Preparing Claims
Arcadis - The Root Cause of Disputes?
I always look forward to reviewing Arcadis annual Global Construction Dispute Report.
The 2022 report starts with the following summary.
“From 2020 to 2021 the average value of disputes declined by 3% across the globe but remains at historically high levels compared to 2019 and earlier. The average time taken to resolve disputes increased significantly, by almost 15%, for the first time in three years. There was also a consensus that the overall number of disputes increased.”
So, the industry hasn't learned much about dispute avoidance. It continues to spend significant time and money on dispute resolution. And, the effects of COVID and the Ukraine conflict is likely to create more challenges in future. It follows that in such circumstances, conflict and dispute will only increase.
Two Leading Causes
It is no surprise that the report identifies the two leading causes of disputes as being:
- Party failures to understand contractual obligations
- poorly drafted or unsubstantiated claims.
Nothing has changed here. Arcadis have highlighted these failures since they began publishing the report 12 years ago.
The report highlights that many contractors have had to absorb increased supply chain costs. It also notes that contractors have had to overrun costs to complete projects. This has a direct impact on their bottom line. Employers should expect to see a rise in change/variation requests and disputes, as contractors attempt to recover unanticipated costs.
Arcadis also identified the most important factors in the mitigation/early resolution of disputes as follows:
- Owner/contractor willingness to compromise.
- Accurate and timely schedules (programmes) and reviews by project staff or third parties.
- Contractor transparency of cost data in support of claimed damages.
The Middle East
In the Middle East, the report advises that “respondents also advised there were more disputes in 2021 and they expect the number of disputes to continue to increase throughout 2022”. Given that we continue to see inadequate contract administration and project controls performed by inadequately trained, experienced, and qualified personnel on Middle East projects, this comes as little surprise to us.
The report states that in the Middle East, “Owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations remained the most common cause of dispute in 2021”. The third most common cause is “poorly drafted or incomplete and unsubstantiated claims” and ARCADIS make the point that “It is common to see extension of time claims using incorrect logic and analysis techniques, meaning the receiving party can easily reject the claim where poor narrative and incorrect logic prevent entitlement to a claim”. This is something that we agree with from hands-on experience.
The report notes that “Adherence to the basics of effective claims management such as early notification, accurate record keeping, correctly updated programs reflecting actual progress, and logically drafted claims based on factual evidence will assist parties to obtain earlier resolution and avoid the perils of this year’s top dispute cause of owner/contractor/ subcontractor failing to understand and/or comply with its contractual obligations.” We agree with this observation, and it echoes advice that we have been giving to our clients for many years.
So, Arcadis continue to report that things are not improving in the world of dispute avoidance, but also consistently identifies the same causes of disputes.
The Root Causes?
Here are my thoughts on the underlying root causes that contribute to this situation:
- Usually, on the advice of their consultants, Employers change a balanced allocation of risk contained in standard forms of contract. This typically obliges contractors to absorb more risk than is sensible or equitable.
- Contract documents are prepared by inadequately experienced individuals. This results in poorly expressed conditions, ambiguities and conflicts.
- Contractors do not carefully examine the contract documents during tender.
- The Contractor often fails to identify risks.
- Contractors do not review the contract documents before signing. As a result, they enter into contracts containing poorly expressed conditions, ambiguities and conflicts.
- The project participants do not invest in adequately trained, qualified or experienced contract administration and project controls staff. The staff they employ are unable to manage such responsibilities to an adequate professional standard.
- Project participants do not invest in advice and assistance from external experts when internal resources are not adequately experienced.
- Teams do not have the time to devote to dealing with challenging matters.
Mistakes Contractors Make...
- Contractors fail to submit notices or fail to submit them in the correct form.
- Contractors do not report progress accurately or truthfully.
- Contractors do not keep adequate records of deployed resources or activities being undertaken.
- Contractors consider claims on the basis of when they discover that they “need” more time and/or money. This is opposed to when they become entitled to compensation.
- Contractors fail to respect time frames for submission of claims and leave them to the end of the project, resulting in:
- Large, complicated claims for multiple events. These are difficult and time-consuming to prepare, respond to and agree.
- The respondent having little incentive to resolve claims equitably when the project is approaching completion.
- Cashflow issues.
- Demobilisation on both sides of the contracting fence of people with knowledge of the project and the events.
