TRETT CONSULTING
AND
HAMMOND SUDDARDS EDGE
MANAGEMENT OF CONTRACT CLAIMS
SEMINAR FOR
THE OVERSEAS CONSTRUCTION ASSOCIATION OF JAPAN, INC
TOKYO, 26 FEBRUARY 2002
MANAGEMENT OF CONTRACT CLAIMS
THE SPEAKERS
Tony Farrow
Executive Director, Trett Consulting
tony.farrow@trett.com
Tony Farrow is a Chartered Quantity Surveyor. Throughout his 25 year career he has been closely involved in the preparation, analysis and negotiation of claims arising from construction and engineering projects. These claims have included disputed final accounts, design-related problems, site labour disruption and prolongation claims. He was part of a team carrying out pioneering research investigating productivity and cost effects of accelerating the construction phase of a project and has published papers on the subject.
Mr Farrow has undertaken extension of time analysis on major power generation schemes, infrastruction projects and process industry plants, utilising techniques such as critical path analysis, snap shot analysis and as-built reconstruction.
Mr Farrow's international experience includes living in Japan for 2 years, where he was employed by Kobe Steel Limited. He has also lived or worked in the Oman, Australia, Indonesia, Hong Kong, Malaysia, Kuwait and Egypt.
His work now mainly involves acting as an Expert Witness in construction and engineering arbitrations and court cases, where he has submitted over 50 reports. He is a Fellow of the Chartered Institute of Arbitrators, Fellow of the Academy of Experts and an eminent speaker at seminars and training courses concerned with claim and report preparation.
Mark Hilton
Partner, Hammond Suddards Edge
mark.hilton@hammondse.com
Mark Hilton is head of the Hammond Suddards Edge Construction unit in Leeds from where he advises a number of major national and international contractors and employers. He has over 15 years experience of advising the construction and engineering industry on major projects from shopping centres to power stations, particularly in relation to contentious matters and in recent
years mediation. Mark is a fellow of the Chartered Institute of Arbitrators, a TeCSA certified adjudicator and a CEDR accredited mediator.
Simon Palmer
Partner, Hammond Suddards Edge
simon.palmer@hammondse.com
Simon specialises in contentious matters, including ICC arbitrations, mediations, adjudications, and Technical and Construction Court litigation. He is a registered Foreign Lawyer in Hong Kong. He undertakes some non-contentious work, and is a Visiting Lecturer at the MSc in Construction Law and Arbitration in Leeds Metropolitan University. He is Honorary Secretary of the North East of England Branch of the Chartered Institute of Arbitrators and Regional Co-ordinator for the Society of Construction Law.
Jonathan Tattersall
Solicitor, Hammond Suddards Edge
jonathan.tattersall@hammondse.com
Jonathan provides advice on both contentious and non-contentious matters for all sectors of the industry. Jonathan has regularly lectured to industry bodies and contractors both overseas and in the UK on international forms of contracts, dispute resolution and risk management. His experience lies in arbitration, litigation and forms of ADR including adjudication, mediation and conciliation. He has been involved in non-contentious drafting on standard forms, bespoke engineering contracts, PFI projects, appointments and warranties.
Peter Philips LLM, LLB, FRICS, FCI Arb.
Managing Director, Trett Consulting (Japan) Ltd
Peter Phillips is Managing Director of Trett Consulting (Japan) Limited. He has been involved in commercial management and trouble shooting at pre and post contract stages on large international infra-structure, construction and engineering contracts for over 25 years. He has lived and worked in Japan as Chief Quantity Surveyor for a major Japanese plant-engineering contractor for the last 18 years. He is a Fellow of the Royal Institution of Chartered Surveyors
and Arbitrator and has experience in formal legal process and ADR as an expert witness and mediator.
MANAGEMENT OF CONTRACT CLAIMS
AGENDA
Welcome Peter Phillips
1. Principles of Preparing Claims
A. Claims relating to Time Jonathan Tattersall
B. Claims relating to the Recovery of Money Mark Hilton
C. Making a successful claim Mark Hilton
2. Principles of Time Analysis Using Planning Techniques
A. Methods of Analysing Project Delays Tony Farrow
B. Practical Issues Simon Palmer
3. Claims for Additional Money-Practical Issues Jonathan Tattersall
4. A Case Study of a Claim
A. Introduction to Case Study and Making a Claim for
Extension of Time
Tony Farrow
B. Presenting a Claim for Loss and Expense Jonathan Tattersall
C. How to Resolve Claims using ADR Mark Hilton
D. Resolving a Claim by International Arbitration Simon Palmer
1 PREPARING CLAIMS
Introduction
1.1 Employers do not like these seminars! There is no doubt that Employers view the word "claim" as a dirty word, one they would rather never come across. It conjures up for them images of budgets being exceeded, project overruns and increased management and external consultant cost.
1.2 However, there is nothing wrong with making a justified claim. Indeed, most of the standard forms of contract include specific contractual machinery and clauses to allow for claims to be made.
1.3 This seminar deals with claims for time and money. These two claims are, in truth, a feature of every construction project. It is possible for claims to be dealt with sensibly, in a non-adversarial manner and to be successfully resolved without hindering project progress. However, for this to be the case, a number of factors have to be borne in mind:
• It is easy to bring a claim, but a mis-conceived or unjustified claim will cause a great
deal of trouble.
• The Employer only has to meet claims which can be tied back to the rights in the
contract or an implied legal right.
• Simply because you are losing money on a project does not mean you are entitled to
bring a claim. It must be based on fact and those facts give rise to an entitlement in law.
• It is often easy for a Contractor to demonstrate that it has spent additional cost and
spent additional time by reason of delays. However, there could be many thousands of reasons for delay on a project, for example, delays in delivery down the supply change, variations, late information, inefficiency. One of the most difficult hurdles a Contractor will have to overcome is to show a proper link between delay and the extra cost it has suffered.
• There are many techniques which can be employed to establish delay entitlement,
ranging from a simple bar chart with periods of delay overlaid, to the highly technical critical path analysis where each delay event is analysed on a computer model to demonstrate how that event impacted upon progress of the works and completion of the project.
• A lack of understanding on the Employer's part is often one of the biggest obstacles to be overcome. You must all be familiar with the Employer who considers that the amount of the final account should never exceed the contract price unless the Employer has instigated the change. That Employer always forgets that it has undertaken the risk with regard to unforeseen ground conditions and problems with design for example, and those risks will be seen in the end cost of the project.
1.4 Is there such a thing as the perfect claim? I don't think so, because it is impossible to benchmark such a statement. However, I do believe that if Contractors adopt good practices, follow the principles and methodologies we are going to explore today and look upon the claims they prepare from an objective viewpoint, well prepared and successful claims will be the product.
