RC107 JulyAugust2023 - Magazine - Page 28
LEGAL
“Developing fair and effective dispute resolution
processes is possibly the biggest step we could take in
controlling cost escalation for public sector projects.”
TURNING THE TIDE
A more effective dispute process is the best way to cut project costs
by Barbara Capes and Paul Hughes
HE LAST FEW YEARS have seen a spike in costs for construction projects. Although much of this cost
increase has been outside of contracting parties’ control, there are contractual items that can be improved
to help significantly reduce overall project costs. The
first being a more effective approach to handling
disputes. Proactive planning for project disputes would
promote best-for-project focus while limiting distractions
and reducing the impact on schedules and budgets. An
improved dispute process would also result in reduced
contingencies and reduced administration costs for all.
T
Barbara Capes
is assistant general
counsel with Kiewit.
Paul Hughes
is senior director,
Cost Consulting and
Project Management,
with Altus Group.
Capes and Huges
chair the Future of
Infrastructure Group
Dispute Working Group.
28
Rising Costs
Since the start of the pandemic, we have seen cost spikes
for certain materials and in-demand skills. Rising costs are
eating away at the budgets for infrastructure projects that
have been promised across the country. Each percentage
point increase in project cost increases the risk of delays or
even cancellation.
Currently, the spectre of disputes, and how they are
handled on public sector projects, resonates through all
levels of the project pyramid, and has amplified project
costs as each part of the supply chain builds in a buffer
to protect themselves from unexpected cost increases.
Contractors at all levels recognize disputes are costly in
terms of time, money, and expertise. Disputes are often
protracted, requiring hefty legal fees, and as a direct result,
drain resources by diverting the attention of subject-matter
experts away from the project itself. Sometimes disputes
are not resolved until the end of the project, which chokes
cash flow and puts companies at risk of bankruptcy or
other financial challenges. Lengthy disputes can also poison relationships, creating more project issues due to the
subsequent erosion of trust.
Construction of infrastructure projects is not a simple
task. Designs and investigatory work may have only been
advanced to a certain point when bids are submitted.
RENEW CANADA – JULY/AUGUST 2023
Bid submissions are therefore a challenging art form,
balancing the best possible price against a variety of
tangible and intangible factors including contract risk
allocation and previous experience with the client. Claims
are an industry accepted practice to address unforeseen
conditions and/or changes in the scope of a project that
cannot be resolved otherwise through dialogue at the
project level. They are a natural part of standard contract
delivery models as no sensible contractor takes all the
risk when bidding and no sensible client seeks to pass on
all risk due to affordability. Where there is a difference of
opinion, those claims are escalated to dispute processes.
Developments in dispute resolution processes
Dispute resolution processes (DRPs) are designed as a
roadmap for escalating claims when the parties cannot
reach a resolution at various predetermined stages. Contrary to their intended purpose, DRPs have become a way
to drag out claims to the detriment of all involved, and to
the projects themselves. This approach is achieved in various ways including, but not limited to designing DRPs to
cater to the most complex disputes; lengthy claim review
periods that stagnate negotiations; and/or endless cycles
of follow up questions without off-ramps to escalate to
the next stage of the process.
Many DRPs are founded on the false economy that the
process is fiscally responsible to taxpayers and stakeholders by denying additional project costs regardless of the
merits of the claim. Unfortunately, this position comes
at the expense of the well-established time, money and
expertise costs resulting from protracted project disputes.
Contracts are also being crafted to limit eligible claims
rather than encouraging both parties to prioritize the successful delivery of the project. This approach has resulted
in increased contingencies, higher bid submissions and
in some cases, a failure to attract eligible contractors with
the necessary expertise.
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