The Blake Newport Lecture 2009

Managing Construction Contracts During the Credit

Crunch

Paul Bennett MSc FCIOB MCIArb Blake Newport Associates

Reducing the risks

Contract formation Letters of Intent

Management, Management, Management

Bonds and Guarantees Credit checks on contractors,

sub-contractors and suppliers.

Carry on doing them – not just at outset Price neutrality – don’t pay for what

you don’t own Use vesting (even in factories) Trust / escrow payment arrangement Attention – Retention!

Practical Consequences

Growth, turnover profitability and confidence have enabled parties to avoid having to get “contractual”. If money is tighter there will be more reliance on contractual protections

Danger of cutting down on quality, resourcing, supervision if money is tight

Temptation to buy work if the order book is empty. Beware of “too good to be true” tenders – they are too good to be true!

Partnering on the decline

Case Studies

Payment / Managing Cash Flow Variations Record Keeping Claims Handling

The Modern Supply Chain

Greater fragility

Your risk is the risk of the weakest link in the chain

How well do you understand your supply chain? Who has the bargaining power where a link breaks?

The Last Resort

Focus on availability and use of determination clauses Termination for convenience if you lose confidence in

member of supply chain Termination for convenience in case you have your own

problems or need to scale down / slow down Termination for default / insolvency

Termination Under Contract

Insolvency not breach: Perar v General Surety (1994) 66 BLR 72

Expressly provided for in standard forms

Issues in the Face of Termination

Excess completion costs Lack of warranties Inability to pursue claims / counterclaims Costs of rectification Set-off Bargaining power

Some Practical Advice

Notify within your organisation Consider your options carefully Balance your legal rights with your practical needs

alternative supply time scales ransom payments ownership of intellectual property effect on main contract

Assess paperwork Can you terminate? Do you want to? What would be the consequences? Make sure you do it properly

Different Insolvency Processes

Insolvency Statistics 1992 - 2007

0

5,000

10,000

15,000

20,000

25,000

30,000

1992 1994 1996 1998 2000 2002 2004 2006 2007

Receivership

Administration

Liquidation

Insolvency Statistics 1992 - 2007

The Biggest Danger of All

Careful – let’s not talk ourselves into a problem that is bigger than it need be.

‘The Sahara Syndrome’

“The only things that are relevant are what has been written and what has been built…

What is said is blown away like sand in the desert.”

RecordsRecords

RecordsRecordsRecordsRecordsRecordsRecords

Survival Principles

Bid things right Build things right Bill things right And collect the cash

Thank you

Paul Bennett - Blake Newport Associates