Dr C.S.Suryawanshi, Former Chief Engineer & Joint Secretary (P.W.D) Senior Consultant Mumbai.
IntroductionMost construction contracts require the contractor to carry out and complete the project by a specified date or within a specified period from a commencement date. Intermediate dates may also be specified for the completion of sections of the works. Such dates are referred to as “Sectional Completion Dates.” Sadly, such timetables are not complied with in many cases. The proneness of projects to delay has attracted the attention of researchers all over the world. A related problem is high incidence of disputes between the parties as to the sharing of financial responsibility for the consequences of delay. Most of these studies have been aimed at identifying the immediate as well as the root causes of project delays. A common theme from these studies is that project uncertainty and complexity provide a major challenge to the time management capabilities of the parties and their professional advisers and that, for many projects, delay is inevitable.
Perspective of delay- contractor's viewFrom the contractor’s perspective delay on an activity can cause inefficiency in the carrying out the works and/or prolongation of the overall project duration. Inefficiency often arises from the contractor being compelled to abandon carefully designed work plans for less efficient work methods. This impact is therefore that the contractor incurs additional costs, thus reducing profitability. The prolongation impact often has more disastrous consequences on profitability but in a different manner.
Resources have to be kept on the project longer than planned. The cost of the resources during the period of prolongation is therefore extra. Furthermore, the contractor looses the opportunity of redeploying his resources tied up on the delayed project on alternative work from which to earn additional contribution to its profit and head office overheads. Contractors therefore have a very strong incentive to lay the blame for delays on employers and demand financial compensation.
Perspective of delay- employer's viewDelay is equally a major financial risk to the employer. If the economic viability of the overall commercial venture depends on the project generating an income stream from a particular date, failure to complete the construction project by that date could turn a profitable venture into a loss making one. Even when the delay does not cause loss it reduces profitability on account of delay in the inception of revenue generation. For this reason an employer would claim damages for breach of contract founded on the failure to complete on time. A more convenient way of protecting the employer against delay is to have contract terms that specify the amount of money to be paid to the employer by the contractor for every day or week of delay in completing the project. Such sums are referred to as “liquidated damages”, which is an archaic term for “specified damages.”
Compared to damages for breach of contract that must be proved at some expense by the party claiming them, specified damages have the advantage that the amount payable is agreed before even the project gets underway.
There is therefore an unavoidable tension between the parties’ financial interests in relation to delay. Whoever is ultimately determined to be responsible for the event that caused the delay must bear the financial consequences. Considering the wide range and mutually interactive nature of events that may impact negatively on progress, identification of the event or events that caused the delay and, where they impact concurrently or sequentially, delineating individual causative impacts have been matters of the greatest controversy (Society of Construction Law 2002; Pickavance 2005). A number of closely interacting factors lend considerable challenge to this task, for example: the geographical spread of the project site; long term nature of projects; complexity of operations; involvement of many subcontractors; and large volume of information to be stored, retrieved and analysed. It is therefore a matter of concern that comparatively much less research attention has been directed at developing knowledge and understanding of the issues often in dispute. It is hoped this paper will not only assist identification and implementation of avoidance strategies but also promote amicable settlement of unavoidable disputes through shared knowledge and understanding.
The issues covered in this paper concern:
- delay terminologies,
- contractual content on the contractor’s programmes,
- the contractual status of a contractor’s programme,
- the rate of progress expected of a contractor,
- prevention by the employer,
- optimistic contractor’s programmes,
- contractor’s claims for acceleration,
- the effect of delay caused by the employer when the contractor is already in culpable delay,
- concurrent delay.
Delay TerminologyTerms often used in connection with project delay include “excusable”/ “non-excusable,” “culpable”/“non-culpable”, “compensable”/”non-compensable.” These Terms serve as indicators of the expected allocation of the time and cost risk associated with the delay. The expectation is based on the manageability theory of risk allocation according to which a risk should be allocated to the party better placed to control its occurrence or its impact. The terms of the particular contract may however override such expectation. From a causation perspective delays may be categorized under the following types:
Delays caused by the contractorthese include delays caused by parties for whom the Contractor is responsible in law. This type is often referred to as ‘culpable delay’. Generally, under most contracts the contractor is neither entitled to extension of time nor recovery of loss and/or expense on account of culpable delay.
