Transnational Construction Arbitration

Renato Nazzini

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CHAPTER 7 Role of expert witnesses in construction arbitration: delay and disruption and quantum issues

Overview

7.1 Due to the complex nature of construction projects, disputes often arise even if the parties involved believe that they should be avoidable. An independent opinion is an important factor in aiding disputing parties to reach an amicable settlement or in assisting the entity, to which the dispute has been referred, to reach its decision. This chapter focuses on the authors’ experience in construction arbitrations, which is one of the available dispute resolution mechanisms.1 7.2 This chapter explores the complex nature of construction projects and the resulting issues faced by expert witnesses2 in investigating the root causes and providing independent opinion, from the perspective of the authors’ experience as delay analysis/planning experts. It covers why an expert witness is needed in a construction arbitration, focusing on the role of delay analysis expert witnesses, and the various delay analysis methods and techniques that they could use. It further discusses the challenges of using the various delay analysis techniques, and the challenges that expert witnesses often face in the course of undertaking their instructions. The chapter also covers some of the challenges that a delay analysis expert may face in using schedules for causation analysis, the uncertainty in forecasting outcomes as well as highlighting alternative tools that are available, other than schedules,3 in analysing delays to completion of a complex project. Finally, the chapter highlights some relevant considerations that should be taken into account when preparing and delivering expert witness evidence. 7.3 The chapter concludes that expert witnesses, in their role of providing independent opinions based on the records made available to them and from their own analysis, must provide evidence that is both reasoned and reasonable.

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Independence

7.4 This chapter highlights the various types of expert evidence based on the understanding that expert evidence is expert opinion formed by a combination of experience, technical analysis and review of contemporaneous/factual evidence to assist the judicial body in reaching its decision on the matter in dispute. In a construction arbitration, the primary obligation of the delay analysis expert witness is to the arbitral tribunal, and not to the delay analysis expert witness’ client. 7.5 Expert witnesses are often appointed to provide independent opinion and, depending on the dispute resolution mechanism, may be inclined to conduct their technical analysis in a manner that leads to either: (1) a preference for the established position (usually by whoever has appointed them); or (2) having the courage to influence the arbitral tribunal to accept their independent opinion. The latter can be challenging if it is contrary to the position(s) established by the disputing parties. 7.6 In arbitration, the expert witness has to overcome potential bias (such as the likelihood of protecting the established commercial position of the fee-paying client) during the course of developing their independent opinion, which should be seen to be impartial and objective. 7.7 One may have to be cautious in situations where: (1) a long-term relationship could be or has developed with a particular client; (2) there has been prior involvement in the project that may lead to closed thinking; (3) a client is not open to considering alternative reasons as to why something may have happened; and (4) there is difficulty in telling project sponsors either that they have been misled or that they are also responsible for the consequences. If such situations are not avoided, the objectivity or impartiality of the expert witness may be called into question thereby undermining his or her expert evidence, with further consequences for his or her reputation and also for the chances of the client’s case succeeding. The expert witness therefore should possess an open mind, be agile and have the courage to challenge the established position. This is particularly important as construction projects are often complex in nature and this can create a challenge in identifying the root cause and effect of any alleged event.

The nature of construction projects

7.8 Construction projects tend to be of a large scale, high value, and involve various stakeholders. They are often triggered by the need to regenerate an area, improve accessibility, create economic value, or for a specific business purpose. For construction projects, delays in implementation often occur during the construction stage – and this tends to be the focus of most disputes. 7.9 Complex projects are frequently completed late, are often over budget and the expected quality of output or performance4 is often not realised. The construction project is likely to have many trades, various planning and management tools, numerous stake-holders and many change requests or instructions, all of which add to the complexity of the project’s delivery.

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7.10 The often unexpected delays and cost overruns have the potential to: (1) impact intended project benefits; (2) affect anticipated returns on investments; (3) derail an organisation’s strategy; and (4) cause significant and long-term reputational damage. The latter is particularly relevant for projects with a high public profile such as stadia for specific sporting events. 7.11 By their very nature, construction projects require significant interaction between various parties. In the event of questionable performance, each party involved in the project tends to downplay its contributory role to the observed poor performance. This type of behaviour often puts a strain on any collaborative working arrangement in place – and this is where disputes can arise. 7.12 The services of an expert witness may be sought to provide an independent opinion following his or her analysis of the various interdependencies involved in the project’s delivery. The type of expert witness evidence required will often depend on who has instructed the expert witness, the nature and scope of their instructions, and what has been made available to them for analysis and reference.

