Digest 35

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CHOICES PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIM

LAW PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT I

IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA

ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSE

DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTH

PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME U

NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECT

COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION R

FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US

PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS

IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UNDER THE NEC CONTRA

MANAGEMENT IN CHINA THE IMPACT OF ELECTRONIC COMMUNICATIONS I

MANAGEMENT JAPANESE ARBITRATION REFORMS - FIVE YEARS ON TIME

LOST CONSEQUENTIAL DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOI

PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U

PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN CHI

IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT J






FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A USPERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS

IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UNDER THE NEC CONTRA

MANAGEMENT IN CHINA THE IMPACT OF ELECTRONIC COMMUNICATIONS I

MANAGEMENT JAPANESE ARBITRATION REFORMS - FIVE YEARS ON TIME

LOST CONSEQUENTIAL DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOI

ES PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS

LAW PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT I

IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA






FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US

PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS

IMPACT CLAIMS UNDER U.S. LAW THE IMPACT OF ELECTRONIC COMMUNI

DISPUTE MANAGEMENT PROGRAMME UNDER THE NEC CONTRACT THE I

ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE AR

REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DA

-

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Claiming head officepersonnel costs as part of a

loss and expense or damages

claim is often an uphill task.

Claims are often met with the

argument that the personnel

would have been employed

by the contractor in any event

and the contractor has,

therefore, not incurred any

additional cost. KKeevviinnRReeeevveess notes that recent

case law from the UK may

make it easier to claim, and

sets out principles that can be

applied in other jurisdictions.

When making claims for loss and

expense or damages, whether arising

from employer delays, variations or

otherwise, contractors will often want

to include the cost for time spent byhead office personnel. However, thisis frequently rejected on the basis thatthe head office personnel would havebeen employed in any event and,therefore, no extra cost has beenincurred. ‘Keating on ConstructionContracts’, 8th Edition, 2006explains compensation for employerdelays as follows:

“If particular head-office costs are

proved to have been increased by a

contract’s delay, they are recoverable.Examples would be the cost of extra

staff recruited because the particular

contract was in difficulties or the cost

of extra telephone calls and postage

in the period of delay. But

substantial claims of this kind are

rarely made because most contractors

are able to cope with delay on a

particular contract with their existing

resources whose cost is reasonably

constant.”

This may not appear particularly fairto contractors, who have had to divertsignificant time of their managersand other head office staff to dealwith a delayed project only to be toldthat they would have incurred thosestaff salaries anyway and so are notentitled to claim. Contractors may,therefore, take some comfort in therecent English Court of Appeal caseof Aerospace Publishing Limited v

Thames Water Utilities Limited

(January 2007) and the subsequentHigh Court case of Bridge UK Com

Ltd v Abbey Pynford Plc (April 2007).

AEROSPACE PUBLISHING

Aerospace Publishing involved a claimfor damages arising from a flood. Theclaim included time spent byAerospace Publishing’s staff as aresult of the flood. While it is not acase involving a construction

contract, it is important because it is aCourt of Appeal decision that sets outprinciples of general application forrecovery of personnel time and

usefully analyses a number of previous cases.

The Court of Appeal reviewed theearlier judgement Tate and Lyle Food

and Distribution Ltd v Greater London

Council (1982), where the defendantswere liable to the claimants forhaving failed to dredge silt which hadbuilt up during its construction of piers for a ferry. The claimantsthemselves had to dredge the silt and,as part of its claim, claimed

managerial and supervisory expenses.Although the judge rejected this partof the claim, in doing so he stated:

“I have no doubt that the expenditure

of managerial time in remedying an

actionable wrong done to a trading

concern can properly form the subject

matter of a head of special damage.

In a case such as this it would be

wholly unrealistic to assume that no

such additional managerial time was

in fact expended.”

The Tate and Lyle case is importantbecause it was the first case that gaveuseful guidance on recovery of management time and because itmade clear that management timewas in fact claimable. However, it didnot address the counter-argumentthat where such management time isfor salaried staff, the managementcosts would have been incurred inany event, and thus no additional

costs have been incurred.

However, the Aerospace Publishing

case went on to explain how suchmanagement costs may be claimed.

Aerospace Publishing owned alibrary and archive that was damagedby a flood from a burst pipe. ThamesWater was liable to AerospacePublishing for the loss and damagethat resulted. As part of its claim,

Aerospace Publishing sought torecover payments made to staff forwork done in relation to, andconsequent upon, the flood.

TIME SPENT, TIME LOST

TRETTDigest11

In this issue...

TIME SPENT, TIME LOST . . . . . . . . .1

CONSEQUENTIAL DAMAGES . . . . . . .3

INJUDICIOUS CHOICES . . . . . . . . . . .6

PLANNING - MYTHS & PITFALLS . . .7

CUMULATIVE IMPACT CLAIMS . . . . .9

THE CONSTRUCTION PROGRAMME

UNDER THE NEC CONTRACT . . . . . .11

PROJECT MANAGEMENT IN CHINA .13

THE IMPACT OF ELECTRONIC

COMMUNICATIONS . . . . . . . . . . . . .15

JAPANESE ARBITRATION . . . . . . . .17

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based on his assessment of the timehe spent on various matters. Theassessment was made retrospectively.While the judge accepted thisapproach, he went on to point outthat such an assessment was anapproximation of the hours spent and

may over-estimate or under-estimatethe actual time which would havebeen recorded at the time. He thencut the hours by c20%, allowing 100hours of the manager’s time asdamages.

CONCLUSION

In claims for loss and expense ordamages, these recent cases suggestthat the time of head office staff may

be claimable provided that the three‘propositions’ set out in the Aerospace

Publishing case are met. Such a claimis on the basis of loss of revenuearising from diversion of the staff time, which is calculated using thecost per hour of employing the staff.

Evidence of the time spent in theform of timesheets or othercontemporary records should beprovided to prove the time spent.However, the Bridge UK case

confirms that a retrospectivereconstruction is allowable, but thisshould be treated with caution. Anunconvincing reconstruction mayresult in that part of the claim beingrejected for lack of evidence. As thejudge in Tate and Lyle said whenreferring to management time:

“I would also accept that it must be

extremely difficult to quantify. But

modern office arrangements permit

of the recording of the time spent bymanagerial staff on particular

projects. I do not believe that it

would have been impossible for the

plaintiffs in this case to have kept

some record to show the extent to

which their trading routine was

disturbed...”

While courts will considerreconstuctions, experience confirmsthat keeping adequate records andbeing able to show what occurred will

improve a party’s position.

Kevin Reeves is based at Trett

Consulting’s Kuala Lumpur office.

Aerospace Publishing would havealways had to pay the staff salaries,whether the flood had occurred ornot. The claim was, therefore, notmade on the basis that, in the absenceof the flood, Aerospace Publishingwould not have had to pay them.

Instead, the claim was made on thebasis that, if not for the flood, theseemployees would have concentratedupon their conventional activities,out of which Aerospace Publishingwould have made money. The claimwas, therefore, framed in terms of lossof revenue from these other activities.

After a review of Tate and Lyle andfour subsequent cases, the court inAerospace Publishing concluded that

this was a valid approach. Staff timecould be included as damages wherethe staff had been diverted from otheractivities on the basis that suchdiversion resulted in a loss of revenuefrom those other activities. The courtconsidered that the previous casesestablished three propositions forsuch a claim:

(a) The fact and extent of thediversion of staff time have to be

properly established. Evidence of these should be provided, failingwhich the claimant is at risk of afinding that they have not beenestablished.

(b) The claimant has to establish thatthe diversion caused significantdisruption to its business.

(c) Strictly, the claim should be castin terms of a loss of revenueattributable to the diversion of staff

time. However, in the ordinary case,and unless the defendant canestablish the contrary, it is reasonablefor the court to infer from thedisruption that, had their time notbeen diverted, staff would have beenapplied to activities which would,directly or indirectly, have generatedrevenue for the claimant in anamount at least equal to the costs of employing them during that time.

Based on the particular facts of Aerospace Publishing, the judge thenconcluded that the diversion of timefor a significant number of the

claimants’ employees had been setout in detail and adequatelyestablished; and that there could be

no sensible challenge to a conclusionthat its business was therebydisrupted, indeed substantially so.

The court was, therefore, entitled to

draw the inference that the employeeshad been diverted from revenue-

generating activities and to makeallowance in the award of damages forthe cost of the diverted employees.