- Claims do not contain the required information to prove that entitlement exists or the amount of compensation.
- Responses to claims do not contain sufficient information. They then fail to convince either party that the findings of the claim are fair in accordance with the contract.
- Claims and responses may not be properly or easily understood by the other party.
Let Us Help
Hewitt Decipher Partnership’s expert consultants have been helping clients to avoid disputes for many years. We know how to comply with good practice. As a result, the team can help ensure your project controls and systems are suitable and professionally managed. If you have a justifiable claim, or if you are responding to claims, we ensure that claims are resolved in a timely manner. We also provide training and education to companies and individuals.
Can we help you? To find out how, get in touch.
Constructive Acceleration Successfully Claimed
Outside of the United States, claims for constructive acceleration usually fail. However, in a recent Australian case such a claim succeeded. Does this now open the way for contractors to deploy constructive acceleration claims?
Introduction
'Constructive acceleration' describes a scenario when a contractor claims an extension of time ("EOT") for completing its works, but the employer wrongfully fails to grant an EOT. The consequence is that the contractor decides to accelerate the works in order to meet the unadjusted contractual completion date. A claim based on constructive acceleration is one for the additional costs a contractor incurs in taking measures to accelerate. This may include using additional labour or plant resources, or paying a premium for overtime working.
The predominant legal theory of a constructive acceleration claim is that the failure by the contract administrator to grant an EOT constitutes a breach of contract attributable to the employer. The additional cost incurred by the contractor in accelerating represents a loss recoverable as damages. The acceleration is "constructive" because it does not arise from any express instruction given to the contractor to accelerate. It comes about because the contractor has attempted to complete the works by the unadjusted date, to mitigate what would otherwise be the delay to the project.
Third-Party Contract Administration - The Problem:
A potential difficulty with constructive acceleration claims arises if a third-party consultant administers the contract. It may be the case that the contract does not (expressly or by implication) make the contract administrator the agent of the employer in respect of the assessing of EOT claims.
If that happens, a problem may arise where the contract administrator fails to grant an EOT when one should have been granted. Contractually, it may not amount to conduct which is attributable to the employer, and for which the employer can be liable in damages.
This potential difficulty does not arise, however, where
- (i) the contract is administered by the employer or its representative.
- Or: (ii) the employer and the contract administrator have wrongfully colluded with a view to denying the contractor its true EOT entitlement.
The latter situation arose in a recent Australian case.
V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849
The case concerned a dispute between V601, the Principal, and Probuild, the Contractor. It relates to the development and construction of a residential and commercial development project in the state of Victoria, Australia.
- The contract was an amended Australian Standard Contract AS4902-2000 form (the "Contract").
- The Principal commenced litigation seeking liquidated damages under the Contract. In its defence, the Contractor argued that the project manager, acting on behalf of the Principal, failed to allow its EOT claims. The Contractor therefore counterclaimed for the cost of accelerating its work to meet the unadjusted completion date. In effect, it made a constructive acceleration claim.
- The Contractor contended, among other things, that it 'accelerated' the performance of the works. This was to try to reduce or overcome one or more of the delay events in its EOT claims. Or, alternatively, to try to achieve practical completion by the date for practical completion certified by the project manager.
- The Contractor argued it had a right to recover the costs incurred in accelerating these works, because of the project manager's failure to
- (i) approve updated versions of programmes.
- And/or (ii) grant in full the EOT it should receive.
Claim Allowed:
The court allowed the Contractor's constructive acceleration claim, finding that:
- The Principal, through its project manager, breached the Contract by not awarding and compensating the Contractor for its EOT claims. It was important to the court reaching this conclusion that the Principal and the project manager had engaged in "contractually wrongful conduct". They colluded with a view to denying the Contractor its proper EOT entitlements;
- The Contractor could in principle recover the additional costs it incurred in its efforts to overcome and minimise delay to the works;
- The Contractor's acceleration costs were necessary and reasonable costs incurred in mitigating the delays to the works;
- The Contractor's acceleration costs were within both parties' contemplation; and
- The Contractor took the necessary and reasonable measures to accelerate the works and overcome or reduce delay to achieve practical completion by the dates for practical completion.
