Roundtable: Construction
The International Who’s Who of Construction Lawyers has brought together five of the leading practitioners in the world to discuss key issues facing the construction bar today.
Participants
Brian Downie
Simmons & Simmons
Hong Kong
Disputes
Who’s Who Legal: Lawyers we spoke to noted a reduction in dispute work over the past year. Is this the case in your jurisdiction? Has this altered the work lawyers are being called on to do?
John Sharkey: Australia has seen a reduction in construction litigation over the past two years. A large part of the explanation for that must lie in the rise of adjudication, which is proving a catalyst for resolution of disputes that would otherwise have matured into conventional litigation. The shift has changed the skills demanded of lawyers in Australia and South-East Asia, with clients seeking firms with both resource capacity and the ability to prosecute and defend often substantial claims at short notice.
Ashley Howlett: Disputes are increasing in China – in fact China is on course to become the world’s most litigious nation, with court dockets at record levels. Arbitration continues to play an important role in the resolution of construction disputes in China, but it is fair to say that most Chinese parties would rather litigate than arbitrate. Where foreign parties are involved, however, arbitration is the preferred method of resolving construction disputes. Alternative dispute resolution techniques are not widely used, although the Beijing Arbitration Commission is developing mediation procedures and dispute boards. We are seeing a sharp increase in the number of construction disputes with parties much more willing to arbitrate than they were even two years ago. This has led to a demand for construction dispute lawyers who have familiarity with Chinese arbitration institutions (particularly CIETAC).
Bruce Reynolds: In Canada, the construction market may be considered, at present, as being divided between PPP, on the one hand, and the rest of the construction market, on the other – what might be termed the “conventional” construction market. The PPP area has been and remains very busy, and those contractors, subcontractors and consultants that inhabit the PPP “space” in Canada have done very well both prior to and during the global financial crisis. Those industry participants that inhabit the conventional side of the market have not done as well. For obvious reasons, work has been in short supply,resulting in intense bidding competitions for too few projects. Constructon disputes are, of course, related to the underlying construction market. Accordingly, there have been relatively few disputes in the PPP area – where disputes are invariably subject to mandatory arbitration in any event. However, on the conventional side of the market there has been a marked increase in litigation over alleged bidding irregularities, as well as a general increase in claims related to project execution. Bidding disputes arise primarily in relation to public sector procurement, and so normally result in court proceedings, whereas other claims may be handled by the court or, particularly where there is a sizeable project – and claim – involved, by mandatory arbitration. Canada, unlike the UK, has construction or builders lien legislation in each of its nine common law provinces (and two territories), and a legal hypotech system in effect under the Civil Code of Quebec. The last few years have also seen a number of contractors on the conventional side of the market become insolvent, in which cases there have been significant lien litigations launched by unpaid subcontractors and suppliers, who – under the applicable lien legislation – are not allowed to waive their lien rights by contract.
Viewed from a broad perspective, however, the global financial crisis has not been as severe in Canada as it has been elsewhere, due to the stability of Canada’s banking system, and interest rates have been and continue to be very low, limiting the number of contractor insolvencies to a level far below those experienced during previous economic downturns.
Accordingly, over the last two years the work of construction lawyers in Canada has been on the non-contentious side in respect of the PPP construction market, and on the contentious side in respect of the conventional construction market, with activity levels consistently strong across the board.
Sumeet Kachwaha: Construction is one of the most active sectors of the Indian economy. It is thus difficult to notice any downward trend. Economic growth declined to 6.7 per cent in 2008-09 as compared with 9 per cent in 2007-08 and this may have marginally impacted the sector. However, India is a very large jurisdiction and the economy is on the upswing again. There is a great infrastructure gap and with the government pushing on so many fronts (roads, railways, airports, special economic zones, power, urban housing, etc) there is no perceptible decline or adverse effect of the global slowdown on the sector.
Brian Downie: There has been less arbitration and litigation in Hong Kong and Macao than many expected, particularly following a large number of suspensions and terminations on Macao projects during the crisis. Many factors have contributed to this including increasing use of mediation and negotiation, a desire to maintain relationships for when projects started again and some changes to contract forms (eg, increased contingencies facilitating settlement of claims that might otherwise go to dispute). The cost of formal disputes has undoubtedly been a factor for contractors who were closely monitoring cash flow.
The reduction in volume has changed the type of work being done by some lawyers. Where lawyers have found themselves supporting negotations and mediation rather than fronting the arbitration or litigation, I expect this is just a short-term change in emphasis. There has been a more significant change in work-type for lawyers who have shifted their focus and become busy with non-construction commerical disputes. It will be interesting to see if this has a long-term impact on their practice or the industry.
