What effect will BIM have on Construction Disputes...??

What is BIM? A type of Software? The 3D model of buildings? A Process linking the client and Design team? An Organised Collection of all Building Data? In truth, BIM is all of these and more.

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Ian Brant, April 2012

Is Adjudication Too Expensive?

The right to adjudicate a dispute under a “Construction Contract” came into force in 1998 when the Housing Grants Construction and Regeneration Act 1996 (the Act) became statute.

One of the primary objectives of the Act was to assist with ensuring that cash flowed down the supply chain. The adjudication provisions were amongst other things intended to assist in this process by providing a relatively quick and inexpensive means of settling disputes about payment issues as they arise.

Reading trade journals, twitter and speaking to fellow professionals at networking and technical briefings the current consensus appears to be that the Adjudication procedure is too expensive. It also appears that the finger of blame is pointed at the lawyers.

This is done by lodging challenges to the appointed adjudicator’s jurisdiction and by seeking to establish a similar level of case presentation as is produced for arbitration or litigation. This can lead to expensive legal fees which make all but substantial monetary claims commercially unviable to pursue given that the parties bear their own costs.

This raises a number of questions:

• Are the lawyers entirely to blame?

• Are the costs of adjudication high due to jurisdictional challenges introduced by lawyers?

• Has the industry brought upon itself this outcome due to using the adjudication procedure for resolving major final account disputes?

• Was the Act introduced with final accounts disputes in mind?

• Has adjudicating final accounts contributed to the need to ensure Referrals contain a similar level of detail as pleadings?

• Is adjudication the right forum for final account disputes?

Large final account disputes often include extension of time and loss and/or expense claims and large variation accounts involving numerous items in dispute, all requiring substantial evidence in support.

What can be done to make adjudication more affordable? Are the costs of adjudication to become even higher to the Referring Party?

We will share our views on this matter in our summer edition.

Ian Brant, April 2011

The “Prevention Principle” is Alive and Kicking

The Scottish Decision in City Inn v Shepherd Construction in which it was decided that where concurrent delays occurred an apportionment of delays approach is to be taken, appeared to contradict previous decisions which adopted the “prevention principle”.

The “prevention principle” determines that a party cannot benefit from its own breach of contract. Put simply, one party to a contract cannot rely on the other party’s performance of an obligation under the contract between them if the cause of the non performance is of the former’s own making.

The “prevention principle” has been a part of English Law for a long time, albeit its origin is unclear. One of the very early construction cases involving the “prevention principle” was in Holme v Guppy in 1838.

The “prevention principle” has recently been upheld in the Technology & Construction Court by Mr Justice Edwards-Stuart in the case of DeBeers UK Limited v Atos Origin IT Services UK Limited.

This was a case involving computer software systems which similar to construction contracts often over-run. The contract between DeBeers and Atos included both extension of time and delay costs provisions. The judgement determined that Atos were entitled to extension of time for delays for which both DeBeers and Atos themselves were responsible and that Atos were not entitled to delay costs due to them being in part to blame for the delays.

Trevor Brant, May 2011

Wax on, Wax off

Many of you will have seen the classic 1984 Film ‘The Karate Kid’, from which the title of this article is blatantly pinched. You may even have seen the recent re-make with Jackie Chan. For me the original film started an adventure into the world of Martial Arts, long before my journey into the world of Construction disputes commenced.

Having now been heavily involved in both of these worlds for a significant period of time, it is clear to me that companies within the world of Construction can learn a lot from Martial Arts. I am not making reference here to using your feet or hands to break breeze blocks, roofing tiles and the like. I have done this and believe me you are far better off sticking to using the correct tools! What I refer to is learning how to be best prepared to protect yourself.

Within my time in martial arts I have experienced many different forms, from the standard ones everyone has heard of such as Karate, Taekwondo and Judo, to the more obscure forms such as the pressure point defence I practice today. One thing that is clear from all of these is that you need to have the ability in equal measures, to be able to defend and attack.