BRIDGE UK

Three months after Aerospace

Publishing, the Bridge UK case alsohad to consider a claim for staff time.In this case, a contractor was engaged

to construct a slab on which aprinting press was to be installed. Asa result of defects in the slab, the

installation of the printing press andcommencement of its operation weredelayed by over a month. The owner

claimed damages, including a claimfor management time dealing withthe problems caused by the

contractor.

Although the Aerospace Publishing

case was not referred to in thejudgment, some of the earlier case law

considered in Aerospace Publishing

was. The judge found that the

manager had been diverted from hisusual activities of selling andmarketing the company and awarded

damages based on the period of timethat he was diverted. This is broadly

consistent with Aerospace Publishing

and is a useful judgment to confirmthat the approach is acceptable to the

courts. However, Bridge UK also went

on to consider what evidence wasrequired to support the time claimed,especially where detailed

contemporary records were notavailable.

By reference to the earlier case of Holman Group v Sherwood (2001), thejudge concluded that in the absence

of records of the time actually spentby the manager, evidence in the formof a reconstruction from memory was

acceptable. The manager hadcalculated that he was engaged for128 hours in dealing with the

problems caused by the contractor,

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A U.S. PERSPECTIVEsubcontracted work as called for in

the subcontract agreement, the

general contractor’s legal liability to

the owner was a recoverable

consequential damage of the

subcontractor’s breach. The Court

believed the subcontractor could have

reasonably foreseen that the owner

would hold the general contractor

responsible for correcting the

defective work of a contractor.

However, in EBWS, LLC v Britley

Corp., 928 A.2d 497 (Vt. 2007), theCourt reversed an award of

consequential damages for expenses

incurred by an owner of a creamery

on the ground that they were not

foreseeable; the expenses resulted

from a three week suspension of

operations at the creamery while

faulty work performed by a

contractor was repaired. The Court

noted that the owners were not, at the

time of contracting, contractually

obligated to incur the expenses,which consisted of wages paid to

standby workers and purchased milk

that ultimately went to waste.

Accordingly, the court denied

recovery of these consequential

damages, holding that parties are not

presumed to know the condition of

each other’s affairs or to take into

account contracts with third parties

that are not communicated.

TENNESSEE GAS PIPELINECOMPANY V. TECHNIP USA

CORPORATION

A recent Texas case also offers insight

into how courts may view different

types of alleged consequential

damges, including claims for delay

costs, lost profits, loss of efficiency

and use of money. Tennessee Gas

Pipeline Company (“TGP”) engaged

Technip USA Corporation

(“Technip”) to construct

improvements along an interstate gas

pipeline owned by TGP pursuant to a

“Lump Sum Turnkey, Engineering,

Procurement and Construction

Contract” (“Contract”). During the

course of the Project, numerous

delays occurred that each party

attributed to various causes –

including issues with the components

being installed, issues involving the

new technology or new applications

of technology being employed, delays

in change orders, shortages of skilled

labour, and inclement weather.

Ultimately, the project was completed

with up to twenty months of delay.TGP thereafter sued Technip to

recoup its additional

expenses and for

allegedly defective

work. Technip file a

counterclaim to

recover certain sums

it alleged to be owed

under the Contract.

A jury found that

Technip had

breached theContract and

awarded delay

damages and defective work damages

to TGP. Subsequently, on the motion

of Technip, the trial court limited the

jury award to certain defective work

damages. Both TGP and Technip

appealed, though Technip’s appeal is

beyond the scope of this article.

The Court of Appeal entertained the

issue of whether TGP’s damages weredirect or consequential, and if

consequential, whether those

damages would be barred by the

waiver of consequential damages

provision contained in the contract.

The Court referenced the cornerstone

definitions of consequential and

direct damages, and also held that a

general measure of damages is subject

to any agreement that the parties

might have made with respect to

damages because parties to a contract

are free to limit or modify the

remedies available in the event of a

breach of the contract. In this case,

the Contract, Article 19.1, reflected

that TGP and Technip agreed to limit

the remedies available in the event of

a breach:

CCoonnsseeqquueennttiiaall DDaammaaggeess:: Not-

withstanding any other provisions of this

Agreement to the contrary, in no event

shall Owner or Contractor be liable to

each other for any indirect, special,

incidental or consequential loss or

damage including, but not limited to, loss

of profits or revenue, loss of opportunity oruse incurred by either Party to the other,

or like items of loss or

damage; and each

Party hereby releases

the other Party

therefrom.

TGP contended that

its claims

constituted ‘direct

damages’ and

therefore, were notprecluded by Article

19.1. Technip

contended that all of TGP’s claims

were for incidental, indirect and

consequential damages and were thus

barred by Article 19.1.

As an overall matter, the Court of

Appeal concluded that Article 19.1

did not preclude recovery for any and

all liability for delay that might occur

under the Contract. It concluded thatthe waiver of consequential damages

did not preclude direct damages

involving loss of use, opportunity, or

profits.

The Court next considered whether

the specific claims at issue

constituted consequential damages,

which were waived by Article 19.1 of

the Contract. The Court concluded

that:

I TGP was not precluded from

recovering ‘project delay costs’

“A party’s

entitlement to

consequential

damages depends

largely on the

foreseeability of

the alleged loss

claimed”

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for extended expenses including,

labour, travel, environmental

contractors, TGP inspectors,

purchase and supply of additional

construction consumables,

hauling wastewater from the site,

and utilities, as TGP wasexpressly responsible for these

costs under the Contract. The

Court found it could be

conclusively presumed to have

been foreseen or contemplated by

Technip that, as a consequence of

its breach of the Contract by

delay, TGP would have to

continue paying these ongoing

costs. Thus, these costs were not

precluded from recovery.

I TGP was nnoott precluded from

recovering costs for providing

extended power at a specific

station separately from its

‘project delay costs’ above,

because the Court concluded in

its analysis of the ‘project delay

costs [above],’ that TGP was

expressly responsible for

providing that power under the

Contract. It could, therefore, be

conclusively presumed to havebeen foreseen or contemplated by

Technip that, as a consequence of

its breach of the Contract by

delay, TGP would have to

continue paying those ongoing

costs. The Court concluded that

those damages resulting from the

delay also represented ‘direct

damages’ because they clearly

flowed naturally and necessarily

from the breach.

I TGP was precluded from

recovering costs for loss of

efficiency – excess gas, oil, and

labour that were incurred because

a new compressor component was

not timely installed – because

those claims constituted claims of

consequential ‘loss of use’

damages that were precluded

under Article 19.1.

I TGP was also precluded from

recovering damages for the costs

of a backup generator that it had

TRETTDigest55

rented due to a power outage

because the necessity of a rented

backup generator could not have

been “conclusively presumed to have

been foreseen or contemplated” by

Technip at the time the Contract

was formed “as a consequence of [its] breach of contract or wrongful

act.”

I TGP was further precluded from

recovering damages for the lost

use of money that it had invested

in the project, as those funds

represented an indirect loss to

TGP because any return that

might be attributable to

theoretical investments TGP

might have made fell outside itsContract with Technip.

I TGP was precluded from

recovering damages for

‘premature energy costs at

Station 54’ – essentially the cost

paid to the utility company to

install and maintain high power

transmission lines to the station.

I Finally TGP was precluded from

recovering costs as a result of activities that required the release

of gas into the atmosphere

resulting from Technip’s breach.

TGP contended that the released

gas would have been sold to

customers; therefore, the Appeal

Court construed TGP’s claim to

be for lost profits. The Court held

that TGP’s expectation of profit

through the sale of gas to its

customers was incidental and

consequential to the performance

of the Contract concerning the

installation of new equipment,

and thus were barred by Article

19.1.

In summary, the Court concluded

that all of TGP’s damages challenged

by Technip as consequential were

precluded under the terms of the

Contract, as a matter of law, except

those damages awarded for ‘Projectdelay costs’ and for extended power

requirements at a specific station.

CONCLUSION

In the USA, and many other legal

jurisdictions, a party’s entitlement to

consequential damages depends

largely on the foreseeability of the

alleged loss claimed. Courts will notaward damages that are remote and

unexpected. Furthermore, courts in

the USA will respect contractual

provisions waiving a party’s right to

recover consequential damages.

Accordingly, these provisions should

be carefully drafted to precisely

define the types of damages

prohibited from recovery – whether

foreseeable or not.

** LeBlanc Bland is a law firmspecialising in construction advice

and litigation involving the marine,

energy and government sectors.

