Making the Most of Marking Time: Managing Construction Disputes With the SCL Delay & Disruption Protocol
- In October 2002, the Society of Construction Law in the UK published a statement, called the Delay & Disruption Protocol, which suggested both procedures to reduce, and ways to avoid, disputes emerging from delay and consequent associated costs (for delay, disruption, and for acceleration) which plague the construction industry.
- In the 16 years since publication of that protocol, many things have changed in the process of large scale construction, but disputes about delay and associated costs remain. Realistically, they are likely to always be a feature of construction activity.
- In July 2015, recognising passage of time and the changes and developments that had taken place, the Society reviewed the 2002 Protocol, producing a “Rider”, that was intended to be read with, and to update the 2002 Protocol.
- The Rider made some important changes, but notwithstanding the international interest, the Rider kept the fundamental character and structure of the 2002 Protocol, namely the UK focus of the Protocol, and its non-contractual character.
- That process of refinement continues and the developments seen in the Rider are likely to be consolidated in a new, 2nd edition of the Protocol. A draft version was distributed by the Society in July 2016 and is presently being considered.
- This paper considers the management of delay and disruption disputes in the context of the draft 2nd edition of the Protocol, and in particular, how it stands to be used to manage such disputes, effectively on the other side of the world.
- For ease, I will refer to the current draft as the Protocol, and the earlier version as the 2002 Protocol.
Defining the Problem
- Successful project management involves balancing the three considerations: time, cost, and output/quality. Improvement of any of them, usually comes at the sacrifice of one or both of the others. Therefore, the need to balance them.
- One of the most prominent sources of construction dispute is time – delay, in that the work does not proceed at the rate desired, and the consequential cost that arises from that delay.
- It is difficult to balance these three, often inconsistent considerations. The difficulty arises from the technical and economic complexity of larger modern construction projects. It also arises from the character of the activity of construction itself.
- Construction projects usually involve the interaction of a large number of disparate parties. Each of them has their own interest, their own agendas, as well as different histories, degrees of sophistication, capacities, and resources.
- In the case of competitive tenders, those parties will have different risk profiles, and different perceptions of risk. No-one will really know the perspectives or each or all of those parties.
- The range of parties can include principals, contractors, sub-contractors, suppliers, specialist trades, governments and regulators, certifiers, financiers, unions and employee organisations, work health & safety bodies, neighbours, down-stream owners and tenants, and the like.
- Not only will each of these parties have different interests, the desirable balance of the time, cost, and quality/output considerations will be different for each.
- Further, that desirable balance of time/cost, and output for each party will change from time to time as the project progresses. It is the ultimate moveable feast. In many cases, those interests and those balances will be inconsistent, and irreconcilably so.
- Naturally, even with the best planned and best managed project, there is scope for dispute. Whilst the project itself has a life-cycle, the disputes will also have a life-cycle. Dispute can be disruptive, and expensive. In order to prevent the dispute about delay and disruption from becoming a further cause of delay and disruption, it is necessary that it be carefully managed.
- In almost every case, even though construction disputes so often feature questions of delay (time), it does not take long to see the other two issues (cost and output/quality) emerge.
The General Structure and Operation of the Protocol
- The object of the Protocol is “to provide useful guidance on some of the common delay and disruption issues that arise on construction projects, where one party wishes to recover from the other an extension of time and/or compensation for the additional time spent and resources used to complete the project”, see Introduction, para A.
- The qualification “useful guidance” is important. The Protocol is framed in general terms, see Introduction, para C. It is intended that it be useful in relation to “all projects, regardless of complexity or scale”, see Introduction, para A. But it is not intended that it be a contract document, or that it “take precedence over the express terms and governing law” of a contract, see Introduction, para B.
- Further, it aims to set out ‘good practice’, but it not advanced as a statement of ‘best practice’, see Introduction, para E. As ‘useful guidance’ it is intended that it be applied with ‘common sense’, see Introduction, para F.
- One of the developments that led to revision or reconsideration of the Protocol was its use in international projects. Obviously with an eye to the myriad complexities that a general statement on construction law as applied internationally, the Society decided to retain the focus on the “UK construction market”, that was a feature of the 2002 Protocol.
- These are expected characteristics of such a document. The express reflection of these characteristics is both useful and important, particularly as a guide, but also as a warning as to what the Protocol can be expected to do, what it can’t be expected to do, and how its use should be qualified in every case, but particularly for projects occurring outside of the domestic context of the UK.
- The importance of recognising the context and limitation of the Protocol might be seen in Hamblen J’s decision in Adyard Abu Dhabi v Sd Marine Services  EWHC 848 (Comm) (11 April 2011). In that case, the plaintiff’s delay case was rejected by the Court on its principal features. In support of the plaintiff’s case, the expert relied upon the Protocol. That did not help.