2 TYPES OF CLAIM
2.1 As a lawyer, I will always want you to come back fundamental starting points when considering how to advance a claim. The claim which succeeds without a grounding in law is almost unknown. Those of you who know Employers or Funders who are prepared to give you more money or more time without asking you to prove your entitlement are very lucky indeed. Before we move on to the more advanced legal and practical issues, it is worthwhile taking time for a short piece of revision and a quick review of the four major types of claims that may be made by Contractors against Employers.
Contractual Claims
2.2 Contractual claims are various which arise out of express provisions of a particular contract. The express terms in the contract define the circumstances in which a claim may be made, provide the machinery to process the claim and how it should be resolved. All contractual claims depend upon relating events to specific contract conditions and include, for example, additional work claims, loss and expense claims and extension of time claims.
Common law claims
2.3 These are sometimes called 'ex contractual' or 'extra contractual' claims in the construction industry. This is not really a good definition. What we are considering here is a category of claims which are still for breach of contract, but rather than for breach of express terms in the contract, are based on breaches of implied terms or breach of some other aspects of the law, for example, in negligence. An example would be breach of an implied term on the part of the Employer not to hinder a Contractor's progress.
Quantum Meruit
2.4 One of the historical problems with law is that English speaking lawyers still have to use some Latin phrases. Quantum Meruit is effectively translated as "as much as he has earned". A quantum meruit claim is a remedy for a Contractor who has carried out work where no price has been agreed or where the original contract has been substituted by a new one and payment is claimed for work done under that new contract. One often finds this type of claim where a Contractor is claiming for work done on a letter of intent. If work proceeds on a letter of intent, it may be that no contract has come into existence between the parties although the Contractor has done substantial amounts of work based on that letter of intent. In practical terms, it is often difficult to give a precise
meaning to quantum meruit. The latest cases decided by the Courts suggest that it should be a fair commercial rate which would allow some profit and overhead.
Ex gratia
2.5 More Latin. Ex gratia means 'out of kindness'. This takes us back to the position of an Employer who decides out of the kindness of his heart to pay a Contractor money in respect of a claim which he has no legal obligation to meet. In practice, ex gratia payments are very rarely met unless there is a benefit for the Employer in making the payment. Perhaps an example I can give is where an Employer may make a payment to a Contractor to avoid a Contractor entering into an insolvency when it would cost the Employer more than the sum it was paying to the Contractor to employ another Contractor to finish the work should the Contractor be insolvent.
3 TIME CLAIMS
3.1 As often as not, disputes centre round whether or not the Contractor is entitled to an extension of time or otherwise. The same issues often come up. Do liquidated damages apply? What happens if there is concurrent delay? Who is entitled to use the float?
Extensions of Time
3.2 An extension of time only relieves a Contractor of liability for liquidated damages for any period prior to the extended contractual completion date. People often, incorrectly, think that an entitlement to extension of time automatically carries with it an entitlement to compensation for prolongation costs which have been incurred during the period for which time has been extended. Whilst it may be that under other terms of the contract, a Contractor is entitled to recompense for the period, the main effect of an extension of time is merely that the Contractor is relieved from its liability for liquidated damages during the period of the extension. Best practice is that applications for extensions of time should be made and dealt with as close in time as possible to the delay event that gives rise to the application.
3.3 Most construction contracts contain express provisions under which the period allowed for the Contractor to undertake and complete the works can be extended. These provisions cater for delays which are neither the fault nor the responsibility of the Contractor or for risks the Employer has taken. Whilst as I have said that such provisions benefit the Contractor in removing liability for damages for delay during the period for which time is validly extended, the power to extend time is also for the Employer's benefit.
3.4 At common law, a Contractor's obligation to complete the works by the specified date is removed if the Employer delays the Contractor in execution of the works. Therefore, if the Engineer issues an instruction which increases the amount of work to be done, or is late in giving the Contractor necessary instructions, the specified completion date no longer applies. In this situation, time is said to be 'at large', and the Contractor's obligation is merely to complete the works within a reasonable time. In order to ascertain what is 'reasonable', all the circumstances of the particular project must be taken into account. However, in practical circumstances, this will simply mean that the amount of delay for which the Employer is responsible will be added to the old completion date. 3.5 The importance of a fixed date is that a Contractor who has caused part of the delay is
damages. Even where the delay caused by the Employer is a very small part of the overall delay, an Employer cannot simply discount this and claim liquidated damages for the remainder. The liquidated damages provision will not succeed at all. The Employer can only claim for those losses resulting from the delay which can actually be proved. In such circumstances, the Employer faces the same difficulties in proving his claim as the Contractor does. As such it is of great benefit for an Employer who has caused delay to have the power to extend time in order to preserve its entitlement to liquidated damages from the revised completion date.
3.6 A basic point to consider is that the period for completion of a project can only be extended where the contract allows for this and then only in strict accordance with the contractual provisions. If the delay is caused by something which is outside the contract, the Contractor cannot claim an extension nor can the Employer grant one. As such is likely to be the case that since it is almost always the Contractor who claims an extension of time, the Contractor will have the responsibility for proving that a delay has been caused by an event for which an extension can be granted.
3.7 Something which is often forgotten is that extensions of time can only be granted in respect of events which are likely to delay completion. This brings out problems with 'float' which we will investigate later. It is often worth bearing this in mind when agreeing and amending contracts and recognise that it is helpful for a Contractor to have a provision whereby the Engineer or the Employer can extend time retrospectively, ie after completion has been achieved.
3.8 What are grounds for extending time? By way of example, under FIDIC 5th Edition, the
grounds for an extension of time are:
(a) A variation [……..] or other substantial change in the quantity of an item of work included in the contract;
(b) A cause of delay giving an entitlement to extension of time under a sub-clause of these conditions;
(c) Exceptionally adverse climatic conditions;
(d) Unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions, or;
(e) Any delay, impediment or prevention caused by or attributable to the Employer, the Employer's Personnel, or the Employer's other Contractors on site.
3.9 These grounds are pretty standard and are seen in one form or another in the majority of contracts. However, you must remember that extension of time clauses always contain notice requirements eg, "if the Contractor considers himself to be entitled to an Extension of Time for Completion, the Contractor shall give notice to the Engineer in accordance with sub-clause 20.1". We shall come onto notices later. However, the golden rule is that you should never allow your right to an extension of time to be prejudiced by poor contract administration. Make sure you know what is required of you under each particular contract.
Liquidated damages
3.10 I imagine that you are all familiar with the concept of liquidated damages, that is liquidated damage clauses require that the Contractor pays to the Employer a fixed predetermined amount of compensation should a particular event happen. The most common example is a requirement that the Contractor pay the Employer a fixed sum of money for each day/week/month etc it is late in completing the contracted works beyond the contractual completion date.