Brian Comarda is a Partner at their

Houston, Texas office.

(tel: +1 713 621 7100, email:

[email protected].)

TRETT CONSULTING

BREAKFAST BRIEFING– HOUSTON

‘PLANNINGFOR PROJECTCHANGE’Trett Consulting is hosting a

Seminar on the subject of

‘Planning for Project Change’

to be held at The Energy

Industries Council, 11490

Westheimer Road, Suite 850,

Houston, TX 77077 on the

morning of March 30, 2010.

The focus of this seminar is on

preparing for and managing

change on construction and

engineering projects.

For further information please

contact:[email protected] tel: +1 713 547 4888

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avoiding unnecessary delay or expense”.

This obliges the arbitrator to beflexible in selecting procedures to suitthe individual circumstances of thecase before them and it is clear thatthere is no need for the arbitrator tofollow ‘court’ procedures. Hence, anarbitration has the flexibility toestablish relatively inexpensiveprocedures.

There are a number of choicesavailable to an arbitrator which might

have a streamlining effect. Theseinclude:-

(i) dispensing with pleadings / statements of case

(ii) the scope of disclosure,

(iii) a fast track timetable for thearbitration

(iv) using written submissionsinstead of having interlocutoryhearings.

(v) using inquisitorial powers,

where the arbitrator searches forfacts, examines documents, andmakes further investigations.

PROCEDURAL MATTERS

These procedural matters are notmandatory provision and, therefore,the arbitrator’s power to decide onprocedural matters is subject to theright of the parties to agree suchmatters. If the parties can’t agree, the

arbitrator can decide to use them.

Research has found that confiningthe scope of disclosure and the use of a fast-track timetable / setting timelimits, both reduce the cost and theduration of arbitration. Whendispensing with pleadings reducestime but not necessarily cost; the useof the inquisitorial powers reducedcosts but not duration of arbitration;instructing written submissionsreduced duration but not costs.

ARBITRARY CHOICES

Section 16(1) of the Act provides that

the “parties are free to agree the

procedure for appointing the arbitrator”.

This can be done by the parties co-

operating in choosing their own

arbitrator once they decide on the

relevant experience and other criteria

of the potential arbitrator. This would

include considering the curriculum

vitae of prospective arbitrators before

agreeing. However, this sensible

procedure appears only to be adopted

infrequently.

Research has confirmed that in twothirds of cases, the tribunal is

appointed by reference to an

institution. This is because the means

of appointing the arbitrator is

generally set out to be by this method

in the pre-existing contract between

the parties.

The nomination procedure of some

institutions, such as the UK’s RIBA

and the Institution of Mechanical

Engineers, involves matching therespective geographical locations of

the potential arbitrator against those

of the parties. If there is more than

one arbitrator in that area, the

institutions then try to select

someone with qualifications that are

relevant to the dispute. Geographical

proximity is a practical advantage

rather than a necessity and it is

suggested that the main concern

should be to appoint the person with

the appropriate skills and knowledge.

CONCLUSIONS

In the author’s view, the parties

should only refer to an institution if

they fail to agree on who the

arbitrator should be. In addition,

both the arbitrator and the parties

should give careful thought to the

type of procedural directions they

may wish to use.

Eugene Lenehan is based at Trett

Consulting’s Coventry office

TRETTDigest 66

Adjudication is increasinglybecoming a preferred form of earlydispute resolution in many countries.In the UK, it was no surprise toanybody that arbitration’s popularityplummeted when statutoryadjudication came along in 1998.Trett Consulting’s Eugene

Lenehan’s research shows that thecause of arbitration’s demise arosefrom a number of factors; for examplethat the average length of anarbitration was over 14 months,though many drag on for years, and,

generally speaking the larger theclaim the longer they last. Nor arearbitrations a sure-fire way of gettingyour money. In the cases he studied,only 54% of main contractorclaimants received the arbitrator’sfull award, and the amount awardedwas always less than claimed.

For example, what research hasshown is that when arbitration as adispute resolution process isconsidered the preferred route, its

success is dependant upon theselection of the arbitration tribunal.Indeed the UK’s Arbitration Actemphasises speed, economy andfairness, and the selection of anarbitrator who can comply with boththe spirit and the letter of the Act isvital to success.

There are various procedures thearbitrator can follow which canreduce costs and duration, but not allarbitrators will take advantage of them.

AVOIDING EXPENSE

Section 1(a) of the Act provides:

“The object of arbitration is to

obtain the resolution to disputes by

an impartial tribunal without

unnecessary delay or expense”.

The aim of section 1(a) is taken up at

section 33(1)(b) of the Act whichimposes on the arbitrator the duty to“adopt procedures suitable to the

circumstances to the particular case,

INJUDICIOUS CHOICES

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Planning (or scheduling), in anyenvironment, involves a disciplined

approach to work, through whichdecisions are made, recorded andcommunicated to all concerned.CCoolliinn CCaappppeerr explains that planningwill define an organisation’s

objectives, establish an overallstrategy for achieving these objectives

and develop a comprehensivehierarchy of plans to integrate and co-

ordinate activity.

In other words, what is to be done,

how it is to be achieved, by whom andwith what resources. In businessorganisations the Plan, becomes a

statement of intent and a means of control.

THE PURPOSE OF PLANNING

Planning involves the establishment

of business policies - rules laid downto provide guidance for decisions by

managers. It assumes that alternativecourses of action exist and so assists

managers in the process of organising, forecasting, coordinating,

controlling communications andmotivating people - planning then

becomes a key management ‘tool’.

SOME MYTHS

1. Planning that proves to be inaccurate

is a waste of management time

The end result of any form of

planning is only one of its purposes.The process itself can be even morevaluable than the end product even if

the results miss the target.

Planning requires management tothink through what it wants to do and

how it is going to do it; thisclarification can have a significant

value in itself. For example, thepreparation of a detailed method

statement is a mandatory

requirement of most constructioncontracts.

A programme often forms part of the

plan of what is to be done, however,the method statement explaining how

the works are to be carried out and bywhom is very often overlooked andnot developed into a comprehensive

document particularly at the start of a

project.

Management that does a good job of

planning will have direction andpurpose and the planning is likely to

minimise the misdirection of energy;

this will happen despite the

possibility of missing the ultimate

objectives.

From my experience, delayedcompletion and disrupted progress is

more easily avoided or controlled by

firms who use effective planningtechniques.

2. Planning makes future decisions

Planning does not make future

decisions. It is concerned with the

impact of current decisions on futureevents. So while planning is

concerned with the future, planning

decisions are made in real time.

3. Planning can eliminate change

Planning cannot eliminate change.

Changes will happen regardless of

what management does.Management engages in planning in

order to anticipate changes and to

develop the most effective response to

them.

4. Planning reduces flexibility

Planning implies commitment, but it

is a constraint only if a plan is

produced but not developed ascircumstances require. Planning is

an on-going activity. The fact thatformal plans have been reasoned out

and clearly articulated can make

them easier to revise than an

ambiguous set of assumptions.

PITFALLS AND

RECOMMENDATIONS

1. Level of detail

A plan or programme may containtoo much detail for some users andtoo little for others. It would be

inappropriate to provide a full

network analysis to a ganger orforeman on a construction site - he is

unlikely to want to decipher a

computer generated logic linked

critical path analysis programme.Likewise, an unlinked bar chart

would be inappropriate for a complex

project where the project

management team is required toconsider the time, cost and resource

implications of alternative solutions.

A common trap is to attempt to plan

the whole project, activity by activity.As soon as the project gets off the

ground, more information becomes

available. Some activities are nolonger required, new activities

become apparent and the project

manager can be sucked into a spiral of planning and re-planning; he may

then cease to manage the plan and the

plan quickly loses credibility.

At the highest level, an overview of

the plan is appropriate, with progress

milestones. On a building project,there might be:

I Completion of design

development. This is often a key

milestone when the full scope of

the Works to be carried out is

realised.

I Effective water tight date, whenthe start of finishing activities

becomes a significant stage in the

programme. This date is oftenconfused with weather-tightness,

i.e. when all the roof and external

envelope of a building is fullycomplete.

Without milestones, a mass of

detailed information can oftenobscure critical information and

mask the key remaining stages as the

project moves towards the

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PLANNING – MYTHS AND PITFALLS

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completion of construction.

Modern computer software packages

allow for planning projects in detail.