Delays caused by neutral eventsneutral events are those for which neither the employer nor the contractor is responsible, e.g. exceptionally adverse weather conditions. Most contracts allow the contractor more time to complete but with no corresponding entitlement to recover any loss and/or expense caused.
Delays caused by the employer:these include delays caused by parties for whom the employer is responsible in law. In-most standard forms, the contractor is entitled to extension of time and recovery of loss and/or expense caused by this type of delay.
Delays for which the contractor is entitled to extension of time are referred to as ‘excusable delay’ in the sense that, by being entitled to extension of time, the Contractor is excused liability for liquidated damages which would otherwise be payable. Delays for which the contractor is entitled to recovery of loss and expense are said to be “compensable.”
The term ‘concurrent delays’ is used to describe the situation where a number of events, any one of which would cause delay if it occurred alone, overlap, e.g. non-receipt of information from the Engineer/Project Manager(E/PM) and adverse weather conditions. This situation often gives rise to disputes concerning the extent to which each event was responsible for the delay.
Contractual Requirements of the Contractor’s ProgrammesA major function of a contract is to provide for risks with such comprehensiveness and clarity as to minimise justifiable disagre- ement as to how the consequences of the occurrence of any risk is allocated between the parties. The fact that there has been very high incidence of disputes on delay and disruption points towards possible deficiencies in contractual provisions on time management, including requirements on contractor’s programmes. Analysis of the standard forms of construction contract in common use showed that provisions on the contractor’s programmes deal with the following issues:
- time table for the submission of the programme
- requirements of the programme,
- the contractor’s duty to update the programme,
- the E/PM vetting powers over the programme,
- imposition of a obligation to provide short-term programmes on a fortnightly, monthly or quarterly basis,
- imposition of an obligation to provide a detailed progress report before every site meeting,
- imposition of obligations to provide updated schedules of information requirements,
- enforcement of the contractual requirements.
Timetable for submitting programmeContractual provisions on the timetable for the submission of the contractor’s programme fall roughly into two categories. One group, the FIDIC Red Book AND WB require the programme to be submitted within a specified time window. With the other group, no such definite time window is stated. (e.g. JCT2005 and its predecessors) require the programme to be provided “as soon as possible” after execution of the contract. The former approach is to be much preferred for reasons of certainty and enforceability.
Requirements of the programme as to form and contentVery few contracts go beyond the bare requirement for a programme to specify the form it should take and the information to be stated on or with it.
A list of the major activities with start and finish dates would meet the basic requirement although it would be of no use for the purposes of managing time and change on the project. Some contracts go beyond the bare requirement. However, virtually none of them goes far enough if the programme is to be the powerful management tool that it should be.
Insufficiency in the evidence of causation is a common theme that emerges from case law on disputes associated with delay. It is advocated by not only expert delay analysts but also the courts that, on account of the complex interrelationship among project activities, it is virtually impossible to provide such evidence without resource-loaded CPM programmes.
Although very few standard forms of contract require such programmes it is becoming common practice for a requirement for them to be imposed in the preliminaries sections of Bills of Quantities or other suitable part of the contract documents. Where such remedial action is taken disputes may arise concerning priority among the separate documents for purposes of interpretation of the additional requirements effectively imposed. For example, in Royal Brompton Hospital National Health Service Trust v Hammond (No.9)  EWHC 2037 one of the issues was whether imposition of additional programming requirements in the Contract Bills did not fall foul with relevant Clauses of the GCC. On the authority of Moody v. Ellis (1983) 26 BLR 39 additional obligations imposed in the Contract Bills that do not contradict the Conditions should be upheld.
Contractor’s duty to update the programmeA programme that does not reflect the current status of the project has little use as a management tool. For example, if the critical path in the original master programme changes because of delay on a non-critical activity site management may not alert to the increased importance of the activities on the new critical path. Furthermore, updated programmes are essential to credible delay analysis. Unfortunately, the standard forms are generally lax in their requirements of the contractor to update the programme. The GCC requires the Contractor to supply the E/PM with copies of programme updates in response to agreed or granted extension of time.