Defence

A block, whether it be Daniel San’s wax on, wax off from the aforementioned ‘The Karate Kid’, or a boxer’s parry is all well and good if you are expecting to be attacked. But if you are caught unawares you need to either-

• have the right tools to be able to get you out of trouble

• wear body armour.

• have body guards

There is little difference here with the Construction Industry. If you were aware from the pre-tender stage of a Construction Contract that the party you were to enter into Contract with was going to attack you by commencing dispute proceedings at some point throughout the currency of the Contract or indeed post-contract, you would either do everything in your power to ensure that you were as well protected as possible or if feasible you would just walk away.

If however you are not expecting an attack you will need one or more of the aforementioned three points.

In the Construction world these can be considered as follows-

• The right tools refer to having a sufficient Contractual knowledge to be able to run any Contractual arguments or Technical defences to help get you off the hook. Also having the resources and expertise to be able to put together sufficiently supported documents to be used in your defence.

• The equivalent of body armour is having good records and having administered the Contract correctly. The importance of good records cannot be emphasised enough.

• Body guards could refer to an organisation like Brant Associates who can help to protect you from disputes occurring or fight your corner if a dispute did occur.

If the attack does come with little warning it is advisable for you to have been in training, so that you know how to handle the situation. In terms of the construction industry such training could comprise:-

• Training your staff to understand the requirements of the Contract / Sub-Contract

• Checking Contract documents are not too onerous before you sign up to them

• Ensure your defend yourself at all times by having the correct documentation in place

• Be aware of your opponent’s strengths/weaknesses so that you can best exploit them.

• Be in a position to bring in bodyguards such as Brant Associates to help to defend you and add resources to prepare a defence as soon as possible

• Be prepared to use a pre-emptive strike.

Attack

In certain circumstances it may be necessary for you to be the party commencing dispute proceedings. For example the Contractor / Employer may be unlawfully withholding monies from your applications, or refusing to agree the Final Account.

In order to commence proceedings it is essential that you suitably prepared for the fight. Such preparations should include the following:-

• Being able to assess opponents weaknesses and know own strengths

• Knowing when to attack

• Knowing how to attack

• Having the correct weapons to attack

• Being able to defend counter attacks

Avoidance

Although being capable of defending yourself and attacking effectively is essential, the primary course of action should always be avoidance. Taking measures to avoid a combative situation is always preferable, though admittedly not always possible. Brant Associates have recently been spending a far greater proportion of our time advising our clients on dispute avoidance. Research tells us this is because our clients are aware that the costs involved in being properly prepared for a Contract are far lower than the costs of resolving issues arising during or after a live contract.

Much of the advice we provide is based around the results of a Mini Commercial Risk Audit which we will carry out free of charge for our clients, this identifies the predominant potential weaknesses in our clients’ procedures and from this we can advise on the best course of action, whether this be in terms of the introduction of new procedures or simply amending existing documentation.

By being aware of the most common potential pitfalls and covering your back at all times you will present less opportunity to your opponent to pick a fight with you. This applies to both construction disputes and martial arts. A bully is less likely to pick on you if they think you are capable of defending yourself.

Mark Brant, September 2010

Disputes to become more complex?

Partnering agreements are designed to encourage two parties to work together as a team and trust one another. What then happens when a dispute arises and there are very few (if any) site records? Is the adoption of partnering principles the best way forward?

It is true that contractors and sub-contractors involved in framework deals and/or partnering agreements appear to be weathering the storm better than most, but at what risk?

Messers, Banwell (Sir), Emerson (Sir), Latham (Sir), Egan (Sir) and now Wolstenholme have all advocated and encouraged partnering and working as a team.

Sir Michael Latham, the author of ‘Constructing the Team’ suggested, ‘through teamwork the construction industry could delight its customers’ [Latham,1994].

