Unanticipated events have been around since the birth of our planet. If the recent COVID-19 pandemic has taught us anything, it is that life – personal, national and worldwide – can swerve off in frightening new directions at what seems a moment’s notice.
With decades of professional experience in the international energy and construction sectors, Buford Pollett – a professor in the Collins College of Business who also holds a juris doctor degree – is well versed in the risks and potential rewards of unanticipated events. In particular, Pollett is interested in understanding the common law (e.g., fairness, force majeure) and civil law (e.g., good faith, hardship) considerations and implications when construction and energy contracts do not go according to plan.
Contracts, Pollett points out, impose certain rights and “timely performance” obligations on the involved parties. They also stipulate compensation. However, when weather events, terrorist attacks, legislative changes and other unanticipated events arise, even the best-laid plans can – and often do – founder. But, Pollett also wonders, under what conditions can some lemons be transformed into a sweeter elixir?
Recently, Pollett made time for a conversation on this complex topic. Here are some of his wide-ranging insights and reasoning.
Professor Pollett, you are currently preparing an article for the journal Transnational Dispute Management on timely performance and compensation issues under the doctrines of force majeure, frustration, impossibility and hardship in construction and energy contracts. What drew you to this subject, and why is it an important area of business and legal inquiry?
My interest in this topic is one similar to a marriage counselor pre-marriage, similar to what some religions encourage or even require of couples getting married (i.e., a pre-contractual examination of the parties expectations during the full life cycle of the contract and specifically a discussion of what are the expectations parties as events arise that impact right and obligations in the contract).
Thus, to the extent possible from these pre-contractual discussions, I try to create mechanisms within the contract that minimize the risk for disputes or litigation and facilitate an environment for a mutually beneficial contractual relationship that lasts the entire life cycle as envisioned when the parties first entered the contract.
You are known to observe that “uncertainty is part of everyday life.” Would you expand on that principle in terms of its intersection with your work on contracts?
People deal with uncertainty in a variety of different ways. Often, people focus on the here and now and not on what might happen in the future. In transactions and more specifically in contracts, parties often focus on the immediate concerns but not on the near-, medium- or long-term timelines or the full life cycle of a contract.
However, events arise during the life cycles of contracts. As a result, the way a contract handles or does not deal with these events, and how the corresponding background law deals with such events in the interpretation of the contracts may lead to disputes between the parties.
Contractual relationships have some same elements as marital relationships. People enter into a marriage with a lot of celebration at a ceremony demonstrating their mutual consent to the matrimonial regime. Similarly, parties to contracts enter into agreements (sometimes even with elaborate signing ceremonies) having certain expectations of fulfillment when entering contractual arrangements. Sometimes, however, they rather regretfully focus only on the here and now and do not appreciate the need to build a mindset that allows for the development of a successful contractual relationship.
What are some of the significant concerns you have seen associated with unanticipated events in construction and energy contracts?
During my career as an attorney, there have been several types of events that I have had to deal with while I was in the country on assignment as senior legal counsel (e.g., senior counsel, legal manager and legal director) in advising senior management:
- 2003-05: Weather events (e.g., loop/eddy currents, tropical storms in the Gulf of Mexico)
- 2006-07: Securities issues in West Africa
- 2006-07: Congestion issues during the mass buildout on energy projects in Qatar
- 2008 financial crisis: Funding impacts and tax regime changes on the Kashagan project in Kazakhstan
- 2010: Post-Macondo regulatory changes
- 2014-15: ISIS activities in Iraq
Overall, my biggest concern in all events is the safety, security and well-being of people in every event. I also don’t just mean in the short term but over the long term as well.
What is your solution for clarifying and enforcing performance and compensation obligations and rights that arise during the life cycle of construction and energy contracts?
Often, I find that placing certain events into categories helps in the process of analyzing and preparing to deal with events that occur. Here is a non-exhaustive list of events that I use as illustrative examples:
- Weather (e.g., tropical storms, floods, currents, sand storms, tornadoes, winter storms, drought)
- Surface/subsurface issues (e.g., support, unknown structures, soil and rock types)
- Disease outbreaks (local, regional, global)
- Seismic events (e.g., earthquakes, tsunamis and volcanic eruptions)
- Pricing (e.g., stability, inflation, deflation)
- Financing (e.g., sources of funding)
- Health, safety and environment (e.g., health, work and environmental protection regulations)
- Tax (e.g., withholding, income, social security, value-added, ad valorem taxes)
- People (e.g., criminal acts, acts of terrorism, acts of war)
- Property (e.g., acts of piracy, criminal acts, acts of terrorism, acts of war)
- Infrastructure (e.g., roads, buildings, housing, transportation)
- Congestion (e.g., ports, terminals, roads)
You will frequently hear people refer to certain events as “unprecedented.” Yes, this may be the case for that specific person or entity. Yes, the scope and scale of events will vary. However, when we examine the full extent of history (e.g., geologic, human), we can see that most everything we experience has some historical precedent. Thus, we can use some of these events to guide our understanding of how to draft contracts to better deal with these types of events.
In your work on unexpected events and the law of contracts, you speak about “turning risks into opportunities or even a competitive advantage.” Would you elaborate on that idea?
The key to turning risk into an opportunity and obtaining a competitive advantage rests on evaluating the frequency, scale and impact of events. As lawyers, you may hear the example of building a home to protect people from certain events. We know that things fall from the sky and will continue to do so (e.g., hail, sleet, snow, rain and meteorites). The risk from meteorites to a home is much greater than even baseball-size hail, but we generally don’t design homes to mitigate against meteorite strikes. The cost would be prohibitive compared to the likelihood of a meteorite strike.
However, we know that large hail storms are frequent in states such as Oklahoma. Therefore, companies that can design roofing shingles that mitigate against the risk of hail and wind damage in a cost-effective manner can have a competitive advantage over their competitors in the roofing industry. Thus, newly designed impact-resistant singles may prevent having to repair or replace your roof every year due to hail damage, but these shingles are not designed to mitigate against meteorite events, such as the one that struck the Yucatán Peninsula in Mexico millions of years ago.
There’s an instructive recent example of a homeowner on the coast of the Gulf of Mexico who designed and built his home to withstand very strong tropical storms. The results show benefits associated with this type of proper design and building approach in anticipation of such events if someone decides to build in a location that has a high frequency, scale and impact for such tropical storm events.
You have a background in science, business and law. How do those areas intersect to inform your research, teaching and work beyond the university?
My educational and professional background in science, business and law have added tremendously to my perspective and life experience. Of the three, my background in geology probably had the greatest impact because it trained me to look at things from the micro to the macro level through, as I mentioned earlier, the lens of history.
My cultural experiences both in the United States and globally have added to my understanding and appreciation of others and, I believe, have made me a more empathetic person. Similarly, one should not be surprised by the basic principles of law that one can find present in legal systems that, on the surface, might seem very different from one another. You might not at first expect there to be similarities among, for instance, the Iraqi civil code, the civil code of the Republic of Kazakhstan and the law right here in Oklahoma.
Overall, I believe trust, empathy and innovative approaches to dealing with the challenges of life are critical to successful relationships. This is true whether they are contractual or marital.
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