Context is king in contract negotiation and management

Anyone can read a contract, the real challenge lies in understanding the technical project it relates to.  It is the context of the project that often contains the hidden risk and this is why it is useful to have lawyers on your side that understand your specific industry and have experience of the specific types of projects you are working on.

Take prisons for example.  Our clients had a $20 million contract to build a prison in New Zealand, the first time they had worked on a contract outside of Australia.  We had experience of similar projects in the past and the following risk factors immediately had our spidey senses tingling:

• Prison’s are built in the middle of nowhere, this can cause labour issues and logistical issues
• It was the client’s first foray into New Zealand, they had never worked with a New Zealand team before and they were relying on subcontractors they did not know
• This was our client’s largest contract at the time – the stakes were high

It wasn’t long before our clients encountered their first issue – their subcontractor turned out to be an ex-con, perfectly positioned, arguably, to know a thing or two about prisons, but alas they were unable to fulfill the contract and quit part way through. Fortunately our client managed to get a new contractor on board pretty quickly, and they decided to send three of their people over from Australia to make sure the project remained on track.  The idea was for them to fly-in and fly-out, but of course the Covid hit and the three guys got trapped.  They’ve only recently got home and were away for about 18 months.

New Zealand is a very small place and it is hard to find plentiful specialism in a small jurisdiction, a task which was made even more difficult by the pandemic. Our client was left with teams of people hanging around waiting for specialists to come in and do certain jobs, but as they were not being paid, they would up-and-leave.  Prisons are also not the easiest places to get into, and hopefully even more difficult to get out of…all labour had to go through police checks and mobile phones were banned.  When people went on site it was for the whole day, so no popping in and out just to complete small jobs.

The client had some very specific project management challenges because of this project and environment:

1. Scheduling work around an unusual level of labour availability constraints
2. Covering the costs of their team not being able to work at full capacity because of Covid restrictions
3. Retaining people to do the work when it was available

And from our perspective there were some very specific legal challenges:

1. We needed to know the contract well enough to avoid liquidated damages for any delays incurred.  This involved applying for extensions and meeting very strict compliance requirements to avoid hefty fines.  The client had to send out notices every week for a year, and we set up the infrastructure which allowed them to do this and not miss any deadlines.
2. We helped them cover their labour costs through creative use of the contract which enabled them to claim for delays from the builder/subcontractor

All of this goes to show that you have to know the contract really well but also, critically, the context of the contract.  The same contract in a different situation would play out differently which is why you need lawyers with specific experience of those situations in your corner so they can do their best to mitigate risk and exploit any advantages on your behalf.