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TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US.

PERSPECTIVE
CHOICES PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS
LAW PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN
IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA

TRETT Digest
ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQ
DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS
PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UN
NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECTR
ISSUE 35
COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION RE
FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US
PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS C
IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UNDER THE NEC CONTRAC
MANAGEMENT IN CHINA THE IMPACT OF ELECTRONIC COMMUNICATIONS I
MANAGEMENT JAPANESE ARBITRATION REFORMS - FIVE YEARS ON TIME
LOST CONSEQUENTIAL DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOIC
PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U
PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN CHIN
IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA
ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQ
DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS
PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UN
NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECTR
COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION RE
FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US
PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS C
IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UNDER THE NEC CONTRAC
MANAGEMENT IN CHINA THE IMPACT OF ELECTRONIC COMMUNICATIONS I
MANAGEMENT JAPANESE ARBITRATION REFORMS - FIVE YEARS ON TIME
LOST CONSEQUENTIAL DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOIC
ES PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS
LAW PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN
IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA
ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQ
DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS
PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UN
NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECTR
COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION RE
FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US
PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS C
IMPACT CLAIMS UNDER U.S. LAW THE IMPACT OF ELECTRONIC COMMUNIC
DISPUTE MANAGEMENT PROGRAMME UNDER THE NEC CONTRACT THE IM
ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARB
REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAM
1 TRETTDigest

TIME SPENT, TIME LOST


Claiming head office to include the cost for time spent by usefully analyses a number of
personnel costs as part of a head office personnel. However, this previous cases.
is frequently rejected on the basis that
loss and expense or damages the head office personnel would have The Court of Appeal reviewed the
claim is often an uphill task. been employed in any event and, earlier judgement Tate and Lyle Food
Claims are often met with the therefore, no extra cost has been and Distribution Ltd v Greater London
incurred. ‘Keating on Construction Council (1982), where the defendants
argument that the personnel Contracts’, 8th Edition, 2006 were liable to the claimants for
would have been employed explains compensation for employer having failed to dredge silt which had
by the contractor in any event delays as follows: built up during its construction of
and the contractor has, piers for a ferry. The claimants
“If particular head-office costs are themselves had to dredge the silt and,
therefore, not incurred any proved to have been increased by a as part of its claim, claimed
additional cost. Kevin contract’s delay, they are recoverable. managerial and supervisory expenses.
R e e v e s notes that recent Examples would be the cost of extra Although the judge rejected this part
staff recruited because the particular of the claim, in doing so he stated:
case law from the UK may
contract was in difficulties or the cost
make it easier to claim, and of extra telephone calls and postage “I have no doubt that the expenditure
sets out principles that can be in the period of delay. But of managerial time in remedying an
applied in other jurisdictions. substantial claims of this kind are actionable wrong done to a trading
rarely made because most contractors concern can properly form the subject
are able to cope with delay on a matter of a head of special damage.
When making claims for loss and
particular contract with their existing In a case such as this it would be
expense or damages, whether arising
resources whose cost is reasonably wholly unrealistic to assume that no
from employer delays, variations or
constant.” such additional managerial time was
otherwise, contractors will often want
in fact expended.”
This may not appear particularly fair
to contractors, who have had to divert The Tate and Lyle case is important
In this issue... significant time of their managers because it was the first case that gave
and other head office staff to deal useful guidance on recovery of
with a delayed project only to be told management time and because it
TIME SPENT, TIME LOST . . . . . . . . .1 that they would have incurred those made clear that management time
staff salaries anyway and so are not was in fact claimable. However, it did
CONSEQUENTIAL DAMAGES . . . . . . .3 entitled to claim. Contractors may, not address the counter-argument
therefore, take some comfort in the that where such management time is
recent English Court of Appeal case for salaried staff, the management
INJUDICIOUS CHOICES . . . . . . . . . . .6 costs would have been incurred in
of Aerospace Publishing Limited v
Thames Water Utilities Limited any event, and thus no additional
PLANNING - MYTHS & PITFALLS . . .7 (January 2007) and the subsequent costs have been incurred.
High Court case of Bridge UK Com
CUMULATIVE IMPACT CLAIMS . . . . .9 Ltd v Abbey Pynford Plc (April 2007). However, the Aerospace Publishing
case went on to explain how such
AEROSPACE PUBLISHING management costs may be claimed.
THE CONSTRUCTION PROGRAMME
UNDER THE NEC CONTRACT . . . . . .11 Aerospace Publishing involved a claim Aerospace Publishing owned a
for damages arising from a flood. The library and archive that was damaged
PROJECT MANAGEMENT IN CHINA .13 claim included time spent by by a flood from a burst pipe. Thames
Aerospace Publishing’s staff as a Water was liable to Aerospace
result of the flood. While it is not a Publishing for the loss and damage
THE IMPACT OF ELECTRONIC that resulted. As part of its claim,
case involving a construction
COMMUNICATIONS . . . . . . . . . . . . .15 contract, it is important because it is a Aerospace Publishing sought to
Court of Appeal decision that sets out recover payments made to staff for
JAPANESE ARBITRATION . . . . . . . .17 principles of general application for work done in relation to, and
recovery of personnel time and consequent upon, the flood.
TRETTDigest 2

Aerospace Publishing would have claimants’ employees had been set based on his assessment of the time
always had to pay the staff salaries, out in detail and adequately he spent on various matters. The
whether the flood had occurred or established; and that there could be assessment was made retrospectively.
not. The claim was, therefore, not no sensible challenge to a conclusion While the judge accepted this
made on the basis that, in the absence that its business was thereby approach, he went on to point out
of the flood, Aerospace Publishing disrupted, indeed substantially so. that such an assessment was an
would not have had to pay them. The court was, therefore, entitled to approximation of the hours spent and
Instead, the claim was made on the draw the inference that the employees may over-estimate or under-estimate
basis that, if not for the flood, these had been diverted from revenue- the actual time which would have
employees would have concentrated generating activities and to make been recorded at the time. He then
upon their conventional activities, allowance in the award of damages for cut the hours by c20%, allowing 100
out of which Aerospace Publishing the cost of the diverted employees. hours of the manager’s time as
would have made money. The claim damages.
was, therefore, framed in terms of loss BRIDGE UK
of revenue from these other activities. CONCLUSION
Three months after Aerospace
After a review of Tate and Lyle and Publishing, the Bridge UK case also In claims for loss and expense or
four subsequent cases, the court in had to consider a claim for staff time. damages, these recent cases suggest
Aerospace Publishing concluded that In this case, a contractor was engaged that the time of head office staff may
this was a valid approach. Staff time to construct a slab on which a be claimable provided that the three
could be included as damages where printing press was to be installed. As ‘propositions’ set out in the Aerospace
the staff had been diverted from other a result of defects in the slab, the Publishing case are met. Such a claim
activities on the basis that such installation of the printing press and is on the basis of loss of revenue
diversion resulted in a loss of revenue commencement of its operation were arising from diversion of the staff
from those other activities. The court delayed by over a month. The owner time, which is calculated using the
considered that the previous cases claimed damages, including a claim cost per hour of employing the staff.
established three propositions for for management time dealing with
such a claim: the problems caused by the Evidence of the time spent in the
contractor. form of timesheets or other
(a) The fact and extent of the contemporary records should be
diversion of staff time have to be Although the Aerospace Publishing provided to prove the time spent.
properly established. Evidence of case was not referred to in the However, the Bridge UK case
these should be provided, failing judgment, some of the earlier case law confirms that a retrospective
which the claimant is at risk of a considered in Aerospace Publishing reconstruction is allowable, but this
finding that they have not been should be treated with caution. An
was. The judge found that the
established. unconvincing reconstruction may
manager had been diverted from his
result in that part of the claim being
usual activities of selling and
(b) The claimant has to establish that rejected for lack of evidence. As the
marketing the company and awarded
the diversion caused significant judge in Tate and Lyle said when
damages based on the period of time
disruption to its business. referring to management time:
that he was diverted. This is broadly
consistent with Aerospace Publishing
(c) Strictly, the claim should be cast “I would also accept that it must be
and is a useful judgment to confirm
in terms of a loss of revenue extremely difficult to quantify. But
that the approach is acceptable to the
attributable to the diversion of staff modern office arrangements permit
courts. However, Bridge UK also went
time. However, in the ordinary case, of the recording of the time spent by
on to consider what evidence was
managerial staff on particular
and unless the defendant can required to support the time claimed,
projects. I do not believe that it
establish the contrary, it is reasonable especially where detailed
would have been impossible for the
for the court to infer from the contemporary records were not
plaintiffs in this case to have kept
disruption that, had their time not available.
some record to show the extent to
been diverted, staff would have been
which their trading routine was
applied to activities which would, By reference to the earlier case of disturbed...”
directly or indirectly, have generated Holman Group v Sherwood (2001), the
revenue for the claimant in an judge concluded that in the absence While courts will consider
amount at least equal to the costs of of records of the time actually spent reconstuctions, experience confirms
employing them during that time. by the manager, evidence in the form that keeping adequate records and
of a reconstruction from memory was being able to show what occurred will
Based on the particular facts of acceptable. The manager had improve a party’s position.
Aerospace Publishing, the judge then calculated that he was engaged for
concluded that the diversion of time 128 hours in dealing with the Kevin Reeves is based at Trett
for a significant number of the problems caused by the contractor, Consulting’s Kuala Lumpur office.
3 TRETTDigest

