Whilst disputes may not be as certain in life as death and taxes, they are certainly not far behind. As Australia’s most recent economic boom slows down there has been an increased prevalence of major disputes.
The introduction of the security of payment legislation and the popularity of short term adjudication as the forum for disputes has radically altered the way in which the market perceives and manages disputes. In this climate of increasing conflict, much greater attention needs to be paid to managing contracts and projects to minimise disputes, and just as importantly, increase your chances of success when they arise.
The key to success is taking the right steps from the beginning of a contract. Once you are in a dispute, then the die is, to a large extent, already cast.
General contract administration principles
Good contract administration is one of the most effective tools available to a project to minimise the risk of disputes arising.
This is not to say that you must administer every contract on the basis that every letter, email or phone call is a potential time bomb. Nor should you doggedly apply every contractual right as though your life depended on it. There is, of course, room for common sense, and as long as you follow a few simple rules, you will be in a much better position.
Understand the Contract
Extensive amounts of time, effort and expense go into drafting and negotiating contracts. The value of the contract can easily be lost if the terms of the contract are not read, understood and followed. The following steps will assist you in understanding the contract:
- involve those who negotiated the contract in the project so that their knowledge is retained;
- read and understand the the contract (obvious, but so often overlooked);
- ensure experienced project managers are in control of delivery;
- understand the roles of the various participants in the project and ensure communication protocols under the contract are set up and followed;
- set up administration and filing systems to deal with document management; and
- conduct workshops so everyone on the project understands their role.
It is important throughout project delivery to maintain good document management systems. In the event of a dispute, documentation will need to be heavily relied upon to support and evidence your case. In the event of a security of payment adjudication, where time is critical, good document management systems will aid the prompt preparation of a solid response to an adjudication application.
Communications between the principal and contractor are a fertile source of dispute. It is critical that consistent and clear contract communications are given by both parties.
The following steps will help you manage your communications effectively:
- ensure you know how the contract requires communications to be given;
- if you have a web based system, make sure it is always used;
- ensure all formal correspondence is received by the right person, scanned and filed;
- always be careful of what you write (especially in emails which are instantaneous and leave a written record);
- if anything is discussed or agreed orally, always follow this up with confirmation in writing; and
- if your communication is prepared in connection with an attempt to settle a dispute over an issue, consider whether it is appropriate to mark it “without prejudice” (ie, you don’t want it to be disclosed in subsequent legal proceedings (if any)).
In litigation, any correspondence or documentation which is not protected by privilege must be disclosed to the other party and can be used against you in the event that a dispute arises. Even privileged communications with your lawyers can be subject to disclosure, as privilege can easily be lost through unwise communication.
To assist in maintaining privileged legal communications you should:
- avoid representing that you have received legal advice on a matter or the nature of that advice;
- avoid copying external parties on privileged communications;
- ensure that internal communications that you wish to keep confidential satisfy the test for privilege – that they are confidential, that they are prepared for the purpose of obtaining legal advice or professional legal services in relation to anticipated or actual legal proceedings and not prepared for any other purpose; and
- use internal counsel (or external counsel) wisely to ensure that privilege is maintained.
Some common problems
The majority of construction disputes involve project delay or disruption claims. Without an up to date programme, it is difficult, if not impossible, for the principal to assess an extension of time claim. Unfortunately, it is all to common for programmes not to be kept up to date.
From a contract administration perspective it is crucial that an approved baseline programme is put in place from the outset, and that updated and statused programs are maintained on a regular basis.
In the absence of good programming information, it is difficult to figure out what happened on a project at a particular time. This results in the need to reconstruct events based on other records or recollection of key staff involved on the project at the time (assuming they are still on the project). These recollections are commonly less than perfect.
Time bars operate to defeat valid claims that have not been made within the time limit prescribed in the contract. Time bars can have harsh results. However, there are good reasons for imposing time bars:
- to prevent a claim being made weeks or months after the relevant event, when collecting evidence to respond to the claim is difficult; and
- if a claim is made for a variation, the principal is alerted to the fact that the contractor believes a variation has arisen and has a chance to change its mind.
Like any other contractual provision, time bars are enforceable. However, the protection of time bars can be lost if the other side can show the contract has been administered in a way which waives the right to impose time bars.
It is important that such terms of the contract are not inadvertently waived by failure to follow contractual processes. Wherever a decision is made not to apply a time bar, (for example, by awarding an extension of time where no entitlement to one exists) it is important to make it clear that the contractor is bound to comply with all contractual obligations in the future and that the grant of the particular right (ie extra time) does not constitute a waiver of the agreed contract terms.
What to do when the claim lands
Rarely do disputes arrive unexpectedly. There are some important steps to take when you suspect a dispute might arise:
- understand the dispute resolution options both under the contract and at law (eg BCIPA);
- get advice promptly, before any steps are taken which may prejudice rights – once the dispute is on the radar, all communications with the otherside should be carefully managed;
- gather the team of people who can assist you and work out who has actual knowledge of the dispute and the best expertise;
- gather together the relevant documents;
- find out what experts you will need and what they will say;
- make early attempts to settle the dispute or agree an alternative process; and
- work out if there are parts of the dispute that can be dealt with quickly and cheaply.
Disputes remain a fact of commercial life and have a significant effect on the productivity and profitability of your project. Whilst it is not always possible to eliminate disputes, by taking some simple steps, and following the terms of your contract, you can greatly reduce the chance of disputes occurring and put yourself in a strong position if they do occur. Proper contract administration is critical in maximising project value.