Legal finance for construction businesses
Given the many high-value mega infrastructure and decarbonization projects underway globally, its fair to say that there’s a construction boom underway. Given the high stakes involved in construction and engineering projects, disputes between project partners and stakeholders are not uncommon. The complexity of these projects, combined with the significant financial investments and competing interests, can lead to expensive and protracted disputes. With so much at stake given the increasing size and scale of construction disputes, companies in the sector are well served to be fully conversant in the tools that can help them maximize the value of their legal claims. Legal finance is one such tool.
Insights from recent research into construction disputes
Burford recently conducted research into economic impacts on different industries and their litigation portfolios. For senior in-house lawyers and finance leaders at companies in the construction sector, the key takeaways were:
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Construction and real estate companies currently spend less on litigation than other industries, but legal and finance leaders in the sector are the most likely to say they expect litigation and arbitration spend to increase dramatically over the next five years.
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75% say a top priority for construction and real estate legal departments is to increase certainty and predictability of legal costs—25% higher than the average across industries.
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Legal and finance leaders at construction and real estate companies are 47% more likely than their peers to say that although they have not yet used legal finance they would consider doing so.
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Respondents from the construction and real estate sector are significantly more likely to advocate for radical changes in how they manage legal costs, suggesting that they are ready for a new approach from their law firm and other partners.
How legal finance is used in the construction sector
At its core, legal finance enables businesses in the construction sector to maximize their recoveries in commercial disputes and to ensure they can fully leverage their legal assets.
There are numerous ways mining businesses can leverage legal finance to generate value from their litigation and arbitration assets—without impacting control of their disputes.
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Fund claims and recoveries: Burford takes on the financial burden of paying lawyers to pursue meritorious high-value claims, allowing businesses to pursue meritorious cases without incurring upfront costs.
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Eliminate downside risk: Legal finance provided by Burford is non-recourse, meaning that the investment and return are contingent on a successful outcome. This allows businesses to lock in guaranteed minimum returns and shift legal risk off their books.
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Manage cash flow: Burford can accelerate expected entitlements from pending claims and awards, providing companies with the flexibility to time cash flows according to their desired schedules, enhancing liquidity and working capital.
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Identify opportunities: Leveraging proprietary data and industry-leading insights, Burford can assist legal teams in setting priorities for their commercial litigation and arbitration portfolios. This helps businesses identify the most valuable claims and allocate resources effectively.
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Manage exposure: Burford can provide a hedge for litigation risk in the company’s portfolio. This allows businesses to mitigate the potential financial impact of litigation and protect their interests.
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Enforce judgments: Through funded enforcement and asset recovery, Burford can help businesses transform unenforced judgments and non-performing loans into cash.
Worked example
Helping an industrial engineering company pursue a contract dispute without spending operating cash
An industrial engineering company was involved in a high-value, multi-year dispute over a supplier’s alleged professional malpractice. The dispute was damaging, leading to lost customers and business, significant reputational damage and reduced cash flow and liquidity. Following an unsuccessful mediation attempt, the company initiated an AAA arbitration. The company stood to recover damages valued in the low nine figures but needed to preserve its budget for use in day-to-day operations rather than paying legal fees and expenses out of pocket.
The company needed capital as well as expertise, and Burford provided both, including almost $6 million to cover case-related fees and expenses. At the company’s request, Burford also introduced several potential replacement law firms when its original counsel withdrew after filing the arbitration. The $6 million was non-recourse, not a loan: Burford’s investment did not add to the company’s debt load and would be paid back only if and when the company achieved a successful outcome in the dispute. The company would keep any excess funds recovered after paying Burford’s return. If the case was unsuccessful, the company would owe nothing to Burford or its lawyers— eliminating the cost and risk of the litigation.
Burford’s $6 million of non-recourse capital guaranteed that the company could assert its right for relief under the contract with its suppliers, without having to redirect precious operating cash to its outside lawyers. Able to pursue a critical recovery at no cost, the company could keep its focus on continuing to rebuild its business while it waited for its matter to resolve.
