribbean and Latin America.
Whilst I will refer you to the full article, this blog touches upon some of the issues below.
Types of Contracts Used
- Power and utilities sector disputes: Not surprisingly, given the complexity and magnitude of these projects they are prevalent across all jurisdictions.
- Bespoke contracts are used as well as standard forms.
- UK, Middle East, Caribbean and Latin America projects see usage of FIDIC.
- NEC, IChemE and IMechE are seen more localised in the UK, not surprisingly given they are produced by English professional associations.
- That said certain projects where there is a government to government agreement with the UK will see the use of the NEC forms i.e. the Peruvian project involving the reconstruction of infrastructure damaged by El Nino.
- The American Institute of Architects form is fashionable where there are government contracts in the US, Caribbean and Latin America regions.
- Renewable Energy Projects: With a global emphasis on reducing global emissions and the green agenda this is an active sector. Predominantly bespoke contracts are used.
- Key associations have signed a collaboration agreement and FIDIC North America has been formed. In additional FIDIC and the European Investment bank have signed a five year collaboration agreement. These recent developments will invariably increase the global presence of the FIDIC form in energy sector projects.
Causes of Disputes- Power and Utilities Sector
- A noticeable cause is failures in contract management and/or administration. Signing contracts, putting them in a drawer, and running the contract on the basis of recollection what it is thought the contract said!
- Departures from contractual procedures may open up risks as to potential variation of the agreed contract, albeit unintentionally.
- Disputes over contractual interpretation are very common across all jurisdictions. These contracts will have many amendments. Loose drafting and language used by non-lawyers may result in a scenario where the real intentions of the bargain agreed is not reflected, or at the very least is ambiguous. A salient reminder of the need to get legal advisers to negotiate and draft the contracts. On a similar note non lawyers may not necessarily appreciate the interpretation particularly where it is a bespoke contract, or indeed bespoke amendments to a standard form.
- Workmanship issues, unlike the construction industry, are markedly less prevalent in the energy sector. Contractors and subcontractors are usually drawn from a pool of global experienced specialists that have a track record for delivery. Given that many of these projects have a state interest, there will be stringent tendering processes.
- Specific jurisdictions have their own nuances.
- So the Middle East claims emanating from incomplete or late design information are common. Contrast that with the UK where these are less common.
- There may indeed be regional centric disputes. An example in the US state of Texas was the fall out of the devastation of the prolonged freeze caused by storm Uri.
- Other issues may stem from the skills gap/ shortage.
- More recently, the global pandemic has given rise to a whole genre of issues and disputes and challenges.