How To Contain Construction Disputes

Author:Mr John Cooper
Profession:Jones Day

Imagine if, when a dispute involving defective design or defective construction first arose, it could be dealt with in a safe environment so that the defects could be remedied and the possible impacts of them limited, reduced or avoided? There is no reason why this cannot occur. All that is necessary is an environment where relevant experts (internal or external) are free to focus on remedying the defects. Background In the author's experience, complex commercial construction and engineering projects often suffer defects and, at least occasionally, these defects will, if not addressed quickly, result in serious financial consequences for the owner/user of the building, plant or equipment. The defects might also require significant analysis and engineering, with input from all parties, before a cost-effective remedy can be found and a partial or total rebuild is avoided. Sometimes the most cost-effective remedy might involve the owner being left with something different from that which was originally promised but which will be more than adequate for the owner's purposes. Consider the following scenario. An owner of a mineral reserve engages an engineering, procurement, and construction ("EPC") contractor to design, procure, and construct a processing plant for many hundreds of millions of dollars. The owner provides the contactor with a run of mine ore specification along with the specification required for the product. The contractor, in the EPC contract, promises that the plant, as built, will have a minimum output of product that will meet the product specification. After a number of years of design and construction, the plant is commissioned and it is discovered that the plant will not produce the quantity of "in specification" product required. The owner alleges that the plant is defective, and the contractor alleges that the run of mine ore contains elements that were not mentioned in the run of mine ore specification in the contract. A dispute ensues. The superintendent refuses to grant commissioning, the contractor disputes this refusal and refuses to accept responsibility, and the owner refuses to take the plant and operate it. While the plant sits idle, many millions of dollars are being lost due to lost production. The contract contains a limitation of liability clause, but there is no limit in respect of a failure to achieve commissioning. If the dispute is allowed to continue, without the plant being fixed, the commercial...

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