Technologies that will (not might) change construction as we know it

McKinsey Global Institute recently identified 12 technologies that will disrupt business as we know it. According to its estimate, the total potential impact could be between $14 trillion and $33 trillion a year by 2025.

The top 6 are directly relevant to construction and mining.  They will impact what you do from now on.  These are:

Mobile Internet–Mobile Internet is far more than having access to a browser from your smartphone or tablet. It will affect service delivery, worker productivity, remote healthcare, and consumer habits and preferences in shopping. Some of the technologies that it, in turn, will affect are battery technology, advanced displays, new user interface designs, further miniaturization of electronics, and wireless.

Automation of knowledge work--The combination of artificial intelligence, natural user interfaces, and big-data technologies will start doing many tasks that formerly required people, so expect further downsizing. Also, tools will leverage professionals of all sorts and affect such fields as education, diagnosis and drug discovery in medical, legal work such as discovery and patent filing, and accounting and investments in finance.

Internet of Things–With sensors on devices, clothing, machinery, and virtually anything else you can think of, all using wireless and near-field communications to communicate with networks and the rest of the Internet, there will be major impacts on business process optimization, manufacturing, natural resource use, utilities, energy delivery, and remote healthcare.

Cloud–Cloud technology can provide centralized computing resources to serve many users, whether internally in a company or through a third-party service. More efficient use of resources will put pressure on the computer and IT industries, as more work is done by fewer ma- chines and people. At the same time, cloud can offer software and computing services that let businesses run more efficiently and enable many technology entrepreneurs to get the resources they need far more economically than by building their own systems.

Advanced robotics--Exoskeletons, artificial and enhanced sight and hearing, remote physical manipulation, and artificial intelligence will make changes in manufacturing, healthcare and surgery, such basic ser- vice activities as food preparation and cleaning, and consumer use. Autonomous and near-autonomous vehicles–Self-driving cars already exist in prototype forms. Add in computer vision, sensors such as radar and GPS, communication with networks, and remote control, and you affect transportation and shipping.

Autonomous and near-autonomous vehicles--Self-driving cars already exist in prototype forms. Self-driving trucks and mining equipment is already being deployed in Australian mines. Add in computer vision, sensors such as radar and GPS, communication with networks, and remote control, and you revolutionise transportation and shipping.

Others on the list including energy storage, 3D printing, advanced materials and renewable energy will also have a direct impact on what you do.

What to do?

Remember your first PC, Word and spreadsheet?  Your first tentative steps with technology.  

Would you return to a typewriter and a pencil?  

How dead is fax?

  • Don’t be intimidated by the new technologies and don’t wait for them to mature; they never will in your working life.
  • Start small.  Deploy a few simple highly cost-effective systems in your business.  Ensure they are embedded with training and company procedures.
  • Then move on and up as you see your business improving.

We are already deploying software to take advantage of these priority technologies with systems including MIAC Business Workflow Integration.  These systems can bring immediate benefit to your bottom line by applying intelligent integration between systems, devices and people.

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Links in the Chain – BIM – Integration -Contract -Management

I want to share this video from The B1M, an excellent video resource for all things BIM.

I was immediately struck by the first 30 seconds, where it sets the challenge for organisations wanting to leverage the maximum from emerging technologies.

The video begins, “Building information modelling (BIM) is a huge opportunity to change the construction industry for the better. It forces us to address numerous long-standing issues and switches mind-sets from the physical output of a building – and how cheaply and quickly we can build it – to outcomes for people and organisations across our society. That’s a big deal that means a more collaborative, profitable and respected industry for everyone.  (You) must reconsider client briefs, your procurement approach, the way you transfer risk down the supply chain and the way you currently structure information”.

We see the same cultural, contractual and process changes as the key inhibitors to the successful uptake of mobile and integration technologies that are about to sweep the business world, including construction.  Business disruption will reach into every corner of your organisation.

Enjoy:

John Lowry is a director of thepowertool pty ltd, developers of MIAC-Workflow Integration

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8 Success Strategies for Implementing Collaboration Technologies

The rise of the internet, Wikipedia & social networks has helped us understand that business workflows, either internally or in distributed organisations (such as construction projects) are a complex, intricate web of  communications. (see Manuel Lima’s The Power of Networks) –   Emerging collaboration technologies will help to manage and leverage the benefits of our deeper understanding of network communications, but only if you have a clear vision of what you want to achieve and how you plan to achieve it.  These eight strategies will help you maximise your entry into mobile and integrated collaboration technologies.

1. Align technologies with practice – Ensure that new collaboration technologies are compatible with your best practice protocols rather than change good practice to fit a technology solution.  Look for solutions that can be readily tailored to your business workflows.

2. Integration – Ensure that new collaboration technologies are easy to integrate with existing, legacy and new business systems in use or contemplated.

3. Avoid ad-hoc business communication – Ad-hoc electronic communications including email, text and generic messaging systems seem convenient but they are inappropriate for many business communications.  Ad-hoc communication is, by its nature, unstructured, uncontrolled and unmanageable.  Workflow can not readily be managed, monitored, audited or  automated.  Social networks are “social” for a reason.  They have a place in marketing but should be avoided for business communications.

4. Management changes – Collaboration technologies disrupt traditional management workflows, giving more pro-active capability to downstream employees and external contractors.  Before embarking on an IT strategy, consider the management and process changes that might be required to achieve the best result an whether the company’s management has the courage and commitment to make the changes.  Make the management change as part of your implementation strategy.

5. Empower the team –  In traditional management structures employees and contractors are taught to be like victorian era children – do as I say and be seen but not heard.  You must implement a program for cultural change to ensure that people feel they will rewarded and not punished for pro-active contributions.  Collaboration works best when people are honest and forthright (even if you may not like the answer at times).

6. Leverage social networking – Social networking has created new expectations amongst employees.  People are familiar with commenting on anything from their mobile device and they expect to be heard by their audience.  Collaboration technologies can leverage these attitudes and expectations provided management understands, accepts and caters for more pro-active communication.

