Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Hello everybody, welcome to the session. I will just give everybody a few minutes, a few seconds to come in from the lobby. I heard the Church bells ringing outside which says that it must be noon and about time to start. Excellent that’s given everybody a bit of time to get into the session so I can get going.
Good afternoon everybody and welcome to this Disputes Nightmares scenario session. My name is Rob Griffiths and I am a Technology Disputes Partner in the Innovation Team here at Mishcon de Reya and my practice is focussed on assisting clients with their complex business critical technology disputes. Today’s nightmare scenario is this; you’ve just heard that a critical ERP project that your company is involved in is around six months behind schedule and your CTO needs urgent advice before reporting to the Board and I am joined today by two experts who are going to help me to address this scenario. We have got Ashley Williams who is also a Partner and Head of Technology here at Mishcon and he specialises in the contractual aspects of IT projects and I am also joined by Sena Gbedemah who is a Managing Director at Secretariat and he is a recognised expert in delay analysis.
Good afternoon to both of you and thanks a lot for joining me today.
Sena Gbedemah, Managing Director
Secretariat
Thanks for having us.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
So the discussion… thanks Sena. So the discussion today is going to be split into four parts. The first of those is going to deal with the immediate steps that you take in the first 24 hours about learning about this critical delay. Secondly we are going to follow on into the investigation and analysis steps that will allow you to understand the causes of delay and some of the contractual implications of that. Thirdly we’ll look at some of the strategies for renegotiating and resetting projects and finally we are going to talk about some of the options available to you where resolution isn’t possible such as termination or litigation. Throughout we are going to try and build in some tips and tricks that can help you to reduce the risk of delay in future projects. There is a Q&A box at the bottom of the screen so please do add any questions that you would like us to address and we will try and deal with those at the end if there is time and if not, we’ll try and follow up with you personally.
So before we jump into the first section, a quick word of caution. It is natural to feel really aggrieved by delay in projects and think that the fault lies entirely with the other party. However, IT projects are really complex and the responsibility is typically divided amongst multiple parties and it is rare for blame to rest solely with one side and so for that reason it is really important, essential to proceed with caution and objectivity and the steps that we are going to discuss in this webinar are intended to help you to protect your position and avoid the sort of missteps that can undermine even a really strong case. It is important to remember that a good contractual position can be weakened by the actions that you might take in response and taking a measured, evidence based approach is crucial to achieving the best possible outcome.
With that in mind, let’s start with the first section and look again at today’s scenario. You’ve just discovered that this key project is going to be around six months late. Now obviously most delays in projects develop slowly over time and there is early warning signs that are often present such as missed milestones or disputes over scope or disagreements regarding approvals of certain aspects of the project but not all of those matters will filter through to the legal team and it is therefore often the case that the realisation that a delay is going to cause a significant legal issue is a sudden urgent matter. It is therefore important for the legal team to get to grips with what’s been happening on the project as quickly as possible so that things can be put on a proper legal footing and to do that some immediate steps we think are crucial. So first of all you need to locate and review the contract. You need to find the master agreement and any applicable statements of works or order forms and all of the amendments and change requests that might be important. And then you need to conduct a really careful review of those to understand the nuances even if you drafted that contract yourself because time passes and it is important not to assume that everything that you thought was in the contract has been remembered correctly. So always go back to the contract and start that review from the beginning.
Next up you should carefully examine any notices that have been sent or received in relation to the delay and then it is sensible to review the contract covenants and the dispute resolution procedure just to make sure that you are familiar with those processes and that you follow them to the letter from the outset. You should then speak to the key stakeholders to understand any immediate deadlines and gather preliminary information about the project status, what went wrong and why and you should check for immediate deadlines and diarise those. It is important as I said at the start, not to make a situation worse by missing things like key contractual deadlines for a response. You should then put in place processes to control the flow of information. Consider sending out a legal hold or setting up privilege groups and once you have an agreed strategy a bit later on think about how you are going to communicate that to the key project stakeholders. And finally, you should start to prepare some of the key documents that are going to help you later even if you don’t have all of the details yet and we particularly recommend that you do things like prepare a chronology and start preparing a key stakeholder map or 5.40 so you can understand who’s involved in the project and why.
