Contracts

claims

Success with Claims Arising from COVID-19

This month, I'm going to take the opportunity to blow our own trumpet a little...

And why not?

HDP has worked with a number of clients on extension of time claims connected with COVID-19 recently. Of particular note, we helped clients on two complicated and high-value projects with very high levels of delay penalties. I'm really proud of the way our team managed these projects to achieve successful outcomes and by sharing the details as case studies, I hope it offers some food for thought for managing your own claims...

The Projects

Both projects were EPC contracts undertaken by overseas contractors to engineer, procure and construct industrial plants. Both included many materials and significant quantities of plant and equipment which were manufactured overseas.

In a more conventional extension of time claim, the activities affected by the claimable delay generally only amount to a small number. They may be relatively easily impacted into a suitable programme to demonstrate the effects of the claimable delay on the time for completion. An extension of time claim related to  variation, for example, would require a fragnet to be created to show the instruction, shop drawing preparation and approval, material submission and approval, procurement, delivery and site installation. Other claims may include several delay events with corresponding periods of delay being impacted into a programme. If the logic links are correctly made, the programming software will produce the information necessary to calculate the extension of time due to the event or events.

Not Your Usual EoT Claim

Delays related to COVID-19 were, however, just like COVID-19 itself, very, very different. On the projects in question, COVID-19 delayed literally hundreds of the programmed activities. Overseas manufacture and delivery of many items was delayed because of lockdowns. Travel restrictions meant that our clients could not mobilise personnel for site installation and specialist personnel for testing and commissioning were also unable to travel to the sites. The countries in which the projects were based were placed under lockdown. The sites were closed due to COVID-19 being discovered amongst the project personnel and social distancing in the workplace reduced productivity. In addition to delays incurred by our clients, local subcontractors were similarly affected by many of these matters. This list of delays, all due to COVID-19, went on and on.

Thinking Outside the Box

This unprecedented situation called for us to re-think the conventional approach to extension of time claims, particularly the delay analyses necessary to prove the effect of COVID-19 on the time for completion. The fact that we did so, and did so successfully for our clients, was validated because the claims were accepted by both the Engineer and the Employer and our clients received the required extension of time awards on both projects. What’s more, the claims were not subject to any requests for further particulars and were agreed within a couple of weeks of submission. That's what we call a successful outcome.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to think out of the box when required to do so and how to formulate the best strategy for a successful outcome for our clients. Can we help you with COVID-19 related claims? Get in touch.


disputes

Thinking Outside the Contract

We were recently asked to provide some contract advice to a project management consultant for events arising out of COVID-19. We have a good relationship with this particular consultant so our advice was complimentary. It also provides a good example of how parties should think outside the contract and communicate in a positive way to help each other.

The Scenario

  • A contract was entered into before the impacts of COVID-19 began to have an effect.
  • The contract was for alterations to a shopping mall, for which the Employer was intending to fund from rental income from the mall itself.
  • Works has started on site.
  • When the impact of COVID-19 started to have an effect locally, the Employer realised that his rental income could or would be severely affected.
  • He elected to suspend the Works indefinitely and gave notice of suspension to the Contractor.
  • The Contractor, having arranged for all the bonds, guarantees and insurance required by the Contactor, applied for the Advance payment after the suspension date.

The Advice

We were asked if the Employer, having suspended the Work, was still obliged to pay the advance payment. Our answer was that:

  • the Contract has not been terminated, so this does not change the Employer’s obligation to make the advance payment.

The Employer recognised that the Contractor would be entitled to an extension of time and the payment of costs associated with the suspension. But, we were asked if the Employer could request the Contractor to submit his claim for costs after the suspension had been lifted. Our advice was that:

  • the Contract obliges the Contractor to submit his claims within 42 days.
  • If the suspension period is ongoing, the Contractor is obliged to send monthly interim claims until the final effects may be ascertained.
  • The Engineer must respond to the claims and certify payment of any amounts that have been reasonably ascertained to be due under the claims.

This was our advice based on a purely contractual perspective, but because we could see a potential problem on the horizon for both parties, our advice did not stop there...

Thinking Outside the Contract

Let's look at the situation from the Employer’s perspective. The Employer will possibly consider that, having suspended the work, the Contractor can demobilise his resources with little cost and just maintain the guarantees, insurances, etc. at a low daily cost. The Employer could therefore expect to receive a relatively low value claim for costs incurred.

On the other hand, the Contractor may consider that he can remove all his resources from site and claim for costs incurred due to resources standing idle during the period of suspension, which would result in a substantial claim.

This is where we see a potential problem. Our advice was that the parties must discuss the situation in an open and frank manner, with a view to reach agreement on the best actions to mitigate the situation for both parties. Items for discussion on the agenda should include:

    1. How long does the Employer intend to suspend the work? Only the Employer can answer this. He may not even be able to predict when his income stream will resume, so plans may have to be made for several eventualities.
    2. What costs is the Contractor incurring or is likely to incur? Only the Contractor can answer this. If the project personnel are directly employed by the Contractor, demobilisation may include redundancy and repatriation, so costs will be substantial and may be greater than keeping them idle for a limited period. The Contractor may then have to recruit new labour in order to resume the work, which could cause additional delay and costs after the suspension period had ended. What are the Employer’s priorities in this respect?

So there you have it, a good example of how a strictly contractual solution will not solve all the problems on a project and how thinking outside the contract is often good management for both parties.

Hewitt Decipher Partnership’s expert consultants have been advising on contractual matters for many years and because our consultants come from many backgrounds within the industry, we also advise our clients on how to avoid contention and provide proactive solutions to problems.

Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need. Want our article straight in your inbox, sign up to our mailing list.


bill of quantities

Omission of Items in the Bill of Quantities, But Not Shown on Drawings...

At one of our recent courses someone asked me for some advice. I get asked about this particular issue quite a lot so I thought it would be helpful to put pen to paper - or finger to keyboard - and share my thoughts. So here is the scenario:

  • The Contract is a lump sum and not subject to re-measurement.
  • The Bill of Quantities (BoQ) was prepared by the Contractor at tender stage.
  • During the project closure, some items listed in the BoQ were not provided since these items were not included on the tender drawings, shop drawing or final as-built drawings.
  • The Client deducted these items as an omission at final account stage as the Contractor did not complete any of these billed works. The Contractor disagrees with this and asserts that he took the risk on the lump sum contract and the BoQ was merely for guidance and valuation only.

So…

What is the Contractor and Client’s entitlements under FIDIC for this kind of a situation?

What should the Contractor's stance be on this matter?

Is the Client entitled to omit the value of the BoQ items not fulfilled by the Contractor despite it been a lump sum contract?

This a fairly typical scenario and often arises from the Employer/Engineer wanting to have his cake and to eat it too.

My advice is based upon a typical lump-sum contract under FIDIC:

  • The Bill of Quantities is usually stated in the contract as an estimate, not to be relied upon and only to be used to evaluate monthly progress and variations.
  • The Bill of Quantities is usually way down the order of precedence stated under Sub-Clause 1.5 (Priority of Documents) and below the specification and drawings.
  • This is a lump sum contract, so the lump sum is defined by what is shown on the drawings and included in the specification.
  • If therefore, something is not shown on the drawings/specification, but is listed in the BoQ, it is not part of the Contract or the lump sum price and cannot be deducted.

The best way to illustrate this is to look at the reverse scenario. If something is shown on the drawings, but not listed in the BoQ, would the Engineer/Employer pay for it as a variation? I doubt it very much.

Our friends at Claims Class have a couple of case studies on this topic and a similar article on their blog. Check it out if you'd like to read more on this topic. 

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need.