Australia: Construction interface risks — what you need to know

Failing to manage interface risks is a common and significant cause of delay, expense and lost profits in construction projects, yet surprisingly contracting parties frequently fail to manage them appropriately. This article describes interface risks that arise in many construction projects and proposes some possible approaches to management.¹ Parties should choose an approach that most effectively meets the unique needs of their particular project, which may be one proposed below or their own solution.

Interface risks arise where a project depends on interaction between two or more stakeholders. Physical interfaces will often occur on the same or adjoining construction sites where different contractors are engaged in the design and construction of works that must ultimately connect or closely interact on completion.

Relationship interfaces may arise from interactions between stakeholders in a construction project, such as contractors on site, the local community, utilities, regulatory bodies and governments. Relationship interfaces between project participants may relate to site access and work conditions, while community stakeholders may be concerned with nuisances such as noise, vibration, pollution or damage to property and the local environment.

Principals and contractors who mismanage physical or relationship interfaces may face completion delays, liquidated damages, defective works claims, lost profits, industrial action, regulatory issues and other significant financial and reputational costs (referred to here as "interface risks").

Managing interface risks

Parties often manage interface risks, either consciously or inadvertently, by relying on a number of standard contractual provisions, including site access and co-operation clauses, design documents and works specifications, fit for purpose warranties, conditions precedent, indemnities, exclusion and consequential loss clauses, caps on liability and insurances. For some projects, this approach may be satisfactory.

Frequently, however, interfaces are unpredictable, exist between parties who have no contractual relationship or require ongoing management and cooperation between various contractors and/or regulatory bodies throughout the duration of a project. Most standard form construction contracts manage such interfaces poorly, and often rely on the principal, head contractor or superintendent exercising powers to issue variations or directions to effectively act as a "go-between" for the interfacing parties. Variations and directions to undertake additional works will also cause new interfaces to arise between various project stakeholders, as will a number of other changes in circumstances.

Parties may consider using alternative contractual frameworks, innovative project management techniques and ongoing communication between interfacing parties to manage interface risks that arise in their project.

Alternative contractual frameworks

Alliancing may incentivise project participants to deal with interface issues proactively by removing traditional barriers to direct collaboration and imposing a no blame pain share gain share contracting framework.² While evidence from a national benchmarking study into alliancing suggests that it can be an expensive method of contracting,³ alliancing may be appropriate for projects with complex, significant and unpredictable interface risks that "cannot be dimensioned in the business case or soon thereafter".⁴

An alternative approach is to retain a traditional contracting framework but require interfacing stakeholders to enter into a multipartite deed in which they agree to cooperate and coordinate their works to achieve a common project outcome, give appropriate indemnities and agree mechanisms for dispute resolution should their works fail to interface successfully. If interfacing stakeholders share a common project outcome and owe reciprocal obligations to one another to achieve it, they may be more likely to manage interfaces proactively and in the interests of the project as a whole.

Project management and ongoing communication between project stakeholders

Effective project management is crucial, and will depend on the dynamics between relevant project stakeholders as well as the contractual framework chosen at the start of the project. A start-up workshop and regular ongoing meetings may be one method for identifying and managing new interfaces, and has been praised as an important tool in avoiding disputes between parties using the NSW Government's GC21 (Ed 2) standard form contract.⁵

Building Information Modelling (BIM) software may also facilitate early identification of interface risks, but only where project participants collaborate effectively. Using BIM, principals, head contractors, subcontractors, architects, engineers and other project participants are able to create a 3D model of the relevant building or infrastructure from the beginning to end of the construction project.⁶ BIM may enable easier identification of physical interface issues, but is only likely to be effective if used in an appropriate contractual framework where project participants are properly incentivised to contribute to the modelling exercise and to collaborate and resolve interface issues when they arise.

Take home message for construction project participants

Managing interface risks requires careful planning and creativity, and is important to ensure project success and profitability.

This is an abridged version of a paper published in the June 2015 edition of the Building and Construction Law Journal.

Footnotes

¹ This is an abridged version of a paper published in the June 2015 edition of the Building and Construction Law Journal.
² Walton J E.nz Magazine: The magazine of technical enterprise, Vol 9 (No 5), Sept/Oct 2008: 40-42, 44
³ Department of Treasury and Finance, Victoria "In Pursuit of additional Value: A benchmarking study into alliancing in the Australian Public Sector" (2009) available http://www.dtf.vic.gov.au/Publications/Infrastructure-Delivery-publications/In-pursuit-of-additional-value [accessed 15 December 2014] at 91
⁴ Department of Treasury and Finance, Victoria "In Pursuit of additional Value: A benchmarking study into alliancing in the Australian Public Sector" (2009) available http://www.dtf.vic.gov.au/Publications/Infrastructure-Delivery-publications/In-pursuit-of-additional-value [accessed 15 December 2014]; Gerber P and Ong B "DAPs: A flash in the pan or here to stay? (2011) 23 (8) Australian Construction Law Bulletin 122 at 126
⁵ Sharkey J et al, n 3 at 19.
⁶ Australasia 2012, National Building Information Modelling Initiative. Vol.1, Strategy: A strategy for the focussed adoption of building information modelling and related digital technologies and processes for the Australian built environment sector, report of the Department of Industry, Innovation, Science, Research and Tertiary Education, (Sydney, 6 June 2012) 7 http://buildingsmart.org.au/wp-content/uploads/2014/03/NationalBIMIniativeReport_6June2012.pdf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.