7. Communicate – Seek feedback from employees on the effectiveness of collaboration systems and make incremental changes to workflow processes based on adoption, feedback and analytics.  It is important to know that workflows and processes can be readily modified for continuous improvement.

8. Implement a whole-of-business-solution – Smooth implementation of collaboration technologies is important, but it is much more important to ensure that staff and contractors are committed to using new systems.  Ensure you have a roll-out that includes training, feedback and audits on adoption across the business.  Identify slow and recalcitrant adopters early and engage them in the process of cultural change, if possible.  Close old technologies and processes as soon as new systems are embedded and proven.

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Out of time, out of luck: harsh time bars defeat EOT claim

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An important New Year reminder from lawyers, Thomson Geer.

Editor’s Note:
Time bars in contracts have an important function as a method to maintain control and management of cost and time blowouts.  They can be difficult to comply with, however non-compliance can be very dangerous, particularly with extensions of time claims. The reason is that many modern contracts do not compensate the contractor for time lost in delays and extensions of time, but they do penalise the contractor with liquidated damages if program completion dates are not met.  If you miss an EOT claim, you must either accelerate the work or suffer the cost of liquidated damages.  It is not the job of the Principal or Head Contractor to remind you of your responsibilities under modern aggressive, risk-averse contracts.
As noted below, to succeed, every person in your crew (office and site), must understand their responsibility and be engaged with the process.  You must provide the tools for them do it quickly and effectively.  Every modern business needs clear, articulated policies and procedures to ensure that you protect your entitlements.  it is fundamental to your right to payment.
Emerging technologies, including MIAC-Workflow Integration, are enabling construction businesses to cheaply and effectively manage and control contract procedures in a way that was never possible before.  Successful business will move quickly to modify their internal workflows to take advantage of  new mobile technologies.
[For more information contact the editor, John  Lowry – john@lowry.com.au  T: (617) 0404 842 104.  Mr Lowry is a director of thepowertool pty ltd, developers of MIAC-Workflow Integration]
Out of time, out of luck: harsh time bars defeat EOT claim
20 Jan 2016

A recent decision serves as a reminder that a contractor’s first step should always be to comply with time bars and other notice requirements wherever possible as failing to do so can lead to the loss of important contractual rights.

In CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, the Supreme Court of Western Australia disallowed otherwise valid and valuable claims for extensions of time (EOT) on the basis of non-compliance with strict notice requirements (time bars) despite accepting that doing so was “harsh”.

Time bars generally

“Time bars” are commonplace in construction contracts and it is difficult to conceive of a party who would not have, at one time or another, felt their effects. Typically, they require a party to serve notice on the contractual counterparty within a specified period after the occurrence of an event as a precondition to claiming time or cost for that event.

The purpose of such a clause is to enable the recipient to investigate the event and consider what steps it should take to deal with its effects as soon as possible after it has occurred. As a result of the prevalence of these clauses, and their effect on otherwise valid claims, a number of avenues have arisen for parties to challenge their application, which depend on the particular circumstances at hand.

Background

John Holland Pty Ltd (John Holland) had been contracted by BHP to upgrade and extend a wharf at Finucane Island on the western side of the Port Hedland harbour. As part of those works, John Holland subcontracted CMA Assets Pty Ltd (CMA) to, amongst other things, demolish a shipping berth and several underwater “dolphins” (structures for the mooring or berthing of ships).

In the course of undertaking that demolition work, CMA claimed that it was delayed by:

  • additional demolition work caused by reinforcement of the berthing dolphins which had not been contemplated by the contract (for which CMA successfully claimed a variation);
  • John Holland’s delay in moving a shiploader located on the wharf to allow for the demolition of that part of the wharf; and
  • delays in allowing CMA access to certain structures which it was required to demolish.

At clauses 10.11 and 10.12, the contract contained detailed notice requirements for the making of EOT claims by CMA. Specifically, those clauses required CMA to serve on John Holland:

  • written notice of the likelihood of a delay occurring immediately upon becoming aware of the likelihood of that delay;
  • written notice that it intended to claim an EOT for the delay within 7 days after the occurrence of the cause of the delay;
  • a detailed written claim for an EOT within 14 days after the commencement of the delay; and
  • further detailed written claims for EOTs every 5 days after the first occurrence of the delay until the delay ceases.

These notice requirements were expressly said to be “condition precedents” to CMA being able to claim an EOT with any noncompliance disentitling CMA from claiming an EOT.

Decision

While the decision also dealt with CMA’s success in claiming a variation for the berthing dolphins and John Holland’s counterclaims against CMA, this update is concerned with the EOTs claimed by CMA and the impact of the contractual time bars on those claims.  On that issue, the questions for the court to determine were:

  • whether CMA had complied with the contract’s notice provisions; and
  • if CMA had not complied, whether that prevented it from claiming EOTs.

Did CMA comply?

After examining the evidence, His Honour held that CMA had not complied with the notice requirements, either in terms of the required timing or content of the notices. In relation to the relocation of the shiploader, CMA had belatedly complied by serving notice three weeks after the shiploader was scheduled to be moved (and some four months after becoming aware of the delay). In relation to the remaining delays, there was no evidence that CMA had, in fact, ever complied with the requirements.

Were the time bars enforceable?

After having failed to show compliance, CMA then advanced a number of arguments in support of its claim that the notice requirements did not apply, which were each rejected by Allanson J. We have examined each of CMA’s arguments below.

No requirement for notice

CMA argued that the condition precedent in clause 10.12 was not the formal giving of notice, but rather that John Holland was informed of the delay. Because John Holland was at all times aware of the relevant facts, and that there was a likelihood of delay, there was no additional requirement for CMA to provide written notice.