- The Court said, at [289} that:
“… However, as Mr Swan agreed in evidence, the SCL Protocol is not in general use in contracts in the construction industry and nor has it been approved in any reported case. There was no evidence that the parties were aware of it or that they contracted with it in mind. Further, the SCL Protocol itself says that "it is not intended to be a contractual document. Nor does it purport to take precedence over the express terms of a contract or be a statement of law".”
And accordingly, the Protocol provided little assistance in the case, see para .
- Whilst this statement was, itself, made 6 years ago. It is hard to see that the Court would state differently today. More importantly, the expert might be said to have sought to use the Protocol in the wrong way. It is not, of itself, a source of authority.
- The Protocol obviously has great utility within its own bounds. It is a useful, and to a degree, comprehensive statement of general understanding of the law and practice. It provides a reference point from which analysis and consideration of the particular facts, and particular circumstances, can be considered.
- The Protocol is structured around a series of general statements or “Core Principles”. It has a general introduction, a statement of the “Core Principles”, 7 sets of discussion about the groups of “Core Principles” called “Guidance Sections”, followed by two important features. Appendix A, which contains a detailed set of definitions, and Appendix B which sets out a detailed exposition of the types of record keeping which is assumed throughout the document.
- The Records provisions in Appendix B are a substantial development from the brief analysis in the 2002 Protocol. In the context of the international application of the Protocol, these detailed provisions are very useful. They describe and specify the name and content of the records that capture events occurring on site, so that in an international context, the name of the record might be reconciled with the information that it purports to capture (or doesn’t, as the case may be).
- This not only allows gaps in the information capture procedures to be identified, but it also allows differing names for record keeping to be identified and reconciled. As importantly, it assists in focussing on what information is not being captured, so that suitable alternatives can be considered.
- The same role is played by the definitions in Appendix A. In a domestic construction market, such as in the UK, one might expect a degree of uniformity in the naming and conception of different aspects in construction work. Those assumptions are not necessarily as strong in an international construction project, where contractors, trades, suppliers, and workers might come from a number of continents, with different languages, experiences and practices.
- The Protocol gives a useful reference point, from which the conversation might begin.
- The Protocol ties itself more strongly to the notion of determining extension of time claims at or about the time they are made (rather than waiting). This is elevated into a ‘core principle’, and is one of the touchstones of the Protocol.
- This is an example of the need to be aware of different cultural and practical contexts in which the Protocol comes to be exercised. The sense in determining time claims as soon as possible underlies most of the features of the Protocol, and has logical attraction.
- It’s use, however, comes into question in a context in which building disputes cannot be resolved, for example, by arbitration, until after practical completion of the project (possibly months or years later).
- The Protocol has moved away from some of the prescriptive features of the 2002 Protocol. It does not prefer a delay analysis methodology, but merely gives general attributes of what should be a preferable method to be used. It no longer features model clauses.
- It takes a softer stand on global claims (although still tending against them), and provides more detail on disruption claims and the like.
- This general shift in emphasis is to be expected given the very broad canvas that the Protocol is intended to address. The circumstances of parties to sub-contracts and specialist contractors and suppliers can be substantially different to the features impacting a head contract, for example.
- The contractual matrix involved in building a barn will be very different to a gas pipeline. This range can only be usefully addressed in more general terms.
- The themes that emerge from the Protocol are: the importance of recordkeeping (particularly programming) and the importance of addressing delay events at, or as close to, the time they emerge or are identified. There is obviously sense in this.
- The history of delay dispute, however, reflects the gap between theory and practice.
- There are 21 enumerated Core Principles in the Protocol. They are not articulated as commandments, and tend to fall into groups. Principle 1 relates to Programme and records, Principles 2-6 deal with delay and claims for extension of time. Principles 7, 8 and 11 address the float (and the arguments that float gives rise to). Principles 9 and 10 deal with the related issue of ‘concurrent delay’. Principle 12 deals with analysis of delay at a time distant from the event. Principle 13 deals with mitigation (in general terms).
- Thereafter there is a focus on compensation claims. Principle 14 provides the general statement of the link between time and compensation. Principles 16-18 deal with prolongation claims. Principle 19 addresses global claims. Principle 20 deals with acceleration claims, and principle 21 deals with disruption.
- After the general statements and listing of core principles, the Protocol goes on to provide a more detailed discussion in the Guidance Sections. These are obviously useful in translating the very general expression of core principle into practice. The nature of the discussion, though, is not one that could easily or usefully form part of a contractual framework.
