What does a successful project look like?

As a lawyer, particularly one specialising in resolving construction disputes as arbitrator, adjudicator, mediator or just independent neutral, this may seem like a strange question.  But with so many major projects in trouble, contractors large and small struggling to survive and doom and gloom predicted (as evidenced by last year's Russell McVeagh survey on construction disputes), it's easy to lose sight of what a successful project looks like.

At its simplest, the project is delivered on time and on budget, free from defects; the contractor has made a profit and all subcontractors have been paid, and hopefully also made a profit.  This is a project which all participants can be proud of, right?  So, how do we get there?

The first, and most obvious, is to look at the first part of that opening sentence - on time, on budget and free from defects.  The first two are largely within the owner's control - it is their budget and their timing requirements.  It may be simplistic, but if the budget and time is set by the contractor, or remarkably with input from the contractor, then few projects would run late or overrun cost.

The first goal, therefore, should be to have a realistic contract price and time for completion at award.  Yet, our traditional approach of minimal design (at best a 30% tender design), lump sum pricing gained through a relatively short (2 months typically) competitive tender process, militates against such outcomes.  Worse, the traditional tender approach as currently applied almost promotes poor outcomes.  A preferable starting point is to run a process where the project uncertainties are reduced, pricing as thorough and project planning and risk register has been as thoroughly prepared as possible, with input from the contractor.

The second goal should then be a contract which is appropriate for the project, adjusted for project risk and which treats both parties fairly.  Aggressive risk transfer rarely promotes positive project outcomes.  To be fair, sometimes what looks like swingeing risk transfer can be appropriate, where the risk is real, likely and one party is in the best position to manage and price for it.  But risk transfer based purely on the forlorn hope of achieving price certainty rarely works.

The third is the recognition that claims will happen.  It is a virtual certainty that some unanticipated event will disrupt almost any project.  Construction contracts have recognised this for decades by providing for variations, costs and extensions of time; yet these are applied with reluctance by most owners.  Reducing claim events can be achieved by carrying out more thorough investigations before contract award, and providing for and managing contract claims properly.  Ground conditions is a case in point (unforeseen physical conditions, in terms of clause 9.5 of NZS3910) - leaving such issues to be resolved by a consideration of what would reasonably be foreseen by an experienced contractor at the time of award is, frankly, unhelpful and an invitation to hindsight bias of the most egregious kind.  Such issues are less what a contractor could have foreseen, and more what the parties consider might be a likely eventuality worth pricing for.  A thorough risk register, prepared by the owner and contractor in consultation prior to award is usually a good start.

The best way to avoid claims and to achieve certainty is to reduce, or at least recognise risk.  If a contractor is treated badly, with claims rejected or delayed for no apparent reason, then this will affect performance.  If subcontractors are not paid, typically arbitrarily by head contractors passing risk unreasonably down the contract chain, then slow and defective work is a certainty.

Finally, dealing with claims reasonably and treating disagreements with respect is typically more productive than rushing to defensive positions with an eye on how best to run the arbitration.  On another Government project, a threat of adjudication under the Construction Contracts Act to break a deadlock was greeted with the comment from a Government project manager - "that would be a declaration of war".  This is remarkably childish.  Prompt and effective dispute resolution is best dealt with by both parties recognising that there is disagreement and to embark on the dispute resolution early to try to find a prompt and cost effective result.  These are typically difficult issues - that is why there is disagreement.

The aim, at the end of the project, is to have an asset developed which is better than the sum of its parts - a project which all parties can be proud of, and where all parties have made a profit.  It can be done.  Too many in the industry seem to have lost sight of it.