3.11 Why do construction contracts almost without exception contain provisions for liquidated damages? The main reason is certainty. The Employer wants the works completed by the contracted date. If the works are not completed by then the Employer will suffer some loss. Often this loss is difficulty to calculate. For example, if the building is built as office accommodation and the Employer only intends to obtain tenants on completion and not before, it can be difficult to calculate the lost rent. Who can say if the landlord would have been able let the space quickly or if it would have remained vacant for a long period of time?
3.12 Although these kinds of losses can be estimated, they are difficult and expensive to prove, and litigation to recover such losses can be prolonged. Liquidated damages have the advantage that as they prevent these losses having to be calculated and proven; everyone knows where they stand. Whilst a Contractor may find itself facing a large liquidated damages claim if it is in delay, in fact the liquidated damages may be only a fraction of the actual loss sustained by the Employer. This of course works the other way in that the Employer may be entitled to liquidated damages in excess of its actual loss. 3.13 It is extremely important that the liquidated damages clause is properly drafted to take
account of the nature of the works and that it is properly complied with. As a liquidated damages clause relieves the beneficiary of it having to prove their actual loss the courts are quick to hold it will not be effective if it is not strictly followed.
3.14 Firstly, for liquidated damages to be claimed for delay the contract must make it clear when the Contractor will be in delay. If it is not clear when the Contractor should complete works by the court will not insert such a date and any claim for liquidated damages will fail as liability cannot be established. The obvious starting point is that the contract must state the date by which the works should be completed.
3.15 However, in many circumstances some of the delay may be due to the Employer. For, example the Employer may delay giving the Contractor access to the site or vary the work to be done by the Contractor or require the Contractor to carry out additional work not in the contract. In these cases the Employer's actions could prevent the Contractor from completing the work by the contract date. As we saw above, in order to maintain a right to liquidated damages, the Employer needs an extension of time clause. If the extension of time clause is complied with and an extended date for completion is set then the right to liquidated damages will run from that extended completion date.
3.16 In some cases it will be hard to even begin to estimate the likely loss of the delay. However, provided the amount of liquidated damages is genuine estimate of the potential loss it will not be a penalty, even if it is very high.
3.17 Although every Employer wishes to avoid contracting with a Contractor which is in financial difficulties, this sometimes happens. It may be in the Employer's and Contractor's interests to keep the Contractor afloat until the end of the project and therefore the Employer may not wish to set off liquidated damages but rather seek payment of what can be recovered at the end of the project. As a result it is often useful to choose a liquidated damages clause which allows the Employer to either set off liquidated damages against payments due to the Contractor or to require the Contractor to pay liquidated damages to the Employer. If the contract only allows for one method of payment and the Employer fails to follow that then again the right to liquidated damages will be deemed to be waived and the Employer will be restricted to claiming for actual damages.
3.18 Equally if the payment of liquidated damages is subject to an architect's or engineer's certificate then failure by the architect or engineer to make the certification required, or if this certification is given too late, the Employer will be limited to a claim for actual damages.
3.19 A final word of warning needs to be given in relation to the subject of liquidated damages. As I have outlined there are numerous ways in which the right to claim liquidated damages can be extinguished and the Employer limited to a claim for the actual loss sustained. Where the Employer finds itself in this situation then the amount of the actual
damages that the Employer will be able to recover is probably capped at the level of the amount of liquidated damages it could have claimed under the contract. Therefore if the contract provided for liquidated damages of £100,000 per week to a maximum of £1million, then the Employer will only be able to claim liquidated damages up to £100,000 per week up to a total of £1million however great its actual losses may be. (If the actual losses are less than the liquidated damages the Employer will be able to recover his actual losses).
Concurrency
3.20 Without doubt, concurrency is one of the most difficult issues to deal with. My view is that where Contractor delay to completion occurs concurrently with Employer delay to completion, the Contractor's concurrent delay should not as a matter of course reduce any extension of time due.
3.21 Concurrency is such a contentious issue for two reasons. Firstly, there are different views on the correct approach to concurrency when analysing an extension of time. Secondly, there are many differences about the meaning of concurrency itself.
3.22 True concurrent delay is where two or more delay events occur at the same time, one of which is an Employer Risk Event and the other a Contractor Risk Event. It is in truth, highly unlikely that a true concurrent delay will exist. For example, a true concurrent delay may exist at commencement date where the Contractor fails to give access to the site but the Contractor has not mobilised his resources to carry out any work in any event.
3.23 The term "concurrent delay" is often used to describe a situation where two or more delay events arise at different times but the effects of them are felt in whole or in part at the same time. Programmers or schedulers more correctly call this the concurrent effect of sequential delay events.
3.24 The issue usually arises in this way: the Contractor claims an extension of time because of delays which were the fault of the Employer. The Employer denies the extension of time on the basis that the Contractor would have been delayed anyway because of reasons that were not the fault of the Employer. It is extraordinary that this issue, which arises in virtually every construction dispute, is consistently hard fought and gives rise to dogmatic views either way. The debate rages notwithstanding the extension of time clauses upon which it is based appear in the standard forms in daily use. Remarkably, there is also an absence of clear guidance from the drafting bodies as to how extension of time provisions should be administered in these circumstances.
3.25 This is one way of looking at matters. We will take the example of a standard extension of time clause which fits most circumstances where a Contractor is entitled to an extension of time in the event that the works delay beyond the completion date as defined in the contract. Many theories have been advanced as to how to tackle extension of time applications in the circumstances of concurrent delay. These range from the "dominant cause" theory to the "adverse principle" theory. They include such methods as "first cause retrospective delay analysis" and the "ultimate retrospective delay" analysis. The various delay methodologists will be addressed in the next session. However, starting point for any consideration must be the words of the contract itself. 3.26 The key elements of the generic extension of time will cause I will address are these:
(a) The Contractor is required to notify the Engineer forthwith upon it becoming reasonably apparent that the progress of the works is being or is likely to be delayed by relevant event; and
(b) Upon receipt of the notification the Engineer is under an obligation to act i.e. he must form an opinion. If he is of the opinion that any of the events stated in the Contractor's notice are relevant events and that the completion of the contract is thereby to be delayed beyond that completion date as defined in the contract, he must award such extension of time as he considers to be fair and reasonable. 3.27 The important words which are often misconstrued are those which require an extension
of time to be awarded in circumstances where the completion of the works is likely to be delayed beyond the completion date. These important words are often misconstrued as being 'up to the date of substantial completion or taking over'. That is not the same as beyond the completion date. By way of example, suppose a building is to be clad in marble and to be completed in 50 weeks. Midway through the project the Employer varies the contract so that the building is now to be clad in granite such that the contract can now only be completed in 55 weeks. However, because of delays by the Contractor, the building could only be completed in 60 weeks anyway. In the circumstance the Contractor would be entitled to a five week extension of time. The variation may not have delayed the works up to practical completion (because of the Contractor's own delays) but it has delayed the works beyond the completion because of the variation they could not have been completed earlier than 55 weeks.
