Posted: 16th July
How do we avoid contractual conflict and secure the best commercial outcomes?
This is one of the most frequently asked questions that our clients across the UK have been asking us in recent weeks.
RLF Partner, Chris McLagan discusses the issues and the guiding principles.
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On 7th May, the UK Government and the Construction Leadership Council published guidance on responsible contractual behavior in the performance and enforcement of contracts impacted by the Covid-19 emergency and we anticipate that many clients and Contractors will act responsibly and fairly and adhere to these guidelines.
However, there is a real risk that some parties may not. Currently, most risk is very much sitting with Contractors, who will potentially be facing increasing margin and cashflow pressure because of the pandemic.
Poor existing relationships, competing stakeholder interests or individual financial pressures will compound the problem and could potentially result in Contractors taking desperate measures, which may ultimately result in more disputes and litigation.
Securing the best commercial outcomes
We appreciate you want to avoid contractual claims wherever possible and you will be looking to minimise your exposure to programme delay and increased costs, which are so often a consequence of lengthy disputes.
No two projects are the same, but as a guiding principle for securing the best commercial outcomes, we recommend that you get on the front foot early, anticipate the risks and the key financial drivers, collaborate with the Contractor and re-set the contract if necessary. Waiting for events to naturally unfold will likely result in greater risk to both you and the Contractor.
When appropriate, involve experts like us to help you navigate through the choppy waters ahead. We will work with all relevant parties to formulate commercial strategies that will target timely and fair resolution of any existing or new commercial matters, but also consider the constantly changing Covid-19 landscape.
Fit for the future
We expect risk management processes to feature more heavily in the pre-development stages of projects over the coming months, providing clients, developers, and funders with more assurance when making their investment decisions during these uncertain times. In the current climate, a risk management process is likely to offer much greater financial protection than arbitrarily setting aside general contingency allowances to cover for the unexpected.
It is best to consider all the specific risks that could conceivably occur (in relation to timing, price, damages, changes to statutory requirements, termination and suspension) and seek to negotiate amendments and outcomes that will mitigate as many of the risks as possible.