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Doing deals and avoiding squeals


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How to deliver an infrastructure project successfully

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Doing deals and avoiding squeals

  1. 1. Track A1 Doing Deals & Avoiding Squeals; andThe Set UpTo Dispute Syndrome & HowTo Avoid It
  2. 2. DOING DEALS AND AVOIDING SQUEALS An Australian Perspective Laina Chan, Barrister Selborne Chambers, MelbourneTEC Chambers, Director and Secretary of Society of Construction Law Australia
  3. 3. Introduction ■ Australia is comprised of a federation of states and territories. ■ The Federal Government budgets for federal infrastructure projects on a State andTerritory basis. ■ No guaranteed consistency in the execution of each infrastructure project.
  4. 4. ATypical Scenario ■ Common grievances: – Excessive cost of tendering – Risk allocation – risk pushed onto consultants. ■ Contractors are in vulnerable positions with no bargaining power. ■ This approach does not lead to successful delivery of a project.
  5. 5. Changes to systems and processes ■ The changes to the PPP guidelines and the new PPPToolbox are intended to: 1. reduce bid costs 2. streamline transaction and approval processes; 3. promote consistency across NSW PPP projects 4. promote information sharing across NSW Government agencies 5. continuous improvement as the procurement processes evolve
  6. 6. The Sydney Light Rail Project – A lesson in what not to do ■ A large public transport infrastructure project ■ A cost overrun of over $1 billion with delays of 1 year. ■ Proceedings against the NSW Government for damages for misleading or deceptive conduct ■ Benefit to cost ratio reduced from 1.4 to less than 1.
  7. 7. The Art of Project Leadership ■ Only 5% of projects above $1 billion were completed within their original budget and on schedule. ■ They are the exception, not the rule. ■ Average cost overrun was 37% ■ Average schedule overrun was 53%.
  8. 8. Megaprojects are prone to overruns
  9. 9. Root Causes ■ Leadership does must trump the process. ■ Four discrete mindsets ■ Eight practices – Four relevant to the project setup phase – Four relevant to the project delivery phase ■ Need a clearly defined project scope with sufficient upfront investment in a detailed design.
  10. 10. Mindsets 1. Lead as a business, not as a project. 2. Take full ownership of outcomes. 3. Make your contractor successful. 4. Trust your processes, but know that leadership is required.
  11. 11. Practices – The setup phase ■ The four practices that require ‘artful’ application: 1. Define purpose, identity and culture. 2. Assemble the right team. 3. Carefully allocate risk and align incentives. 4. Work hard on relationships with stakeholders. ■ Need to focus on careful allocation and alignment of risk incentives.
  12. 12. Practices – The delivery phase ■ The four practices throughout the delivery phase: 1. Invest in your team, 2. Ensure timely decision making, 3. Adopt forward looking performance management, 4. Drive desired behaviours consistently.
  13. 13. A Successful Project – $16.8 billionWestConnex ■ Involves 33 km of upgraded and new motorways. ■ A successful example of the art of leadership in the delivery phase. ■ Project running on budget and on time. ■ Implements the art of project leadership.
  14. 14. Advice fromWestConnex Project Leader  Aim to provide owner obligations ahead of time.  Use influencing and networks across agencies.  Mutual trust and joint problem solving.  Work as a business partnership with a mindset of ‘we win together’.
  15. 15. Advice fromWestConnex Project Leader ■ Agility is key. ■ Honesty is key. ■ Strong contract management and processes are also key.
  16. 16. THE SET UPTO DISPUTE SYNDROME AND HOWTO AVOID IT WaliedAbdeldayem Managing Director - Intellect Dispute Experts Advisory (IDEA) 16
  17. 17. Claims & Disputes - Overview 17
  18. 18. Claims in Construction Contracts ■ Construction contracts provides for a specific remedy in the event of breach and grant entitlement in respect of specified events ■ Remedies are sought by following ‘the claims procedure’ ■ The claims may be: – assertion for financial compensation – assertion for an extension of the time – and/or other benefits 18
  19. 19. Claims in Construction Contracts ■ Proper planning and risk management could help minimize claims ■ Construction Claims are inevitable - practically impossible to: – foresee every event that might occur during the construction period – plan in advance for the consequences of such events 19
  20. 20. Claims vs Disputes ■ Dispute – “any contract question or controversy that must be settled beyond the jobsite management” – Diekmann & Girard, 1995 ■ Claim – “a request for compensation for damages incurred by any party to a contract” – Semple, Hartman, & Jergeas, 1994 ■ Halki Principle – A dispute does not exist until a claim has been submitted and rejected; a claim being a request for compensation for damages incurred by any party to the contract. Based on the case of Halki Shipping Corporation v Sopex Oils Ltd [1998] 1WLR CA. 20
  21. 21. DisputesAvoidance & Resolution - A Conceptual Model ■ The ‘Must-Have’ Organizational Functions: – Dispute avoidance: focuses on avoiding disputes by managing claims in efficient and timely manner – Dispute resolution: when disputes cannot be avoided, the focus is on systematic and integrated dispute management mechanism to ensure the disputes are settled as efficient as possible 21
  22. 22. DisputesAvoidance & Resolution - A Conceptual Model 22
  23. 23. Poor Project Mission Definition ■ Most owners, while giving attention to project’s symbolic aspects, overlooking the quality of specification and realization – quality of specification concerns proper final and coordinated design; – quality of realization covers a realistic timeframe and budgets. 23
