Legal Risk Management Report: VDP and Dispute Resolution

This report analyzes the legal risk management aspects of the Victoria Desalination Project (VDP), identifying potential risks across pre-construction, construction, and operational phases. It explores risks such as community involvement, design flaws, traffic management, environmental compliance, and operational safety, specifying which party is best suited to manage each risk. The report also discusses alternative dispute resolution (ADR) methods, specifically arbitration and expert adjudication, highlighting their advantages over traditional court proceedings. Finally, it outlines best practices for contract management to minimize disputes and ensure project success, including clear project scope definition, bidder eligibility criteria, and transparent selection processes. The report emphasizes the importance of proactive risk management and efficient dispute resolution in large-scale infrastructure projects.

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Executive summary
This report will discuss the potential risks and threats that are normally involved in large-scale infrastructure
projects like the Victoria Desalination Project (VDP). The report discusses two risks each at pre-construction
phase, construction phase and operational phase of the VDP project. The report also discusses in brief as to
which party is best suited to handle and minimize that risk. Infrastructure projects also need to have a proper
framework for any disputes that can happen during the execution of the project. This report discusses two
alternative dispute resolution (ADR) processes namely arbitration and expert adjudication in brief and explains
why they are better alternatives to the conventional court based judicial process which is more costly and time-
consuming. In the final section a few best practices that need to be taken care of while drafting contracts for
infrastructure projects are discussed so that the probability of disputes occurring itself is minimized and projects
are completed on time in the given budget benefitting all the stakeholders involved.
Contents
Risks during pre-construction, construction and operational phase of the project.................................................4

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Party best able to control the risk............................................................................................................................6
Two Dispute Resolution approaches suitable for the case study project................................................................7
Management of the contract to reduce the occurrence and impact of disputes on the project................................8
References...............................................................................................................................................................9

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Risks during pre-construction, construction and operational phase of the project.
The Victorian Desalination Project supplies water to Melbourne, Geelong along with some other regional areas.
It can supply high-quality water whenever required ( Partanen, 2014). Also, it has a life up to 100 years which
will help it in supplementing the water needs of the people in times of drought in the future.
Some of the potential risk during the pre-construction phase of the project are as follows:
 Lack of Community Involvement risk
For a project of this scale which impacts local communities at least in the short run, lack of community
involvement or support can pose significant risk to this project (Romer, 2011). If the local community
needs, concerns, requirements are not taken into consideration, then their opposition to the project can
be a potential threat/ risk to the project. Potential consequences of this risk for both the client and
contractor include project delays, cost overruns threatening the financial viability of the project. Hence
it becomes imperative for all stakeholders to come together and address the concerns of the local
communities involved.
 Sub optimal Design Risk
A potential risk of such a large scale project is that care is taken to ensure all the designs are compliant
with industry standards and satisfy all technical and legal requirements as well. Any lapse or
shortcomings in the design of the project can lead to disastrous environmental hazards, financial
consequences which in turn will lead to failure of the stated objectives of the project. For the client,
which is the Government of Victoria is this case, it would result in a loss of faith and trust that people
have in government and for the contractor it will tarnish its image in the corporate world and will result
in loss of future similar projects.
Some of the potential risks during the construction phase of the project are as follows:
 Construction Traffic Management Plan not adhered to
Construction Traffic Management Plan is a comprehensive and detailed plan conceived for traffic
management during construction of individual structures being built which may impact or cause
inconvenience to users of roads, railways, public transport and emergency services. If this plan is not
prepared adequately without involving the necessary stakeholders who are likely to be affected or is not
adhered to during construction phase, it can cause significant problems for the overall public and make
people turn against the project (Partanen , 2014).
 Lack of Environmental Legal Compliance
Any absence of a comprehensive environment plan which fails to comply with the Environmental
Protection Act 1970 and doesn’t have risk mitigation strategies for the environmental hazards detailed

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below has the potential to derail the project completely. Some of the environmental risks that need to be
taken into consideration include but are not limited to the following:
1. Surface water and groundwater
2. Air quality impact due to construction activities
3. Storage and safe disposal of hazardous materials
4. Waste water removal without impacting flora and fauna.
5. Resource Efficiency
6. Soil Management.
The consequences of not handling these risk could lead to a significant loss of human life and property as well
as impact flora and fauna in a negative manner (Dickinson, 2012). The possible consequences for the contractor
could be financial penalties and levies, legal fees, time-consuming judicial court cases, loss of public support
and damage to its reputation thereby impacting other similar projects of the company too.
Some of the potential risks during the operational phase of the project are as follows:
 Occupational and Safety risks to human life and health.
During the operational phase of the project it is important that the occupational safety of the employees
working in the plant is taken care of and risks to their health and life is minimized as far as possible.
Any loss of human life and health during this phase will impact the contractor and show it in a poor
light in front of public, government, legal fraternity etc. Also any impact on the health of the employees
working in the plant can impact the running of the plant, thereby reducing its ability to supply water to
the residents of Melbourne and Geelong.
 Damages to Water Pipelines and underground power cable
Desalinated water from the VDP plant is piped to Melbourne via an 84 km underground pipeline. The
pipe is of more than 6200 lengths of pipe with each pipe 1.93 m in diameter, 13.5 m long and weighing
around 13 tonnes. This pipeline is capable of supplying up to 200 billion liters of water a year and
connects into the existing water supply network at Berwick.An underground 220kV High Voltage
Alternating Current (HVAC) power cable is also-located with the pipeline to power the plant. Any
damages to the pipeline or the power cable can disrupt water supply to the residents of Melbourne,
cause environmental damage and impact the lives and health of people working there as well as local
communities staying nearby (Haakana, 2014). It can also impact nature, flora and fauna of the plant
where the plant is located. Hence it becomes imperative to control this risk and ensure that the pipeline
and power cable is always in good working condition.