Common issues faced on complex capital projects

Multiple stakeholders with conflicting interests

7.13 The life cycle of construction projects, which starts from defining the business or economic need, performance requirements and benefits that would arise from the delivery of the project, through to the disposal or decommissioning or change of use of an asset, often involves significant interaction between various parties. These parties, in most cases, have competing needs and interests often managed through contracts, informal arrangements and collaborative working depending on the nature of the delivery environment. Sometimes, not all the parties are aware of what was agreed at an earlier stage of the project’s life cycle – the late involvement of a particular stakeholder can result in changes and hence delays and cost overruns. An example of this, from the authors’ experience, is a matter in which the project requirements obliged the contractor to seek approval of the end-user (who was not the owner) before declaring works as complete. The contractor had, however, signed its contract and started work before the end-user had been nominated and hence the end-user requirements were not embedded within the design and specifications. The late involvement of the end-user resulted in significant changes in the types of finishes as well as varying expectations of the quality of the finished work that eventually delayed completion.

The effect of skills shortages

7.14 In the authors’ experience, gained from delivering and advising on complex capital projects globally, the management of complex capital projects requires amongst other things: experience; mature project management systems; strong governance; and timely information. The construction industry is currently faced with various issues that include skills shortages exacerbated by the early specialisation of graduates. Experienced project managers, with a good understanding of the construction process across a

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number of different projects, are now in short supply with that skillset gradually being lost. The industry is faced with the increased use of planners/schedulers, often not from an engineering background, who lack a basic appreciation of interdependencies between the various design, procurement and construction elements. Management systems are often applied without context as to their relevance. The end result is often the misuse of systems, such as planning or control tools, particularly where they are used to monitor actual and planned progress but are updated neither regularly nor accurately to reflect actual progress on site. With this type of practice, the concept of timely information for effective decision making is therefore lost. This is weak governance. For a delay analysis expert witness, operating after the fact, updating the applicable planning tool with available contemporaneous records is often time consuming and very subjective, particularly in situations where contemporaneous assessments of future durations are required. 7.15 Construction projects are also increasingly reliant on products and services from different parts of the globe. This comes with its own risks – for example sanctions, political instability, restrictions in trade agreements, and quality control, to mention but a few. Some of these risks may not be within the immediate control or knowledge of the project manager, which adds to the complexity of managing the various supply chains. As the management of supply chains becomes increasingly complex, so does the management of the inherent risk and uncertainty in the project, which requires skill and teamwork. A level of skill, and associated behaviour, is required in encouraging collaboration and teamwork to avoid a reduction in performance that often results when individuals are focused on protecting commercial positions.

The importance of sound governance

7.16 Project managers are only able to influence the future as they seek to deliver projects to the expected quality, budget and timescale. Within this context, it is important to consider the relevance of a good quality schedule, as well as its sufficiency to be used as an aid to control activities and drive progress. Individuals responsible for creating and updating the schedule must buy into the relevance of the schedule in monitoring and driving progress, if the risk of schedule misuse or abuse is to be minimised. Kidd, Applebe and Morgan5 discuss various ways in which a schedule may be abused. In the authors’ experience, strong project governance that seeks to limit the negative behaviours and inaccuracies in the provision of information is key to success. Morgan and Gbedemah6 noted that when governance is poor, a project is most likely to end up in delay and that this may consequently trigger a dispute. 7.17 A well-designed delivery organisation structure with clear accountability that enables timely flow of information and decision making minimises delays in addressing any instructions, dealing with clarifications, or resolving issues on a complex capital project. The

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industry has seen an increase in the number of management contractors7 who often do not directly employ tradespeople. The large management contractors often seek to subcontract the various work packages through other smaller contractors, with often other multiple layers of subcontracting arrangements through to the specialist trade or subcontractor that actually undertakes the work itself. Key information can therefore be delayed at the intermediary layers of management as the parties first seek to check their commercial position before information is passed on. Such situations not only risk delaying the project, but may also create challenges in identifying the starting point of a delay event. 7.18 Due to the interaction of these common issues encountered on capital projects, it is often possible to have situations where both parties in a dispute are entrenched in their respective commercial positions. The role of an expert witness, as an individual that can derive independent opinion from their experience and the contemporaneous records available, therefore becomes crucial to unlocking the issues in a dispute.

