Delay
Help! I'm Going to Finish Late and I'm Losing Money
Recently we have had several contractors approach us who have advised us that they are going to finish late and/or are losing money. When they do, they tell us they need to submit a claim.
The first thing we do when approached about such matters is ask about the reasons for the delays and losses. In many cases, we find these events happened much earlier in the life of the project. However, no claims have been submitted.
It is astounding that some contractors don't realise that they will finish late and lose money until the project is nearing completion. I don’t believe that is the case. In reality, these contractors have a complete misconception as to the reasons to submit claims.
A claim is simply an assertion of a party’s rights under the contract. The trigger as to whether to submit a claim should not rest on whether the contractor needs extra time or payment. The trigger should be whether the contractor has entitlement to extra time and/or payment. Waiting to see if you will finish on time or lose money at the end of the project will inevitably place the contractor at a huge disadvantage.
Most construction contracts make it an obligation to submit claims within a set time frame from the occurrence of the event which gives rise to the claim.
There are good reasons to submit claims on time:
- To ensure you deal with claims as the project progresses.
- So that each event is the subject of a separate claim, as opposed to consolidated claims for several events.
- Keeping matters simple: Several bite-sized claims are easier to prepare and to respond to than one huge, complicated claim.
- So that the Engineer and Employer can make timely financial provisions.
- To ensure the Employer is aware of revised completion dates and may make appropriate arrangements.
- So that the project has a new completion date that all participants may work towards.
If the Contractor leaves the submission of claims until it is apparent that they need extra time or payment, they will most likely face the following problems:
- The Contractor may not have kept the contemporary records to substantiate your claims.
- The Contractor may not have submitted notices which may be conditions precedent to an award.
- The Contractor’s own staff and those of the Engineer who have knowledge of the events may have moved on.
- The preparation of the claim is likely to be a huge, complicated, and daunting task which will take time and expertise.
- The review and assessment of the claim is likely to be huge, complicated, and daunting task for the Engineer, which will take time.
- The settlement of a single, huge claim can stall because parties cannot agree a few items.
- The Employer will probably not have made any financial provisions for additional payment.
- The Employer may feel ambushed and that the claim is adversarial which will cause him to be defensive.
- Once the project has been handed over, there is little incentive to the Employer to settle claims amicably or in a timely manner.
Points to Remember:
The time to submit claims is as soon as an event arises which provides entitlement to an award. Do not wait until you have reached the end of the project and already run out of time and money.
Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to comply with good practice to ensure that you have a justifiable claim. If you do have entitlement, we can help you ensure your claims are accepted in a timely manner.
Can we help you? To find out how, get in touch.
Delay & Progress Updates | why honesty is the best policy
There are many ways that contractors can shoot themselves in the foot when it comes to claims. Being less than truthful when reporting progress to the employer’s team is one of them. This is a problem that we often face when we have been brought in after the contractor has already suffered delay and realises that he/she needs assistance to secure an extension of time.
Why Honesty is Always the Best Policy
Yes, it's tempting to report good news month-on-month. And a less than competent consultant on the employer’s side may even believe the reports. After all, good news will not lead to additional and tricky work for them.
The problem with this is that if delay occurs and the contractor needs and has entitlement to an extension of time, it then becomes very difficult for him to subsequently tell the employer’s team:
“I know we kept telling you that there was no delay to the completion date but actually, there is and it’s not our fault, so please can I have an extension of time.”
A progress update, as-built programme or updated programme (all different names for the same thing) is created by using the latest agreed programme. Actual start and finish dates are added for each completed activity along with the percentage progress for activities in progress, as of the data-date of the update. The logic contained in the programme and the programming software will then predict the completion date based on progress to date.
Before I started to specialise in contractual matters and claims I was a project manager for both contractors and consultants. I found that when my planning team produced a progress update, I wanted only one thing from them and that was…
THE TRUTH.
