Monday, April 19, 2010

How to approach delay & concurrency?

In doing a delay analysis, it is important to adopt the most suitable approach to concurrency.

Initially in dealing with concurrent delay and competing delay events, the common law have developed the Doctrine of Concurrent Delay. It is a branch of the contract law theory in which is being used to eliminate the delay damages. In the event where both parties had contributed to the delay of the contract completion, neither party can recover damages for the period of time when both parties were at fault.

For example in the situation where it happens to be that at the same time that the owner is delaying the project and the contractor is also experiencing a delay due the contractor’s own fault, then the two delays are said to be concurrent delays. Therefore, by the general rule of this doctrine, it is determined that a contractor is not entitled to an extension of time or extra compensation due to a delay resulting from the owner caused delay if there is an offsetting concurrent delay that was caused by the contractor.

However, in the current practice in the construction industry, concurrent delays disputes are not as simple as described. Due to the complexity of the industry and the long list of time related dispute resolution, the courts have developed many methods and among it are the famous four principal theories of approach in dealing with concurrent delays of different nature. The approaches are the Devlin approach, Dominant cause, Burden of proof, and Benefit from Ones Own Default[1], with each outline different merits to different situation of concurrency. Crucially, these approaches should also consider the delay effects on the entitlement to EOT and damages.

The first approach is described as the Devlin approach is a reference to a decision made by Mr. Justice Devlin in the case of Heskell v Continental Express Limited[2]. His Honour held that:

“If a breach of contract is one of two causes of a loss, both causes co-operating and both of approximately equal efficacy, the breach is sufficient to carry judgment for the loss.....”

An example to the application of this theory is at the event where two competing causes of delay, such as excessively adverse weather and late issue of instructions by the contract administrator which entitled a contractor to an EOT. In accordance with the Devlin approach, the contractor is entitled to extra time and loss and expense.

Conversely, this approach is obviously unworkable for some construction contract that is complex due to its technical nature. Moreover, the difficulty lies at the point in which it must be applied to both the claim of the contractor for loss and expense or damages and the counterclaim of the principal for liquidated damages. In those circumstances, one could have the absurd position that the contractor’s claim for direct loss and expense succeeded in relation to a period of delay and the principal’s claim for liquidated damages succeeded in respect of exactly the same period of delay.

The second approach in dealing with concurrent delay is by the application of the Dominant cause approach. In the event where there are two causes, one is of the contractual responsibility of the defendant and the other is of the contractual responsibility of the plaintiff, the plaintiff may succeed if he establishes that the cause for which the defendant is responsible is effective. This is the act of identifying the dominant cause. Which cause is the dominant cause is of a question of fact and is solved by mere point of order in time. In other words, this approach applies the common sense in resolving the concurrency dispute.

However, there have been cases where the Dominant cause approach has been rejected by the Courts. For example in the case of H Fairweather and Co Ltd v London Borough of Wandsworth[3], H Fairweather and Co Ltd were the main contractors for the erection of the 478 dwellings for the London Borough of Wandsworth, employing the JCT 1963 standard form of contract. Long delays had occurred and liability for those delays was in question. The matters were firstly referred to arbitration. In regards to the delays, the Architect had granted an extension of eighty-one weeks under conditions 23 (d) of the contract by reason of strikes and combination of workmen. The quantum of EOT was not challenged but Fairweather contended before the arbitrator that eighteen of those eighty-one days should be reallocated under the conditions 23 (e) or (f). For reasoning behind the contention was that only if there was such a reallocation could Fairweather ever recover direct loss and expense under the condition 11 (6) in respect of those weeks reallocated to condition 23 (e) or condition 24 (a) in respect of those weeks reallocated to the condition set out in 23 (f).

The arbitrator had found that there is no mechanism in the conditions for the allocation of an EOT on the different heads of claims, therefore the EOT must be granted in respect of the dominant reason. Therefore, the arbitrator held that the dominant cause of the delay was the strikes and combination of the workmen and accordingly, the Architect was correct in his decision in granting the EOT under the conditions set out in 23 (d). The arbitrator also held that the EOT does not entitled Fairweather to claim for direct loss and/or expense.

