Legal Risk Management - PDF

Running head: LEGAL RISK MANAGEMENT
LEGAL RISK MANAGEMENT
Name of the Student
Name of the University
Author Note

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Executive Summary
The purpose of this report is to enumerate the inherent risks involved in a construction project of
the magnitude of Victoria Desalination Plant (VPD). The report also recommends adequate
control measures for each of these risks and identifies the parties best equipped to deal with these
risks. The report then goes on to recommend two appropriate dispute resolution methods which
could be used in case of a dispute arising from such a contract and demonstrates the advantages
of each over a traditional court procedure. Finally the report recommends ways in which the
contract can be managed efficiently and effectively.

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Legal Risk Management
Inherent risks in the Pre-construction Phase:
Delay in Transportation of Materials
The Victoria Desalination Plant (VPD) is one of the largest construction projects
undertaken within the Australian commonwealth. In case of such a large construction project all
required materials must be present on site before the commencement of the construction project.
Projects of this magnitude have a strict schedule and an increase in the time taken to complete
such a project would amount to additional costs incurred with each extra day that is taken. This is
mainly due to the workforce and the employed machinery which are procured on daily wage/rent
basis respectively. Materials that will be required for the construction process are procured on
bulk from sellers who could be from any part of the globe, depending on the needs of the project,
and thus the project must take into account the transportation time when formulating a structural
timeline for the project (Hughes, Champion and Murdoch 2015). However, whether the materials
are being transported by roads or through seas both have their own chances of being delayed in
unforeseeable ways. This could be due to the weather conditions or malfunctioning machinery
and various other reasons.
Exercisable control
In case of such a risk the best mode of control available to the organization buying the
material is to ensure that such delays are specifically indemnified by the parties supplying the
materials (Burr 2016). This can be achieved through an explicit contract to the same effect
between the suppliers and the buyers.

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Risk of Erroneous Designs
Construction projects are undertaken based on tenders which are granted to construct the
required structures based on plans and designs formulated by architects. The architects are thus
the ones responsible for calculating stable dimensions for the project and are responsible for
designing the structure to be built. The chance for human error exists in all such projects and the
architect may omit to account for a particular piece of the structure or may miscalculate the
dimensions or the materials required in a particular project (Dorter, John and Sharkey 2015). In
such a case the plans would have to be redesigned with the adequate error corrections required
and this would be an immense waste of time during the pre-construction project.
Control measure
The architects hired for making such a project must be hired on the basis of credibility. A
credible firm that has a decent amount of goodwill in the market can be inferred to employ
competent individuals and thus would ideally not produce work with such errors (Ter Haar,
Laney and Levine 2016). Although the chance of human error cannot be completely eliminated
this measure would minimize such a risk to the extent possible.
Inherent risks in the construction Phase:
Interrupted construction
A construction project is subject to numerous legal compliances and must also consider
the risk of interruption caused by adjacent dwellings or surrounding construction sites. In case of
a construction site that has commenced work without complying with any statutory provision it
would be delayed as the work would ideally be stopped till such compliance has been made.
Further, surrounding buildings could also make complaints against such construction due to the

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levels of noise and other disturbances (Marsh 2017). Thus the organization undertaking the
tender must ensure that the workforce maintains the noise levels to legal standards and must not
cause other hindrances to any construction areas around the construction site.
Control measure
In case of the compliances the project must employ a competent legal team or a
competent compliance agency which ensures that all the provisions of law related to the project
are duly complied with. The legal team would also be instrumental in training the supervisors of
the project regarding the legal noise levels and pollution emission levels which the project must
adhere to (Masterman and Masterman 2013). The legal team would also be instrumental in
ensuring timely commencement and completion of the project by eradicating the delay risks
discussed above.
Force Majeure
Natural disasters and unforeseeable events of the same nature cannot be predicted and
can often lead to major loss of life and property. In case of loss of life there are release and
compensation compliances that the company must mandatorily make and in case of los of
property the company would be liable to replace/rehire all machinery and undertake any
completed construction that has been destroyed. Thus the project would be delayed and the final
costs of the project would largely exceed the proposed budget. This would thus be a loss for the
organization undertaking the construction. Force Majeure refers to a party not being able to meet
its contractual obligations due to unforeseeable circumstances (Le et al. 2014).

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Control measure
The control measure of the company would be to include a force majeure clause into the
construction contract. This would thus absolve the undertaking organization from any
responsibility arising from such situations which can only be classified as unforeseeable natural
calamities or an act of god (Votano and Sunindijo 2014). There could also be an indemnity
clause from the side giving the tender to ensure that the undertaking organization is insured from
losses arising from such an event.
Inherent Risks in the operational phase:
On-site accidents
Once the construction phase is over the Victoria Desalination Plant (VPD) would be
operational and thus would be subject to risks in the operational phase. A plant of such size
employs a large workforce and they are tasked with operating complicated machines and
undertake procedures that could be construed as dangerous. Due to the nature of the work being
entirely physical the chance of accidents or damages in such a plant cannot be eliminated.
Malfunction of machines or any other accidental safety hazard can also not be ignored
(Loosemore 2016). In case such an accident occurs the company would have to compensate the
damaged parties and the same would be an encumbrance on the proposed budget of the same.
Control measure
The recruitment of an adequately equipped safety team would be the most effective way
in which such risks can be dealt with. The safety team should also have sufficient members to
ensure they can cover all required parts of the project at all times (Blanc-Brude, F. and
Makovsek 2013). The safety team would also be tasked with ensuring that the workforce is

