Ahead of speaking at the Official FIDIC International Contract Users’ Conference in London this week, Pinsent Masons partners Edward Shaw and James Cameron spoke to Infrastructure Global about some of the latest legal and contractual developments in the international construction sector.
As one of the leading international law firms operating in the construction sector, what trends and challenges are you seeing currently when it comes to the contractual scene?
In recent years, we have seen a trend develop where large disputes are coming about via the ancillary contracts that sit around the central contracts on major energy or infrastructure projects. We have experience of significant disputes arising out of JV agreements or designer contracts, which can be less tightly drafted than the main engineering, procurement and construction contracts. At the same time, parties to those agreements have fewer commercial pressures in fighting between themselves, rather than working together vis-à-vis owner clients/government entities. The challenge can be to encourage clients that these ancillary contracts need as much time and attention as the main profit-bearing contracts, as disputes that arise under them can completely wipe out any profit on a project. Even if parties are able to recover from their counterparts, there can be crippling cashflow consequences as a consequence of calls on bonds, as well as the prospect of insolvent counterparties.
How important are dispute boards on construction contracts and are they making a difference?
Our experience is that clients are often still wary of dispute boards and in some cases will seek to negotiate them out where possible. It is still the case that the pool of available talent for dispute board members is too shallow, both in terms of diversity and necessary expertise, and clients are aware of that. We do have experience of the perfect-world scenario where dispute board recommendations facilitate swift resolution/settlement and in those instances the dispute boards have of course made a real difference. But that requires a level of investment from the parties, both financially and in terms of following the process and implementing the recommendations. Unfortunately, this is not always present, particularly where parties are operating in jurisdictions that are foreign to them and/or where there are cultural differences between the parties.
What are the common issues and questions that are raised about dispute boards from those who are maybe hesitant to use them?
Following on from our previous answer, we see a tendency for clients to view dispute boards as an expensive intermediate step that does not resolve disputes in a meaningful and enforceable way and can serve as a distraction or unnecessary hurdle to dispute resolution. In the worst cases, the dispute board process becomes ‘arbitration-lite’, where the parties spend lots of time, effort and money following a quasi-arbitral process to secure a decision that the losing party simply ignores. Our clients tend to have had one or two of those sorts of experiences and then shy away from the process in the future.
Why do you think that FIDIC contracts have enjoyed such enduring support in the industry globally?
The FIDIC contracts are deeply specialised and focussed to the needs of the construction industry, and FIDIC’s commendable efforts in global outreach and continued development have led to their unparalleled support. They have also been around now for a long time and are ‘tried and tested’, so parties have an idea of what they are getting. Further, many legal professionals have dedicated their careers to using and writing about FIDIC contracts and the body of work those efforts have generated means that even somebody who is unfamiliar with the suite will be able to find what they need to become confident in using the FIDIC contracts. In simple terms, the FIDIC suite is well known, understood and trusted.
Pinsent Masons has been involved with FIDIC and its contracts for many years. What do you think can be done to ensure that they continue to be fit for purpose and keep pace with a fast-changing industry and regulatory scene?
FIDIC’s collaborative contracting working group and the collaborative contracting form that will arise from that, is a perfect example of how FIDIC is engaging with and listening to the international market. It needs to do more of the same – using its experience, and the experience available to it, to spot and react to trends ahead of time and not after the market has shifted. An obvious example is ESG (environment, social and governance) and how that is dealt with in the suite of contracts (including future variations), so that FIDIC can ensure it continues to be at the forefront of developments in the future.