The contractor under ICE7 and the FIDIC Red Book is obliged to update the programme whenever actual progress is inconsistent with it. This formulation of the duty invites arguments as to whether there is such inconsistency or whether the duty applies when the contractor is ahead of programme.
Requirements for the E/PM’s approval of programmesWB(W2) is a prime example of contracts that require the contractor to obtain the E/PM’s approval to the contractor’s programme before it is implemented.
The new Red Book does not require the contractor to obtain the Engineer’s approval although the Engineer has the power to reject the programme but only on the grounds that it does not comply with the contract, e.g., failure to provide content expressly required, indicating completion later than required under the contract, and conflict with sectional completion deadlines or possession of site restrictions stated in the contract This is a departure from previous versions of that contract. The reasons for the change are not obvious.
However, many E/PMs would welcome this change because it reduces the possibility of having to answer to the employer for extension of claims submitted by the contractor founded on the allegation that the E/PM delayed approval of the programme without sufficient justification. Also, in relation to delay and disruption claims based on allegations of prevention from proceeding in accordance with the baseline programme, a defence often open to the employer would that the baseline programme was not achievable in any event. Such a defence would be weakened where the E/PM approved the programme. Furthermore, there are many who would argue that the programming of the works is a matter entirely for the contractor and that the E/PM ought not to have any responsibility for policing it.
There is therefore doubt whether the problems associated with the E/PM’s approval of the contractor’s programme are avoided by silence on the need for it.
The E/PMs approval has the distinct advantage that the approved programme becomes the undisputed baseline programme. It was pointed out at the workshop that, without the need for approval, communication between the E/PM and the contractor concerning the programme is likely to consist of a series of correspondence on the E/PM’s queries on the submitted programme followed by silence. In such circumstances, what became the baseline programme would be shrouded in uncertainty. The E/PM can avoid this uncertainty by requesting a copy of the final programme after the contractor has revised the programme to respond to all his queries.
Progress ReportsApart from their use as a formal mechanism for remedial action, they are also a repository of records on key events in the history of the project, which are often in issue in disputes about delays and disruption. Few contracts require the contractor to submit progress reports. In requiring such reports the new FIDIC Red Book and Engineering and Construction Contract are exceptions in this respect.
Information schedulesMany claims are based on alleged failure of the E/PM to supply necessary drawings, instructions (on discrepancies, divergences and errors in the contract documents, provisional sums, etc) and other information on time.
When the E/PM should have provided the information is often very much in dispute not only between the contractor and the employer but also between the latter and the E/PM. It is therefore a matter of irony that there is no formal requirement on the E/PM to produce a programme on the performance of any outstanding design on a similar basis as the contractor’s programme for the construction of the works.
Some contracts are amended to impose on the contractor a duty to submit, at each site meeting, an updated schedule of the contra- ctor’s information requirements for the whole job.
Enforcement of the contractor’s programming obligationsIt is a common criticism that standard forms of contract hardly provide for enforcement of the contractor’s programming obligations. Where a contract requires a programme and its updates, failure by the contractor to comply with the requirements would be a breach of contract for which the employer would be entitled to damages. This approach would be appropriate where the contract also imposes liability for specified damages for each day or week during which the contractor is in breach of contract in relation to its programming obligations. Termination, even if allowed by the terms of the contract, is likely to be inappropriate in most cases.
The Contractual Status of the Contractor’s ProgrammeIt is inconceivable for a contractor to price a project of even most scope and submit a tender without reference to some sort of programme. Codes of practice for estimating and tendering require a programme against which the tender is prepared. There is the question whether or not such a programme could become part of the contract eventually created. The English case of Yorkshire Water Authority v. Sir Alfred McAlpine & Son (Northern) Ltd. (1985) 32 BLR 114 suggests that it is possible for the pretender programme to become a contract document by incorporation. The contractor had tendered for the construction of a tunnel. The specification required the contractor to supply with his tender a programme for carrying out the work. The contractor supplied a programme indicating that the tunnelling was to be carried out in an upstream direction. The programme was approved at a pre-contract meeting the minutes of which were later incorporated as a contact document. It proved impossible to carry out the works in an upstream direction. It was held that the programme was contractually binding and that the contractor was entitled to a variation to carry out the works in a downstream direction, with the usual entitlement to additional time and payment.
