Over the last 10-15 years, Canada has seen the advent of dispute resolution processes addressing issues as they arise in construction projects as opposed to once the project completes. Recently, Quebec joined the ranks with a pilot project that is now part of the legislative scheme with some major governmental work providers — a welcome change for the province, says Marc-André Landry, litigation partner at Lavery Lawyers.
Having extensive experience in complex construction disputes with hundreds of contested change orders, Landry can speak to the overwhelming volume of documentation and logistical issues with witnesses. The latter have often moved on to new companies or work providers have changed, which impacts on all parties during the dispute, and “frankly, it’s a nightmare for everyone,” he says, adding that for massive infrastructure projects that have spanned years, “bringing the best evidence possible to get the most accurate outcome possible is a challenge.”
“I advise all stakeholders to look into the new approach and to adapt,” he notes. “There’s a price tag to such processes, but it’s cheaper than a never-ending arbitration at the end — or the traditional judicial process.”
The consequences of the traditional approach
The traditional approach of handling disputes at the end saw cash flow, especially when dealing with governmental entities, become a massive issue. If a new reality on the project pushed out deadlines, for example, but the provider was denied their request for more money or time, governmental authorities would impose delay penalties. Offset this from money owed and a delay in payment of months or even years, a contractor’s motivation could plummet — or worse, they may leave the project site altogether.
“Even with legal interest paid and so on and so forth, cash is king in construction as it is in many other industries,” Landry notes.
Stemming from this, some companies decided not to bid with certain municipalities or projects, reducing competition and driving prices up. Other companies would make some provisions for the late payments or legal fees, again increasing the price of the work. Ultimately, “everyone ends up paying, and if it’s municipalities or provincial government ministry or departments, that includes the taxpayers.” And the true cost at the end of the dispute could be a surprise, he adds.
“I had a case where our client, the service provider, ultimately obtained an arbitration award twice the price of the initial contract,” Landry recalls. “The project was awarded five years ago, and we had to go back to a new municipality council and new mayor to get the additional money for the project — those are big surprises.”
Resolving issues swiftly and practically
As highly collaborative endeavours, swift and practical resolution prevents disputes from creating larger problems further down the critical path of a project. While necessary to adapt to project realities and the economy — for example, it may not make sense to include them in smaller projects — Landry touts the benefits of including in contractual documents a dispute resolution process that handles issues as they arise.
Speaking at a recent conference, Landry reviewed the new approach which he states, “changes the life of the construction industry as far as major projects are concerned.” The methods, which originated in the UK, can be tailored to fit the specific needs of a project, but generally all involve technical experts and adjudicators with expertise in project management, whether from the legal or technical side, as well as the credibility to impose decisions.
There are bound to be disputes in a large project when plans are made with limited available information and adjustments are required once the parties are actually on the ground at the project site. But with an experienced adjudicator appointed at the outset and able to review documentation such as plans, contracts, and bidder analysis, issues can often be identified ahead of time and addressed with the parties before friction arises.
“Managing the project from a contractual or legal standpoint as it goes and adapting the legal aspect of the contractual relationship to the reality as the project progresses is key,” Landry says, adding that whenever he’s been on the drafting team for major projects, he would be sure to include an arbitration clause.
While the change orders are interlocutory decisions that give leave for parties to readdress the issue at the conclusion of the project, experience demonstrates that only a handful of the disputes will be revisited: most parties carry on with the first resolution.
Pilot project stats ‘are telling’
Quebec’s pilot project brought the province more in line with other North American jurisdictions. The pilot project evolved to become part of a legislation applicable to public contracts awarded within a limited scope. That said, stakeholders tend to use the same approach in fields where it is not mandatory as of today
“Québec was late to this approach, which may have reduced our attractiveness for other Canadian construction companies or international players, but there’s been a shift,” Landry says, adding that the statistics are telling: people are happy, businesses are being paid quicker than five or ten years ago, and lengthy battles over change orders and delays are eliminated.
“It’s clear that this approach saves time, money and headaches,” he sums up. “We’re getting up to speed and changing the way we do business for the better.”