Effective Dispute Resolution:
Minimising the Risk of Disputes
Global law firm CMS shares practical advice on how to avoid disagreements when constructing mega projects.
E
mpirical evidence shows that English law is the governing law most frequently used in international construction
contracts. Actual experience demonstrates that contracting parties who have a familiarity with English law contracts can gain a competitive advantage when tendering and are less likely to run into trouble when the construction works commence. If a Spanish contractor bids for a large infrastructure project in a Middle Eastern country, why would the parties chose English law as the governing law for their contract rather than Spanish or local law? In our experience, there are multiple reasons for this: l Finance documents are often governed by English law so it makes sense for the underlying construction contract to be the same. l Many English law concepts are universal and underlie many of the important features of international construction contracts regardless of their governing law. A few examples, which have now become established in many standard forms, are liquidated damages (and correspondingly extensions of time) and English agency law principles which underpin the role of the certifier. These concepts are not commonly found in other legal systems and jurisdictions, so
marrying them with English law as the governing law makes sense. l There is a large body of English case law that can be applied in order to narrow issues and aid in the resolution of disputes. l English law is based upon freedom of contract. This gives the parties autonomy to agree the “rules” which they wish to apply to their project and to write them down in one place i.e. the contract. If done properly, this provides further scope for minimising disputes. We find that parties who are familiar with English law and English law concepts are often best placed to gain an advantage over their competitors in tendering for and executing projects, managing issues that arise and resolving disputes. The reason for this is that they have a better understanding of their rights and obligations during the project. One result of this is that they do not have to price for the risk of something that their experience shows is unlikely to happen and/or are able to better manage events that their experience tells them are likely to occur. Areas where disputes habitually occur include time and cost overruns, variations, defects and termination. These areas can all be managed better by those with a familiarity of English law.
56 GLOBAL OPPORTUNITY 2014 | ISSUE 01
The best prospect of minimising the risk of disputes arising is getting the contract right in the first place. This means identifying the main risks inherent in the project (e.g. ground conditions, consents and permits) before the contract is put out to tender, working out ways of minimising those risks and allocating them in the contract to the party best able to manage them. Once these points are agreed, it is then important to make sure the contract is drafted fully and clearly. The contract is the document that governs the relationship between the parties. The governing law is only the starting point for this. It is important for parties working internationally (especially those from different jurisdictions) to write down in the contract everything that they have agreed and not to leave anything to chance. Taking the common areas for disputes that we have identified: the grounds for extensions of time and entitlements to additional payment should be expressed clearly and exhaustively; the scope of the contract works should be defined precisely; and the
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