It follows that parties have to be extremely careful to avoid the pre-tender programme being incorporated. An effective way of achieving this is to state expressly in the specification or other suitable contract document that the tender programme cannot become a contract document in any circumstances.
Many contracts require the contractor to provide a master programme before, or soon after, commencement of work at site. The position in the UK contracting tradition is that such a programme would not normally be a contract document in the sense that the work has to be done in accordance with it, including starting and finishing every activity on the dates indicated on it.
Rate of Progress Expected of the ContractorWhere the completion date is stated without any express provision on rate of progress the contractor would not be in breach of contract in relation of time until expiry of the stated completion date provided that the contractor maintains some presence on site, no matter of how minimalist. Sometimes it is obvious that the contractor will complete very late or never complete work at all and it is in the employer’s best interest to take the project out of the hands of the contractor without any further delay. Without an express obligation on rate of progress the employer would have a major problem expelling the contractor from the site. Contracts address this problem in two ways: (i) requirement of a construction programme and compliance with related obligations; (ii) a duty to make steady and reasonable progress.
Prevention by the Employer of Agreed CompletionIf the contract requires completion by a stated date but the contractor is prevented from completing by that date as a consequence of an event for which the employer is responsible the contractor is released from the obligation unless the contract provides for extension of time to take into account the relevant delay (Holme v. Guppy (1838) 3 M & W 387; Dodd v. Churton ( 1 QB 562; Wells v.Army & Navy Cooperative Society Ltd (1902) 86 LT 764; Peak Construction (Liverpool) Ltd. v. McKinney Foundations Ltd (1970) 1 BLR 111; Rapid Building Group Ltd. v. Ealing Family Housing Association Ltd. (1984) 29 BLR 5). In the absence of an appropriate extension of time clause time for completion becomes “at large” after being delayed by the employer, i.e., the contractor is only obliged to complete within a reasonable time. This proposition is usually referred to as the “prevention principle”.
Upon time for completion becoming at large, any liquidated damages clause in the contract ceases to be applicable. If the contractor fails to complete within a reasonable time the employer can claim only general damages for the breach of contract. To succeed the Employer must prove: when the reasonable time of completion is; that the contractor failed to complete by that time; that as a consequence of this failure the employer suffered financial loss in the amount claimed; the loss is not too remote. It is therefore a disadvantage to the employer where the employer causes delay but the contract does not allow for extension. Extension of time clauses are therefore for the benefit of the employer.
Events that may amount to prevention by the employer range from direct blameworthy conduct of the employer (e.g., failure to grant possession of site), through acts expressly allowed under the contract (e.g., variations) to acts of third parties for which the employer is responsible (e.g., the employer’s other contractors and the E/PM) (Baker et al 2005). It is rare for a contractor’s claim not to contain an allegation that time for completion had become at large and that, therefore, the employer is not entitled to liquidated damages.
The ideal situation is therefore to incorporate an extension of time clause that is so comprehensive that, regardless of how the employer causes delay, there is a power to fix a new completion date for such delay. The strategy in the drafting of such clauses is to recite all the known ways in which the employer could cause delay, culminating in a “catch-all” or “sweeper” ground for extension of time, for example: “any delay, impediment or prevention caused by or attributable to the Employer, the Employer’s Personnel, or the Employer’s other contractors on the Site” under Clause 8.4 of the 1999 FIDIC Red Book. An additional safety mechanism is a power to E/PM after, actual completion, to review all causes of delay and grant extension of time that is fair and reasonable whether or not the contractor has served required notices or requested extension of time.
Analysis which rationalises the prevention principle as either a rule of law against a party recovering damages for a situation that he has himself caused or an implied term. It may also be helpfully viewed as a principle of construction of any contract where A agrees to carry out work for B by a stated date based on a presumption that A could not have intended to remain answerable to B for failure to complete by the stated period caused by B. If its basis is as an implied term or a presumption then an express term stating that the contractor is not entitled to extension of time even if delayed by the employer should be given effect subject only to any applicable regulation on unfair contract terms.