CONSEQUENTIAL DAMAGES:
Construction projects inherently face In determining whether particular considered in assessing the
the dangers of defective, incomplete damages are recoverable, courts foreseeability of damages in modern
or untimely work. In some cases, generally start by establishing the breach of construction contract cases:
construction projects are abandoned distinction between ‘direct’ and (1) the construction experience of the
altogether. Attorney Brian ‘consequential’ damages: parties; (2) general knowledge of
Comarda of Houston, Texas, explains construction sequences and
that losses stemming from the Direct damages are those which arise procedures; and (3) general
occurrence of these circumstances, ‘naturally’ or ‘ordinarily’ from a knowledge of the likely impacts of
can be simple to quantify and breach of contract; they are damages seasonable changes upon the
characterise – such as the cost to re- which, in the ordinary course of particular construction processes, see
supply a defective part – or they can human experience, can be expected to ... Bruner & O’Conner on
be quite complicated – such as result from a breach. Consequential Construction Law, § 19:19
damages resulting from delay, damages are those which arise from (discussing Spang Indus., Inc., Ft. Pitt
disruption and acceleration of the the intervention of ‘special Bridge Div. v Aetna Cas. & Sur. Co.,
work. Damages in the construction circumstances’ not ordinarily 512 F.2d 365 (2d Cir. 1975)). Utilising
context are characterised by courts as predictable. If damages are these factors, several courts have
either ‘direct’ or ‘consequential.’ determined to be direct, they are recently considered the limits of
Often times, entitlement to or compensable. If damages are foreseeability for the purpose of
liability for those damages is determined to be consequential, they evaluating consequential damages
determined by the terms of the are compensable only if it is claims.
construction contract, which determined that the special
commonly include waivers of any circumstances were within the For example, two courts have recently
consequential or incidental damages ‘contemplation’ of both contracting upheld awards of consequential
incurred by the parties to the parties (and the contract does not damages, finding the losses
contract. US Courts have expressly exclude them). Roanoke foreseeable to the parties at the time
traditionally upheld these waiver Hospital Ass’n v Doyle & Russell, Inc., of contracting. In Berkel & Company
provisions and relied on them in 214 S.E.2d 155 (Va. 1975). Contractors, Inc. v Palm & Associates,
determining what damages may be Inc., 814 N.E.2d 649
recovered by an owner or contractor. Put another way, the “Two courts have (Ind. Ct. App. 2004),
difference between recently upheld the Court affirmed
‘d i r e c t ’ a n d an award of
NO TWO COURTS THINK
‘consequential’
awards of consequential
ALIKE
damages is “the consequential damages for lost
While most courts recognise, or at degree to which the damages, finding profits to a surveyor
least cite to, the following damages are a the losses who was wrongfully
foreseeable (that is, terminated from a
cornerstone principles governing the foreseeable to the
distinction between direct and are highly probable) job by the general
consequence of a parties at the time contractor. The
consequential damages, although
defining consequential damages is breach.” Rexnord of contracting” Court upheld the
still a moving target. Simply put, no Corp. v DeWolff award because both
two courts view consequential Boberg & Assocs., Inc., 286 F.3d 1001 parties “foresaw that this was a
damages alike, as demonstrated by (7th Cir. 2002). Ultimately, the lucrative contract” and could have
golden rule is that the award of reasonably foreseen that the loss of
several recent rulings from around
consequential damages is limited to the job in question would result in
the United States. This is likely due
those damages which are foreseeable economic loss to the surveyor.
to the fact that an award of
at the time of contracting. Hadley v
consequential damages depends upon
Baxendale, 156 Eng. Rep. 145 (1854). Additionally, in Floor Express, Inc. v
foreseeability of the harm, a
Daly, 158 P.3d 619 (Wash. App. Div. 2
somewhat malleable concept.
DETERMINING WHAT 2007), the Court held that, where a
DAMAGES ARE FORESEEABLE subcontractor breached its agreement
FORESEEABILITY – THE TEST
with the general contractor by failing
FOR RECOVERY
The following factors are typically to properly perform the
TRETTDigest 4

