Out-Law / Your Daily Need-To-Know

Innovation in construction dispute resolution

Out-Law Analysis | 11 Feb 2022 | 10:19 am | 8 min. read

Innovative tools such as professional legal project management, e-data expertise and third party funding are improving the construction dispute resolution process.

So far in this series of articles, we have seen that global construction disputes are increasing in frequency and scale. We’ve reviewed how to pave the way for effective dispute resolution at bid stage, by contract administration and in the dispute resolution process itself, and also considered how dispute boards can reduce the resolution time for disputes in various jurisdictions.

Efficiency and innovation in dispute resolution can help to make the business less apprehensive about major claims: providing early clarity and certainty around the prospects, the cost and the risks; a proportionate investment/reward ratio; and a predictable, well-managed process.

The techniques in this article can be effective tools to protect the business; enable it to maximise its outcome in relation to risks, claims and disputes; and encourage conversion of what might otherwise be an unfamiliar process to one that is more predictable, comprehensible and certain – allowing informed boardroom decisions as with any other matter with which the business has to deal.

Legal project management

Good project management is vital to the successful delivery of any large infrastructure project. The same approach pays dividends in dispute resolution.

On major disputes, our experience is that professional legal project management is a powerful evolution of the sort of project management that has always featured in dispute resolution. A professional, experienced and expert legal project manager can play a valuable role in making scoping and estimating work more consistent and methodical; and in controlling and managing the dispute resolution process. The goal is for the whole team to become more efficient, and to improve control by the business and risk management. Better overall outcomes should follow.

Lawyers are one discipline from which such project managers may be recruited. However, the vital expertise is not legal, it is in professional project management. Indeed, the diversity of thought brought by a project management professional who is not a lawyer often brings benefits.

Practically, devoting project management resource to tracking actions and cost frees up other experts – whether technical or legal – to focus on their primary roles, and to reduce time spent on matters in which they may not be the most effective or efficient resource. It also aids consistency of reporting and communications overall.

The legal project manager will be objective, commenting on progress against the plan with less close personal investment than those delivering its substance. A balanced view can also be taken against all of the work required and not only what is ‘most urgent’ at any particular time.

The legal project manager will support the team, working hand-in-hand with the lead lawyers and business decision-makers. The team will put in place a plan with a secure shared grasp of the overall objective, and the strategy and tactics needed to achieve it. That enables a thoughtful and well-managed project plan to be developed, managed by an experienced legal project manager. It pre-empts the danger that those naturally pre-occupied with delivery might invest less time in planning.

No dispute is resolved in a vacuum. It is important that the dispute resolution plan is one that is in sync with the overall business plan – as far as that is possible.

Bradley Anthony

Anthony Bradley

Partner

A professional, experienced and expert legal project manager can play a valuable role in making scoping and estimating work more consistent and methodical; and in controlling and managing the dispute resolution process

Dispute resolution can be resource-hungry: both the third-party cost of legal and technical advice and support; and also the opportunity cost of tying up business resources and personnel in a potentially long-running process. So the resource plan, driven by the project plan, will identify the resources necessary for each phase (and each discipline), identifying the relevant procedural and other strategic milestones, hold-points and required decisions.

The project plan must be flexible given that the business will not have complete control over the dispute process. The skill is in identifying, at an early stage, where that flex might be necessary, building that into the plan and ensuring it is well understood.

The plan should be tested, to identify the likely perspective of the opponent(s) and any tribunal; and to build in sub-strategies and contingencies. It should also be reviewed and updated periodically, to enable decision-makers to gauge how well the reality matches the plan, and to make changes in response.  Having the plan means that there is a baseline against which to review and understand how matters unfold: whether large, small or just questions of timing.

In our experience, a knowledgeable and expert professional legal project manager, armed with a well-developed and managed project plan, can build confidence, enable more informed decisions to be taken, improve outcomes and help save overall cost.

E-data expertise

Skilful dispute resolution involves understanding the merits of the dispute from an early stage, knowing the sensitivities and engineering a strategy around them.

The exponential increase in the volume of electronic data has made it more difficult to find the evidence on which the merits analysis turns. Self-help is a good starting point: having robust filing architecture, and insisting that colleagues adhere to it, will position the business well. But even with that system, a good strategy to define your strengths and weaknesses demands a strong approach to harvesting, interrogating, producing and disposing of data.

That is where another breed of professional support has grown up: professional e-data advisers and managers. They bring deep expertise and authority and an understanding of the technology and techniques, married to a grasp of the tribunal procedure.

