The role of external construction counsel

Aerial view construction site

Construction Update

By:

[Originally published in Construction Law Letter, ©LexisNexis Canada Inc., 2021]

A common reaction to hearing that someone is a “construction lawyer” is the assumption that this must be a very narrow and focused role. In this article written for the Construction Law Letter, Howard Krupat shows that often the opposite is true, and that the responsibilities of a ‎construction lawyer are as varied as the range of projects within the construction industry and even the ‎lifecycle of a particular project. This breadth is also attributable to focusing in an entire industry, as opposed to a single area of the law. It is incumbent upon construction lawyers to be comfortable both in the construction and infrastructure world and in the areas of law that impact it. The issues that arise in the context of building transit infrastructure may of course be very different than the challenges associated with the construction of a commercial plaza or even a home renovation project. Yet the skill set and experience of a construction lawyer can be called upon in all such instances.

Procurement

Construction counsel will often be called upon to play an important function during the procurement phase of the project. The construction lawyer’s role during this stage can range from consulting on specific areas of risk to drafting the full terms and conditions of tendering instructions and the form of contract that will ultimately be used once the successful proponent is chosen. While a project owner will often rely upon the design consultants it retains to serve the critical function of preparing the project’s specifications and scope of work, the construction lawyer will focus on structuring a tendering process that will reduce the prospect of disputes.

Owners need to know that they have designed a clear procurement process that will ideally not be vulnerable to significant challenges and claims once the construction contract is awarded. Proponents must have an understanding of the legal commitments they are making and, in addition to the obvious rewards, the risks they are assuming by submitting a bid. They also need to be aware of the recourse that is available to them if they are not satisfied with the process.

These considerations flow from at least 40 years of tendering law decisions issued by the Supreme Court of Canada and appellate courts across the country. The construction lawyer will assess how any given project may be impacted by the legal principles arising from these cases. While no procurement structure can eliminate the risk of disputes entirely, both owners and proponents can significantly mitigate against the likelihood of a costly tendering dispute by obtaining advice on these issues at the outset of the project.

Contract formation

The “front-end” role of a construction lawyer also encompasses the planning of the project structure and the negotiation and drafting of construction and design contracts. This advice is critical to a project, irrespective of whether there has been a competitive procurement process. The primary objectives at this stage can be characterized as: (i) the appropriate allocation of risk such that the prevalence of claims can be minimized; and (ii) ensuring the parties have a workable and practical framework for managing claims when they arise. However, the range of issues to be considered extends far beyond these objectives. Regardless of whether the parties decide to use standard forms such as the Canadian Construction Documents Committee (CCDC) suite of contracts or a bespoke set of agreements, the best time to plan for the day-today administration of a construction project is at the outset, when the contract is being negotiated.

It is common for construction counsel to advise their clients on everything from ensuring that payment mechanisms are consistent with the parties’ practical objectives and legislative requirements to appropriate mechanisms for managing change orders to bonding and insurance requirements to allocating risk for project delays to appropriate dispute resolution procedures. For example, the risk matrix for a massive infrastructure project that includes complex project finance structures will obviously be quite different than the considerations applicable to a traditional design-bid-build project that is being billed and paid by the owner on a monthly basis. Moreover, the payment and review mechanisms for a cost-plus structure will involve different issues than a fixed price contract that is being billed strictly against a schedule of values. Further, an owner who is adopting a pure construction management arrangement and entering into all major contracts directly will be taking on a very different set of risks than an owner who is entering into a single construction contract, or even a design-build contract.

Finally, in the current legislative climate, with prompt payment and adjudication now firmly in place in Ontario and rapidly spreading across the country, the construction lawyer will play a critical role in ensuring that, regardless of the project structure adopted, contracts are compliant with these new requirements, which are dramatically different than what was in place before. In all cases, the construction lawyer’s role will include advising clients on the unique risks associated with each type of project structure and how these risks ought to be reflected in the contracts that are used.