So that’s some of the legal things that you can do at the outset but Sena as a delay expert from your perspective, perhaps you could outline some of the value that you bring in this initial response phase and explain how your early involvement can really help shape the subsequent investigation and resolution?
Sena Gbedemah, Managing Director
Secretariat
Thank you Robert. So for me as a delay expert I’d first want to understand what the general counsel wants and I have outlined three things. The first one to size the problem and then one to arrest and address further development of the problem and then start to minimise the exposure. So early involvement of the delay expert can help to establish the true status of the project. Is the delay really six months or is it continuing and developing. Don’t forget that it is a live project. So this helps with sizing the problem and the next, the next thing that a delay expert can help is to identify the causes of delay. Once causes of delay are identified it can help the legal team to allocate responsibility for that delay and again this is starting to minimise exposure. The delay expert can also help to start structuring the fact finding process where there is going to be a 7.09 or mediation or maybe you know, it might turn more formal in the future. So it is about structuring the fact finding process and preserving evidence again minimising exposure and lastly the delay expert can help to identify procedural vulnerabilities and immediate risk, for instance to do with project governance and project management structures and again this helps minimise risk and exposure on future projects.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Thanks Sena, that’s really useful. So, so once that initial phase is over and you are perhaps part of the first 24 hours of the emergency. The next steps to establish the accurate picture of events and to do that the first thing I would suggest you do is pull together and secure all of the relevant records, all of the emails, instant messages, chains, logs, meeting minutes as those will be really critical evidence, critical pieces of evidence that help you to, to piece together what’s gone wrong. And next up I’d look at conducting some detailed interviews with the key stakeholders to help you get to the bottom of the issues and one of the things that I’d really push for there is to try and have individual interviews rather than to get everybody together in a group and that can help to avoid group think or people giving the answers that they think they are supposed to give instead of actually helping you to get to the bottom of some of the key issues. And that stage the legal team can begin some of your own high level delay analysis, for example comparing the contractual timeline with the actual project progress to see if you can identify where some of the delays occurred and whether those trigger contractual remedies such as liquidated damages. But often it is a lot more complicated than that to try and get to the bottom of, of the delay and that’s where someone like Sena comes in. So Sena, how do you determine the actual causes of delay when there is perhaps conflicting accounts?
Sena Gbedemah, Managing Director
Secretariat
Sure well the answer to that Rob is records, record and records again, contemporaneous records. Very important for both stages of or the two key stages of delay analysis. The first stage being the extent of delay where you would review the plans and starting with the base line of course and maybe perhaps other regular monthly or weekly progress updates. If there are no schedules you could use other records like meeting minutes, progress reports to establish the extent of delay and typically such a review would be a critical path message which you may have heard off which would be derived from a structured plan on, on IT, on projects, we are typically talking about a waterfall type, type plan or programme which has a well-defined scope, timeline and deadlines. It is not to say an agile, everyone knows that agile has different priorities or different objectives which might be increased flexibility, improved collaboration, maybe perhaps a focus on the customer so time may not be the most important objective. But that said, so long as that agile plan has clear defined timelines and stages a critical part that can also be applied to identified the extent of delay. Once the extent of delay is identified the second stage is identifying the causes of, of that delay and to do that, to do this you need records; again progress reports, meeting minutes, ER, PR, architecture or blueprints, work room mapping, that sort of thing. Basically anything that’s got a date stamp on it would or potentially could prove useful. Once the causes of delay are established this can be used to identify or distinguish from responsibilities i.e. excusable, client’s cause or client responsibility, delays and non excusable which might be the supplier caused delays. And it also guides the client in facts providing a solution, mapping later on to, to you know, go in to which issues are recoverable and which issues they have to live with.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Great thanks again Sena. And we’ve mentioned a few times that you should you know, go and look at the contract but it’s not always that, that simple because for example, the, there’s unknowns at the beginning of a project and then changes during the project that mean the contractual position can sometimes lack a little bit of clarity and there also might be things like change orders or, or emails that, that they would sort of scope 11.47. Ashley what, what issues would you expect to encounter when you are looking at the contractual analysis and what sort of provisions might you expect to see in the agreement which could govern the legal response in relation to the sorts of delay that Sena’s been talking about?
