So the scenario that we're looking at today is a project which involves the design and construction of a power plant and towards the end of the project, but before taking over, there was a fault which caused the turbine to explode.
This caused significant damage to the turbine itself and led to the project. So that's the particular scenario that we're going to look at. But major projects can go off track for all sorts of reasons. Due to their complexity, their scale and the number of stakeholders involved. Delays can arise from technical issues, as in our scenario, or resource shortages, changes in scope or external factors leading to increased costs, disputes and reputational risk.
So I'm joined today by Rob Palace-Clark, a managing director at Kroll who acts as an expert in the fields of delay and quantum, and Alison Tusker, who's a managing associate in our insurance litigation team here at Mishcon. So let's start with Rob. Well, thinking about our scenario where there's been such an incident and really quite a catastrophic event before the project is even handed over.
What are the immediate steps that you'd be taken when it's that you'll be taking? When it becomes apparent this project is going to be in delay? Well, firstly, my thanks, Alex. And, to the team at Michigan, Tara, for inviting me to join this session, which I'm looking forward to participating in. I think the first thing is obviously there, there are going to be health and safety issues around, an event of that sort.
So the first thing is to secure the site and make sure it's safe to, to access the work. And then the next step will be to, conduct a thorough site assessment of the progress of the work. And you need to know exactly what the status of the work is at the date of the event. For a variety of reasons.
One explore. A lot of construction sites have drones, video surveillance cameras on cranes and so on. So it may be that that is a record that can be kept on that particular day, and will already be there. But but in my experience, a lot of construction sites where that type of record is not kept. So as I strongly recommend getting to the site with a team and doing a thorough appraisal of where the progress of the works has got to. Analysis and what would you what from an insurance perspective, do you think is worth doing at that immediate, you know, in the immediate aftermath of such an event? Thanks, Alex.
Yeah, I really, agree with Rob. All these steps, are also really, important from an insurance perspective. So from the very outset, identifying the cause of the delay and carefully documenting the steps, taken in that, process of, of identification are very important when it comes to considering whether there is any cover available under the insurance policies in place or whether the loss is excluded.
So it's important right at the outset to consider whether you wish, to get either your own independent loss assessor or expert, to, help you. So once you notify, to your policy, insurers will get in place their own adjuster or their own experts. And this will be done before cover is confirmed.
So, if things get contentious, you might never get the results of those investigations. And so it's useful to have your own independent, contemporaneous, evidence in place from day one. Yeah. I think I'd always recommend that parties get their own expert involved. As early as possible, because you can't you can't move on and fix the problem until you understand the reasons why what has happened has happened.
The sooner that you can do that, the sooner you can get your project back on track. So that I think that's really important. And as well as understanding what has happened, what do you recommend, what the parties do to protect their position on the, the relevant contracts that they've got in place? Yeah, sure. So, the first thing I think in this scenario is, is obviously to assess the extent of the damage and what remedial work is going to be required to make it good.
But then what you need to do, is to ensure that you understand what, whether the work is on the critical path to understand the extent of the delay records and to understand the extent of the delay already, incurred on a project. And in my experience, it was one particularly good project I was involved in many years ago, in which the, client had basically appointed a programmer to meet with the contractor on a monthly basis and to agree what the critical path was as the project progressed.
And, you want to make sure you're getting your notices in to insurers, as soon as you need to, and if there's any uncertainty over whether or not a policy will respond, it's always best to on the side of caution. Put a notice in, just in the just just in case. So is it worth, reviewing the contracts, that you have in place the other parties in the project to see what insurances they were required to put in place so that you can notify them, and then they can pass those notifications on to their insurers.
If needs be. Yeah. And I think understanding the contracts that you have in place is important beyond the insurance position, because you need to think about whether there are any notices that you need to put in under that particular contracts. So under certain contracts, and I'm thinking here of fiteq in particular, they have strict timelines for issuing notices of claim.
