Systech insights edition 3 by lexographic

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EDITION 3

SHARING OUR Global expertise & Local knowledge

Systech I N T E R N A T I O N A L

Welcome to Systech Insights

We are delighted to welcome you to the third edition of Systech Insights, in which we share our expertise and opinions on a range of topical issues. The articles are written by staff from across our regions and demonstrate our breadth of experience and knowledge in a range of services and sectors. This edition features articles on NEC4, the updated Society of Construction Law Delay and Disruption Protocol, project record keeping, top tips for harmonious FM relationships and new approaches to the provision of legal services. We hope you enjoy the read; we, and the contributors, would be delighted to receive your feedback.

Stephen and Mark Stephen Rayment and Mark Woodward-Smith Group Managing Directors

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EDITION 3

Good records — why they are important and essential

Nigel Cornwell — Legal Director, Singapore

NEC4 — the contractor’s friend?

Jason Palmer — Associate Director, UK North

Skin in the game: performance-related fee agreements for international arbitration

John Goodman — Lawyer, UK

Bringing commercial harmony to FM contracts

Steve Harries — Director, FM Services

EOT without delay

Richard Morris — Director, Expert Services

Adapt & survive: how lawyers will need to change the way they provide legal advice in an unbundled service industry

John Stocker — Legal Director, MEA

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Nigel Cornwell Legal Director, Singapore

Good records – why they are important and essential Taking shortcuts with your project records is likely to dramatically reduce the success of your claims. NIGEL CORNWELL explains why.

ou may well have heard of the response to the question: “What are the three important basic elements to assist in the production of (or defence against) a claim?” Well, the answer “records, records and more records” may seem like an often-repeated mantra, but there are sound reasons why good record keeping is essential. To start with, it is good practice and essential for managing the contract and monitoring progress. No-one can foresee the future, and good records are the 2

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basic requirements for production of claims or defence against claims from others. Accurate and focussed records will diminish adversarial conduct, as the events surrounding a dispute can be reconstructed from available material. Apart from supporting a party’s case or line of argument, reliable contemporaneous documents will assist those who are not as familiar with the complete history. There are also minimum requirements for preparing for, establishing and evidencing a claim. These include a regularly updated as-built programme and a register of drawings and documents, revisions, submission and return dates; official progress meeting minutes;

The better the records the easier it will be to support your assertions, prove your case and come away with an ‘early win’.

claim notices and a directory of issues. The evidential burden in establishing entitlement is on the party who claims. Clearly, the better the records the easier it will be to support your assertions, prove your case and come away with an ‘early win’. Equally, if you are resisting a claim, the absence of proper substantiation is a legitimate reason for putting up a robust defence. This could lead to prevarication and delay for the hapless party who does not keep proper records. There are, however, more fundamental reasons for good record keeping, and those are the requirements of the contract. Consider the following extracts from some of the Standard Forms: SYSTECH INSIGHTS ▶ edition 3

JCT: “...in respect of each event... give particulars including an estimate of any expected delay” and “submit details of the loss and/or expense as are reasonably necessary for such ascertainment” ICE: “…keep contemporary records as may reasonably be necessary to support any claim he may wish to make. The Engineer may instruct the Contractor to keep such further records as are reasonable and may be material to the claim” FIDIC: “…The Contractor shall also submit…supporting particulars for the claim, all as are relevant to such event or circumstance…The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. The Engineer may…monitor the record-keeping and/ or instruct the Contractor to keep further 4

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contemporaneous records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer.” So, not only are there contractual obligations in respect of record keeping, but the whole process is monitored and enforced by the Contract Administrator. Under some contracts, submission of timeous notices with particulars and documents are a condition precedent to entitlement to time and money (e.g. NEC sub-clause 61.3 and FIDIC sub-clause 20.1). In fact, in one decided case (AG of Falkland Islands v Gordon Forbes Construction Ltd), the Judge dismissed the Contractor’s claim because of a lack of contemporaneous records. In this case, a housing development was constructed using the 1987 FIDIC 4th Edition. One of the contractual clauses required the Contractor to keep such contemporary

Consistent contemporaneous records can win the claim; whilst inconsistent and poor records risk losing a claim.