Unfortunately, the enforceability of such express limitation of the contractor’s extension of time entitlement is not without doubt (Wallace 1995; Fletcher 1998; Lal 2002; Smith 2002; Baker et al 2005; Bell 2006).
Optimistic ProgrammesBy the mid 1960’s a phenomenon dubbed “programmemanship” by Max Abrahamson (1979) was already in existence. It refers to the practice of a contractor supplying an over-optimistic programme to put itself in a position to claim for alleged disruption and late receipt of drawings and other information. It has been decided that, absent agreement to the contrary, such a programme cannot impose on the employer and his agent duties to do more than required to allow completion by the completion date stated in the contract (see Glenlion Construction v. The Guinness Trust (1988) 39 BLR 89; J F Finnegan Ltd. v. Sheffield City Council (1988) 43 BLR 130)
Contractor’s Acceleration Claims“Acceleration” is the term used to describe the act of completing a project earlier than required under the construction contract. Acceleration generally involves increased costs because the techniques available for achieving earlier completion, e.g., increased crew sizes, multiple crews, overtime and shift work, invariably entails work with reduced productivity. Acceleration may be either directive or constructive.
Directive acceleration occurs where the employer or his duly authorised agent instructs the contractor to complete earlier than the applicable contractual completion date, which may be the completion date originally agreed in the contract or a revised completion date fixed in accordance with extension of time provisions in the contract. It is recommended practice that directive acceleration should be implemented only after the employer has agreed with the contractor for additional payment to compensate the contractor for the increased costs of the acceleration.
For example, Some Standard Forms e.g. Clause 46(3) of the ICE7 provides that the Engineer may order acceleration but that the Contractor is not obliged to comply unless its price for the acceleration is agreed with the Employer. Subject to the express terms of the particular contract on employer-directed acceleration, the contractor would be entitled to payment on a quantum meruit basis in the absence of an agreed sum.
Acceleration agreements can themselves be the subject matter of claims where the contractor is thereafter prevented from finishing on the target dates by causes for which the employer is responsible. In John Barker Construction Ltd. v. London Portman Hotels Ltd. (1996) 50 Con. LR 43; (1996) 12 Const. LJ 277 the contract administrator issued variations after the agreement. It was held that the variations constituted an act of prevention for which the contractor was entitled to recover as damages one half of the agreed bonus for early completion. The lesson from this case must be that acceleration agreements must address expressly the risk of the employer preventing the agreed acceleration.
Constructive acceleration occurs where there is no direct order to accelerate but the circumstances are such that the contractor is deemed to have been so ordered. An example is where the contract administrator not only fails to consider the contractor’s claim for extension of time for delays for which the employer is responsible under the contract but also insists that the contractor must complete by the current completion date.
Contractors are often in a dilemma as to how to respond to such pressure. On the one hand, there is the risk that if it does not accelerate and the extension of time claim fails ultimately, it would be liable for liquidated damages, which may be much in excess of the likely costs of acceleration. On the other hand, it may opt to accelerate, with all the implications for increased costs, and succeed later with the extension of time application.
The Effect of the Employer’s Delay Within Culpable DelayThe question here concerns delay caused by the Employer when the Contractor is already in culpable delay, i.e., the completion date has passed, the works are not yet complete and the contractor is not entitled to extension of time for the delay already suffered. What is the effect on such delay on the completion date? Three possibilities have been canvassed in the case law (Amalgamated Building Contractors Company Ltd v. Waltham Holy Cross UDC 2 ALL ER 452; McAlpine Humberoak v. McDermott International Inc. (No.1) (1992) 58 BLR 1).:
- time for completion becomes at large;
- the contractor is entitled to extension of time on a “gross” basis, i.e., the contractor is excused all the delays already suffered and
- time is further extended by the delay caused by the Employer; the contractor is entitled to extension of time on a “net” basis, i.e., the delay caused is added to the date by when the contractor should have completed the works.