And those notices are a condition precedent to making a claim. And I know that in some situations, parties can feel quite nervous about putting in contractual notices for fear that that's going to damage the commercial relationship that, you know, if it's an employer in a contract that they have between each other, but in some situations you do really just need to put in those notices.
And I always think it's better to put in the notice. And if necessary, have a WP conversation alongside the notice to explain that, look, we're doing this. We've been told we have to do it, but we still hope that we can work together. And the other thing that you need to think about is which of the stakeholders need to be notified.
So you might have lenders and users, purchasers you may have obligations to notify under, you know, various contracts. Or you may feel from a relationship point of view that you need to notify. And that'll be a judgment call depending on the particular situation. It's going back to contracts for an employer. You need to think about what remedies you've got for delay.
And that might be remedies such as liquidated damages and whether notices are required for that, and whether you want to start deducting liquidated damages as soon as you are able to, or whether you want to think about holding that back and reserving it until a later point in time. And that will very much depend upon the commercial relationships that go in place.
So those are the the immediate steps that we'd consider. Rob, is there anything else that you'd think about doing? Once those immediate steps have been undertaken? Well, yes. One of the considerations when assessing the impact of an event like a, like a failure that we're describing is that there obviously will be some remedial works and, there will be an issue as to whether or not that work is on the critical path.
So the completion of the project, because if it is, then obviously it's going to carry a higher level of loss, probably with profit on time or energy costs and the like. If it's not, that, then the assessment of the damages may be different and say you do need to understand whether it's on the critical path to complete, but you also need to look at the, the preexisting delays that may have occurred, because quite often, the way claims are made for events like this is that there's an anticipation completion date, and then this event comes along and the claim is made for the extension to that anticipated completion date.
But if the preexisting delays mean that the anticipated completion date, there's actually never going to be incurred, and, of course, that mitigate some of the losses that that might be claimed for the event. So you would I think you would want to apply a programing expert or someone to review the underlying causes of delay and their incidental impact up to the date of the event.
And perhaps beyond this, if it's other work that's running in parallel with the remedial wounds. Yeah. And Rob, I mean, my experiences and I wonder if this is your experience to the often, preexisting delays are wrapped up into the new claim and almost hidden in the new claim so that parties don't have to take responsible for those earlier, take responsibility for those earlier delays, and it all gets sucked up into the event that's happened.
And a contractor might try and claim all its time and money from that point forward, even though it was always going to be late anyway. Exactly. So yeah. Yeah, okay. And just thinking about the media works once you've looked at the underlying issues and the, any preexisting delay and where the project was on time, where the project was at the time of the event, then after that, attention is always going to turn to how to get the project back on track, what actual remedial works need to be done?
I mean, that's always going to be a question for the professional team. Working together. Yeah, exactly. And I think, one of the we touched on this a little bit already, but, one of the important things is to understand what the, the implications author may be over the course of the project, but also to be able to be able to identify what the resources are they're engaged with, with, because if if it's proceeding at the same time as the remainder of the project, it might be partially on the critical path or having, critical parts of it's important to understand what costs as well as time implications actually linked to the remedial work. So keeping ideally we I would recommend contractor deploys different resources to carry out from aging work. So it's clearly identified as a separate project cost. And it's really important to have clear records as to the cost allocation that that can be properly associated with the event. Yeah. And I think that at that point, once remedial works have been scoped, then it's a good time for the parties to sit down and think about how the project is going to work moving forward and whether they might want some sort of deed of variation to their original contract to reset the project.
Terms, the timelines, perhaps the financing arrangements and they can be quite useful at that point to think about whether you want a new completion date and new incentives to achieve that completion date, because often the liquidated damages are just not sufficient for the employer to cover the loss that's going to be suffered. And they might be willing to pay a little bit more for the contract to, to achieve certain dates, particularly if you've got, particular deadlines that need to be met.