Ashley Williams, Partner Innovation Team
Mishcon de Reya
Yeah, I mean this is going to sound slightly pessimistic but I think before I even pick up the contract I know it’s unlikely to give me a perfect picture of what the reality really is and that’s really for two reasons but I think definitely more and more it is quite common these days for the first statement of work in a project to be more exploratory in nature so to deal with those unknowns of the projects and so the idea being that as part of that exploratory first statement of work, you’re identifying areas where you may need to add more documentation to the contract later down the line and pad it out but you know, best will in the world you get involved in a project you get a little bit carried away and sometimes those deliverables are not always done in the, in the most perfect way and then the second is I think you rarely get through or very far in a project before you need to start thinking about some contractual changes. So change orders are fairly common in large IT projects and I am glad we have Sena on the line because normally I’m the one that is really pushing the records, records, records piece but he’s picked that mantle up for me but I think if you know, if you have high contractual discipline then you may capture that in change orders but typically those might be just agreed over emails and you know, captured in, in the core contract framework. So part of that and my job is not only to look at the pure contract but try and get a bit of an understanding from those email correspondence and speaking to people to understand really what has happened over the last however many months we have been doing the project. But ideally what I would like to see in the contract would be really clear detailed allocations or responsibilities between the parties so normally when a delay happens the first thing I will look at is the service schedule and try to see is it clear who was responsible for what because we all know when delay happens it’s never just one person’s fault, both parties are pointing the finger at each other in those situations. Then I’ll typically look at the milestones piece so are there clear milestones, are there deadlines and timelines clear enough and are there trigger points clear enough for payment in that respect. And then linked to the milestone we’ll often see some kind of relief event. So if we have caused delay for example, previously as a customer and a supplier often the supplier may have a relief event in that situation to match the amount of delay that the customer has caused the supplier and then finally and probably the most important piece, particularly for you Rob, it would be then the remedies. Looking at the what happens if a delay has been caused and normally there I am looking for a couple of things, one would be that liquidated damages piece that you just talked to, so the pre-agreed sums payable for missed milestones, are there any pieces like that already detailed in the contract and then the further rights that might be available so that might be step-in rights to step in and, and take over some of that activity yourself as a customer. It might be rights to withhold payment or you know, in worst case scenarios, termination rights. I think often when we go through all of those processes, for all of those provisions there might be a number of procedural steps included and I think to your point Rob that you were alluding to at the beginning, making sure that you’re complying with those procedural steps is really important to put yourself in the best position later on for either leveraging when you are re-negotiating or worst case scenario, getting to a bit more formal dispute.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Great thanks Ashley. And you mentioned at the start there that the, the legal documents might not be particularly clearly and I think one of the issues that you have in a situation like this is unclear legal documents but also an unclear factual matrix and Sena that’s another area where you can come in and, and I think it would be really interesting to hear about what you do to reconstruct an accurate timeline when you are faced with sort of conflicting factual view points from, from different parties.
Sena Gbedemah, Managing Director
Secretariat
Yeah thanks Rob. So we talked about establishing the extent and the cause of delay earlier. This, this is basically going into more detail on that and so goodwill determining the factual matrix amidst you know, like conflicting factual matrix or seemingly conflicting factual matrix is to breakdown the timeline of analysis of extent into stages. These stages we delay experts like to refer to as windows and its basically breaking down, it’s almost irrespective of the method, is breaking down the analysis itself into chunks or stages or windows and in each window we’d identify the critical path acting at that time and establish the extent of delay and the causes of delay so then the legal team can once again allocate responsibility on a window by window, stage by stage basis. Sometimes there may be more than one event for which either party is responsible with looking like they are driving the critical path. In that sort of case we would normally refer to it as concurrency but true concurrency is relatively rare and what you can do is drill down a bit more into basically more windows means a more accurate analysis but you obviously have to be proportionate with the size and cost of analysis versus the actual stage and status of the problem.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Yeah, I think that’s a really good point. You’ve got to be, you’ve got to be proportionate but also not just in relation to cost but sometimes in relation to time. Sometimes you need to get to a, to a result so you can you know, respond to the other side and respond quickly enough to…
Sena Gbedemah, Managing Director
Secretariat
Yeah.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Absolutely. And we’ve talked a lot about the different types of the delay that can, can occur and I think it’s clear that not every delay would automatically result to a, to a breach of contract. I think whether the delay constitutes a breach will depend on the precise terms of the contract and it’s always worth going back again and checking, checking that position particularly those positions that Ashley mentioned in relation to milestones, time performance and perhaps any relief or extension of time mechanisms that might have been, been operated. But even where there is a breach entitlement to damages for delay might depend on whether that delay is material and that’s another area Sena where you can help. How do you go about assessing whether a delay is, is material as opposed to perhaps minor or inconsequential?