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sufficiently trained in the use of the machinery and other equipments on-site so that the risk of
such accidents can be eliminated to the extent possible.
Risk of overburdening compliance post construction phase
The commencement of operations of a Plant of the size of VPD requires various legal
approvals specially relating to environmental implications of the same. The operations of the
plant would also affect the flora and fauna of the area and would have to be considered when
undertaking its activities (Carter 2013). Not obtaining a particular approval or contravening a
particular provision would result in legal issues with law enforcement and may even lead to court
battles. Thus the risk of contravening legal provisions must be dealt with before the plant is
operational.
Control measure
As stated before compliance complications can only be dealt with by a competent legal
team or a competent compliance agent. For this project employing a compliance agent would be
the more appropriate option as they would be tasked with responsibilities related to legal
compliance unlike a legal team which would still be working as a delegate of the company and
not as an agent.
Dispute Resolution Options
Disputes arising from construction contracts can be taken to court however a court
decision could take an uncertain amount of time to determine the case and the process would be
expensive. Thus, contractual disputes in the world today usually employ alternative methods of
adjudication which provide for more flexible, inexpensive and faster modes of determination.

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These are known as Alternative Dispute Resolution (ADR) mechanisms (Keegan et al. 2014).
The two most effective dispute resolution processes for such a contract are discussed below:
Mediation: This method of dispute resolution is far simpler as compared to court procedures. In
this mechanism the determination of the dispute is made by the appointment of a mediator who,
based on the facts and circumstances of the case, discusses various compromises on behalf of
both parties which would lead to an amicable solution which is agreeable for both parties (Dye
2017). The determination of the mediator is not binding on the parties and is thus a challenge in
court is still available unless specifically agreed upon by the parties. Mediation is a faster and
comparatively less expensive dispute resolution method as compared to a court determination.
Arbitration: This method of dispute resolution is now most commonly used for contractual
disputes and is incorporated in all standard contracts through an arbitration clause. The
arbitration clause would allow either party to invoke arbitration proceedings in case of a dispute
arising from the contract by appointing an arbitrator or applying to court for the appointment of
an arbitrator. In case of arbitrations the parties give up their right to pursue the dispute in court
and mutually agree to bind themselves to the decision of the arbitrator. This decision is known as
an arbitral award. The arbitral award can only be challenged if it is against public policy or if it
specifically contravenes some provision of law (Pryor 2014). Thus this is a concrete method of
determination of a contractual dispute as a party contravening such an award can be legally
pursued for the same. This also determines the rights and obligations of all parties to the dispute
at a much faster pace even though it is similar to a court procedure in the sense that both parties
have legal representation and there is an adjudicator making a final judgment on the dispute
(Fiadjoe 2013). This is also less expensive as compared to court procedures as additional
expenses such as payment of court fees is not required by this dispute resolution mechanism.

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Effective management of the contract
A contract has explicit and implied terms which form the crux of the rights and
obligations of the party to the contract. However, a contract has elements which need to be
considered during the performance of the contract to ensure a smooth functioning of things. A
construction contract would need the following elements to be considered to ensure effective
management of the same (Gad and Shane 2014):
Compromise
In a construction contract the smooth functioning of things would ideally require a
consideration of the conveniences of both parties. The parties to the contract must thus ensure
that they make compromises based on the convenience of the other party to assure scheduled
commencement and completion of the project. The project would thus be based on bona fide
transactions that safeguard the rights of all parties.
Continuous Communication
Both parties to the contract must accurately and precisely make communications to the
other regarding any transaction related to the contract. Any non-transactional concern must also
be communicated to the other party. Effective communication ensures that there is transparency
in the dealings between the parties which minimizes the risk of disputes arising from
miscommunication between the two.
Diligence
Contracts are drafted by lawyers and the same endeavors to cover all aspects and
circumstances that may arise from such a contract. Thus a competent legal team needs to be
hired to fully assess the implications and liabilities prescribed by the act. This would give a

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better understanding to both parties of the duties they must observe and the ways in which they
must perform the contract. This would thus lead to a less ambiguous interpretation of the terms
of the contract between the parties.
Conclusion
To conclude the Victoria Desalination Plant is an immensely large scale construction
project and its effective execution is the top priority of the tendered organization. To ensure the
same the organization must manage its contractual obligations effectively and must take into
account all inherent risk of such a project.

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Reference List
Blanc-Brude, F. and Makovsek, D., 2013. Construction risk in infrastructure project
finance. Research, EDHEC Risk Institute, February.
Burr, A. ed., 2016. Delay and disruption in construction contracts. CRC Press.
Carter, J.W., 2013. The construction of commercial contracts. Bloomsbury Publishing.
Dorter, J.B., John, J. and Sharkey, A., 2015. Building and Construction Contracts in Australia:
Law and Practice. Thomson Reuters (Professional) Australia Limited.
Dye, J.C., 2017. Alternative Dispute Resolution. The Catholic Lawyer, 33(1), p.12.
Fiadjoe, A., 2013. Alternative dispute resolution: a developing world perspective. Routledge.
Gad, G.M. and Shane, J.S., 2014. Trust in the construction industry: A literature review.
In Construction Research Congress 2014: Construction in a Global Network (pp. 2136-2145).
Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and
management. Routledge.
Keegan, J.M., Atha, M.M., Hornsby, A.S., Thornhill, R.B. and Parks, A., 2014. ALTERNATIVE
DISPUTE RESOLUTION.
Le, Y., Shan, M., Chan, A.P. and Hu, Y., 2014. Overview of corruption research in
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Loosemore, M., 2016. Social procurement in UK construction projects. International journal of
project management, 34(2), pp.133-144.

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Marsh, P., 2017. Contracting for engineering and construction projects. Routledge.
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