If the update predicted early or on time completion then I knew that we were doing okay. However, if the update was predicting a delay, then the planners need to tell me the cause, or causes, of the delay so that we could take appropriate action.
If the delay was caused by us or was due to something that we were responsible for under the contract, we had to find ways to recover the delay. Possibly by working longer hours, mobilising additional resources or mitigating delays caused by a supplier or subcontractor.
If the delay was caused by the employer or by something which is considered the employer’s risk under the contract, then we needed to identify this, ensure that the necessary notices were submitted and make preparations to submit a claim.
So, what would I report to the employer’s team in our monthly progress reports under such circumstances? Again…
THE TRUTH.
Burying Heads in the Sand
Many contractors will not agree with this tactic. Often they will be reluctant to tell the employer’s team that the project will experience delays for any reason. If the contractor admits to his own delay but explains the steps that he is taking to mitigate, then generally, the employer’s team will accept that delays do happen. In addition, they will accept that the contractor is being proactive about dealing with them (or, at least I would). Telling the employer's team that the predicted delay is due to something that gives the contractor the right to an extension of time will only support subsequent claims.
This, of course, only works if the contractor is not going to just bury his head in the sand and hope that the delay will go away, which it probably won’t. The contractor must actually take mitigating action to recover his own delays. Or they must ensure that the necessary notices are sent, and a claim is submitted without undue delay.
So, what is the alternative to telling the Employer’s team THE TRUTH? Unfortunately, many contractors manipulate the forecasted parts of the programme so that it no longer predicts a delayed completion date. Subsequently, avoiding giving the employer’s team any bad news.
The fact that this knee-jerk reaction is not sustainable through many progress updates. It will also not support any legitimate claims for extensions of time seems lost on such contractors.
Fact or fiction? I will leave you to decide the best way.
Hewitt Decipher Partnership’s expert consultants have been helping contractors with efficient contract administration, programming and planning, as well as preparing and responding to claims for many years. We know how to ensure you prepare and use your programmes correctly and properly, so as to preserve any entitlement to extensions of time. Can we help you? Get in touch.
Do you have a $10 head?
I have been a keen motorcyclist for many years and I recently had cause to recall an advertising slogan that Bell Helmets ran during the 1980s. Their powerful message was: If you have a $10 head, wear a $10 helmet.
Bell helmets were not cheap, but it was no coincidence that a significant number of motorsport competitors could be seen with the Bell logo on their helmets.
How does this relate to the construction industry?
A couple of years ago I was asked to present a training course on procurement for a property developer. Part of my presentation focussed on the selection of suitable consultants for their projects. I asked the attendees to help me to do some calculations and give me some advice. The exact figures I don’t remember, but the following is a reasonable synopsis of their input:
- I first asked them to tell me the average total project cost of their projects. Let’s say this was $10,000,000.
- I then asked what percentage of the total project cost they would budget for consultancy fees. The answer was 10%, which works out at $1,000,000.
- My next question after that was, what is the cost difference between engaging the very best consultants and the worst? The reply was that there was maybe a cost difference of 30% between the two extremes.
- We then worked out that with a $1,000,000 budget for consultancy fees, hiring the cheapest consultants would, on the face of it, save the project $300,000. As a percentage of the total project cost this translates to a 3% ‘saving’.
- I then asked how consultants were selected and was advised that although the project delivery team carried out pre-qualifications and checked on consultants’ past performance, the services were put out to tender and company policy dictated that the work would invariably be awarded on the basis of the most competitive fees.
I explored a little further into their experience on past projects...
- Do we agree that the consultants that you engaged are probably the most competitive on price, because they pay lower salaries than the more expensive consultants? Yes.
- Can we agree then, that the consultants that you appoint are able to pay low salaries, because they employ poorly qualified and experienced personnel? Yes.
Having established the procurement methodology, I asked more questions, this time related to existing projects...