records as were necessary to support the claim. Such records that had been kept were inadequate to verify what the Contractor was claiming. The Contractor thought it could fill in any evidential gaps with verbal evidence. The Engineer did not accept this and the Court agreed. Verbal evidence was not contemporaneous records – claim dismissed! So, where there are no contemporaneous records to support a claim, the claim could fail completely. Consistent contemporaneous records can win the claim, whilst inconsistent and poor records risk losing a claim. The type of records that are necessary will depend on the claim. Delay and disruption claims, for example, are dependent on establishing cause and effect, what was done, when it was done and what resources were used. Records of what output labour and plant is achieving day by day need to be kept. So, what is meant by contemporary

records? Well, at the time of, as opposed to after, the event. They should be sufficiently detailed to enable a third party with no project knowledge to reconstruct events solely from the information recorded. All records should be produced by reliable staff and signed and dated as true, authentic and contemporaneous, with emotive words kept out of all site records. Factors affecting the credibility of the records (i.e. how believable they are) include the extent to which they are: contemporaneous, first hand, approved and signed, neutral and objective, and corroborative and supporting evidence. There are many ways of ordering files in hard and soft copy for different topics and parties covering correspondence, minutes, changes, types of claim, drawings, photographs, site diaries and so on. At Systech, we have produced further guidance on this, including a template for a site diary, which I would be pleased to provide on request. We have also developed a site diary app, which runs on mobile devices and tablets, that can be configured with a set of questions relevant for each project. The app issues a consolidated diary report to an agreed distribution list each day and saves the information in a secure file. The app reports have been successfully used on a number of projects to evidence claims and support a robust defence against criticisms. For more information go to svc-international.com. So, happy record keeping and good luck with those claims. ◉

▶ nigel.cornwell@systech-int.com SYSTECH INSIGHTS ▶ edition 3

Jason Palmer

Associate Director, UK North

NEC4: the contractor’s friend?

NEC4 will be published in June and it includes some good news for Contractors. JASON PALMER explains why.

t is 12 years since NEC3 was first published. Now NEC4, comprising a whole suite of updated and new contracts, is due to be released on 22 June 2017. During the 25 years since its first introduction, the NEC form has become popular due to its flexibility and clarity and, from the Employer’s perspective, its underlying focus on the achievement of best value. Consequently, it has become the favoured contract of the UK public sector having been chosen for use on many of the largest infrastructure projects undertaken in recent years including the Channel Tunnel Rail Link, Heathrow Terminal

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5, 2012 London Olympics, Crossrail and HS2. In addition, given its use of plain English in the present tense, facilitating easy translation and comprehension by people whose first language is not English, it is also becoming more widely used for international projects as an alternative to FIDIC. According to advance reports from the NEC Users Group, NEC4 is intended to support the ongoing drive for further collaboration and integration of teams, use of modern work methods, avoidance of disputes, and to identify and manage both risk and opportunity for a successful project outcome.

Further to updating the current suite of contract options, a brand-new contract called the NEC4 Design Build Operate Contract (DBO) has been introduced which is designed to allow clients to procure an integrated whole-life delivery solution, extending the contractual arrangement beyond the construction phase and into the operational phase. A new Alliance Contract has also been introduced, published initially in consultation form for clients wishing to appoint a fully integrated, multi-party team dedicated to the delivery of large complex projects. While this new form follows the general principles, terminology and structure of the other NEC forms, it differs in that it is a multi-party contract based upon an integrated risk and reward model. The new NEC4 version is being heralded as the next iterative step in the wider promotion of fair dealing, greater certainty and prevention of litigation within the construction industry. Clearly those drafting the new NEC4 have listened to the feedback from the industry, with early reports suggesting that it will provide some significant benefits to the Contractor. Read on for five examples of changes that should please Contractors.

Costs can be agreed on a progressive basis rather than waiting to the end of the project.

1. Payment for preparing quotations A new compensation event has been introduced that will be welcomed by Contractors in relation to the application of Option A or B. It provides for the Contractor to be reimbursed for the cost of preparing quotations, and is intended to ensure full compensation in circumstances where the Project Manager requests quotations for numerous proposed instructions which are subsequently neither accepted nor instructed. This is particularly beneficial in circumstances where the full evaluation of those proposed changes requires SYSTECH INSIGHTS â&#x2013;ś edition 3

significant additional design input, and addresses the somewhat inequitable position where the recovery of such costs is specifically excluded under NEC3.

