RC111 MarApr 2024 - Magazine - Page 34
LEGAL
Meanwhile, several legal trends have emerged, including, a rise in new procurement and contract models, with
a focus on collaboration; an emphasis on good faith in
negotiations; and a shift to and focus on arbitration rather
than litigation.
New procurement models and collaboration
The state of the market has resulted in a continued
movement towards procurement models that are more
attractive to bidders, such as those that reduce bid pursuit
costs, lead to earlier engagement, and contain more shared
or owner retained risks. We see these changes within our
contracts including progressive design builds, alliances,
integrated project delivery and contract models with
staged work-in phases. In addition to the newer models,
evolving topic for infrastructure construction disputes.
Previously, parties were generally able to assume that
if the contract included items like discretion clauses or
renewal rights, that clearly gave one party sole discretion,
they may have been able to act in a discretionary, self-interested way.
Now, duties of good faith mean that behaviour matters.
Contracting parties need to think about their conduct.
They cannot simply read the contract on its own. The
behaviour must match the contract. Sometimes, it means
disclosing a position or view in a contract that could
otherwise be misleading. Sometimes, purposely leaving
out relevant information can be construed as bad faith.
Circumstance matters.
When it comes to disputes, the duty of good faith may
require more work and analysis. It is not
entirely clear how far these duties are headed, but the trend towards alleging breach
of good faith in contractual behaviour and
disputes continues to gain momentum.
It is hard to predict where the infrastructure market will go next but
based on a continuing high demand for reduced risk and greater cost
certainly, it looks like lower risk transfer contracts and innovative
contracting models and solutions will remain the industry focus.
we see a distinct return to construction management contracts as compared with previous contract models focusing on high-risk transfer.
We have also seen a shift towards collaborative project
delivery models for Canadian infrastructure in recent
years. This shift is being driven by contractor and developer concerns about assuming risk in a market characterized
by rising and unpredictable costs. The last few years have
seen market uncertainties pile up in Canada, from labour
shortages and supply chain issues to volatile commodities
prices and climate change issues like 昀氀oods and 昀椀res. As
a result, contractors and developers are seeking project
delivery models where they can raise these concerns and
address them collaboratively with owners.
This is not to say that every single contract model is
being replaced. Design-Build and public private partnership (P3) contracts can still be found. However, the way
that parties ultimately arrive at a Design-Build or P3 contract may not be as simple as a straightforward bidding
process any longer. For example, it is not uncommon to
see alternative arrangements such as a development phase
agreement or a design early works agreement (DEWA)
used to concurrently develop design while proceeding
with contract negotiation, and these include o昀昀-ramps and
rights to protect against the risks that would materialize if
the 昀椀nal contract cannot ultimately be negotiated.
Good faith
A 2014 Supreme Court of Canada decision (Bhasin v
Hrynew) introduced the concept of good faith conduct to
commercial relationships. Since this decision, good faith
has become 昀椀rmly entrenched in common law and is an
34
RENEW CANADA – MARCH/APRIL 2024
Arbitration
Disputes are unfortunately common in infrastructure development projects. Using litigation to solve them, however, is becoming
increasingly rare for many reasons, including
an inability to get timely resolution in court,
high costs on all sides, lack of subject matter
expert decision-makers and the public
nature of court proceedings. More and more,
disputes are being resolved by alternative means such as
arbitration. The biggest di昀昀erences between litigation and
arbitration are that arbitration costs are lower, and the resolutions are not made public. It is unclear what this trend
means for the development of construction and infrastructure law in Canada when we do not have courts making
public decisions and precedent-setting caselaw, but this is
certainly an important trend to watch.
Where are we going?
It is hard to predict where the infrastructure market
will go next but based on a continuing high demand for
reduced risk and greater cost certainly, it looks like lower
risk transfer contracts and innovative contracting models
and solutions will remain the industry focus and will continue to be further developed and utilized.
If it turns out the infrastructure market continues to
trend in the current direction, then governments and companies may need to be even more open to new solutions.
For example, there may be a renewed interest in encouraging and evaluating unsolicited proposals, where private
entities propose innovative, unique, or proprietary solutions to public infrastructure needs they have identi昀椀ed.
We should, however, also prepare for the market to
learn and adapt to risks such as supply chain disruptions,
force majeure, interest rate 昀氀uctuations, pricing demands
and labour shortages, and return to a market in which risk
is priced at a reasonable level. If that happens, it is possible that we will see a return, where appropriate, to 昀椀xed
price and 昀椀xed schedule contracting strategies, which
have the bene昀椀t of providing certainty for owners and
pro昀椀t opportunities for bidders.
RENEWCANADA.NET
