UK: ThinkHouse - Public Sector Series: Managing Contracts (Video)

Earlier this year, the National Audit Office (NAO) issued its 'Competition in public procurement: lessons learned' report. The report examined whether government has mechanisms in place to understand and encourage competition in public procurement and how government departments can make their use of competition more effective.

We focus on contract management rather than procurement elements noting that the report highlighted some key points relating to the on-going management of contracts. Ultimately, how contracts are managed during their terms and lessons learned will factor heavily in any re-procurement and the development of new contracts when you do go back out to the market. We consider ensuring you have the right contract terms, being clear about the relationship you want with providers and ensuring you then manage the contract reflective of the mechanisms put in place.

We also consider options in the event there is a contract failure, the advantages and disadvantages of litigation and arbitration, points to consider when holding a mediation and practical steps to help manage and resolve disputes. Where disputes can't be resolved, we consider essential steps to put the Authority in the best position to bring or defend a claim.

Transcript

Alison Richards: Morning so we are going to be speaking this morning about managing contracts with a view to avoiding and revolving disputes. So if you manage contracts well hopefully you will not get into disputes or find yourself having to resolve this but, so just to kick off then I am Aly Richards. I am a partner in our commercial IT and outsourcing team at Gowling and I deal mostly with the public sector so local and Government level contracts. Susannah, would you like to introduce yourself?

Susannah Fink: Hi there. Good morning everyone. I am Susannah Fink. I am a legal director in the commercial litigation team and I have specialism in acting on procurement challenges both for public sector defendants and also claimants.

Alison: So in terms of the agenda for this morning we are going to speak a little bit about some of the lessons learned from public procurement where all in the public sector here today most of the contract unless they are low value or there has been a direct award will have been subject in some form to public procurements, a lot to be learned from that. We will look at preventing disputes rather than having to cure them down the line and some of the key mechanisms in your contract and then Susannah will go on and look at some of the remedies and look in particular at arbitration or litigation which is the best and why. She will talk a bit about negotiation, mediation and also give some key tips on managing a dispute.

So I will just start by mentioning an NAO report so back in July, the National Audit Office issued a report on competition in public procurement and looking at some of the lessons learned and it examined whether the Government has mechanisms in place to properly understand and encourage competition in public procurement and how Government departments can make use of their competition in a more effective way so my focus is very much on managing contracts this morning rather than the procurement side but the report did highlight some really useful points relating to the ongoing management of contracts. Ultimately how contracts are managed during their term and lessons learned will play heavily into your re-procurement when you get there and the development of new contracts before you think about going out to the market.

So there are key highlights in the report, six in total. I am going to touch on just four of those before going on to consider some of the key contract issues and if they are not things that your organisation already does, I recommend firstly reading at least the summary of the report, it is a quite a beast of a document, but also consider how those recommendations ought to be factored into your routine contract management tools. If there is an incumbent contract, there are clear benefits to regularly having dialogue with them and sharing an understanding as to the risks to your organisation but also from your point of view understanding the risks of the supplier and jointly considering the steps when problems occur is actually one of the best tools you have got in your armoury not only in terms of supplier performance issues but risk of failure is a risk to your organisation in terms of delay in terms of costs escalating and being able to understand what is underpinning those issues at an early stage helps you with managing your contracts but also with managing and avoiding disputes and helping with future procurement activity.

So one of the things the report talks about is engaging with suppliers and in doing that you should collect detailed information about the market whenever possible including from existing suppliers, understanding collective buying arrangements can and how that can be used to strengthen your purchasing power and engaging with suppliers to understand what the capabilities, what the different circumstances that will impact delivering services. Most or at least a significant percentage of your contracts will be based on model terms whether they are cabinet office, CCS contracts or one of the other model forms and they will already have transparency requirements in them that require your suppliers to provide various contract data and reports. They will also have requirements around continuous improvement and they will be measured in a number of ways.

The report talks about a lack of realistic requirements being required as part of your procurement and that can lead to lack of bids or the appoint of unsuitable suppliers and at worse, you end up with a contract that actually is not reflecting what you actually wanted the outcomes from that contract to be and of course where that leads you is to a perception that the contract is being poorly performed rather than an appreciation that actually maybe not quite got it right at the outset. Increasingly we are seeing contracts being drafted in a more permissive approach where KPIs and incentives around collaboration support good performance and there is certainly some things to look at or consider around that.

Sorry I'm losing my place, just stop for a second.

