Research Trends and Conclusions: Construction 2011
Building on more than a decade of research, comprising thousands of votes from clients and private practitioners and hundreds of hours of interviews with leading lawyers, Who's Who Legal provides a snapshot of trends and developments in the international construction legal market as the global economy moves beyond the devastating effects of the global financial crisis.
China overtook the US as the world’s largest construction market last year, leading the trend – confirmed by the majority of the lawyers we consulted – towards the increasingly dominant role played by emerging markets in the recovery and future growth of the construction sector worldwide. According to Global Construction Perspectives and Oxford Economics’ recent Global Construction 2020 report, emerging markets will account for the majority of the sector’s growth by the end of the decade: claiming a 55 per cent market share compared with 46 per cent today.
Such predictions throw the recent plight of more developed markets into stark relief (the Euro area has seen a steady decline in construction output since mid-2007), and it is unsurprising that a number of the leading lawyers in Western developed jurisdictions are increasingly active in construction matters in the developing world that are funded predominantly by Asian investors.
It is perhaps too early to predict whether the increased activity by construction companies in jurisdictions such as China and India will have a material influence on the sophistication of their respective construction bars. Our current research records only fractional year-on-year increases in the number of internationally recognised lawyers in these jurisdictions, with a fall in the number of Indian lawyers recognised since 2008. Our conversations with lawyers in the US, UK and mainland Europe indicate that the majority of the contractors from China and other developing markets are continuing to recruit their legal representatives from traditional centres of excellence, such as England and the United States, which are the largest jurisdictions in the current research for number of lawyers listed.
Wherever they are based, construction companies and their lawyers are increasingly focused on China. Even while the country’s rapid economic growth (a 9.7 per cent rise in GDP in the first quarter of 2011) is expected to slow down over the next five years, China will maintain its position as the world’s largest construction market in the decade to 2020. Major outbound investment strategies by Chinese contractors are fuelling growth in emerging markets throughout Asia, Africa, South America and the Middle East as formerly high levels of domestic, stimulus-driven spending on residential projects start to slow down. Meanwhile, US and European companies – including notable names in the pharmaceutical and natural resources sectors – are seeking to establish a physical presence in mainland China.
Most of the lawyers we spoke to in London reported a high volume of work on behalf of Chinese clients overseas: in the words of one source “Chinese spending power and English legal expertise are meeting in the middle, in Africa, eastern Europe and the Middle East, and the volume of work is huge.” For lawyers in relatively stagnant European construction markets, beset by austerity programmes and high levels of public debt, such projects are accounting for an increasingly large portion of annual turnover.
More locally, Chinese investment is driving growth in the construction markets of smaller Asian trading partners – such as Indonesia, Malaysia and the Philippines – where the lawyers we spoke to highlighted the increased sophistication of their local construction bars. One source in Kuala Lumpur noted that Chinese capital, coupled with the Malaysian government’s “economic transformation programme”, is contributing to a “large increase in the number of lawyers choosing to specialise in construction law” in the country. High volumes of outbound work are also fuelling efforts by firms with bases in China to grow their practices in order to better support these overseas transactions and, according to sources, “the relatively few native lawyers with experience outside China are in high demand.” Of the four China-based lawyers that earn a place in our rankings, three are partners in western-founded multinational firms, a fact the underlines the continuing importance of a strong overseas network to the success of legal practitioners in the country.
Our sources also noted an increase in demand for arbitration specialists within Chinese firms following the recent agreement between Hong Kong and China for the mutual enforcement of arbitration awards. Lawyers noted an increase in overseas entities utilising Hong Kong as the forum for their China-related disputes, and that “foreign companies are more confident doing business in mainland China now that the arbitration process is more open and supportive.”
