Andrew Ness of Jones Day explores future challenges and trends in the construction sector and their potential impact on lawyers and their practices:
"While major disputes still occur, they are fewer in number, and as a result the focus of construction practice has shifted somewhat. This is leading to significant changes in many construction law practices, as there is reduced need for fleets of associates to staff major litigation and arbitration matters, and more of a premium on senior lawyers."
It is a commonplace that we are in a time of great change, change that permeates almost everything in our professional and personal lives. But what do the winds of change mean for construction lawyers? Peering into the future is always a risky business, with the chance of prognostications being seriously wrong close to 100 per cent. But in the interest of assisting construction lawyers in responding to the forces of change that are buffeting us from all sides. I offer a few thoughts, and a couple of cautious predictions.
The construction industry has for decades been characteristically resistant to serious technological change. While industry after industry has been transformed by information technology and the internet, the construction industry seemed impervious to change at its core. That era has about ended, however, as the proliferation of cheap computing power and software that can take full advantage of it is driving dramatic change in the industry at an accelerating rate.
By now, most of us have at least heard of building information modelling (BIM), even if we have not had direct experience of its abilities to avoid design conflicts, simplify changes and enable visualisation of how a project will be built electronically before it is attempted in the field. But it is increasingly clear that BIM is only the beginning. Turn the pages of any major construction trade magazine and you will see new technological tools being advertised that affect every aspect of a construction project from the initial land survey on – in scheduling, resource management, modularised construction, lifecycle cost assessment, designing for maintainability, and many more elements at the heart of delivering capital projects. Construction lawyers need to keep pace and understand these new techniques and tools (and how they affect the relationships among the parties to the process), the appropriate allocation of risk and reward, the pricing and scheduling of projects, and the emerging areas that are likely to engender disputes.
Additionally, these new tools, particularly in the scheduling arena, are already affecting how disputed issues are presented in mediation, arbitration and litigation. In an era when an animation showing the actual construction sequence as compared to the planned sequence can be easily and inexpensively generated, or even is generated entirely apart from its utility for educating the fact finder in a dispute – as part of the project’s ordinary planning and scheduling process – staying on top of the latest developments in presenting a disputed matter in the best light is a must. Such new tools can provide powerful insights as to what caused a project to get off-track. Because courts and arbitration tribunals tend to be inherently conservative in giving significant weight to methods of presentation and proof that are not “tried and true”, construction lawyers need to be able to explain in detail their relevance and reliability to a sceptical fact-finder.
When I entered construction law practice more than 30 years ago, the practice tended to be dominated by owner-contractor disputes that were either resolved by litigation or arbitration. Certainly the majority of disputes settled before trial or hearing, but settlement generally involved a haphazard process where conceding a serious interest in settlement was inhibited by the fear that the other side would see this as an admission of weakness. After a few years of law practice, it also became clear that a substantial portion of disputes were the result of personality clashes or poor communication between the warring sides. The construction industry, feeling itself plagued by excessive, costly disputes, searched for answers.
Through the efforts of many, both lawyers and non-lawyers, great strides in dispute reduction and avoidance have been made. The popularity and effectiveness of mediation is in large part due to its ability to permit two sides to negotiate a resolution through a mediator without having to be the first to suggest settlement, and to utilise the mediator to overcome ineffective direct communication and to keep warring, emotional personalities from preventing calm, constructive consideration of settlement possibilities. Dispute review and dispute adjudication boards (DRBs and DABs) are demonstrably effective in keeping parties communicating rationally about their differences as disputes arise, and in defusing incipient disputes before they escalate into open warfare. Design-build and EPC contracts eliminate the causes of many disputes by putting the designer and builder on the same side of the table, where they have every incentive to work together and their differences are of relatively little concern to the owner.
