December 13, 2018 / 5:43 AM / 8 months ago

Proactivity and Prevention: A New Approach to Infrastructure Disputes

The scale and complexity of many infrastructure projects means disputes can often arise – but disagreements need not balloon into major conflicts that result in expensive and time-consuming arbitration or litigation.

In order to help parties involved in mega infrastructure projects manage disputes and minimise the risks of time and cost overruns, the Singapore Infrastructure Dispute-Management Protocol (SIDP) was launched in late October 2018 by the Ministry of Law.

“The SIDP takes a more preventive approach by pro-actively managing differences and disputes using an array of dispute resolution options throughout the project and prevents them from snowballing,” says Mr Heng Swee Keat, Minister for Finance, Singapore, during Enterprise Singapore’s Asia Singapore Infrastructure Roundtable when the SIDP was first announced.

Under the framework, parties provide for a Dispute Board comprising up to three neutral professionals from fields including engineering, law or quantity surveying. The Dispute Board then follows the project from start to finish to manage issues that may arise through customised dispute avoidance and resolution processes.(1)

The Dispute Board involves professionals from different fields from an early stage so they become conversant with the project and are therefore able to offer not only neutral but also practical advice. 

Workers are seen on railway tracks at a bridge over Yarlung Tsangpo river as they work on the construction of the railroad linking Lhasa and Nyingchi, in Tibet Autonomous Region, China November 26, 2018. Picture taken November 26, 2018. Zhao Lang/CNS via REUTERS

“The SIDP is a very useful tool,” says Seah Choo Meng, senior advisor to the Group Chief Executive Officer at Surbana Jurong.  “[It] is aimed at projects worth $500 million or more.” 

“Of course, arbitration and litigation are also available as methods but these are very expensive and protracted methods,” continues Seah, a member of the Construction Adjudicator Accreditation Committee of the Singapore Mediation Centre (SMC). “Arbitration is typically done only at the end of a job when there are already very acidic feelings between stakeholders. But the SIDP is good because it allows for disputes to be progressively dealt with.”

The launch of SIDP is the newest offering from Asia’s international dispute resolution hub. Currently, Singapore is the preferred seat of arbitration in Asia and is third in the world after London and Paris.(2)

The need for a framework to guide projects in the region is especially timely as the size of projects is getting larger - involving billions of dollars with a lot of moving parts and teams of specialist contractors.

"Disputes are increasingly likely in fast-growing emerging markets where the number of large, complex infrastructure projects is expected to surge over the next decade," reads a PwC report entitled Resolving Capital Project Disputes: Adopting a business case approach.(3)

Adding to this is the fact that Asia had the highest average dispute value of any region at US$84 million, according to a report by Arcadis.(4) And construction disputes in Asia also took the second-longest time to resolve at an average of 14.6 months, coming second only to North America at 15.6 months.  

The ongoing disputes of the Berlin Brandenburg Airport Willy Brandt development are an example of how infrastructure projects can go horribly wrong. Multiple problems – including a faulty fire-protection system, escalators that were too short, and serious structural faults in the ceiling – have meant that cost estimates have more than tripled,(5) and the opening date been pushed back almost eight years – from June 2012 to October 2020.

A general view of the main terminal of the construction site of Berlin Brandenburg Airport Willy Brandt (BER) in Schoenefeld, Germany, March 20, 2013.

When the airport did not open as planned, Air Berlin asked a German court to rule on the amount of compensation it should get due to the delays, with the airline claiming that its estimated losses at the time were worth "tens of millions" of euros.(6)

SIDP “works by encouraging parties to deal with issues relating to cost and project delivery upfront without any prior assumptions [as] to what their rights and liabilities are,” says Chow Kok Fong, a Chartered Arbitrator who was founding President of the Society of Project Managers. 

“If it’s possible, it’s best for parties involved in a disagreement not to fixate on rights and liabilities. Instead, they should focus on the solution to get the project delivered on time and within budget,” says Chow, who is also Chairman of the Singapore Infrastructure Dispute-Management Protocol Working Group and Board Member of Singapore International Mediation Centre and the SMC. “And if the solution requires some clarifications then this neutral third party will come in and help the parties. Through the process, we will get to the heart of the problem with more objectivity.”

The IHS Herold Global Projects Database(7) estimates that large infrastructure projects on average cost 80% more than budgeted, which can come to a lot when a project is worth billions of dollars. Laying down the groundrules to resolve differences could mean saving not only money but precious time. 

Developing a culture of on-going dispute management and mediation is paramount, because differences can be more easily and efficiently tackled when they are small enough to solve neatly and quickly.

This piece of content is brought to you by Enterprise Singapore and Infrastructure Asia

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(1)“New Singapore Dispute Protocol Launched to Minimise Time and Cost Overruns in Infrastructure Projects”, Ministry of Law, Oct. 2018, www.mlaw.gov.sg/content/minlaw/en/news/press-releases/launch-of-SIDP-reduces-time-and-cost-overruns-in-infrastructure-projects.html
(2)"2018 International Arbitration Survey: The Evolution of International Arbitration", Queen Mary University of London & White & Case, 2018, http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF
(3)“Resolving Capital Project Disputes: Adopting a business case approach”, PwC, Sept 2014 www.pwc.com/gx/en/capital-projects-infrastructure/publications/assets/pdfs/pwc-resolving-capital-project-disputes.pdf
(4)“Global Construction Disputes Report 2017: Avoiding the Same Pitfalls”, Roy Cooper, Arcadis, www.arcadis.com/en/united-states/our-perspectives/global-construction-disputes-report-avoiding-the-same-pitfalls/
(5)“Berlin’s new airport to open almost a decade later than planned”, Financial Times, Dec. 2017 www.ft.com/content/b90c2a0c-e1b6-11e7-a8a4-0a1e63a52f9c
(6)“Air Berlin goes to court over Berlin airport delay”, Reuters, Nov. 2012 “www.reuters.com/article/uk-airberlin-airport/air-berlin-goes-to-court-over-berlin-airport-delay-idUSLNE8A502720121106?feedType=RSS&feedName=businessTravel&utm_source=twitterfeed&utm_medium=twitter”(7)Managing big projects: The lessons of experience”, Tim McManus, McKinsey, May 2016, www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/managing-big-projects-the-lessons-of-experience

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