OK so the next lesson they talk about it when managing a contract or market authorities should ensure that there is an appropriate mobilisation period to allow relationships and the contract processes to bed in and very much something that we see is quite often the mobilisation plan to the enth degree there is sometimes not enough flexibility for the mobilisation in terms of the actual award of the contract. Quite often you have got an indicative timescales for awarding your contract but there may have been some delay due to procurement assurance exercises or a delay because aggrieved bidders have raised questions or clarification questions are taking longer so ensuring there is enough flexibility for your mobilisation and planning your contingency for any delays to contract award should help your suppliers manage the risk but also the organisation and consider other enablers in the contract such as subcontractors in your supply chain or commitments that your buyer may need to consider so the knock on impact of any delays on your mobilisation period fully understanding those risks from both perspectives can only be a good thing and ensure you collect appropriate data to assess the outcomes achieved as well as those desired.

And the other point that I think is quite helpful from the report is looking at before the end of the end of the contract using available mechanisms to collect data on supplier health in the market to use and inform future procurements ensuring that you have got visibility, costs and other information from your incumbents and that you need to be able to procure going forward and we know that there is always some tension around that because there will be a perception by new suppliers that might be interested in future contracts that the incumbent was in the best position to win the contract going forward versus your desire to ensure that you have got enough information to have a healthy competition and encourage others to participate and I think in gendering that is part of your business as usual contract management so that transparency and the regular provision of up to date information as being the norm we will help you achieve that, and of course maintaining contingency plans for supplier failure and considering options for the need to make changes is also likely to be beneficial and I think as part of that knowing and understanding your contract and the measures that you have got in your contract is really key and if you know that you have got mechanisms like KPIs in your contract that have not really worked or being used more as a stick for your suppliers rather than something that enables them to achieve I would always recommend not sitting on those KPIs if they don't work, look at them, consider them and look to see whether your contract is flexible enough to change those terms so that you can work with your supplier to deliver a more workable contract that is more meaningful.

OK so the next thing that the report considers is some of the things to think about before the end of the contract using the mechanisms in the contract to collect data on the supplier health and the market to inform future procedures so that is in terms of your incumbent contract but also what the market generally is doing and having that knowledge not just before the immediately before the end of the contract but leading up even 12/6 months even longer depending on what you are procuring can often be helpful. Ensuring that you have got full visibility and the market understands the visibility in terms of costs or information that will be needed to support transition from your incumbent to potentially a new supplier and maintaining contingency plans in case there is supplier failure so that might not be at the anticipated end date. It could be much earlier than that so making sure that your contingencies in your contract allow for early termination as well as expiry will be helpful.

The other points that we note about your in life contract is ensuring that you are managing your contract to reflect the mechanisms you've got and if the contract mechanisms are not working for some reason so if your KPIs do not quite work or things have changed there is a danger that your contract becomes meaningless in some way or that the costs may become unpredictable or unmanageable or worse the relationship can start to crumble between yourself and your supplier so making sure that that trust continues through the contract by using the mechanisms and continuing to ensure your contract mechanisms are relevant and support both the supplier and the authority in managing your contract and managing risk around that contract is the best thing. If they do not work do consider using the change control procedure.

And then just in terms of my other thoughts around that is really think about what sort of relationship you want with your suppliers so quite often, we see organisations going out to procure on the basis of wanting collaboration or a partnering arrangement but when you look at the contract mechanisms and the way a contract is later managed, it is very much actually master and servant and you are looking for suppliers to deliver on time to quite high performance measures and actually it would have been clearer from the outset that it was reflected that you wanted a master and servant type relationship and not hiding behind something that says it is collaboration but it isn't really so I do think be really clear from the outset as to what you are expecting and reflect those behaviours in a way that you manage your contract so whichever approach is adopted and none are wrong, consistency I think is the most important thing. The inconsistent approach is more likely to lead to mis-trust or a broken relationship.

So I'll go on just to think about some of what your contract looks like some of those probably sounding obvious things but things to think about in managing your contract to avoid a dispute so in terms of some of the obvious basics and I say them because we see them on a daily basis happening, make sure you have got a written contract. Most of the contracts that as a contract team you will be involved in on the procurement side will be high value so there will be subject to some form of procurement but do not forget the lower value contracts or if there has been an immergence and you have had a spot purchase, make sure you have got a written contract. Make sure it is clear to both sides the basis on which you are contracting with that party. Leading on from that, make sure that you know who the entity is that you're contracting with because quite often you will be dealing with a group of companies. Use company numbers, make sure that you have recorded who those parties are and we do recommend having a pdf or a final version of the contract signed by all the parties whether that is a full blown model services contract or an order form something that is really clear what that final agreed form is and it is signed and then if you need to change, we have been talking about potential changes to your contract to keep it meaningful, make sure that you keep an updated version or a contemporaneous version showing where those changes have been made so it is really clear to those contract managers and final point there is deal with expired contracts. We are quite often asked to look at contracts which the term expired some time ago and they are in effect holding over, that is not only a procurement risk but it is also could lead to arguments that there are different perceptions to what the contract terms are so really make sure that they are considered and avoid uncertainty as far as you possibly can. I think the other thing to say if relationships do break down, if there is some dispute there is quite often startling differing view as to what was originally agreed and is quite difficult to reconstruct that position based on emails or notes or memory as to what happened and you end up litigating as to what extra the contract is rather than having something firm.