However, summary bars can be

generated and reports issued to the

relevant departments within an

organisation, which allows further

appropriate levels of detail contained

within a programme, which can be

more sensibly produced properly by

those departments.

2. Focusing on a deadline

There is a tendency for some

managers to focus on a deadline. By

concerning themselves with a point

that lies far into the future, they feel

that there is plenty of time to do thework, under-stating the current

priorities. To avoid this inherently

misplaced optimism, a manager

should set definite intermediate

targets for completion of the work.

To set shorter-time horizons, the plan

must contain goals and activities

which are controllable in the shorter

term. Taking the example above, the

sooner all design is complete and

information issued for construction

on a project, the less the likelihood of change to the construction activities.

3. Flow of Information

The key to a successful project is

completion on time, to budget,

achieving the client’s performance

requirements. Financial and market

pressures can demand that projects

are finished in the shortest possible

time within a challenging cost

estimate. However, many projectshave insufficient information to fully

plan the project from start to finish at

the outset. Projects can suffer from

insufficient design information

required for efficient working and

effective control.

Progress on projects is sometimes

governed by the characteristics of the

flow of information. Despite this lack

of information, a project is expected

to be planned and controlled.

4. Creativity

Some planning methods can

discourage creativity. If the planning

tools are too cumbersome and only

the planner understands the

programme, other members of the

project team are unlikely to make a

creative contribution.

Sometimes, a Manager may organise

the work to be programmed in

isolation then delegate the

implementation of the plan to the

group. This often arises in large

construction companies which have

separate departments for

construction and planning –

particularly at pre-tender stage.

Planning is most effective as a group

activity, where the relevant parties

work together and communicate witheach other to solve the task.

5. Over-optimistic time forecasts

Over-optimism arises in two ways:

(a) arbitrary cuts

A company may work with detailed

methods of estimating, where

programming the work content and

cost of a project is based on historicaldata previously used to plan similar

projects.

However, those responsible for

securing the project may be over

optimistic and consider that the work

can be done more quickly at less cost

– often it cannot!

Estimating methods should be

trusted or otherwise the effectiveness

of a tender bid is reduced.

(b) insufficient previous experience

Another form of over optimism is tounder estimate the time required to

carry out certain activities. It may bethat new technology or a general lack

of work study leads to insufficienttime and resource allocation. To

avoid this pitfall it is important to

involve those responsible for theimplementation of the activity in theestimating process.

A plan or programme must not omitactivities, for example, a proving

period for engineering services orfinal cleaning, which are critical to

the successful completion of theproject. Many projects are one-off

endeavours, but previous experienceon similar projects should enable the

preparation of a realistic checklist,which includes all key activities.

CONCLUSION

Planning establishes an

organisation’s objectives and goals. Itenables actual performance to be

compared against objectives.Deviations from the plan can be

identified and the necessarycorrective action taken.

In the writer’s view, regular

independent progress monitoring isthe key to identifying those activities

which require the most attention,whether they are procurement or

lead-in activities or off site orphysical tasks on site.

Uncertainty in planning projects will

diminish as the overall design of aproject is completed andinformationfor construction is issued.

Without planning, there can be no

control. However, effective planningutilising experienced planners can

allow time to be utilised moreeffectively.

Time is unique; if wasted it can never

be replaced!

Colin Capper is based at Trett


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A recent case in the UnitedStates Court of Federal Claimsillustrates how a contractormay be able to recover underthe ‘cumulative impact theory’for the impact of multiplechanges. BBaarrrryy BBrraammbb lleediscusses the background andimplications of this case on thecontracting industry.

In Bell BCI Company v. United States,

2008 U.S. Claims LEXIS 116 (Fed.Cl. Apr. 21, 2008), the contractor,Bell, entered into a $63.3 millioncontract with the National Institutesof Health (NIH) for the constructionof a new five-story laboratorybuilding with a full basement on theNIH campus in Bethesda, Maryland.The contract required completionwithin 821 calendar days after notice

to proceed, which was issued on April1, 1998, making June 29, 2000, therequired completion date. Thecontract also contained a liquidateddamages clause stipulating $3,721 asthe amount that NIH could assess toBell for each day that Bell failed tomeet the completion date.Approximately nine months into theconstruction, NIH decided to add anew floor to the building toaccommodate the needs and demandsof NIH researchers and scientists.Prior to this time, NIH had maderelatively few changes to the contract,and the project was 13 days ahead of schedule. The addition of the newfloor resulted in numerous changes,and the project was eventuallydelayed by 19 months. The directimpact of the added floor resulted inseparate change orders for the steeland concrete work ($1.6 million and30 days time extension), changes tothe partial infrastructure or ‘shell’

design of the floor ($6.9 million and30 days time extension) and the finaldesign of the new floor ($1.8 millionand 30 days time extension), making

the new completion date to beSeptember 28, 2000. After these

changes, NIH represented that few

subsequent changes would be issued,

and asked Bell to agree to a series of

new interim completion dates that

would allow NIH to occupy the

building on a phased basis. Theparties then executed Modification 93

that increased the price by another

$2.3 million, revised the completiondate to April 30, 2001, and established

14 substantial completion milestones

for the phased completion, between

October 1, 2000 and April 30, 2001with daily liquidated damages of $266

per day if Bell missed any of the 14

milestone dates. Modification 93

contained the following, and did not

contain any reservation of rights for

other claims, such as cumulative

impact or loss of efficiency.

The modification agreed to

herein is a fair and equitable

adjustment for the Contractor’s

direct and indirect costs. This

modification provides full

compensation for the changed

work, including both Contract

costs and Contract time. The

Contractor hereby releases the

Government from any and all

liability under the Contract for

further equitable adjustment

attributable to the Modification.

After Modification 93 was signed,NIH issued 113 additional

modifications that incorporated over

200 extra work orders, many of which

emanated from NIH’s scientific

community, and the court noted that

“the NIH project team had no ability to

stop the NIH scientists from making

changes.” In these modifications, NIH

compensated Bell only for the direct

costs and Bell was directed to performthe additional work without

extending or impacting the project

schedule or milestone dates. None of

the modifications provided anycompensation for cumulative impact

or inefficiency costs, and Bellreserved its rights to such impact

claims. Also Bell notified NIH that

the continued issuance of changeswould delay the project and that the

only way to avoid impact to theschedule was for NIH to authorise

acceleration of the work. NIH did not

authorise an acceleration effort, andwhen Bell attempted to include

acceleration costs in its change orderpricing, NIH struck them out. NIHfurther withheld $100,000 from Bell’s

payments “due to inadequate progress”

and repeatedly asserted its right to

assess liquidated damages if the

milestone completion dates were notmet.

The relationship between the parties

became strained as NIH continued toissue changes, demanded compliance

with the milestone completion dates,

and even reneged on paying forchanges that had been negotiated and

accepted. The project wassubstantially complete on February 8,2002 (some 589 days after the original

contract completion date). Bellsubmitted to the NIH contracting

officer a certified Request forEquitable Adjustment in the amount

of $6.2 million for unpaid balance,

unresolved changes, delays, labourinefficiency costs, profit on the

claims, and five subcontractor claims.Bell’s claims were denied by the

contracting officer, who also assertedNIH claims against Bell for

liquidated damages, re-testing and

estimated costs to remedy defectivework. Bell filed a complaint in the

United States Court of FederalClaims.

One of Bell’s claims was for thecumulative impact of the NIHchanges. The original contract price

was $63.6 million, and there were

CUMULATIVE IMPACT

CLAIMS UNDER U.S. LAW

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While the cumulative impactdecision of recovery may have limitedapplication outside of U.S. federalcontract jurisdictions, it may be apotential basis of recovery forcontractors who have experienced theimpact of multiple changes, additions

and extras without receiving anycompensation for the impacts. Forexample, none of the 206 contractmodifications issued on the NIHproject included any payment orother consideration to the contractorfor disruption, cumulative impact, orlabour inefficiency. Similarly, none of the modifications contained anylanguage explicitly waiving orreleasing such a claim. The Bell BCI

court’s decision that prior releases

did not waive a subsequentcumulative impact claim was basedon the facts – a careful presentation of the details of the parties commercialrelations; how the partiesadministered changes; when EWOsand modifications were prepared;what the parties communicated aboutthe changes; and what contract workor earlier change each EWO andmodification had affected. These factsconvinced the Bell BCI court thatearlier releases had not waived the

later impact claim. While languagesporadically appeared in somemodifications purporting to reserverights, the court said that no meetingof the minds between the parties everoccurred. For example, the courtnoted that many of the eventsrelevant to the cumulative impactclaim did not even arise until afterthe parties signed Modification 093.According to the court, prudentcontracting parties would be specific

in describing the exact scope of anyrelease or reservation of rights. Thus,contracting parties shouldspecifically deal with time and costimpacts, fully addressing thesematters by the specific terms in theformal variation documents.