His Honour agreed that John Holland was aware of the delay, but held that the relevant clauses required strict compliance with the stipulated form of the notice which had not occurred.  Specifically, CMA was required to give detailed information including an estimate of the length of the delay, the steps it would take to minimise the delay, the length of the EOT claimed, and the ultimate effect on the construction programme. Even if John Holland was aware of the cause of the delay, it could not be held to have been aware of those remaining matters and therefore CMA was required to serve notice.

Length of delays unknowable

CMA argued that their obligation to give notice under the contract did not arise because neither they nor John Holland knew (and could not know) the likely length of the delay. This was rejected by His Honour, who held that there was no requirement that CMA know the length of delays as it was simply required to given an “estimate” of that length.

Only defeats pre-notice claims

CMA also argued that the giving of late notice did not disentitle it to all of its claimed EOTs, but only to the extent the EOTs related to the pre-notice period. This was rejected by Allanson J who held it was inconsistent with the language of the relevant clauses and the successive and continuing obligations imposed upon CMA by those clauses.

Absurdity

Where enforcement of a clause in accordance with its clear words leads to an absurd outcome, the court can interpret it in a manner so as to achieve a different result.  CMA argued that interpreting the notice requirements strictly would lead to absurdity as CMA would be denied its claim despite the circumstances being wholly within John Holland’s knowledge at all times. This argument was rejected by Allanson J, who held that, while there was no doubt that a strict application of the clause was “harsh”, he was “not satisfied that it is without purpose and absurd, so that an alternative construction must be given, notwithstanding the apparently clear words.”

Estoppel

Finally, CMA argued that John Holland ought to be estopped (i.e. restrained by the court) from insisting upon strict compliance with the time bars. This is because it argued, in short, the parties had adopted a course of conduct that did not require such strict compliance and it would now be unfair for CMA to suffer detriment due to its reliance on that course of conduct. Allanson J held that the evidence did not support CMA’s claims and refused to grant the estoppel.

What does this mean for me?

This decision highlights the need for contractors to, as a first step, seek to comply with time bars wherever possible. This can be achieved through diligent contract administration including by, as an example, providing flow charts and pro forma notices for project managers to use upon the occurrence of specified events. In many cases, a simple email describing the event and stating that an EOT will be claimed will be sufficient to satisfy contractual notice requirements.

However, if a delay or variation has occurred and a time bar has not been complied with, there are avenues available for challenging the validity of the time bar. In those cases, it is important that parties keep detailed records of, for example, previous instances where the counterparty has not insisted upon compliance with the clause as this evidence will be vital for defeating the application of the clause.

Ultimately, the requirements of contractual time bars and other notice requirements turn on the particular language used in the contract. Contractors should therefore ensure they have a full understanding of the requirements being imposed upon them prior to execution of the contract to ensure valuable rights aren’t lost.

Written by:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au
Andrew Mackintosh | Senior Associate | +61 7 3338 7551 | amackintosh@tglaw.com.au
Joshua White | Graduate Lawyer | +61 7 3338 7939 | jpwhite@tglaw.com.au

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Automation and the Future of KPI’s in Project Driven Businesses

It’s an old adage that hold true, “If you can’t measure it, you can’t manage it”.

Construction businesses are required to monitor and manage business information on two levels, corporate business information and contract information.  To achieve this we use multiple systems for accounting, contract, document and communications management and other business processes.  These may be more or less integrated.  While these systems generate large volumes of data, monitoring and acting on time-critical contract, compliance and business processes requires significant time and resources.

It’s a question that all business grapples with, and the challenge is getting bigger. How to manage Big Data?  Modern businesses develop key performance indicators to focus on critical measures.  The accepted business wisdom is to minimise the number of key performance indicators that the business monitors and reports.  This may work for manufacturing and similar businesses where business processes can be slowly changed through continuous improvement, but construction and other “once-only” activities are project driven, where change happens continually and quickly.  In these organisations continuous improvement is only relevant to some corporate business processes.

Even though integrated computer systems help to maintain information better than before, they still need human interface to interpret reports and decide on actions.  Individuals are allocated to monitor and act on information.  Acting on information fails for all kinds of reasons, often inadequate resourcing.  People can easily become overwhelmed with work and fail to record or report critical information.  The most recent example is the failure to report a laboratory finding that led to the shutdown of an entire hospital.  It occurs in construction all the time where people fail to record and report changes, delays, weather conditions and a myriad other issues that ultimately led to loss and expense.

That is all about to change. New monitoring and robotic technologies, driven by the military and mining industries are quickly changing the way things are done.  Remote monitoring, remote operation of air and ground craft, mining equipment and other machinery is growing very quickly.  Motor mechanics already rely almost exclusively on computer diagnostics.  We all know about combat aircraft being operated from remote locations and mine equipment being operated from remote control rooms.

The world of machine to machine communications, The Internet of Things,  is upon us, where decisions can be made without human intervention.  We are developing systems that will allow you to monitor computer systems, machinery, vehicles, physical conditions, weather conditions,  human performance and a myriad other issues and automatically allocate tasks and actions, based on the results.

Things are changing fast.  Even the smallest business will be affected.  Watch this space.

John Lowry is a director of thepowertool pty ltd, developers of MIAC Workflow Integration

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Survive 2016 …. 7 tips for contractors

An excellent contribution from Ian Heathwood, principal at McKays Solicitors, specialists in construction law. 

Added comments in italics are the opinions of the editor, Payment Really Matters.

 

Some sectors of the building and construction industry have done well in the last year and others continue to struggle. What will face us in 2016 and what should we be doing to make sure we not only survive it, but prosper?

Tip 1. Be careful who you deal with

One of the primary reasons that contractors end up in financial difficulty is because they contract with the wrong people. Before you even contemplate entering into a contract with a builder or proprietor, make sure you know who they are, what their history and reputation is in the industry. There are a number of checks you can carry out to get an idea of the kind of company you plan to contract with.