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Party best able to control the risk
 Lack of Community Involvement risk
The best party to involve the community and get their buy-in would be the Government of Victoria.
They can involve the community, explain its benefits to the local public and get their support (Del Pino
Lopez, 2011). Having said that the contractor could also help to gain support from the community by
sharing their plans, making plans for their relocation, impart relevant skills, give them employment and
run community welfare initiatives.
 Sub optimal Design Risk
For this kind of a risk, the contractor is responsible, but the government is accountable to the people.
Hence Government should be able to control this risk by laying down proper standards and guidelines
for the contractor to adhere to and comply with (Dickinson, 2012). This risk can be mitigated by
explicitly laying down the design standards to be adhered to in the contract document itself
 Construction Traffic Management Plan
The contractor is best suited to control this risk and make proper plans in advance to mitigate the
negative impact of the same. Government can check the plans and monitor whether the plans are being
adhered to or not and levy penalties, fines if required ( Haakana, 2014).
 Lack of Environmental Legal Compliance
Both the client and contractor are responsible that the environmental standards are taken care of during
the construction phase, and there is no loss of human life or damage to health, flora and fauna due to
non-compliance of environmental regulations.
 Occupational and Safety risks to human life and health.
The contractor is best positioned to ensure that there is minimal impact to human health and life due to
occupational hazards and safety standards are not compromised with once the project is up and running.
Government can conduct third-party audits to ensure the same.
 Damages to Pipelines and underground power cable.
The contractor is best positioned to ensure that the underground pipeline supplying water to public and
well as the underground power cable are well maintained and are in a good condition. Care should be
taken to ensure that any repairs required to upkeep the pipelines and power cable are done on time to
prevent any damage in these assets ( Bicen, 2017).
Two Dispute Resolution approaches suitable for the case study project.
Of late, world over a lot of alternative dispute resolution ( ADR) processes have come into existence which is
cost effective, less time consuming and often beneficial for both the parties involved in PPP ( i.e. Public Private

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Partnership) infrastructure projects (Dickinson, 2012). The Two ADR processes discussed in brief here are as
follows:
 Arbitration
Arbitration is today one of the most viable means of dispute resolution, especially for PPP projects. The
procurement or concession agreement itself should include provisions for arbitration because of its
advantages in speedy resolution of disputes. In this process both the parties to a dispute can choose a
neutral and an independent third body known as arbitrator to decide on the dispute as a judge. Both the
parties present their cases and arguments to the arbitrator who then in turn takes an informed decision
based on the evidence and facts presented before him. This process is similar to going through the
formal judicial process but not the same. The advantage of arbitration is that it is less costly and less
time to consume to both the parties ( Haakana, 2014). That is why arbitration is a preferred and a good
alternative to the conventional court-based dispute resolution process globally in the modern world
today. A lot of countries have also codified the best practices and regulations for arbitration process to
be as smooth, cost effective and time bound as possible for all parties involved in such disputes.
 Expert Adjudication
Adjudication by quasi-judicial bodies having the necessary legal, functional and technical experts with
an option to appeal to a multi-disciplinary tribunal body in case either of the parties is not satisfied with
the decision is also becoming a preferred method of alternative dispute resolution for infrastructure
projects these days ( Dickinson, 2012). This method has many advantages over the conventional court
based judicial process. Existence of a sectoral regulator with the necessary sector specific, technical and
legal knowledge can prove to be an added advantage for the dispute resolution process. In several
countries of the world, there is a statutory time frame within which the adjudicating body has to give its
verdict in the dispute. This also helps to speed up the dispute resolution process in infrastructure
projects like VDP ( Bicen, 2017).

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Management of the contract to reduce the occurrence and impact of disputes on the project.
For infrastructure projects to be successful, countries need to formulate a legal framework which defines the
overall broad framework, rules, standards, regulations for PPP projects, the roles and responsibilities of the
contracting party (i.e. Govt) and the concessionaire and how they will be discharged and monitored.
Some of the best practices and principals that should be taken care of while drafting of contracts to minimize
the occurrence and impact of disputes include but are not limited to the following aspects:
 Spell out in unambiguous terms the scope of the project, its objectives and benefits to the people.
 The eligibility criteria of the bidding entities regarding financial, technical, operational capabilities of
the bidder as well as past projects done by the bidder. The process for selecting a concessionaire should
be spelt out in the document to prevent any legal hassles arising disputing the award of the project to the
winning bidder (Haakana, 2014).
 Potential adverse impact on local communities regarding relocation, disruption of their work etc and
what will be the responsibilities of each party involved in the rehabilitation of the local communities.
 All contractual obligations and the key performance indicators (KPI’s) on which the project progress
will be judged at pre-construction phase, construction phase and Operations and Maintenance (O&M)
phase for the winning bidder should be spelt out in the contract ( Dickinson, 2012).
 The contract should spell out in clear terms as to how frequently, by which entity and how the key
performance indicators (KPI’s) will be tracked and monitored over all the phases of the project.
 The financial penalties, levies and fees for not adhering to a contractual obligation or not been able to
meet a performance indicator/indicators should also be defined in the contract. There should also be a
provision for the contractor to request for exemption from financial fines for situations well beyond his
control ( Del Pino Lopez , 2011).
 In case of a dispute, which dispute resolution options can be pursued by both the parties should also be
mentioned in the contract ( Bicen, 2017).

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