Emerging Markets
Who’s Who Legal: Which are the jurisdictions to watch for construction in 2010?
Ashley Howlett: China will continue to be a construction powerhouse, with high-speed rail being a particular area of focus. Infrastructure investment in China in 2009 was 4.2 billion renminbi, which was an increase of 44.3 per cent from 2008 – this trend will continue (although perhaps not at such a high level). In Asia generally, we are seeing increasing opportunities in Vietnam, Laos and Cambodia, with Chinese contractors being particularly active. One of the trends that will likely accelerate in 2010 is the number of Chinese contractors undertaking projects outside China, with Chinese contractors making up more than 20 per cent of the top 225 contractors working internationally last year according to Engineering News-Record.
Bruce Reynolds: Apart from China and India, which are markets of major interest to Canada, the PPP market in Canada is still one of the most active in the world. Although project flow in British Columbia is diminishing, Ontario is still actively involved in its build-out of the health sector, and has recently initiated major activity in the transportation and transit sectors, with the procurement for the C$1.5 billion Windsor-Essex Project under way, and the C$5 billion Detroit River International Crossing and the new C$4.5 billion 407 project coming soon. In addition, 3-reactor Darlington Nuclear Project, valued at over the C$25 billion, is still likely to be a PPP procurement. At the same, although Alberta and Quebec have cooled somewhat to the PPP procurement model, they still have significant PPP projects coming as well. As a result of this impressive list of projects to come, Canada has become a favoured destination for international contractors and engineering firms seeking major project work.
Sumeet Kachwaha: I would say that India is certainly a jurisdiction to watch out for in 2010 (and in many years to follow). The infrastructure spending over the next five years is expected to be about US$500 billion. These are not speculative numbers but hard figures arrived at the highest level and endorsed several times by the government.
Brian Downie: I agree with Ashley that China, Vietnam, Laos and Cambodia will be strong and that Chinese contractors will be increasingly active. I think the rise of Chinese contractors will have some far-reaching impacts on the industry. Indonesia is also attracting investment and will generate project related construction work. I agree with Sumeet that India’s targets for energy and infrastructure projects will make it a key market in the medium term.
We are also seeing increasing minerals-based investment in Africa, South America and Australia, which is generating projects and construction work.
Public Sector
Who’s Who Legal: In many countries sources of finance dried up in 2009 due to the global recession and this has led to clients competing for work provided by the government. How has the public sector fared in your jurisdiction and how has this had an impact on your practice?
Sumeet Kachwaha: In India the major construction sectors (roads, airports, ports, railways) are in any event government projects. Hence the scenario has not changed due to the global recession. The public sector continues to be the most significant vehicle to facilitate infrastructure development.
John Sharkey: The Australian federal government’s economic stimulus package has been a major driver of the industry over the last year and will continue to be for the remainder of 2010. As a result the industry has become more dependent on the public sector than the private. This poses some challenges for the industry when the federal government’s stimulus package winds down later in 2010.
Firm Issues
Who’s Who Legal: Many lawyers have noted that their volume of work has suffered as a result of the global recession. In the current climate, are full-service firms or construction boutiques better suited to meeting clients’ needs?
John Sharkey: The major development projects that will be seen in Australia in 2010 and coming years will be located in the north-west shelf. The scale and diversity of the LNG and petroleum projects approaching commencement is such as to make it likely that full-service firms will be sought after as better suited than construction boutiques for work in this region.
Ashley Howlett: We have not seen a downturn in volume of work, but we have seen a change in focus from transactional projects work to more disputes driven engagements. Transactions are now starting to pick up again in China, with many companies viewing the China market as one of the bright spots in the otherwise fragile global economy, so it is likely that the volume of project work will increase in 2010. I agree with John that full-service firms that have the ability to address construction clients’ requirements for IP, employment, tax, M&A, etc, as well as their pure construction requirements will weather the current storm better than construction boutiques. Certainly in China we are seeing construction clients looking for a broad range of legal services ranging from FCPA and compliance issues right through to arbitration. Outbound Chinese clients also look to firms that have a global network of offices, given the geographic diversity of their projects.
Sumeet Kachwaha: Over the years we have seen more and more construction related work for the firm. I would say that there is no rule of thumb. Sometimes construction boutiques may be able to better serve clients and at other, services of a full-service firm may be called for (and of course legal talent is equally divided between full-service firms and construction boutiques).