So just a few thoughts on tonation so ending a contract can be quite painful if you have got a dispute and sometimes ending a contract quickly can be a cheaper than dealing with that dispute so making sure that your contract is very clear as to the circumstances in which your contract can be ended is really important and that includes whether you are only allowed to terminate a contract if there has been a default and if one of the parties have been given a chance to remedy that default before you can invoke that, or do you have a right to terminate well without any reason so being very clear about what those options are is really important. Also important is being mindful of what the timescales for using any of those termination mechanisms is important so if you have got three months, you have still got to pay continue to pay your providers for that period and also be very clear about any other schedule or terms you have got in your contract that deal with compensation or other payments that might arise on termination in terms of sub-contracts or licences for example all of those factors will play into any decision you may be taking around whether to deal with an issue or dispute rather than invoking other rights you have got.

The final bullet point there we mention avoiding having a perpetual contract so you quite often see contracts being entered into where it is a rolling term. They can have long notice periods and we have seen some that say you can only terminate on a given date in the year and of course you are then sort of stuck in and it automatically renews unless you give notice within a certain timescale so do be aware of those.

Yes likewise having a long term contract with a very long term might be really helpful to suppliers in terms of them being able to give you a better pricing but of course with that it could bring sort of higher risk for an authority in terms of the cost of change, price increased but your specification may change. We see sort of long IT or construction type contracts which might run for sort of eight years plus and of course things do change circumstances that are impacting with UK right now in terms of infrastructure, in terms of fuel costs that can be higher risk in terms of managing on the long term and is that longer term worth the risk of having reduced costs so you might want to consider having a break clause even if you have to pay a fee or an amount to break the contract or some form of break payment and always consider what happens as I say whether there are particular consequences when they fall due and what that covers.

In our experience what leads to termination or disputes are most often linked to one of these things so price, performance or delay issues. I think clarity as to the expectations is probably top of the tree in terms of ensuring that you the circumstances linked to poor performance, delay issues and making sure that absolutely clear in your contract is the best thing you can possibly do. As I have said previously, whatever your contract says in terms of managing that be seen to be managing your contract in the way you envisaged at the outset and if that is not working amend it because as soon as you start managing in a slightly different way you are likely to create ambiguity, uncertainty and mis-trust so as part of that as I said, if there is a need for change, use it, use it in an appropriate way and of course mindful of procurement regulations in terms of the extent to which you might change but it is often a great way to preserve as contract that may not be quite going where you anticipated it was but in view of risks for both supplier and the authority it is definitely worth a thought as to whether there is a more sensible or pragmatic way of managing performance or a delay issue or pricing by looking at whether you are able to change the contract in a mutually acceptable way. Yes and performance management I mean all of this is that point that if you have got a mechanism it says that you are going to manage in a certain way including the way you are going to govern your contract and manage service levels follow what you have said you are going to do and that will give you the best or preserve the relationship as far as you possibly can with your contractors.

Susannah is going to obviously come on to some of the disputes, mechanisms in a bit more detail before you get to dispute. Some of the mechanisms or the tools in your contract management toolbox will be around asking your suppliers to rectify delays or performance issues and there is usually an obligation on the supplier to continue to provide the services but there may be consequential impacts as well on performance financials which can be overlooked so be really careful not to overlook issues that could then themselves also become subject of a separate contract dispute so if you say that you are going to have service credits invoke them, if you are even considering not imposing service credits for whatever reason, make sure that you are not in some way creating a new contract mechanism or you are waiving your rights so document if you are offering some sort of grace period then make sure it is documented and managed. Likewise if there are delay payments be really clear on what those delay payments are, how long they run for and I would go as far as saying record when they are invoked and what the accruing amount is and then again record when they stop. Again, even if for whatever reason you may decide to give your contract as a break from any of those delay payments. Again record it but be clear you are not waiving any rights you might have under the contract and the last point there is about liability. Quite often in your contract there will be liability caps or super caps so that if you have used any of the mechanism to impose delay payment service credit be clear as to whether they are subject to one of those caps so the caps sometimes operate on an annual basis but could be a lifetime cap and just be clear or be aware that that cap has not been reached and it is going to in effect risk you not being able to enforce future rights if that cap is reached so just be careful about that and certainly one thing to think about when you are drafting new contracts to go out to the market.