Sena Gbedemah, Managing Director
Secretariat
Sure so the term, the terminology we use for material and minor is critical and non critical and this is because the critical path is also known as the longest path through the network of activities and typically, and it’s no surprise that the longest path controls the completion date at the end of the project so a delay that sits on the critical path or longest path would be material i.e. it would impact the completion date of the project or some other milestone that, that’s relevant that you’re looking at. Whereas a delay on the shorter path would not and that’s how we distinguish between material and minor delays.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Thank you. And, and I suppose from a legal perspective, material breach doesn’t necessarily have one sole meaning either, it, it will depend on the terms of the contract and, and also material breaches can, can vary in size and scale so it could just mean a breach that wasn’t, wasn’t trivial. It could be a breach that’s perhaps serious enough to justify termination of the contract on its own at common law so again it’s another, another area where the sort of careful legal and factual analysis can really help you to decide what you can do in relation to the, to the breach that’s occurred. Perhaps if we move on and come back to our scenario and go to the, to the next stage. We’ve established now the facts, we’ve assessed the available contractual remedies. The next steps I think to consider how best to re-set the project and move forward and I’ll say that because in most cases termination is going to be a last resort. Termination almost inevitably leads to litigation which is expensive and time consuming and rarely delivers a completed project at the end and also that process of procuring and specifying and mobilising a new deliver team can take months or perhaps even years and often leaves the business in a much worse position than if a pragmatic solution had been found. And that’s why we think it’s critical to treat termination as an option of last resort and the steps we’ve outlined so far which are all around carefully allocating the blame and risk and establishing a really robust factual and contractual position help you in litigation but they are not just about preparing for litigation. They are also really powerful tools to use in a negotiation because by clarifying people’s responsibilities, perhaps exposing weaknesses you can really apply pressure where it’s needed and help bring all the parties together to table a realistic and workable re-set plan. So Ashley, another question for you here. There’s always a risk that as a project start to falter perhaps the suppliers best people are reassigned and standards begin to slip as there’s an effort to cut costs or recover time. When you’re looking at this sort of re-set and renegotiation piece, how do you strike that balance to make sure the supplier remains engaged and incentivised to perform under a new plan?
Ashley Williams, Partner Innovation Team
Mishcon de Reya
It’s going to sound slightly odd as a contracts lawyer but ignore the contract at the outset. I think start with the relationships piece so identify who are your best stakeholders to get the relationship back on track and make sure they are really fully engaged on both sides, particularly on those earlier stages when you are, when you’re re-setting the relationship and if in doubt I think over index on bringing them in where there’s any issues at that beginning bit to keep, to keep the re-set plan on track and I think recognising that this is collaboration rather than confrontation is usually essential to really successfully re-set particularly when the supplier is going to be needed to complete the project or if they are going to become your main team for support and maintenance after the projects completed. It really needs to feel I think like a win, win on both sides of the fence so you know, if you’re the legal team maybe having a little word with yourself and say, you know this is about creating a good collaborative relationship and making sure that you are all aligned with that thought process. And then in terms of what I would actually want to see in the contract, I think it’s not uncommon to see key personnel clauses added at this stage to identify who you are going to need to complete this project and generally when you’re the customer you are worried that some of those key personnel maybe rolled on to more postural projects so you want to kind of cement them in to get this over the line and then the rest of it for me is really all about contractual focus so then clarity of allocation responsibilities, more clarity on timelines and milestones but in terms of that incentivisation moving away a little bit from penalties and things like liquidated damages and more focussed on incentivising payments and triggering, triggering payments once those milestones have been completed and if you are the customer and time is really important to you, you may even think about additional payments to a supplier if they come in ahead of, ahead of schedule so I think it’s just recreating that right mentality when you are negotiating the next phase of the relationship.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Thanks Ashley and you mentioned that, that collaboration. It’s really important to try and facilitate a consensus amongst all the stakeholders and some people you would think would be really keen to, to just move on and put the project behind them rather than help to get it back on, on track. Sena have you got any tips about how you can facilitate that consensus?
