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Writer's pictureColin Levy

Proactive Dispute Management in Large-Scale Projects

Start with the End in Mind

 

Whether you are starting a business, negotiating a contract, or setting up a mega project, taking a long-term view of the commercial relationship will pay off.  Before becoming a lawyer, I worked in various financial and commercial positions in natural resources and technology, adversarial situations were the norm, particularly working internationally. I grew to believe that not only was conflict inevitable but the only way to deal with issues was to power on through to the end. This situation often resulted in threatened or actual litigation and always meant a war of words in the form of contract letters numbering in the hundreds from both sides. And then any actual litigation would drag on for years after the project ended.

 

Over the years, I met some who believed that a properly worded and robust contract would prevail to completely avoid conflict. Conversely, some use the contract terms as a weapon, threatening damages or litigation from the start. Unfortunately, inhouse counsel involvement in projects or operations can be limited to providing NDAs and red-lining contracts, all the while being labelled as naysayers to risk. Project and operational leaders require commercial acumen and legal support but if there are silos, valuable early input into contracts, particularly around dispute management is missed.

 

At the heart of all business transactions is risk management or as some more optimistic folks would say, the balancing of risks and opportunities. Regardless, proper risk management serves to create value and as we know, lawyers are trained to focus on risk. However, the shifting of risk amongst contracting parties often becomes the genesis of conflict.

 

After working overseas for a mining company on various transformational projects, I trained as a mediator and also in collaborative law. Applying collaborative family law principles to business and construction disputes has been done in the US but it is not a widespread practice.

 

For the industrial and mining sectors, there are organizations that collect information on mega-projects and provide project and risk management training. There has been a shift amongst the owners to better anticipate conflicts and manage the evitable disputes with programs, including the involvement of third-party neutrals.

 

Here, I will share some tips based on my research, training, and real-life experience across varied industries to start with the end in mind; specifically creating and maintaining good commercial relationships during your projects to solve disputes as you execute. And for an inhouse lawyers, these concepts can improve your legal support to projects and operations.

 

 

 

 

Unlearn Law School

 

A brief initial note and granted a broad generalization but, any lawyers involved must unlearn much of law school behavior in order to take a relationship-centric approach to contracts, beginning with an expansive view of risk and reward and the sharing of contractual risk.

 

I have encountered mining companies that like to use the contract as a sword and rely on the liquidated damages provisions. Some owners’ project managers and legal teams are well known for being litigious despite the research showing that contractors will build extra money into the budget and time in the schedule for companies with this reputation.

 

Avoid going for the jugular in negotiations or defaulting to arbitration as the sole dispute resolution method because your company has always done it that way.  Attempting to shift all the risk to the contractors is cited as one of the “seven deadly sins of megaprojects” in Edward Merrow’s industrial megaprojects writing and can not only lead to increased cost but can result in project failure. In addition, polarized and protracted contract negotiations can harm working relationships. Some industries are also small enough that the owners and contractors around the table repeat from project to project, increasing the pressure to preserve relationships.

 

Instead, be open to risk sharing and alternative methods for resolving conflicts, including meditation and focus on the parties’ collective interests, goals, hopes, and fears from the start. Do not go into the project with an “us and them” mentality. This means upfront time in meetings with owners, contractors, and other stakeholders to develop mutual understanding of project success and setting up a conflict management program, not just contractual wording.

 

Get outside your comfort zone

 

Dispute resolution in some industrial sectors is focused on only either litigation or arbitration. Look at successful contracting approaches for dispute resolution outside your industry, particularly if your past projects resulted in a large number of claims or lawsuits. Organizations such as the Independent Project Analysis (IPA Global) provide information and training on industrial projects.

 

Some large construction contracts have provisions where issues are dealt with by a dispute board that is set up as part of the contract. An excellent example of that type of program is Intel’s Third Party Neutral (TPN) Program presented by Howard Carsman, formerly their Global Construction Claims Manager.

 

At the highest level over about five years, this TPN program saw Intel execute large projects with multiple prime contractors totally approximately $18 billion resulting in only one small claim going to outside counsel to be resolved. All the disputes were prevented, avoided, or resolved using neutral evaluation, mediation, and more formal non-binding hearings or baseball arbitration for major conflicts.  The program focuses on collaboration and joint risk management and is built into the dispute resolution section of the primary contracts. Critical pieces of TPN success are a having an internal champion and support from all project executives and management for all parties, a joint selection process for the third-party neutrals, plus initiating the program as soon as possible.

 

Speed Kills

 

I have always been a proponent of planning and have halted many projects and initiatives to conduct an organization-wide review or check the project charter to see if we are all on the right track.  Rushing into a contract without addressing culture, goals, and interests risks the relationship. In addition to IPA Global’s founder Edward Merrow’s writing, another good source is How Big Things Get Done where authors coined the phrase “Think Slow, Act Fast” as key to project success.

 

Although, conflict is a risk and should be managed like all risks, the probability of occurrence is certain so it’s best to plan for it from the very start and build a path for dispute resolution that is founded upon prevention. And to be clear, addressing these issues long before any conflict arises will take additional time early in the project. Working together in a workshop fashion to identify joint goals, interests, and needs and then moving to joint risks and opportunities creates a culture of transparency at the outset. Once the contract is signed, the same parties meet regularly as a steering committee to review overall progress.

 

Mindshift Required

 

For some, this approach which departs from traditional contracting principles, may seem too radical. Contracts that go beyond legal and risk mitigation and using a process that focuses on trust, transparency, and shared values are unusual. In fact, I have had people in the mining industry say that this approach, sometimes called Conscious Contracting is simply too much of a deviation and too “new age”. 

 

Many owners still wish to negotiate in an adversarial fashion and wait for conflicts to emerge. This is like running a business based on lagging indicators; in other words, you know about the conflict before it’s too late to mitigate. Creating and monitoring joint risks and opportunities and identifying issues for project management or steering committee review and action allows for a proactive and collaborative approach. However, know your audience and remember to not get caught up in labels, this is a framework or approach to manage conflict and preserve relationships.

 

Actions not words

 

The last word is cautionary because I have seen well-written contracts, policies, or processes ignored once the project kicks off and conflicts escalate into litigation in record time. Another common pitfall is looking at dispute resolution as transactional or as a compliance “tick the box” process. As we have seen with the increasing sustainability reporting requirements, companies that integrate ESG into their practices and approach this topic strategically are creating more value for shareholders. Thus, do the same with conflict management.

 

In summary, start with the end in mind and take the time to collaborate with contractors and build trust and transparency in commercial relationships.  I believe that this shift from tradition, specifically with respect to dispute resolution, allows for greater possibility within the contract terms and integrating a culture of conflict prevention and resolution saves time, money and create better relationships.

 

For those interested in these issues and topics, some excellent books are listed below:

 

 

Mary E. Juetten, Esq. is an international author, executive, and entrepreneur who draws from her decades of finance, legal and mediation experience to provide a range of consulting services in the natural resources industry including project investment assurance, project reviews and recovery assistance, operational readiness planning along with project performance and key performance metric development.

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