Commercial Implications
The facts of V601 v Probuild were relatively uncommon:
The Principal and the project manager had evidently colluded with a view to defeating the Contractor's justified EOT claims. Wrongful interference by an employer with a contract administrator's functions constitutes a breach of contract. This, in turn, opens the employer to a claim for damages for what foreseeably flows from that breach. The breach may include (as here) a claim based on constructive acceleration.
We may distinguish V601 v Probuild from other, more usual cases. Cases where the employer and the contract administrator do not wrongfully collude together. Perhaps the contract administrator, acting genuinely but mistakenly, will simply "get it wrong".
The laws in England, Australia and other common law countries (the US aside) don't take the line that failure to grant an EOT by a contract administrator (where it should happen) opens the door to a constructive acceleration claim.
For this reason, as the Society of Construction Law Delay & Disruption Protocol noted in 2002, "it is not recommended that a claim for so-called constructive acceleration is made". The 2017 edition of the Protocol cautions that constructive acceleration is "rarely recognised under English law".
Nevertheless, conceptually the common law does permit constructive acceleration claims in certain circumstances. This is vividly illustrated by V601 v Probuild where a constructive acceleration claim succeeded. The case also illustrates the empirical notion that wrongfully denying a justified EOT claim simply stores up a problem for another day.
This guest piece was authored by Julian Bailey, Partner, and Caitlin Lloyd, Associate, at White & Case.
Can we help you? To find out how, get in touch.
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.
Webinar - International Arbitration in India and Around the World
On 7th September 2021 we hosted an 'in-conversation' style webinar on international arbitration. Chaired by Paul Gibbons, four world-class experts in construction, law and dispute resolution examined the latest developments in construction and dispute resolution.
You can watch the video here, or read the write up from the event below.
Construction contracts around the world end in dispute if not done correctly from the start and working on international projects can raise unique challenges. Rupa Lakha, disputes lawyer at Charles Russell Speechlys advises that minimising the risk of disputes is completely dependent on what you put in at the outset.
There is a tendency to want to get things started quickly. However, slowing down and carefully considering things like the appropriate procurement model, level of resources priced for and whether the programme is realistic, can pay dividends in the long term.
It is important early on to pay heed to warning signs. If it looks like the price of a project is too cheap, this could be a red flag. Be realistic and invest time at the beginning and during every stage. Don’t take unnecessary risks. Set the contract up to deal with every factor, the legal aspect, the risk and the technical aspects. Consider what the project is aiming to deliver and ensure everyone is on the same page.
Minimising Risk
Looking at minimising risks from the contractor’s perspective, Mitesh Vekaria notes that it is important to use a pre contract services agreement if you can. As an Employer, it may be tempting to put all the risks onto the contractor but it is not always the best way forward.
Spend the time you have early on. Make use of workshops, education and training for everyone and ensure they spend time on this stage. If employers put time in their Gantt chart specifically for this, it would make such a difference.
Mitesh goes on to say you can avoid having to go down the litigation route by ensuring clear communication with all stakeholders and CEOs. Nobody wants to end a project in dispute. Clear communication can help the people involved stay detached enough to work things out without the need for any use of litigation and a shooting match.
Warning Signs
As a project progresses, there can often be warning signs that a dispute may arise. Rupa warns us to take notice if notices start being fired off or letters start coming in. If use of the contract becomes defensive, you know there is a problem. People are trying to protect themselves rather than work with others and use the contract as a tool.
Once disputes become inevitable, delay analyst Tom Francis explains that the biggest issue often becomes a lack of good records. People seem to not keep their records. That can make the difference between winning and losing. If you keep a good trail of evidence any claim is likely to be more successful. Photographic evidence is very important. The culture of construction needs to evolve so evidence keeping and record keeping becomes the norm.
On the subject of notices, Tom thinks attitudes need to change. Giving notice should be a positive thing, a warning sign.
Experts
So what is the role of an expert in a dispute? In Tom’s experience it is important to be clear what your instructions are. Are you a claims consultant/expert, an advocate at an early stage? What is your exact role and what input do clients want? Advocate and expert roles are very separate and the difference needs to be clear especially when it comes to arbitration and litigation.
Formal Dispute Resolution
David Brynmor Thomas QC of 39 Essex Chambers explains what our options are in the event that a dispute does arise. He says every contract should have a final and binding form of dispute resolution included, usually either litigation or arbitration.