[Many smaller subcontractors and contractors want to step up to bigger commercial work by contracting with national and international contractors. Major contractors have developed sophisticated, subcontracts, they have unlimited contract management resources and will work to the letter.  When you step up to bigger work, you must step up in every way, especially with your ability to manage a contract]

Tip 2. Don’t sign the wrong contract

Another major reason why contractors end up in signi cant strife is because they sign contracts which have onerous terms and conditions when they do not need to. Dozens of businesses end up in disaster every year because they signed contracts with indemnity clauses they do not understand and for which they cannot obtain insurance. Remember, the rules: he or she who controls the risk should be the person who wears or bears it; make sure you understand the risks you are assuming; don’t accept those you do not have to.

[Conduct a risk profile on every contract.  Cross out ALL risks that you can not control or can not bear the cost of.  The worst of these is payment for delay and disruption to the main contract.  When things go wrong, you can get into serious trouble very quickly.  If you can’t negotiate reasonable conditions, consider if you really want to roll the dice on a contract]

Tip 3. Be forever watchful

Keep a close eye on the party you have contracted with. Beware the stories in the marketplace. Watch out for slow payment. Take every argument or dispute seriously and weigh it up to determine whether you are still dealing with a reputable, solvent entity. If you suspect you are not, you are probably right. You are better off assuming there might be a problem and taking appropriate steps to protect yourself (eg subcontractors’ charges or payment claims) than ignoring the risk not running the gauntlet.

[Use the BCIPA or other security of payment legislation as your “business as usual” procedure.  Resolve issues while they are small.  You have plenty of power under the BCIPA.  Use it.  Do not let late payments build up, ever]

Tip 4. Make sure your paperwork will support you

In our experience at least 50% of disputes and court cases are lost by a party simply because their paperwork is not up to scratch. This is what “contract administration” is all about. Know the procedures under your contract particularly for extensions of time and claiming variations and make sure you comply with them. If you do not meet the contract requirements, you are likely to lose the “paper war” and ultimately the dispute.

The other thing to bear in mind is that if a matter does go before a Court or Tribunal or to Adjudication, the decision maker is more likely to look favourably on the party who appears to have been reasonable throughout. Never be rude in your correspondence or dealings with the party and always respond to correspondence from the other party in a timly and appropriate manner.

[As noted above, make sure you have all the resources to maintain your entitlements under a contract.  This applies especially to notices for variations, delays and other matters.  Do not skimp. There are excellent, reasonably priced applications, including our own MIAC – SiD (Intelligent site diary) and thepowertool payment systems that can simplify many of these tasks and help you to maintain excellent records.  They cost less than your daily coffee and can save your business]

Tip 5. Do not kid yourself

Many contractors run into problems because they pull the wool over their own eyes. They fail to see problems that are there and fail to address them once they see them. It is important to see your position for what it really is and if you are in a bad spot, work out what are your opportunities, contingencies and calculate your best “out”. To do this, you may well need to take legal advice. The most important thing is not to sit on your hands and pretend everything will work out at the end of the day because, in many cases, it simply does not.

[See above.  Act promptly on small issues, before they become a tsunami]

Tip 6. Be prepared for the worst

You can be the most careful of contractors, you can understand every risk, deal with it as best you can and have excellent paperwork. However, the fact is quite often things are simply beyond your control. You cannot control the destiny of those above you. The reality is, any business large or small, can fail and when it does, it will drag others down with it. You need to make sure that if your number is up, you do not lose everything you own. This comes down to proper business structuring and personal asset protection. If you have not addressed this already, now is the time to do something about it.

Make sure you do everything you can to separate your risks from your assets and your risks from your risks. If you do not know what we mean by that, give us a call. Ensure you have proper protection structures in place. You will need legal as well as accounting advice, and yes it will cost you some money, but a little spent now is a lot better than losing everything you and your family own.

Tip 7 Stop procrastinating and act now!

We have many war stories we can relate about clients who have thought about these issues but have not followed through, with the result that they ended up losing everything. On the other hand, we have had the great pleasure of seeing clients who have planned for the worst and surrvived despite tremendously stressful periods, under enormous nancial pressure. Ultimately they kept their homes and personal assets, ready to live and trade another day.

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AVOIDING AND RESOLVING CONSTRUCTION DISPUTES – The NZ Experience

Wise words from across the ditch.  The same problems and issues in a different geography, but clearly a similar declining contractual culture.  I’ve sat around the table on many well-meaning boards for 30 years, wringing hands about poor documentations and the many other issues that seem to anchor the construction industry in a mire of dispute, poor productivity, poor teamwork, poor coordination, poor sustainable practices (life-cycle costing has been discussed for 25 years) no client focus and lack of real innovation (How many years will it take to get electronic communications off the ground in any meaningful sense).  But the reports gather dust and nothing happens.

It will take an almighty effort from the affected parties, plus strong support from government to effect any change.  Do we have the will?  The last 40 years has not demonstrated much will to each stand up for our position.  Design consultants, management consultants and subcontractors continue to bow to more and more ruthless practice.

Each of us, individually and collectively must stand up and take responsibility  for what we know is the path to client focus, productivity, innovation, and sustainable    or we’ll still be wringing our hands in another 40 years. – Ed.

INTRODUCTION

  1. In New Zealand, construction is one of the larger sectors of the economy, contributing more than 6% of GDP and employing over 170,000.2 At present, the sector is enjoying exceptional growth – at levels not been seen in 40 years.
  2. Regrettably, building and engineering is prone to disputation. As New Zealand moves through a period of significant construction activity, the risk of claims is likely to rise. High demand combined with concerns about industry capacity, fragmentation and limited competition, together with the widening of tort law, is a recipe for conflict.
  3. Disputes are a negative distraction that drain productive resource, affect cash flow and potentially wipe out margin on a project. Effective dispute resolution is an important part of any business’s risk management, and especially so in the construction sector.
  4. This paper outlines the common causes and features of construction disputes before considering:
    1. Options and strategies for avoiding and resolving construction disputes;
    2. Dispute resolution clauses, with reference to multi-tiered clauses and pre-action protocols; and
    3. Current and predicted trends regarding construction disputes in New Zealand.

