Delivering major construction projects has always been challenging. The current global climate will necessitate more of these projects, while at the same time making their delivery more difficult. Understanding and mitigating risks is therefore vital.
In a recent webinar, speakers from Womble Bond Dickinson's (WBD) UK and US offices shared their valuable insights around identifying and circumnavigating current pitfalls in domestic and international projects.
Chairing the event, Jessica Tresham, Partner at WBD UK, highlighted that the construction industry is well-known for its project problems, that overruns and delays can ultimately lead to cash-flow issues, and that multiple jurisdictions and stakeholders can be a minefield to navigate.
Current trends in major projects
Vicky McCombe, Partner at WBD UK, explained that the ideal contractual set up from an employer's perspective is a design and build or EPC wrap contract. However, it has become harder to procure this for major projects, at least at a reasonable price. Further trends include:
- Employers are moving towards construction management/EPCm, creating a more balanced approach than passing all risks down to the contractor
- Changes to payment or combining payment mechanisms and increased use of target cost contracts and other incentive schemes
- ESG clauses are starting to appear in contracts, including around corporate governance policies, social value strategy with and without attached KPIs.
USA perspectives – managing issues on major construction projects
Joining from Virginia, Todd M Conley, Partner at WBD US, shared his international experience and pointed out two key criteria for successful projects:
- Cost control
- Avoiding and mitigating significant delays.
Understanding the drivers of unanticipated project costs and working out how to manage changes is crucial. Changes are inevitable – the key is to have a "workable" day-to-day process, which can protect both parties if followed. Avoid additional problems by consistently following contractual procedures and keeping accurate records.
Avoiding and mitigating delays needs focus on establishing completion dates (and interim dates leading up to these), and managing the schedule to ensure work is progressing to time. Parties should review the schedule regularly and follow it, but if the timescale slips it is equally important to have a plan on how to recover lost time.
Lost in translation - a former in-house legal counsel's view
Francisco Balduzzi, Partner at WBD US in Houston, shared his perspective gleaned from his experience as a former in-house legal counsel.
He gave helpful examples of where he had seen difficulties in international projects, including:
- Limitations on liability – using a legal term or concept from one country or legal system (i.e. common law vs civil law) could mean something different in another country or legal system, so draft with caution, especially when the contracts are translated into different languages.
- Changes in administration and political instability – this can result in a reversal or modification of laws, and impact the economic factors agreed under the contract, so it is important to carefully draft a change in law clause in each contract.
- Warranties – these have a limited scope and period, may not always cover latent defects, and may be limited in impact due to local law.
- Liquidated damages - these may put a contractor in some countries out of business, impacting owner’s schedules, so consider alternative creative solutions to liquidated damages.
Pre-emptively avoiding and managing disputes when contracting with international parties
Managing Associate at WBD UK, James Ignotus, provided practical tips on how parties can protect themselves when entering into contracts.
It is vitally important to consider at the outset how to manage supply chains, especially when parts and labour come from outside your home jurisdiction. Making sure the governing law in your contract is right, and mirrored throughout the whole suite of contracts, can make a significant difference in disputes, and in enforcing arbitral awards.
Being aware of how local laws impact your contracts is also crucial (for example, the Housing Grants, Construction and Regeneration Act 1996 (which in summary applies to construction operations carried out in England, Scotland and Wales).
You can also protect yourself with the right security packages and by getting local law opinions.
Common pitfalls also include unsuitable contracts and relying on manufacturer warranties instead of collateral warranties. Manufacturer warranties can cause particular issues because they are often issued on the manufacturer's standard terms and if they are not properly entered into as contracts, they may be unenforceable.
To find out more, including points the speakers made that are not covered in this summary article, you can watch the full recording of the webinar by contacting firstname.lastname@example.org.
For more information on our international arbitration capabilities, download our brochure here.
This article is part of Womble Bond Dickinson’s Growing Global series. For more insights, click here to visit our Growing Global hub.