Dispute Resolution or Dispute Avoidance? Prevention is better than cure.
- November 8, 2022
- Posted by: MK Consultus
- Category: Dispute Avoidance
Dispute settlements can deplete resources at alarming rates; regardless of project size, the disruption of timelines, exuberant costs, and undue stress are the natural consequence of disputes arising. Investors are often stretched thin due to delays caused while resolving disputes – whether it be complex international projects involving billions of Rupees worth of investments, or smaller domestic contracts – in terms of both internal resources and external relationships.
It has become increasingly frequent for clients to adopt a three-phase strategy in the interest of proactively avoiding unnecessary costs and delays involved in dispute resolution.
Phase I: Taking steps earlier in the project life-cycle to better understand potential risks and common pitfalls.
Phase II: Training teams to be aware of their obligations under the contract (whether in terms of time, cost or quality).
Phase III: Proactively managing potential disputes as they emerge, rather than kicking the can down the road and hoping for the best.
What steps you should take?
Those in the construction industry use a vernacular expression that ‘contracts are meant to be left in the drawers until a dispute arises’. The most efficient way to avoid disputes in a project is to review and understand the contract and build the project team’s awareness of their obligations under that contract at the outset. This empowers the team to navigate the project as per the understanding between the parties without which it is easy for large teams to divert from obligations as intended by the parties under the contract.
A detailed contract review coupled with interactive, open-forum, team workshops is the first step in ensuring all members are congruous as a team on all aspects of the project. This encourages discussion between the team, weeding out potential issues, exchanging relevant knowledge, and the identification of key areas for risk management and commercial improvement.
Administrative requirements associated with construction contracts – not just FIDIC and NEC – are just as important as the offer itself. Any derivation from the requirements, or failure to comply with particular obligations can be fatal to entitlement for the parties, with missed opportunities to be ‘on the front foot’ in commercial discussions and negotiations.
Basic procedural checklists can go a long way in keeping everything on track. Checklists should be developed for the relevant teams giving them with timelines, events, and required action to be taken along with their compliance requirements. Members of the team should be trained to use these checklists at every stage of the project lifecycle from the kickoff.
Reviewing, validating, and stress-testing the baseline programme is another area that can provide long-term benefits for the project. An understanding of the practical implications of the baseline programme at the outset, it’s attainability, practicality, and potential constraints on timely delivery, are all essential ingredients in managing the programme for the duration of the project.
Good programme management is now an essential component of any project – and is more often than not a contractual obligation. Programme management provides a benchmark for entitlements to extensions of time, adjustments of the contract sum, and loss and expense recovery amongst others. The team’s ability to understand and handle this important tool is crucial.
Detailed project monitoring and careful progress reporting are other areas that can prove invaluable in alerting the team to potential problem areas before they become too established or have a disproportionate effect on the progress and costs of the project. An objective overview of the progress of the works backed up with clearly labeled and cataloged photographs and other site records function not only as a proactive management tool but is also a reliable resource for retrospective analysis – which can prove very valuable in developing a business.
Appointment of a ‘Dispute Avoidance Advisor’ (DAA) or ‘Conflict Avoidance Advisor’ (CAA) in energy, power, and infrastructure projects can be of enormous help. The role of a Dispute Avoidance Advisor ranges from day-to-day advice to the parties intimating rights and obligations as per the agreed contract terms to risk forecasting, avoidance, and management. The public sector organizations in Pakistan can utilize the DAA in power, energy, and infrastructure projects. Due to the frequent and sudden changes in management, the role of DAA can help save a fortune, and ensure timely completion and smooth running of the project.
DAAs also maintain records of each activity and advice provided to the parties. This can particularly useful where the contract does not call for the maintenance of records. Accurate, detailed, and easily accessible records really can make or break a dispute, by providing support to continuing project-level discussions to avoid disputes developing (or expanding), in senior-level negotiations, or formal dispute proceedings – not to mention it they can serve as a non-exhaustive resource for the future. A good record management system is essential, as is the team’s buy-in to the efficient management of disputes.
A good DAA helps maintain an open channel of communication and exchange of information between the parties and the team to help avoidance of further disputes. Constructive dialogue between the parties keeps the prospect of satisfactory commercial settlements alive, thereby avoiding the uncertainty that comes when you place decisions for your dispute in someone else’s hands.
The best dispute avoidance practices are always ones that are incorporated at the inception of the project. In times of increasingly economic uncertainty, contractors must be preemptive in their approach to dispute settlement. Dispute avoidance offers a wide range of options to safeguard your resources and contractual rights.
Contact us for more information on dispute avoidance for your business.