Guidance Section 1
- Guidance Section 1 sets out the general principles and exploration of the concepts of ‘delay’, ‘disruption’, and ‘acceleration’. It takes the point, at para 1.2, that delay and disruption may require different kinds of substantiation to each other (a nod to the record-keeping provisions), but recognises the interrelationship between the concepts.
- “Delay” is a mechanical concept and are defined as “work activities taking longer than planned”, see para 1.3. “Disruption” on the other hand, deals with productivity and profitability. It is explained as “disturbance, hindrance, or interruption” to the builder’s “normal working methods resulting in lower productivity or efficiency”, see para 1.6.
- Although the concepts are simply expressed, their application can be mindboggling.
- In the context of delay, the concept of work taking longer than planned draws attention to the accuracy and quality of planning or programming. The Protocol tends to view the quality of programming as axiomatic. However, given the range of different parties, interests, assumptions, and experience that goes into programming as an activity, this should not be assumed.
- The Protocol tends to rely heavily on programming, and in particular, documented programming. It refers to past programmes, updated programmes, time-slice programmes and the like.
- Where programmes, and the assumptions underlying them, have a disconnect, it is critical that this be recognised, so that the time control and co-ordination of the project does not run off the rails. The Protocol has to be used with care in these regards.
- The Protocol recognises that delay can have a relationship with disruption, but can also involve questions of mitigation and acceleration. These impacts will have direct monetary consequences (expense and compensation claims) as well as indirect monetary consequences (such as effects on productivity, programming issues of including mitigation activity, acceleration, and the like).
- Guidance Section 1 identifies these various relationships without attempting to solve or resolve them (to the extent to which the Protocol could in any event). That it flags these relationships is, of course, useful, again for digesting the extent of the problem, and assists in ensuring that these interrelationships are not forgotten.
Guidance Section 2 – Records and Programmes
- The importance that the Protocol places on programming is seen in the fact that programmes are specifically referred to in the description of records.
- The Protocol operates on the simple and obviously correct theory that the better the documentation, the less scope there will be for dispute. This is undeniable, but, in the smaller and multiparty construction projects, can often reflect theory rather than practice.
- There are a number of aspects to recordkeeping that are identified and reflected in the Protocol, but bear specific consideration. At para 2.4 and 2.6, the Protocol recognises that a lack of ‘good’ record-keeping and a lack of uniformity of approach to recordkeeping features in delay and disruption claims.
- Section 2 devotes 10 pages to discussion about record keeping and programming. It follows with 7 ½ pages of discussion about the records themselves in the Appendix B.
- Section 2 is in general terms, and is premised upon there being “clear agreement on the types of records”, see para 2.3. This smacks of idealism in any but the largest and most bureaucratically driven construction project.
- The problem in standardizing documentation and recordkeeping has many features. In every case in which there is not an archive created to hold all documentation, the nature, type, and quality of documentation of each party will reflect the resources, interests, and requirements of each. There is no community of interests in these regards.
- This problem is exacerbated in a project involving many parties, particularly sub-contractors. And more so when there are sub-contractors that are parts of large international organisations – with their own documentation requirements, protocols, and the like.
- It is not unknown for sub-contractors or specialist trades to be much larger and with more economic muscle and sophistication than the principals or builders that employ them. It is very difficult, in those cases, to dictate to such a sub-contractor that records have to be kept in a bespoke system, manner, or formula.
- Further still, international projects often involve parties from diverse cultural and linguistic backgrounds. The nature, naming, and even language of the primary recordkeeping in those cases can be different in every case.
- Although the Protocol reflects the scope for such diversity, and recommends agreement, one gets the sense that (understandably) is proceeds on assumptions of homogeneity as to the basic understanding of documents, records, what they are called, what they contain, and the like. This, again, is an area for careful consideration.
- An example of this is found at para 2.13 where the Protocol suggests that the basic documentation for progress, resourcing, and costs should “set out the facts only and offer no opinions”. The differentiation between fact and opinion is not to be assumed.
- The creation of records involves information capture. Information is captured at various levels of an operation, from the highest strategic view to the work face. Often the authors of records have little sophistication, sometimes limited education or experience.
- Distinguishing between fact and opinion is difficult for some people. Sometimes it is impossible, because what is one person’s ‘fact’ is another person’s ‘opinion’.
- The newspapers are full of the modern ‘post truth’ tendency to blur fact and opinion. The distinction itself is premised upon cultural assumptions that need consideration – even assuming that those at the workface (the source of the basic information that records capture) may not have the capacity to recognise the difference.
- The direction in para 2.13 to record fact and not opinion is the ideal. The shortcomings of records in this regard is a matter that requires careful attention.
- In practice, in the context of managing disputes, the challenge to dispute resolution in the real world focusses upon putting together a case where concepts such as record keeping do not follow the assumptions. Lateral thinking is required to fill gaps that should not be there, but are.