: A U.S. PERSPECTIVE
subcontracted work as called for in “Lump Sum Turnkey, Engineering, breach of the contract. In this case,
the subcontract agreement, the Procurement and Construction the Contract, Article 19.1, reflected
general contractor’s legal liability to Contract” (“Contract”). During the that TGP and Technip agreed to limit
the owner was a recoverable course of the Project, numerous the remedies available in the event of
consequential damage of the delays occurred that each party a breach:
subcontractor’s breach. The Court attributed to various causes –
believed the subcontractor could have including issues with the components Consequential Damages: Not-
reasonably foreseen that the owner being installed, issues involving the withstanding any other provisions of this
would hold the general contractor new technology or new applications Agreement to the contrary, in no event
responsible for correcting the of technology being employed, delays shall Owner or Contractor be liable to
defective work of a contractor. in change orders, shortages of skilled each other for any indirect, special,
labour, and inclement weather. incidental or consequential loss or
However, in EBWS, LLC v Britley Ultimately, the project was completed damage including, but not limited to, loss
Corp., 928 A.2d 497 (Vt. 2007), the with up to twenty months of delay. of profits or revenue, loss of opportunity or
Court reversed an award of TGP thereafter sued Technip to use incurred by either Party to the other,
consequential damages for expenses recoup its additional or like items of loss or
incurred by an owner of a creamery expenses and for “A party’s damage; and each
on the ground that they were not allegedly defective entitlement to Party hereby releases
foreseeable; the expenses resulted work. Technip file a the other Party
from a three week suspension of counterclaim to consequential therefrom.
operations at the creamery while recover certain sums damages depends
faulty work performed by a it alleged to be owed TGP contended that
contractor was repaired. The Court under the Contract.
largely on the its claims
noted that the owners were not, at the A jury found that foreseeability of constituted ‘direct
time of contracting, contractually Technip had the alleged loss damages’ and
obligated to incur the expenses, breached the therefore, were not
which consisted of wages paid to Contract and claimed” precluded by Article
standby workers and purchased milk awarded delay 19.1. Technip
that ultimately went to waste. damages and defective work damages contended that all of TGP’s claims
Accordingly, the court denied to TGP. Subsequently, on the motion were for incidental, indirect and
recovery of these consequential of Technip, the trial court limited the consequential damages and were thus
damages, holding that parties are not jury award to certain defective work barred by Article 19.1.
presumed to know the condition of damages. Both TGP and Technip
each other’s affairs or to take into appealed, though Technip’s appeal is As an overall matter, the Court of
account contracts with third parties beyond the scope of this article. Appeal concluded that Article 19.1
that are not communicated. did not preclude recovery for any and
The Court of Appeal entertained the all liability for delay that might occur
TENNESSEE GAS PIPELINE issue of whether TGP’s damages were under the Contract. It concluded that
COMPANY V. TECHNIP USA direct or consequential, and if the waiver of consequential damages
CORPORATION consequential, whether those did not preclude direct damages
damages would be barred by the involving loss of use, opportunity, or
A recent Texas case also offers insight waiver of consequential damages profits.
into how courts may view different provision contained in the contract.
types of alleged consequential The Court referenced the cornerstone The Court next considered whether
damges, including claims for delay definitions of consequential and the specific claims at issue
costs, lost profits, loss of efficiency direct damages, and also held that a constituted consequential damages,
and use of money. Tennessee Gas general measure of damages is subject which were waived by Article 19.1 of
Pipeline Company (“TGP”) engaged to any agreement that the parties the Contract. The Court concluded
Technip USA Corporation might have made with respect to that:
(“Technip”) to construct damages because parties to a contract
improvements along an interstate gas are free to limit or modify the n TGP was not precluded from
pipeline owned by TGP pursuant to a remedies available in the event of a recovering ‘project delay costs’
5 TRETTDigest
for extended expenses including, rented due to a power outage CONCLUSION
labour, travel, environmental because the necessity of a rented
contractors, TGP inspectors, backup generator could not have In the USA, and many other legal
purchase and supply of additional been “conclusively presumed to have jurisdictions, a party’s entitlement to
construction consumables, been foreseen or contemplated” by consequential damages depends
hauling wastewater from the site, Technip at the time the Contract largely on the foreseeability of the
and utilities, as TGP was was formed “as a consequence of alleged loss claimed. Courts will not
expressly responsible for these [its] breach of contract or wrongful award damages that are remote and
costs under the Contract. The act.” unexpected. Furthermore, courts in
Court found it could be the USA will respect contractual
conclusively presumed to have n TGP was further precluded from provisions waiving a party’s right to
been foreseen or contemplated by recovering damages for the lost recover consequential damages.
Technip that, as a consequence of use of money that it had invested Accordingly, these provisions should
its breach of the Contract by in the project, as those funds be carefully drafted to precisely
delay, TGP would have to represented an indirect loss to define the types of damages
continue paying these ongoing TGP because any return that prohibited from recovery – whether
costs. Thus, these costs were not might be attributable to foreseeable or not.
precluded from recovery. theoretical investments TGP
might have made fell outside its ** LeBlanc Bland is a law firm
n TGP was not precluded from Contract with Technip. specialising in construction advice
recovering costs for providing and litigation involving the marine,
extended power at a specific n TGP was precluded from energy and government sectors.
station separately from its recovering damages for Brian Comarda is a Partner at their
‘project delay costs’ above, ‘premature energy costs at Houston, Texas office.
because the Court concluded in Station 54’ – essentially the cost (tel: +1 713 621 7100, email:
its analysis of the ‘project delay paid to the utility company to bcomarda@leblancbland.com.)
costs [above],’ that TGP was install and maintain high power
expressly responsible for transmission lines to the station.
providing that power under the
Contract. It could, therefore, be n Finally TGP was precluded from
TRETT CONSULTING
conclusively presumed to have recovering costs as a result of BREAKFAST BRIEFING
been foreseen or contemplated by activities that required the release
Technip that, as a consequence of of gas into the atmosphere
– HOUSTON
its breach of the Contract by resulting from Technip’s breach.
delay, TGP would have to
continue paying those ongoing
TGP contended that the released
gas would have been sold to
‘PLANNING
costs. The Court concluded that
those damages resulting from the
customers; therefore, the Appeal
Court construed TGP’s claim to
FOR PROJECT
delay also represented ‘direct
damages’ because they clearly
be for lost profits. The Court held
that TGP’s expectation of profit
CHANGE’
flowed naturally and necessarily through the sale of gas to its Trett Consulting is hosting a
from the breach. customers was incidental and Seminar on the subject of
consequential to the performance ‘Planning for Project Change’
n TGP was precluded from of the Contract concerning the to be held at The Energy
recovering costs for loss of installation of new equipment, Industries Council, 11490
efficiency – excess gas, oil, and and thus were barred by Article Westheimer Road, Suite 850,
labour that were incurred because 19.1. Houston, TX 77077 on the
a new compressor component was morning of March 30, 2010.
The focus of this seminar is on
not timely installed – because In summary, the Court concluded
preparing for and managing
those claims constituted claims of that all of TGP’s damages challenged
change on construction and
consequential ‘loss of use’ by Technip as consequential were engineering projects.
damages that were precluded precluded under the terms of the
under Article 19.1. Contract, as a matter of law, except For further information please
those damages awarded for ‘Project contact:
n TGP was also precluded from delay costs’ and for extended power barry.bramble@trett.com
recovering damages for the costs requirements at a specific station. or tel: +1 713 547 4888
of a backup generator that it had
TRETTDigest 6

INJUDICIOUS CHOICES
Adjudication is increasingly avoiding unnecessary delay or expense”. the “parties are free to agree the
becoming a preferred form of early procedure for appointing the arbitrator”.
dispute resolution in many countries. This obliges the arbitrator to be This can be done by the parties co-
In the UK, it was no surprise to flexible in selecting procedures to suit operating in choosing their own
anybody that arbitration’s popularity the individual circumstances of the arbitrator once they decide on the
plummeted when statutory case before them and it is clear that relevant experience and other criteria
adjudication came along in 1998. there is no need for the arbitrator to
of the potential arbitrator. This would
Trett Consulting’s Eugene follow ‘court’ procedures. Hence, an
include considering the curriculum
Lenehan’s research shows that the arbitration has the flexibility to
cause of arbitration’s demise arose establish relatively inexpensive vitae of prospective arbitrators before
from a number of factors; for example procedures. agreeing. However, this sensible
that the average length of an procedure appears only to be adopted
arbitration was over 14 months, There are a number of choices infrequently.
though many drag on for years, and, available to an arbitrator which might
generally speaking the larger the have a streamlining effect. These Research has confirmed that in two
claim the longer they last. Nor are include:- thirds of cases, the tribunal is
arbitrations a sure-fire way of getting appointed by reference to an
your money. In the cases he studied, (i) dispensing with pleadings / institution. This is because the means
only 54% of main contractor statements of case of appointing the arbitrator is
claimants received the arbitrator’s (ii) the scope of disclosure, generally set out to be by this method
full award, and the amount awarded
(iii) a fast track timetable for the in the pre-existing contract between
was always less than claimed.
arbitration the parties.
For example, what research has (iv) using written submissions
shown is that when arbitration as a instead of having interlocutory The nomination procedure of some
dispute resolution process is hearings. institutions, such as the UK’s RIBA
considered the preferred route, its (v) using inquisitorial powers, and the Institution of Mechanical
success is dependant upon the where the arbitrator searches for Engineers, involves matching the
selection of the arbitration tribunal. facts, examines documents, and respective geographical locations of
Indeed the UK’s Arbitration Act makes further investigations. the potential arbitrator against those
emphasises speed, economy and of the parties. If there is more than
fairness, and the selection of an PROCEDURAL MATTERS one arbitrator in that area, the
arbitrator who can comply with both
institutions then try to select
the spirit and the letter of the Act is These procedural matters are not
someone with qualifications that are
vital to success. mandatory provision and, therefore,
relevant to the dispute. Geographical
the arbitrator’s power to decide on
There are various procedures the procedural matters is subject to the proximity is a practical advantage
arbitrator can follow which can right of the parties to agree such rather than a necessity and it is
reduce costs and duration, but not all matters. If the parties can’t agree, the suggested that the main concern
arbitrators will take advantage of arbitrator can decide to use them. should be to appoint the person with
them. the appropriate skills and knowledge.
Research has found that confining
AVOIDING EXPENSE the scope of disclosure and the use of CONCLUSIONS
a fast-track timetable / setting time
Section 1(a) of the Act provides: limits, both reduce the cost and the In the author’s view, the parties
duration of arbitration. When should only refer to an institution if
“The object of arbitration is to dispensing with pleadings reduces they fail to agree on who the
obtain the resolution to disputes by time but not necessarily cost; the use
an impartial tribunal without arbitrator should be. In addition,
of the inquisitorial powers reduced
unnecessary delay or expense”. both the arbitrator and the parties
costs but not duration of arbitration;
instructing written submissions should give careful thought to the
The aim of section 1(a) is taken up at reduced duration but not costs. type of procedural directions they
section 33(1)(b) of the Act which may wish to use.
imposes on the arbitrator the duty to ARBITRARY CHOICES
“adopt procedures suitable to the Eugene Lenehan is based at Trett
circumstances to the particular case, Section 16(1) of the Act provides that Consulting’s Coventry office
7 TRETTDigest

