CD: Could you identify some of the common causes of disputes in the international construction sector?

Jones: Variation of contract is a common cause of disputes in the international construction sector, particularly in lump-sum construction contracts. Where a project owner dictates a change to the scope, manner of performance or time for completion of works, disputes can arise regarding the proper characterisation of such a change. A contractor will commonly allege that such a change is a ‘variation’ that lies outside the scope of works contemplated by the contract and that accordingly, the contractor is entitled to additional payment or an extended completion date. A project owner will generally take the contrary position, alleging that the contractor has no such entitlement as the changes were not ‘variations’ but were instead within the scope of works contemplated by the contract and the parties. Disputes also commonly stem from time bar clauses that prevent a contractor from bringing a claim outside of a specified time period and notice provisions that require the contractor to give notice to the owner before bringing a claim. These types of clauses may be construed to constitute contractual preconditions to lawfully bringing a claim. A common matter for determination by courts and arbitral tribunals is the extent of compliance required by a clause when construed objectively and the extent to which the contractor has in fact complied with those requirements.

Allen:  Whilst there are regional-specific market nuances, the common causes of a dispute seem to stem from the following market traits: construction schedules are fast paced, projects are typically aggregated into complex programs of work, there is a lack of skilled manpower and professionals and there is a continued trend of multi-layering contractors and subcontractors. In addition to these traits, and when combined with the continued use of EPC styled contracts, the risk transfer to the contractor can be significant, which then in turn places a heavy reliance upon how the contract reacts to change and the associated assessment of delay and compensation. Aside from these market factors, the most common causes of dispute are a failure to properly administer the contract, failure to comply with the contract obligations, incomplete employer requirements or design information and also ambiguous contract documents, failure to make interim awards for time and compensation, and poorly drafted or incomplete claims.

Apr-Jun 2015 issue

Doug Jones AO

EC Harris

Herbert Smith Freehills LLP
King & Spalding LLP

Veirano Advogados