Interview with Senior Legal Team Member

Delays and escalating costs appear to be the primary causes of tension and dispute in construction projects. Do you agree?

From a contractor’s perspective, usually when we execute a construction agreement we would run a fixed-cost type EPC contract, so the more project delays of course, the more costs we have to incur. It simply leads to the increase in cost of labourers and so on. In order for the contractor to achieve the expected profitability, they must try to recover the delay-related costs from the owner. So from the owner’s side, it is also a very significant issue and is not so easy to compromise on.   

With the COVID-19 pandemic, Brexit, the war in Ukraine and the energy crisis, how much pressure does that put on fixed-price contracts?

Over a three-year period, we have been struggling to manage our construction schedule. The pandemic obviously disturbed the timely implementation of the projects. As for the energy crisis, we are investing in new renewable projects, such as offshore wind projects, and due to the trend for decarbonisation, the need for equipment for the renewables sector has been higher than expected. It is a seller’s market.  

With those issues of cost and delay caused by the COVID-19 pandemic, how difficult has it been to resolve those problems between stakeholders in construction projects? 

We tend to use the FIDIC contract, so we are able to ask the owner to simply extend the completion time, but the cost increase due to a force majeure event is not compensated by the other party.  So, of course, we want to try to recover those costs through legal grounds, such as through a “change in law” clause, but often having that discussion is quite tough and difficult.  

Keeping better records is a factor that our respondents feel needs to be improved. Is that something that you recognise in your business? 

The technology is becoming more effective than before. Many contract management systems and document management systems are now in place. In future, it may become easier than in the current circumstances. In some teams, document management is quite well managed by the strong leadership of the project manager, but not in others due to the personality of the leaders. 

Do you feel that the parties involved in construction projects need to understand local markets better?

Negotiation in a dispute is heavily dependent on not only what the contract provides, but also how it is interpreted by the stakeholders and the stakeholders in the larger projects are mainly government entities or a state-owned company. So in that sense, to understand the market standard or behaviour of the local players is difficult. So even if the contracts are beautifully drafted, if the other party doesn't comply with it, it is meaningless. 

Should conflict points be resolved separately throughout the project rather than resolving them at the end of the project? 

From the legal department’s point of view that is partially true, but then it doesn't make sense to the business guys who always say during the implementation period that they need to maintain the relationship with the customer. So, the disputes should be resolved after completion from the business guys’ point of view.