- For example, I had a case in which it was necessary to reconcile the records of a very successful, closely run Chinese family business in Australia. The primary records, which had to be reconciled, largely consisted of slips of paper (some torn from a note pad) with prices and descriptions of goods being written in shorthand Chinese script (including the numbers) and which had been stored for years in large earthenware pots.
- Another example of the recordkeeping problem is seen in the Australian case of Wang v Kaymet Corporation Pty Ltd  NSWSC 1459 (6 October 2015). In that case, a developer/builder was constructing a high rise home unit building on a very difficult site, and the construction was constantly disrupted by a range of factors including rain and government involvement.
- The pre-construction sales contracts had a sunset date by which the building was to be completed. It was not completed by that date, and the developer sought to rescind the pre-construction sales. The purchasers sued, saying that the builder had deliberately or negligently delayed construction in order to take advantage of the sunset clause and the rising residential property market.
- The purchasers had used pre-trial discovery to search for the builder’s programmes and time-tabling documentation. There were no formal programmes, and virtually none of the other. The builder, a very experienced developer, took a hands-on approach, effectively programming in his head.
- The purchasers’ case was based upon the assumption that there was one way to build, which required a documented, updated, programme, and a range of supporting documentation, traditionally described. Without this kind of documentation, the assumption was that there was chaos, either negligently or deliberately derived.
- One of the features that the purchasers overlooked was that, even though the builder had virtually no documentation itself, because the day to day work was sub-contracted, some, but not all, of the sub-contractors and consultants had documents for their own purposes, and some of the documents were very detailed.
- A retrospective ‘as built’ form of indicating programme came together from a maze of other documents from these disparate sources. This process was expensive and cumbersome, but served to disprove the purchasers’ claim. It could only occur by a very lateral and substantive basis of document analysis – to identify where information was captured, even though the records were not kept in a traditional or conventional manner, or given conventional names (or in some cases, kept in English).
- The two issues to emerge from that case are: the need to think laterally about filling the evidentiary gaps, and the danger in assumptions about records – what are kept, and where, what they are called, and what they contain.
- To be fair, the Protocol recognises these issues in its use of general language. For example at 2.3, it states that the requirement for a ‘properly prepared’ programme – without giving a clear indication of what ‘properly prepared’ means.
- In a context in which all parties approach the programming process in good faith, there might be an ability to work a programming outcome to reflect this.
- However, where there is a project involving contractors who are the survivors of a very hard won and vigorously fought competitive tender process, it is very likely that there will be programming assumptions that do not accord with the true and operative (competing) interests of the parties.
- The Protocol does not provide any assistance in recognising or dealing with this kind of problem.
- This problem, however, is indirectly recognised at para 2.4 of the Protocol, which clearly states that “it is not intended that this guidance be incorporated into a contract”. This begs the question as to what is the proper, useful role, for the Protocol in this context. This uncertain position could potentially provide more confusion than clarity.
- The answer seems to be that the Protocol is best used as an aide in contract drafting and negotiation – so that specific issues can be addressed in common terms, and specific contractual provisions tailored for them. It is a shame that this role is not identified in the Protocol itself.
- Being placed so early in the piece, it is clear that the record keeping provisions are central to the Protocol itself. However, the Protocol tends towards heavy and detailed documentation. The cost of the documentation requirements of a contract or a project are often overlooked. It is not clear how attractive, in a fiercely competitive market, such heavy documentation and record keeping requirements will be.
- It is obviously important that the level and sophistication of contract documentation reflect the sophistication and characterisation of the parties themselves, and more specifically, those that are to administer the contact.
- It is no use, for example, having a notification regime that turns upon documents being served by hand or by post where the parties all communicate by e-mail, for example.
- A greater danger emerges when an overly bureaucratic contract is applied to a project that starts to get into trouble. The parties focus on the project and tend to disregard what they see as unnecessary. In those cases, the documentation is amongst the first to suffer – just at the time in which it is needed.
- The Protocol, of course, says that it is a general document designed for all sorts of projects, of different sizes and sophistication – and that the Protocol is to be used and adapted by common sense. This is unarguable. However, there might have been benefit were it to indicate how and where, the recordkeeping provisions (for example) might be cut down. Different industry participants will no doubt, have diverse views as to how this is to be done.
- The Protocol devotes substantial discussion on cost records, from para 2.26 onwards. These are direct and indirect, and in the case of records of indirect costs, seeks to break down the head-office overheads into ‘dedicated’ and ‘unabsorbed’ (although it returns to this topic in later sections).
- The Protocol notes the range of records, but experience tells that these need to be approached with some judgment. One of the dangers to the collection and processing of information where a dispute is immanent, or in its early stages, is that bias and self-serving documentation is difficult to detect at this point.
