While I confess to not being an avid fan of arbitration, litigation or adjudication and instead advocate pursuing negotiated settlements as the primary route to resolving disputes, the reality is that there are often insurmountable barriers to settlement that mean formal dispute resolution becomes unavoidable. Those barriers, like the causes of disputes themselves, almost always arise from human behaviour and very frequently at the managerial level. Once the formal dispute resolution process has commenced, positions become polarised and although a negotiated settlement may ultimately be achieved, a great deal of time, effort and money is likely to be expended in the meantime. In the absence of a settlement then, of course, the dispute is resolved by an award made by the arbitrators, courts or adjudicator and is thus outside the control of the disputant parties. In Kingsfield we are all of the same mind in these respects.
Recently, one of our EPC contractor clients reported that in its dispute with the Owner on a major combined cycle power plant in eastern Europe, the Tribunal had made an award in the favour of the contractor. Kingsfield was appointed by the contractor to deliver an Expert Report on Project Management and I was the named expert. Having reflected on this and previous disputes where we were appointed to the same role, several common characteristics are identified;
- The projects were all industrial plants (power plants, gas plants etc)
- In each case we were appointed by the contractor and who was in each instance the claimant
- The contracts were all lump sum price for engineering, procurement & construction in the range of Euro 200m to Euro 500m
- The time schedules in each case were very short compared to the industry norm for the type and size of project
- None of the projects were carried out in the contractors’ home countries
- The amounts of money in dispute were in the range of Euros 50m to Euros 150m
- Delay and disruption were prominent in each case, as well as changes and technical issues
- In each case the dispute was resolved in excess of expectations by either a negotiated settlement or an award in the favour of the contractor
- Our expert report and, where applicable, my testimony were considered to be instrumental in the result
In each case we were appointed late in the formal dispute resolution process. Submissions had been exchanged by the parties, all other experts had been appointed (schedule delay analysis, quantum, technical etc) and had already produced their reports. In some cases witness statements had been prepared. While in each instance there was a considerable amount of documentation entered in the arbitration process, the contractor’s case was not entirely persuasive, despite the considerable volume of facts, data, analysis and legal argumentation. Critically, two fundamental “ingredients” were missing;
- firstly, the issues at dispute were not explained sufficiently in the context of the project and, in particular, in this context, the experts’ reports were largely developed in isolation and without consideration of the wider project environment or the interface and coordination between them and,
- secondly, the behaviour of the parties together with their respective decisions and actions, especially at the managerial level, were not considered at all and yet these were always at the core of the disputes.
Our brief each time was to “tell the project story” – beginning to end – from the management / project management perspective. In this context we were fortunate in two ways;
- The contractors and their legal teams allowed us just about enough time to do a sufficiently good job in producing our reports. However, our involvement much earlier in each dispute would most probably have been very useful to the legal teams in developing their cases.
- Kingsfield’s team comprised people with considerable relevant industry experience and expertise, especially our understanding of the interdependence of engineering, procurement, construction, commissioning and start up, how these need to be managed and why and how even the most well-conceived EPC delivery plans can be become unworkable.
Personally, I have been project director on major industrial projects and commercial manager of a mechanical contractor as well as dealing hands-on with claims and disputes for more than 40 years. Neither me nor my Kingsfield colleagues were strangers to the challenges facing the EPC contractors.
The starting point for each Report were the questions “why is there a dispute and how did it occur?” whereas the various other experts and legal teams only considered the “what”. Our task was to produce an even-handed report designed to guide the Tribunal through the evolution of the project.
Lump sum EPC projects are invariably complex affairs. No project is undertaken without “events and circumstances” occurring. The issue is not that they occur but how they are managed. Our role in each case, for the benefit of the Tribunal, was to;
- Identify all of the events and circumstances occurring, irrespective of responsibility and liability, including external project influences
- Examine how the parties had managed these and identify the actions taken
- Consider the parties’ respective roles and responsibilities, duties and obligations together with their respective rights, benefits and entitlements and how these were managed and discharged or not
- Review the risks given and taken and consider how these were managed
- Contrast the foregoing with recognised industry practices and processes
- Establish responsibility and liability – owner, contractor or force majeure
- Assess the impacts on work performance, resource utilisation, execution time and cost
For such assignments we are always conscious of not duplicating effort and avoiding incurring unnecessary cost. In each case we had four main sources of information: (i) the project records, (ii) the claimants’ (contractors’) the respondents’ (owners’) respective arbitration documents (including experts’ reports), (iii) public domain publications relating to the project and the parties and (iv) published recognised industry practices and processes.
We determined the most effective and economic way of using the available data. Where relevant and appropriate we used the respective expert’s reports (especially schedule delay analyses and quantum) and identified where we did not concur with their findings and conclusions and where we observed that these did not consider the wider project context. We were therefore able to explain for the Tribunal how, when, where and why the issues at dispute occurred as well as their impact on work performance, time and cost in order to assist the Tribunal in making its award.
In the cases where there was ultimately a negotiated settlement our report provided a vehicle to help break down the issues that hitherto had been insurmountable barriers to negotiation. In one such case that had been running for around nine years prior to our involvement the parties reached a negotiated settlement eight months after submission of our report.
Disputes are on the increase which may be due to the very challenging commercial trading conditions in the engineering construction industry that have existed for some time. Inevitably, delay, cost, productivity and similar analyses are likely to be necessary and presented by experts but in Kingsfield’s experience the use of individual experts in each subject is less likely to contribute to a successful outcome.
Success in resolving disputes on industrial plant projects either by negotiation or formal dispute resolution is more likely when there is thorough preparation in which the issues at dispute are considered in an even-handed way in the context of the wider project. In any case a well prepared and balanced submission at the early stage of conflict may well enable a negotiated settlement to be achieved long before an actual dispute and formal dispute resolution needs to be considered.
John Fotherby – Executive Chairman Kingsfield Consulting