The growth of India’s construction market will outstrip that of China’s in the early years of this decade as Chinese regulators curb the country’s construction spending. With US$1 trillion set by the Indian government for infrastructure development, the country is expected to become the world’s third-largest construction market (after China and the US) by 2018. A key factor in this expansion will be the Indian Planning Commission’s use of foreign investment in public private partnerships (PPPs). Such opportunities are particularly appealing for lawyers in England – where the PPP model originated – who noted the increasing use of PPP by foreign governments: “as PPP grows internationally so does the value English lawyers can add to such transactions by their ‘home-grown’ knowledge of PPP regulations”.
For governments the world over, caught between the dual pressures of failing infrastructure and restraints on public spending, private investment is being increasingly relied on to fill gaps in budget deficits. Developed countries that have rebounded healthily from the global financial crisis, such as Canada and Australia, have succeeded in attracting considerable private investment in their construction markets, and both have either adopted or are in the process of implementing PPP frameworks. As such, lawyers are optimistic that PPP-related matters will remain high on the international agenda for the foreseeable future and continue to provide a healthy demand for legal expertise.
Domestic work for construction lawyers in the US and the UK has tended to centre around dispute resolution issues, rather than project development, according to our sources. In the US, the lawyers we spoke to noted that contractor claims for delayed project completion and bid protests for the limited number of government projects that do exist engendered a high demand for disputes services. However, lawyers on either side of the Atlantic noted a fall in the size of construction claims as companies show themselves to be willing to fight for smaller and smaller sums of money. The courts in both countries promote the use of mediation above litigation in construction disputes where negotiation has been unsuccessful, particularly in cases of relatively low value. And, with cash-strapped clients becoming increasingly aware of the wisdom of this method in lowering dispute costs, lawyers are expecting ADR in general and mediation in particular to remain active in the coming year.
A look back over the past four editions of this book sees the traditionally strong firms retaining their precedence in the marketplace.
The strength of these leading firms is reflected in their relatively consistent performances year-on-year in our research.
Clayton Utz, Smith Currie & Hancock and White & Case have all enjoyed a steady increase in their profile in recent years through the incremental expansion of the number of world-class lawyers in their teams. Jones Day posted the largest year-on-year increase among the leading firms in this edition thanks to its acquisition of three leading California-based construction partners from the now defunct Howrey LLP. Of the two leading firms, Peckar and Abramson is a dedicated construction firm, while Pinsent Masons is full-service but maintains its construction practice as its strongest suit, as is evidenced by its five consecutive years as Who’s Who Legal’s construction law firm of the year.
A closer look at where the lawyers we list from these leading firms are geographically based emphasises the continuing precedence of England and the USA as centres of excellence.
Peckar & Abramson and Smith Currie & Hancock are both entirely US-based, while the ascension of Jones Day to the status of a leading firm in this discipline is owing to a majority contingent of professionals from US offices. Pinsent Masons meanwhile fields the majority of its representatives from UK offices. Three-quarters of the Chinese listings in the current edition are drawn from representative offices of our leading firms, a fact that underlines the relative lack of international profile among local firms in the world’s largest construction market. This point is further emphasised by the distribution of lawyers from the Asia Pacific’s leading construction firm Clayton Utz, all of whom are drawn from offices in Australia and Hong Kong as opposed to mainland China.
Overall, the dramatic shift in favour of emerging markets as the drivers for growth in the international construction sector over the next decade are yet to have a significant influence on the leading firms and jurisdictions recognised for their legal work in this area. Even while China has replaced the US as the world’s largest construction market, the latter is still home the majority of the world’s leading construction lawyers and US lawyers compose the largest contingent of professionals at the world’s leading firms. These lawyers, and others like them in Europe, are benefiting from the growth of emerging markets by realising the exportability of their well-recognised and sophisticated skills sets. And with activity levels in the developing world expected to increase over the coming decade alongside only modest rates of recovery in most of the developed west, it is likely that the “marriage of convenience” of western expertise and Chinese and Indian money will continue to fuel international construction growth for the foreseeable future.