- Having said this, it is hard to imagine any protocol that can replace judgment and experience in these regards.
- This is particularly important in considering and reconciling programmes. The Protocol is, what might be described as, programme heavy, in that it relies very heavily on them, and calls for a number of programmes to be produced. It is hard to imagine that these procedures are of much use in any but the largest projects (and even then…!).
- Programming and the preparation of programmes involves some facts, layers of assumption, and no small element of opinion. It is, very often, an exercise in judgment.
- The Protocol does not dwell on this aspect, and clearly relies on common assumptions about programming itself. For example at para 2.47, it specifies that a programme must have “sufficient detail using logical links”, and at para 2.44 identifies that the focus should be on the ‘critical path’.
- A project may have a number of critical paths, or rather the critical path from time to time can depend upon a number of changing factors. What is ‘sufficient detail’ is a matter of opinion, and turns upon the needs and knowledge of the user of the programme (of which there are meant to be many).
- The case books are full of disagreements about what are ‘logical links’. Such descriptions in the Protocol are comforting, but to the extent that they allow parties to mistake opinion for fact, they do not help.
- One must be careful of the assumptions that permeate the Protocol. It is necessary to always be aware of them. The Protocol assumes commonality in recordkeeping at the like. The assumption is not unreasonable, and is acknowledged in terms such as that in para 2.41 that suggests that “the form and software for the program should be specified in the tender documents and contract”. This sets a common ‘language’ for programming, and the Protocol proceeds accordingly.
- The difficulty emerges once one moves from the head contractor to the subcontractor level. One faces the usual problems, mentioned earlier, that not all of the sub-contractors will be willing or able to, use the ‘same form and software’.
- A bigger problem is the silent feature of programmes – the assumptions, experience, and relationships that they incorporate. As noted earlier, these will not all be the same at every level of project administration (particularly when different parties are involved).
- It is necessary to ‘vet’ and to ‘verify’ the salient elements in each programme – and as importantly, in each iteration, modification, variation, or sub-element of each programme in order for these anomalies to be identified and accommodated. This aspect of the matter appears most clearly in the identification and analysis of critical path.
- Given that the Protocol itself is concerned with managing and preventing dispute, it is understandable that it would reflect a bias towards dispute management and resolution experience and techniques. It tends to be very document heavy in its approach.
- The level and amount of documentation is very substantial. This is understandable for mega-projects, in which there are likely to be battalions of clerical staff making, processing, and keeping the paperwork (albeit in electronic form). At every level, there is a reference to documentation that is really only seen at the mega-project level.
- The suggestion, for example, at para 2.14 that there be a requirement that records be kept for 10 years is obviously useful in theory. It is difficult to imagine that the integrity of such an archive would be enthusiastically maintained. This puts a burden on sub-contractors and suppliers, and may well end up with the contractor becoming the archivist for the project.
- A silent feature of the Protocol is the administrative cost of implementing its scheme. This is significant, but does not get addressed in the Protocol itself. Apart from the cost of administering the scheme is the capacity of contractors to actually implement it, or at least to implement it in a way that does not require constant monitoring, auditing, and update.
- Ordinarily, this aspect would be reflected in tender price (as an adjustment to overheads). This aspect is, usually, one of the first dispensed with on a competitive tender, if it is recognised by the tendering contractor at all. Once pushed aside at the tender phase, by the time the contract comes to be implemented, the return of this unaccounted for contractor expense will not be welcomed. Ways will be found to cut corners on the documentation, and the seeds for dispute are planted.
- One can see the need to be alert to this kind of issue. As already noted, the Protocol relies heavily upon the programming resources of a project. Para 2.52 recognises the necessity of reconciling the proposed programmes with work method statements. It goes on, at para 2.56 onwards, with the procedures for acceptance of proposed programmes, stressing the need to have timeframes and certainty in these regards.
- Often, however, amended programmes have a way of identifying unpalatable truth about the real state of the project. Often these can be a flash-point for dispute. Dangerously, a conspiracy of silence can emerge at the operational level, so that programmes reflect what the parties want rather than what they fear. One can sometimes see programmes that are more fantasy than reality, and as they get amended, the gulf between the two gets greater.
- One of the features to look for in this respect, are contractual requirements and conditions precedent to project steps. These are not always well represented on a programme, and can be overlooked or underestimated.
- The Protocol rightly stresses the need to have disputes about the programmed dealt with and resolved as soon as possible, see para 2.58. This is a problem where ultimate resolution, by arbitration or the like, must be postponed to the end of the project. A position can be taken to allow the project to proceed (eg interim determination by the superintendent, or adjudication, or even emergency arbitration). These can only be of limited use where the ultimate determination is postponed.