    COMMON CAUSES AND FEATURES OF CONSTRUCTION DISPUTES

  5. The inherent complexities and uncertainties of construction projects, even small ones, lend themselves more easily to conflict and dispute. Client expectations, design, equipment, materials, labour and land all need to come together in relative unison in order to achieve a successful outcome. Unfortunately, all too often, this does not happen.

 

  1. There is a large body of literature on the high rate of construction claims. While there may be local differences and peculiarities, in general, the main causes are common to all countries, including New Zealand. These include:
    1. Inadequate scoping;
    2. Incomplete or defective design;
    3. Inappropriate delivery methods;
    4. Poor contractual documentation and/or contract administration;
    5. Inequitable risk allocation; and
    6. Unrealistic time and cost objectives.
  2. These features cause uncertainty, put parties under additional commercial pressure, increase the likelihood of variations and claim events, and drive adversarial / contractual behavior – all of which fuel conflict. It is trite to say that each of these features is avoidable. Time and effort spent getting things right up front goes a long way towards keeping projects on track and preventing subsequent disputes. This starts with selecting the right procurement method, having appropriate written contracts in place from the outset and then carefully managing the project in accordance with those contracts. However, no matter how sophisticated the industry becomes, the common pitfalls above are unlikely to ever disappear altogether.
  3. Issues frequently arise during the course of a project and sometimes after completion. The vast majority of these are resolved at project personnel or commercial manager level. Very few turn into an actual dispute and fewer still result in litigation or arbitration. During design and construction, early identification and engagement is best practice for dispute avoidance.5 The longer an issue is left unaddressed, the more likely it is to generate conflict and potentially turn into a dispute.
  4. In many respects, construction disputes are no different to any other commercial disputes. However, they do bear some common features. In particular:
  1. They tend to turn on questions of fact, rather than law;
  2. They often involve the interaction of many issues;
  3. They frequently concern technical matters which require input from an expert, such as an engineer or quantity surveyor;
  4. They can comprise a large number of individual claim items, which are frequently presented in a “Scott” schedule;6
  5. The volume of documentation is usually high; and
  6. It is not uncommon for multiple parties to be involved.

An Early Warning Register is one way of encouraging the prompt identification of issues, which can then be discussed (and hopefully addressed) at regular project meetings.
A Scott schedule is a table or spreadsheet in which each individual issue or claim item is recorded in a single row. The columns provide details of each claim item (eg identifying details, nature of the claim and the amount claimed). Further columns are sometimes added for experts or other parties to add their comments or response.

  1. Construction disputes generally divide into payment and defect claims:
    1. Payment claims encompass issues about late/non payment, including claims for additional money (eg re-measurement under a measured works contract, variations, delay and disruption costs, and contra charges). At the end of a project there may be a rump of smaller issues, the aggregation of which can give rise to a substantial dispute.
    2. Defect claims concern problems with the design or construction of the works themselves, which do not always materialise until long after completion. Where a defect is significant, it is more likely to end in a dispute situation. Defects can raise difficult questions about which parties are at fault, the appropriate remedial solution and the proper quantification.
  2. Counter-claims and cross-claims are another common feature of construction disputes, which reflect the fact that multiple parties are involved in a project. For example, it is not unusual for a claim for additional money to be met by a defect claim, which can, in turn, drag other parties (eg designers and sub-contractors) into the fray.
  3. One consequence of these common features is that the cost of fighting construction disputes can be expensive and disproportionally high. It is helpful therefore to understand the different resolution methods that are available, which is discussed below.
  4. If a dispute does arise in relation to a project, there are a number of practical steps that parties can and should do to assist with the efficient management and resolution of claims. These include:
    1. Reading and following the contract. Parties who fail to comply with the contract, even in minor ways, can exacerbate a situation and, tactically speaking, cause them to lose leverage.
    2. Issuing timely and compliant payment claims/schedules in accordance with the Construction Contracts Act 2002. A failure to do so may deny a payee their timely entitlement or force a payer to make a progress payment that it does not consider is due.
    3. Preserving, collating and organising relevant contemporaneous documents. Disputes frequently turn on the project records, which tend to be more reliable than factual witnesses. A common source of conflict is inadequate or sloppy documentation, so having this in order will go a long way towards avoiding and managing disputes. Control of documents is essential.
    4. Where appropriate, identifying factual witnesses and requiring them to write up a statement as early as possible while the events are still fresh.
    5. Seeking professional advice early. Parties sometimes make the mistake of trying to save costs by attempting to manage problems themselves. Time and again this results in further damage being done. Once it becomes clear that a dispute is likely, early advice often saves time and costs in the long run.

DISPUTE RESOLUTION OPTIONS AND STRATEGIES

  1. Should a dispute arise in relation to a construction project, there is now a wide range of resolution methods that may be available, many of which were developed overseas. These include:
    1. Determinative processes:
      1. Litigation;
      2. Arbitration (domestic and international);
      3. Adjudication (statutory);
      4. Expert determination;
      5. Early neutral evaluation;
    2. Consensual processes:
      1. Unassisted negotiation;
      2. Mediation;
      3. Facilitation;
    3. Hybrid processes:
      1. Conciliation;
      2. Med-Arb; and
      3. Dispute Boards / Advisors.
  2. These methods are discussed in detail in a separate Hesketh Henry paper.7 The particular methods typically suited to construction disputes are discussed below.

    Final Forum: Can we learn from the Singaporeans?

