New allegations by NBN subcontractors that they are not being paid for completed work is a stark reminder of the damage disputes can do to your project. While it’s often said disputes are inevitable on large construction projects, the truth is most can be avoided just by following a few simple rules.
The pressure cooker atmosphere that is a large construction project makes the environment ripe for disputes. Everyone, from the project director down to leading hands, are called on daily to make snap decisions. And, it’s exactly these decisions that land companies in long running, expensive and difficult to resolve disputes.
Poor contract administration – the number one offender
Construction disputes are often blamed on either poor drafting or poor compilation of the contract documents. However, the genesis of most disputes is poor administration of the documents.
All too often project managers take the contract put it in the bottom drawer and get on with the job because “they know how construction is done”. Despite this so many disputes start out because someone forgot to carry out a simple administrative step like filing a notice on time, filling in a form or just telling someone else that a problem has arisen.
The sheer numbers and interconnectedness of contractors and subcontractors on large scale projects means effective administration of these documents is crucial.
Too frequently we find disputes arise because the project didn’t have the right people. The best administrators often find themselves spread too thinly between multiple projects or redeployed to other, higher priority, projects.
Less experienced people are asked to step up and make complex, difficult decisions that are beyond their experience and pay grade - the perfect breeding ground for a dispute.
Better contract administration means fewer disputes
Disputes are usually framed as claims in their infancy. But in the day-to-day hurly burly of getting the job done, claims are often ignored until they grow and are given the name dispute.
Then executive management get involved, taking their time away from running the business. Even then it might only be the most critical issue that gets the focus while myriad other claims and disputes are left bubbling beneath the surface.
So, what can you do to avoid disputes arising on your project? Here are our six tips for better contract administration and fewer disputes.
1. KNOW YOUR CONTRACT
First and foremost, know and understand your contract in every detail. Carry it with you everywhere. Print it in A5 to create a small portable version. The best project managers are those with the dog eared, well thumbed copy of the contract falling out of their satchel at every meeting.
Be upfront about relying on the contract from day one. That way it won’t upset the relationship when it gets pulled out in the middle of the job.
More than likely you’ve invested a large amount of money in lawyers and consultants to draft the various parts of the contract so make the most of that investment.
2. KNOW YOUR COUNTERPART
If you are the principal, then learn as much as you can about your contractors - both before the project commences and then keep up to date on their business as the project progresses. What other projects have they got on? Is yours a higher or lower priority than their other projects? Will your project get the contractor’s best personnel? What financial or other pressures are driving the behaviours of the people employed by the contractor?
Exactly the same principle applies if you are the contractor. Learn all you can about the principal and monitor their behaviour as the project continues. Do they pay on time? Why are they undertaking the project? What other projects do they have on the go? Who owns them and where do the owners come from? How often do they come to the project?
3. KEEP YOUR EYES ON THE ROAD
Delivering a large construction project is more than just erecting steel and pouring concrete. It’s a journey for both your team and the other support teams of support.
Set yourself a clear strategy as to how you are going to attack the delivery of the project. Articulate the strategy to your team members and stakeholders and what’s in it for them. Always “keep your eyes on the road”. That means, stick to the strategy but keep looking ahead and don’t be afraid to revisit it as circumstances change.
The more you know about the various factors driving your counterpart the easier it will be to make decisions about your strategy and whether it is still sound or needs adjustment.
4. RISKS ARE OPPORTUNITIES
Project managers know the true definition of risk contemplates positive as well as negative outcomes. Do you approach every development, be it negative or positive, as an opportunity to improve the project? For example a principal on the receiving end of an enormous claim can use the situation as an opportunity to negotiate having the contractor’s more skilled personnel, the “A Team”, to return to the project to finish the works and close out defects during the DLP. Treat developments as opportunities.
5. CRAFT YOUR CORRESPONDENCE
All too often the early pieces of correspondence in the chronology of a dispute look like they’ve been written on an smart-phone while the author was waiting to board a plane on their way back from site. This approach usually leads to ambiguities and confusion in the correspondence which can escalate rather than resolve the claim or dispute.
So, craft your correspondence. Use active rather than passive language. Be clear about who is going to do what and when and who will pay and how much. Borrow the defined terms from your contract. If you are recording an agreement that was struck on site, make sure it includes who said what to whom and when.
It’s common for project participants to fall into the trap of thinking that an email is an informal and therefore unimportant piece of correspondence. The truth is by the time it gets to a dispute the distinction between formal and informal communication has fallen away, so treat every piece of correspondence as a potentially legal document.
Be accurate. Ask yourself before you hit send, what would an independent person think if they read this in two years time? Would they understand my point? What other documents would they need in order to understand the issues, and how do I reference them so those documents can be found easily. If you can’t answer these questions, don’t hit send until you can.
6. MAKE THE MOST OF YOUR MEETINGS
Use face to face interactions to answer key questions and gather information. What does the other party want us to do? What does the contract say we can or must do? What further information do we need before making a decision? Do not be afraid to ask questions and do not feel compelled to make commitments.
Finally, make sure that the minutes are an accurate record of the discussion. If they are not, put in written correspondence, your dissatisfaction with the minutes and why.
Expert contract administration is a must-have in construction environments. It’s worth putting in the time and skill to avoid a long and protracted dispute, which only feeds the lawyers!