The scope of work for an expert witness

7.19 The typical scope of work for an expert witness in a construction dispute could be three-fold: (1) a technical expert witness who provides an independent opinion on the causes of the failures/defects that occurred; (2) a planning/delay analysis expert witness who provides opinion on the causes and impact of delay to achievement of an agreed milestone; and (3) a quantum expert witness who provides opinion on the loss and expense suffered as well as valuations and damages. 7.20 The expectation of an expert witness in the dispute resolution process varies depending on the timing of involvement in the process, but would normally be limited to their specific subject matter expertise (such as planning/delay). The expert witness would be expected to investigate a specific issue or set of issues or to provide an answer to a specific question or set of questions within their capability. 7.21 The scope of work for a planning/delay analysis expert witness will often be to explain what happened and why. This may include the investigation of the root cause of time consequences (with the aid of planning tools or systems), covering both project management and governance aspects. It is unfortunate that planning tools or systems can be ineffective unless the people using them understand, and have bought into, the value of the information that the tools/systems require. The people using the planning tools/systems need to understand the reliance that may later be placed on the quality of information within the reports produced from the system data (which sometimes has been input manually). This is because some of the root causes of project governance failures, misrepresentation and bias, are influenced by assumptions centered on people behaviours or quality and timeliness of information. 7.22 In addition, the reasonableness of the deployed planning tool, and hence its value, hinges largely on the in-built flexibility that makes it adaptable to any changes that may be made during the progress of the project. Thus, the absence of flexibility in the schedule can lead to a governance failure, which often increases the risk of project delay.

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7.23 Whilst there is a considerable degree of science to both planning for and controlling projects, this needs to be tempered by experience and pragmatism. The expert witness needs to decide the approach and methodology to developing an informed independent opinion which often requires a review of what is known, but is being disputed, as well as identifying what is uncertain or may not be known, with the aim that a balanced approach to analysis would persuade the arbitral tribunal to prefer his or her opinion. 7.24 In seeking to persuade the arbitral tribunal to prefer the results from their analysis, and hence their opinion, delay analysis expert witnesses often choose a method of delay analysis that in their opinion would be suitable based on the information made available to them. It is common that on any given dispute, the delay analysis expert witnesses representing the disputing parties may choose different methods of delay analysis.

Project management of the expert witness evidence process

7.25 The instructing solicitors manage the expert witness evidence process to the timetable agreed between the parties or set by the judicial body. The solicitors’ submissions to the judicial body, in support of their clients’ cases, quite often rely on the input from the various expert witnesses. The order of engaging with the witness evidence may take the sequence of witness of fact, technical expert, delay/planning expert, and finally quantum expert to ensure that evidence of a relevant witness can be relied upon by another in forming their opinion as may be necessary. The constraints of the imposed timetable often make it difficult for the expert witnesses to be instructed sequentially, which, on most occasions, results in different expert witnesses (for each relevant area of expertise) being engaged at the same time. Where expert witnesses are instructed at the same time, this can often lead to coordination challenges particularly in situations where one expert witness may need to rely on another as is often the case with quantum and planning/delay expert witnesses. The instructing solicitors therefore have to adequately manage the process and the interdependencies between the various expert witnesses to minimise the impact of the coordination challenges on the preparation of their submissions to the judicial body. With all the possible pressures on time and budget, it is useful to consider early on the questions that the instructing solicitors would want answered as it helps focus the effort. 7.26 When instructing delay expert witnesses, it is worth considering a staged approach of requesting, prior to the preparation of a detailed report, a brief document stating their understanding of the issues at hand, based on the information available, and the contemporaneous records covering the period that would be necessary to address the key issues. This approach helps in identifying any additional documents that may be needed, raising awareness of the level of effort that would be involved, as well as providing some level of certainty on the budget estimate. This also helps with the planning on how and when it may be appropriate to hold any interactions between the delay and quantum expert witnesses, as well as providing an early opportunity for the instructing solicitors to refine their instructions. 7.27 If the process is not managed well, expert evidence could be delayed, which might then result in pressures for requests to be made to the judicial body to grant time extensions on the submissions.

