ian briggs - downer edi mining - resolving disputes with resources companies – mind games for...
TRANSCRIPT
10 November 2015
Resolving disputes with
resources companies – mind
games for contractors
Ian BriggsChief Legal CounselDowner EDI Mining
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Headlines
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• The noughties – crazy times for contractors
• Understanding resources clients and Oil & Gas clients
in particular
• The up front issues
• Particular issues for Aussie contractors
• The effect of falling commodity prices
• Approaches to dispute resolution
• Practical issues for ADR
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Agenda
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• Infrastructure projects were plentiful
• State governments were spending up
• Alliancing and collaborative contracting became the
norm
• When new water, road and rail projects began to slow,
the resource boom became the main game
• Resources projects, particularly LNG projects, began
swallowing the construction industry
• Coal and iron ore prices were at historical high points
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The roaring noughties – 2000 to 2010
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• New/expanding coal mine and iron ore projects in WA,
NSW and Queensland –
WA: Hope Downs, Karara, Sino Iron/Cape Preston, Roy Hill
Qld: Broadmeadow, Kestrel, Eagle Downs, Middlemount, Caval
Ridge
NSW: Mt Arthur, Bengalla, Moolarbin, Boggabri
All required supporting rail and port infrastructure
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A hot resources market
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• Seven LNG projects - $193 billion !
Gorgon
Wheatstone
Prelude/Browse FLNG
Ichthys
QCLNG
APLNG
GLNG
But here was the real action..
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LNG is complex technology
Add unproven CSG extraction technology
From wells to ship involves:
Myriad of extraction pipeline networks for gas extraction
Compression stations
Long distance pipelines
Waste water treatment
LNG plant
Port facilities including swing
basin
Substantial geographic spread
Array of different skill sets
Novel environmental and
regulatory issues
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Projects were big and complex
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The clients were different beasts
Page 8
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• Deal in big projects
• Have little experience or presence in Australia
• Often rely on local project managers
• Used to dealing with the global contractors as EPC/EPCM
contractors
• Very outcome focussed – committed to off-take contracts
• Usually have very tight timeframes
• Don’t mind a scrap with a contractor
• The big decisions are made in other countries – no clear line of sight
with decision-makers
The LNG clients
Page 9
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• Wages and salary pressure and recruitment difficulties
• Mobilisation was difficult and underestimated
• Projects called for fast track design but many were not D&C
• Many contracts were fixed price – on immature design
• Contracts were ill-equipped to deal with magnitude of re-scoping
and re-pricing
• Late environmental approvals meant lengthy schedule delays
• Free issue material was often slow and unpredictable
• Clients had little appetite for collaborative contracts
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Particular issues for contractors
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Early site access was restricted by approval delays
Mobilisation was disrupted and sluggish
Fast track design meant literally thousands of new drawings
Free issue materials coordination was poor
So
The QS teams were in overdrive with claims
Time bars were missed
Resolution of re-pricing and variations was slow
EOT claims were contested
A common story
Page 11
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• Site teams for both parties struggled with getting on with the job and
resolving claims
• The usual path to negotiation was opaque
• On a few projects, the EPC/EPCM model posed a road block
• Substantial strains on resources and liquidity – contractors felt they
were funding the clients
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A very uncomfortable place to be
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• Variation and EOT claims kept rolling in
• The outturn cost of the projects was getting bigger and bigger
• The project time lines were slipping
• Relationships were deteriorating
• And then commodity prices started to fall
and fall quickly – iron ore, coal and oil
• The ‘get it done at any cost’ drivers
had disappeared
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The perfect storm
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Cool heads were needed (and some collaboration)
Where that happened, some good results were achieved
Where it didn’t, the trench warfare became embedded
Page 14
The response
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• Where the parties kept talking, some good results were achieved
• Early discussions led to ‘line in the sand’ deals on time and costs –
but both parties had to concede
• Some contracts were renegotiated and pricing models changed
• Some contracts were converted to collaborative, target price
contracts
Page 15
Some of the good outcomes
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• BCIPA – to pull or not to pull the trigger?
A quick fix, and perhaps some better leverage but...
Tantamount to a declaration of war
Inevitably damaged the relationship, sometimes beyond repair
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Dispute resolution
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The first step was often a settlement conference, but
a clear line of sight to decision makers was hard to find:
EPCMs and Project managers were not empowered but occupied the
space
Most clients were JVs
The relevant executives were often in other countries
Project financiers were key stakeholders
So where to from there?
Dispute resolution – contract
mechanisms
Page 17
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• Many clients preferred international arbitration
Global parties
Better enforceability
Private
Avoids the hometown decision
• But
Pretty clunky
Not conducive to speedy results
Expensive too
Page 18
Dispute resolution – contract
mechanisms
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• Some contracts had expert determination clauses but
these were rarely used
The disputes were too complex
Final and binding is not always preferred
Good experts were hard to find – most programmers were
conflicted
• Some contracts had mediation clauses but
Getting the decision makers to attend was difficult
Consensual resolution is often hard to sell up the line
Page 19
Some practical issues with ADR
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Ad hoc ADR models were explored
Post-dispute Dispute Resolution Board were set up
The ‘hangman’ expert was used
But both sides have difficulty committing to these as final and binding
on big money disputes
So ... back to the future –
lengthy, expensive arbitration or litigation
ADR options
Page 20
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• Good contracts don’t guarantee success but bad contracts can
create a mess
• Take the time to get to know the other party – no two clients are the
same
• Get to the decision makers early – as soon as the warning signs
appear
• Happy litigators are mythical creatures – persist to find other
solutions
The lessons
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