While major disputes still occur, they are fewer in number, and as a result the focus of construction practice has shifted somewhat. This is leading to significant changes in many construction law practices, as there is reduced need for fleets of associates to staff major litigation and arbitration matters, and more of a premium on senior lawyers. Clashing interests among the project parties in the process have not diminished, it’s just that many are resolved more quickly and efficiently. Yet nevertheless they still benefit greatly from the assistance of experienced construction counsel providing advice through the process. Demand also remains strong for lawyers with deep experience and expertise who can provide efficient and effective advice on a wide range of other issues, such as structuring, drafting and negotiating contracts and responding to a variety of environmental and regulatory issues.
Electronic Discovery Challenges
For those disputes still requiring litigation in a forum, such as the courts of the United States, where substantial discovery is permitted, the challenges and costs associated with discovery of electronically stored information (ESI) are changing the litigation process more extensively and rapidly than would have seemed possible a few years ago. Construction litigation has always been document and paper-intensive, and so with the arrival of electronic storage of most project documentation, construction disputes are near the forefront of the challenges of e-discovery. Two essentially opposing forces are at work in this respect. The first is cost – discovery of ESI can quickly become amazingly expensive, due not just to the need to review vast realms of data, but to the need to retain e-discovery vendors capable of collecting, maintaining, searching and filtering the mass of data that needs to be produced, as well that received in response to discovery requests. This significant addition to already high litigation cost ups the stakes considerably in deciding whether to litigate a major construction dispute, and drives many parties in the direction of settlement due to the large early investment that e-discovery involves.
The second force at work is the irony that e-discovery effectively demands much greater cooperation between the disputing parties. Gone are the days when a party responding to discovery could simply turn the other side loose in a warehouse full of document boxes, leaving them to their own devices to find the documents that are of relevant interest. To be conducted at all efficiently, e-discovery of ESI requires cooperation in the identification of a reasonable number of document custodians, and the formulation of search terms tailored to identify relevant e-mails and documents. To avoid search terms that hit on vast numbers of documents of no relation whatever to the dispute generally requires trial and error testing in an iterative process, necessarily involving a good deal of mutual cooperation. The absence of such cooperation multiplies costs for both sides. As a result, procedural rules that rightly presuppose that two litigating parties are not generally inclined to cooperate are yielding in rapid fashion to judicial demands for cooperation, or the imposition of stiff sanctions when not forthcoming.
These are opposing forces. Dispute reduction and the higher than ever cost of litigation mean that only the highest stakes, most intractable disputes go deep into the litigation process. But the parties, or at least their counsel, are at the same time under greatly increased pressure nevertheless to cooperate in the discovery process to a degree far beyond what has been the norm, in order to get their intractable dispute resolved by a neutral party. How these competing forces will play out and influence the litigation process in the years to come is beyond prediction, but well worth watching.
Reduced Litigation Means Reduced Precedents
At least in countries that have a common law legal system where precedent plays an important role, a steady flow of disputes that are decided in a written and published opinion, to serve as guidance for future decision makers in future disputes, is critical to the ability of the substantive body of law to grow and change over time. And the need for growth and change in the law is of course intensified in a period of rapid technological and other change in the nature of disputes and in the issues most prone to cause conflict. What we are seeing in the construction law arena, however, is a combination of increased need for the law to evolve and change, due to underlying changes in the way that capital projects are designed, built and delivered, but at the same time a sharp reduction in the number of disputes that are fully litigated and result in a considered judicial opinion that can serve as source of precedent. In short, the construction world is changing rapidly, but the law that governs it has little chance of keeping up when the number of new precedential decisions is much reduced.
The likely consequence in the short and medium term is a steady increase in uncertainty as to what legal principles apply, and a consequent heightened need to set forth the parties’ intentions very clearly in their contracts. For example, in the absence of many decisions clarifying the liability standard that applies to the party maintaining a BIM model, what the parties involved have provided on that subject in their agreements takes on much greater importance, and is highly likely to be given deference. In the longer term, mechanisms may well develop for alternative sources of law to emerge that become recognised as an effective replacement for precedential decisions.
We see change in all directions. Rather than just surrendering to buffeting by the strong winds of change, however, construction lawyers are well advised to stay tuned, keep apprised of changes as they occur, and work to stay at least a half-step ahead of the significant changes coming to the construction industry, construction practice and construction law.