April 16, 2012

Protect a key relationship? Or vital cash flow?

This was the very weighty question faced by one of our clients. It called for some extremely delicate handling. Our advice required review of complex issues of incorporation, notice and interpretation.

The construction industry has been severely hit by the recession. Cash flow is more vital than ever. So it’s not surprising that payment disputes are rife. On the one hand employers are looking to reduce project costs while contractors and their supply chain want to achieve a decent profit. All this against a backdrop of rising material costs, cuts in public procurement and the competition making ‘suicide’ bids. It’s a complex balancing act.

RWK Goodman construction partner, Louise Garcia: "Clients are understandably nervous of ruining a key business relationship by getting involved in what they fear will be a public and extremely costly dispute. But when the usual steps haven't worked and when a stalemate is reached, a legal perspective can unlock the position. By highlighting the strengths and weaknesses and providing clear legal analysis, our advice can help both parties to understand the risks objectively. This can be just the leverage required to find a successful compromise that both sides can live with."

The dispute was over a couple of pages of text included in the loose lever arch files that the employer said comprised the contract. The effect of those two rather innocuous looking pages for the client was to add several million Pounds to the project costs. Hardly surprisingly, the parties had locked horns. The employer's position was clear: you signed it, you live with it.

Our client wanted to protect this key relationship, but could not afford to take a damaging multi-million Pound exposure. Appreciating the enormous sensitivity of the issue for our client, we agreed an approach where we provided detailed advice for the client to draw on in its continuing discussions with its employer. Both sides knew that the "legals" were involved, but it allowed the parties to continue to talk and explore the relative risks each faced.

Armed with our analysis and recommendations, our client was able to secure an advantageous settlement but also able to maintain its good relations with its key client; a vital and achievable outcome.

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