- A feature, however of the Protocol, which, again is understandable, but which would seem to be a fertile source of dispute is found at para 2.58. That paragraph begins: “Acceptance by the CA constitutes an acknowledgment that the Accepted Programme represents a reasonable, realistic, and achievable depiction of the sequence and timing for carrying out the Works.” However, it goes on to say that acceptance does not have a contractual effect, nor does it act as a warranty that the programme can be achieved.
- The Protocol contemplates the revision of the programme as involving the production of a range of revised, updated, and amended programmes and the like. All without the earlier versions being overwritten.
- The desirability from a dispute management point of view is obvious. The scope for misunderstanding and confusion in the context of a project that, if varying, is in the process of change should not be overlooked.
- The focus about has been about the documentation provisions in Guidance Section 2. This is clearly a significant feature to the proposed new version of the Protocol, and sets down the foundation for what comes after.
- The Protocol frankly acknowledged that it was directed to building projects at all levels of sophistication. To be fair, its focus on very large and document heavy projects it understandable, and it acknowledges that these elements will not be suitable for all project, and should be cut down and applied with judgement and discretion.
Guidance Section 3 – delay, disruption, and acceleration
- Guidance Section 3 addresses Core Principles 2-20, and to that end, builds upon the detailed analysis begun in section 2.
- Para 3.3 provides that the benefit of Extensions of Time (EOT) is to relieve the contractor of a liability for liquidated damages, as well as to identify for the principal a new contract completion date and to prevent time being set at large.
- This is clearly a true, practical statement, of the object of the EOT process. It is hard to see how, except on a fine reading of the language, this statement sets with the Core Principal in 4 that expressly states that the EOT procedure is not to be ‘based’ upon whether the contractor needs the EOT to avoid liquidated damages.
- Again, the Protocol advises against the ‘wait and see’ approach to determining EOT claims. The practical advantages of this is obvious. The consequent reliance upon speculation, rather than determining the actual impact of events, becomes more problematic.
- This programming model underlying the Protocol, gearing EOTs to estimates (rather than waiting for accurate determination) allows the project to proceed without incidental delay and dispute. However, once the EOT is factored into the programming process, the administrator’s acknowledgement at para 2.58 may cause some concern.
- The Protocol reduces all those events that could justify and EOT as “Employer Risk Events”. This are events for which the principal accepts the risk, so that if they occur, the contractor is not at fault, and an EOT is granted. These include conduct by the principal or its agents for which it is responsible, but also includes ‘neutral events’ such as weather.
- Again, at para 3.6, the Protocol provides express acknowledgement that the EOT process is, necessarily based upon speculation, albeit tempered with common sense.
- The speculation element tends towards the Core Principle of dealing with delay then and there, as soon as possible, rather than waiting for the full extent of the delay to be identified. This is particularly the case with Employer Risk Events, see para 3.7.
- To temper the guesswork with reality, para 3.7.2 of the Protocol suggests that the administrator deal with EOT ‘at intervals’ as the actual impact of the delay unfolds. EOT can then become a moveable feast, and the process of assessment becomes more complex as more delay events coincide.
- The Protocol recognises the contested issue of programme float, and of course, who ‘owns’ the float, see para 3.8.1. The Protocol seems to be sympathetic with the view of the principal owning the float, without an unequivocal commitment. The issue should be “addressed in their contracts”.
- Having said this, there is extensive consideration of ‘concurrent delay’. Again, without a clear commitment to the competing views on this contested issue. The general position is, however, that a contractor’s delay should not reduce the EOT for which it is entitled where there is a ‘concurrent’ employer delay, see para 3.10.
- However, the Protocol’s preference is expressly relating to a sequenced risk event, set out in para 3.10.7, namely where the cause of delay is ‘concurrent’, but one event began before the other, the character of the first will tend to prevail, see para 3.10.10. However, dealing with concurrent delay is featured in an extensive passage.
- The Protocol’s approach is governed by the English law’s approach to the ‘prevention principle’, namely that the principal cannot take advantage of a contractor’s non-fulfilment of a contract condition where the principal has hindered or prevented that fulfilment. This relatively simple statement in para 3.10.15 embraces a wide range of complex real-world problems.
- Similarly, at 3.11, the Protocol recognises the general principal that the contractor must mitigate the delay effects of an Employer Risk Event, but this does not involve requiring the contractor to add extra resources or to work outside planned hours.
- This consideration of mitigation then leads, at para 3.12 and following to consideration of acceleration – which does involve the use of extra resources and sometimes extra hours. This is recognised as a contract issue, with the power to direct acceleration one governed exclusively by the contract. The cost consequences of acceleration will necessarily fall for consideration.