Nonetheless, the arbitrator’s award was the subject to an appeal. The judge in this case disagreed with the arbitrator’s award that the EOT should be treated by using the approach of the dominant cause of delay. His Honour said in his judgement:

“Dominant has a number of meanings: ‘Ruling, prevailing, most influential’. On the assumption that the conditions 23 is not solely concerned with the liquidated or ascertained damages but also triggers and conditions a right for a contractor to recover direct loss and expense where applicable under the condition 23 then an Architect and in his turn an Arbitrator has the task of allocating, when the facts require it, the extension of time to various heads. I do not consider that the dominant test is correct. But I have held earlier in this judgement that the assumption is false. I think the proper course here is to order that this part of the interim award should be remitted to Mr Alexander for his reconsideration and that Mr Alexander should within six months or such further period as the court may direct his interim award on this part.”

The decision in this case may had places doubts upon the Dominant cause theory, but it still holds its own merits. If this approach is being applied in a simplistic approach, it may be acceptable to adjust the contract period by ignoring the less dominant cause and to only consider the delay event that is relevant to the date of completion as stated in the contract. Accordingly, even though the Dominant cause is not a favourable approach to adopt, yet it may still be applied to time related disputes sensibly.

The third method in dealing with concurrent delay is through the Burden of Proof approach. The term burden of proof is often related with the Latin maxim “semper necessitas probandi incumbit ei qui agit”, in which is best translated to English as "the necessity of proof always lies with the person who lays charges." For any construction claim, this approach is the best to fairly and reasonably substantiate ones’ claim. The burden of proof tends to lie with party who is arguing against received wisdom, but does not always, as sometimes the consequences of accepting a statement or the ease of gathering evidence in its defence might alter the burden of proof its proponents shoulder.

In the event of when part of the damages is shown to be due to breach of contract by the Claimant, the claimant must demonstrate how much damages is caused by his breach of contract, failing which he may recover nominal damages only. So, if the delays were caused by the activities in making good of defects to the works which happens along the same time when the principal had contributed to another delay event. The methodology here would be to most suitable to be dealing with the time allowance more than the allocation of cost recovered from the EOT given.

In this present time, most standard form of contract for construction works have learned to incorporate this element into their delay and extension of time provisions. Commonly, it may be found that the contractor is to submit a delay notice to the contract administrator of the probability for late completion to the works. Along with that, the contractor must satisfy the standard requirement set-out in the contract along with the evidence which had caused the delay. With this, the contract administrator may do a delay analysis, decide on the concurrency and the usage of float, and finally grant an EOT for any excusable delay.

The last method is through the approach of Benefit from Ones Own Default. According to the United Kingdom (“UK”) methods, if a neutral and the principal’s caused delay had overlapped, the delay shall be treated as the responsibility of the principal. Consequentially, the contractor is then entitled to EOT and reimbursement of additional cost. In the event where there is a neutral cause, the principal’s cause and the contractor’s cause, the contractor is entitled for EOT for any excusable delays only and no cost should be awarded. Applying common sense, fairness and reasonableness may be the objective firstly intended for this approach. Such approach is also being enhanced through the “Peak Principle” from the case of Peak Construction (Liverpool) v McKinney Foundations[4] . On the general principle, if the construction contract complies with its procedural obligations and allows for the principal to benefit from its own breach, it would mean that time was put at large. With the contractor unable to obtain an EOT, it is also sensible for the principal to be denied the possibility of claiming liquidated damages.

Nonetheless, not all standard form of contracts adopts this method that one should not benefit from its own default. The Courts in the United States of America (“US”) have addressed this problem and applied the legal maxim that a party cannot benefit from its own errors. A principal who deducts liquidated damages during an overrun period when the delay is being caused by both late issue of information and making good of defective works activity may concurrently fall into this category. Therefore, in these events the US Courts had made a rule that a principal is not entitled to deduct liquidated damages and for the same reason, the contractor is also not allowed to claim for additional cost due to the delay.

In concluding this section of the paper, it is fairly understood that there are no firm and fast rule that governs situation in dealing with concurrent delays. Through the modern delay analysis techniques and the application of the earlier discussed methods of approach that is suitable for any such situation, disputes in relevance to EOT and cost may be dealt with reasonableness and common sense.

