Research Trends and Conclusions: Construction 2010
Emma Notfors -
Most of the lawyers we interviewed for this publication said they had seen fewer major insolvencies in the construction industry than they had expected at the outset of the economic downturn.
And although construction work has slowed or even halted in some jurisdictions, in others the pace of construction has continued unabated, leading many law firms to look abroad for work. The tail-off in construction projects that followed the decrease in liquidity has been well documented and in the United States and elsewhere, public spending on infrastructure has been used as a stimulus. The sector has also been bolstered by continued activity in energy-related projects
Areas of work that are predicted to grow include waste management; infrastructure in the BRIC countries and developing nations in Africa; the building or decommissioning of nuclear facilities and work related to sustainability and ‘green building’ initiatives.
Whether the amount of disputes resulting from stalled projects has met expectations is debatable – although companies are keen to avoid costly litigation, it is a necessity in some cases. It is also probable that clients who have assumed a cautious stance on developing future projects are also paying more rigorous attention to their current ones, with the logical result that problems are spotted sooner than they once were. In the words of one interviewee, “There is a lot less money going into the market, but there are different ways of making money – people are focusing not on what’s coming next, but on what they’re building now.” The level of disputes has varied from jurisdiction to jurisdiction but it seems clear that clients are opting for more cost-effective solutions wherever possible, including opting for adjudication and expert determination.
International Work
International work has become increasingly important over the past several years, not just as a result of the recession. Indeed, the desire to compete with larger firms in an international market was an important motivation for construction boutique Shadbolt’s merger with Clyde & Co. On the other hand, some of the lawyers we spoke to suggested that Shadbolt’s relatively small size and its niche practice made it vulnerable to absorption by a larger firm. Being part of a larger firm confers the benefit of more extensive resources, a point highlighted by Michael Regan of Mayer Brown International LLP. “To deal with a large, international claim, you have to have the necessary resources. The demands can be substantial in terms of managing documentation and dealing with the underlying issues, which are usually complicated and which may require input from different legal disciplines. You have to be able to draw on these resources, and smaller firms might find this difficult. For instance, when it comes to problems arising from the financial structure of a project, we can draw upon the expertise of our broader commercial team, or where foreign law issues arise, we can often obtain assistance from one of our global offices.” The ability to draw upon the international reach and knowledge reserves in larger firms would appear to be a distinct advantage when dealing with international deals and clients.
Domestic work for UK lawyers has tailed off and firms are seeking clients where demand is high – “particularly in China, India and the Gulf”, according to Mark Roe of Pinsent Masons LLP. “In our Dubai office and in China, most of our clients are Asian and this is perhaps evidence of the growth of Asian economic power and the relative decline of Europe.” There is also huge infrastructural demand in both China and India, and the revenue to fund projects is more readily available in these jurisdictions. In response to this, some Western firms are focusing their efforts to develop relationships with clients and to establish a strong reputation in these jurisdictions. This was a topic of conversation that was returned to again and again during our research. “Chinese contractors are huge and the largest ones are aggressively searching for work outside of China,” says Christopher Hill of Norton Rose LLP in London. “Our presence in Asia helps to attract these clients – in the Far East it’s about personal relationships, so having people there is a big advantage. We also recently sent a partner on a speaking tour of China and Japan in order to raise our profile there.”
Profile-raising is of paramount importance – one interviewee related how an east African country retained a team from an international firm’s New York office, even though construction and projects were not a core focus for that firm. This was ostensibly because of the firm’s international prominence. However, contractors and consultants are becoming increasingly sophisticated users of legal services. Attracting and keeping clients in jurisdictions where the business culture is different can be challenging for firms and lawyers. Our research shows that it is not enough simply to open an office in Shanghai, for example, to get a piece of the action: the reputation and relationships of the firm and of individual lawyers also matter. Helen Garthwaite of Taylor Wessing LLP in London recognises this: “In terms of international markets, those firms who have succeeded are those with an established presence. Historically, it is on-the-ground presence and local connections which matter, as these can be very different cultural environments. For example, in Dubai in particular it is helpful to know the ruling families and governmental structures.” One lawyer we interviewed pointed out that much of his recent work had been sourced from a network of contacts he had developed over several years spent living in various cities around Asia, and that this had allowed him to avoid the ‘beauty parades’.
The contrast between local and international ways of doing business can make earning and maintaining trust difficult at times, but perseverance pays off. Peter Rees QC of Debevoise & Plimpton LLP says that, “It is important to be open and to make sure that clients understand the service you are providing. A lot of the time, clients want to hear what they want to hear and there have been instances when I have given advice which the client may not have immediately liked, and it’s been a little sticky because a client is used to having people always say ‘yes’. However, if the advice you have given is backed up by subsequent events then this can increase the clients’ trust.”
Increased Specialisation and Industry Focus
While contacts and knowledge of business cultures are valuable assets, specific industry knowledge can be just as important. One quality that our interviewees were keen to underline was that of specialisation and the ability to manage the legal aspects of projects from start to completion, including any disputes that might arise along the way. According to Mark Roe, the head of projects and international construction at Pinsent Masons, his firm’s strategy consists of “a combination of industry focus and following existing clients. Strength in depth means a quicker, cheaper process for our clients, as we know the bear traps in particular industries and don’t have to be taught about them by our clients.” So, by specialising in a particular industry, a construction lawyer will become aware of and better able to meet or avoid the challenges associated with, for example, decommissioning a Soviet nuclear plant or building a semi-submersible vessel in Abu Dhabi.
What is even more important, particularly at present when the majority of clients are keen to keep costs low, is the ability to use this knowledge to avoid disputes. Many of our interviewees pointed to a rise in clients retaining a lawyer or team as project counsel, rather than as a ‘hired gun’ called in later on to handle a dispute. “Most clients try to avoid disputes,” says Mark Fraser, who recently joined Taylor Wessing LLP’s Dubai office. “Therefore, any lawyer doing this sort of work has to deliver a results-oriented and specialised service. Specialisation is becoming more and more important, and when it is not a core speciality, it becomes very obvious.” In response to this, some firms are making sure that a single group handles all issues arising from a project, from drafting contracts to solving disputes. This approach, which results in a thorough knowledge of a project or client, is also advantageous should a dispute arise – a project counsel would hit the ground running while a lawyer brought in purely to deal with a dispute would need to be brought up to speed. An anecdote from Julian Critchlow at Fenwick & Elliott LLP illustrates the importance of being familiar with the background of a project when a dispute arises. “I had a recent case where my clients made it clear from the start that whilst they had a strong case, even if they lost they wouldn’t be able to pay. The other side only woke up to this just before trial and abandoned the case three days before the hearing. By then my clients had incurred substantial litigation costs that they had had difficulty in sustaining.”
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The construction industry is traditionally considered to be one of the sectors most vulnerable to economic turbulence. However, the resourceful construction lawyer will never fail to gain new work and clients. International projects, particularly from jurisdictions like China, India and the United Arab Emirates, have been the source of funding and construction projects, – as well as disputes – and look set to continue to provide a stream of work for years to come. International firms and individual lawyers are finding ways to raise their profiles and get to grips with the business culture in new jurisdictions. Finally, there is an increased emphasis on industry specialisation among many construction lawyers. Possessing the knowledge to deal with any problem specific to a certain type of project or industry will, in the long run, lead to higher efficiency and lower costs for clients. Our research shows that expertise, contacts and experience are the keys to a successful construction law practice, and these are qualities possessed by all of the lawyers listed in this publication.