2. Early agreement of Defined Cost The cost based contracts (main options C, D, E and F) now include provisions that enable the Contractor to reach agreement of Defined Cost and Disallowed Cost on a progressive basis as the works proceed. Rather than waiting until the end of the project, the Contractor may now give notice to initiate regular reviews and acceptance by the Project Manager of just those parts of the Defined Cost that have become ready for review. The Project Manager must review them within 13 weeks and advise whether or not they are accepted. Any failure by the Project Manager to comply with this timescale will result in the Contractor’s version of that section of Defined Costs and Disallowed Costs being deemed to be accepted. 8

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This new provision should help to ensure that any cost issues are addressed and finalised by those familiar with the circumstances, rather than deferring to the end of a project when personnel and Subcontractors best placed to answer queries may no longer be available. Similarly, the Project Manager is now required to provide the final assessment of the payment due to the Contractor within four weeks of the issue of the Defects Certificate. Where this procedure is not complied with the Contractor is entitled to issue its own final assessment which will become conclusive, unless it is challenged and referred to dispute resolution by the Project Manager within four weeks.

3. Programme acceptance and content To help address the deadlock that often arises under the current form, NEC4 introduces a new ‘treated acceptance’ of the Contractor’s programme in circumstances where the Project Manager has not responded to a new programme, or

to a reminder issued by the Contractor. This sensible addition should help address what often becomes the contentious issue of determining, under NEC3, what is the ‘accepted’ programme. This new provision should ensure that there is always a baseline programme available for use in the proper assessment of compensation events. NEC4 also removes the previous confusion over the requirement for the Contractor’s programme to include details of ‘implemented compensation events’ to avoid any misunderstanding over non-implemented compensation events. The new NEC4 requirement for the Contractor’s programme is expressed more clearly in that it must show ‘the order and timing of the operations which the Contractor plans to do in order to Provide the Works’. Plainly, this must include all works to be provided including those which arise under compensation events.

4. Simpler Schedules of Cost Components and Fee To make things simpler, the Short Schedule of Cost Components (SSCC) has been removed from the NEC4 main options C, D and E. The remaining Schedule of Cost Components (SCC) has also been simplified and made consistent across all options such that it now includes Subcontractor costs. This addresses the Contractor’s existing problem under NEC3 where Subcontractors often fail to provide their costs in a format consistent with the SCC. Under NEC4, the Defined Cost will simply be the cost paid to the Subcontractor. Working Areas Overhead and People Overhead have also been removed and are now simply paid as actual Defined Cost. In addition, these people costs are no longer limited to those working exclusively within the Working Areas. The new criteria is intended to accommodate ‘more flexible and efficient work patterns’ and allows for the costs of people working in different locations to be included according to their time ‘worked on this contract’. NEC4 only has one fee and there is

Address the contentious issue of determining what is the ‘accepted’ programme.

no longer a separate fee to be applied to subcontracted works. The NEC3 requirement for different percentage additions has been removed. This must benefit those working on complex projects with multiple subcontractors where it will no longer be necessary to undertake significant analysis and calculations to arrive at a single percentage to provide the Contractor’s required level of recovery.

5. Early Warning Register The ‘Risk Register’ will now been known as the ‘Early Warning Register’. This not only improves the positive connotations of the language used, but also actively encourages positive events and opportunities to be included in this section. This allows the Contractor’s early involvement advisory proposals, value engineering and opportunities to be registered, along with the risks, through the early warning process.

A word of warning As with all new contract forms, inevitably the devil is in the detail, and all parties will need to ensure they undertake a careful review of the precise wording contained within the NEC4 documents when they are published later this year. Systech will be holding training seminars to assist Contractors with their understanding of the new obligations and liabilities. Please contact the writer for more details. ◉

▶ jason.palmer@systech-int.com

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John Goodman Lawyer, UK

Skin in the game Performance-related fee agreements for international arbitration JOHN GOODMAN outlines an innovative approach to legal fees which aligns the interests of the client and its legal advisor.

nternational arbitration of construction disputes can be expensive. In its detailed survey of the costs of international arbitration in 2015, the ICC found that party costs made up the bulk (83% on average) of the overall costs of the proceedings and legal fees represented the bulk of that percentage. The Chartered Institute of Arbitrators in its extensive Costs of International Arbitration Survey 2011 found that, on average, the parties spent £1 million on claims between £5 million and £10

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million and 74% of that sum was spent on external legal fees. Both surveys found that the average duration of an international arbitration was between 17 months and two years. International arbitration (particularly relating to complex technical construction disputes) has been described by parties as “...like dancing with a very expensive bear. You can only stop when the bear stops.” Commencing or deciding to defend an international construction related arbitration is a major step and not to be taken lightly.

