Nick Cane, from DeSimone Consulting Engineering, offers advice on how to avoid construction disputes this year given the ongoing supply chain shortages
With so many variables impacting projects and supply chains around the globe, mitigation levers have seldom been as critical as they are now. If you want to limit the potential for litigation due to supply chain shortages, you need to start with your contracts. Each contract carries its own characteristics and the appropriate contract selection is vital to the success of any business. Don’t take a race car to an off-road event!
Projects vary, so contracts are often amended to accommodate the specifics of the works that will define their particulars, such as payment terms, materials and time. Some forms of contract, eg. NEC, advocate a more risk-sharing principle compared to JCT, so choose your contract wisely. The conduct and language of a party is key to the formation of the contract and in the words of Lord Denning MR (Storer V Manchester City Council: CA 1974): “In contracts, you do not look into the actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract.”
Once your contracts are in line, remember that communication cannot be underestimated. A breakdown in the open exchange of information often provides a breeding ground for disputes. Underwritten by its heritage of extraordinary and precedent-setting structures, DeSimone Consulting Engineering understand that buildings are designed and built by humans and there is much necessary dialogue that is not recorded. The manner in which a party is required to communicate under the contract is to be understood and recorded; if it is clear what the parties would have intended, the courts will give effect to that intention.
Third, make sure to plan for potential conflicts to lessen disruption to the project. Conflicts can be avoided at two particular stages, either by instituting pre-designed mitigation means at the initiation of a project or by an effective tailored procurement arrangement.
Neutral third-party mediators are often engaged from the outset to expedite resolution, supplementing independent project co-ordination to manage contemporaneous records. Early supplier engagement provides an understanding of the work and contractual profile whilst peer-to-peer evaluation and third party design reviews help reduce risk. Developing a detailed supply chain risk management strategy will limit the impact of any changes supported by alternative suppliers or materials.
Some key principles to consider:
Diversifying suppliers: Create depth within your supply chain.
Building inventory: Compound purchases from several projects to generate buying power and lower costs.
Developing a supplier risk management programme: Develop contract risk schedule and mitigate.
Alternative sourcing: Identify alternatives to drive shorter lead times and availability.
Early warning systems: Implement systems to predict market disruptions, eg. commodity tracing etc.
Protecting your terminal float: Own your terminal floats and protect any allowances for risk.
Collaboration: Knowledge is key, relationships are vital – work together.
Contingency planning: Develop an integrated approach with the supply chain to minimize downtime.
Continuously monitor and review: Monitor performance and manage in real time.
Lastly, double and triple check everything. Extended due diligence efforts significantly reduce operational risks. Understand who you intend to trade with: your project partners’ financial health and previous projects will provide indicators of trends and dispute areas.
Unresolved disputes destroy progress; guards go up, hostility festers and works often stop! Avoid being emotive, read the contract carefully and understand each other’s position. Remain informed and engage experts to develop a balanced view; swift solutions save time and money.
Nick Cane is a director at DeSimone Consulting Engineering