Barry Bramble is the new Regional

Director at Trett Consulting’s

Houston Office.

$21.4 million in change orders,increasing the contract price by 34percent. The court noted thatchanges of this magnitude wereunusual for building constructionprojects. The court further noted thatthere were approximately 700 extra

work orders that affected every flooron the project, and that NIH’sinternal documentation reflectedserious concerns regarding the extentof changes after Modification 93. Themodifications did not specificallycompensate Bell for the cumulativeimpact of the NIH changes andrevisions, nor did the terms of themodifications expressly release NIHfor liability for cumulative impactand labour

productivity claims.

At trial, Bellpresented both factevidence concerningits productivityrecords and experttestimony to proveits claim forcumulative impactand lost labourproductivity. In itsproject record-

keeping practices,Bell trackedproductivity byrequiring itsforemen to record each week thenumber of units of work installed,allowing Bell’s management tocompare the actual time to installunits of work against its estimates.Where more time was spent installingunits than estimated, Bell deemed thetime to be unproductive. Bell’s expert

witness analysed Bell’s productivitylevel based upon the weekly recordsof units installed for each cost code,and determined the productivity levelby comparing the actual labourexpended to perform units of work.The expert testified that althoughBell was adversely affected by theaddition of the new floor, Bellperformed this extra work at or nearthe same productivity rates originallyplanned for the project. The experttestified that Bell’s estimated

productivity was reasonable and evenadded four percent to the baselinehours in his calculations, which thecourt noted added a ‘conservative

measure’ in the expert’s approach tothe evaluation of the reasonablenessof Bell’s estimated productivity.Further, the expert testified that themajority of ‘unearned’ labour hoursor ‘inefficiency’ occurred afterModification 93 was executed, and

that approximately 25 percent of Bell’s total labour hours expended onthe project were due to the laborproductivity loss caused by NIHchanges. The expert determined that80,317 hours were lost due to theimpact of NIH changes, andcalculated the total productivity lossfrom these NIH changes bymultiplying these hours by the fully-burdened average labor rate of $33.50

to arrive at

$2,690,649 indamages to Bell.The court wassatisfied that Bell’sexpert had properlyquantified thecumulative impactof the NIH changesby using Bell’sh i s t o r i c a lproductivity dataand project recordsfor measuring

earned andunearned labourhours.

The court sustained Bell’s claim of $2,058,456 for the loss of efficiencyresulting from the cumulative impactof NIH’s changes because of the‘major, wholesale changes,’ the manyrenovations prior to move-in, and thefailure to grant any time extensionsfor the changes. The combination of

these factors created a classicenvironment for what has becomeknown as the ‘cumulative impact’upon labor inefficiency. Multiplechange orders on a constructionproject potentially can beaccommodated if the employeracknowledges that additional timeand money will be required, and if the parties carefully plan thesequencing of the changed work.However, if the employer as heredenies the additional time or money

to perform changed work, butnevertheless continues the flow of change orders to the contractor, achaotic project may result.

TRETTDigest 1100

“if the employer

denies the

additional time or

money to perform

changed work,

but nevertheless

continues the flow

of change orders

to the contractor,

a chaotic project may result”

8/7/2019 Digest 35


THE CONSTRUCTION

PROGRAMME UNDERTHE NEC CONTRACTOriginally drafted for the UK, but

increasingly recognised worldwide,the NEC 3 form of contract is set up

in a way which is, on first application,

alien to the traditional constructionestablishment. Instead of the usual

list of clauses and sub-(sub)-clausessetting out what each party should

and should not do, the NEC sets outto act as a tool for managing the

construction process itself. SStteevvee

DDaavviiss argues that it is a contractwhich is supposed to be read –

understood – and followed – by the

people who do the building.

The NEC contract encourages the

parties to think ahead and anticipate

problems, and most importantly, findsolutions before the problems

happen. There is no final account

and no opportunity to wait until theend to wrap everything up.

One of the primary tools to manage

any construction process, and of paramount importance to the NEC, is

the construction programme. The

contract requires the Contractor toproduce and maintain, and the

Project Manager to accept, a

programme for the works (‘theAccepted Programme’). But theAccepted Programme is not simply a

bar chart filling the gap between

‘starting date’ and ‘completion date’.

The NEC is quite explicit in what it

expects to be shown on theprogramme. In the writer’s view this

is where the wheels start to fall off on

many projects, as the contract

contains extensive provisions which

go far beyond the requirements of more traditional forms. Whilst these

might be seen as ‘best practice’ in anyevent, the latest NEC difference is

that ‘best practice’ is now mandatory.

The Programme sets the dates for

access to and use of the site. It affectsamounts due for payment if no

programme is submitted by the

Contractor. It is also used todetermine the Contractor’s

entitlement to, and assessment of,

certain compensation events.

The Programme may be the

Contractor’s tender programme, if this is incorporated into the contract

data. Employers beware, however, asthere are risks in this approach,

because the Contractor may be able to

claim reimbursement for requiredchanges to the programme – see, for

example, Yorkshire Water Authority v

Sir Alfred McAlpine Ltd 32 BLR 114

(1985). Contractors also beware; if

the programme results in a

compensation event to resolveambiguity or inconsistency, Clause

63.8 will require the event to beassessed on the interpretation most

favourable to the Employer.

The list of information to be shown

on the Programme is stated at Clause

31.2, and includes the starting date,access dates and the Completion

Date, all defined in the contract data.Also required is the order and timing

of operations.

Beyond this, a series of defined

information is also required:

I Key Dates. These are notsectional completion dates, but

dates by which the whole or parts

of the works must achieve adefined condition or state of

completion.

I Planned Completion. This may

be earlier than the CompletionDate. The contract usefully

apportions ownership of any floatbetween planned completion and

the Completion Date, to the

Contractor.

I Order and timing of work of the

Employer or Others, and dateswhen the Contractor plans to

complete any preceding work.

I Provisions for float, which doesnot mean the foundation can be

shown floating out towards theprojects’s Completion Date!

I Provision for time riskallowances, being the duration

allowed by the Contractor against

each activity, to allow for the risksinherent in the work.

I Health & safety requirements.

I Any procedures specifically set

out in the contract.

I Dates for acceptances, plant and

materials and other things to be

provided by the Employer, andinformation from others.

I A statement of how the

Contractor intends to carry out

each operation, includingplanned equipment and

resources. In other words, a

method statement. Using this asa baseline, compensation events

are more easily valued.

I Any other matters which the‘Works Information’ requires the

Contractor to show on theprogramme.

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Some commentators suggest that thisis no more than what a competentContractor would put on hisprogramme in any event. In an idealworld, perhaps this is true, but how

often does it happen? Also we shouldbe aware that, in the absence of a

programme identified in the contractdata, a quarter of amounts due underinterim payments is withheld until

the first programme is submitted foracceptance.

Hence, under NEC, the programme isprepared, submitted, becomes the

Accepted Programme. TheContractor’s planner can go back tothe office and visit once a month tomake sure all is going to plan? Well,

not really. Once the programme issubmitted and accepted, the

Contractor’s work does not stopthere. The programme has to beupdated, normally monthly. On eachrevised programme, according toClause 32, the Contractor must show:

I Actual progress achieved on eachoperation and its effect on thetiming of the remaining work.

I

Effects of implementedcompensation events, and of notified early warning matters(the latter requirement has beenomitted by the June 2006

amendment to NEC 3).

I The Contractor’s proposals todeal with delays and to correctnotified Defects.

I Any other changes the Contractorproposes to make to the Accepted

Programme.

When the revised programme issubmitted and accepted, it supersedesany previous revisions of theprogramme.

The benefits of this are clear. If all of

this information is shown on therevised programme, delay is dealtwith as it arises, the parties knowprecisely where the job stands, can

contemporaneously address andmitigate delays where possible, andthe programme remains a valid toolfor measuring progress, delays and

the status of the work.

However, there are pitfalls to avoid inthe process. The sheer volume of compensation events can be

overwhelming, and there may be afailure to implement the process at

all.