This approach creates a motivation to provide an accurate and sensible assessment of the claim/ defence and obtain a satisfactory settlement or award in the shortest possible time. Understandably therefore, clients want some predictability in the costs of the case to support their case strategy decisions and to assist with cash flow; this is more likely to occur when appointing lawyers with real construction and international arbitration experience who can properly assess prospective claims/defences (prospects of success) and advise on a realistic outcome. These lawyers become even more attractive if they are prepared to take “skin in the game” by agreeing to align their interests with those of the client and sharing in the pain and the gain of the award or negotiated settlement. Such an approach creates a motivation to provide an accurate and sensible assessment of the claim/defence and obtain a satisfactory settlement or award in the shortest possible time.

Our approach to legal fees

We often hear from prospective clients: “At the outset of the dispute, our lawyers gave us a very optimistic opinion on the prospects of our claim or defence however, as the legal costs increased and the closer we got to the hearing, the prospects diminished alarmingly. At the end, the central issue was whether we would obtain an award to justify the tribunal ordering the other party to pay any of our costs, the value of which, by then sometimes approached or exceeded any principal sum likely to be awarded.”

Systech Solicitors is a client-focussed business which, through our team of lawyers with specialist construction and engineering expertise, can offer realistic and honest appraisals of expected dispute outcomes. We also recognise that legal costs are a major expense for contractors and we offer competitive and innovative fee arrangements, including performance related fees where we are prepared to share the risk with our clients. We do not undertake contentious work on a “no win, no fee” basis. However, with our extensive experience in dispute resolution on international construction projects and international arbitration, we can offer, in appropriate circumstances, to conduct such work on a “no win, low fee” basis, which we call a discounted conditional fee agreement [DCFA]. SYSTECH INSIGHTS ▶ edition 3

The terms of any DCFA will be negotiated and recorded in a detailed agreement. Systech Solicitors will agree to work throughout the duration of the dispute at a discount of up to 50% of the normal rates and, if the client’s case is not successful, the client will only pay the discounted fees plus any disbursements at cost; a “no win, low fee” situation. If the client’s case is successful, the client will pay, in addition to the discounted fees plus any disbursements at cost, the “conditional fees” (the difference between the discounted and normal rates) as well as a “success fee” expressed as a percentage of the conditional fees (normally 100%) to reflect the risk taken and the potentially extended cash flow period. The DCFA will address: ▶▶ What constitutes “success”? Usually this will refer to a monetary sum achieved (or payable in the case where the client is the Respondent) in any negotiated settlement or published arbitral award. However, there are other possibilities depending on the nature of the dispute. 12

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▶▶ Whether the DCFA covers any challenge to/appeal against any award The DCFA will not usually cover the costs of any necessary proceedings to enforce an agreement or award. ▶▶ Termination The parties, rights to terminate the agreement and any consequences of termination. We can also advise on the possibility of obtaining third party funding i.e. taking out after the event insurance to cover the client’s potential liability for the other party’s costs and disbursements if the claim is not successful and/or to cover, by way of a funding agreement, Systech Solicitors’ fees and disbursements. So, if you are about to embark on an international arbitration, contact us to learn about our unique offering – lawyers with real construction and international arbitration experience working on a performance fee basis. ◉

▶ john.goodman@systech-int.com

Steve Harries Director, FM Services

The more detailed and defined the services are, the less chance there is of scope creep, failure to meet expectations or dispute.

Bringing commercial harmony to FM contracts STEVE HARRIES outlines his top tips for a long term harmonious FM relationship.

acilities Management contracts have become more complex and onerous as the FM outsourcing market continues to grow and become more sophisticated. They have evolved from being stand-alone contracts for single or a small number of services (e.g. cleaning and security) for a single facility to many global companies outsourcing their entire facilities management to a worldwide FM provider under a global Master Services Agreement (“MSA”). Such MSA’s are for multiple and diverse services – M&E maintenance, cleaning, security, catering, hospitality, ICT, energy management, projects, workplace management – and can cover facilities throughout the world. Maintaining a strong customer relationship is essential in the FM industry, however it is important that this is underpinned by a FM contract that is fit for its purpose and allows both parties flexibility for today's changing environment. Here

are five essential elements to consider in relation to a FM contract, which if structured and drafted correctly should allow for a long term harmonious relationship.

