I was interested to read an article in a recent MEED Business Review entitled Be prepared for war and in particular the statement “…The majority of construction disputes are caused by poor contract administration…”. This is not my experience in dealing with countless disputes and arbitrations in the engineering & construction industry for more than 45 years – I have yet to come across a dispute caused by poor contract management and administration. Disputes in this industry are caused by people, usually as a result of a breakdown in the relationship between the contracting parties because one or both is thoroughly fed-up with the other for not delivering on their promises made with the contract signature.
Few, if any, engineering & construction projects do not suffer from “events”. It is not the occurrence of these that is the problem, it is the way in which they are managed by both parties. Invariably, inadequate project management and ineffective executive project sponsor interventions mean matters are not resolved properly and in due time. This leads to dissatisfaction by one or both Parties that progressively corrodes the relationship. However, it would be most unwise to underestimate the effort and time required to ensure that “events” are handled and resolved properly and in due time – early interventions coupled with pragmatic solutions that are agreeable to both parties are essential. However, there is a tendency to “sweep matters under the carpet”.
The subject matter of disputes (delays, cost overruns, breaches of contract etc) beloved of lawyers, claims consultants, expert witness and others which consume vast amounts of time and money in analyses, report preparation and formal submissions are, almost without exception, the “presenting issues” and are the symptoms but not the real cause. For this we have to look to the emotions at the root of the dispute but psychology is not a popular sport in dispute resolution – it is “touchy feely” and cannot be neatly wrapped-up in factual, contractual and legal arguments. But the human factor is a reality and, from personal experience, if dealt with effectively can bring about remarkable results in settlement negotiations or formal dispute resolution procedures.
Provided there are healthy and effective relationships between the contracting parties, even the most challenging projects are less likely to end in dispute and arbitration. This is about effective internal and external stakeholder management. Proper communication (but not ping-pong point-scoring contractual correspondence) between the parties in which they can address and resolve issues arising on their projects is fundamental. Construction Industry Institute (CII) research reveals that alignment between contracting parties is a key criterion for successful project delivery – the CII consider alignment as a best practice. Moreover, CII research into reliable project forecasting advises that 64% of the recommended practices are human or organisational / cultural related. The startling reality is that the engineering & construction industry pays lip-service to the relationships between contracting parties but rarely does anything to ensure that effective and productive relationships are created and sustained throughout project delivery. There is little wonder that disputes resulting in arbitration or litigation are a growth sub-industry that nobody in engineering and construction really wants, except the practitioners.
I do not argue against the notion that good contract management and administration by both contracting parties is a desirable contributor to successful project outcomes. But the same can be said of project organisation, work planning and scheduling, resource planning and deployment, work performance and delivery, progress monitoring and measurement, work quality, HSE, change and claim management, reporting and forecasting etc. Where there is poor contract management and administration, disputes are not inevitable and, conversely, good contract management and administration do not mean disputes will be avoided. What can be said in favour of good contract management and administration is that, in the event of dispute, there is likely to be a good set of project records with which to support amicable settlement or, if unavoidable, the case in arbitration or litigation.
Be prepared for war? Or – Build effective relationships? The former is much easier to become trapped in, whereas the latter will yield greater success but is more difficult to enact. I favour the alternative mind-set which prepares for, builds and sustains effective relationships for successful project delivery.
John Fotherby – Executive Chairman