- Do you ever get design problems that result in additional costs for your projects? Yes, frequently.
- Do the consultants appointed to supervise, manage and administer the contracts on your projects ever fail in their duties and responsibilities which results in additional costs for your projects? Yes, frequently.
- Do the consultants appointed to manage and respond to claims on your projects do so in accordance with the contract and in such a way that claims are agreed amicably and in good time? No, we often have contentions with regard to claims.
- Do disputes arise on any of your projects? Yes, we have had several arbitrations.
- Are arbitrations costly? Yes, very costly and time-consuming.
And finally I asked the group...
- Are total project cost budgets ever exceeded? Yes, most of our projects come in considerably over budget.
You Get What You Pay For
The point here is that buying a $10 helmet is probably not a great investment. Particularly if something goes wrong and you have an accident on your motorcycle.
The same applies to $10 consultants.
$10 consultants are actually worse. They often cause the ‘accident’ in the first place and will then not protect you properly. Similarly, if you have a commercial matter, contractual problem, claim or dispute of significant value, is it better to engage the best or the cheapest consultants to help you avoid or resolve matters?
Whilst Hewitt Decipher Partnership is not a $10 consultancy, our business model allows us to be very competitive for the high level of expertise that we offer to our clients. Our expert consultants are appropriately qualified and experienced in their particular disciplines, so we provide excellent value for money when assisting our clients. Can we help you? Get in touch.
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 manages these projects to achieve successful outcomes. So 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 correct, 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. The countries in which the projects were based were placed under lockdown. The sites were closed due to COVID-19 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. Especially 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 there was agreement within 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.
Get your Delay Analysis Accepted | 8 Tips for Success
Over the past few weeks, we have been asked by two separate clients to review responses where claims were rejected. Whilst in both cases, the respondents cited several reasons for rejection, some valid and some not, both cited the method of delay analysis submitted with the claims as a cause for rejection. In my experience, this ranks as one of the most frequently used reasons for the rejection of claims.
Case 1
In the first case, the contractor had simply taken a number of what he considered to be critical activities and established the number of claimable delay days to these activities. He then added the highest number of delay days to the prevailing Time for Completion and requested an extension of time to the resultant date.
I can absolutely guarantee that no respondent will award an extension of time on this basis. That includes myself if I were acting on behalf of the client. I would need to see the effect of the employer-risk events on the latest programme using the existing logic. I would need to check that existing contractor delays had been considered. Moreover, if a cost claim was involved, I would need to verify that there was no concurrent delay.
Case 2
The second case was different. The contractor had produced a good delay analysis using one of the recommended methods, but the Engineer had rejected it, simply on the basis that he wanted a different method of delay analysis and, I suspect, because he did not understand the analysis itself. This is very common because it allows those acting on behalf of the respondent to defer sticking their necks out. Along with making a decision that could result in an award to the claimant.
The cause of the problem here is entirely the claimants, because he did not justify the use of the chosen method of delay analysis. He did not explain how it had been performed or demonstrate the effect on the prevailing time for completion. Had he done so, this would have closed the door on the respondent using the delay analysis as a reason for rejection.
Delay Analysis: 8 Tips for Success
Our 8 top tips for successful delay analyses are:
- Ensure that you use an appropriate method of delay analysis for the project, the nature of the delays and the information that is available.
- Justify that the chosen method is appropriate for the circumstances.
- Use an appropriate programme as a basis of the delay analysis and explain why and how you use it.
- Perform the delay analysis in accordance with established procedures and to an appropriate professional standard.
- If you discover logic errors in the base programme, correct them and explain why and how you have corrected them.
- Explain in the claim narrative how you perform the analysis so that a non-expert programmer can understand it.
- Explain the findings of the delay analysis.
- Use the findings to properly calculate the extension of time that you are claiming and explain the calculations clearly.
Keep these tips in mind and you'll be submitting with success each and every time.