- These combined effects of delay and acceleration then naturally lead to considerations of compensation for them, as well as prolongation and disruption. Each of these latter issues involve compensating the contractor for losses in efficiency and productivity, as well as the incidence of extra expense associated with those losses.
- The Protocol makes the point that whilst determination of an EOT is necessarily a prospective and hence, to a degree, speculative exercise, the determination of compensation is necessarily retrospective. Different issues, and different evidentiary requirements and burdens, will, therefore, arise, see for example a 3.17. These kinds of argument – productivity and the additional incidence of indirect costs can be very challenging, particularly as to proof.
- A claim for prolongation costs is not, however, limited to the challenges of establishing proof of loss (and the link between those losses with the prolongation). Those kinds of dispute almost inevitably call for minute dissection of the delay, which returns us to the debates about the programmes, critical paths, and pulling apart suggestions of concurrent delay, see para 3.20.
- All of this leads inevitably to the issue of global claims, which are dealt with at para 3.23 and following. Sometimes, whether or not a claim is a global claim (in whole or in part) can be a matter of conjecture. The practice is ‘discouraged’, but the Protocol seems to accept that it cannot be eliminated.
Guidance Section 4 – Other Financial Heads of Claim
- This section deals with incidental financial based claims, such as interest claims. The provisions are fairly unexceptional, however, at 4.2.5, there is an express acknowledgement of a contemplation that if a party is deprived of funds, the contractor will either pay interest of lose the ability to earn interest.
- This might be thought to be a brave statement, particularly in government or closely associated group structures. What it does, however, is to bring the concept of interest claims within the scope of what is ordinarily contemplated by the parties as the consequence of delay, making the interest easier to claim. From a lawyers perspective, it brings interest in the scope of the first limb to Hadley v Baxendale (1854) 9 Exch 341 [156 ER 145].
- There is a reasonably detailed consideration of claims for head office overheads and profit. The principles are expressed in general terms. The prospect of providing 3 years of audited accounts to establish lost opportunity of profit claims is an interesting one, see para 4.3.4.
- The Protocol recognises that the proof of loss for head office overheads may be problematic, and acknowledges that if the actual proof cannot be reached, a resort to standard industry formula (Hudson, Emden, and Eichleay) might be appropriate, see para 4.3.7.
- The Protocol, in the current draft, does not endorse a particular formula. It does not, however, support the use of Hudson because of reliance on the tender, see para 4.3.9.
Guidance Section 5 – dealing with delay claims in the course of the project
- Section 5 revisits extension of time claims. It expressly “assumes that the parties to the contract have followed the recommended good practice on programmes and records set out in Guidance Section 2”, and here lies the qualification to the whole section.
- The Protocol procedures in this section deal with the generation of sub-programmes, called ‘sub-network’ or ‘fragnet’, to analyse delay. These are then analysed to identify various delay issues.
- These sub-networks obviously allow detailed analysis. However, they are victims of their assumptions, and the process requires care – particularly where in fitting the sub-network to the Updated Programme to work out effect, it is necessary to account for different assumptions, interests, and the like.
- One can see the advantages to this process in analysing the ultimate EOT and compensation provisions, however, advanced as a reconciliation issues on the run is a very complex exercise.
- It would seem to call for a substantial contribution from those tasked to manage and minimise the delay events themselves and to restructure and mitigate. One might wonder whether those operatives welcome the distraction of having to analyse a range of sub-networks whilst they are doing so.
- Extensions are only granted for the minimum time established. This is guided by the Updated Programme and what is predicted to be the effect of the Employer delay events.
Guidance Section 6 – delay analysis after the event
- The thrust of the Protocol is to support contemporaneous analysis of delay, and making decisions as to EOT etc at an early stage. Ultimately determining a party’s rights and entitlements will occur after the event. Section 6 addresses this, and circumstances were the contemporaneous assessment of delay does not occur.
- The premise of Section 6 is that, unlike the analysis procedures in Section 5, the ‘prospective time impact’ of an event is irrelevant. The Protocol, however, implores the use of common sense in analysing delay claims.
- At para 6.6 and following, the Protocol identifies 6 methods of delay analysis:
- Impacted ‘as planned’ analysis. This process uses the delay event sub-networks in conjunction with a logic linked baseline programme, to identify and measure delay. The focus on ‘as planned’ assumes a close relationship (or at least a reconcilable relationship) between the plans and the reality.
- Time impacted analysis – which is similar to the first analysis, but is premised upon contemporaneous analysis of time, programme, and logic links.
- Time-slice analysis. This is a ‘window’ analysis, in which the key features of the project are identified as a series of programming windows, and various ‘snapshots’ of these sub-programmes are considered.