3.28 When looking at concurrency, we have to remember that extension of time clauses relate to liquidated damages provisions in the contract. We have to remember that the purpose of liquidated damages is not to provide the Employer with a windfall benefit i.e. to allow the recovery of damages that it would not otherwise have suffered. To take the example
above, if the works would have been delayed anyway because of delays which were the Employer's responsibility, the Employer would suffer no loss for the five weeks caused by its own delay. If because, quite luckily from the Employer's perspective, the Contractor happened to be late through its own fault at the same time, and on this basis was denied an extension of time the Employer would receive a windfall if it were allowed to recover liquidated damages for that period.
3.29 It is sometimes said that the approach outlined above fails to recognise the importance of the completion date. It also looks at the question of the Contractor's entitlement to an extension of time by saying but for the Contractor's delay by how much would the contract have been delayed? If the answer is 'not at all because the Contractor's delay runs beyond the Employer's delay' then it would be said that the Contractor is not entitled to an extension of time at all. If, conversely, the Employer's delay overruns the Contractor's delay then the Contractor will receive an extension of time for the extra over. It is considered that this approach is in error for the following reasons:
(a) It fails to recognise the approach the Engineer is to adopt under the mechanism set out above, namely to award an extension of time in the event that the works are likely to be delayed beyond the completion date by the relevant events. (b) It involves a test which is grossly unfair and commercial unrealistic. It results in
the Employer receiving a windfall simply because the Contractor was fortunate to have been in delay for reasons of his own making at the same time.
(c) It fails to recognise the fact that delay would in any event have occurred as a consequence of matters which are the responsibility of the Employer; and
(d) It results in a windfall for the Employer and penalises the Contractor twice - once because he suffers liquidated damages and twice because he also bears his own prolongation costs. The latest cases that have been considered by the English Courts have come to the following conclusions:
(i) The objective of the Architect or Engineer in assessing an extension of time is to decide whether the relevant event causing further delay when a Contractor is already in culpable delay as indeed cause further delay to the progress of the works, and if so, how much. Having done so, the Engineer must extend the period for completion by the amount of the further delay.
(ii) Where there are two concurrent causes of delay, one of which entitles the Contractor an extension of time (a Relevant Event) and the other does
not, the Contractor would be entitled to an extension of time for the period of delay caused by the Relevant Event. This is irrespective of the concurrent effects of the other event.
3.30 In short, the only way to deal with concurrency is to undertake a proper analysis of the actual causes of delay. However, as Tony will explain different analyses can give rise to different results.
Float
3.31 Float is the amount of time by which an activity or group of activities may be shifted in time without causing delay to a contract completion date. There are two sub definitions which are used. ' Free float' is often used to describe the time by which an activity may be delayed or extended without affecting the start of any succeeding activity. 'Total float' is the time by which an activity may be delayed or extended without affecting the total project duration. When we are looking at float, we are not tying ourselves to project completion date. The date in question may be the overall completion date for the works. However, it may well be a sectional completion date or an interim milestone. The point that I want to bring out here is the argument over 'ownership of the float' which is inevitably in dispute when the parties are arguing over an extension of time. I am sure if I took a vote here today, most of you would argue that the Contractor owns the float because the Contractor in planning or putting forward the programme to carry out the works, will have allowed some additional or float time to give itself flexibility in the event that it cannot carry out the works as quickly as it had planned. If the Contractor is right to say that it owns the float and there is any delay to the Contractor's progress for which the Contractor is not responsible, the Contractor will argue that it is entitled to an extension of time, even if the delay to progress does not delay the overall completion date but merely takes some of the Contractor's float.
3.32 This issue is probably best looked at by use of an example. This is an example which has been used by Tony Farrow in the past as illustrating the problems faced.
3.33 There is a simple project involving two sequential activities, each taking a month and the Contractor allowing three months to complete the work. The Contractor submits the following programme:
ACTIVITY 1 ACTIVITY 2 FLOAT Week Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 3 4 5 Contractual Completion Date 1
3.34 During activity one, the Employer delays the works by one month (eg by failure to delivery necessary free issue materials). The adjusted programme becomes:
ACTIVITY 1 ACTIVITY 2 Employer Delay Week Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 3 4 5 Contractual Completion Date 1
3.35 During activity two, the Contractor delays the works by one month (eg because he has to replace some defective work). The final as built programme is:
ACTIVITY 1 ACTIVITY 2 Employer Delay Week Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 3 4 5 Contractual Completion Date 1 Contractor Delay Actual Completion Date
3.36 One of the conclusions to this exercise is that the Contractor is obliged to pay the Employer four weeks liquidated damages in month four and the Employer is obliged to pay the Contractor four weeks loss and expense during months one and two (weeks two to five). The reason for this conclusion is that the Employer 'got to the float first' and at the end of the day, the Contractor was still in a position to complete the works by the completion date. From the end of month two, the only reason the project was late was due to the Contractor's delay. As you can imagine, most Contractors did not like the idea of the Employer being able to take what they view as the Contractor's float.
Generally, the answer that Courts and Arbitrators around the world find is that the Contractor owns the float. It must be remembered that when an Employer causes a delay, under most standard forms of contract this leads to a consideration of whether or not an extension of time should be given. You must remember that an Employer delay does not automatically lead to an extension of time. Both the answer to whether there is an entitlement and to how much that entitlement is, nearly always varies depending on if the issue is considered at the time, or whether the matter is considered retrospectively. Further, we must remember that there are cases where an Employer causes a delay and the Contractor's entitled to money but no extension of time and vice versa.
3.37 What status does the programme actually have? The general obligation is for Contractors to complete the works on or before the completion date and within the period for completion. In our example, the Contractor intended to complete his works within two months. However, the Contractor's contractual obligation is to achieve completion within three months. I would argue that the Contractor should be allowed that period of time to complete the works. When, in our example the Employer issues materials late, it will be an Employer delay which should allow in most contracts an extension of time. The Contractor must of course remember to issue the requisite notices. The one month delay appears to take the float, but is it not possible to argue that the Contractor should be given an extension of time of one month? The Contractor originally had two months within which to complete his works and has been deprived by the Employer's delay of that extra month. The alternative position is that the Contractor should not be given an extension of time because at the end of month two, there is no reason to suppose that the Contractor should not be able to complete his works prior the completion date.
3.38 Of course what has happened in our example is that within month three, the Contractor has to go back to remedy its own work. The Contractor's argument is that it would have completed all its works within the three month period before the contractual completion date had it not been for the Employer's default. The one month delay by the Employer must fairly entitle the Contractor to a one month extension of time. The recovery of any costs would be not as a result of the extension of time being granted, but rather costs that the Contractor incurs by reason of the Employer's breach of contract. The Contractor would have to be responsible for the prolongation costs it has incurred during the period of the remedial work. As such could the answer probably be:
(i) The Contractor is entitled to a one month extension of time by reason of the Employers' delay.