So these are things so yes you will wish you had a clear liability clause so again what are those caps, how do they apply, when do they apply and what period. Be clear about force majeure so is there any circumstances in which your suppliers may be performing badly but there has been an event that should give them some relief from performance for a period of time but also having that clarity about what the consequences are and what that relief looks like and so (a) does it apply to the circumstances, does it fall within that exclusion category and what are the consequences within that exclusion category and what are the consequences being really clear on those.

Yes having really clear notice so if there is a notice for rectification for example be rally clear on what those notice periods are and on who those notices need to be served.

Yes we have spoken a bit about dispute clause and escalation and then of course there is a raft of other clauses such as third parties, how are they impacted, are there any rights for your sub-contractors, do you have rights to vary particular performance mechanisms, if they are not working or you need something that is more practical and we have spoken about not waiving rights. The other point to mention is your law jurisdiction clauses. Be very clear if you have got a clause in your contract that says where your contract may be enforced. Is there anything limiting your rights. I think Susannah will probably say a little bit more about the courts versus mediators whether there is anything that restricts you from doing something over the other and also is there a country or a jurisdiction in which you have got to enforce those rights too.

So practically so know your contract, really understand your contract what's in it and if the contract is not working, if you are finding yourself managing a contract that is quite different from what is practically happening on the ground, that will be for one of two reasons, one because the team that you work with do not really understand the contract that was signed of they have ignored it or it is just not working so think about making sure your contract is working for you. As part of that maintain the meetings, maintain the governance and the arrangements that you have said that you will. Your suppliers are way more likely to sit up is they can see you are enforcing your rights under a contract, you take it seriously and they should behave and mirror that behaviour in the say way.

Maintain risk registers. We said at the outset about ensuring that the supplier as well as the authority should be aware of each other's risks and managing in a way that is most effective for both parties is quite often a better way of achieving a resolution. Make sure you keep records so of any action taken, any instances where the contractor has failed to perform and the steps you have taken to remedy those. If in the unfortunate event that you end up in a dispute those records will be your most important tool. Pay invoices properly so your supplier invests quite a lot of time and money in winning a contract and again that mutual respect comes from paying them on time so that they are also able to pay their sub-contractors on time too so having that trust is equally important and yes do not delay in dealing with any emerging issues or delays. Look out for the warning signs and the quicker you are able to deal with them and be seen again that goes to the heart of being a respected intelligent contracting authority that is likely to get better respect from your contractors.

Thank you. Right I will now hand over to Susannah who will talk about managing disputes and some of her top tips. Thank you.

Susannah Fink: Thank you very much Aly. So at the point of preparing your contract you really need to think then about whether you wish to have litigation or arbitration as your dispute resolution mechanism. There are pros and cons of both methods. I just thought we would quickly run through what those are so that you would be better placed to make that decision.

So some of the advantages of arbitration. The main one is confidentiality so arbitration hearings are held in private and there are implied duties of confidentiality in English arbitrations which prevent the disclosure to third parties of most documents produced or disclosed in an arbitration so that will include all the statements of case and obviously the arbitration award that is made at the end of that. So if you are on organisation that wants to continue doing business with the party with whom you are in dispute it might actually be helpful for all the proceedings to be confidential and then you do not have to wash your dirty linen in public so to speak.

By contrast litigation obviously is rarely private as the public can search for information and non-parties can obtain copies of the statements of case, they can obtain copies of judgments and obviously the decisions are well publicised amongst the legal community. Just one thing to say there with litigation so in procurement challenges there is the ability to ensure that commercially sensitive information is redacted from documents that are filed at court so there tends to be a public version and a redacted version and quite often there are confidentiality rings in place too as it might well be that only the lawyers and one representative of each party would see that full and redacted copy.

Back to some of the advantages of arbitrations here, flexibility is a real benefit so in arbitration there are very few set rules as to procedure. The parties can agree at the outset the procedure that best suits them or they can choose to adopt the procedural rules of one of the many arbitral institutions that are out there.

Essentially a party is free to use many innovative ideas to try and tailor the procedure specifically to the dispute at hand with the result then that the arbitration would proceed more effectively and efficiently.

Once an arbitration has started the parties can also influence the procedure much more than would be possible if you were in litigation so for example in arbitration the parties are free to choose how to decide how evidence should be adduced, presented and assessed by the tribunal whereas in litigation there are quite stringent rules as to exactly how you draft a witness statement and what you can and cannot say.

Moving on to expertise, so what I mean by this is that the parties in arbitration can choose their tribunal and they can specify what qualifications and level of experience the various members should have so if your dispute would benefit from having somebody with technical or scientific expertise then you can always specify in your arbitration clause that that is what you want your tribunal to have. You can also ensure that the people who you want to appoint will have adequate time to deal with the dispute by finding out in advance what sort of availability they have and this again would be an advantage over litigation.

