Avoiding The Lawyer's Dark Room
Updated: Feb 12, 2019
Early in most large projects people write and agree the contracts that will shape the later stages of that very project. Too often, people put themselves and the project at risk.
There are countless and complex reasons as to why and how this can happen. But reflecting on our experience, here are five predictable factors to consider in those early and exciting days of the project. Combining critical thinking with the awareness of likely risks will increase the prospect of the project delivering on-time and to specification.
Firstly, what could happen to threaten the basis of the entire project? Key word is "could". These are the factors so important that if we get them wrong it can de-rail everything else that has gone exactly to plan throughout the project - and lead to the Lawyer's Dark Room. We might know the answer - the packing line needs to run at 90 bags per minute for 80% of planned shift hours allowing for all downtime, and changeover three times a day taking no more than 15 minutes a time. We might not know the answer - maybe it is related to legislation that could change in the timescales of the project, such as environmental emissions from chimneys. These factors need to be identified and the risk for delivering against the risk clearly placed with the best owner of that risk. Often, that is with the suppliers of the specialist equipment - but if the risk is within our end of the project (eg. we haven't actually worked out what we want the packing line to deliver) then we need to own the risk (or more likely, work it out before we enter into contract).
Second, we need our partners in the project to be with us at the end of the project. The deal cannot be so good for us that they cease trading before the end of the project. Many big projects can see suppliers go deeply cash-negative depending on progress payments and stages. The contract needs to fairly reward the chosen partners, to keep them working to both the letter and the spirit of the agreement. As well as fair, the payment milestones need to be clear and make logical sense (so you get what you need - not random points that leave you with a useless end system). You need to know how you will sign off the transfer of payments at each stage. It does not have to be pedantic, but it has to be clear and reasonable. Rest assured, issues will arise at some point, and you will want the partners to work with you to resolve them in good faith. If the bargain is driven so hard or there are disagreements on the validity of claims for payment, the partner may feel they have no choice but to start the meter with every query. You may stop challenging where factors are "not quite right" and lose a lot of time to project review meetings.
Third, we should anticipate the interfaces between the multiple contractors and ensure each contract requires a way of working with good faith - to avoid the tragedy of the commons. The payment milestones can help and hinder with this, so take care. Give thought to the inter-dependencies between the contractors, and get the contractors working together as though they are in the same boat and able to help everyone to the payment milestones.
Fourth, exclusions and other conditions. Read the small print. Check it. If the contract is based on your partner's standard terms it will include all the events that have gone wrong in all their years of trading - and they will be looking to pass the risk onto you. It will give you an insight into what your partner thinks could go wrong, but failed to mention when they were selling their proposal to you. Risks in the ground, duties, taxes, changes in legislation or certification standards, running electricity to connection points, materials for factory acceptance testing, materials for site acceptance testing, who takes measurements on site, jurisdiction of the courts in event of dispute, and more besides. If your partner is the best person to own some of the risks make sure the exclusions and conditions reflect that. Make sure standards refer to current standards at time of commissioning - not at time of order! The simple principle is that you want to gain the benefit of the contract - and so you need to be able to operate it.
Finally, here is a recurring factor worth anticipating. Whether construction, fit-out or equipment installation, it is likely that the chosen partner will be under time pressure to get their site team onto the next project somewhere else. Just as you need resolve the teething issues that could prevent smooth start-up you will want the full attention of the people that know and understand the building and equipment better than anyone else. Make sure you design a fail-safe mechanism so you will have the undivided attention of the important people for longer than you think you are going to need them. You will not regret the close attention of good people towards the end of the project.
These five points alone will not guarantee great delivery of the important contracts. But any one of them can have the horsepower to adversely disrupt almost any contract. Get them covered, and the early critical thinking and challenge will serve you well at the end of the project when you are dealing with delivering what matters in short timescales.