(ii) The Contractor is entitled to the one month prolongation damages caused by the Employer's breach of contract
3.39 That being an illustration of the difficulties that Ownership of the float causes between Contractor and Employer, it is worthwhile considering the difficulties that Contractor's face with regard to float Ownership as against their sub Contractors. I will give you an example of a case from the English Technology and Constructions Courts from last year. This is the case of Ascon Contracting Limited v. McAlpine Construction Isle of Man Limited. These are the brief facts. The main contract was for a development on the sea front in the Isle of Man, a small island to the west of the UK. The sub contract was for reinforced concrete beginning with the slap and perimeter walls at basement level. McAlpine was the Main Contractor and Ascon the Sub-Contractor. The sub contract period was 27 weeks but Ascon had completed 10 weeks late and received no extension of time. Coincidentally the Main Contractor was 10 weeks late and had apparently suffered liquidated damages of £175,000. The Main Contractor, McAlpine, tried to hold Ascon liable for the whole delay to the project. Ascon made an extension of time and damages for delay and acceleration claim. McAlpine made a counterclaim. The Judge considered various issues which were relied upon by Ascon for its extension of time claim and awarded 14 days delay to the sub contract works. When the Judge came to consider McAlpine's counterclaim, he decided it was a question of fact whether Ascon affected later trades and delayed practical completion of the works as a whole. McAlpine was relying on a term of the sub contract which said 'the sub Contractor shall carry out and complete the sub contract works reasonably and in accordance with the progress of the works.' The main contract programme had a float of five weeks and McAlpine argued that it could use that period to cancel out any delays of its own or other sub Contractors, leaving the remainder chargeable to Ascon. The argument was rejected. The judge said that if six sub-contractors caused one week's delay in a contract programme where there is six week's float, they will have caused no loss. They share equally in the benefit of the float. If the period was five weeks, they should equally share the burden. The right to allocate the float does not belong to the Main Contractor.
3.40 As such the Judge gave Ascon credit for the extension already awarded and decided that Ascon was only liable for one and a half weeks delay to the whole project from the remaining maximum of eight weeks.
3.41 So what is the answer for you? I think the conclusion must be that the Contractor owns the float, but he cannot use that float to deny the entitlement of Sub Contractors to that float in the event they get there first.
4 MONEY CLAIMS
4.1 Having undertaken a review of the basic principles entitling a Contractor to additional time or otherwise, this next section of today's lecture is aimed at providing a view of some of the common issues that arise on construction contracts where one party wishes to recover from the other compensation for additional time and/or resources it has taken or used to complete the project.
4.2 I do not intend to deal here with the question of valuing the direct costs of change to or a variation of the works, in other words labour, plant and materials. Rather, I intend to concentrate on the Contractor's claims for prolongation costs and disruption. These being claims which arise in essence from the extended use of time-related resources.
Principles of Recovery
4.3 Without doubt in my experience one of the biggest misconceptions in the construction industry is the belief that if a Contractor is entitled to an extension of time on a particular project, then it is also automatically entitled to be compensated for the additional time that it has taken to complete the contract. This is not the case. There is no absolute link between an entitlement for an extension of time and the entitlement for compensation for that additional or prolongation cost. Standard form contracts make this clear by divorcing the entitlement to time and compensation between different clauses. For example, under
FIDIC 5th Edition, we saw earlier that the grounds for an extension of time are set out in
clause 8.4 whereas the Contractor's entitlement to claim appears under clause 20. Moreover, you must also bear in mind that an entitlement to an extension of time does not automatically result in entitlement to compensation for the same period, or at all.
Prolongation Compensation
4.4 It also goes without saying that delay causes prolongation of the contract which can cause increased cost. Whether that cost can be recovered by a Contractor depends primarily on the terms of the particular contract and the factual question of whose fault it is the contract is in delay. Of course, if the reason for the delays is fault of the Contractor, there will be no sustainable claim for prolongation costs. However, if the delay and prolongation arises from what may be called an 'Employer Risk Event', a prolongation claim made by a Contractor will be based on the Contractor's increased use of time-related resources together with such other types of recoverable loss the contract may allow.
4.5 Prolongation costs may be caused by any kind of Employer Risk Event; examples would be a events such as prevention of work on site for the full daily hours period in the
contract, a variation, or unforeseen ground conditions. Yet whether the cause of the prolongation claim is that it arises under a specific provision of the particular contract, or it arises from a breach of that contract generally, the Contractor still has the same obstacles to overcome: the Contractor must show that it has actually suffered the loss and/or expenses claimed before it becomes entitled to compensation.
Concurrency of prolongation
4.6 Unsurprisingly, seeing as concurrency is such a contentious issue when looking at extensions of time, it is also one of the most difficult issues to deal with when trying to resolve the issue of prolongation costs. The difficulty arises in this way: consider the situation we looked at earlier. The Employer, in the ordinary course of events, would be liable to compensate the Contractor, but the Contractor was late in carrying out its own work. Who bears the cost in these circumstances? The answer is always a factual one in practice. The Contractor will be entitled to prolongation costs if it can prove that the additional costs it incurred result from the Employer's delay. The most difficult position for the Contractor is when it has to separate out the costs which flow from the Employer's fault and the costs which flow from its own breach. The practical result of this problem is that the Contractor only usually succeeds in obtaining compensation for the period by which the Employer's delay exceeds its own delay. [In the next session, we will look at methodologies you can employ to avoid this shortfall in recovery.]
Damages and Compensation
4.7 Most construction contracts and certainly all the major standard forms make provision for compensation to be paid by the Employer or Purchaser in the event of the Contractor or Supplier being put to expense as a consequence of anticipated possible events. These provisions do not cover all possible occurrences and in some instances where there is no provision for compensation then the Contractor or Supplier may have to claim damages for breach of contract.
4.8 It is therefore very important to distinguish between damages for breach of contract on one hand and contractual compensation on the other, although in fact the amount of money a party might recover under either head could be exactly the same.
4.9 It is because Construction Contracts are likely to involve changes during the course of a project that there is specific provision for contractual compensation in most forms of standard contract. This compensation can be separated into that element which relates to the value of additional work which is capable of measurement, normally arising as a
result of variations and that element which arises from different defined circumstances which is given different names in different contracts. For instance:
• FIDIC provides for recovery of "Cost" which is defined as:
"all expenditure reasonably incurred by the Contractor, whether on or off the site, including overhead and limited charges, but does not include profit."
• The World Bank Form refers to "loss and damage".
• ICE 6th Edition calls this "loss" and,
• The JCT family of contracts including The Hong Kong Standard Form of Building
Contract refers to this as "loss and expense".
4.10 What can be recovered under the headings which I have just outlined will depend upon the particular words and phraseology of the particular contract. In essence however the contractor or claiming party will need to prove an actual loss and will be entitled to actual losses incurred as a direct consequence of the event complained of and actual expenditure as a direct linked consequence of this event.
