All EPC contractors know that arbitration and litigation are not sensible, effective, efficient or economic ways of resolving claims and disputes. But when confronted with an uncompromising owner refusing to pay legitimate claims and imposing delay liquidated damages there is ultimately a temptation to say “OK, see you in court then”.
When negotiations end and formal dispute resolution proceedings begin, the result is often a hike in costs as the legal team is brought on board. But how costly is this likely to be? According to a report published by the Centre For Policy Studies in February 2016 – The Price Of Law – it can be very costly indeed, if the contract is governed by the Laws of England and Wales and/or otherwise involves London based lawyers because “…these law firms are some of the most expensive providers of legal services in the world…”. With hourly rates for partners at between £550 and £800 and their assistants at between £350 and £495 and considering that litigation and arbitration tend to be measured in years the legal bills can run into many millions, sometimes growing to nearly as much as the original amount in dispute. By comparison the hourly charges for consultants specialising in commercial / contractual issues in the engineering and construction industry range between £200 and & £250 for directors / partners and £120 to £180 for less senior consultants.
So why would you want to get anywhere close to litigation or arbitration and why, when you have a commercial problem, would your first call be to lawyers before getting the facts of your case together? Don’t get me wrong – I’m not anti-lawyers. The legal profession largely provides an excellent, albeit expensive, service on the subject it knows best – the law and legal process and you need them for litigation. Given the cost it is wise to use lawyers prudently and not waste their time and skills on matters more effectively handled by your own team or other very much less costly and often more experienced consultants.
Claims and disputes in the engineering and construction industry are rarely about legal matters. On the contrary, they are primarily about behaviour; one or both parties having either not done something they should have or having done something they shouldn’t – neither of which require a lawyer to determine the facts and their consequences. However, in litigation lawyers are certainly necessary to put the facts into the context of law and to deal with the case in the courts. But behavioural matters occur during the execution of work and can be recognised and dealt with properly long before getting to dispute by effective relationship management combined with prudent management of the contract.
From the contractor’s perspective it is crucial to do what you have committed to do under the contract – deliver what the owner is paying for, no more, no less. And hold the owner to account for what it has committed to, even at the risk of not “pleasing the client”. Deal with matters under the contract at the time they occur and ensure the necessary adjustments to price and time to which you are entitled are made in conformity with the contract. It’s about establishing philosophy and approach, determining strategy and implementing actions, a.k.a. project management; hardly rocket science.
However, it is not unknown for owners to take an unnecessarily confrontational and dismissive approach even when faced with the most compelling case, and litigation or arbitration becomes inevitable. But if you have done your job – delivered what the owner is paying for – and you have dealt with the issues in conformity with the contract as they arose, then you will be in a position to brief your lawyer on the specific areas where you need his/her specific cost effective value added advice and support – the law and legal process. And then having committed to expend on legal costs only that which is essential, you will be able to say with confidence to the owner “OK, see you in court then”.
John Fotherby – Executive Chairman