Finality of the decision so in arbitration the opportunities to appeal or challenge an arbitration award are really quite limited so when you have an arbitration award made this does tend to provide more certainty to the parties that it is not going to be challenged in any way and there is that finality.

Generally this is perceived as an advantage although I would just caution that there is sometimes a risk that arbitrators will not spend as much time considering the reasons for their decision if they know that it is not going to be scrutinised by a higher court or tribunal.

OK enforceability – this is really something that only should be a concern to you if you're of the party that you are in dispute with is actually based in a different country but if that is the case, then the ease of enforcements of an arbitration award is probably one of the most important factors in favour of arbitration. There is the New York convention which is an international treaty which provides for the enforcement of international arbitration awards quite easily across the world and there is no real equivalent for this when it comes to enforcement of court judgments.

Now in terms of the costs, arbitration if often perceived as being cheaper than litigation and quite often that is the case but I have to say it is not always so for example if you've chosen to have a three person arbitration panel and there is choice there obviously when you draft your clauses as to whether you go for one arbitrator or three arbitrators but if you do have three and you have chosen to have your arbitrators for example as a King's Counsel then you are probably going to end up paying some quite hefty hourly rates for all three members of the panel and again this is different to litigation where you are not paying for the Judge's time so to speak and in arbitration you also have to pay the administrative costs so if you have hired a venue in which to hold your arbitration hearings then you will again have to pay for that venue which isn't the case if you were in litigation.

As regards speed again it is true that arbitration can be a much quicker procedure if you manage to make those procedural rules to work in your favour then it can be quite a short timetable from the start of proceedings all the way through to hearing and it can be again quicker as compared to your typical lead timetable to trial in litigation which can be 18 months to two years, but again if you have opted for a three person tribunal and you have chosen members of the tribunal who are very busy King's Counsel then again it might be that it is going to take some time to find a date when everybody's free and again this can cause delay and it can take a lot longer.

If we can just move on now to the next slide and I am going to talk about some of the advantages of litigation. As opposed to arbitration, because litigation is public then there is the whole body of precedent there which can assist you if you want to know for sure exactly how a contractual provision is going to be interpreted or you want to use your litigation as a test case or provide a warning to others then obviously it is useful to have that body of precedents and that would be a reason why you might go for litigation rather than arbitration.

Similarly in a way that you have certainty in arbitration, in litigation you have more appeal rights available. Having an appeal a right of appeal does act as insurance against errors of law by the trial Judge so it can be beneficial in that way but on the other hand you want to have a strict black letter law approach to contractual interpretation and you very well may be better off having litigation depending on the other commercial considerations at play.

If you are involved in a multi-party dispute then it is as well to know that in litigation you obviously have rules as to exactly how you can join other parties to the dispute and how you can consolidate several sets of proceedings. In arbitration the situation is different. Whereas some of the arbitration rules do allow for consolidation and also for joinder they will inevitably require all the parties involved who consent to that, and obviously if you have a third party they are not going to consent to being joined to some arbitration proceedings because why would they, it's not in their interest to do so, so essentially that means it is really quite difficult in practice to join another party in arbitration so better off staying in litigation again if that situation arises.

The active case management that you have in litigation can be quite beneficial so again in arbitration you often deal with different parties and delays can be caused because they just do not have those tools that can be used to apply pressure on the parties in order to enable them to speed up whereas in litigation there are many tools available. You have default judgment, unless order, contempt orders all of which will encourage a party to get on with it.

And finally whereas we talked about the fact that arbitration is private and litigation is public, obviously the fact that litigation is so public can be very much in your favour if you want to for example, damage the reputation of the other party by publicising the dispute that is going on, that can be quite a useful mechanism.

So I am just going to look now at some other dispute resolution mechanisms if we can move the slide thank you. So there is a negotiation and without prejudice here so negotiation is a tool that needs to be thought about again at the beginning when you just start having a dispute but equally it applies mid-dispute and throughout the course of any proceedings that are commenced, it is a way to resolve those proceedings.

So negotiation is an attempt by the parties' representatives whether in writing or in person to resolve that dispute in a neutral setting. It can help to preserve an ongoing commercial relationship and also it can provide a cost effective route before moving on to more formal dispute resolution mechanisms. Now the without prejudice rule should apply to any negotiation and this is essentially intended to encourage settlement discussions without parties weakening their position in the formal dispute so basically if this rule applies then parties can write and speak openly without any fear that what they are saying is going to be then used against them in the proceedings whether those be litigation or arbitration ones. This is because those statements that are made in negotiation are generally not going to be admissible either in the substantive dispute or on any question of costs.