It is not uncommon to find that theEmployer’s PM or his equivalent has

not approved or accepted theContractor’s programme; often justsaying nothing at all. Thisundermines the intent of the NEC,which allows the PM specified

reasons for refusing to accept theprogramme. These are:

I That the plans it shows are notpractical.

I Information required by thecontract is not shown.

I The Contractor’s plans are notrealistically represented.

I It does not comply with theWorks Information.

Unfortunately for the Contractor,these reasons can have a wideinterpretation. Both parties shouldappreciate the benefits of co-operating on programming matters.

Late response to the programme bythe PM is a compensation event initself, entitling the Contractor topayment for any cost incurred. The

Contractors must keep theprogramme updated for progress.This is an action often insufficiently

presented, with no indication of detailed percentage figures for eachactivity. Also, when the programme is

revised, there can be difficulties inrelating between programmesbecause their structure is changed.

In practice, many NEC contracts are

administered as though they weregoverned by a traditional JCT form.The work is carried out, a deal is doneat the end of the day, and all

concerned move on to the next job.But what if there’s no deal?Arguments about failure to followprocedures might arise and, as the

Contractor has an 8 week window of ‘becoming aware’ to notify certaincompensation events, he should takenote of the potential effects.Forexample, the case City Inn Ltd v

Shepherd Construction Ltd, Court of

Session 17 July 2001, confirmed that

condition precedent clauses might beenforced despite a course of actionsuggesting a waiver of contractualobligations. Clause 12.3 of NEC 3most likely closes this argumentagainst the Contractor in any event.So if the NEC is the contract, applyits provisions properly.

Under NEC the programme is inplace for the benefit of the projectmembers, and should be viewed as a

tool for the project as a whole – notjust the person using the computer.Note however, that the NECprocedures take time and resources;also, given the added complexitywhich the NEC brings to theconstruction programming process,experienced and able resources areneeded. NEC is a high maintenancecontract, requiring the commitmentof both Employer and Contractor andtheir teams.

In summary under the NEC form of contract, the programme plays asignificant and defined role in themanagement of the works, setting outthe work to be carried out,requirements to undertake that work,and the periods and dates in which toachieve it. Where the programme istimeously and accurately updated theeffects of delaying events, both interms of time and money, should bedealt with as they arise. The

Employer will have the optimumopportunity to minimise the effects of delays to his project whilstmaintaining cost certainty, and theContractor will have a tool by whichto manage his entire constructionprocess.

Steve Davis is based at Trett


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A Asshhlleeyy HHoowwlleetttt considers

changes to the laws relating

to Project Management in the

People’s Republic of China.

It is fair to say that project

management services in China are

very much in their infancy and on the

whole tend to be undertaken by

foreign enterprises rather thandomestic Chinese enterprises. The

Chinese construction industry

remains organised in the traditional

manner, with the design institutes on

one side and contractors on the other.

As such, procurement systems such

as design-build and turnkey EPC are

rarely seen or used.

In light of these prevailing

circumstances, the Ministry of

Construction (MOC) has beenencouraging Chinese construction

enterprises to adopt the project

management model for a number of

years. In 2003, the MOC issued a

guidance opinion on fostering the

development of general contracting

and project management. This

opinion stressed that in order to assist

Chinese construction enterprises to

“go out,” it was necessary to adopt the

international practice of project

management in China. To this end,Chinese construction enterprises

were encouraged to establish project

management organisations and

systems.

As part of this process, the MOC in

August 2004 issued a Code of

Management of General Project

Contracting for Construction

Projects. This Code is essentially a

National Standard and prescribes

standards for, amongst other things,construction management, schedule

management, cost management,

quality and safety management as

well as contract management. In

November 2004, the MOC issued the

Provisional Measures on

Construction Projects Management

(“the Provisional Measures”) aimed at

improving the standard of

construction in China by placing

more emphasis on project

management as a means of procuring

successful construction project

delivery.

THE INTENT AND SCOPE OF

THE PROVISIONAL MEASURES

The Provisional Measures are

intended to apply to all construction

project management activities

conducted in association with

construction works in China.

Construction project management is

very widely defined as “professional

management and service activities carriedout by enterprises engaged in project

management at the authorisation and

entrustment of the project owner,

throughout the works or during an

individual stage.” Article 6 of the

Provisional Measures itemises project

management as:

I Assisting the owner in

preparatory planning, economic

analysis, ad-hoc evaluations and

determination of investment; inorder words, assisting the owner

with feasibility studies;

I Assisting the owner in acquiring

land and obtaining planning

permits;

I Assisting the owner in organising

and managing the design process;

I Assisting the owner in procuring

appropriate construction,equipment supply, and

supervision services;

I Assisting the owner in

negotiating and executing

appropriate contracts with the

construction contractor as well as

suppliers of building materials,

equipment, structures, and

fittings, as well as assisting with

the supervision of their

implementation;

I Assisting the owner in managingthe construction process

including budgeting, schedule,

and claims management;

I Assisting the owner with post

construction management.

The Provisional Measures apply to all

project management services

provided on construction projects in

China, regardless of whether those

services are provided by foreign ordomestic enterprises.

QUALIFICATION

REQUIREMENTS

Prior to the issue of the Provisional

Measures, project management

services providers were not required

to hold a formal Chinese qualification

certificate.

However, the Provisional Measuresrequire project management

enterprises to have qualifications in

one or several of the following fields:

surveying, design, construction,

supervision, cost advice, or tendering

agency. This means that all

enterprises undertaking project

management must hold one or more

of these qualification certificates.

INDEPENDENCE OF THE

PROJECT MANAGER

One of the significant initiatives

introduced by the Provisional

PROJECT MANAGEMENT IN

CHINA

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Measures is the concept of

independence. The Provisional

Measures dictate that project

management enterprises cannot own

or be associated with any of the

construction companies on the

projects that they are managing. Thereason behind this requirement is

made clear by the activities that are

expressly prohibited in the

Provisional Measures, such as

accepting bribes or asking for

kickbacks or other favours, or

conspiring with the contractor to use

substandard construction materials.

While there are very good reasons

why, in the China context, it is

beneficial to have the projectmanager independent from the

contractor, internationally it is not

uncommon for the project manager to

be connected with the contractor, and

in some cases (for example, in the

United States) the project manager

acts as the contractor. Of course,

when the project manager also acts as

the contractor, there is an inherent

conflict between the interests of the

owner and the interests of the project

manager. For example, when theproject manager acts as the owner’s

representative, its only concern is the

protection of the owner, whereas

when the project manager also acts as

contractor, there is a split of loyalty.

Nonetheless, it is possible to

incorporate checks and balances in

the project management agreement to

address and mitigate this issue.

Accordingly, the blanket prohibition

is not entirely appropriate and will nodoubt deter many large foreign

project managers or contractors who

commonly act as integrated total

construction solutions providers.

Such organisations provide

engineering, procurement,

construction management, and

general contracting services often on

a turnkey basis and as such deliver

potentially significant cost savings to

their owner clients. It is often the

potential cost savings that convinceowners to put less emphasis on the

issue of split loyalty.

ACCOUNTABILITY OF THE

PROJECT MANAGER

Another area where the Provisional

Measures promote international

practice is accountability. On every

project, it is vital that the projectowner has confidence and trust in the

entity managing the project – in

many cases, the project manager acts

as the owner’s representative and,

therefore, has a high degree of

responsibility. For this reason, it is

common for named individuals to be

appointed for the duration of a

project who can only be removed

with the owner’s consent. In this

regard, the Provisional Measures

promote accountability by notpermitting project management

companies to subcontract their

management business or allow other

companies to undertake project

management in their name.

INCENTIVES FOR THE

PROJECT MANAGER

The Provisional Measures allow

project owners to reward the project

management enterprise by grantingthem a certain percentage of any cost

savings that result from

recommendations proposed or

implemented by the project

management enterprise. The parties

are free to agree to the percentage in

their project management contract.

SUMMARY

Effective project management is a key

component in successful constructionproject implementation. In the

context of a construction project,

where the owner is not experienced in

the administration and organisation

of building or engineering projects, it

is important to engage a construction

professional with the necessary

qualifications who is able to make

decisions for the owner in relation to

carrying out the project.

An effective project manager willassist the owner in deliberating and

decision making in connection with

the project. An experienced project

TRETTDigest 1144

manager, by bringing to the project

his particular expertise to ensure that

the project comes in on time and

budget, allows the owner to reduce

the risk of cost overruns and project

completion delays.