  24. 24. 24
  25. 25. Claims and Disputes as a Potential Risk 25
  26. 26. Owners’Wait & SeeTactic ■ Negative perception of claims - confusing claims for disputes ■ Owners tend to ignore the matter until it is too late – Leading to less control in addition to losing the opportunity to have cost efficient and effective resolution 26
  27. 27. Typical Progress Meeting! 27 ‘tell them what they want to hear not what they need to know’ – very damaging, should be avoided
  28. 28. Early and late addressing of claims – Risk Management Perception 28 • Construction Claims are:  R I S K S!
  29. 29. Claims & Disputes Management against Project Life-Cycle 29
  30. 30. Impact of lack pr proper Claims & Disputes Management on the Project’s Economics 30
  31. 31. Prisoners Dilemma 31
  32. 32. Prisoners Dilemma ■ Two suspects got caught for a crime they committed together – not enough evidence – at least one has to confess to press charges ■ Suspects were separated and are under interrogation in separate rooms. – They know they both got caught ■ Suspects Options – Deny allegations, give no evidence at all – Snitch, provide evidence against the other suspect 32
  33. 33. Poll Question ■ If you were Suspect 2, which option would you choose? (Remember, you never know what Suspect 1 will do!) – Deny (Choose A) – Snitch (Choose B) 33
  34. 34. Suspect 1 Decision Snitch 34
  35. 35. The out come of your decision! Suspect 1 Action Snitch Deny Suspect2Action SnitchDeny 35
  36. 36. The out come of your decision! Suspect 1 Action Snitch Deny Suspect2Action SnitchDeny Both walk away 36
  37. 37. The out come of your decision! Suspect 1 Action Snitch Deny Suspect2Action Snitch Each gets sentenced for 2 years Deny Both walk away 37
  38. 38. The out come of your decision! Suspect 1 Action Snitch Deny Suspect2Action Snitch Each gets sentenced for 2 years Suspect 1 gets 5 years; Suspect 2 walks away Deny Both walk away 38
  39. 39. The out come of your decision! Suspect 1 Action Snitch Deny Suspect2Action Snitch Each gets sentenced for 2 years Suspect 1 gets 5 years; Suspect 2 walks away Deny Suspect 1 walks away; Suspect 2 gets 5 years. Both walk away 39
  40. 40. The Most Logical Choice Suspect 1 Action Snitch Deny Suspect2Action Snitch Each gets sentenced for 2 years Deny 40
  41. 41. ■ Consider others’ plays when deciding on your own move ■ Under pressure, a decision maker may willingly take a harming decision to avoid a potentially more harming situation ■ Construction contracts are generally set for going down a spiral road of disputes unless: – Trust is built, proper communication channels are opened, and (intentional & unintentional) signaling is properly interpreted 41 The Most Logical Choice
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  43. 43. The Dispute Syndrome 43
  44. 44. The Dispute Syndrome ■ The Client-Agent Problem principle plays a vital role escalating claims into disputes ■ The Client-Agent Problem is manifested by the fact that each party has different interest which are often conflicting 44
  45. 45. The Dispute Syndrome ■ The more an organization can align its goals with others’ goals, the less such problem is likely to have a noticeable impact on the organization’s performance ■ In practice, owners and the contractors tend to participate in a destructive syndrome that eventually leads to disputes 45
  46. 46. 46 Contractor takes aggressive and adverse position Triggering Event Process of claims started and became known to Owner Lack of strategic forward thinking reflected on claims submissions and Triggering Event Lack of trust – negative perception of claims Owner lacks objectivity and unreasonably dismisses claims Owner takes aggressive and adverse position Contractors’ Syndrome Owners’ Syndrome Deadlock – Issues escalated into disputes
  47. 47. Example of aTriggering Event ■ Overriding & manipulating schedules to show what the scheduler/planner wants it to say – “I’m a great contractor’s scheduler and I made all owners’ activities shown as critical” – “I’m a great owner’s rep and I forced the contractor to remove owner’s activities from the critical path” 47
  48. 48. The Pitfalls! ■ Losing the opportunity to use schedules to add value to the project and enhance project delivery ■ Losing trust and ruin relationships ■ Triggering a spiral road towards conflicts & disputes, sometime over unnecessary issues that may not be relevant 48
  49. 49. Avoiding the syndrome ■ A claim in construction is a contractually agreed upon mechanism to assert and entitlement, not a declaration of war, at least not at the start! ■ Negative perception of claims and lack of objectivity are the main reasons to escalate claims to disputes 49
  50. 50. Avoiding the syndrome ■ Project owners should develop claims and dispute management capabilities ■ Contractor should remain objective in assessing their likely entitlements ■ Consider collaborative planning to meet target programmes and increase production – Collaborative working has to be supported by suitable contractual rights and obligations – Otherwise, it is a recipe for disputes 50
  51. 51. 51 Avoiding the syndrome – Snitch!
  52. 52. At the end – what to take away? ■ Expect and manage claims to avoid (or minimise) escalating issues to disputes ■ Maintain the project schedule (and keep them neutral) to better inform the decision making process ■ Work to establish trust and communicate effectively, be mindful of the importance of intentional and unintentional communication signalling ■ Avoid potential triggering events that may cause the spiral dispute syndrome ■ Understand the allocation of risks – work collaboratively but do not assume others’ risks or compromise your contractual position 52