  3. Traditionally, arbitration was the method by which construction disputes were resolved. It remains the preferred final forum over litigation. That is primarily because the parties can appoint specialist arbitrators and the process is private and confidential. Arbitration was also originally thought to be quicker and cheaper than the courts, however, that is often no longer the case. In some situations (eg lower value claims) arbitration can even be disproportionate because the parties must pay for the arbitrator(s) and venue.
  4. The advent of specialist courts in some jurisdictions, such as the Technology and Construction Court in England, has eroded the competitive advantage of arbitration and encouraged some parties to agree to submit to litigation in those tribunals even where they had agreed on domestic arbitration in their contract. However, that is not the case in New Zealand where there is no specialisation within the High Court. Therefore, while the courts do see construction disputes from time-to-time, the majority are resolved by arbitration or alternative methods.
  1. For cross-border contracts and projects in developing countries, international arbitration remains the only sensible final forum for resolving construction disputes. That is because of the perceived independence of international arbitration and the enforceability of foreign arbitral awards under the New York Convention 1958.
  2. In New Zealand international arbitration is relatively uncommon for building and engineering disputes – mostly because very few projects are large enough to involve cross-border contracts and there is a reasonable measure of confidence in the local judicial system and rule of law.
  3. International arbitration centers have been developed in certain parts of the world, including London, Paris, Dubai and Singapore. These provide established rules, procedures, administrative support and facilities for hearing international arbitrations, which add convenience and cost. Given its relative proximity, Singapore is the most common seat for any international arbitral proceedings arising out of New Zealand.
  4. In addition to its reputation as an arbitration hub, Singapore recently added another alternative option for international commercial dispute resolution: the Singapore International Commercial Court (SICC).
  5. The SICC is designed to take advantage of a court-based mechanism to try to address the growing time and cost of arbitration, concerns about legitimacy and ethical issues in arbitration, a lack of consistency in arbitral awards, and the inability to join third parties to arbitral proceedings. Parties can agree to submit their claim to the SICC despite undertaking business in different states.
  6. The SICC also adopts some of arbitration’s “Best Practices”. For example:
    1. The SICC Panel of Jurists: Each claim may be tried by a single judge or a panel of three, which is to be decided by the Court. This is distinct from arbitration where the parties decide, but different from traditional litigation where one judge would only ever hear a case.
    2. International Judges: The court will not only include judges of the High Court of Singapore, but also foreign jurists, who in the opinion of the Chief Justice have the necessary qualifications, experience and standing to be appointed as a International Judge. This will enable specialist judges to be appointed, where appropriate, for particular cases.
    3. Limited freedom to choose Counsel: Foreign counsel who fulfill certain conditions may appear in front of the SICC without having to be admitted to the Singaporean bar.
    4. Domestic rules of evidence may not apply: Parties are permitted to submit evidence on foreign law, rather than prove such law through expert evidence. In addition, the SICC may apply all other rules of evidence, whether they are founded in foreign law or otherwise, if the parties decide to make an application. This includes rules relating to legal professional privilege and the taking of evidence.
    5. Confidentiality: The amended rules of the Court allow the SICC, on the application of a party, to order that a case before it be heard in private, or that the parties not disclose any information relating to the case, or that the file in the case is to be sealed.
  1. One issue that the SICC does not yet seem to address is the enforceability of its judgments in other jurisdictions. A SICC judgment, being in essence a judgment of a Singaporean Court, cannot be enforced under the New York Convention. Instead, it relies on the enforcement of foreign judgments. That said, the SICC offers some attractive features that draw together advantages of litigation and arbitration.
  2. For the time being, the SICC is likely to have minimal impact on the resolution of construction disputes arising out of New Zealand. However, it does show a new hybrid approach in an effort to better meet the needs of commercial parties. It is possible that some of the features of the SICC may make their way into New Zealand’s domestic arbitral processes (and possibly even the Courts) in due course.

    Consensual and hybrid methods for the construction sector

  3. In the last 15-20 years, the time and cost of litigation/arbitration has driven demand for alternative dispute resolution methods, which are cheaper and quicker. This has seen the emergence of mediation/conciliation and, since 2003, the introduction of statutory adjudication. To a lesser extent, expert determination and dispute boards also feature.

    Mediation/conciliation

  4. Mediation provides a structured settlement negotiation process. It has become popular and is seen as a means of achieving a commercial resolution and avoiding the ongoing cost and distraction of a protracted dispute.
  5. Conciliation is a variant of mediation in which the mediator (or conciliator) gives a non-binding view on the merits if there is no settlement at the end of the mediation (or conciliation) process. The technical nature and proportionately high cost of construction disputes lend themselves to mediation/conciliation.

    Adjudication / Expert Determination

  6. Adjudication was introduced by the Construction Contracts Act 2002 (CCA). There is a statutory right to adjudicate any dispute under a “construction contract”. Impending changes to the CCA will extend the right of adjudication to disputes under agreements with engineers, architects and quantity surveyors.8
  7. Adjudication is a rapid determinative process developed specifically for construction disputes. It normally provides a decision within 5-7 weeks, and the parties bear their own costs regardless of the outcome. This is designed to keep costs down and provide a quick decision in order to keep cash flowing and the project on track. Adjudication has effectively plugged a gap between the Disputes Tribunal, which will hear claims valued up to $15,000 (or $20,000 if the parties agree), and the District Court. Adjudication is believed to be the most commonly used dispute resolution method in New Zealand for construction claims.
  8. Expert determination is sometimes used where adjudication is not available or where the parties prefer the flexibility and finality of an expert determination process.

 

  1. The involvement of independent persons during the works has been identified as a cost- effective way of both avoiding and resolving issues/disputes.
  2. Traditionally, the Engineer has performed this type of role. However, the Engineer’s effectiveness in this respect has diminished over time, and it should be remembered that they are ultimately the principal’s appointee regardless of any contractual obligations to act fairly and independently. Against that background, there has been demand for alternative methods that perform this type of real time function.
  3. The UK and subsequently New Zealand and others responded to this demand by introducing statutory adjudication as a “quick and dirty” method in which a determination could be obtained within a few weeks. However, adjudication is still a reactive and determinative process that does not help avoid disputes in the first place.
  4. In the US dispute boards and independent advisor models have been developed as alternative dispute management methods. These have been used infrequently in New Zealand but the current construction boom provides ideal conditions to give them further consideration. They are discussed below.