Hewitt Decipher Partnership’s expert consultants have been preparing and responding to delay analyses for many years. We know how to comply with good practice to ensure that you have a robust delay analysis to support a claim and, if working on the employer’s side of the fence, we know the standards that the claimant must meet to justify an award.
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.
Interim Claims and COVID-19: should we wait, or should we submit?
Unsurprisingly, we are currently advising several clients on matters related to COVID-19 consequently interim claims frequently comes up. One of the questions we are asked is ‘Should we wait until the delays arising from COVID-19 have ended before we submit our claims?’.
Our answerer is an emphatic...NO!
Most contracts oblige the claimant to submit claims within a specified time period and if the final effects cannot be ascertained, to submit interim claims until the delays have ended and the final effect on the time for completion and/or the costs may be calculated. Using FIDIC 1999 as an example, Sub-Clause 20.1 (Contractor’s Claims) states that:
‘Within 42 days after the Contractor became aware …the Contractor shall send to the Engineer a fully detailed …. If the event or circumstance giving rise to the claim has a continuing effect:
‘(a) this fully detailed claim shall be considered as interim;
‘(b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and
‘(c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer.
This is stipulated to ensure that the Employer and Engineer are aware of the likely effects on a regular basis. As well as make plans for a late handover and/or provisions for additional financial requirements. If the contractor does not fulfil these obligations they won't be able to do either.
From a practical point of view, the longer a claimant leaves a claim, the more difficult it is to agree. Circumstances change, people leave the project, consultants are demobilised and of course, if the Employer has been presented with a completed project, his incentive to settle claims is considerably reduced.
Some contractors believe that the submittal of several updates will be time-consuming and costly, but this is only partly true. The time-consuming and difficult work is required for the first interim submission because this is where the majority of the investigations, data gathering, setting up of the delay analysis programmes and examination and demonstration of cause, effect and entitlement takes place. This, of course, is necessary whether the claim is being prepared on an interim or a final basis. Once the base document and calculations have been created though, the updates are reasonably straight-forward. They do not require nearly as much time and effort as the first submission.
Some contractors are reluctant to put the effort into preparing adequately expressed claims or incur costs in doing so. And so keep deferring a decision on what action to take. Some of these contractors may also be facing delay penalties running into millions of dollars. So putting contractual obligations aside, does it make any financial sense to defer securing an extension of time until later? We think not.
Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to comply with good practice to ensure that our clients have a justifiable claim that is adequately expressed. Therefore, if entitlement to an extension of time exists, the claims will be accepted in a timely manner and delay penalties will be negated.
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.
Coronavirus | Advice for Contractors, Engineers & Employers
Our last blog looked at whether contractors are entitled to claim for an extension of time and/or costs because of the effects of Coronavirus and examined the provisions under the FIDIC Red and Yellow Books.
This was our standpoint just four short weeks ago, at a time when some contractors were anticipating that delays may be caused by supply chain problems associated with plant, goods or materials sourced from China and the few travel restrictions which were then in place.
Our advice was that provided the Contractor can demonstrate delay to the Time for Completion and/or the incurrence of Cost, he will be entitled to an extension of time and may be entitled to claim for additional payment for Cost incurred.
Since then though things have changed drastically. Some countries are on total lockdown with people having to stay at home. Many countries have imposed travel bans. So, the effects of Coronavirus have now become extreme and are likely to be long-lasting.
As a result, HDP directors decided that it would be helpful to examine the options available to the Parties as the situation continues to develop. Again, we shall look at the provisions of the FIDIC Red and Yellow Books.
Suspension
The Employer may consider that if the Contractor is not able to proceed with the Works for the foreseeable future, it may be sensible to suspend the Works to minimise any cost which may become due to the Contractor.