PLANNING – MYTHS AND PITFALLS


Planning (or scheduling), in any plan of what is to be done, however, 1. Level of detail
environment, involves a disciplined the method statement explaining how
approach to work, through which the works are to be carried out and by A plan or programme may contain
decisions are made, recorded and whom is very often overlooked and too much detail for some users and
communicated to all concerned. not developed into a comprehensive too little for others. It would be
Colin Capper explains that planning document particularly at the start of a inappropriate to provide a full
will define an organisation’s project. network analysis to a ganger or
objectives, establish an overall foreman on a construction site - he is
strategy for achieving these objectives Management that does a good job of unlikely to want to decipher a
and develop a comprehensive planning will have direction and computer generated logic linked
hierarchy of plans to integrate and co- purpose and the planning is likely to critical path analysis programme.
ordinate activity. minimise the misdirection of energy; Likewise, an unlinked bar chart
this will happen despite the would be inappropriate for a complex
In other words, what is to be done, possibility of missing the ultimate project where the project
how it is to be achieved, by whom and objectives. management team is required to
with what resources. In business consider the time, cost and resource
organisations the Plan, becomes a From my experience, delayed implications of alternative solutions.
statement of intent and a means of completion and disrupted progress is
control. more easily avoided or controlled by A common trap is to attempt to plan
firms who use effective planning the whole project, activity by activity.
THE PURPOSE OF PLANNING techniques. As soon as the project gets off the
ground, more information becomes
Planning involves the establishment 2. Planning makes future decisions available. Some activities are no
of business policies - rules laid down longer required, new activities
to provide guidance for decisions by Planning does not make future become apparent and the project
managers. It assumes that alternative decisions. It is concerned with the manager can be sucked into a spiral of
courses of action exist and so assists impact of current decisions on future planning and re-planning; he may
managers in the process of events. So while planning is then cease to manage the plan and the
organising, forecasting, coordinating, concerned with the future, planning plan quickly loses credibility.
controlling communications and decisions are made in real time.
motivating people - planning then At the highest level, an overview of
becomes a key management ‘tool’. 3. Planning can eliminate change the plan is appropriate, with progress
milestones. On a building project,
SOME MYTHS Planning cannot eliminate change. there might be:
Changes will happen regardless of
1. Planning that proves to be inaccurate what management does. n Completion of design
is a waste of management time Management engages in planning in development. This is often a key
order to anticipate changes and to milestone when the full scope of
The end result of any form of develop the most effective response to the Works to be carried out is
planning is only one of its purposes. them. realised.
The process itself can be even more
valuable than the end product even if 4. Planning reduces flexibility n Effective water tight date, when
the results miss the target. the start of finishing activities
Planning implies commitment, but it becomes a significant stage in the
Planning requires management to is a constraint only if a plan is programme. This date is often
think through what it wants to do and produced but not developed as confused with weather-tightness,
how it is going to do it; this circumstances require. Planning is i.e. when all the roof and external
clarification can have a significant an on-going activity. The fact that envelope of a building is fully
value in itself. For example, the formal plans have been reasoned out complete.
preparation of a detailed method and clearly articulated can make
statement is a mandatory them easier to revise than an Without milestones, a mass of
requirement of most construction ambiguous set of assumptions. detailed information can often
contracts. obscure critical information and
PITFALLS AND mask the key remaining stages as the
A programme often forms part of the RECOMMENDATIONS project moves towards the
TRETTDigest 8

completion of construction. discourage creativity. If the planning Another form of over optimism is to
tools are too cumbersome and only under estimate the time required to
Modern computer software packages the planner understands the carry out certain activities. It may be
allow for planning projects in detail. programme, other members of the that new technology or a general lack
However, summary bars can be project team are unlikely to make a of work study leads to insufficient
generated and reports issued to the creative contribution. time and resource allocation. To
relevant departments within an avoid this pitfall it is important to
organisation, which allows further Sometimes, a Manager may organise involve those responsible for the
appropriate levels of detail contained the work to be programmed in implementation of the activity in the
within a programme, which can be isolation then delegate the estimating process.
more sensibly produced properly by implementation of the plan to the
those departments. group. This often arises in large A plan or programme must not omit
construction companies which have activities, for example, a proving
2. Focusing on a deadline separate departments for period for engineering services or
construction and planning – final cleaning, which are critical to
There is a tendency for some particularly at pre-tender stage. the successful completion of the
managers to focus on a deadline. By project. Many projects are one-off
concerning themselves with a point Planning is most effective as a group endeavours, but previous experience
that lies far into the future, they feel activity, where the relevant parties on similar projects should enable the
that there is plenty of time to do the work together and communicate with preparation of a realistic checklist,
work, under-stating the current each other to solve the task. which includes all key activities.
priorities. To avoid this inherently
misplaced optimism, a manager 5. Over-optimistic time forecasts CONCLUSION
should set definite intermediate
targets for completion of the work. Over-optimism arises in two ways: Planning establishes an
To set shorter-time horizons, the plan organisation’s objectives and goals. It
must contain goals and activities (a) arbitrary cuts enables actual performance to be
compared against objectives.
which are controllable in the shorter
A company may work with detailed Deviations from the plan can be
term. Taking the example above, the
methods of estimating, where identified and the necessary
sooner all design is complete and
corrective action taken.
information issued for construction programming the work content and
on a project, the less the likelihood of cost of a project is based on historical
In the writer’s view, regular
change to the construction activities. data previously used to plan similar
independent progress monitoring is
projects.
the key to identifying those activities
3. Flow of Information
which require the most attention,
However, those responsible for
whether they are procurement or
The key to a successful project is securing the project may be over
lead-in activities or off site or
completion on time, to budget, optimistic and consider that the work
physical tasks on site.
achieving the client’s performance can be done more quickly at less cost
requirements. Financial and market – often it cannot!
Uncertainty in planning projects will
pressures can demand that projects diminish as the overall design of a
are finished in the shortest possible Estimating methods should be
project is completed andinformation
time within a challenging cost trusted or otherwise the effectiveness
for construction is issued.
estimate. However, many projects of a tender bid is reduced.
have insufficient information to fully Without planning, there can be no
plan the project from start to finish at (b) insufficient previous experience control. However, effective planning
the outset. Projects can suffer from utilising experienced planners can
insufficient design information allow time to be utilised more
required for efficient working and effectively.
effective control.
Time is unique; if wasted it can never
Progress on projects is sometimes be replaced!
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 Colin Capper is based at Trett


Some planning methods can Consulting’s Coventry office
9 TRETTDigest

CUMULATIVE IMPACT
CLAIMS UNDER U.S. LAW
A recent case in the United the new completion date to be the modifications provided any
States Court of Federal Claims September 28, 2000. After these compensation for cumulative impact
illustrates how a contractor changes, NIH represented that few or inefficiency costs, and Bell
subsequent changes would be issued, reserved its rights to such impact
may be able to recover under
and asked Bell to agree to a series of claims. Also Bell notified NIH that
the ‘cumulative impact theory’
new interim completion dates that the continued issuance of changes
for the impact of multiple
would allow NIH to occupy the would delay the project and that the
changes. B a r r y B r a m b l e building on a phased basis. The only way to avoid impact to the
discusses the background and parties then executed Modification 93 schedule was for NIH to authorise
implications of this case on the that increased the price by another acceleration of the work. NIH did not
contracting industry. $2.3 million, revised the completion authorise an acceleration effort, and
date to April 30, 2001, and established when Bell attempted to include
In Bell BCI Company v. United States, 14 substantial completion milestones acceleration costs in its change order
2008 U.S. Claims LEXIS 116 (Fed. for the phased completion, between pricing, NIH struck them out. NIH
Cl. Apr. 21, 2008), the contractor, October 1, 2000 and April 30, 2001 further withheld $100,000 from Bell’s
Bell, entered into a $63.3 million payments “due to inadequate progress”
with daily liquidated damages of $266
contract with the National Institutes and repeatedly asserted its right to
per day if Bell missed any of the 14
of Health (NIH) for the construction assess liquidated damages if the
milestone dates. Modification 93
of a new five-story laboratory milestone completion dates were not
contained the following, and did not
building with a full basement on the
contain any reservation of rights for met.
NIH campus in Bethesda, Maryland.
other claims, such as cumulative
The contract required completion
impact or loss of efficiency. The relationship between the parties
within 821 calendar days after notice
became strained as NIH continued to
to proceed, which was issued on April
The modification agreed to issue changes, demanded compliance
1, 1998, making June 29, 2000, the
herein is a fair and equitable with the milestone completion dates,
required completion date. The
adjustment for the Contractor’s and even reneged on paying for
contract also contained a liquidated
direct and indirect costs. This changes that had been negotiated and
damages clause stipulating $3,721 as
modification provides full accepted. The project was
the amount that NIH could assess to
compensation for the changed substantially complete on February 8,
Bell for each day that Bell failed to
work, including both Contract 2002 (some 589 days after the original
meet the completion date.
costs and Contract time. The contract completion date). Bell
Approximately nine months into the
Contractor hereby releases the submitted to the NIH contracting
construction, NIH decided to add a
Government from any and all officer a certified Request for
new floor to the building to
accommodate the needs and demands liability under the Contract for Equitable Adjustment in the amount
of NIH researchers and scientists. further equitable adjustment of $6.2 million for unpaid balance,
Prior to this time, NIH had made attributable to the Modification. unresolved changes, delays, labour
relatively few changes to the contract, inefficiency costs, profit on the
and the project was 13 days ahead of After Modification 93 was signed, claims, and five subcontractor claims.
schedule. The addition of the new NIH issued 113 additional Bell’s claims were denied by the
floor resulted in numerous changes, modifications that incorporated over contracting officer, who also asserted
and the project was eventually 200 extra work orders, many of which NIH claims against Bell for
delayed by 19 months. The direct emanated from NIH’s scientific liquidated damages, re-testing and
impact of the added floor resulted in community, and the court noted that estimated costs to remedy defective
separate change orders for the steel “the NIH project team had no ability to work. Bell filed a complaint in the
and concrete work ($1.6 million and stop the NIH scientists from making United States Court of Federal
30 days time extension), changes to changes.” In these modifications, NIH Claims.
the partial infrastructure or ‘shell’ compensated Bell only for the direct
design of the floor ($6.9 million and costs and Bell was directed to perform One of Bell’s claims was for the
30 days time extension) and the final the additional work without cumulative impact of the NIH
design of the new floor ($1.8 million extending or impacting the project changes. The original contract price
and 30 days time extension), making schedule or milestone dates. None of was $63.6 million, and there were
TRETTDigest 10