Ashley Howlett is a Partner in the

firm of Jones Day and based at their

Beijing office.

Tel: +86 10 5866 1113,

email : [email protected].

Trett Consulting have offices in New

Dehli, Kuala Lumpur, Singapore,Hong Kong, Kobe, Brisbane and

Perth and work extensively

throughout the Asia-Pacific region.

T TR RE ET TT T C CO ON NS SU ULLT T I IN NG G

C CE ELLE EB BR RAAT TE E I IT TS S 110 0T TH H

AAN NN N I IV VE ER RS SAAR RY Y I IN N

AAS S I IAA- -P PAAC C I IF F I IC C

Trett Consulting celebrates

the 10th anniversary of its

Asia-Pacific operations. We

would like to thank our

clients, staff and fellow

professional colleagues for

their continued support and

look forward to workingtogether in the future,

developing and expanding

our operations and building

upon our existing

relationships with our valued

clients.

8/7/2019 Digest 35


IIaann PPeeaassee reviews how new

technology and the impetus

from the Courts is changing

the way cases are

investigated by lawyers.

What are “e-documents” (sometimescalled Electronically StoredInformation or ESI)? Look aroundany modern office and you will see anabsence of filing cabinets, replaced(usually in the basement) with serversrunning the firm’s network. Verylittle gets printed (for cost as well asgreen reasons) but there is stillconstant communication both withinand outwith the organisation, withmost of the crucial exchanges taking

place via e-mail.

A QUESTIONING MIND

Enter the lawyer. Whereas his firstport of call used to be to the hard copyproject files and the filing cabinet of the project manager, now hisquestions will be somewhat different.Who were the individuals involved inthe project (both from our side andfor other parties)? In the ‘new speak’that permeates our lives now, theseindividuals are called key custodians.What computing resources do theyuse and have access to? This willinclude all devices that could save e-documents including not only serversand laptops but also mobile phonesand other portable devices.

IT’S A PROTECTION RACKET

Once the lawyer has got a clear viewof the extent of the sources he has

(assuming there is a potentialdispute), to take them into protectivecustody for two reasons. Firstly, sothat a proper, thorough, investigation

can commence into the facts of thecase and secondly, because there willprobably be the need to givedisclosure of some of them whenordered to do so by the Court orarbitrator. Note that in adjudication

there is not the same disclosureobligation, however, there is still theneed to find the key documents sothat they can be deployed to furtherthe client’s case. This need to takethe documents into safe-keeping isknown as ‘legal hold’.

The most convenient way in whichlegal hold can take place for e-documents is to take a forensic copyof the relevant sources to prevent thenormal processes of destruction,

archival and change taking place inrelation to that data set. The clientscan then continue to use their ‘live’systems without disruption. I sayforensic because great care is neededin handling e-documents, they arevery easily changed and theirassociated ‘metadata’ corrupted. Thisdata can often be of great use indetermining who drafted, received ormodified particular documents.

SEARCHING TIMES

Once that pool of documents isgathered it will be obvious that, in allprobability, the set is far too large tobe gone through individually. In anycase, the documents will need to besorted, reviewed and organised andthat can best be done by using aspecialist database.

A WINNING HAND?

The client may have felt that he was‘holding all the cards’, but is this whatthe documents reveal? Dependentupon what this process throws up, the

lawyer will apply the suitable law andprocedurein advising the client.

INFORMATION OVERLOAD

Sorting and deciding what is relevant,

is the next step.

COSTS

Why are disputes so costly to settleand what can we do about it? This isa key question in the UK Civil JusticeReview of costs being undertaken byLord Justice Jackson. A lot of thecosts revolve around properlyconsidering documents anddisclosure. As I think we’ve est-ablished there is assort of “Moore’s

Law” operating here, it’s not just thefacility with which we e-mail oneanother (copying in multiple parties),it’s also the other copies that we (andour IT departments) habitually make.This article may have variousversions and back-up copies beforeit’s completed. Each such document,if litigation was to eventuate, mayhave to be considered for disclosure.

LITIGATION

Litigation used to be seen asadversarial and overall it still is, butthere are parts of the process that theCourts are increasingly stressingshould be cooperative; a recent case1

highlights that this has not gotthrough to all in the legal profession.The judge in that case made thefollowing point:

47. This case provides an opportunity

for the Court to emphasise something

mentioned in Part 31 Practice

Direction [dealing with disclosure of

documents] which the parties in the

present case disregarded. Paragraph

TRETTDigest1155

THE IMPACT OF ELECTRONIC

COMMUNICATIONS INDISPUTE MANAGEMENT

8/7/2019 Digest 35


2A.2 of the Practice Direction states

that the parties should at an early stage

in the litigation discuss issues that may

arise regarding searches for electronic

documents. Paragraph 2A.5 of the PD

states that where key word searches are

used they should be agreed as far as

possible between the parties. Neitherside paid attention to this advice. In

this application the focus is upon the

steps taken by the Defendants. They

did not discuss the issues that might

arise regarding searches for electronic

documents and they used key word

searches which they had not agreed in

advance or attempted to agree in

advance with the Claimants.

The Judge went on to conclude thatthe Defendant’s solicitors had notcarried out a reasonable search in thefirst instance and that the parties’solicitors should meet to discuss howrestoration of the Defendant’s back-up tapes could best be done and“Following such a meeting, the

Defendants should embark so far as

reasonably practicable upon restoration of

the back-up tapes”. Additionally,further key word searches had to bedone by the Defendants, at furthercosts to the parties.

The lesson from the case is evident.The Court will not look kindly uponparties that take unilateral actionswhen it comes to e-disclosure. Infuture an “e-Disclosure Technology

Questionnaire” will have to be filled inand discussed at the first casemanagement conference in UKlitigation.

SUMMARY

There can be no doubt that many of the problems faced in terms of comprehending the overall merits of a clients’ case are added to by the‘tyranny’ of the email (and otherelectronic documents). However, alsoprovides solutions and benefits.Ian Pease is a solicitor specialising

in construction & engineering

disputes (email: ian@pease-

family.net)

1Digicel (St Lucia) Ltd and other companies v

Cable and Wireless plc and other companies

[2008] EWHC 2522 (Ch).§

TRETTDigest 1166

On 1 January 2010, 33 yearsafter first establishing TrettConsulting, Roger Trett handedover the executive managementof the business. He becomes aConsultant to the company from1 May 2010.

From a small office in GreatYarmouth, one of the mosteasterly towns in England,Roger has seen the business hestarted flourish from its humblebeginnings to the globalorganisation of today,employing 150 professionals in

15 offices situated across 9countries.

Not only has Roger steered thebusiness through itsconsiderable growth, but he hasbecome a distinguished leaderof dispute resolution in theconstruction and engineeringsectors. He is regularlyconsulted by owners, operatorsand contractors concerning

their major claims andcommercial problems and heacts as an expert in the areas of quantum and delay analysis. Heis widely regarded for alwaysoffering no-nonsense advice.

For over two decades, Roger hasheld senior positions in theAcademy of Experts, havingbeen its Chairman for 6 years.The Academy is one of theleading international

organisations promoting thevery best of standards andpractices for experts opining inlitigation, arbitration and otherforms of dispute resolution.

In 2008, Roger led the companyto merge with the EuropeanEngineering Consultancy,Grontmij, whose 8,000professionals provide multi-disciplinary services in the

water, energy, transport andenvironmental sectors. Havingoverseen the successful

integration of Trett withGrontmij, Roger now intends tofocus on his professionalactivities, actively working withclients and their legal advisorsto promote the earliestresolution of the mostchallenging commercialproblems.

Roger leaves behind a strongmanagement team led by TonyFarrow, Group ManagingDirector. Tony has a long careerwith Trett Consulting, havingjoined the firm 21 years ago.

Roger comments that:

“It has been an enormous

privilege to have led a group of

talented and committed

colleagues over such a period. I

see the forthcoming years as a

very exciting time for Trett

Consulting. Building upon our

traditional values and global

presence, I am sure the business

will identify new businessopportunities and continue to

grow. However, our main focus

has always been, and I am sure

will continue to be, to provide

our clients with the highest

possible standards of excellence

in delivering our services and to

provide our employees with

challenging and rewarding

careers. I wish clients,

colleagues and fellow

professionals the very best

wishes for the future and thankthem for their support over the

years.”

All at Trett Consulting thankRoger for providing theleadership which has allowedeach of us to develop our careersand potential. We alsoacknowledge that Roger hasbeen at the helm for longer thanSir Alex Ferguson at

Manchester United, a fact thathe can be rightly proud of!