4.11 Common law forms the basis of the law of many countries including the United States and the UK and is a rule of law which is often followed in international contracts. Under common law there is a further distinction which needs to be looked at when considering the recoverability of damages. As I have said previously the contractor can only recover actual losses and expenses incurred. Common law also dictates that the contractor can only recover those losses if they were:
• Reasonably foreseeable at the time of the contract being entered into. That is to say
they are losses which the parties could have contemplated as naturally arising from an event at the time they entered into the contract;
• Damages which whilst not necessarily being foreseeable were for whatever reason
predicted by the parties as possibly arising and accordingly were predicted and in the contemplation of the parties at the time the contract was entered into.
It may be helpful if I give an example of this. In an English case which involved Balfour Beatty a substantial main contractor and Scottish Power which was an electricity generating company. The facts were as follows. Scottish Power agreed to supply temporary power for Balfour Beatty's concrete batching plant. There was a power failure and Scottish Power was held to be in breach of contract. It was at fault. Balfour Beatty
was constructing an acquaduct by continuous concrete pour and as a result of the power failure had to demolish what had been constructed and start all over again. Balfour Beatty claimed the cost of this as damages. It was held that Scottish Power did not and were not presumed to have known of the practice of construction by continuous concrete pour and the claim therefore failed. The Court concluded that the damages were not foreseeable.
4.12 Construction Contracts sometime have clauses which seek to limit any liability for consequential loss or damage caused by for example late supply, or any fault, failure or defect in any materials or goods supplied by the contracting party. These are supposed to prevent the type of unforeseeable damage which I have mentioned in the case referred to above.
4.13 More recently a case which took place in India demonstrates how contractor's need to be careful. This case was between the parties of Deepak and Davy. Davy contracted to sell Deepak a process, license, design and know how in relation to the design, construction, operation and maintenance of a 300 metre tonne per day low pressure methanol plant in India. The plant was built between 1988 and 1991 and commissioned in 1992. After the plant had been operating for some four months Deepak gave Davy a letter of acceptance. Some months later the plant exploded. Deepak sued Davy. One of the issues which had to be decided was whether a clause excluding direct and consequential damages prevented Deepak claiming against Davy over and above the cost of reconstructing the plant. Were Deepak entitled to claim for loss of profits? The decision of the Courts was that loss of profits and overhead expenses thrown away were not indirect and consequential damages but were direct and natural as a result of destruction of the plant. The moral from this is do not rely on consequential damages exclusion clauses unless they spell out precisely what is being excluded.
5 MAKING A SUCCESSFUL CLAIM
Principles
5.1 Many Contractors simply do not put enough effort into the formulation and preparation of their claims and consequently achieve poor results or returns. Many claims which should in principle be successful actually fail because the Contractor fails to put forward proper substantiating evidence and/or fails to make a direct link between the delaying event and its consequence with regard to time, and enough detail when it comes to turning that time into money.
5.2 There are simple guidelines for any Contractor to follow in making what should be a successful claim:
• State the facts which given rise to the entitlement.
• State the contract term under which the entitlement arises.
• State and show that any conditions precedent have been complied with.
• Provide all necessary substantiating evidence to justify the entitlement.
5.3 Remember when drafting your claim that it is best not to use emotional language. The problem with excitable language is that it tends to suggest to the Employer that the claim is not really as strong as the Contractor would like it to believe. Make the claim as concise, close to the contract and grounded in facts and evidence as possible.
5.4 There is a heavy burden upon a Contractor to provide evidence in support of its claim. You need to bear in mind the fact that you need to prove your legal entitlement but you also need to persuade the Employer of the merits of your case. If you have to go to arbitration or litigation to pursue your claim, you will have to leave the Tribunal concluding at least 51% to 49% that you are correct. How much proof is required for such a conclusion? It is difficult to be sure. In the same way, the vast majority of you will always wish to settle claims and the same questions arise. In determining what is going to be the settlement strategy you follow, one of the major issues you will face is deciding exactly how much proof will be needed to persuade the Employer's key decision makers as to the validity of your claim and to make an acceptable offer of settlement. You will therefore, need to strike an appropriate balance in terms of evidence required for successful and cost effective resolution of claims.
5.5 Let us take an example to illustrate the point. If you wish to make a claim for direct loss and expense arising from a variation, you should be seeking to prove the following: (a) That a variation/change instruction was validly given under the contract and that
variation has been complied with.
(b) When that variation was issued and when the Contractor complied with the variation.
(c) What work was carried out.
(e) That in carrying out the variation, the regular progress of the works was affected. (f) What was the actual effect on the progress of the Works.
(g) Full details of the costs incurred as a direct result of the variation.
(h) That contractually required notices were given in respect of the effects of the variation.
5.6 You have to base the proof level in the context or the nature of the claim you are actually making:
5.7 The amount of time and money you are prepared to spend on proving your losses should reflect the amount of money at stake. Obviously you are not going to want to spend many thousands of dollars proving something which is only worth a few hundred. However, if you decide to cut back on small items you can create problems, not only with the small items, but also on the knock-on effect on your larger claim items. It is sometimes possible for an Employer by showing that a large proportion of the small claims are unsubstantiated and over-claimed, to convince an Arbitrator that the larger claims are not worth the amounts claimed.
5.8 If you are preparing a complex claim, the general rule is that more proof is required. This is unusually because there are more competing causes and to make a successful claim your factual and methodological analysis needs to be strong and substantiated.
Types of substantiation
5.9 Many of the claims I see from Contractors are lacking in supporting evidence. The general tone of the claims is 'injustice' and they are filled with wide-ranging statements about how the Contractor has been hard done to by the Employer or its design team or how it has suffered substantial disruption without actually giving any facts. Many fail to link cause of the delay with the effect of that and to provide evidence that there is a direct cost consequence which can clearly be shown in cost records.
5.10 Averages and generalisations will not do. What is required is actual loss and actual expense. This can only be achieved by detailed and accurate records. Records are the prime source of evidence. Someone new looking at the project for the first time would undoubtedly ask to see the tender records, original contract, original programme, planned delivery dates, drawing/information issue dates, amongst others in order to build as complete a picture as possible of the project. Yet this often proves one of the most difficult tasks and the records provided as evidence are so incomplete that even a
dispute acknowledged as reasonable by all concerned cannot be supported and fails. Without firm facts recorded at the time, disputes arise over what people can remember or thought happened without anything concrete to back them up.
Progress Schedules
5.11 The original and updated contract programmes are a starting point for Contractors, but they will not bring in the money. In order to substantiate a money claim you should use a schedule which shows the planned progress and actual progress demonstrating the effect the delaying work had on progress. This will form part of our second session.