If instead your discussions are held on a without prejudice save as to costs basis then this is different and this will enable those statement are made to be considered in costs hearings at the end of the proceedings specifically for the issue of deciding who is going to be responsible for costs.

Now it is important to note that this without prejudice rule only applies to negotiations that take place in a genuine attempt to settle a dispute so there will have to consideration as to whether the parties were acting in good faith in that respect.

If you are holding a meeting or a discussion it's always best to state at the outset that the intention is that you are going to be holding these discussions on a without prejudice basis so that both parties are aware of what is intended by that. Having said that if you do forget to make that point or likewise if you forget to mark on a letter that is without prejudice, that is not necessarily fatal to whether those discussions or communications will be considered to be without prejudice at the end of the day. If you are found to have been involved in a genuine attempt to settle then they will be held to be without prejudice. Likewise if you mark a communication as without prejudice that is not going to be conclusive. It will be helpful to show that that was what was intended but again if it was not genuinely an attempt to settle then just by marking a communication without prejudice is not going to help you.

If we can move on now to look at mediation, mediation again is something that you can include in your contracts as a mechanism that is something that should be thought about either before you start litigation or arbitration or indeed once those proceedings have started.

Similarly if it is not in your contract again it is something that should be borne in mind as an alternative dispute resolution mechanism at whatever stage of the proceedings you are at.

Essentially, mediation is a form of alternative dispute resolution where the parties use the help of an independent third party who is the mediator and then they facilitate discussions in the hope of resolving the dispute. Although mediations can be evaluative the role of the mediator is generally to facilitate resolution so you are not trying to convince the mediator that your case is correct in the way that you would with a Judge or a tribunal. Instead the mediator is simply there to try and encourage the parties to reach a settlement which they are both comfortable with.

Mediation is a confidential process which is important to note so anything said in that mediation is said on a without prejudice basis so if that mediation breaks down and you do not eventually reach a settlement, you do not need to worry about any concessions that you made in the course of that mediation.

It is a voluntary process which means that either party can walk away at any point if they wish to do so. In practice that is quite rare you do sometimes see it in mediation that one of the parties will flounce off mid-mediation because they do not feel that they are getting anywhere but as I say it is relatively rare and the main point to know now is that mediation must be considered in every case. It is part of the civil procedure rules and the costs consequences of unreasonable refusing to mediate can be quite severe. The Court of Appeal has specified factors which need to be taken into account when deciding whether a refusal to mediate was unreasonable or not. Some of these are the nature of the dispute, the merits of the case, whether the costs of mediation would be disproportionately high which is very rarely the case, whether any delay would be involved if you decided to mediate very late in the proceedings, whether mediation has a reasonable prospect of success and whether the courts have encouraged the use of mediation which they will have done. And just to say here that when considering what is a none-reasonable refusal to mediate the fact that you through the parties were too far apart and that actually there was a hostile atmosphere between the parties and it was never going to settle. That has been held not to a good reason and that is often the case in all litigation and arbitration and the idea is that you just have to try and plan that compromise position.

So how does mediation work? In a typical one, the mediator will invite the parties to submit to a short document which sets out their position in advance of that mediation hearing. On the day of the hearing the parties will initially all meet in one room for a general introduction where the mediator tends to provide an overview of the process, the role and the procedure that each party will have on the day. Each party will then have that opportunity to make an opening statement which tends to give its perspective on the dispute and highlights its points of particular concern.

After the opening, the mediator will then spend time talking to both parties, there will be quite a lot of shuttling between the rooms and if need be, it might be that they will bring the parties together again.

If you are lucky and the parties do agree on a settlement, then the mediator will with the help of the parties draw up a settlement agreement which the parties will then sign with the idea that that settlement agreement is then going to be contractually binding on the parties. Quite often you see actually that you do not manage to draft a settlement agreement on the day or reach a compromise on the day but it is very common in the following days or I'd say over two weeks following mediation that a settlement is reached.

So what are the advantages of mediation? I would say on average about 80% - 90% of mediations are actually successful so this is actually a high success rate and obviously it is something that you really need to bear in mind and it is worth doing. If you do manage to reach an agreement very early on in the dispute then obviously you will be saving an awful lot of costs and management time involved and obviously if you instead not settled, and proceeded to litigation instead.

Likewise mediation is important if it then transpires that your case is actually not as robust as you thought it was, you thought it was because then obviously you can be aware at an early stage what your exposure might be and probably take more of an effort to try and compromise and reach that settlement agreement going forward.

Moving on to the next slide. I just want to talk about a few points to consider if you are proposing a mediation. The first one is what will the mediation procedure be? You could defer to the model of a mediation service provider such as CEDR which is the Centre of Effective Dispute Resolution or it may be that the parties choose to adopt a different mediation procedure altogether. It is really quite flexible.