[1] Keating on Building, 6th ed.

[2] (1950) 1 All England 1033

[3] (1987) 39 BLR 106.

[4] (1971) 1 BLR 111 CA

Thursday, April 15, 2010

Construction Concurrent Delays?

Many disputes on delay boil down to issues of concurrent delay. Then, concurrent delays commonly give rise to the question on who owns the float and establishing whether a contractor is entitled to an EOT inevitably causes difficulty.

A large number of cases have dealt with this problem, but none clearly gives guidance of universal application. In the case may be, there are times that parties do not clearly understood on what concurrent delays are due to the reason that the term has been widely used, yet it is still often misunderstood. While most project participants toss the term concurrent delay about freely, it is rare that any two individuals can agree on what it actually means. The lack of consistency is characteristic of the systemic confusion within our industry.

From the Protocol, it has been made known that the SCL has partially recognized such problem in defining the terms and conditions to concurrency. Therefore, the Protocol had stated that concurrency is a contentious issue both because there are differing views on the correct approach to concurrency when analysing entitlement to EOT and because there are differences about the meaning of concurrency itself. Furthermore, the Protocol also promotes the thought that in the event where contractor delay has caused the delay to the completion date occurs concurrently with principal’s delay; the contractor’s concurrent delay should not reduce any EOT due. Such rights and liability do also apply to a reverse situation.

As the subject of delay analysis becomes more sophisticated, judges and arbitrators may begin to consider these distinctions and provide clearer guidance on the issue of the concurrent effect of several competing causative events.

There have been cases that have dealt with concurrency and apportionment of delay. Some may have gone as far as the 1800s, such as in the case of Weeks v. Little[1]. Weeks, a decision made by the New York Court of Appeals had looked at contractor and owner caused delays and affirmed the trial court’s finding that the contractor caused delays did not delay the overall completion of the contract. The Court noted that:

“the contractor could gain nothing by haste and pressure in one direction so long as entire completion was delayed by his principals.” The decision in Weeks illustrates that the contractor’s delay was not a concurrent source of delay because the contractor delays were not “critical,” to use current schedule lexicon.”

Here, the issue in dispute is only whether there is a concurrent delay that had involved a detailed study of the cause of the delay, the contractor’s resources, and its ability to get the work done within the contracted period. If such dispute had occurred on our present time, a different question might have been brought forth. Due to the lack of definition relating to the term “concurrent” delay, it may be argued that concurrent delay will only occur when two or more delays are running simultaneously. These delays can be principal-caused delays, contractor-caused delays or a combination of both. The important point is that concurrent delays run simultaneously, irrespective of who caused them. Concurrent delay can also occur where the effects of several causative events occurring at different times.

Culpable delay is also another delay factor that should be taken into consideration in understanding the definition of concurrent delay. This is a “factoring” in any delay for which the contractor is responsible, even where the effect of the culpable delay is running concurrently with a principal caused delay. It is arguable and even likely that consideration of culpable delay will be case and/or contract specific. These are the important point in which parties must consider in each delay of whether the causative event and the effect of the event should be considered together or separately. Such distinction between cause and effect is of increasing importance in delay analysis of the present time.

In understanding the common law approach in defining concurrent delay, the paper will now discuss a few landmark cases that have dealt with concurrent delay.

In the case of Balfour Beatty Building Ltd v Chestermount Properties Ltd[2], the court had accepted that a contractor is entitled to an EOT to the completion date for an principal caused delay occurring after the date by which the contractor ought to have properly achieved the completion of the works. Therefore, the contractor is entitled to an EOT to the completion date for principal caused delays notwithstanding any concurrent contractor caused delay. The completion date is to be the total number working days in which the contractor ought fairly and reasonably to have completed the works allowing for the principal’s event starting from the date of possession/commencement.

An example to the practical effect to this decision is if the work was to be completed in week 52 and a variation is issued in week 59, the extension of time for the variation is to start from week 52, not week 59.