There are many opinions upon what constitutes collaborative working or partnering. As the Latham report is perhaps the best known, I feel it prudent to commence with the description contained within ‘Constructing the team’,

“[a] contractual arrangement between the two parties for either a specific length of time or for an indefinite period. The parties agree to work together, in a relationship of trust, to achieve specific primary objectives by maximising the effectiveness of each participant’s resources and expertise” (Latham, 1994).

One of the industry’s most outspoken experts Rudi Klein, believes ‘Partnering is either about trust and transparency or it’s about two parties shafting each other. (Klein, 2007)

Whilst the primary objectives of partnering was to improve industry performance in terms of quality, certainty of price and delivery, Latham had hoped to reduce the adversarial nature of the industry and in turn reduce the number of construction disputes.

‘9.3 The best solution is to avoid disputes. If procedures relating to procurement and tendering are improved, the causes of conflict will be reduced. If a contract document is adopted which places the emphasis on teamwork and partnership to solve problems, that is another major step’ (Latham, 1994).

So are partnering agreements reducing the quantity of disputes? Negotiation, mediation and adjudication are the preferred dispute resolution options in both traditional and partnering contracts and therefore many construction disputes remain private. In the majority of instances, the only figures and case law available to analyse is whereby a project dispute has arrived at court for enforcement.

Partnering Agreements work on the principles of trust and ‘working together’; therefore one would assume that the need for extensive site records is reduced; if this is so, what then happens should a dispute arise? Formal disputes that have arisen from partnering agreements have often been more complex, more costly and have taken longer to administer than a “standard dispute” This is largely due to parties trust under a partnering agreement and the subsequent reduction of site records.

The Government has recently appointed a ‘Chief Construction Officer’. Paul Morrell has been tasked with advising the Government on the future of the construction industry. The Editor of the Building magazine, Chevin (2009) explains that Paul Morrell ‘is not the industry’s biggest fan of partnering’. Could this be an insight into the future of partnering within our industry?

I would argue that with the traditional adversarial nature of the industry and with everyone out to make money the likelihood of dispute under a partnering agreement is still prevalent.

Therefore if you enter into a partnering agreement, give them a cuddle, go and enjoy a beer, but take full and detailed site records in case things go wrong.

Ian Brant, June 2010

References

Latham, Sir, Michael (1994) Constructing the team: joint review of procurement and contractual arrangements. London H.M.S.O

Klein, R (2007) Know who your friends are, Building magazine, pg 61. (05.10.2007)

Chevin, D, (2009) The task facing Paul Morrell, Building Magazine, pg 1, (27.11.2009)

Late or non payment problems

In contracting is there anything that can be done to improve the payment periods and certainty of amount, the amount to be paid and the payment date?

The answer is a qualified yes, since no one can guarantee same.

It all starts with the Contract terms and Conditions. Get these wrong and you will be swimming against the tide.

The next stage is to comply with the requirements of the Contract in terms of making applications for payment, the submission of appropriate notices and the preparation and maintenance of adequate records to support the aforementioned.

No rocket science there then! It is quite remarkable however, in our experience, how many companies do not deploy and/or police adequate systems to address these basics.

Prevention in our experience is less expensive than cure and by putting sound procedures in place and policing them it can lead to increased cash flow and profitability.

In an attempt to assist our current and potential clients in reviewing how effective their policies and procedures are, we are introducing a new service (Mini Commercial Risk Audit) as detailed on our news page.

Trevor Brant, February 2010

When is a ‘Slip’ Not a ‘Slip’

No this is not an article about cricket.

I refer to Adjudicator’s slips (accidental errors or omissions or ambiguities), the fair use of the Slip Rule by an Adjudicator and enforcement of Adjudicators decisions in the Courts.

What is the ‘Slip Rule’?

For the purpose of adjudication, and in the absence of express terms in the adjudication agreement, which prescribes an Adjudicator’s powers to correct a ‘slip’, a term will be implied to permit the Adjudicator to correct an accidental error or omission or to clarify an ambiguity.

Recent Cases

There have been two recent cases decided in the Technology and Construction Court, both dealing with different aspects of the Slip Rule in Adjudication. Both cases involved the enforcement of Adjudicators Decisions.