1. Scope of Services

It seems obvious but the more detailed and defined the services are, then there is less chance of scope creep, failure to meet expectations or dispute. Is it an output specification based upon KPI’s or is it an input specification based upon number of heads, for example? In full FM contracts, it may be that a hybrid is required with some services being input, (e.g. manned guarding) and others being output (e.g. M&E assets). Either way, the scope and specification needs to be clear and unambiguous. Things to consider are:

▶ is there a clear asset list and does it need to be verified? ▶ are the facilities listed and does the SYSTECH INSIGHTS ▶ edition 3

Price is always a key driver, but FM is key in keeping a business running. scope vary between facilities, i.e. some may be manned (corporate HQ, key locations) and some unmanned with just a reactive ‘pay as you go’ service?

▶ are areas not included (e.g. production lines, operation rooms which due to their high criticality may be done in-house)? ▶ are there repairing obligations and if so to which assets, to what level and are there any exclusions (e.g. life cycle)? ▶ potential for additional services, such as project work, and whether process and quality requirements are to be included in that respect. ▶ The more definition that can be written down in the specification the better it is for both parties.

2. Key Performance Indicators (KPI)/Performance Management System (PMS) In conjunction with a detailed scope document, it is usual for FM contracts to contain a schedule which details KPI’s or has a PMS which is used to measure the standard and quality of the services. These can often trigger a financial penalty (service credits) for the service provider if the KPI’s are not met and sometimes can also trigger a reward if such standards are over-achieved. Such mechanisms can be measured monthly, quarterly or annually. When agreeing KPI’s the parties should consider how they are to be measured and what records will be needed to verify and/ or audit such results. Over-complicated KPI’s or PMS’s can often lead to the service being focussed on the KPI’s/PMS rather than delivering customer satisfaction and can also lead to excessive management administration time. As such, I would recommend that it 14

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is best to keep these mechanisms clear, unambiguous and simply measurable whilst being intelligently geared toward the real critical aspects of the services. The ability to change the KPI’s over time will also need to be contemplated.

3. Mobilisation and Transition

The mobilisation period takes place before services ‘go live’. It is critical to the success of the relationship, so it is important that both parties allow adequate time for the service provider to prepare to take-over the services. Mobilisation periods should reflect the complexity and geographical logistics of the services. If the period is too short it can often result in a ‘false start’ and create an initial poor first impression for the service provider which can be difficult to recover from. It is important to consider how the mobilisation services are included within the contract and, in particular, how issues are

dealt with, i.e. late information, delays, poor mobilisation, other changes and the effect such issues have on the ‘go live’ date. It is becoming increasingly common for a transition period to follow mobilisation where the service provider is expected (and contracted) to make changes to the way the services are delivered. This often involves a rationalisation of the workforce and/or the supply chain. The transition period is often the first six, nine or twelve months following ‘go live’ and can even be staggered where services ‘go live’ at various times for various facilities. Like mobilisation, it is important that such transition services are well documented and that there are appropriate mechanisms for dealing with any changes to such transition services or events which may effect this period.

4. Change Management

The change control schedule in an FM con

tract can sometimes be a solicitor ‘template’ which, whilst containing standard provisions and a process, is not bespoke to the specific FM contract and the various services to be provided. FM contracts run for many years and change will occur – new services, buildings coming on line, buildings being sold or mothballed, buildings reducing in headcount (impact on catering, utilities), buildings increasing in head count (impact on catering, utilities, cleaning, use of assets), new assets being installed, new technology, changes in law (employment, energy) and more. Therefore, it is worth considering scenarios that may occur during the phases of a FM contract – mobilisation and transition as well as ‘steady state’ – to see how the parties may wish to amend the contract in such scenarios. Also, as with any contract, it is vitally important for both parties to record all changes as they occur, as issues in year one may be forgotten by year five. Good ‘real SYSTECH INSIGHTS ▶ edition 3

time’ contract administration of the change process is essential.