$21.4 million in change orders, measure’ in the expert’s approach to While the cumulative impact
increasing the contract price by 34 the evaluation of the reasonableness decision of recovery may have limited
percent. The court noted that of Bell’s estimated productivity. application outside of U.S. federal
changes of this magnitude were Further, the expert testified that the contract jurisdictions, it may be a
unusual for building construction majority of ‘unearned’ labour hours potential basis of recovery for
or ‘inefficiency’ occurred after
projects. The court further noted that contractors who have experienced the
there were approximately 700 extra Modification 93 was executed, and impact of multiple changes, additions
that approximately 25 percent of
work orders that affected every floor and extras without receiving any
on the project, and that NIH’s Bell’s total labour hours expended on compensation for the impacts. For
internal documentation reflected the project were due to the labor example, none of the 206 contract
productivity loss caused by NIH
serious concerns regarding the extent modifications issued on the NIH
changes. The expert determined that
of changes after Modification 93. The project included any payment or
modifications did not specifically 80,317 hours were lost due to the other consideration to the contractor
compensate Bell for the cumulative impact of NIH changes, and for disruption, cumulative impact, or
impact of the NIH changes and calculated the total productivity loss labour inefficiency. Similarly, none of
revisions, nor did the terms of the from these NIH changes by the modifications contained any
modifications expressly release NIH multiplying these hours by the fully- language explicitly waiving or
for liability for cumulative impact burdened average labor rate of $33.50 releasing such a claim. The Bell BCI
and labour to arrive at court’s decision that prior releases
productivity claims. $2,690,649 in did not waive a subsequent
“if the employer damages to Bell. cumulative impact claim was based
At trial, Bell denies the The court was on the facts – a careful presentation of
presented both fact satisfied that Bell’s the details of the parties commercial
evidence concerning additional time or expert had properly relations; how the parties
its productivity money to perform quantified the administered changes; when EWOs
records and expert changed work, cumulative impact and modifications were prepared;
testimony to prove of the NIH changes what the parties communicated about
its claim for
but nevertheless by using Bell’s the changes; and what contract work
cumulative impact continues the flow h i s t o r i c a l or earlier change each EWO and
and lost labour of change orders productivity data modification had affected. These facts
productivity. In its and project records convinced the Bell BCI court that
project record-
to the contractor, for measuring earlier releases had not waived the
keeping practices, a chaotic project earned and later impact claim. While language
Bell tracked may result” unearned labour sporadically appeared in some
productivity by hours. modifications purporting to reserve
requiring its rights, the court said that no meeting
foremen to record each week the The court sustained Bell’s claim of of the minds between the parties ever
number of units of work installed, $2,058,456 for the loss of efficiency occurred. For example, the court
allowing Bell’s management to resulting from the cumulative impact noted that many of the events
compare the actual time to install of NIH’s changes because of the relevant to the cumulative impact
units of work against its estimates. ‘major, wholesale changes,’ the many claim did not even arise until after
Where more time was spent installing renovations prior to move-in, and the the parties signed Modification 093.
units than estimated, Bell deemed the failure to grant any time extensions According to the court, prudent
time to be unproductive. Bell’s expert for the changes. The combination of contracting parties would be specific
witness analysed Bell’s productivity these factors created a classic in describing the exact scope of any
level based upon the weekly records environment for what has become release or reservation of rights. Thus,
of units installed for each cost code, known as the ‘cumulative impact’ contracting parties should
and determined the productivity level upon labor inefficiency. Multiple specifically deal with time and cost
by comparing the actual labour change orders on a construction impacts, fully addressing these
expended to perform units of work. project potentially can be matters by the specific terms in the
The expert testified that although accommodated if the employer formal variation documents.
Bell was adversely affected by the acknowledges that additional time
addition of the new floor, Bell and money will be required, and if
performed this extra work at or near the parties carefully plan the
the same productivity rates originally sequencing of the changed work.
planned for the project. The expert However, if the employer as here
testified that Bell’s estimated denies the additional time or money
productivity was reasonable and even to perform changed work, but
added four percent to the baseline nevertheless continues the flow of Barry Bramble is the new Regional
hours in his calculations, which the change orders to the contractor, a Director at Trett Consulting’s
court noted added a ‘conservative chaotic project may result. Houston Office.
11 TRETTDigest

THE CONSTRUCTION
PROGRAMME UNDER
THE NEC CONTRACT
Originally drafted for the UK, but that ‘best practice’ is now mandatory. n Planned Completion. This may
increasingly recognised worldwide, be earlier than the Completion
the NEC 3 form of contract is set up The Programme sets the dates for Date. The contract usefully
in a way which is, on first application, access to and use of the site. It affects apportions ownership of any float
alien to the traditional construction amounts due for payment if no between planned completion and
establishment. Instead of the usual programme is submitted by the the Completion Date, to the
list of clauses and sub-(sub)-clauses Contractor. It is also used to Contractor.
setting out what each party should determine the Contractor’s
and should not do, the NEC sets out entitlement to, and assessment of, n Order and timing of work of the
to act as a tool for managing the certain compensation events. Employer or Others, and dates
construction process itself. S t e v e when the Contractor plans to
Davis argues that it is a contract The Programme may be the complete any preceding work.
which is supposed to be read – Contractor’s tender programme, if
understood – and followed – by the this is incorporated into the contract n Provisions for float, which does
people who do the building. data. Employers beware, however, as not mean the foundation can be
there are risks in this approach, shown floating out towards the
The NEC contract encourages the because the Contractor may be able to projects’s Completion Date!
parties to think ahead and anticipate claim reimbursement for required
problems, and most importantly, find changes to the programme – see, for n Provision for time risk
solutions before the problems example, Yorkshire Water Authority v allowances, being the duration
happen. There is no final account Sir Alfred McAlpine Ltd 32 BLR 114 allowed by the Contractor against
and no opportunity to wait until the (1985). Contractors also beware; if each activity, to allow for the risks
end to wrap everything up. the programme results in a inherent in the work.
compensation event to resolve
One of the primary tools to manage ambiguity or inconsistency, Clause n Health & safety requirements.
any construction process, and of 63.8 will require the event to be
paramount importance to the NEC, is assessed on the interpretation most n Any procedures specifically set
the construction programme. The favourable to the Employer. out in the contract.
contract requires the Contractor to
produce and maintain, and the The list of information to be shown n Dates for acceptances, plant and
Project Manager to accept, a on the Programme is stated at Clause materials and other things to be
programme for the works (‘the 31.2, and includes the starting date, provided by the Employer, and
Accepted Programme’). But the access dates and the Completion information from others.
Accepted Programme is not simply a Date, all defined in the contract data.
bar chart filling the gap between Also required is the order and timing n A statement of how the
‘starting date’ and ‘completion date’. of operations. Contractor intends to carry out
each operation, including
The NEC is quite explicit in what it Beyond this, a series of defined planned equipment and
expects to be shown on the information is also required: resources. In other words, a
programme. In the writer’s view this method statement. Using this as
is where the wheels start to fall off on n Key Dates. These are not a baseline, compensation events
many projects, as the contract sectional completion dates, but are more easily valued.
contains extensive provisions which dates by which the whole or parts
go far beyond the requirements of of the works must achieve a n Any other matters which the
more traditional forms. Whilst these defined condition or state of ‘Works Information’ requires the
might be seen as ‘best practice’ in any completion. Contractor to show on the
event, the latest NEC difference is programme.
TRETTDigest 12