The first of these cases is O’Donnell Developments Ltd (O’Donnell) -v- Build Ability Limited (BAL), which involved the enforcement of two Adjudication Decisions.

The second of the cases is Rok Building Limited (ROK) -v- Celtic Composting Systems Limited (No 2) (Celtic).

The two cases noted above raise interesting and important questions in respect of the use of the slip rule.

In O’Donnell Mr Justice Ramsey had to consider

‘how far a court can interfere with an Adjudicator’s exercise of his power under the Slip Rule’

In Rok, Mr Justice Akenhead had to consider

‘the extent to which one can infer an unfairness on the part of an Adjudicator where he or she may have gone seriously wrong and in the circumstances in which an agreed Slip Rule may be used by an Adjudicator with or without an appropriate level of fairness’.

The issue in the O’Donnell case followed nine adjudications between the parties involving disputes in relation to interim valuations, extensions of time and loss and/or expense. In essence, in arriving at his decision in Adjudication 8A the Adjudicator had asked the parties for the total sum O’Donnell had been paid up to valuation No 25. The parties both provided a figure which but for a few pence were the same figure. The Adjudicator used the figure to calculate the net amount to be paid by BAL to O’Donnell.

The problem arose due to the fact that within the figure for payments made was a figure of £148,468.67 which BAL had paid to O’Donnell as a result of the Adjudicator’s Decision in Adjudication No 7. That sum did not relate to Valuation No 25 and should not have been taken into account. The Adjudicator therefore inadvertently reduced the amount he intended to award O’Donnell by £148,468.87.

O’Donnell pointed out the slip to the Adjudicator who corrected his decision under the ‘Slip Rule’. BAL refused to pay that sum in particular.

BAL argued that ‘it was only if the parties in effect agreed on the slip that the Slip Rule could be applied and BAL also argued that the Adjudicator had not made a slip at all because he had acted on the information supplied by O’Donnell which mistakenly included the sum paid in respect of the decision in Adjudication No 7.

Mr Justice Ramsey did not find favour with either of BAL’s arguments and awarded O’Donnell the £148,468.87 to be paid by BAL, together with costs.

The issue in the ROK case is that Celtic refused to pay ROK the sums decided by the Adjudicator, on the grounds that the Adjudicator had ‘ ..acted unfairly and contrary to the rules of natural justice .. insofar as he .... did not operate the Slip Rule properly or so as to allow ‘natural justice and due process’.

In essence Celtic claimed that ROK had misled the Adjudicator in relation to the sums which Celtic had previously paid to ROK. Celtic drew the errors in ROK’s figures to the attention of the Adjudicator following issue of his decision. Celtic argued that the Adjudicator could and should have used the ‘Slip Rule’ to correct his decision taking into account the amount which had actually been paid to ROK.

The Adjudicator declined to consider Celtic’s representations on the basis he did not consider the point raised by Celtic to be a clarification of a simple mistake or ambiguity.

Mr Justice Akenhead decided that even if there had been a glaring and serious error in the decision on the part of the Adjudicator, he had not acted contrary to the rules of natural justice in declining to use the Slip Rule to correct same.

Mr Justice Akenhead also stated ‘It is not necessary for Adjudicators in their decisions to give reasons as to why they found some evidence compelling and other evidence not’.

Summary

In summary, it is advisable to inform Adjudicators of the correct payment position. In circumstances where further interim payments are made during the course of an Adjudication it is advisable to make the Adjudicator aware of same.

The Courts appear to be taking a narrow view of claims for ‘unfairness’ and ‘lack of natural justice’ when dealing with enforcement of Adjudicators decisions. It is unwise to seek to rely upon such claims in trying to avoid making payment of such decisions.

Brant Associates | 01733 568687
Construction Dispute Resolution & Quantity Surveying firm
Head Office: Unit 8a Opus, Cygnet Park, Hampton, Peterborough, PE7 8HP