If you do not include any clause, then you line yourself up for the potential of immediate litigation in court. FIDIC, the construction contract widely used on large international projects, uses arbitration as its default form of dispute resolution. Another option is expert determination - this is often seen as 'cuddlier' than arbitration and litigation to many. David explains this is in fact wrong.
Statutory adjudication is an option for quick simple disputes. However, David advises that one of the better options for large international projects would be the use of dispute review boards or DABs. However, he warns that many put these boards in place but then they are not used correctly. Effective dispute review boards visit the project regularly. They ask what is happening, is the programme on time, is anything slipping, are there any problems? By asking the right questions, they can see if the project is going wrong anywhere.
Be Prepared
Rupa stresses the importance of getting your advisors in early, in preparation for the dispute resolution process. You need legal advice pre contract and continue working with your advisors throughout the life cycle of the project. That way they can help tackle any problems that may arise in any stage of the project.
If you allow a problem to grow, then only bring an advisor in at the end, it becomes very difficult and very expensive. It also means you take valuable resources away from the project.
Formal dispute resolution is sometimes necessary and appropriate. However, there is value to having lawyers involved from the start. Little and often is when advisory works best, helping you avoid problems getting too big.
David agrees and advises to work with the legal team who put the contract and the project together continually. Having an expert or a consultant like Tom on the programming makes matters better as well. They can make sure you are using notices correctly and appropriately. A programmer can make the barrister's job much more straight forward should disputes arise later.
Mitesh adds that for his larger projects, he advocates for them to demonstrate due diligence little and often with the use of delay analysis and programmers throughout.
Clear Roles and Responsibilities
Construction disputes are different to other disputes. Rupa explains that they need an interface between the lawyer and the expert. A good close relationship is essential between the sharing of information and knowledge. The legal knowledge and the technical knowledge need each other to work, they rely on each other and that is fundamental. That is very particular to construction disputes.
Tom warns us to be wary of blurring the line between being an advocate and expert. He asks can you honestly put yourself forward as an independent expert if you were involved in the writing of the contract? The key here is being open and clear with your past and present roles. Make sure your role is clear from the start before you get into a tricky situation.
Thank you to all the speakers and attendees. Should you need any help with any of the issues raised in this webinar, please get in touch today.
The Top 10 Things Contractors Get Wrong When it Comes to Claims
At Hewitt Decipher Partnership we have many, many years of experience of claims. We have prepared them for contractors, responded to them for consultants and employers and have provided expert reports on them in disputes. We often see the same issues crop up time and time again. So to stop you making those mistakes, we’ve put together a list of the things that contractors frequently get wrong when it comes to claims.
1. Failure to give notice.
The giving of notices is usually an obligation and is often a condition precedent to entitlement. Yet, contractors frequently either do not give notice or when they do, the notice is not submitted in a suitable form, or does not contain adequate information.
How to avoid this mistake?
Firstly, make sure you give notice. The form and manner in which you should submit your notice will usually be set out in your contract.
2. Failure to submit claims on time.
If you leave your claim until the end of the project, it will be harder to resolve. If the project has been handed over, this will become even more difficult.
How to avoid this mistake?
Submit your claim as soon as you become aware of the problem. Our friends at Claims Class have some useful advice on the timing of claims and notices in this blog.
3. Submitting consolidated claims.
Contractors seem to like to wait until several delay events have occurred before submitting an extension of time claim and then they submit one claim for several events. This is not good practice. Firstly, this delays the submission of the claims for the early delays. Secondly, one large, complicated claim is harder to respond to than several individual claims. Finally, if they employer doesn't agree with one event, the settlement of the whole claim will be held up.
How to avoid this mistake?
Don’t hold up the submission of claims. Submit your claims as and when issues occur and keep them simple. Don’t confuse multiple issues, and make it easy for the employer to assess your claims.
4. Failure to keep records.
You must substantiate any claim you submit. This substantiation will rely on contemporaneous records. If robust contract administration systems are not created and administered, then it becomes difficult to substantiate the matters relied upon in the claim and the claim will fail.
How to avoid this mistake?
Records, Records, Records. Keep and maintain good records. Decipher have some useful advice on what ‘good record keeping’ actually looks like in this video.
5. Failure to provide accurate progress reports.
Contractors are often “creative” when reporting on progress because they don't want to give bad news or face criticism. If no delays were reported contemporaneously, it subsequently because difficult to change the story in a claim for an extension of time.
How to avoid this mistake?
