Construction contracts: Practical tips for mitigation and avoidance of disputes

1 Ensure consistency of contractual terms

Before executing agreements, it is important to ensure that all contractual terms (including the general conditions, particular conditions and specifications) are clear, consistent, and easily identifiable within the contract. Should a judge or arbitral tribunal be required to interpret inconsistent terms, the outcome may be significantly different from the parties’ intention at the outset, which may place the parties in vulnerable positions that are not reflective of the risk allocation as understood by the parties.

2 Know your contract

The project manager or appointed engineer (or anyone else tasked with administering the contract) needs to ensure that they understand the terms of the contract, how it is intended to operate and must ensure that the parties comply with its terms (including notice provisions). If any terms are unclear, the parties should be proactive and seek to agree amendments to the contract as early as possible. It is too often the case that contracts are administered in accordance with “industry norms” rather than in line with the actual contractual teams.

3 Keep proper project records

Parties should keep proper records of all stages of the construction project. These records are vital to assist parties to identify any issues further down the line, particularly where there is a significant time lapse between the initial actions and the resulting dispute.

It is safest for parties to assume that the project will end up in a dispute before a judge or arbitral tribunal at some point in the future. By the time a dispute comes before a judge or arbitral tribunal, most of the project team may have moved on to another project or jurisdiction and may not be available to provide evidence. The strength of a party’s case will largely depend on the quality of its project records and documents, including:

1. the baseline programme and any working or updated programmes;
2. the “As Built” programme;
3. records detailing the status of the works at regular intervals (such as minutes of progress meetings, photos, site diaries, variation logs and risk logs);
4. records of additional works or abortive works;
5. details regarding the labour on site; and
6. project correspondence.Parties should ensure that all correspondence is uploaded onto an accessible document management system, including emails and text messages between the parties.

4 Ensure that the construction programme is managed in accordance with the contract

The construction programme should be detailed and realistic. It should be managed in accordance with the contract, regularly updated and distributed to all parties. Key elements of a programme are realistic milestones and completion dates, and enough float to accommodate project risks. If the programme does not contain these, the likelihood of a dispute increases.

5 Understand what is happening at the subcontractor level

Employers need to understand what is happening at the subcontractor level. Issues at that level may be indicative of wider issues on the project which could give rise to disputes and may need to be actively managed.

6 Ensure all contractual notice requirements are met

It is essential that the parties meet all notice requirements pursuant to the contract as a party may be deemed to have waived its right to bring a claim, or the claim may be time-barred, if the party fails to comply with notice requirements. The primary purpose of notice requirements is to ensure that risks are identified early on and managed appropriately.

7 Preserve and gather evidence when problems arise

It is essential that parties preserve all relevant site records to ensure that they are well placed to bring or defend any claim.  Site records include: programmes, reasons for delay in carrying out the contract, photos of defects, plans marked-up to show defects, “As-Builts”, records of materials and minutes of meetings.

As soon as a dispute arises, it is important for the parties to speak to everyone who may hold relevant information, including site diaries and records of observations on site. Now is the time to identify individuals who may be able to provide expert evidence in relation to the dispute and seek their views as to any information they may need to fulfil that role. Client representatives and/or experts may wish to inspect the site.  Parties should record third party observations and any test results.

8 Analyse delay

An analysis of critical delay is required in order to assess any claim for an extension of time and related costs. Different methodologies may be used to do this. Some are prospective in nature, such as Impacted As-Planned Analysis and Time Impact Analysis. They identify the causes of delay and then estimate the effect. Some are retrospective in nature, such as Time Slice Windows Analysis and As-Planned versus As-Built Windows Analysis. They identify the effect first and then consider the causes of the delay.

Various factors will dictate which methodology will be the most suitable in any given situation, including: what the contract says, the level and quality of available project records, the robustness of the baseline and subsequent updates, and the time and funds available. An arbitral tribunal will generally prefer a retrospective analysis, in particular, the As Planned versus As Built method of analysis.

9 Engage experts at an early stage

Given the complex nature of construction disputes, expert evidence is often required on technical, delay and quantum issues. Instructions to experts must be clear and in writing. Experts must be independent and credible. Ideally, they should have prior experience of being cross examined.

10 Reserve your rights

If a party has a potential claim under a construction contract but is not yet in a position to commence the claim, it should ensure that it reserves its rights in relation to the claim at the earliest possible opportunity. This should be done in writing and clearly identify what rights are being reserved. Where a major milestone is approaching, such as the issuing of the Taking Over Certificate, the party seeking to reserve its rights should check if there are any special requirements it must comply with under the relevant governing law in order to do so. This helps to minimise the risk that a party will be held to have waived its rights.

Conclusion

Construction disputes are factually and technical complex, document heavy, high valued, typically involves multiple parties and therefore are hugely costly. It is therefore imperative that parties implement these practical steps to mitigate the likelihood of a dispute crystalising and/or ensure that they are well prepared in the event it does.