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Podcast transcript

BoardRoom Radio interview

Managing problem government contracts. Podcast with Chris Behrens, Friday 4 November 2011, 2.30 pm

BRR: We're joined by Chris Behrens who is a Senior Executive Lawyer in the Dispute Resolution team at AGS and he joins us from Canberra. Chris, a warm welcome to BRR.

CB: Good morning, Kate.

BRR: Now Chris, today we're talking about government contracts worth in the ballpark of $43 billion a year. What are some of the problems I guess and dispute areas that typically come up with government contracts?

CB: Yes, well it is a big number. There are alot of government contracts, probably over 80,000 in any year. I think we can broadly categorise the sorts of problems that come up in 3 areas. Firstly, what I'd call contract management issues, which are really internal matters: and they are things like setting up our contract properly, making sure we have got appropriate resourcing of the contract management, responding ourselves when problems do come up – and this will help to minimise potential for misunderstandings and difficult assumptions. So these are the things we can control. The second category is what you'd typically see for poor contractor performance: problems with timing, quality of service – endless possibilities there – and price and budget over-runs. So they're the more common scenarios. Then the third problem category is where there are changes in circumstances or requirements: where things are different to what was thought would be the case at the start, and often dealing with things on the run can create its own problems. So I think broadly 3 areas and each needs to be tackled.

BRR: And obviously, I guess, we would be seeing problem contracts come up quite often. What are some strategies, I guess, for effectively dealing with these problem contracts?

CB: Well, obviously, establishing and anticipating difficulties at the start and including them in your agreement is important. And I think the starting point is to have in your agreement an appropriate dispute resolution clause. You need to think through, well, how am I going to deal with this if a problem comes up? what strategy do I want? do I want a mediation? do I want an arbitration which is going to have a solution imposed on me? So you need to think that through at the start. Secondly, many contracts will have as an option using some formal notices to escalate a dispute or even raise a possibility that a contract could be ended by the government by using a default notice – and that needs to be considered. And then I think the third main one is you don't want to delay – when problems come up they need to be grasped and dealt with. So I think they're my three main suggestions.

BRR: Yeah. So how important then, I guess, is communication with the other side before, I guess, you head down the road of dispute resolution?

CB: Communication and clear communication is always the key. The contract should represent what's a shared understanding between you – and that follows through both in the establishment of the form of document but also in the execution phase of the contract – and clear and regular communication. And clear communication is obviously essential for effective contract management.

BRR: And, obviously, Chris I guess sometimes you are not going to be able to resolve the problem. When is termination then of a government contract going to be an appropriate strategy and what are some of the termination options?

CB: Well, I think you need to make a distinction here between termination which is agreed – that is, mutual termination – and termination where the government itself is acting unilaterally. I think, in almost all cases, it is preferable if you have got to the point where the contract is not working effectively, that this is done by agreement. And that enables you to reach a fairly tidy solution that deals with matters such as payment, intellectual property, future obligations, releases, that sort of thing. For the government to say, well, we are going terminate this agreement ourselves, will really only occur in a most serious case – and does leave you open to further disputation and even legal action by the contractor. And as well as not tidying-up some of those matters which really should be dealt with when the contract is brought to an end. The government also has available to it in fairly limited circumstances the option of terminating a contract for convenience. But that's a relatively limited scope and not something that should be considered unless program requirements have changed entirely. So you do have options, but certainly the preferred option is a mutual or agreed termination.

BRR: Great advice there, Chris. Thank you once again for joining us.

CB: My pleasure. Thank you very much.

BRR: That was Chris Behrens. He is a Senior Executive Lawyer at AGS in Canberra.