I am currently in (the very photogenic) Dubrovnik with Victoria Tyson and James Reader to attend the ICC Croatia regional conference on arbitration and ADR, construction projects disputes.
Day 1 kicked off with a very stimulating discussion on construction project success - risk allocation, project delivery strategy and effective conflict management. The discussion was led by Aisha Nadar and Jasminka Corda Truhar, who provided insight from both an international and regional perspective.
There was a particular focus on the importance of appropriate risk allocation, i.e., the benefits and importance of a well-balanced contract. It was, correctly, put to the room that a well-balanced contract benefits both parties, and most importantly, the project. It's obvious, but was well worth the reminder, that when the project succeeds, both parties succeed. Fair risk allocation sets the project up for success.
Standardised contracts globally were said to provide a general position of what is accepted as a fair risk allocation. FIDIC contracts (in their unamended form) were specifically discussed.
The golden medium was described as the position where the contractor only prices for foreseen risks, whilst the employer only pays for when, or indeed if, the unforeseen risk eventuates. If too much risk is shifted to the contractor, the gambling contractor will tender at a premium, otherwise the contractor would likely be unable to afford dealing with the unforeseen risk if it does eventuate.
Aisha Nadar made the point - to be best placed to fairly and reasonably assess a tender, the employer needs to have a clear understanding of the project's risk profile (including political risks, funding) and the current market conditions, particularly inflation and availability of resources.
We were privileged to be in the room with attendees who are renowned experts in the field from different disciplines who provided thought-provoking perspectives from various angles, including: walking a day in the shoes of an Engineer when considering a fair determination, issues faced by contractors during tendering stages and the factors considered by employers when assessing risk allocation.
The topic of tendering sparked the interest of various attendees. It was interesting to hear that, in this region specifically, there is a tendency for the employer to choose the cheapest bid. Contractors tend to under-price at tender stage, which sometimes leads to the contractor being unable to afford to finish the works. Consequences could include: costs to replace the contractor, additional costs due to inflation, unavailability of resources, time lost, costs of dealing with associated disputes and claims (as a result of termination), etc. Employers were advised to have an understanding of what the price should be (i.e., assessing the risk profile and current market) in order to identify the best (competitive and value) offer as opposed to the cheapest.
Attendees were also warned against over-amending FIDIC contracts. Poorly drafted amendments can have a detrimental impact on projects. Not least in the context of when (costly) disputes arise as a result. This is avoidable and something our team can help you with - please do not hesitate to reach out to any of us if you have any questions.
We thoroughly enjoyed yesterday's discussions and would be very interested to hear whether you experience the same in your region. What are the construction trends/patterns you are currently seeing?
In the meantime, day two is well underway.