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General challenges in undertaking delay analysis

Substantiating the facts

7.28 One of the key issues for delay analysis expert witnesses is in determining what can or cannot be substantiated. It creates challenges in how any gaps could be filled8 and how much analysis would be needed. At the time of instruction, it is possible that the instructing solicitors have a general view on this and may limit or guide the scope of an expert witness. Where the scope has not been limited, expert witnesses can find themselves in a position where they are dealing with different views from either their clients or instructing solicitors or both. In order to guard his or her independence, and hence reputation, the expert witness should manage the pressure from the client or instructing solicitor, especially if they are actively advocating for the expert witness to put forward their best case. Delay analysis expert witnesses should be able to overcome potential biases, direct or indirect, that could arise in the course of developing their opinion.

The quality of records and information

7.29 The quality (and even existence) of information to be used for the analysis can also provide challenges such as the suitability of any interpolation to fill gaps in the progress records. It is often the case that contemporaneous progress records are either not available or, if they are available, they are inaccurate, incomplete or in an inappropriate format. In some instances, delay analysis expert witnesses may decide to rely on witnesses of fact to fill in any gaps, but this creates a risk of any analysis being deemed incorrect should the evidence of the witnesses of fact be found to be unreliable during the hearing (at which point it might be too late for any new analysis to be undertaken). To illustrate the element of subjectivity that can come from witnesses of fact, an example from our experience is a matter in which relevant project correspondence was not generated simply because it was assumed by a contractor that putting relevant matters in writing would be frowned upon by the employer with negative consequences on the relationship between the parties. If the delay analysis expert witness relied on such witness evidence to explain gaps in the factual matrix and his or her analysis, his or her opinion would be put at risk (as it would rely on the witness of fact’s evidence being sustained).

Languages

7.30 International arbitrations are often faced with language constraints, especially where the contemporaneous records are in a language that the expert witness may not able to read and interpret. The use of legal translations can add to the cost of the process as significant effort may be needed to verify any translations, especially where the technical language used on a construction site may differ from the normal literal understanding of the words used.

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Working to a timescale – proportionality

7.31 The delay analysis expert witness has to consider the proportionality and cost of his or her approach to fit within the constraints of the imposed timetable, assuming that the expert witness has visibility of it – a challenge that may constrain the level of detail that the expert witness can achieve whilst conducting his or her analysis. This type of consideration could be further influenced by the timing of the expert witness’ involvement in the dispute resolution process. If gaps in the expert witness’ analysis are later exposed by another expert witness, it can cause tensions and hence reduced collaboration during expert witness interactions that may be necessary for preparation of any required joint statements. Where expert witnesses are not able to converge their opinions, an independent expert witness may be appointed by the arbitral tribunal, which further increases the costs of the dispute resolution process. 7.32 Additional challenges may be created in the arbitration process by the need for other expert witnesses, such as quantum expert witnesses, to rely on the results from the delay analysis. Not only does this provide additional time pressure to the delay analysis expert witness, it could also add a further coordination burden, especially if the various expert witnesses are in different time zones and/or jurisdictions.

Identifying the baseline

7.33 Identifying the starting point of any analysis is another issue that delay analysis expert witnesses face, especially on projects that span a number of years and have faced various changes to the planned sequencing of works. The contractor is usually at liberty to amend the original planned sequence as the works progress to ensure that the contractual milestone date can still be achieved. Any revisions to the original planned sequence, presented in the form of a baseline programme or schedule, may often need the employer’s acceptance as it may relate to the obligations contained within the contract. On the matter of submitting a revised schedule for the employer’s acceptance, Wallace9 clarifies on the purpose of this requirement by stating that:

The purpose of contractual requirements for a schedule to be supplied by the contractor is often misunderstood, and is primarily to enable the owner, or his A/E, to plan their own arrangements for giving possession, supplying information and working drawings, and coordinating the work of other contractors or nominated sub-contractors, and only secondarily for use in connection with the contractor’s extension of time applications or monetary claims, or to impose additional time obligations on him. Against this background, in the absence of clear language such provisions should not be interpreted as altering the substantive rights or obligations of the parties, though no doubt a schedule may be some, although not conclusive, evidence as to what is a reasonable time for the discharge of both parties’ obligations under the contract … …. While many standard forms contain provisions that approval of a schedule is not to relieve the contractor of his responsibilities, they generally lack precision in explaining the purpose of requiring the schedule or the precise legal consequences of its submission, approval or disapproval.

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