Some commentators suggest that this the status of the work. Contractor has an 8 week window of
is no more than what a competent ‘becoming aware’ to notify certain
Contractor would put on his However, there are pitfalls to avoid in compensation events, he should take
programme in any event. In an ideal the process. The sheer volume of note of the potential effects.For
world, perhaps this is true, but how compensation events can be example, the case City Inn Ltd v
often does it happen? Also we should overwhelming, and there may be a Shepherd Construction Ltd, Court of
be aware that, in the absence of a failure to implement the process at Session 17 July 2001, confirmed that
programme identified in the contract all. condition precedent clauses might be
data, a quarter of amounts due under enforced despite a course of action
interim payments is withheld until It is not uncommon to find that the suggesting a waiver of contractual
the first programme is submitted for Employer’s PM or his equivalent has obligations. Clause 12.3 of NEC 3
acceptance. not approved or accepted the most likely closes this argument
Contractor’s programme; often just against the Contractor in any event.
Hence, under NEC, the programme is saying nothing at all. This So if the NEC is the contract, apply
prepared, submitted, becomes the undermines the intent of the NEC, its provisions properly.
Accepted Programme. The which allows the PM specified
Contractor’s planner can go back to reasons for refusing to accept the Under NEC the programme is in
the office and visit once a month to programme. These are: place for the benefit of the project
make sure all is going to plan? Well, members, and should be viewed as a
not really. Once the programme is n That the plans it shows are not tool for the project as a whole – not
submitted and accepted, the practical. just the person using the computer.
Contractor’s work does not stop Note however, that the NEC
there. The programme has to be n Information required by the procedures take time and resources;
updated, normally monthly. On each contract is not shown. also, given the added complexity
revised programme, according to which the NEC brings to the
Clause 32, the Contractor must show: n The Contractor’s plans are not construction programming process,
realistically represented. experienced and able resources are
n Actual progress achieved on each needed. NEC is a high maintenance
operation and its effect on the n It does not comply with the contract, requiring the commitment
timing of the remaining work. Works Information. of both Employer and Contractor and
their teams.
n Effects of implemented Unfortunately for the Contractor,
compensation events, and of these reasons can have a wide In summary under the NEC form of
notified early warning matters interpretation. Both parties should contract, the programme plays a
(the latter requirement has been appreciate the benefits of co- significant and defined role in the
omitted by the June 2006 operating on programming matters. management of the works, setting out
the work to be carried out,
amendment to NEC 3).
requirements to undertake that work,
Late response to the programme by
n
and the periods and dates in which to
The Contractor’s proposals to the PM is a compensation event in
achieve it. Where the programme is
deal with delays and to correct itself, entitling the Contractor to
timeously and accurately updated the
notified Defects. payment for any cost incurred. The
effects of delaying events, both in
Contractors must keep the
n
terms of time and money, should be
Any other changes the Contractor programme updated for progress.
dealt with as they arise. The
proposes to make to the Accepted This is an action often insufficiently
Employer will have the optimum
Programme. presented, with no indication of
opportunity to minimise the effects of
detailed percentage figures for each
delays to his project whilst
When the revised programme is activity. Also, when the programme is
maintaining cost certainty, and the
submitted and accepted, it supersedes revised, there can be difficulties in
Contractor will have a tool by which
any previous revisions of the relating between programmes
to manage his entire construction
programme. because their structure is changed.
process.
The benefits of this are clear. If all of In practice, many NEC contracts are
this information is shown on the administered as though they were
revised programme, delay is dealt governed by a traditional JCT form.
with as it arises, the parties know The work is carried out, a deal is done
precisely where the job stands, can at the end of the day, and all
contemporaneously address and concerned move on to the next job.
mitigate delays where possible, and But what if there’s no deal?
the programme remains a valid tool Arguments about failure to follow Steve Davis is based at Trett
for measuring progress, delays and procedures might arise and, as the Consulting’s Coventry office
13 TRETTDigest

PROJECT MANAGEMENT IN
CHINA
A s h l e y H o w l e t t considers well as contract management. In n Assisting the owner in
November 2004, the MOC issued the negotiating and executing
changes to the laws relating
Provisional Measures on appropriate contracts with the
to Project Management in the Construction Projects Management construction contractor as well as
People’s Republic of China. (“the Provisional Measures”) aimed at suppliers of building materials,
improving the standard of equipment, structures, and
It is fair to say that project construction in China by placing fittings, as well as assisting with
management services in China are more emphasis on project the supervision of their
very much in their infancy and on the management as a means of procuring implementation;
whole tend to be undertaken by successful construction project
foreign enterprises rather than delivery. n Assisting the owner in managing
domestic Chinese enterprises. The the construction process
Chinese construction industry THE INTENT AND SCOPE OF including budgeting, schedule,
remains organised in the traditional THE PROVISIONAL MEASURES and claims management;
manner, with the design institutes on
one side and contractors on the other. The Provisional Measures are n Assisting the owner with post
As such, procurement systems such intended to apply to all construction construction management.
as design-build and turnkey EPC are project management activities
rarely seen or used. conducted in association with The Provisional Measures apply to all
construction works in China. project management services
In light of these prevailing Construction project management is provided on construction projects in
circumstances, the Ministry of very widely defined as “professional China, regardless of whether those
Construction (MOC) has been management and service activities carried services are provided by foreign or
encouraging Chinese construction out by enterprises engaged in project domestic enterprises.
enterprises to adopt the project management at the authorisation and
management model for a number of entrustment of the project owner, QUALIFICATION
years. In 2003, the MOC issued a throughout the works or during an REQUIREMENTS
guidance opinion on fostering the individual stage.” Article 6 of the
development of general contracting Provisional Measures itemises project Prior to the issue of the Provisional
and project management. This management as: Measures, project management
opinion stressed that in order to assist services providers were not required
Chinese construction enterprises to n Assisting the owner in to hold a formal Chinese qualification
“go out,” it was necessary to adopt the preparatory planning, economic certificate.
international practice of project analysis, ad-hoc evaluations and
management in China. To this end, determination of investment; in However, the Provisional Measures
Chinese construction enterprises order words, assisting the owner require project management
were encouraged to establish project with feasibility studies; enterprises to have qualifications in
management organisations and one or several of the following fields:
systems. n Assisting the owner in acquiring surveying, design, construction,
land and obtaining planning supervision, cost advice, or tendering
As part of this process, the MOC in permits; agency. This means that all
August 2004 issued a Code of enterprises undertaking project
Management of General Project n Assisting the owner in organising management must hold one or more
Contracting for Construction and managing the design process; of these qualification certificates.
Projects. This Code is essentially a
National Standard and prescribes n Assisting the owner in procuring INDEPENDENCE OF THE
standards for, amongst other things, appropriate construction, PROJECT MANAGER
construction management, schedule equipment supply, and
management, cost management, supervision services; One of the significant initiatives
quality and safety management as introduced by the Provisional
TRETTDigest 14