    Dispute Boards

  5. Dispute Boards are mostly used in complex, high-value construction projects. They involve a board of independent persons (usually three), which is formed at the outset to resolve disputes during the course of the project.11 The board is created by contract and their decisions can be binding or non-binding.
  6. The US “dispute review board” model is generally considered to be the most effective (and expensive) as the board visits site and meets with the parties on a regular basis in order to proactively identify and resolve issues before they escalate into disputes (the consensual element) and, where necessary, make a formal determination. Any determinations can be re- heard by arbitration or litigation, although DRBF data suggests that less than 3% of board determinations are reconsidered. The alternative to the dispute review board model is essentially a standing dispute adjudication board (DAB) (as used in FIDIC contracts), which simply determines disputes that are referred to it. The DAB model does not help avoid disputes and has been criticised.
  7. The main advantage of Dispute Boards is that the board is already familiar with the project and regularly checks in on the parties. As a result, they are able to “nip issues in the bud” and, where required, give advisory opinions or make formal determinations quickly and efficiently.
  8. What tends to put parties off Dispute Boards is the cost. The board members, who will be senior practitioners, need to be paid for their services. The dilemma is that, at the outset of a project, the parties do not know whether or to what extent the board will be required, and contracting parties often have a rose-tinted view about the likelihood of future claims.
  9. For a detailed discussion and analysis of Dispute Boards, please click here.12
  1. 11  MI-Space (UK) Ltd v Lend Lease Construction (EMEA) Ltd [2013] EWHC 2001 (TCC) per Akenhead J at 16.
  2. 12  N Gillies, Rebuilding New Zealand: A Case for Dispute Boards, Arbitrators & Mediators Journal (December 2014), Vol 33, No 2.

Dispute Resolution Advisors

  1. For lower value and less complex projects, dispute resolution advisors (DRAs) may be more appropriate and cost effective than a Dispute Board.
  2. A DRA is a neutral third person who gives non-binding advice to the parties in relation to any disagreements or disputes in a project. The advisor does not make interim binding decisions but merely advises on the means by which a settlement could be achieved. The parties retain control over the outcome, although anecdotal evidence suggests that non-binding recommendations are often accepted.
  3. The DRA model bears many of the same features and advantages/disadvantages of Dispute Boards and could be considered a “mini” Dispute Board. For example, the DRA would conduct site visits and meet with the parties on a regular basis, and the parties’ confidence in them is fundamental. As with a Dispute Board, the contracting parties need to get on board with the concept in order to make it work.

    DISPUTE RESOLUTION CLAUSES

  4. Dispute resolution clauses are commonplace in commercial contracts, including construction agreements. They provide certainty as to how a dispute would be resolved and are necessary if the parties want to depart from using the courts.
  5. A dispute resolution clause (or at least the wrong clause) can have a profound impact on how claims are resolved and how contractual rights and obligations are enforced. What constitutes a “good” dispute resolution clause is ultimately a function of what the parties “hope to achieve from the inclusion of such a clause in their agreement”.13 Below are some specific issues to consider, which are of particular relevance to building contracts and consultant agreements.14

    Multi-Tiered Clauses and Pre-Action Protocols – Can we learn from the English?

  6. Multi-tiered clauses have become fashionable and feature in many standard form construction contracts, such as NZS3910:2013. They prescribe a number of escalating steps, which typically start with negotiation, then mediation (or similar) and finally litigation or arbitration.15 The preceding step is often a condition precedent of moving to the next.16
  7. The rationale is that the parties should exhaust every reasonable avenue for resolving a dispute themselves before commencing a formal determinative action. This is admirable but misguided. Such clauses also seem to be founded on a misconception that settlement is an almost guaranteed outcome of meditation.
  8. From experience, multi-tiered clauses do not increase the likelihood of an early, cost-effective or satisfactory resolution. Instead, they tend to cause delay, add cost and are used tactically by one party. Mediation, for example, may be disproportionate to the sum in dispute or frankly pointless if the legal rights are clear.17
  1. 13  A Bihancov, What is an example of a good dispute resolution clause and why? (2014) Evaluation of ADR, Paper 3 at p1, see ww.civiljustice.info/adreval/3.
  2. 14  For a more comprehensive discussion of dispute resolution clauses, see N Gillies and P Cogswell, Dispute Resolution Clauses: Uses and Analysis, ADLS, 30 July 2015.
  3. 15  This includes some well-known standard form contracts.
  4. 16  As an example, see Emirates Trading Agency Plc v Prime Mineral Exports Private Ltd [2014] EWHC 2014 (Comm).
  5. 17  For example a debt that is not disputed.
  1. Further, compulsion is anathema to the consensual nature of negotiation and mediation, and pushing people to mediate early frequently results in failure. As one of New Zealand’s leading mediators has observed, “these clauses risk pushing people through the doors of the mediation room too soon … before the dispute is mature, before the rough edges have been rubbed off”.18
  2. Conventional wisdom is that mediation should not take place before discovery when each party has the opportunity to see each other’s documents. Pre-action mediations, by contrast, tend to have less chance of success because the issues are not fully developed and the parties are not yet ready and willing to make the necessary compromises. For these reasons, mandatory early mediation is frequently counterproductive and a wasteful exercise.
  3. If parties want to prescribe certain preliminary steps in their dispute resolution clause, one alternative is to adopt a process similar to the Pre-Action Protocol for Construction and Engineering Disputes in England & Wales (the Protocol). The Protocol is part of the equivalent High Court Rules in that jurisdiction. In summary, it requires the parties to a construction or engineering dispute to exchange letters of demand/response and meet on a without prejudice basis before commencing proceedings (except for urgent relief, summary judgment or undisputed money claims).
  4. The letters of claim/demand must include certain prescribed information (such as the names and addresses of the parties, the facts on which the claims/responses are based, basis of each claim, the relief sought, etc). The letter of response must also be provided within 28 calendar days, with the without prejudice meeting taking place a further 28 days after that. The requirements of the Protocol are not to be followed slavishly, but non-compliance will expose the non-complying party to an adverse costs order in any future proceedings regardless of the outcome of those proceedings.19 The costs of complying with the Protocol are not recoverable if the claiming party does not commence proceedings.
  5. The purpose of the Protocol is to:
    1. Encourage the exchange of early and full information about the prospective claim;
    2. Enable the parties to avoid litigation by agreeing a settlement of the claim before commencement of proceedings; and
    3. Support the efficient management of proceedings where litigation cannot be avoided.
  6. The Protocol has been criticised for front loading costs and encouraging scatter gun claims. This can be true, but experience shows there are reasonably regular instances where claims are not pursued after the issues were clarified in the Protocol process. It is also less cumbersome, inflexible and expensive than the multi-tiered dispute resolution clauses found in many contracts. Jackson LJ considered the Protocol in his 2009 Costs Review and ultimately recommended that it be retained.
  7. There is currently no equivalent to the Protocol in New Zealand. Unless there is specialisation within the High Court bench, we are unlikely to see anything formally adopted under the rules. However, there is no reason in principle why parties to a construction contract could not incorporate this concept in their dispute resolution clause as an alternative to formal negotiation/mediation if they are insistent on a stepped approach to litigation or arbitration.
  1. 18  G Sharp, Dispute Resolution Clauses in Commercial Contracts: The Case for Later Settlement, http://www.cliftonchambers.co.nz/2013/12/dispute-resolution-clauses-in-commercial-contracts-the-case-for-later-settlement/.
  2. See the principles laid down in Halsey v Milton Keynes General Trust [2004] EWCA Civ 576.

