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Heywood Real Estate Limited
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Tackling Legal Disputes – The Wembley Experience
The recent High Court battle between Multiplex and Cleveland Bridge and the impending case between Multiplex and Honeywell is potentially just the warm up before the big match between Multiplex and the Employer, Wembley National Stadium Ltd.
These disputes arising out of the Contract and Sub-Contracts for the new Wembley Stadium are the latest in high profile construction projects in the UK to have ended up in the High Court.
Notable previous projects which have also been problematic and required a decision by a Judge include the British Library, the Jubilee Line Extension, St Pancras Station and most recently the Great Eastern Hotel.
What these projects have in common is they went into extra time, were over budget and each can be considered a prototype.
Not all disputes find their way to the High Court however. Many are resolved by adjudication or mediation.
The average football supporter may find it difficult to comprehend how such disputes arise. This is hardly surprising. It is due largely to the complexity of the processes involved. It is far more intricate than signing the next high profile manager, players and deciding whether the formation is to be 4, 4, 2 or 4, 3, 3.
The mix of considerations which go into the realisation of any successful construction project essentially boil down to assessing risk. Deciding who in the legal contract is responsible for that risk and the competent management of same is the key to achieving the goal.
It is usually when the demarcation of responsibility for risk is blurred that disputes are spawned. This is when the judge has to decide whether the claimant was fouled or whether he took a dive. In other words is the claim genuine or spurious. The outcome will depend on the law (making the blurred demarcation a clear line) together with deciding which side of the goal line the ball falls and also the facts (was the claimant on side at the time).
The most common disputes arise due to an Employer making changes to the design (variations) or his design team are late providing information. Whether variations be changes of requirement by the Employer or changes by the Employer’s design team to correct or improve the design, the risk will normally rest with the Employer in a traditional contract where he is responsible for the design. Of course there are also many other reasons for disputes.
This traditional method of procurement is only one of many used in an industry where Employers invariably pursue certainty of cost, time and quality, thereby trying to place the lion’s share of the burden of risk on the Contractor.
An industry which also has arguably too many Main Contractors (the Managers) (it is easy to establish a £100 capital issue company) chasing turnover at the expense of profit and too few Sub-Contractors and skilled craftspeople (the Players). It is also a fact that the industry has a high mortality rate in the form of company failures.
Other methods of procurement include design and build, traditional with guaranteed maximum price, construction management, turnkey and management contracting.
It is also important to recognise that for every main contract there will be numerous sub-contracts entered into, each having a propensity for disputes to arise for similar reasons as those for the Main Contract.
Can these disputes be anticipated and if so, can they be prevented?
The simple answer is substantially yes! They will never be totally eliminated. The reality is more difficult.
Inspection of the poor profit results on purely construction operations of major contractors is very revealing. The average football supporter is unlikely to invest his/her hard earned cash in such organisations. These poor profit results are no doubt contributory factors in contractor’s motivation in pursuing claims so as to mitigate losses and thereby creating disputes.
Whether in part such claims seek to recover losses due to inadequate risk assessment allowances and/or poor management of the risks is for the Judge to decide.
An Employer should always be wary of a cheap price. This may be indicative of an unrealistic assessment of the risks involved and may lead to claims, whether they be legitimate or spurious.
Very precise drafting of contract terms and conditions thus ensuring clear definition of the apportionment of risks is one way of minimising the opportunity for claims. This was perhaps the case with the Millennium Stadium, Cardiff where Laing suffered huge losses.
Another way of avoiding disputes is to contract on a cost reimbursement basis. This is unlikely to find favour with most Employers however, since it will not meet the criteria of price certainty.
Another procurement method which has not experienced disputes to any significant degree is that of Construction Management, however a high profile example of where all was not well is the Scottish Parliament Building where the tax payer picked up the enormous bill for cost overruns.
The costs of disputes to the parties can be substantial and are significant to the industry as a whole. It is not just the costs of lawyers and expert witnesses and claims consultants which one party to a High Court dispute is likely to pick up which impact on the companies or institutions involved, it is also the time and cost of their own staff and the disruption it brings to their business which can be very detrimental. Arguably time and cost which can be used in risk assessing, pre-planning and risk management which in turn may help reduce disputes.
Olympic delivery team, beware!
Trevor Brant, June 2009
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