CONTRACT MANAGEMENTDISPUTE RESOLUTION AND COURSE CORRECTION

AJAY RAGHAVANCounsel

Training Workshop, Bhopal, February 2009Training Workshop, Bhopal, February 2009

DEALING WITH DISPUTE AND CHANGE IN THE CONTRACT

DRAFTING PRINCIPLES

STATIC – DYNAMIC:

• DRAFT the contract to establish principles yet leave room for response to dynamic situations

• UTILISE schedules and annexes to deal with variables – keep the main body for static principles

SIMPLICITY AND CONSISTENCY• ENSURE consistency in substance through simplicity

in structure

CHANGE PRINCIPLES

CHANGE MANAGEMENT:

• RECOGNISE that no contract is perfect• PROVIDE for change management principles that will

define equitable procedures to manage change

COSTS OF CHANGE• DESCRIBE a process to derive the real costs of

change in a mutually acceptable manner• CREATE accurate scope documents to spell out what

is required by way of change

BREACH

MATERIAL BREACH:

• DEFINE material breach as distinct from ordinary breach

• LIST provisions that constitute material breach• ELIMINATE confusion resulting from poor drafting

CURE• DESCRIBE the process and notice periods for curing

breach• DEAL WITH incurable material breach

COMPLETION

WHEN TIME IS OF THE ESSENCE:

• PRESCRIBE milestones for completion • EXHAUSTIVELY LIST all applicable dependencies

that could result in delays• ELIMINATE as many dependencies as possible

CARROT AND STICK• CREATE an appropriate incentive and penalty regime

in relation to performance targets• DEVISE suitable earn-backs

DISPUTES

DISPUTE RESOLUTION CLAUSE:

• DESCRIBE the process for escalation of disputes – both in relation to material and non-material breach

• SET OUT the time frame for resolution of disputes and the consequences of delay

DEALING WITH DISPUTE AND CHANGE PROVISIONS AT THE BID

DURING PRE-BID MEETINGS

DISCUSSIONS:

• ESTABLISH the negotiating position by setting out the process in detail in the draft contract

• PRESENT the broad terms of the contract to articulate the position of the Government

• DISCUSS these views with the bidders to understand their “pain points”

• PROVIDE revised documentation in response to discussions with the bidders

DURING FINAL NEGOTIATIONS

NEGOTIATION STRATEGY:

• TAKE a hard line on the final position of the Government

• FOCUS on ensuring that no overlap is created between provisions during negotiations

• ENSURE a single negotiating team or team leader who is responsible for coordinating the process

MANAGING THE DISPUTE PROCESS FAIRLY

THE CHANGE MANAGEMENT PROCESS

BALANCE:

• The costs of change both in time and in money terms• Assess the impact of change on dependencies

RECORD:

• The details of the requested change and the agreed costs and time impact

• Revise performance targets, penalty-reward mechanism and earnbacks accordingly

CHANGE MANAGEMENT IN PRACTICE

RECORD:

• Use the change management process and do not agree to changes in an ad hoc manner

• Record all changes agreed and their impact on performance targets and price

DISPUTES:

• Recognise disputes early and escalate them into the dispute resolution process early

• All disputes begin as disagreements

LIKELY GROUNDS FOR DISPUTE

SCOPE OF WORK

LACK OF CLARITY:

• On the various components of the scope of work at various phases of the project

• On the extent of changes possible to the scope of work without the need for a fresh contract

COMPLETION:

• Difference in the interpretation of what amounts to completion of the scope of work

BASELINE ASSUMPTIONS

LACK OF CLARITY:

• As to the starting assumptions relating to the pre-PPP position

• As to the extent to which the dependencies will have a bearing on services

QUALITY OF EXISTING DATA:

• Difference in the standard of recorded data with the Government

PERFORMANCE TARGETS

FAILURE TO ACHIEVE:

• On account of the failure by the Government to provide the dependencies

• On account of intervening acts by state parties• On account of Force Majeure

INTERPRETATION:

• Difference in the interpretation of the performance targets

PENALTY - REWARD REGIME

INTERPRETATION:

• DIFFERENT interpretations of how the penalty-reward regime works

• LACK OF CLARITY in the definition of the milestones

LIMITATIONS ON LIABILITY:

• DIFFERING VIEWS as to what falls within the cap on liabilities and what does not

STRATEGIES FOR DISPUTE AVOIDANCE

REPORTING AND REVIEW

EARLY WARNING:

• ASSESS performance on a regular basis to catch a potential dispute early

• ESCALATE disputes to ensure that they are closed

CHANGE:

• UTILISE change management effectively to ensure that potential disputes can be headed off