PARTICIPANTS
Brian Downie
Simmons & Simmons
Hong Kong
Ashley Howlett
Jones Day
China
Kachwaha & Partners
India
Bruce Reynolds
Borden Ladner Gervais LLP
Canada
John Sharkey
Norton Rose LLP
Australia
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isputes
Who’s Who Legal: Lawyers we spoke to noted a reduction in dispute work over the past year. Is this the case in your jurisdiction? Has this altered the work lawyers are being called on to do?
John Sharkey: Australia has seen a reduction in construction litigation over the past two years. A large part of the explanation for that must lie in the rise of adjudication, which is proving a catalyst for resolution of disputes that would otherwise have matured into conventional litigation. The shift has changed the skills demanded of lawyers in Australia and South-East Asia, with clients seeking firms with both resource capacity and the ability to prosecute and defend often substantial claims at short notice.
Ashley Howlett: Disputes are increasing in China – in fact China is on course to become the world’s most litigious nation, with court dockets at record levels. Arbitration continues to play an important role in the resolution of construction disputes in China, but it is fair to say that most Chinese parties would rather litigate than arbitrate. Where foreign parties are involved, however, arbitration is the preferred method of resolving construction disputes. Alternative dispute resolution techniques are not widely used, although the Beijing Arbitration Commission is developing mediation procedures and dispute boards. We are seeing a sharp increase in the number of construction disputes with parties much more willing to arbitrate than they were even two years ago. This has led to a demand for construction dispute lawyers who have familiarity with Chinese arbitration institutions (particularly CIETAC).
Bruce Reynolds: In Canada, the construction market may be considered, at present, as being divided between PPP, on the one hand, and the rest of the construction market, on the other – what might be termed the “conventional” construction market. The PPP area has been and remains very busy, and those contractors, subcontractors and consultants that inhabit the PPP “space” in Canada have done very well both prior to and during the global financial crisis. Those industry participants that inhabit the conventional side of the market have not done as well. For obvious reasons, work has been in short supply,resulting in intense bidding competitions for too few projects. Constructon disputes are, of course, related to the underlying construction market. Accordingly, there have been relatively few disputes in the PPP area – where disputes are invariably subject to mandatory arbitration in any event. However, on the conventional side of the market there has been a marked increase in litigation over alleged bidding irregularities, as well as a general increase in claims related to project execution. Bidding disputes arise primarily in relation to public sector procurement, and so normally result in court proceedings, whereas other claims may be handled by the court or, particularly where there is a sizeable project – and claim – involved, by mandatory arbitration. Canada, unlike the UK, has construction or builders lien legislation in each of its nine common law provinces (and two territories), and a legal hypotech system in effect under the Civil Code of Quebec. The last few years have also seen a number of contractors on the conventional side of the market become insolvent, in which cases there have been significant lien litigations launched by unpaid subcontractors and suppliers, who – under the applicable lien legislation – are not allowed to waive their lien rights by contract.
Viewed from a broad perspective, however, the global financial crisis has not been as severe in Canada as it has been elsewhere, due to the stability of Canada’s banking system, and interest rates have been and continue to be very low, limiting the number of contractor insolvencies to a level far below those experienced during previous economic downturns.
Accordingly, over the last two years the work of construction lawyers in Canada has been on the non-contentious side in respect of the PPP construction market, and on the contentious side in respect of the conventional construction market, with activity levels consistently strong across the board.
Sumeet Kachwaha: Construction is one of the most active sectors of the Indian economy. It is thus difficult to notice any downward trend. Economic growth declined to 6.7 per cent in 2008-09 as compared with 9 per cent in 2007-08 and this may have marginally impacted the sector. However, India is a very large jurisdiction and the economy is on the upswing again. There is a great infrastructure gap and with the government pushing on so many fronts (roads, railways, airports, special economic zones, power, urban housing, etc) there is no perceptible decline or adverse effect of the global slowdown on the sector.
Brian Downie: There has been less arbitration and litigation in Hong Kong and Macao than many expected, particularly following a large number of suspensions and terminations on Macao projects during the crisis. Many factors have contributed to this including increasing use of mediation and negotiation, a desire to maintain relationships for when projects started again and some changes to contract forms (eg, increased contingencies facilitating settlement of claims that might otherwise go to dispute). The cost of formal disputes has undoubtedly been a factor for contractors who were closely monitoring cash flow.
The reduction in volume has changed the type of work being done by some lawyers. Where lawyers have found themselves supporting negotations and mediation rather than fronting the arbitration or litigation, I expect this is just a short-term change in emphasis. There has been a more significant change in work-type for lawyers who have shifted their focus and become busy with non-construction commerical disputes. It will be interesting to see if this has a long-term impact on their practice or the industry.