Sena Gbedemah, Managing Director
Secretariat
Yes so, so from my view point I have been, I have been involved in you know, meetings where we’ve had to re-baseline a project, we put in a new programme and go for it on that basis and it is interesting Ashley was talking about collaboration versus confrontation. I think the worse one I had was in a without prejudice meeting that had been going on for months, there was confrontation and a deal was reached so we all had to flip into collaborations and, and so the key to that I think is promoting transparency where everyone owns the programme so you, the, the, you, you go to the meeting with you know, perhaps a problem that everyone’s got to solve and you collaborate to solve that by coming up with a plan that will reflect the new timeline rather than imposing that on them. And adoption of good project governance is another key area to, to adopt going forward because a lot of times with disputed projects it tends to be the, the, the project, the, as well as the issues, it tends to be the project management and sometimes even the relationships that, that lead to these problems.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Thanks Sena. So that brings us then to the final section. It’s not always possible to negotiate a viable re-set or a recovery plan and it might be necessary to consider some of the more formal remedies including breach notices, termination and claiming damages in, in litigation or arbitration. Now in this flash session we can’t do justice to really big topics such as breach and termination. They are deserving of sessions of their own. Hopefully today we’ve whetted your appetited a little bit and you might join us for future digital sessions and round tables where we are going to discuss those topics in a bit more depth. So for now, just two short points on, on breach and termination and also litigation. The first is that if you are considering termination it is absolutely vital to, to follow the contractual process to the letter. That includes really strict compliance with the requirements for service of notices and cure periods and any pre-termination obligations. With any deviation from that prescribed process under the contract can undermine your legal position and expose the business to, to counterclaims. And second, it is also essential to bear in mind what can be recovered in litigation or arbitration because that’s going to be determined by the contract itself and in particular by things like agreed limits or exclusions of liability and recovery might be restricted to certain types of losses or be subject to caps or even be expressing completely excluded in some cases. So understanding those limitations at the outset is critical to forming a realistic view of the potential outcomes of any dispute.
So that’s going to bring us to sort of close to time so, so just a few final points in conclusion. For me I think three points that bear repeating are these three. Firstly, when delays occur the contract is your primary safeguard so ensure that all of the processes and notice requirements under the contract are followed diligently. Secondly, establishing the facts vigorously is really important, don’t assume anything without verification and finally, if a re-set is required, ensure that there is an appropriate balance between that collaboration and, and accountability moving forwards.
Ashley, Sena as we, as we close out, perhaps you could share your top take-aways from today’s session. Sena do you want to start?
Sena Gbedemah, Managing Director
Secretariat
Yes so my top take-away without meaning to sound like a broken record is records, records, records.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Ashley?
Ashley Williams, Partner Innovation Team
Mishcon de Reya
I like the pun there as well. Mine would be don’t win the battle on the main agreement that you spent months negotiating and then lose the war on the statements of works or change orders or lack thereof. Spend a bit of time making sure that you’re capturing those changes as you go through the project as best you can and maybe avoid that mentality of we’re all friends here so no need to worry about papering that up the trap.
Rob Griffiths, Technology Disputes Partner
Mishcon de Reya
Thanks Ashley, thanks Sena. Thank you very much to both of you for joining and sharing your insights today and thank you to everybody for joining us. We hope you found this session useful. Do look out for further sessions in this series which is the Dispute Nightmares Scenarios. We’ve also got an in-person session next week on project disputes. That’s a breakfast session where I’ll be speaking in relation to IT projects but also alongside some colleagues in construction projects and energy projects, hopefully sharing some of the top tips of dealing with projects that go off track in those three sectors. So if you are able to join that, us, it would be fantastic and if you have not already signed up, details are likely to follow after this session where you can do so. Otherwise thank you very much and I hope you all have a great afternoon.