Sub-Clause 8.8 (Suspension of Work) allows the Engineer to issue a suspension instruction and the Contractor is obliged to protect, store and secure the Works against deterioration, loss or damage, so this would effectively ‘mothball’ the project until the Employer decides to lift the suspension. In a case of suspension, the Contractor would be entitled under Sub-Clause 8.9 (Consequences of Suspension) to an extension of time and the payment of Costs including mobilisation and demobilisation costs, so the Employer must weigh up the options here.
Sub-Clause 8.11 (Prolonged Suspension) however, allows the Contractor to terminate the Contract if the suspension affects the whole of the works and the suspension period continues for more than 84 days. We are unsure how contractors will react as and when things return to normal and operations are resumed. Presumably though, many of them will be willing to pick up where they left off.
FIDIC does not provide any options for the Contractor to suspend the Works under the circumstances arising from Coronavirus.
Termination
There are two clauses in FIDIC which give the Employer entitlement to terminate the Contract. Sub-Clause 15.2 (Termination by Employer) allows the Employer to terminate because of various acts of default by the Contractor. In our opinion, it cannot be said that inability to progress the works in the circumstances of the coronavirus is a default of the Contractor, therefore this is inapplicable.
Sub-Clause 15.5 (Employer‘s Entitlement to Termination) however allows the Employer to terminate for his own convenience by giving 28 days notice. Nothing can be sensibly predicted at the moment, but it could be that as things progress, some employers will simply decide not to proceed further with the project, or at least not for some considerable time.
Our earlier blog suggested that it is uncertain whether the coronavirus constitutes a Force Majeure event under FIDIC, but if the Parties agree that it does, Sub-Clause 19.6 (Optional Termination, Payment and Release) provides that if the Works are prevented from progressing for a period of 84 days or for multiple periods of 140 days by reasons of Force Majeure, then either party may terminate the Contract.
Sub-Clause 19.7 (Release from Performance Under the Law) provides that
‘if any event or circumstance outside the control of the Parties arises under the Law which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations … the Parties shall be discharged from further performance…’
This may apply in circumstances where governments have introduced measures to control Coronavirus which have, in fact, made further performance impossible and becomes effectively a further reason for termination by either party.
Finally
The circumstances arising from Coronavirus have never been experienced before, or at least not within the memory of most people. They are drastic and far reaching. Whilst we have given our opinions on the applications of the FIDIC contracts to the situation, this has been from a purely contractual point of view. In our opinion, the FIDIC contracts do not really envisage such a situation.
That said, it's important to look beyond what the FIDIC Contracts do or do not say. In a situation as serious as this, the Parties have to think 'outside the box' of the contract and find ways to work together to safeguard the personnel involved, to comply with government rules and regulations and to seek ways to manage the project to the best abilities of both Parties.
The ability to maintain progress and complete on time may well be totally out of the control of both Parties. Contractors may be expending substantial additional costs and will suffer from cashflow problems and will be powerless to control things. In short – both sides of the contracting fence will undoubtably suffer in one way or another and it would, in our opinion, be unfair for either Party to attempt to gain any advantage from the situation.
Don’t forget that, provided both parties are in agreement, contracts may be amended at any time, so despite what the contracts say we encourage all involved to reach agreement on a course of action which will be the least harmful to the parties and the project.
Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years and we have investigated Coronavirus from a contractual standpoint. We can also see ‘outside’ the contract to look at matters from a project management point of view to seek ways to resolve situations and reach agreement on what is best for the project.
Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need.
Delay Analysis:
Choosing the Right Method for Your Dispute
How should delay be analysed and what options are available? Tom Francis examines…
When a delay occurs on a project, analysing cause and effect is vital to understanding where liability lies. Whether assessing for an Extension of Time or Compensation Events, Delay analysis (sometimes called Forensic Planning) is something which some refer to as a ‘dark art’. Arguably, frequently those who claim to understand it and carry it out misunderstand it. This article aims to set out some of the key elements to consider when undertaking an analysis or working with an analyst to demonstrate delay.