Measures is the concept of ACCOUNTABILITY OF THE manager, by bringing to the project


independence. The Provisional PROJECT MANAGER his particular expertise to ensure that
Measures dictate that project the project comes in on time and
management enterprises cannot own Another area where the Provisional budget, allows the owner to reduce
or be associated with any of the Measures promote international the risk of cost overruns and project
construction companies on the practice is accountability. On every completion delays.
projects that they are managing. The project, it is vital that the project
reason behind this requirement is owner has confidence and trust in the Ashley Howlett is a Partner in the
made clear by the activities that are entity managing the project – in firm of Jones Day and based at their
expressly prohibited in the many cases, the project manager acts Beijing office.
Provisional Measures, such as as the owner’s representative and, Tel: +86 10 5866 1113,
accepting bribes or asking for therefore, has a high degree of email : ahowlett@jonesday.com.
kickbacks or other favours, or responsibility. For this reason, it is
conspiring with the contractor to use common for named individuals to be
substandard construction materials. appointed for the duration of a
project who can only be removed
While there are very good reasons with the owner’s consent. In this TRETT CONSULTING
why, in the China context, it is regard, the Provisional Measures
beneficial to have the project promote accountability by not CELEBRATE ITS 10TH
manager independent from the permitting project management ANNIVERSARY IN
contractor, internationally it is not companies to subcontract their ASIA-PACIFIC
uncommon for the project manager to management business or allow other
be connected with the contractor, and companies to undertake project Trett Consulting celebrates
in some cases (for example, in the management in their name.
the 10th anniversary of its
United States) the project manager
acts as the contractor. Of course, INCENTIVES FOR THE Asia-Pacific operations. We
when the project manager also acts as PROJECT MANAGER would like to thank our
the contractor, there is an inherent clients, staff and fellow
conflict between the interests of the The Provisional Measures allow professional colleagues for
owner and the interests of the project project owners to reward the project their continued support and
manager. For example, when the management enterprise by granting
look forward to working
project manager acts as the owner’s them a certain percentage of any cost
representative, its only concern is the savings that result from
together in the future,
protection of the owner, whereas recommendations proposed or developing and expanding
when the project manager also acts as implemented by the project our operations and building
contractor, there is a split of loyalty. management enterprise. The parties upon our existing
Nonetheless, it is possible to are free to agree to the percentage in relationships with our valued
incorporate checks and balances in their project management contract. clients.
the project management agreement to
address and mitigate this issue. SUMMARY

Accordingly, the blanket prohibition Effective project management is a key Trett Consulting have offices in New
is not entirely appropriate and will no component in successful construction Dehli, Kuala Lumpur, Singapore,
doubt deter many large foreign project implementation. In the Hong Kong, Kobe, Brisbane and
project managers or contractors who context of a construction project, Perth and work extensively
commonly act as integrated total where the owner is not experienced in throughout the Asia-Pacific region.
construction solutions providers. the administration and organisation
Such organisations provide of building or engineering projects, it
engineering, procurement, is important to engage a construction
construction management, and professional with the necessary
general contracting services often on qualifications who is able to make
a turnkey basis and as such deliver decisions for the owner in relation to
potentially significant cost savings to carrying out the project.
their owner clients. It is often the
potential cost savings that convince An effective project manager will
owners to put less emphasis on the assist the owner in deliberating and
issue of split loyalty. decision making in connection with
the project. An experienced project
15 TRETTDigest

THE IMPACT OF ELECTRONIC


COMMUNICATIONS IN
DISPUTE MANAGEMENT
I a n P e a s e reviews how new can commence into the facts of the lawyer will apply the suitable law and
case and secondly, because there will procedurein advising the client.
technology and the impetus probably be the need to give
from the Courts is changing disclosure of some of them when INFORMATION OVERLOAD
the way cases are ordered to do so by the Court or
investigated by lawyers. arbitrator. Note that in adjudication Sorting and deciding what is relevant,
there is not the same disclosure is the next step.
What are “e-documents” (sometimes obligation, however, there is still the
called Electronically Stored need to find the key documents so COSTS
Information or ESI)? Look around that they can be deployed to further
any modern office and you will see an the client’s case. This need to take Why are disputes so costly to settle
absence of filing cabinets, replaced the documents into safe-keeping is and what can we do about it? This is
(usually in the basement) with servers known as ‘legal hold’. a key question in the UK Civil Justice
running the firm’s network. Very Review of costs being undertaken by
little gets printed (for cost as well as The most convenient way in which Lord Justice Jackson. A lot of the
green reasons) but there is still legal hold can take place for e- costs revolve around properly
constant communication both within documents is to take a forensic copy considering documents and
and outwith the organisation, with of the relevant sources to prevent the disclosure. As I think we’ve est-
most of the crucial exchanges taking normal processes of destruction, ablished there is assort of “Moore’s
place via e-mail. archival and change taking place in Law” operating here, it’s not just the
relation to that data set. The clients facility with which we e-mail one
A QUESTIONING MIND can then continue to use their ‘live’ another (copying in multiple parties),
systems without disruption. I say it’s also the other copies that we (and
Enter the lawyer. Whereas his first forensic because great care is needed our IT departments) habitually make.
port of call used to be to the hard copy in handling e-documents, they are This article may have various
project files and the filing cabinet of very easily changed and their versions and back-up copies before
the project manager, now his associated ‘metadata’ corrupted. This it’s completed. Each such document,
questions will be somewhat different. data can often be of great use in if litigation was to eventuate, may
Who were the individuals involved in determining who drafted, received or have to be considered for disclosure.
the project (both from our side and modified particular documents.
for other parties)? In the ‘new speak’ LITIGATION
that permeates our lives now, these SEARCHING TIMES
individuals are called key custodians. Litigation used to be seen as
What computing resources do they Once that pool of documents is adversarial and overall it still is, but
use and have access to? This will gathered it will be obvious that, in all there are parts of the process that the
include all devices that could save e- probability, the set is far too large to Courts are increasingly stressing
documents including not only servers be gone through individually. In any should be cooperative; a recent case1
and laptops but also mobile phones case, the documents will need to be highlights that this has not got
and other portable devices. sorted, reviewed and organised and through to all in the legal profession.
that can best be done by using a The judge in that case made the
IT’S A PROTECTION RACKET specialist database. following point:

Once the lawyer has got a clear view A WINNING HAND? 47. This case provides an opportunity
of the extent of the sources he has for the Court to emphasise something
(assuming there is a potential The client may have felt that he was mentioned in Part 31 Practice
dispute), to take them into protective ‘holding all the cards’, but is this what Direction [dealing with disclosure of
custody for two reasons. Firstly, so the documents reveal? Dependent documents] which the parties in the
that a proper, thorough, investigation upon what this process throws up, the present case disregarded. Paragraph
TRETTDigest 16

2A.2 of the Practice Direction states


that the parties should at an early stage ROGER TRETT
in the litigation discuss issues that may
arise regarding searches for electronic On 1 January 2010, 33 years integration of Trett with
documents. Paragraph 2A.5 of the PD after first establishing Trett Grontmij, Roger now intends to
states that where key word searches are Consulting, Roger Trett handed focus on his professional
used they should be agreed as far as
over the executive management activities, actively working with
possible between the parties. Neither
of the business. He becomes a clients and their legal advisors
side paid attention to this advice. In
Consultant to the company from to promote the earliest
this application the focus is upon the
1 May 2010. resolution of the most
steps taken by the Defendants. They
challenging commercial
did not discuss the issues that might
From a small office in Great problems.
arise regarding searches for electronic
Yarmouth, one of the most
documents and they used key word
easterly towns in England, Roger leaves behind a strong
searches which they had not agreed in
advance or attempted to agree in Roger has seen the business he management team led by Tony
advance with the Claimants. started flourish from its humble Farrow, Group Managing
beginnings to the global Director. Tony has a long career
The Judge went on to conclude that organisation of today, with Trett Consulting, having
the Defendant’s solicitors had not employing 150 professionals in joined the firm 21 years ago.
carried out a reasonable search in the 15 offices situated across 9
first instance and that the parties’ countries. Roger comments that:
solicitors should meet to discuss how
restoration of the Defendant’s back- Not only has Roger steered the “It has been an enormous
up tapes could best be done and business through its privilege to have led a group of
“Following such a meeting, the considerable growth, but he has talented and committed
Defendants should embark so far as become a distinguished leader colleagues over such a period. I
reasonably practicable upon restoration of of dispute resolution in the see the forthcoming years as a
the back-up tapes”. Additionally, construction and engineering very exciting time for Trett
further key word searches had to be sectors. He is regularly Consulting. Building upon our
done by the Defendants, at further consulted by owners, operators traditional values and global
costs to the parties. and contractors concerning presence, I am sure the business
their major claims and will identify new business
The lesson from the case is evident. commercial problems and he opportunities and continue to
The Court will not look kindly upon acts as an expert in the areas of grow. However, our main focus
parties that take unilateral actions quantum and delay analysis. He has always been, and I am sure
when it comes to e-disclosure. In is widely regarded for always will continue to be, to provide
future an “e-Disclosure Technology offering no-nonsense advice. our clients with the highest
Questionnaire” will have to be filled in possible standards of excellence
and discussed at the first case For over two decades, Roger has in delivering our services and to
management conference in UK held senior positions in the provide our employees with
litigation. Academy of Experts, having challenging and rewarding
been its Chairman for 6 years. careers. I wish clients,
SUMMARY The Academy is one of the colleagues and fellow
leading international professionals the very best
There can be no doubt that many of
organisations promoting the wishes for the future and thank
the problems faced in terms of
very best of standards and them for their support over the
comprehending the overall merits of
practices for experts opining in years.”
a clients’ case are added to by the
litigation, arbitration and other
‘tyranny’ of the email (and other
forms of dispute resolution. All at Trett Consulting thank
electronic documents). However, also
Roger for providing the
provides solutions and benefits.
Ian Pease is a solicitor specialising In 2008, Roger led the company leadership which has allowed
in construction & engineering to merge with the European each of us to develop our careers
disputes (email: ian@pease- Engineering Consultancy, and potential. We also
family.net) Grontmij, whose 8,000 acknowledge that Roger has
professionals provide multi- been at the helm for longer than
disciplinary services in the Sir Alex Ferguson at
1Digicel
water, energy, transport and Manchester United, a fact that
(St Lucia) Ltd and other companies v
environmental sectors. Having he can be rightly proud of!
Cable and Wireless plc and other companies
overseen the successful
[2008] EWHC 2522 (Ch).§
17 TRETTDigest

