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Opinion

Technology and construction contracts: what are the risks, and how do you safeguard against them?

Kwadwo Sarkodie, Partner & Thomas Ajose, Associate, Mayer Brown
Sept. 21, 2020, 9:56 p.m.
192

Word count: 671

Despite the global COVID-19 pandemic, technology and construction opportunities in Africa remain. Urbanisation and economic diversification continue to fuel the urgent demand for improved physical infrastructure. This is reflected by the development of major projects, such as the vast hydropower projects underway at Mambilla in Nigeria and Caculo Cabaça in Angola.

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Despite the global COVID-19 pandemic, technology and construction opportunities in Africa remain. Urbanisation and economic diversification continue to fuel the urgent demand for improved physical infrastructure. This is reflected by the development of major projects, such as the vast hydropower projects underway at Mambilla in Nigeria and Caculo Cabaça in Angola.

The intersection of construction and new technologies offers the prospect of overcoming many of the structural challenges which have stood in the way of infrastructure development in many African countries, in the same way that the rapid uptake of mobile money technologies has served to bypass obstacles presented by a limited banking sector. At the same time, however, rapidly advancing technology, and associated rapid change, brings contractual risk.

Parties must therefore exercise caution at the initial contracting stage; businesses fall victim to disputes when they rush into signing new contracts. Below we look further at the risks involved, and how they might best be managed and prevented.

What are the risks?

The risk of disputes is ever-present. This could be the result of:

  •   The way the contract was carried out. Circumstances may arise impacting performance which were not foreseen by the parties or adequately provided for by way of the contract.

  •   The way in which the contract was entered into. Businesses often rush into signing new contracts because there is a desire to progress with projects as quickly as possible. This could result in certain key provisions regarding performance or payment being overlooked or omitted at the time of contracting. It is only during performance that problems come to light.

  •   The terms of the contract itself. The use of standard form contracts is firmly entrenched in the technology and construction industries. While this confers benefits in terms of convenience and familiarity, this can also be a barrier to adapting to, and providing for, change. This factor may be particularly pronounced in the case of jurisdictions, such as Kenya, Uganda and Tanzania, where older versions of the main construction standard forms (e.g. JCT 1963 and 1980) remain in common use.

    How can the risks be prevented, mitigated or resolved?

    Where a dispute has arisen or is imminent, mediation or negotiation can often resolve contract issues before they escalate to the point of requiring more costly or complex measures, such as adjudication, arbitration or court litigation. An effective negotiating strategy, however, often depends on the robust back-stop, whereby a party is able to show that if a favourable negotiated resolution cannot be achieved, it has the wherewithal to effectively enforce its rights. As such, careful consideration and structuring of dispute resolution provisions at the outset (with a clearly defined escalation of a range of dispute resolution steps), can provide effective support to negotiation strategies going forward.

    Always important too is the effective monitoring, management and administration of performance of the contract throughout its duration. Detailed and effective record-keeping can bring clarity to questions of the cause and extent of additional expenditure, allowing for issues of responsibility and quantum to be resolved ahead of the development of a full-scale dispute.

    At the more innovative end of the scale, one interesting technological development is the use of blockchain technologies (by which transactions are recorded digitally on a distributed ledger) in relation to elements of contract administration, by way of so-called "smart contracts". Exploiting blockchain's ability to continuously log data transparently, irreversibly and in real time, contract administrative functions such as progress reporting, delay notification and milestone payments could be automated. Removing these steps from the control of one or other of the contracting parties has the potential to enhance trust, efficiency and transparency, thereby reducing the prospect of disputes.

This is very much at the cutting edge of developments in contracting and, like any innovative step, carries its own risks. However it provides a useful example of how, at the intersection between construction and technology, there is scope to deliver the further efficiencies urgently required if Africa's infrastructure deficit is to be addressed.

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