RROOGGEERR TTRREETTTT

8/7/2019 Digest 35


For many years, arbitration

has been one of the mostpreferred forums for disputeresolution internationally andevery country has it ownsrules and procedures. In thisarticle, PPeetteerr GGooddwwiinn

highlights the improvementsin Japanese arbitration overthe last five years, resulting indiminished criticism of theJapanese arbitration system.

THE NEED FOR CHANGE

One of the most frequently rehearsed

complaints against arbitration in

Japan was that the law relating to it

was inadequate and out-of-date.

There was no stand-alone arbitration

code and arbitration was given only

limited attention in articles 786 to

805 of the old Code of Civil

Procedure of 1890. The JapaneseArbitration Law (Law No. 138 of

2003) which came into force on 1

March 2004 (the ‘New Law’) was

based on the 1985 UNCITRAL

Model Law on International

Commercial Arbitration (the ‘Model

Law’), providing instant familiarity

and certainty to users.

The New Law sought to follow the

general UNCITRAL objectives but it

recognised a need to depart fromsome of the standard provisions. A

number of the modifications are

specific to Japanese requirements yet

none of them should undermine the

New Law in the eyes of experienced

international arbitrators and

arbitration counsel::

I The New Law applies to both

international and domestic

arbitration, and to both

commercial and non-commercialcivil arbitration – as long as the

place of arbitration is in Japan. In

contrast, the Model Law only

applies to international

commercial arbitration.

I The New Law has included

provisions to recognise that

arbitrators can have a role as

mediators in amicable

settlements (Article 38(4)

Japanese Arbitration Law 2003).

I The New Law has included

provisions which give special

treatment to consumers and

individuals that are involved inarbitration agreements.

Any gaps in the New Law’s content,

such as the fact that it is silent on key

issues like confidentiality and

arbitrator’s immunity, have been

addressed in the new commercial

arbitration rules of the JCAA, which

were updated at the same time as the

enactment of the New Law to bring

them into line with the law, the

UNCITRAL arbitration rules andalso with the other leading

international commercial dispute

resolution organisations. Parties can

choose to adopt the rules or adopt

them with modifications, although

most parties tend to adopt the rules in

full.

KEY REFORMS

A number of key reforms were made

in 2004 to address some of the

repeated criticisms of the Japanese

arbitration system.

Hearing procedures

Arbitration proceedings in Japan

often used to be criticised for being

extremely lengthy and slow; one of

the main focuses of the reforms of

2004 was to improve the efficiency of

the system. In the New Rules, the

JCAA gave the arbitral tribunal the

power to speed up the proceedings

and prevent unnecessary delay. If one

of the parties fails to submit evidence

or fails to appear at a hearing without

good cause, the tribunal can proceedregardless (Rules 32 and 35 JCAA

Rules). Furthermore, documents are

to be submitted to the tribunal

directly rather than through the

JCAA and they can be submitted via

electromagnetic record or facsimile if

the tribunal agrees. Further, in place

of numerous short hearings spaced a

few weeks apart, are single longer

evidentiary hearings of the type

familiar to arbitrators and arbitration

counsel in all the major arbitrationcentres.

Selection of Arbitrators

In the past, the selection of

arbitrators was hugely restrictive.

There was a general bias in favour of

a single arbitrator, and any attempt to

avoid this needed early action from

one of the parties. Furthermore,

arbitrators had to be resident in Japan

on appointment and only a smallnumber were registered with the

JCAA, so the choice of arbitrator was

limited.

In line with international norms, the

New Law:

I Gives the parties the freedom to

determine the number of

arbitrators, and then implements

default provision for occasions

when the parties fail to do so;

I Does not require any specific

qualifications for arbitrators, so

there is complete freedom to

appoint the arbitrators most

suitable for the case;

I Puts no restrictions on

nationality or residence of

arbitrators; leaving parties to

choose from the widest possible

pool

Finally, where the JCAA is called

upon to make an appointment, it has

TRETTDigest1177

JAPANESE ARBITRATION REFORMS

8/7/2019 Digest 35


recognised the need to

internationalise its panel of arbitrators and this process is

proceeding apace at the time of

writing.

Any criticisms about the lack of

impartiality of arbitrators are dealt

with by a number of provisions in the

New Law and New Rules, which

require impartiality and

independence from arbitrators, as

well as full disclosure of any interest

they may have in the proceedings.There are also grounds to challenge

an arbitrator if there is a justifiable

doubt as to his or her impartiality and

there are criminal penalties for

corruption of an

arbitrator, such as

bribery. (Articles 50

through to 55

J a p a n e s e

Arbitration Law

2003)

Language

The New Law

provides that parties

are now free to agree on the language

or languages to be used in the arbitral

proceedings, or in the absence of such

an agreement, for this to be

determined by the arbitral tribunal.

In practice, more and more JCAA

arbitrations are now being conducted

in English.

Representation

One of the most enduring issues in

Japanese arbitration has been the lack

of clarity as to who may represent a

party in arbitration proceedings. For

some time, the JCCA and Japanese

Bar interpreted the Lawyers’ Law

(Bengoshi Ho) (Law No. 205, 1949) as

prohibiting all foreign lawyers from

acting as arbitration counsel of

record. However, it has since been

acknowledged that a foreign lawyer

registered as a gaikokuho jimu bengoshi

may conduct arbitration in Japan in

return for the payment of fees.Furthermore, foreign lawyers may

represent clients in an international

arbitration case when they are

appointed outside of Japan.

CONCLUSION

Japan has addressed many of the

criticisms which for many years were

made about its arbitration system.

More could be done, especially in

keeping up-to-date with any changesthat are made by UNCITRAL to its

Model Law and Rules.

However, for now the New Law and

New Rules together

allow for a very

flexible and

p r o g r e s s i v e

arbitration system

in Japan. They have

created much

greater autonomyfor parties involved,

and while they set

out a default

standard for

arbitration practice, they also allow

parties to vary any of the provisions

that they find unacceptable to their

circumstances. Japan has established

a framework suitable for use in both

domestic and international

arbitration.

In short, there is no longer any reason

(legal or procedural) why an

international commercial arbitration

conducted in Japan should not look

identical to one conducted in any of

the major arbitration centres. The

challenge still remains to encourage

its use.

Peter Godwin is head of the Tokyo

Disputes Practice at Herbert Smith

(tel: +81 3 5412 5444, email

[email protected])

TRETTDigest 1188

– FIVE YEARS ON

“There are

grounds to

challenge an

arbitrator if there

is a justifiabledoubt as to his or

her impartiality”

SEMINARS BEING

RUN BY TRETT

AUSTRALIA IN2010

The Australian Government has

allowed different States and

Territories to enact what now

amounts to eight different forms

of security-for-payment

legislation to be enacted in one

country.

For organisations operating

across all the States and

Territories of Australia, the

situation is one of complexity

and increased risk.

Consequently, Trett Australia is

running a series of ‘Adjudication

Awareness’ seminars specifically

designed to help firms become

aware of the pitfalls inherent in

the rules and procedures.

Other seminars being run in

2010 include ‘Managing

Change in Construction

Contracts’, ‘Methods of

Analysing Extensions of Time’

and ‘How to Prepare and

Defend Delay Claims’.

For further information, contact

our National Director at

[email protected]

8/7/2019 Digest 35


Trett Consulting Offices…

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MIDDLE EAST & SOUTH ASIA

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UNITED KINGDOM

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LEEDS5 Mortec Park York RoadLeedsWest Yorkshire LS15 4TAT: +44 113 201 8470F: +44 113 218 8875

LONDONBoundary House91/93 Charterhouse StreetLondon EC1M 6HRT: +44 20 7253 8877F: +44 20 7253 8866

MANCHESTER4th Floor, Station HouseStamford New Road, AltrinchamCheshire WA14 1EPT: +44 161 928 9004F: +44 161 928 8699

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NORTH AMERICA

USA – Houston10497 Town & Country WaySuite 420HoustonTX 77024, USAT: +1 713 547 4888F: +1 713 547 4884

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UNITED ARAB EMIRATES

UAE – Abu DhabiOffice M1Building C-13, 16th StreetKhalifa City ‘A’Abu Dhabi, PO Box 112193United Arab EmiratesT: +971 2 5562 838F: +971 2 5562 670

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Digest 35

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Transcript of Digest 35