Another landmark case commonly cited is the case of Henry Boot Construction (UK) Limited v Malmaison Hotel (Manchester) Ltd[3]. Here, the contractor is entitled to an EOT to the completion date for principal caused delays notwithstanding any concurrent contractor caused delay and such principle was already agreed by the parties prior to the commencement of proceedings. Notwithstanding this pre-agreed position of the parties, the court said that the Architect, the contract administrator of the Contract, was entitled to consider the effect on the completion date of any contractor caused delays. This is arguably a contradiction of the pre-agreed position of the parties.

This case should therefore be treated with caution in the context of concurrent delay due to the effect on the decision of the pre-agreement of the parties and the arguably circular argument relating to the exercise of the architects opinion. The Judge in this case had qualified his decision due to the consequence of the principal caused delay. Therefore, it is not sensible for one to benefit from own’s breach, the contractor was only entitled to an EOT for causes of delay that were the principal’s responsibility and which delayed the project as a whole.

Differing from the Henry Boots case, in the case of Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik[4] the Judge stated that in assessing EOT involving issues of concurrency, it is necessary to apply a test of common sense and fairness. The Judge had considered that a full EOT should be awarded where there is concurrent contractor caused and principal caused delay, if it is fair and reasonable to do so.

Therefore, it is important to note that when a contract administrator or even an arbitrator assesses the extent of which the EOT to be granted, he is under a duty to consider the principles of concurrent delays should the delays be caused by both the principal and the contractor.

This duty is recognised in many courts and among it is the Malaysian case of Gasing Heights Sdn Bhd v Pilecon Building Construction Sdn Bhd[5] where the applicant engaged a contractor to carry out works under the PAM form of building contract (a standard form of contract by the Malaysian Architect Association). Disputes arose between the parties whereupon arbitration proceedings commenced.

The arbitrator, in arriving at his award, failed to assess the extension of time in accordance with the principles of concurrent delays and overlapping works. The arbitrator’s award favoured the contractor as the arbitrator had failed to consider the delays caused by the contractors own acts. As such, the applicant brought an action to set aside the arbitrator’s award.

The High Court held that the arbitrator’s methodology in such assessment was wrong in law. Since the arbitrator did not assess the extension of time in accordance with the principles of concurrent delays, that there was an error on the face of the arbitrator’s award. It seems clear from this case that where parties refer their disputes on extension of time to an arbitrator, unless the arbitrator has the pre-requisite expertise and skill to properly.

From the illustration given, notwithstanding the introduction of the SCL Protocol, it has been identified that there is a lack of consistency in the definition of “concurrent” delay. The result is an even greater inconsistency in a case such as the principal alleges that there was a concurrent contractor caused delay, the owner needs to show that the contractor would not have been able to meet the original schedule if there was no principal caused delay. If the principal has established a concurrent delay, the question then turns to how much of the overall delay is the contractor’s responsibility. Therefore it is also important to note that every contract and factual situation is different, so each party’s obligations are determined on a contract-by-contract basis.

[1] (1882) 89 N.Y. 566

[2] (1993) 62 BLR 12

[3] (1999) CILL 1572

[4] (2000) TCC

[5] (2000) 1 MLJ 621

Wednesday, April 14, 2010

EOT & Construction Programme Float?

There is a saying that “Cash is King and Time is God” and thought the application of such saying to the construction contract, it is fairly understood that money governs the contract and time is something of high significance to the parties of the contract.

Argument relating to Extension of Time (“EOT”), ownership of float and associated compensation are extremely common in the construction industry which may had lead to numerous disputes that requires the resolution through litigation or any alternative dispute resolution.

Under current scheduling practices, total float time is considered “free” and does not belong exclusively to any specific party in the construction process; rather, it belongs to the project and can be used by both owners and contractors to mitigate the potentially negative impact of delays. Utilization of float is, hence, on a “first-come, first-served” basis.

However, usually poorly worded or much amended EOT clauses and uncertainties for causes related to concurrent delays and ownership of floats may have caused the problems. The longer a dispute awaits resolution on a construction project, the more risk the parties run that the dispute will delay completion, add to project cost, and “chill the relationships” among the parties to the dispute. These are the much disfavoured situation, preferable avoided by many parties.