5. Pricing Model

There are various pricing models in the market place including fixed price, cost plus, gross maximum price (GMP) and baseline with risk/reward mechanisms. The more historic data relating to the services that exists, the more commercially viable it will be for the service provider to take the risk of a fixed price or a GMP. Where there isn’t such data, then either a longer tender period will be required to enable due diligence to be carried out or alternatively pricing can evolve over the term, starting with cost plus but moving towards a fixed price or a GMP. Obviously, price is always a key driver, but FM is key in keeping a business running – what would happen if buildings are not looked after, if there is a data centre outage, health and safety is not maintained, or even if the buildings do not give the right ‘experience’ to visiting prospective customers? Price versus quality issues should be carefully considered and a pricing model adopted that drives the right behaviours rather than being simply cost driven. FM contracts also often state ‘open book’ 16

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and the parties need to be clear exactly what is intended by such a term. It doesn’t necessarily mean cost plus. Transparency is also a much-used phrase and again how transparent? Will the on-cost for employing people carrying out the services be actual or based upon a percentage, and does this percentage vary from one type of employee to another and from one country to another? A cleaner will carry a lower overhead than a field engineer with a van and tools whilst employment taxes can vary considerably from one country to another. Other considerations are inflation, currency exchange risk (if across multiple countries) and the pricing of additional works or ad-hoc services.

Some final ‘food for thought’

The FM industry is continuing to grow worldwide, but it can be very challenging to both customer and service provider with quality versus price an on-going dilemma. I hope the above provides some ‘food for thought’. ◉

▶ steve.harries@systech-int.com

Richard Morris Director, Expert Services

EOT

without

delay

Fifteen years after its initial issue, the Society of Construction Law has updated the Delay and Disruption Protocol. RICHARD MORRIS outlines the key changes.

he Society of Construction Law’s (SCL) Delay and Disruption Protocol was first published in 2002 and set about providing “useful guidance on some of the common delay and disruption issues that arise on construction projects” and a means “by which the parties can resolve these matters and avoid unnecessary disputes”. Whilst the guidance in The Protocol is noted as being general in nature, it was still set out to provide the “best” guidance when it comes to deal with delay and disruption issues. There is no denying that the Protocol has received widespread recognition and is frequently adopted in debate about the right way to record and present delay but its implementation into contract drafting and contract procedure has remained limited. The second edition of the Protocol was published in 2017 and supersedes the 2002 version. The SCL

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committee in its review of the first publication aimed to address specific areas to be incorporated into the 2017 version. These were: (a) developments in the law and construction industry practices since 2002 (b) feedback on the uptake of the Protocol since that time; (c) developments in technology since 2002; (d) the scale of large projects having increased, leading to a wider divergence between small scale and large scale projects; and

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(e) anecdotal evidence that the Protocol is being used for international projects as well as UK projects. Unsurprisingly, given the extensive timeframe between the two Protocol editions, there are several changes which have been incorporated into the 2017 edition. Whilst this article does not address all of the changes made in the updated version, particular focus has been given to what are believed to be the key changes to be aware of: delay analysis methodology and concurrent delay.

Delay Analysis Under the original 2002 edition, the Proto-

The 2017 edition identifies the factors which should be taken into consideration when determining the most appropriate methodology of delay analysis.

edition commented that: “contemporaneously submitting and assessing an EOT application and awarding an EOT on a prospective basis (specifically, through the use of time impact analysis) can sometimes lead to unrealistic results if it subsequently transpires that the EOT claimed is significantly more than the delay attributable to the Employer Risk Event”.

The 2017 edition instead identifies the factors which should be taken into consideration when determining the most appropriate methodology of delay analysis. These range from: (a) the relevant conditions of contract; col recommended a preferred delay analysis methodology where that analysis is carried out time-distant from the delay or its effect (‘time impact analysis’). This methodology requires a baseline programme and contemporaneous updates to that programme and was recommended to be used wherever the circumstances permitted “both for prospective and (where the necessary information is available) retrospective delay analysis”. Whilst the 2017 Protocol still favours this approach for assessing extensions of time (EOT) during a project, there is no longer a preferred methodology where the EOT applications are made after completion or considerably after the occurrence of the delay event. The SCL Committee in drafting the 2017

(b) the nature of the causative events; (c) to ensure a proportionate approach, the value of the project or dispute; (d) the time available; (e) the nature, extent and quality of the records available; (f) the nature, extent and quality of the programme information available; and (g) the forum in which the assessment is being made The 2017 edition goes further and provides an explanation on a number of delay SYSTECH INSIGHTS ▶ edition 3

The Protocol gives greater emphasis and guidance on the importance of record keeping in relation to delay and disruption issues.

analysis ‘time-distant from the delay event’ methodologies in common use and the circumstances in which they might be applied. These are separated in the way in which the critical path is determined (‘prospectively’, ‘contemporaneously’ or ‘retrospectively’) and how the delay impact is determined (‘prospectively’ or ‘retrospectively’) Whichever methodology is chosen, the Protocol makes clear that “the conclusions of the delay analysis must be sound from a common-sense perspective”.