Cost Records
5.12 What is meant here is time and allocation sheets. The more detailed and accurate these are (particularly in the case of supervisory staff) the better your claim will be. The point you should bear in mind is that cost records should be clearly referenced or referable to the particular delay event or consequence claimed for. Allocation sheets which show who was doing what, and where, have to be preferred.
Contract and Notices
5.13 Conditions of Contract almost invariably include provisions for the issue of assorted notices by each party to the other. The particular requirements may vary, as do the contractual and commercial significance of the notices, their formality, and the timing and manner of their submission, but the majority seem prone to argument or at least a measure of uncertainty.
5.14 The purpose of notices is to warn the recipient of a forthcoming event or situation so that he can prepare for it. Contractual notices stem from the duty to mitigate damages, though it should be remembered that the duty to do so exists whether notices are specified or not. Thus it can often be prudent to issue a notice in circumstances where one is not specifically required.
5.15 However, even though the notice is issued for the sole benefit of the recipient, managers are often reluctant to do so because they fear they will be interpreted thereby as aggressive, uncooperative, provocative or mischievous. Such a reaction, which is not uncommon, is intended to discourage the submission of notices upon the generally erroneous conviction that if they are not submitted, then the relevant claim cannot be sustained. So start as you mean to continue, with a sensible understanding of the mutual benefit notices afford compliance with contract requirements and advance warning -and agreement on their uninhibited submission.
5.16 It is inhibition which usually delays the timely submission of a notice, which at an early stage may be felt to refer to a minor matter, until the matter has grown out of all proportion and a notice, now obviously overdue, would be too late either to comply with contract conditions or to have any beneficial or mitigating effect. So get the notice in early, and invite discussion. It is much easier to withdraw or overlook a redundant notice than to validate one that is overdue.
5.17 To comprise a “notice under the contract” the communication does not have to follow a prescribed form, though it must be in writing and delivered to the recipient. Proof of posting or “I gave it to Mr Tanaka” are inadequate. However, if the notice is clearly referenced to the appropriate clause, its relevance is more likely to be appreciated by the recipient, and there is less likely to be subsequent argument as to whether the notice was properly given.
5.18 Beware, though, as a recipient, that due notice could be given you by way of minutes of a meeting, within the chatty content of a more general letter, in a progress report or even on a drawing. Sensible agreement at the beginning of a contract should reduce that risk. A warning that is concealed, of course, is a nonsense, but may nevertheless fulfil the particular requirements of the Contract, and may be a deliberate ploy for devious, certainly dubious, reasons.
5.19 Be wary of the difference between mandatory notices (those which comprise a condition precedent) and those which are not, and that standard Conditions of Contract may be subtly changed in that regard. If a Contract provides for notices which are mandatory, then mandatory they are, unless that condition is waived by both parties to the Contract. The fact that the intended recipient knew of the event through other channels, or discussed it with you at length in his boardroom or in front of a shareholders meeting is no substitute for a written notice. But be sensible, if in the absence of written notice warning has been clearly given, can be shown to have been given, and mitigating action has been taken in consequence, then you would be ill advised to ignore the consequences.
5.20 Contractual claims are subject to procedures set out in the contract documents, and these procedures will prescribe when notices are to be provided and by whom. Apart from simply complying with the intentions inherent in such procedures, as discussed earlier, a claim which purports to be founded upon the conditions and provisions of the contract will be more credible if it shows that the claimant, at least, has conscientiously complied with them. All claims relate to events, and we have stressed that events must be confirmed by evidence. Proper submission of notices goes a long way towards ensuring that proper records of events are made at the time and can be agreed.
5.21 It can be a useful exercise to tabulate the notices required for a new Contract, together with any time limitations relevant thereto, and to ensure staff are fully aware of them. Who is responsible for which Notice? Similarly, ensure incoming notices are properly dealt with and that you take full advantage of the warning they give. Make sure that you respond to them.
5.22 Notices, both by their presence and absence, are often a source of contention. Understood and properly used they can be of substantial benefit to both sender and recipient. They are a vital element of any claim.
Records/Minutes of Meeting
5.23 These are useful supporting evidence. However, remember that they are usually produced by one party without reference to the other. It is good practice to check the minutes on receipt and challenge any inaccuracies at the time of correspondence. If you do not, it does become more difficult to challenge the minutes later as inaccurate records of what actually happened. Remember also that most minutes of meetings have good progress reports.
Site diaries
5.24 These are useful (but occasionally embarrassing!) records of progress, yet requiring good discipline if they are to be relied upon. The evidence in the diary can be of great importance if there is no other evidence available.
Global claims
5.25 If the Contractor has made and through good practice and procedures, maintains accurate and complete records throughout the project, the Contractor should be able to establish the causal link between the Employer's Risk Event and the resultant loss and expense, without having to resort to what is known as a 'global claim'. A global claim is quick and simple approach but one which is not contractually supportable, providing no cause and effect. It ignores other delays occurring at the same time and ignores criticality. In its simplest form a global claim is a claim for the difference between tendered and out-turn cost based on many allegedly but not particularised disruption events.
5.26 In general, it is necessary for the Contractor to establish each and every head of claim by means of supporting documentation and other evidence. It is not enough to show a financial shortfall. The UK courts have made the following pronouncements in relation to global claims:
(a) The global approach is only justified in cases where it is difficult or impossible to make an accurate apportionment;
(b) Where elements of the claim can practicably be isolated, the decision maker must make individual awards;
(c) The approach is one of last resort and cannot be used to lump all delaying events together to justify a total overrun or financial shortfall.
5.27 A Contractor may, of course, put forward its claim in any way it chooses. However, putting forward a global claim will undoubtedly present evidential difficulties most apparent in the failure to identify a clear connection between the alleged breach of contract and the alleged consequential cause of delay or damage.
summary
5.28 In summary a Contractor's claim should:
(a) Set out in intelligible form what is the loss, why it has occurred and why the Employer has an obligation to compensate the Contractor for that loss.
(b) the claim should tie the breaches of contract relied upon to the terms of the contract and identify those terms.
(c) the cause of the loss and the effect (ie the loss) should be carefully explained with a clearly identifiable link.
(d) If it is not possible to link every single break to every single cost, some causative event must be established and the link for those events demonstrated.
5.29 If you follow these guidelines, you should be a long way towards achieving successful resolution of valid claims.
1 TIME ANALYSIS – METHODS
Introduction
1.1 Time analysis refers to a forensic investigation into the issue of what has caused a project to run late. That is, delay to the completion of work or contract milestones caused by the time impact of events such as variations, late information, excessively inclement weather, poor performance, remedial works and the hundreds of other delay causing circumstances that arise on construction projects.
1.2 The reason we need to carry out Time Analysis is because construction contracts have liquidated damages clauses and, as explained in the earlier paper, these clauses remain valid only if the employer can extend the contract completion date when he has caused delay. That is to say, if the employer causes delay and there is no extension of time clause, the liquidated damages clause becomes invalid.
