International construction lawyer with 3PB, has warned that growing risks on contractors will likely lead to rising prices, falling quality or other problems for clients.
Peter Collie, international construction lawyer with 3PB, has warned that growing risks on contractors will likely lead to rising prices, falling quality or other problems for clients.
Speaking at a Pan-American conference of contract users, international construction lawyer Peter Collie, has set out severe consequences from inflation and risk across global construction.
Collie explained: “The risk of inflation in the current market is a very onerous risk for contractors. We’ve had the risks from the pandemic and from the war in Ukraine and so the contractor has to manage all that risk, and one way to do that is to charge a higher price.”
Perhaps more of a concern, however, are other ways that companies will seek to mitigate risks when too heavily placed upon them by their contracts.
“Another way contractors manage risk when the risk is all put on them, is that things do not go as planned and the mitigation is done by cutting back and reducing the quality of the project,” he said.
“A third mitigation that is often seen is that a contractor in a difficult position with all the risk passed on to them, will make claims wherever they can. So, they will actively seek claims and go to arbitration a lot more often in order to claw money back.”
And finally the fourth situation is ‘straw men’, in which a contractor has nothing behind it and so can go insolvent and leave the client holding the contract with no ability to complete the project or get money back from the contractor.”
To avoid these outcomes, Collie stressed that the industry had to reflect risks fairly across all parties.
He said “This is where standard form contracts come in. There are many standard form contracts in the marketplace although there are very few of international standing, which is what sets the FIDIC contracts apart.”
Standard contracts, he explained, give everyone “a known risk profile” to base decisions on that gives projects the best prospect of managing risk fairly and effectively.
Peter Collie was speaking at the FIDIC Americas Contract Users Conference on 16 May 2022.