Project Mediation – in praise of the independent neutral

When we read in the press of yet another public sector procurement debacle, or that the project has been fraught with difficulties, it rather begs the question – what was the project for and how was the budget set?  All too frequently, it is less that a project cost more or took longer than that the project expectations were ill-defined or poorly understood and the relationship between key parties broke down.

I have long been an advocate for the position that cost overruns and delays in major projects are optional.  The challenge all too often is understanding project uncertainties and setting realistic objectives at the outset, and then managing the procurement process sensibly and proactively.  It is in this respect that the independent neutral, and more particularly the project mediator, has a vital role.

In the traditional procurement model, competing interests are at play.  The procuring agency seeks the best outcome for the lowest price delivered as soon as possible.  The provider, whether a construction contractor, technology or service provider, first wants a successful project and happy customer; and second wants its costs properly covered and to preserve its margin.  In long term projects where project definition, cost, quality and time are not entirely certain, maintaining a productive relationship between the project parties can be problematic.

The independent neutral contributes to successful project outcomes in three ways:

Peer reviewer – lawyers are creatures of their clients’ instructions and this can, all too often, result in an overly aggressive approach to risk transfer and a legalistic approach to contract administration.  The Government’s standard PPP contract is a case in point, where risk is transferred to the contracting party, not because it is a good idea, but because the Government can.

The independent peer reviewer reviews and comments on the procurement model and advises on best for project outcomes, including allocation of risk.  Experience across a number of industries is critical to this role.

Probity Auditor – once the procurement process has commenced, the project team needs to ensure that it not only adheres to its own rules but that it also maintains a robust process that gives potential contracting parties confidence that their bids will be properly considered and that the process will be run fairly.  The probity auditor is less concerned with the fairness of the allocation of risk than with the integrity of the process itself.

Project Mediator – following award, successful projects rely on the quality of communication and establishing a good working relationship between those responsible for delivering the project.  This is not about “putting the contract in the bottom drawer”.  It is about the parties understanding their roles, their obligations under the contract, and communicating proactively on a best for project basis in accordance with the contract.

Historically, the project mediator role has been undertaken informally by project managers, commercial managers and engineers or architects appointed under their respective contracts.  For major projects like the Hong Kong Airport project (at USD 20 billion in the early 1990s, still one of the largest engineering projects ever undertaken), the project team tended to wrap the roles into one.  The legal team, of which I was one of three, drafted the contract terms, prepared the tender procedures, advised on tendering and award, and then gave advice on contract administration as the need arose.  The result was a project praised by Transparency International for its delivery with limited disputes, for a project of such size and complexity.

Similarly, for Watercare Services’ Mangere Wastewater Treatment Plant, Waikato River Water Treatment Plant, Hobson Bay Tunnelling Project and the recently acclaimed Hunua 4 Project, while the contract terms may have appeared to be tough, they were sensible commercially and potential disputes were identified early and dealt with proactively.

With the increased complexity and cost of projects, and the inevitable increase in conflicts of interest, a more formalised process is required.  The project mediator provides the following core services (though these can be extended to include peer reviewing and probity auditing):

(1)  Following award, the project mediator calls a risk meeting attended by the main project participants.  The purpose of this meeting is to establish the roles of the key participants and the means of communication; to review the project documents, including any issues with the commercial terms, the programme, means of delivery and the risk register; and to review action points, including any risk items.

(2) During the course of the project, to receive and review formal project communications and to attend project control group meetings.   The purpose of this stage is for the project mediator to identify any potential for disagreement and to raise it with the parties.  Either party or the project mediator of its own volition may call a risk meeting to discuss any issues which require attention if formal dispute is to be avoided.

(3) If a formal dispute occurs, then the project mediator is to mediate the dispute as the first stage of the disputes process.

The benefit of the independent neutral, and particularly the project mediator, should be immediately apparent.  The project mediator’s sole objective is best for project outcomes, which should benefit both parties.  The role requires independence, establishing the trust of all parties and the experience to identify any issue which may put time, cost or quality at risk, and the expertise to guide the parties to avoid or at least mitigate disputes which inevitably come when the parties’ positions harden.