1.3 So Time analysis is really concerned with measuring the impact of employer events on the progress of the works and this impact is measured in terms of delay to the programme. Hence, Time Analysis in this context is really about Delay Analysis i.e. what delay to completion did the employer’s events cause. I prefer the term ‘Delay Analysis’ as a title and I will refer to it from now.
1.4 Analysts, ie those people who investigate project delays, distinguish between critical and
non-critical delay, the former delaying the project’s completion date and the latter
affecting progress but not overall completion. Ultimately, we need to identify those events causing critical delay for evaluating extensions of time, but it can be difficult to distinguish between each type. Analysts also investigate programme disruption, or disruptive delay, which concerns issues of productivity, acceleration, congestion, fatigue, morale and other consequential effects of project change. This aspect is not considered in this paper.
1.5 There are three primary reasons why one might want to analyse delay: to establish lines of investigation, to demonstrate entitlement and to present the case one is seeking to prove.
To help establish lines of investigation
1.6 An investigation of a construction project will involve consideration of a wide variety of issues. These include where the delays occurred (which part of the project – was it in the foundations, steelwork, roof, air conditioning etc); when did the rate of progress decline;
where did late information or materials cause delay; instances of competing delays; poor productivity; insufficiency of resource; lack of design information; failure to progress; excessive rainfall and so on.
1.7 Such an investigation requires a forensic review of project records involving three stages: (a) Databasing relevant project records, such as programme activities, progress
schedules, actual start and finish dates, labour allocation sheets, daywork sheets, notices of delay, material deliveries, plant deliveries, weld records, chainage progress, drawing registers and so on. For this work we would use standard database software such as Microsoft access. Databasing relevant project records, such as programme activities, progress schedules, actual start and finish dates, labour allocation sheets, daywork sheets, notices of delay, material deliveries, plant deliveries, weld records, chainage progress, drawing registers and so on. For this work we would use standard database software such as Microsoft access.
(b) Analysing the databased records by linking related data together where relevant (eg drawing numbers linked to activity progress), sorting/grouping data by different variables (eg progress by floor, by gang, by ‘system’, by trade etc), aggregating or summing together quantities (eg numbers of drawings per week, progress achieved per month etc) and selecting or filtering data of particular interest.
(c) Graphing the results of the analysis using barcharts, histograms, line-graphs, tables etc. In the slide, I have compared the planned manhours with actual manhours on a project and I am interested to know why there was no labour expended in weeks 6 and 7, and 13 to 16. Also, why did the labour increase so much in weeks 19 and 20?
1.8 Analysis of project information in this way can help to highlight when events, delays or disruptions arose, how extensive they were, where they occurred on the project and which programme activities were affected.
1.9 The graphs or charts produced in this way are working documents, in that their purpose is to identify changes or variances (such as peaks and troughs in resource levels, design information, overall productivity etc), trends (indicating where delays arose, where events and delays occurred at the same time, reductions in productivity etc) and differences
(such as illustrating that certain floors/trades/systems were not affected INTRODUCTION others were).
1.10 This kind of working data analysis can be raw and involves ‘slicing and dicing’ the project records in order to discover where the effects appear to exist and where the problems probably arose. In general, such analysis does not rely on a delay methodology, but requires a free format and versatile data analysis and graphics software tools. From this investigation, the analyst hopes to identify those issues, time periods or construction elements that require a more detailed study.
To demonstrate entitlement
1.11 This is the main subject of this paper i.e. how do we demonstrate the amount of delay caused by an employer’s event and so what extension of time are we entitled to. I use the phrase ‘to demonstrate entitlement’ with caution as it may imply that the delay analysis using one of the methodologies is the demonstration (that is, it discharges the party’s burden to prove the consequences of a set of events upon the progress of the works). However, this implication is mythology. The delay analysis methodologies do not provide the ultimate answer in a case concerning extensions of time. The methodologies are tools for assisting in describing or analysing complex sets of facts. It is the engineer or architect, or ultimately an arbitrator or a judge, who has to consider and weigh up all the competing evidence and form an opinion. The delay analysis exercise will assist in this process but it will only be part of the evidential matrix. That is to say, the tribunal (i.e. Judge, arbitrator, adjudicator) has to weigh up the terms of the contract, relevant case law, witness evidence, contemporary records such as photographs, as well as considering analytical exercises such as delay analysis, and form its own views.
To present the case
1.12 Having interrogated the project records and analysed the delays, it is necessary to convince the opposing party. This can be aided by visual pictures (primarily graphs and charts) and these can be produced using IT tools used by the delay analyst. In the case in the slide, I tried to explain why laying a railway line was delayed. I contrasted the planned duration which is in green, with the as-built duration, which is the spiky red line. We call this a heart-beat chart because the amount of labour on site is represented by the vertical scale of the red line. Underneath the red line are events, which represent when the employer handed over lengths of railway track for the contractor to lay. What the chart shows is that the provision of labour by the contractor is directly related to the
employer handing over the track. Hence, the delay is caused by late delivery of track, not delay by the contractor.
Delay analysis methodologies
1.13 Turning now to Delay Analysis, there appear to be two groups, or types, of delay analysis methodology. The first category is often referred to as entitlement based methods, but this is not an ideal description since it can be confused with contractual entitlement. For example, a contractor’s entitlement to an extension of time is derived from the terms of the contract, whereas entitlement here is derived from the results of a delay analysis methodology (ie it is methodological entitlement). The two are clearly different.
1.14 Theoretical based methods is perhaps a better definition, since these methods rely on demonstrating the theoretical impact of the consequences of delaying events, rather than on showing what in fact occurred. Another definition of this group could be model based
methods, since each methodology is based on establishing a programming model of the
project and then influencing it by the application of project events or constraints. In this theory based grouping are the global and the net impact methods, the as-planned but for, the as-planned impacted and the as-built but for methods.
1.15 The second group is called the actual based methods, since they seek to demonstrate what actually occurred on a project and the analyst investigates what caused the project delay. These methods include the as-planned vs. as-built, the window/snap-shot and the
impact/update methods.
1.16 The theory based methods all approach the issue of entitlement to extension of time by first focussing on the delay event and then seeking to determine what delay may have resulted. However, this is not achieved by identifying its actual impact from recorded facts, but by theoretical analysis of what the effect ought to have been. These methods tend to favour the contractor’s position because matters such as culpable delay (that is, where the contractor has a problem of his own), the effects of mitigation (that is, the employer’s delay being offset by simple corrective action by the contractor) and the programming changes actually implemented by the contractor, tend to be considered only as secondary issues, if at all.
1.17 On the other hand, the actual based methods approach the analysis by seeking to measure how actual progress differed from what was planned. They focus on how the works progressed, how activities were actually delayed and only thereafter seek to ascertain what delay event(s) caused this delay.