Float allows a work programme manager the ability to reschedule resources and work, yet not delay the project so long as the float is not consumed. Because of this flexibility associated with float, the question of whether the owner, contractor, or the project “owns” float and is entitled to use it remains a significant issue, particularly in the context of multiple delays that exceed total float.

According to the Protocol, float is the amount of time by which an activity or group of activities that may be shifted in time without causing delay to a contract completion date[1]. The Protocol also defined the float as a positive float and not a negative float.

A Positive float refers to an excess time slot available with an activity in a project schedule such that the activity can be delayed by that excess time period without delaying the completion of the project as planned in the project schedule. Therefore, an activity with a positive float is non-critical activity and not on the critical path assigned for the project.

Conversely to the Positive float, the Negative float refers to the unavailability of the excess time period for an activity. Consequentially that activity must have to start before their predecessor activities complete in order to meet a target finish date in a project schedule else the project is bound to be delayed. The Negative Float results when the time difference between the late dates and the early dates (start or finish) of an activity is negative.

The definition of a float in simple terms has been outlines in the Protocol. However, to understand the nature and characteristic of floats, one must obtain a perspective through the method and usage of a project programme.

In project programme, float is the amount of time that a task in a project network can be delayed without causing a delay to succeeding tasks (“free float”)and/or to the project completion date (“total float”). In some project programmes floats are also known as slacks. Float in simple terms is the period between scheduled early finish and the late finish of an activity in the Critical Path Method (“CPM”) schedule[2]

When an activity in the construction project has a total float equal to zero days on the programme, it is being known to be a critical activity. This means that a delay in the finishing of this activity will cause the entire project to be delayed by the equivalent amount of time. A critical activity typically has free float equal to zero, but an activity that has zero free float may not be on the critical path.

The allocation of float time had often been a source of controversy in disputes involving delays, suspensions, and change order. Analysing delays on a construction project is not an easy task. Assigning responsibility for such delays involves extensive analysis. An aspect of this analysis may involve the presence and consideration of so-called concurrent delays.

However, a common controversial situation on the use of float occurs when the contractor has planned the works and is able to or intended to finish early before the specified completion date in contract. The principal may feel that since the contract provides for the owner to make variations to the works through the issuance of variation orders, it allows him to use any available time, which is the float, during the contract performance period. This will then require the contractor to amend the programme to allow for these changes consequentially up to the completion date.

It has been found that no boards or courts have uniformly dealt with this issue, however the trend is still sided to the contractor’s right to finish early. With the contractor finishing early, it may save on time-related expenditures. This also allows for the contractor to generate their contract income faster. Nonetheless, such situation may only happen without causing any dispute between the parties if the contract does provide for early completion. The existence of such clause in any construction contract will allow for an entitlement for the contractor to put forth any claim for damages against the principal in the event of if the principal have had interrupted the contractor from reaching the early completion.[3]

Unless otherwise stated in the contract, where there is remaining float in the programme at the time of a principal’s Risk Event, an EOT should only be granted to the extent that the principal’s Delay is predicted to reduce to below zero the total float on the activity paths affected by the principal’s delay.[4]

If as a result of a principal’s delay, the contractor is prevented from completing the works before the contract completion date, the contractor should, by the principles set out in the Protocol, be entitled to be paid the costs directly caused by the principal delay, notwithstanding that there is no delay to the contract completion date. In such event, usually no entitlement for EOT is granted and such costs were already in the contemplation of the parties when they entered into the contract.

Therefore, here it may be safe to presume that it is important for a contract to provide for a clear definition to the float and further provide a guide to the usage of float in relevance to any intention for early completion by the contractor. Furthermore, accurate identification of the float and concurrency is only possible with the benefit of a proper programme which has also been properly maintained and updated in accordance with the progress of the works.

[1] SCL Delay and Disruption Protocol (2002).

[2] Paul Levin, Construction Contract Claims, Changes & Dispute Resolution (1998)

[3] Robert A. Rubin, Virginia Fairweather, Sammie D. Guy, Construction Claims: Prevention & Resolution (1999)

[4] SCL Delay and Disruption Protocol (2002) page 6.

Sharing is Caring-this is a portion of research paper I wrote for my Master of Construction Law in 2009.