How will costs be shared? The mediator's costs need to be paid for. It is usual for the parties to agree to split those costs and indeed the cost of the venue if you have hired one. But equally you do not have to reach that agreement. Sometimes the parties reach the party who loses overall will be the one that bears the costs and that is up to you.

Where will the mediation be held? It is quite common to hold mediations in one of the party's offices or in one of their solicitor's offices. On the other hand you might decide that you want a more neutral venue in which case there are rooms that can be hired to do that but the disadvantage there is then you would be paying for that venue hire which you probably wouldn't be doing if it was held in a solicitor's office.

Who will the mediator be? Both parties should make proposals as to who they suggest should be the mediator and again here it might be helpful to appoint somebody who has got commercial experience or for example your dispute is about IT, you might want someone with technical experience of IT but again it probably tends to be more common that you would appoint a lawyer who can act as a mediator for you.

How will you make that decision if parties can't reach agreement as to who it should be? Again you can specify that if the parties do not reach agreement but a centre such as CEDR can decide who should the appropriate mediator be?

Who will attend the mediation? This very much depends on the strategy that you choose to adopt, you might for example want the weight of legal advisors there and so probably in nine times out of ten, they will be there but alternatively you know it might be that you decide that having a lawyer there actually wouldn't help the situation and you just want the commercial parties to be there and try and reach an agreement just with the mediator and that is fine if that is a decision that is reached. It is helpful to have the decision makers on hand preferably in person but if not on the end of a phone because again if you are going to try and do a deal on the day, you want those stakeholders around and available and if insurers are involved for example then you will want the insurers available at the end of a phone to help.

How long do you want to give the mediation? You might specify a time such as 10 until 6 but again, if it looks like a mediation is going to be successful and the parties are making good progress, it is not at all uncommon for mediations to go into the small hours. Alternatively as I have said, sometimes people walk out so it very much depends how things progress.

Should the mediation be facilitative or should be evaluative? Is the mediator there to facilitate the parties' own attempts to reach settlement or alternatively, are they there to evaluate the merits of the case and provide a written recommendation because you can request that if you prefer it and in that case, you need to consider whether you would want that recommendation to be binding or not. Maybe it would not suit you to be binding.

So that's mediation moving on now to some steps that I wanted to talk about that is worth you considering if you are managing a dispute. These are probably more likely to apply in the early stages before you decide to enter into any lengthy expensive court battles.

Firstly, it is vital that you take the time available to undertake a thorough fact finding mission so you can be sure that you do actually understand the situation fully. For example has there already been a breach of contract or has one just been threatened and if a breach has already occurred then how serious is it and have you actually taken the time to consider both your and the other side's obligation and liabilities as well as any consequences that might follow from any steps that you choose to take. All of this needs to be clear before you take any actions.

I would also recommend taking legal advice as this will clearly be necessary if you are looking to establish the merits of your own position. If you undertake that legal analysis it is going to help establish the extent of any dispute and provides some sort of independent view on who might be to blame for the breakdown in the relationship and more importantly how you can look at trying to resolve that dispute amicably.

If you have an internal legal function then by all means that those in-house lawyers can help you in those early stages, but equally it might be that there is value in instructing external advisers. Dealing with disputes can obviously be very time consuming and it might assist management and in-house legal if you have some external support from lawyers which they would prove helpful and cost effective in the long term as well as adding a further layer of impartiality.

It is really important to try and remain clam although I appreciate that is often easier said than done in many situations, but it is worth knowing that the reason why disputes can escalate quite unnecessarily is because people think a personal attack is being made on them when actually that is not the case at all. It is more than to try and distance yourself from any emotions and try and remain calm and objective if you can. Do not act out of frustration and say things in the heat of the moment so for example, terminating a contract before you have actually thought through the implications of that or accusing the other party of being in breach when the reality is there isn't. Essentially just being careful not to say something that might backfire on you long term.

As Aly mentioned earlier, communication channels with the other side should be kept open. It is always important to listen to the other side's views so that you can fully understand exactly what the other side's issues are and what the concerns are and what motivate all parties to step back from that brink of litigation.

Try and keep an open mind about compromise. I am conscious that some people simply are not in that sort of mood at the beginning especially if they think they are in the right but obviously in order for any deal to be done and it is always worth doing a deal just so as to save those legal costs and also management time, then you are going to have to be in the mood to compromise.

OK. Some of the points that you need to think about when managing a dispute are limitation, so the limitation period is the time within which the legal became massively broad. This is obviously vital to be aware of both as soon as that dispute has arisen and also sort of further down the line just before you are about to commence proceedings because if you miss that limitation deadline, it is then going to mean that you are enabled to succeed in a claim even if actually your prospects of success might have been otherwise quite strong.