Back-to-back clauses

  1. Where there are different but related agreements, such as in a contractual chain, the dispute resolution clauses should be back-to-back. An example of this is in construction where there is a head contractor, sub-contractors and consultants, each of whom may have some culpability for a defect with the building project.
  2. If there are different dispute resolution clauses, it can result in multiple legal proceedings in different forums addressing the same or closely related issues.20 If, for example, arbitration has been specified in one contract but not another, the party who has not already agreed to arbitration cannot be compelled to submit to that forum and will not normally do so for tactical advantage.
  3. Different forums will result in unnecessary additional complexity, expense and delay. It also has the potential to prevent one party from passing on liability to another if there are time-bar issues. These problems can affect defendants wanting to make cross claims and third party claims as much as they can affect plaintiffs themselves.

    CURRENT AND PREDICTED TRENDS

  4. This final section is a commentary on current and potential future dispute trends in New Zealand’s construction sector. Some overlap with matters discussed above.

    Earthquake, payment and defect claims

  5. The Canterbury earthquakes caused a large volume of “first generation” claims about the scope of cover for earthquake damage and remedial works, which encompass building and engineering issues. The Earthquake List in the Christchurch High Court Registry has been flooded with these proceedings and there is currently approximately 250 cases on the list, although the number of new claims has peaked.
  6. A more recent trend emerging from Canterbury, is “second generation” claims over the appropriateness and adequacy of remedial works. The number of “second generation” claims is likely to continue increasing for some time yet.
  7. Further, as projects come to an end and the demand begins to fall, it is likely that traditional payment and defect disputes will increase – across New Zealand and not just in Canterbury.

    Procurement challenges

  8. We may see an increase in procurement or tender challenges, particularly for public sector projects where, for example, proper process have not been followed or perceptions of bias arise. There is some construction-centric case law on this already.21 Even though it did not concern building or engineering, the Problem Gambling Foundation’s recent success in challenging a tender process conducted by the Ministry of Health for the provision of services for problem gamblers may now encourage others, especially in the construction sector.22
  1. 20  As an example see PT Thiess Contractors Indonesia v PT Kaltim Prima Coal and another [2011] EWHC 1842 (Comm).
  2. 21  Andrew Skelton, The Tender Process – Rights and Wrongs, Getting it Wrong, NZSCL Annual Conference, 2015.
  3. 22  Problem Gambling Foundation of New Zealand v Attorney-General [2015] NZHC 1701.

Potential further widening of tort law in New Zealand

  1. The widening of tort law in New Zealand in recent years has encouraged scatter-gun claims, most notably in leaky building disputes. This could be extended further following the recent Carter Holt Harvey v Ministry of Education decision, which has opened the door to building manufacturers owing a duty of care to property owners.

    Increased adjudication

  2. Various amendments to the Construction Contracts Act 2002 (CCA) are currently before Parliament and are awaiting their third and final reading. The expected changes will include:
    1. Largely removing the existing distinction between residential and commercial construction contracts;
    2. Extending the right of adjudication to design, engineering and quantity surveying work; and
    3. Updating and clarifying the adjudication procedure (eg by including an express entitlement to a right of reply by claimants).
  3. Those changes are likely to see an increase in the number of construction disputes that are referred to adjudication.

    Dispute Boards and Advisors

  4. There is growing support for the wider use of dispute boards (and dispute advisors) during projects. With the volume of work and number of large projects in the pipeline, there has never been a better time to embrace these methods and we should expect to see and hear more about them.

    CONCLUSION

  5. Disputes are usually best avoided. However, the nature of construction means the industry will always remain disposed to conflict as projects evolve and issues emerge. When that happens, effective and efficient dispute management is important.
  6. Having an appropriate and realistic procurement method and carefully completed contract documents will go a long way towards minimising the risk of problems. During the project itself, early identification and engagement is best practice for preventing issues escalating into a dispute.
  7. If a dispute does arise, it is important to understand the resolution methods that may be available. One of the key trends that is likely to emerge from New Zealand’s current construction boom is an increase in the use of adjudication, conciliation and dispute boards or advisors.
  8. It is recommended that parties to construction contracts be pro-active and flexible in their approach to dispute resolution.

By Nick Gillies, Partner, Hesketh Henry, Lawyers. Auckland NZ, with assistance from Richard Belcher, Solicitor,

16 November 2015

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