Concurrent DelayThe law applicable to this issue has been described in Keating on Building Contracts (Furst and Ramsey 2006) as “unclear” and consisting of “disjointed propositions”. Wilmot-Smith (2006) expresses surprise at the absence of clear authority on such a common cause of disputes in the construction industry. However, there are approaches commonly adopted to deal with concurrent delays. The main ones include:
- the first-in-line approach,
- the “but for” approach,
- the dominant cause approach,
- the apportionment approach,
- the Malmaison approach.
First-in-lineThis approach assumes that the first event is the cause of the whole delay.
On the one hand, this means that if the event is a ground for extension of time the contractor gets the extension even if his subsequent actions compounded the delays. On the other hand, if his own delay was compounded by causes for which the Employer was responsible, the contractor is not entitled to extension of time. There is some support for this approach in Royal Brompton Hospital NHS Trust v. Hammond (No.6) (2000) 76 Con LR 131 in which HHJ Seymour said at paragraph 31: QC
“…it is, I think, necessary to be clear what one means by events operating concurrently. It does not mean, in my judgment, a situation in which, work already being delayed, let it be supposed, because the contractor has had difficulty in obtaining sufficient labour, an event occurs which is a Relevant Event and which, had the contractor not been delayed, would have caused delay, but which in fact, by reason of the existing delay, made no difference. In such a situation although there is a Relevant Event, the completion of the works is not likely to be delayed thereby beyond the Completion Date.”
But-for approachThe but-for test is the common contractor’s response to the application of the first-in-line argument against its culpable delay. According to this test the delay is the responsibility of the contractor if it would not have occurred but for the occurrence of the event for which the contractor is responsible.
This test exculpates the contractor whenever events for which the contractor is not responsible compound delay already caused by the contractor. The fact no case was found with any support for this approach suggests that it is unlikely to be a winning strategy.
The dominant approachThe dominant approach attributes the entire delay to the dominant event. There is support for this approach in Keating on Building Contracts (Furst and Ramsey 2006) on the general issue of causation. However, Marrin (2002) doubts its applicability to the determination of contractor’s entitlement to extension time. There are two problems associated with it.
First, it breaks down if the events are of equal causative potency. Second, the implications for recovery of direct loss and/or expense could be unfair to one of the parties. For example, where the dominant cause of delay is also a ground for recovery of loss and expense then the contractor would be entitled to recovery in respect of the whole delay though some of the contributory causes of the delay may not be grounds for recovery. For these reasons, the use of this approach was disapproved of in H. Fairweather & Co. Ltd v. London Borough of Wandsworth (1988) 39 BLR 106.
The apportionment approachThe apportionment method attempts to distribute the total delay to the various contributing causes. Marrin (2002) questions its legal basis in the absence of express terms to adopt it. It would appear that e.g. under the JCT2005, where one of the delaying events is not a Relevant Event; the E/PM must follow this approach. Clauses 2.27.2 and 2.28.1 support this view. Under Clause 2.27.2, the Contractor is expected to provide the E/PM with estimates of the delay caused by each Relevant Event. As Clause 2.28.1 requires the Architect to give an extension of time which is ‘fair and reasonable’, the Architect must make allowances for the Contractor’s contribution to the delay.
The Malmaison approachThe so-called Malmaison approach stems from the judgment of Dyson J (as he then was) in Henry Boot Construction (UK) Ltd. v. Malmaison Hotel (Manchester) Ltd. (1999) 70 Con LR 32. In that case the Judge recorded at paragraph 13, without questioning, agreement between the parties including:
“…it is agreed that if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. Thus, to take a simple example, if no work is possible on site for a week not only because of exceptionally inclement weather (a relevant event), but also because the contractor has a shortage of labour (not a relevant event), and if the failure to work during that week is likely to delay the works beyond the completion date by one week, then if he considers it fair and reasonable to do so, the E/PM is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour.”
ConclusionsDelay continues to be a major challenge on construction projects. Disputes as to party responsibility for the financial consequences appear to be on the increase. Whilst the causes of delay have been researched extensively, relatively little research effort has been exerted into identifying the issues normally in dispute for remedial action. The paper identifies some of these issues. They include the type and content of contractors’ programmes, the performance of the time management function of contract administrators, and concurrent delays. A preliminary conclusion is that the standard forms of contract are still to be developed further in the light of the problems identified and guidance from the courts thereon.
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