Managing multi-contract disputes with a multi-party agreement that enables dispute avoidance and consolidation
With the rise of mega-projects, it has become increasingly common for projects to be delivered under several head contracts, rather than just one. Recent examples include the three Sydney Metro lines, the North East Link project, the Borumba Pumped Hydro project, and the Marinus Link.
The multi-contract delivery model enables the project owner to create contract packages of a size that the market can more easily digest, thereby promoting greater competition for each package. It can also spread risk across a bigger pool of contractors and enable certain works to commence more quickly.
The primary downside of a multi-contract strategy is the contract interface risks that it creates for the owner — for example, the activities of one head contractor can delay or disrupt another head contractor, resulting in claims by the latter against the project owner for extensions of time and/or additional costs.
This often results in multi-contract disputes, as the owner responds to the initial claim by bringing a corresponding claim against the head contractor who has caused the delay or disruption. The project owner ends up in separate dispute resolution proceedings with each head contractor, as required by the dispute resolution process in each contract.
If the parties have chosen dispute resolution processes other than court litigation, the project owner may not be able to consolidate the two proceedings into a single proceeding, resulting in additional cost, complexity, and inconvenience for the project owner, as well as ‘gap risk’ from different determinations in each process.
Obtaining the agreement of all parties to consolidate related dispute resolution proceedings after a dispute has arisen is usually impossible. Accordingly, project owners are increasingly looking to manage the risk of multi-contract disputes by asking each head contractor to sign up to a multi-party agreement at the time of award of their head contract, under which it consents to the consolidation of related dispute resolution proceedings.
An approach that is finding favour with astute project owners involves:
establishing a single dispute board that can assist the parties to proactively and amicably resolve issues that could otherwise escalate into significant disputes;
if a dispute is referred to the dispute board for a formal decision, enabling the dispute board to invite all relevant parties to make a submission and to thereafter issue a decision that binds all relevant parties (absent a notice of dissatisfaction); and
requiring any related arbitrations that are commenced if a party is dissatisfied with the dispute board’s decision to be consolidated.
By adopting arbitration as the final step of the dispute resolution process and carefully selecting the substantive law that governs the contracts, the project owner can opt out of proportionate liability legislation, including potentially in jurisdictions that don’t permit contracting out, given the High Court’s Tesseract decision.
Finally, a multi-party agreement also provides a contractual vehicle for achieving other desirable outcomes on multi-contract projects, such as governance arrangements and bonus regimes that facilitate greater collaboration between project participants.