Project administration and interim disputes

Once construction has commenced, it is not unusual for a construction lawyer to be called upon to address project administration issues during the course of the project. This is particularly true where difficult issues arise that have the potential to lead to claims. Construction lawyers will often provide advice to all parties in the construction pyramid on payment administration, the management of payment default and performance issues, contractual notice requirements, deficiency claims, design errors, construction lien rights, holdback obligations, bond claims and interim dispute resolution processes. By playing a role in the strategic management of these issues when they arise, construction lawyers can assist in reducing the likelihood of an expensive formal dispute resolution process down the road.

Where disputes cannot be prevented altogether, construction lawyers can be instrumental in advising on less expensive interim dispute resolution processes that can prevent claims from growing out of control. For example, CCDC contracts contemplate the use of a “project mediation” process, which can facilitate the negotiated resolution of a dispute before the parties get bogged down in arbitration or litigation, with the mediation sometimes even taking place right on the project site. Construction lawyers will commonly guide parties through that process. Further, the recent introduction of adjudication means that, in Ontario, soon to be followed by other provinces, parties have the option to immediately refer most contractual disputes to an adjudicator for an interim, binding resolution. For certain types of payment disputes, parties are obliged to do so. Particularly for larger adjudications, it is anticipated that construction lawyers will play a significant role in guiding parties through strategic and procedural considerations associated with adjudication — either as advisors in the background or, where appropriate, as representatives throughout the process.

Overall, one of the most rewarding roles a construction lawyer can play is to provide their clients with strategic advice during the course of a project that saves them from the experience and uncertainty of a protracted litigation or arbitration proceeding.

Arbitration and litigation proceedings

There will inevitably be instances where despite parties’ best efforts, a formal dispute resolution process, such as arbitration or litigation, will be required to get to the resolution of a dispute. The construction lawyer will play an essential role from the outset of these proceedings. While the forum for the resolution of the dispute will often be dictated by the governing contracts, there are critical strategic decisions to be made from the beginning. For example, it is increasingly common for complex construction disputes to be referred to a private arbitration proceeding rather than litigation. In this context, a construction lawyer who is involved early can provide advice on the selection of an appropriate arbitrator and the negotiation of the rules of the arbitration process. The latter includes the scope of documents to be exchanged, whether examinations for discovery and other prehearing procedures will be required, how evidence will be presented, the duration of the hearing, and appeal rights. There are strategic reasons why every one of these considerations may vary with the subject-matter and complexity of the dispute; the construction lawyer will be instrumental in deciding upon the best approach to all of these issues.

Within the agreed framework, whether it is arbitration or litigation, it is also the role of construction counsel to advise their clients on the need for expert evidence, appropriate experts to be retained and the fact witnesses who will be called to testify. These decisions that are made before the hearing even occurs will often have a significant impact on the outcome. The most intensive aspect of a construction arbitration or litigation proceeding is then arguably preparation for the hearing. The construction lawyer will advise their clients on written witness statements where applicable, prepare witnesses for testimony, review all expert reports, prepare opening statements and closing arguments and, of course, prepare for their crossexaminations of the opposing party’s witnesses. Although every hearing has its surprises, this work will make those surprises manageable, ensure that the hearing runs as smoothly as possible and allow counsel to be well-positioned to react when the evidence in a hearing is not what was expected.

Finally, during the hearing itself, the construction lawyer is responsible for carefully executing the process for which they have laboriously prepared, in careful consultation with their clients. This means ensuring their client’s story is persuasively told by delivering an opening statement, examining and cross-examining witnesses, presenting arguments as required, carefully reacting to the evidence introduced by the opposing party and, finally, delivering a closing argument that brings all of these components together so that the arbitrator or judge can render their decision.

Through the entire dispute resolution process, it is important to never lose sight of a client’s overall strategy. This often means continuing to provide advice on the potential for a negotiated resolution even after a hearing is underway. Ultimately, just like construction industry clients, it is critical for construction lawyers to have a practical perspective on the objectives they are seeking to achieve and not to lose sight of the forest for the trees.

Summary

This article has hopefully highlighted that the role of a construction lawyer is as varied as the industry itself. This variety, together with the opportunity to regularly provide important strategic advice on significant issues that impact our built environment, combine to make the job of external construction counsel a challenging, rewarding and critical role to play.

[Originally published in Construction Law Letter, ©LexisNexis Canada Inc., 2021]