Be honest about the position of the project. If you can see a potential delay on the horizon, report it as soon as you are aware so sets can be taken to mitigate. Don’t bury your head in the sand and wait till it is too late – be proactive.
6. Failure to maintain accurate updated programmes.
To demonstrate the effect of claimable delays, you will need an up to date version of the programme. They are vital in a claim situation. If these do not exist or they are inaccurate, the demonstration of delay and cost entitlement will become difficult.
How to avoid this mistake?
Keep the programme up to date and be sure that it reflects accurate progress on the project. Don’t be tempted to manipulate the programme to avoid showing delays to the completion date.
7. Failure to link cause with effect.
For a claim to succeed, it is necessary to demonstrate that the event had an effect on the completion date and /or entitlement to payment.
How to avoid this mistake?
Follow our ‘Four Corners of a Claim’ method of claim preparation. This will make sure you have included everything necessary for the claim to be accepted.
8. Failure to establish contractual entitlement.
Contracts provide remedies to the contractor if certain types of events occur. The claim must demonstrate that the contract provides entitlement to compensation for the event on which the claim is based.
How to avoid this mistake?
Make sure you understand the contract and your obligations and entitlements. Often the contract is not referred to until problems arise, at which point it is too late. Strong contract administration will help you be sure of your entitlement.
9. Inadequately expressed claims.
It is not enough for entitlement to exist – it must be demonstrated. If the respondent cannot understand the claim or if the claim does not contain sufficient information for the matters relied upon to be verified, an award will not be forthcoming.
How to avoid this mistake?
Include the relevant information, appendices and evidence to back up your claim. Make sure it is presented clearly. Make it clear and easy for the employer to follow and understand. Paul has some useful advice on preparing claims in this podcast.
10. Lack of claims expertise.
It is unlikely that a contractor would employ a plumber to carry out electrical installations. Why then do contractors leave the preparation of claims for what may amount to huge sums of money to inadequately qualified, inexperienced staff who have little expertise?
How to avoid this mistake?
Bring in help early. It is often tempting to wait until a problem occurs, but by that point it is often too late. Getting support from the outset of the project, either in the form of training, contractual advice or claims management support can help you avoid issues later on.
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 a justifiable claim is presented in such a way to ensure that it is accepted in a timely manner and so that disputes are avoided.
Can we help you? To find out how, get in touch.
Why do contractors make so many mistakes when it comes to notices? (FIDIC 2017)
FIDIC 2017 Notices: A new book by Andy Hewitt
In the many years I have been helping people manage their construction contracts and claims, I don’t think I have come across a single issue that causes more problems than notices.
Failure to comply with contractual obligations related to notices often leads to disputes.
Over the course of the last twenty years, I have delivered training on managing claims and avoiding disputes all over the world. Notices are one of the most common issues attendees ask about.
So, what is it about notices that causes people so many problems?
Mistakes
Some of the most common mistakes include failure to:
- Give notices when obliged to do so by the contract.
- Give notices within the time-frames specified in the contract.
- Properly identify communications as notices.
- Record the necessary information within notices.
- Cite the contractual clause under which the notice is given.
- Address and/or copy the notice to the correct party.
- Deliver the notice to the place specified in the contract.
- Deliver the notice by the means of communication specified in the contract.
FIDIC recognised that these failures were causing significant problems and leading to disputes. So, in the 2017 editions of their contracts they introduced a contractual definition of a notice. They also added significantly more obligations to give notices and more opportunities to give notices than the previous 1999 editions.
But are these changes enough to address the problem?
Failure to properly administer the contract is a top cause of disputes. After many years in this field, I know that project teams often put the contract away in a drawer, only to dust it off when problems occur. Often, project teams are unaware of the implications of contract clauses and don’t fully understand their obligations.
I hope my new book will help make things simpler.
Solutions
In FIDIC 2017 Notices, I examine each clause of the 2017 editions of the FIDIC Red, Yellow and Silver forms of contract that require notices to be given by the Contractor, the Employer and the Engineer. Consequently, for each, I provide an explanation of why, and under what circumstances, each notice is required. I’ve also included real-world, written examples of typical notices for each clause, to make things event clearer.
My hope is that this new book will help make dealing with notices clearer for anyone working under FIDIC 2017.