It could also be worth, at that point, thinking about whether the project needs to be completed all in one go. If that was always the original intention, or whether you could split it into sections, I mean, that probably wouldn't work for the power plant that we're talking about. But for other projects where, you might be able to hand over parts, say, a commercial element before a residential element, then it can be worthwhile thinking at that point, whether it's worth splitting up in that way, so that you can get access to some of the project earlier than than other elements.
And I've seen that done well where there's, you know, where there can be a clear delineation. And I've seen it done quite badly, actually, where the, the sections, quite nebulous in scope and it's not clear what exactly needs to be handed over. All the parts can't be handed over without some of the other work needing to be done, so that needs to be.
If you're going to split the project into sections, it needs to be thought through quite carefully about what can be realistically handed over any given point. Yeah. Totally agree. Yeah. And Alison, us as the media works for ongoing, is there anything from the insurance point of view that needs to be thought about? Yes. So it's really important.
I would say, to ensure that policyholders don't prejudice their recovery rights under their insurance, that they keep insurers up to date on any proposed interim and long term remedial measures. You want to get there by and before that process begins. If urgent action is required and coverage hasn't been confirmed yet, you can always seek their comments.
Without prejudice. The coverage, position. You might not always get the responses that you want from insurers, but it's worth keeping them updated and requesting their consent. Especially if things become contentious further down the line, because at least you thought you can prove that you try to, try to to get their buy in. One issue we do see regularly is policyholder, entering into a settlement agreement preemptively with a third party and not getting insurer's consent, which can lead to, recovery issues.
So it's just really important, to update insurers before you commit yourself to any course of action, even if you think that that course of action is ultimately improving your position. Yeah. And I see it on, projects that I've been working on where you're towing that line between the insurers and not not saying that coverage is there or the, you know, they're being slow in confirming coverage.
So the party will want to to be fighting that and fighting for coverage. But at the same time making sure it's keeping all its options open against the any other counterparties, you know, for an employer that might be against the contract? Because, well, one, because if the insurance coverage is not there, that will be the main point of claim.
And if the insurance coverage is there, then the insurer, well, will want to bring a subjugated claim against that party anyway in many situations. And the insured party has an obligation to to always act like a prudent uninsured and ensure that those rights are preserved as much as possible.
Yeah, yeah, absolutely. Okay. And just moving on from thinking about practical stats. So obviously, parties are going to hopefully be working together for the good of the project to get any remedial scheme in place. But alongside that, it is important for each party to consider their own legal position and how they can recover their losses, either against insurance or any uninsured losses.
And in that case, it is important to think about any notices for any particular claims. Whether you need to put a note says whether you need to go through any steps before you can bring a claim, such as, you know, settlement meetings, senior manager meetings, and making sure that even if you don't want to go through those steps that you are aware of the timeline and how those claims would work, and then what the ultimate dispute resolution options are.
Preparing for those, you know, in terms of getting the evidence ready, it's always easier to gather evidence contemporaneously. And I'd suggest that parties do that as they go along. In these kind of scenarios. And then I think, finally, I, I think, Alison, did you want to say something about insolvent parties? Yes. Just that, another recovery that might be worth, exploring or being aware of is that, often third parties will have gone insolvent and big projects.
And it's worth being aware that you might, be able to explore a direct claim against the insurers of any insolvent third parties. Under English law, a third party can claim against directly against the insurer of an insolvent third party if that claim would have been covered. Yeah. And in our context, that's often, professional indemnity insurance on construction projects.
Yeah. Where there's design defects. Yeah. You could, then finally stop thinking about longer term actions. Do you have any thoughts on how parties and organizations can learn lessons from this type of scenario? Yes, I think there's quite a few things. And obviously for employers getting a lot of repeat construction, this is this is essential for future work.