A case strategy is essential, and the e-data advisers will be an integral part of the dispute resolution team, working closely with the legal project manager. Everyone must understand the objective, the ‘universe’ of available data, the sensitivities to which the analysis is subject, and – in short – how the dispute will be won or lost.

Modern, computer-based e-data techniques enable active learning:  a process where humans review a data set for relevance, simultaneously training software to do likewise. This is sometimes known as computer assisted learning (CAL) or technology assisted review (TAR). The approach is endorsed by many courts and other tribunals around the world as a proportionate, defensible and robust process.

With very experienced e-data advisers, such as those at Pinsent Masons, increasingly sophisticated techniques can be developed, to achieve several objectives:

First: the team gets to the heart of the matter more quickly and sure-footedly. That is so whether it is a small dispute at an early stage, or a major dispute inevitably heading for litigation or arbitration. The business needs to know where it stands, as early as possible. Does the evidence match the case theory?

Second: the scale of the exercise, and its cost, are controlled and reduced – often materially. If the pool of data can be reduced, reliably, to a fraction of its starting point, and if much of the human review time can be replaced with reliable software-orientated techniques, then a material time and cost saving is within reach.

Third: regulatory and procedural requirements are met. Tribunals accept, and in many cases require, computer-driven processes, in the knowledge that it is only in this way that e-data can be reliably interrogated.

Third party funding

Before a business decides whether to pursue a claim, it must first consider the cost involved, and the risks in relation to the outcome. Both factors can feature highly in a complex infrastructure project and dispute.

Conventionally, parties fund their own legal and other costs of disputes. Depending on the jurisdiction, success can drive recovery of a proportion of those costs, but with several qualifications. That recovery is rarely 100% and may be some months, or even years, away. The process between here and there can be an uncomfortable one for the board – unfamiliar with a distressed project or a formal dispute.

All of this can combine to dissuade a claimant from pursuing a claim, settling below-par or, worse still, putting it down to experience and failing to draw down its legitimate entitlement.

One solution lies in third-party funding (TPF). This is not a new concept, but its adoption is increasing as the legal community, both in private practice and in-house, becomes more familiar with it and the positive impact it can have. Its use has now broadened such that it now forms part of the strategic considerations in dispute resolution in many jurisdictions.

TPF is typically only available for claims, rather than defences. The funder will back only a claim gauged to have good prospects of success, although this can sometimes be widened out by taking a ‘portfolio’ approach. Having met that threshold, the funder finances the whole cost of prosecuting the claim through formal dispute resolution as necessary, and on a non-recourse basis. ‘Success’ is a threshold defined by agreement up-front. If the claim should fail, the funder bears the entire costs and, if ordered, those of the opponent. If the claim succeeds, then the funder is paid a pre-agreed proportion of the yield, compensating it for the cost of the dispute process, plus a premium for the funding service (including risk). The premium is recoverable as part of the costs award.

In this way, pursuing a claim is de-risked, with potential adverse costs taken off the balance sheet, liberating the business to continue to invest in its core commercial strategy.

By engaging in TPF, the business is not necessarily committing irreversibly to pursuit of a claim to its conclusion with a tribunal. The funder’s interests are aligned with those of the business: namely, to achieve as early and as high a settlement as possible. Indeed, because claims will only be funded where the prospects are good, disclosure of the arrangement to the opponent at an early stage can – of itself – be a signal of strength and conviction in the merits.

The attractiveness of TPF depends, in part, on a relationship of trust. The funder must trust the view of the legal and technical team giving the opinion on the merits – on which the decision to fund relies. The business must trust the funder – to know that the share distributed to the funder on success is a fair one. Our experience is that our long-term relationships with funders foster thoughtful decision-making by the business.

It is increasingly the case that funders are interested in grouping a number of a company’s disputes into a ‘portfolio’ of claims which a funder may finance in its entirety, enabling the business to pursue and defend several claims. This approach enables funders to get more comfortable funding claims using alternative dispute resolution methods and allows funding of not just the strongest claims in a company’s asset list. In this way, TPF can be part of a wider business strategy rather than tied uniquely to a specific project, lowering the cost and spreading the risk across a whole division or group. Importantly, portfolio funding can potentially create financial provision for cases where the business is a mix of claimant and respondent across the various claims, effectively hedging formal dispute resolution across the board.

TPF is not right for every claim. If the business can afford it, and can stomach the risk, then it might well be better to do so than to agree to forfeit a material proportion of the yield, to assist with cashflow and risk management. It may also be that the particular applicable law and procedural rules do not permit TPF. However, where it is available, it is certainly a technique worth considering, in the context of the wider business strategy in which the value tied up in the claim exists.

Written by Anthony BradleyColin Fraser and Pamela McDonald of Pinsent Masons.