Emerging Markets
Who’s Who Legal: Which are the jurisdictions to watch for construction in 2010?
Ashley Howlett: China will continue to be a construction powerhouse, with high-speed rail being a particular area of focus. Infrastructure investment in China in 2009 was 4.2 billion renminbi, which was an increase of 44.3 per cent from 2008 – this trend will continue (although perhaps not at such a high level). In Asia generally, we are seeing increasing opportunities in Vietnam, Laos and Cambodia, with Chinese contractors being particularly active. One of the trends that will likely accelerate in 2010 is the number of Chinese contractors undertaking projects outside China, with Chinese contractors making up more than 20 per cent of the top 225 contractors working internationally last year according to Engineering News-Record.
Bruce Reynolds: Apart from China and India, which are markets of major interest to Canada, the PPP market in Canada is still one of the most active in the world. Although project flow in British Columbia is diminishing, Ontario is still actively involved in its build-out of the health sector, and has recently initiated major activity in the transportation and transit sectors, with the procurement for the C$1.5 billion Windsor-Essex Project under way, and the C$5 billion Detroit River International Crossing and the new C$4.5 billion 407 project coming soon. In addition, 3-reactor Darlington Nuclear Project, valued at over the C$25 billion, is still likely to be a PPP procurement. At the same, although Alberta and Quebec have cooled somewhat to the PPP procurement model, they still have significant PPP projects coming as well. As a result of this impressive list of projects to come, Canada has become a favoured destination for international contractors and engineering firms seeking major project work.
Sumeet Kachwaha: I would say that India is certainly a jurisdiction to watch out for in 2010 (and in many years to follow). The infrastructure spending over the next five years is expected to be about US$500 billion. These are not speculative numbers but hard figures arrived at the highest level and endorsed several times by the government.
Brian Downie: I agree with Ashley that China, Vietnam, Laos and Cambodia will be strong and that Chinese contractors will be increasingly active. I think the rise of Chinese contractors will have some far-reaching impacts on the industry. Indonesia is also attracting investment and will generate project related construction work. I agree with Sumeet that India’s targets for energy and infrastructure projects will make it a key market in the medium term.
We are also seeing increasing minerals-based investment in Africa, South America and Australia, which is generating projects and construction work.
Public Sector
Who’s Who Legal: In many countries sources of finance dried up in 2009 due to the global recession and this has led to clients competing for work provided by the government. How has the public sector fared in your jurisdiction and how has this had an impact on your practice?
Sumeet Kachwaha: In India the major construction sectors (roads, airports, ports, railways) are in any event government projects. Hence the scenario has not changed due to the global recession. The public sector continues to be the most significant vehicle to facilitate infrastructure development.
John Sharkey: The Australian federal government’s economic stimulus package has been a major driver of the industry over the last year and will continue to be for the remainder of 2010. As a result the industry has become more dependent on the public sector than the private. This poses some challenges for the industry when the federal government’s stimulus package winds down later in 2010.
Firm Issues
Who’s Who Legal: Many lawyers have noted that their volume of work has suffered as a result of the global recession. In the current climate, are full-service firms or construction boutiques better suited to meeting clients’ needs?
John Sharkey: The major development projects that will be seen in Australia in 2010 and coming years will be located in the north-west shelf. The scale and diversity of the LNG and petroleum projects approaching commencement is such as to make it likely that full-service firms will be sought after as better suited than construction boutiques for work in this region.
Ashley Howlett: We have not seen a downturn in volume of work, but we have seen a change in focus from transactional projects work to more disputes driven engagements. Transactions are now starting to pick up again in China, with many companies viewing the China market as one of the bright spots in the otherwise fragile global economy, so it is likely that the volume of project work will increase in 2010. I agree with John that full-service firms that have the ability to address construction clients’ requirements for IP, employment, tax, M&A, etc, as well as their pure construction requirements will weather the current storm better than construction boutiques. Certainly in China we are seeing construction clients looking for a broad range of legal services ranging from FCPA and compliance issues right through to arbitration. Outbound Chinese clients also look to firms that have a global network of offices, given the geographic diversity of their projects.
Sumeet Kachwaha: Over the years we have seen more and more construction related work for the firm. I would say that there is no rule of thumb. Sometimes construction boutiques may be able to better serve clients and at other, services of a full-service firm may be called for (and of course legal talent is equally divided between full-service firms and construction boutiques).