Summary: In this blog Iain Suttie looks at which risks are really important to clients in major infrastructure projects, and ask whether lawyers can be more pragmatic in their negotiations.
Last week I went to a presentation on systemic risks in major engineering projects. It certainly got me thinking. What sort of risks really matter to clients, funders and other project stakeholders?
High on the list for international projects or major UK infrastructure projects are such things as brownfield risk, the regulatory and political environment, obtaining consents and the cost of capital. Similarly, for commercial and other non-infrastructure developments issues such as the economic cycle, availability of finance, tenant/onward purchaser sentiment and planning risk will feature. Major construction risk, for example a tunnel flooding while under construction and the associated time and cost consequences, will also appear on any list of key issues.
This is all heady stuff. These issues are clearly fundamental, so clients and their advisers rightly spend time considering them, even if it is difficult to evaluate the level of risk.
From the sublime to the less sublime
However, what risks do construction lawyers, at least those of us who negotiate and review project documentation, see when we get back to our desks? Too often it seems that we are confronted by, and frankly confront others with, a procession of points that are divorced from anything resembling significant risks. In fact, some of the points we labour over as a tribe may be difficult (or embarrassing) to explain to a client, particularly one who is at all pragmatic, let alone one invited to pay for the work involved.
I’m not suggesting that we shouldn’t spend time making sure that we get the basics right, for example, correctly worded payment clauses. However, I do question whether we should be spending so much time on some of the following issues:
Professional indemnity insurance (PII)
Do we really need to request or obtain endless brokers’ certificates confirming that consultants and contractors maintain PII in line with their contracts? I’m not saying that PII is unimportant, but do we really need to waste not only our own time, but that of our clients and project managers or consultants and contractors themselves, reeling in so many certificates? The truth of the matter is that consultants and contractors are generally motivated to maintain appropriate PII (for consultants, this will be a requirement of their professional body). It is unlikely that a major consultant won’t maintain an adequate level of PII for the projects on which it is involved.
Consultants and contractors occasionally do, unfortunately, become insolvent and may cease to maintain PII. However, when it comes to the more prominent brands in our industry, familiarity with the trade press and a dose of reality is perhaps a more efficient approach than paper-chasing.
While I’m at it, may I also put in a plea for us not to email one another pointing out minor divergences between the PII details in a contract and those set out in a broker’s certificate. The truth is that these points never amount to much. Have you ever seen a certificate reworded or deal aborted on such slender grounds? Probably not. Also, do we really need to see an updated certificate (say midway through due diligence) replacing one that has only just expired? Can’t we agree that not much will ever be likely to turn on such things?
Sub-contractor collateral warranties
We have established an even larger cottage industry devoted to the negotiation, preparation, signature and herding in of endless sub-contractor collateral warranties for clients, purchaser, tenants and funders. These typically provide nothing more than a second tier of recourse, which may be relied upon in the event of main contractor insolvency. Now it may be that banks and others who call the shots will insist on receiving a belt and braces package. However, where we are less constrained, could we be more practical? Here are some suggested guidelines, all quite obvious, which may lead us to think that sub-contractor warranties may be politely overlooked:
- It’s a small project.
- It’s a medium-sized project, with quite a large contractor on board.
- It’s quite a large project, but with a large contractor.
- As above, but there is a latent defects policy in place. (Yes, I know that the coverage under such a policy will be different to that under a collateral warranty. However, we are being practical.)
Undue due diligence
Let’s admit it, as a group we can be guilty of occasionally sending out unnecessarily long or unfocused sets of due diligence enquiries. Sometimes this may be because we have little available background. However, if you know that the works haven’t reached practical completion, is there any point in asking for a copy of a final certificate? In fact, if you’re advising a tenant who isn’t funding the works, why would you ever need to see a final certificate? Enough said, I hope.
I prefer my drafting to yours
Perhaps I do. However, this occasional habit, not restricted to construction specialists, may not just overreach professional restraint, it can also add to inefficiency. One duty of care clause or copyright licence in a bespoke professional appointment or schedule of third party rights is likely to do the same thing as any other. There is rarely a pressing need to tinker. The same probably goes for minor inconsistencies between (say) a clause in an appointment and the equivalent clause in a third party rights schedule or collateral warranty.
Please feel free to add to my list anything else that bugs or frustrates you, or to tell me that I’ve got it wrong and that I am disregarding case law and best risk management practice. Perhaps even ask your contentious construction colleagues how often points like these ever amount to anything in practice.
However, the serious point underlying all of this is that perhaps there is some room for practically focused harmonisation of how we go about things in the land of non-contentious construction. Our colleagues who specialise in buying, selling and leasing land are probably more advanced than us in this respect. It’s certainly worth pondering how construction lawyers might more efficiently continue to achieve the same (good) results for our clients. Who knows, we may even get out of the office a few minutes earlier.