Concurrent delay The approach to concurrent delay in the 2017 edition has been updated to reflect changes in the law on this topic. Under the original Protocol, where the Employer Risk Event and Contractor Risk Event arise at different times, but have concurrent effects, the Contractor Delay should not reduce the amount of EOT due to the Contractor as a result of the Employer Delay. Whilst this general rule remains as a core principle in the 2017 edition, it also introduces an exception where this may not be the case. The example given in the Protocol (paragraphs 10.7 to 10.10) describes a scenario whereby the Contractor Risk Event results in a Delay to Completion but independently, an Employer Risk Event commences and finishes within that same period of Contractor Delay. Under these circumstances, the Protocol suggests that the contractor would not be entitled to an EOT as “the only effective cause of Delay to Completion is the Contractor Risk Event” and the Employer Risk Event is not an effective cause of Delay to Completion. In this scenario, the critical path has not been affected by the Employer Risk Event. This may have adverse consequences for a contractor as the employer may see this as an opportunity to issue variations in 20

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the period of Contractor Delay and avoid granting an EOT if such variations do not cause an effect on the revised Completion Date. Similarly, this approach seems to favour which delay comes second in the “concurrent effect”.

Key points contractors should consider following the issue of the second edition ▶ The parties and the contract administrator should comply with the contractual procedural requirements relating to notices, particulars, substantiation and assessment in relation to delay events. ▶ The Protocol suggests that applications for an EOT should be made and dealt with as close in time as possible to the delay event that gives rise to the application. A ‘wait and see’ approach to assessing EOT is discouraged. This allows both parties the opportunity to mitigate the delay as far as possible. ▶ The Protocol recommends that the parties try to agree an appropriate method of delay analysis before each embarks upon significant work on an after the event delay analysis. Failure to consult the other party on delay analysis methodology is a matter that the Protocol considers might be taken into account by the adjudicator, judge or arbitrator in awarding and allocating recoverable costs of the dispute. ▶ Where true concurrent delay has been established, the Contractor Delay should not reduce the amount of EOT due to the Contractor as a result of the Employer Delay. The Contractor however should consider the Employer Risk Event not having an impact on the cause of Delay to Completion as this will not offset the enforcement of LADs. ▶ The Protocol gives greater emphasis and guidance on the importance of record keeping in relation to delay and disruption issues. Contractors should take this into consideration regardless of project size or complexity. ◉

▶ richard.morris@systech-int.com

John Stocker Legal Director, MEA

Adapt & survive How lawyers will need to change the way they provide legal advice in an unbundled service industry

JOHN STOCKER proposes a new approach on the future of legal service offerings

SYSTECH INSIGHTS â&#x2013;ś edition 3

reater regulation, transparency and cost efficiency are the current order of the day in global systemic markets. The rather complex market for legal services is not immune to these pressures as analysts who have studied the way this profession is represented conclude that it’s time for change in an industry that is in a state of flux.1 This article looks at the recent changes to the legal services industry and provides a probable blueprint for how legal services might be offered in the future by all firms.

New Developments Liberalisation of the traditional law practice has been reflected in the recent move to allow non-lawyers to participate in the provision of legal services. This change is evident, for example, in the United Kingdom’s Solicitor Regulation Authority’s decision to license Alternative Business Structures (ABS) to provide a legal service to the public, but which are owned and run by non-lawyers. An obvious but overlooked reason for the decision to license non-lawyers to participate is to encourage a new approach to how legal services are offered. One can suggest that this is the intent by inducing a new injection of ideology, in a typically self-preserving traditionalist model, to open up how legal services are offered and, rather indicatively, improve the cost-effectiveness and transparency of legal firms. Aside from social developments, new technological advancement is also forcing firms to rethink how they can compete with other service industries, which are just a click away. Given new technological processes, and the pressure of reducing costs in a cost-conscious environment, firms will be 1. Richard Susskind – Bloomberg Law Interview 2 May 2013

SYSTECH INSIGHTS ▶ edition 3

Clients want transparency and control in how they receive legal services and, most importantly, don’t want to pay for additional frills. hard pressed not to consider the unbundling of their legal services into a profitable á la cart menu of services rather than the sumptuous yet extravagant buffet traditionally offered. Arguably, these changes are demand driven given clients want transparency and control in how they receive legal services and, most importantly, don’t want to pay for additional frills they either don’t need or can source themselves elsewhere at a discount. The new developments in the industry in approach and ideology might give clients of the future greater choice and control over the legal services they seek. Most pertinent of all, one can surmise that clients desire a less traditional lawyer – willing to work in their office or chosen location – rather than in an expensive city office. A virtual lawyer (one who might for example work from home) also seems to be a growing case to lower legal costs.