The first thing you really need to do is to make sure that you've understood why, the project has been delayed and document those learnings for future projects. And I think that's that's that's invaluable. And that can go back through, the whole project cycle and probably projects tend to start from, from the very beginning. The way in which they're procured is the extent to which the shapes defined and so on.
And so forth. So I think understanding all of that is vital. There's also an issue which arises in relation to team performance, as I know it's used in this on jobs, where the client feels tempted to insist on removing senior project managers from contractors team on the basis that they've formed the view that they're incompetent, no experiences.
So they may not be as good as others, as others. But beware of doing that because you lose the project knowledge of that project director. So. So I don't think I'd ever recommend a complete replacement, but obviously even contract has to do what he has to do in order to respond to his or her contractual obligations. So that is something that is that I have seen done, but that it won't make any difference if that doesn't address the underlying issues or causes a delay to the project.
I think the other thing is be proactive in managing competence and accountability. I think, there are clients obviously, who stand away from the project and allow their professional teams to settle which which may be fine. But in my experience, particularly if you go to an end user or a client, which is, you know, that high tech project which is likely to be subject to change, then having an informed client they can make decisions quickly and efficiently is actually vital.
So it's not just about managing the professional team, but also recognizing when the employer needs to be involved. And I think finally, change management is a massive issue and construction project, the later you leave it to make a change, the more impact it can have. A really simple example is, changing the size of a door. If you do it before the brick walls build, no impact.
If you do it after the brick walls are built, you're going to have to open up the bricks and put a new lintel. Then if you do it when everything's finished, you're going to have to change all the internal finishes. You're going to have to replace the door altogether. And the cost impacts again, is much greater. And there might be a time impact on the project.
So, so I've seen clients on projects, take a position towards the end of the project in the type of situation we're talking about. When I say, right, no more changes, we're not going to make any more changes. And that has two effects. It saves the employer the risk of claims against it for arguments about change, but also and actually makes life easier for the contractor because late changes have such an impact.
So I think those would be my sort of key takeaways. Yeah, I think obviously that's really important. And the point that you make about, employers being involved and knowing what's happening so they can make quick decisions, I think is important. And on the change point, having your design done, if you're, you know, if you're having a project reset, then having a completing as much design as possible, because often these changes arise due to, lack of the design being completed.
Yeah, exactly. Yeah. And I think finally, for me, it, I would say that looking at the contracts, after the event can be really helpful for lessons learned because often contracts, they, they make sense just written on the page and they seem to work. But once you you have one of these issues and instances, it can really highlight where there might be gaps or issues in the contract, where there were scenarios where the contract just doesn't deal with.
And it's always worth thinking about whether you want to specifically cater for that in future projects. So I think we're coming to the end, and that was really all we had time for. I wondered if I could just finish by getting a couple of top tips from both of you.
Well, I think the not my top tip, and it's a bit like the estate agent using the term location, location, location. Construction projects and in disputes if you unfortunately get into one is the policy with the best records is able to make the best case. And so, not having a good records is is always a challenge.
Now, listen. Yes. Absolutely. And, in addition to that, just sort of really being aware of what cover, you have available. And, as we've touched on making sure that you keep insurers fully up to date on every stage, it's really, easy, I think, to forget when things go badly wrong. But if you've got a good broker on your side as well, they should be able to do the majority of that in the background for you while you're able to focus on, getting things back on track.
Yeah. And I think from my point of view, having a wide view of all the issues is really important. And having somebody who can take an overview, not get sucked into a particular rabbit hole. So you need to be aware, need to be aware of the insurance provisions. You need to be aware of the remedial works that are going on.
You need to be aware of collecting your evidence. You need to be aware of keeping all your records as well. Has said, and you need to have an eye on the contractual provisions and all the notices that you need to serve and where this might end up. And that is, you know, having somebody who can have that overview of the whole position is is really important.
Well, thank you both for joining ball. And thank you everybody for joining us. I think that's it for today. If anybody has any questions or wants to follow up with those, then feel free to drop any of us. The message.