Government bodies and businesses are embracing new ways to manage relationships, reduce conflicts and resolve issues early, without the need of escalation to formal dispute resolution.
The construction and engineering sector has long been plagued with ill-managed infrastructure projects, payment disputes and adversarial behaviour. The ongoing public inquiry into the contentious Edinburgh Tram project is testament to this; costing more than double its original £375 million budget for only half the expected route, and opening five years later than scheduled, the cost of contractual disagreements between Transport Initiatives Edinburgh and the Bilfinger Berger, Siemens and CAF consortium alone are estimated upwards of £65 million. As government and industry await the findings of Lord Hardie’s inquiry, what can be done to reduce the cost of resolving contractual disputes?
Conflict management and early intervention
Construction and infrastructure projects are becoming increasingly demanding and complex in design, with many companies struggling to return profits against a backdrop of poor productivity, skilled labour shortages, digital disruption and sustainability concerns. Project performance is being measured not only in time and budget, but critically in terms of conflict resolution. Parties who in the past have been financially and reputationally damaged by under-performing projects, are looking to engage in more open and collaborative contracting to ensure emerging issues are dealt with quickly, inexpensively and in a commercially sensible way. Decision makers are moving away from traditional adversarial and costly legal dispute resolution practices, favouring processes that find solutions to help preserve working relationships and keep projects moving forward.
There are a wide range of conflict management and early intervention techniques currently being explored by industry, all of which encourage greater cooperation and trust amongst parties. These mechanisms can be incorporated into contract terms and may draw on a wide range of established methodologies, such as conflict avoidance panels, early neutral evaluation, project-based dispute boards and evaluative mediation.
Since 2014, Conflict Avoidance Panels (CAPs) have been incorporated into around £7 billion worth of engineering contracts between Transport for London (TfL) and major project delivery partners involved in the refurbishment of the London’s transport infrastructure.
CAPs are designed to encourage cooperation and resolve differences at an early stage, without the need for court, arbitration or adjudication. They enable parties to avoid and control disputes and are underpinned by relationship management which encourages cooperation. The CAP process involves an early review of issues when the parties have acknowledged there to be a disagreement. The review is undertaken by an independent panel (the CAP), which provides non-binding recommendations (however, parties can agree for CAP decisions to be binding at the start of a project if so required). A CAP usually consists of one or three professionals who are highly qualified in the subject at the heart of the issue and are experienced in a range of dispute resolution and conflict avoidance procedures. The panel is chosen from a larger number of “pre-approved” dispute resolution experts appointed to the project. The recommendations made by the CAP are reasoned and non-binding, although parties who do not accept them must explain their reasons why. The CAP process is flexible and can be tailored to meet the needs of the parties who adopt it.
TfL has successfully used the CAP process on 22 cases to resolve contractual issues potentially worth millions of pounds. Indeed, TfL has reported the average cost of early resolution of these types of issues to be around £15,000 - a considerable saving from the £50,000 to £500,000+ cost of formal dispute resolution.
Whilst it is impossible to quantify the potential cost savings of CAP to a now-failed Edinburgh Tram project, TfL’s Sue Barrett’s message to the market is clear. “Avoiding conflicts saves time, cost and energy that would be better served in delivering projects. CAP helps resolve issues at the time of the event in the way the contract intended, it helps both parties. From a commercial perspective it is a brilliant process compared to alternatives such as mediation, adjudication and arbitration.”
An opportunity, not a threat
The commercial impetus to resolve issues before they escalate into full blown disputes is changing the way parties contract with one another and there are opportunities for all to evolve with these new practices. Those professionals engaged in contractual administration for all types of construction project will need to be alive to how conflict management mechanisms such as CAP will ensure a more productive and profitable return for their clients. The success of these new ADR techniques will rest with all parties and their representatives to work cooperatively to draft clear, well thought out contracts that incorporate practical processes to nip emerging issues in the bud.
Professionals providing specialist services to both public sector organisations and private businesses operating in the public domain will be acutely aware of the political sensitivities and funding pressures to build more sustainable assets. The Scottish Government’s recent endorsement to the concept of collaborative contracting signals a genuine commitment to embedding conflict avoidance mechanisms into public sector procurement and will restore some confidence with industry stakeholders. Parties involved in the contractual administration process will be critical to supporting decision makers and influencers in consistent delivery of this message.
Surveyors, lawyers and engineers have long been at the heart of resolving disputes, frequently discharging their roles as arbitrators, independent experts, adjudicators and mediators, to name but a few. Skills and techniques acquired through these traditional third-party roles will give industry practitioners a distinct advantage in the marketplace. These new conflict management and early intervention approaches should be embraced as an opportunity to enhance and diversify the traditional services offered by businesses creating new and innovative revenue streams in what is a highly competitive market.