In England and Wales, the prime rate statutory limitation period is for claims arising from a breach of contract is six years from the date of breach. That is if you have an ordinary contract. If you have a deed, then it is going to be somewhat longer than that – 12 years.

Some contracts may actually specify within them that there is a contractual timescale within which any claim must be brought. If that is the case, you need to comply with that and that might be less than six years normally provided for.

Just to mention here procurements challenges because these are different again and these are a type of dispute that will actually have a very short limitation period so if your litigation is subject to the Public Contracts Regulations 2015 or the Defence and Security Public Contract Regulations for example, then your claim must be brought within 30 days from the date that the economic operator...or ought to have known that grounds for proceedings had arisen so it is therefore even more critical in these types of challenges that you have to keep your eye on when that 30 day expires and make sure you take actions and plan your strategy accordingly.

Moving on to pre-action protocols. So these are a set of guidelines in the civil procedure rules that must be followed in the early stages when a dispute has arisen but before any proceedings have commenced so before taking that final decision to commence proceedings do make sure that you have followed whatever is in those pre-action protocols because if not you may face an adverse costs order against you made by the court.

Broadly speaking the objective of these pre-action protocols is to encourage the exchange of early and full information about a prospective claim so that both parties are aware exactly what the issues and dispute are with the idea being that it will enable the parties to avoid litigation by reaching an early settlement and also if litigation can't be avoided then it will enable efficient management proceedings.

In procurement challenges again the requirement is that a letter of claim was sent before proceedings are issued although due to that very, very condensed timescale that I just mentioned, unfortunately it is the case sometimes the letter of claim will be issued probably at the same time as a claim form being issued or perhaps even the day after but essentially I mean the idea is that both parties will have had time to rehearse all the issues in dispute and respond so that everybody is aware what those issues are.

Another significant factor which we do recommend thinking about when a dispute arises is the preservation of evidence. Again this is a requirement of the civil procedure rules and should proceedings subsequently be issued then the parties will be expected to outline the steps that they took to ensure that all paper documents and electronic data was preserved. So if your organisation has policies which results in the routine destruction of data for example, if an employee leave the organisation or alternatively there are some document destruction policy then it is very important to make sure that all of those are suspended. It is going to be vital to preserve the evidence that you need to show exactly what happened in the course of that dispute. Likewise if the parties have relevant text messages or WhatsApp messages on their mobile device, then these also should be maintained and not deleted because that can be evidence of what happened.

It is also a sensible idea to ensure that all relevant papers are located quite early on as soon as a dispute arises so for example, you need to find a copy of the contract in question and all of the schedules if they might be lying around the place or any variations that might have been agreed for that contract.

If it is a procurement challenge you need to ensure that you have quite easily at hand the notes of the moderation meetings that have been made and also any preliminary comments that the evaluators may have made because these are actually documents that are inevitably requested quite early on by a claimant they will want to see those modernisation notes in particular and having that information available will aid discussions with your legal advisors.

Finally coming to the end here, I want to say a word about privilege because this is a critical concept to be aware of so again once proceedings are issued and you reach the stage of litigation known as disclosure that is when the parties may well have to disclose all the relevant documents to the other side. If, however a document is considered to be subject to privilege then it does not have to be disclosed to the other side so it is very important here to know which documents are and are not privileged.

Legal advice privilege applies to confidential communications between a lawyer and their client where those communications are for the dominant purpose of seeking and receiving legal advice in a relevant legal context.

The other most type of common privilege is litigation privilege. This applies to protect confidential communications between a lawyer and a third party or alternatively between a client and a third party which had been created for the dominant purpose of obtaining information or advice in connection with litigation which is, either existing or as reasonably contemplated.

Privilege can be lost however if documents are shared too widely and beyond those people who can properly be categorised as the client or if the confidentiality in the documents are compromised so it is always important at the outset of any dispute to think carefully about the client should be as these will usually be the individuals that are authorised to be seeking and receiving legal advice. If in doubt, you need to consider whether that person does have a legitimate interest in the legal advice process and try to keep the group of those individuals as small as possible so as to ensure that you do not actually circulate any documents beyond that group where you might then lose legal advice privilege.

Just a word of caution if consultants are involved because I know they often are when it comes to the public sector so you would need to check whether that consultant is actually authorised under the terms of their retainer to give and seek legal advice and then if their role does actually legitimately involve them being involved in that legal advice process.

Essentially privilege is a very complicated area I would advise getting lawyers involved quite early on to advise on how to maintain that privilege if a dispute arises and essentially to minimise all written communications as much as you can. Thank you very much.

Alison: Thank you Susannah.

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