Expert Views - Managing Dispute Avoidance

"Resolving contract claims is a time-consuming and costly business. Any organisation may have several contracts in dispute at any one time. Retrospectively looking at claims rather than concentrating on matters ahead is detrimental to the project and the business as a whole, not to mention the hidden costs involved in a dispute resolution process which could last up to two years or longer such as staff time or personal stress. As such managing and positioning dispute avoidance is the solution which will in all likelihood add 10 to 20% to profit performance".

There is ever increasing pressure to achieve cost, delivery and profit certainty in both capital and operational investment. The resolution of contract claims through proper and appropriate claim and counterclaim preparation and rebuttal is a critical factor that impacts on the likely success of a project and ultimately business performance.

It is probably fair to say that, for many, the consideration of contract claims only starts when the project is completed, costs become apparent and losses crystallised or a claim is presented, bringing to mind stable doors and bolting horses! Quite simply consideration at this time is too late and may prove to be more costly and damaging to the project and the business.

Transparency will manage and position dispute avoidance

With transparency as part of the contract model organisations can ensure that risks and positioning of dispute avoidance are properly managed. Transparency will enable both the employer organisation and contractor to understand its full liabilities, final costs and how the liabilities and final costs have arisen.

Moreover most engagement models include provisions for additional cost and/or loss and expense claims and extensions to delivery dates and, even if the model does not contain such provisions, other rights not expressly stated in the engagement model may subsist in specific jurisdictions such as inflation costs and damages etc which may relate to acceleration, prolongation or disruption costs.

Regardless as to the engagement model transparency will provide evidence of liabilities , costs and causes

It is therefore critical that the engagement model and specific terms and conditions that form part of the agreement must include access to and copies of information that may be required to prove and evaluate any entitlements. In other words, consideration of evidence as to purported costs, resources and delays to the intended programme should not be left until receipt of a claim. The engagement model at the outset should provide for this occurring throughout the project duration. As an alternative a properly managed cost plus model may be considered.

Once appropriate terms and conditions are put in place that provide for transparency as to costs, resources and programme activity, the next stage is to ensure that the project is set up to manage the requirement for transparency.

This will include consideration of evidence surrounding matters such as purported costs, resources, intended v actual programme, critical path analysis, reasons for delay, acceleration measures and contract commentary and correspondence in respect of contract issues.

Transparency will inform appropriate resolution strategies

With these measures in place all purported claim entitlements will be spotted early and appropriate resolution strategies considered and implemented so as to resolve matters without the need for formal resolution.

Existing Projects

For existing projects without these measures in place, specific reviews can be carried out to establish what needs to be done to minimise the exposure to contract claims, manage resolution of the claims and achieve final outcome and overall settlement.

Right measures, right time

But to avoid the bolting horse, the stable door needs to be closed. The right measures in place at the right time, i.e. at the procurement and contract strategy phase, mitigates the risk of spiralling project costs and time-consuming retrospective analysis in resolving submitted claims.