The typical traditional legal offering Historically when you engage a typical legal firm as a paying client, you might engage any number of the following: partners, junior partners, mid-level associates, newly qualified lawyers, paralegals, secretaries, legal knowledge practice support lawyers, document management professionals and court clerks. These employees would service

Client

Traditional Law Firm

Secretarial or administrative support

Paralegal or non-qualiﬁed legal assistance

Document management support

Dispute management counsel outsourcing

FIGURE 1

Modern cost-conscious client

Legal project or risk manager

Legal knowledge practice professional

Administration (secretarial or paralegal)

Modern law ﬁrm

Legal advisor

FIGURE 2 your needs while compounding the cost and chargeable time for the firm by offering a complete service which is bundled into hourly rates plus disbursements. In a typical legal offering shown in Figure 1, a client might pay for administrative support, paralegal and document management as well as a general dispute management service in addition to the legal advice. These additional services are what makes the modern law firm profitable and competitive in an over subscribed market. The combined services offered together

(legal and non-legal) compound costs which dictate higher fees mainly because the necessity and availability of these additional services considerably increases the operational cost of the firm. Figure 2 depicts how a client might be able to assume the responsibility for the additional (arguably non-legal services) and typically engage a law firm to act as a legal advisor, and nothing else. Once stripped back, however, the entire cost structure will change and the cost and delivery of plain legal advice can be segSYSTECH INSIGHTS ▶ edition 3

The traditional legal services approach is simply too expensive and does not take advantage of the technological advances in information management to be competitive with other industries. regated into a single discipline capable of close management by any client with the result being that the profit from each discipline can now be appropriately allocated to a specific discipline instead of shared across the offering. By offering legal services in such a manner, one might be able to see where the true value in the offering lies. Segregating these additional services might also transfer greater control into the hands of the client and empower the client to appoint specific legal consultants, to carry out a task when the need arises.

A Modern Legal Contractor A recent report produced by Thomson Reuters Legal Executive Institute2 has highlighted the fact that the “traditional law firm franchise is increasingly at risk”. The aforementioned report, rather transparently, highlights how the profession is under immense pressure to self reflect given the erosion of demand and productivity and the slow death of the hourly billable pricing method. Is a legal services manager controlling cost and value in a contractor like offering more efficient? Can lawyers adapt to change in time to rescue the traditional law firm operation? These are the piercing questions which the legal industry is being forced to consider given the imminent position of large firms such as KPMG3, PwC and Direct Line4 who have applied for and been granted an ABS license and all of whom are highly attracted by the additional secrecy and legal privilege

that such a license may avail. Will these firms play a dominant or supportive role to a more service management type approach to legal advice and how will these firms influence how legal services are offered?

Too Big to Fail? The time has come for legal firms to change the way they offer legal services because no industry (as has been shown in recent years) is simply too big (or too organised) to fail. Cross-Atlantic merger activity might temporarily bolster the industry but even large magic circle firms cannot withstand a colossal shift in demand. In a more globalised world, the law industry, much like many others, will eventually be stripped of the unnecessary and inefficient bundled services that can be provided cheaper elsewhere.

Conclusion The global legal market is no doubt in a period of transition. The traditional legal services approach is simply too expensive and does not take advantage of the technological advances in information management to be competitive with other industries. A better approach would be to strip down the bundled services provided by a traditional law firm and to provide these to clients in a more cost effective and transparent manner. ◉

▶ john.stocker@systech-int.com

2 2017 Report on the State of the Legal Market in partnership with the Georgetown University Law Center for the Study of the Legal Profession in the US and Oxford University’s Saïd Business School, 12 January 2017.

“KPMG awarded ABS licence” The Lawyer, Hannah Gannage-Stewart, 1 October 2014

“Direct Line and PwC win licences to offer legal services” Financial Times, Caroline Binham, 31 January 2014.

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