If it sounds like this might be useful to you and your project team, you can order your copy here. Alternatively, get in touch or find out more about bespoke training on FIDIC 2017 for your team.
Cashflow and the Contract
Cashflow and the Contract. Dominic Mondino
Cashflow is essential for business.
Everyone will be well familiar with the well-worn trope, “cashflow is the lifeblood of the industry”. As well-known American businessman, Chris Chocola once said, “balance sheets and income statements are fiction, cashflow is a reality”.
So, what can we do to improve and maintain cashflow, ensuring suppliers and staff can be paid and the business remains solvent?
Some Key Points to Remember
Firstly, and fundamentally, read and understand your contract. Remember that with standard form of contracts, amendments are very common and if not considered correctly, are likely to trip you up. Understand your contract, make notes, and schedule out any pertinent clauses. Particularly, clauses relating to dates, durations, timeframes for submission of notices and payments. Timeframes are critical no matter what contract you are working under or the location of your project.
It is important for you to understand the type of contract you are signing up to. Check the contents, the supporting appendices, the extent of amendments to the contract and the impact these may have on cashflow.
Typical Contract Risks and Elements to Consider
Looking at standard forms of contracts, they will typically advise of similar obligations. These will include:
- Key personnel and their responsibilities.
- A requirement to state a starting date, a completion date, access dates and any sectional completion.
- Provisions for the price to be payable in the form of a BQ or Activity Schedule.
- A variation mechanism, and timeframe for notification and response.
- Options for employer design or contractor design responsibility.
- A mechanism for making the contractor responsible to provide quality and workmanship in accordance with the contract.
- A process for accepting any contractor’s defects.
- Valuation mechanisms for payment and timeframe for notification and response.
- Various options to suit the size, complexity, type of work.
- A process for dealing with defects and resolution of disputes.
All these elements need understanding. If understood correctly, this can assist with maintaining effective cashflow. If you miss or misunderstand any element, payments may be delayed and costs incurred.
With regard to payment periods and notices timeframes - be particularly vigilant.
What you have agreed on one contract with a particular employer, although it may be the same standard form of contract, may have been subject to amendments. Therefore, be mindful of this, allow time for review and consideration, and to become familiar with the amendments and their impact, before they are agreed.
Change and Variation in Contracts
With regard to Variation Notification Timelines on projects, different contracts take different approaches. Some examples of that are highlighted by the following example clauses (this is by no means a comprehensive list):
- In the JCT form of contract, most popular in the UK:
- 3.5 - deals with changes by the employer.
- 3.6 - the time for confirmation of change by the contractor.
- 3.7 - the time for confirmation of verbal changes.
- 3.9 - the instructions that require formal agreement.
- 5.2 - valuation of change and the rules around other forms of change.
And for the NEC contract:
- 6 - deals with variations (or ‘compensation events’).
- 61.1 - compensation events from the project manager.
- 61.2 - the requirement to issue a quotation.
- 61.3 - requirements for compensation events from the contractor.
And for FIDIC (based on the 2017 Yellow Book):
- 3.3 deals with instructions from the engineer
- 13.1 deals with the right of the Engineer to vary the contract.
- 13.4 deals with payment and subsequent clauses deal with different elements of cost on a project.
- 13.7 tackles the issue of costs arising from changes in the law of a country.
- 20.1 addresses the requirement to give notice of delay or additional costs.
Concluding Points
In conclusion, there are a few key points to take away:
Where variations arise, try to agree these promptly. Remember vesting: off-site storage of materials may qualify for claims in the valuation. Check the timing of deliveries in terms of notices and notifications / responses to any changes. Liaise closely with your project teams on valuation cut off dates in order to avoid disappointment.
Depending upon your local legislation, you may need to look to the local law and how it interacts with the contract. If something is not covered by your contract, local law may take precedence. Even where something is covered by the contract, local law may overrule it. This is particularly important in the Gulf region as a result of the civil code systems of law.
Effective communication and maintaining good relationships is key. Ensuring valuations are accurate is a result of good communication with your suppliers and with the person paying the bills. Good communication may smooth the way for prompt payment.
Remember to check any contract amendments. Amendments may shift risk from places it may be expected, to places it may both be unexpected and unwanted. They can also conflict with existing standard clauses, so be sure to watch out for those and if unsure, seek advice - our team of consultants will be happy to chat.
Dominic Mondino, based on a talk delivered February 2021
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.