JAPANESE ARBITRATION REFORMS


For many years, arbitration applies to international or fails to appear at a hearing without
has been one of the most commercial arbitration. good cause, the tribunal can proceed
preferred forums for dispute regardless (Rules 32 and 35 JCAA
n The New Law has included Rules). Furthermore, documents are
resolution internationally and
provisions to recognise that to be submitted to the tribunal
every country has it owns
arbitrators can have a role as directly rather than through the
rules and procedures. In this mediators in amicable JCAA and they can be submitted via
article, Peter Godwin settlements (Article 38(4) electromagnetic record or facsimile if
highlights the improvements Japanese Arbitration Law 2003). the tribunal agrees. Further, in place
in Japanese arbitration over of numerous short hearings spaced a
the last five years, resulting in n The New Law has included few weeks apart, are single longer
diminished criticism of the provisions which give special evidentiary hearings of the type
Japanese arbitration system. treatment to consumers and familiar to arbitrators and arbitration
individuals that are involved in counsel in all the major arbitration
arbitration agreements. centres.
THE NEED FOR CHANGE
Any gaps in the New Law’s content, Selection of Arbitrators
One of the most frequently rehearsed such as the fact that it is silent on key
complaints against arbitration in issues like confidentiality and In the past, the selection of
Japan was that the law relating to it arbitrator’s immunity, have been arbitrators was hugely restrictive.
was inadequate and out-of-date. addressed in the new commercial There was a general bias in favour of
There was no stand-alone arbitration arbitration rules of the JCAA, which a single arbitrator, and any attempt to
code and arbitration was given only were updated at the same time as the avoid this needed early action from
limited attention in articles 786 to enactment of the New Law to bring one of the parties. Furthermore,
805 of the old Code of Civil them into line with the law, the arbitrators had to be resident in Japan
Procedure of 1890. The Japanese UNCITRAL arbitration rules and on appointment and only a small
Arbitration Law (Law No. 138 of also with the other leading number were registered with the
2003) which came into force on 1 international commercial dispute JCAA, so the choice of arbitrator was
March 2004 (the ‘New Law’) was resolution organisations. Parties can limited.
based on the 1985 UNCITRAL choose to adopt the rules or adopt
Model Law on International them with modifications, although In line with international norms, the
Commercial Arbitration (the ‘Model most parties tend to adopt the rules in New Law:
Law’), providing instant familiarity full.
and certainty to users. n Gives the parties the freedom to
KEY REFORMS determine the number of
The New Law sought to follow the arbitrators, and then implements
general UNCITRAL objectives but it A number of key reforms were made default provision for occasions
recognised a need to depart from in 2004 to address some of the when the parties fail to do so;
some of the standard provisions. A repeated criticisms of the Japanese
number of the modifications are arbitration system. n Does not require any specific
specific to Japanese requirements yet qualifications for arbitrators, so
none of them should undermine the Hearing procedures there is complete freedom to
New Law in the eyes of experienced appoint the arbitrators most
international arbitrators and Arbitration proceedings in Japan suitable for the case;
arbitration counsel:: often used to be criticised for being
extremely lengthy and slow; one of n Puts no restrictions on
n The New Law applies to both the main focuses of the reforms of nationality or residence of
international and domestic 2004 was to improve the efficiency of arbitrators; leaving parties to
arbitration, and to both the system. In the New Rules, the choose from the widest possible
commercial and non-commercial JCAA gave the arbitral tribunal the pool
civil arbitration – as long as the power to speed up the proceedings
place of arbitration is in Japan. In and prevent unnecessary delay. If one Finally, where the JCAA is called
contrast, the Model Law only of the parties fails to submit evidence upon to make an appointment, it has
TRETTDigest 18

– FIVE YEARS ON SEMINARS BEING


RUN BY TRETT
recognised the need to may conduct arbitration in Japan in
internationalise its panel of return for the payment of fees. AUSTRALIA IN
arbitrators and this process is Furthermore, foreign lawyers may
proceeding apace at the time of represent clients in an international 2010
writing. arbitration case when they are
appointed outside of Japan. The Australian Government has
Any criticisms about the lack of allowed different States and
impartiality of arbitrators are dealt CONCLUSION Territories to enact what now
with by a number of provisions in the amounts to eight different forms
New Law and New Rules, which Japan has addressed many of the of security-for-payment
require impartiality and criticisms which for many years were legislation to be enacted in one
independence from arbitrators, as made about its arbitration system. country.
well as full disclosure of any interest More could be done, especially in
they may have in the proceedings. keeping up-to-date with any changes For organisations operating
There are also grounds to challenge that are made by UNCITRAL to its across all the States and
an arbitrator if there is a justifiable Model Law and Rules. Territories of Australia, the
doubt as to his or her impartiality and situation is one of complexity
there are criminal penalties for However, for now the New Law and and increased risk.
corruption of an New Rules together Consequently, Trett Australia is
arbitrator, such as allow for a very running a series of ‘Adjudication
“There are
bribery. (Articles 50 flexible and Awareness’ seminars specifically
through to 55 grounds to progressive designed to help firms become
J a p a n e s e challenge an arbitration system aware of the pitfalls inherent in
Arbitration Law in Japan. They have the rules and procedures.
2003)
arbitrator if there created much
is a justifiable greater autonomy Other seminars being run in
Language 2010 include ‘Managing
doubt as to his or for parties involved, Change in Construction
and while they set
The New Law her impartiality” out a default Contracts’, ‘Methods of
provides that parties standard for Analysing Extensions of Time’
are now free to agree on the language arbitration practice, they also allow and ‘How to Prepare and
or languages to be used in the arbitral parties to vary any of the provisions Defend Delay Claims’.
proceedings, or in the absence of such that they find unacceptable to their
an agreement, for this to be circumstances. Japan has established For further information, contact
determined by the arbitral tribunal. a framework suitable for use in both our National Director at
In practice, more and more JCAA domestic and international david.court@trett.com
arbitrations are now being conducted arbitration.
in English.
In short, there is no longer any reason
Representation (legal or procedural) why an
international commercial arbitration
One of the most enduring issues in conducted in Japan should not look
Japanese arbitration has been the lack identical to one conducted in any of
of clarity as to who may represent a the major arbitration centres. The
party in arbitration proceedings. For challenge still remains to encourage
some time, the JCCA and Japanese its use.
Bar interpreted the Lawyers’ Law
(Bengoshi Ho) (Law No. 205, 1949) as
prohibiting all foreign lawyers from
acting as arbitration counsel of Peter Godwin is head of the Tokyo
record. However, it has since been Disputes Practice at Herbert Smith
acknowledged that a foreign lawyer (tel: +81 3 5412 5444, email
registered as a gaikokuho jimu bengoshi peter.godwin@herbertsmith.com)
Trett Consulting Offices…
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