- As planned vs as built – this is a broader process, also using ‘window’ analysis. It divides the process up into windows and undertakes the analysis, but does not use the detail including the contemporaneous documentation required for the time slice process.
- Longest path analysis – which involves a retrospective analysis to determine the as-built critical path.
- Collapsed as-built – which takes the as-built programme and extracts the delay events for analysis.
- There are a range of other methods, as set out in para 6.7. The Protocol merely recommends that the parties confer with a view to trying to agree the most appropriate in the circumstances.
Guidance Section 7 -disruption claims
- This last guidance section deals with the issues that involve a culmination of the kinds of issue that are canvassed earlier, namely the economic cost of productivity claims that a builder might suffer because of delays. At large is the question of the contractor’s productivity, and how that productivity is lost because of Employer risk events, variations and the like.
- In general terms, the issue is simple. The contractor had planned an efficient construction process, an Employer Risk Event raises causing delay and the contractor cannot now undertake the work as efficiently, productively, or, for it, profitably, and so the contractor wants to claim compensation.
- Disruption claims include issues such as crowded sites, stacked trades, excessive overtime, reduced supervision and the like.
- Disruption claims are usually hard to prove in precise terms, and often are part of global claims. Very often, there are a range of forces that impact profitability and efficiency at the same time. The task of dissecting the causes and effect (necessarily hypothetical) can be difficult, messy, and imprecise.
- The Protocol discusses 10 kinds of analysis. 8 “productivity based methods’ with increasing degrees of generality, and 2 ‘cost based’ methods.
- The productivity based methods are:
- Measured mile analysis – which is the most widely accepted. It involves analysing and comparing impacted productivity periods with non-impacted periods, estimating an effect and then extrapolating these for the impacted period.
- Earned value analysis, involves, in crude terms, measuring the hours used in the tender process and comparing this with the actual figures.
- Programmed analysis – uses specialist software and a comparison of source loaded programmes.
- Work or trade sampling – in which the contemporaneous records of direct works are analysed to determine productivity.
- Systems dynamics modelling – which involves computer simulations.
- Productivity based systems also include: Project Comparison Studies where the subject project is compared with other projects the contractor has undertaken, and Industry Studies, which is the same process, but involving general industry information about other projects. The challenges to using these methods are obvious.
- Failing Productivity analyses, the Protocol also recognises Cost Based Methods, which involve comparison of estimate and incurred cost and the implied relationship between them.
- The Appendices are very important to the understanding and operation of the Protocol.
- Appendix 1 contains the definitions and glossary. It gives 11 pages of these comments and definitions. These enhance the Protocol’s use as a common basis and record for dialogue.
- Appendix 2 sets out the detailed analysis of the records and programme provisions of the Protocol, again providing a common basis for nomenclature and dialogue.
- The Protocol provides a detailed and considered analysis of the various ways that delay and disruption disputes can be managed and prevented.
- The Protocol identifies “Core Principles” going to the various issues of record keeping, programming, delay claims, and cost claims for acceleration, delay, and disruption.
- It is not intended to be contractual, but is merely a guide and aide to how the contractual provisions might be construed and applied. This ambiguous role might well lead to confusion, particularly where the warning that it is not intended to override contractual provisions is not given sufficient attention.
- The Core Principles analysis is followed by 7 sections providing detailed guidance, followed by appendices providing more detail on definitions and upon the suggestions as to record keeping.
- As a statement of general principle, the Protocol is useful, particularly as it provides a common base for discussion and understanding about the name and context of different concepts.
- That being said, although it is intended for use on projects large and small, with the implication that the detailed procedures might be watered down to suit the size of the project at hand, the Protocol gives no guidance as to how that might occur. And what elements are important, what can be dispensed with, and what ought to be modified for smaller sized projects.
- More importantly, the Protocol has to be used with care, and should not be extended beyond its intended function. It rests upon a number of stated and unstated assumptions that should be verified and considered.
- Some of these arise from the fact that the Protocol is focussed on the domestic UK construction market. Some emerge from the fact that as a general statement, it necessarily must utilise a degree of generality. The generality will inevitably involve assumptions.
- When it comes to be used in an international project, particularly where the stakeholders operate from different jurisdictions, with different cultural, legal, and practical imperatives – as well as different languages and contexts. and whose understanding of ‘contract’ is not always the same, the Protocol should be used with care and circumspection. It is still useful, but requires care.
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‘Time and time again Philip demonstrates his prowess in dealing with complicated commercial and construction claims. His attention to detail is second-to-none, and his ability to get to the real issues in dispute is greatly appreciated by clients and the judiciary alike.’ … ‘His talent as an advocate is a real reflection on his vast and extensive knowledge of the law, procedure and practice.’
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Philip has often spoken and presented to various bodies in relation to building & construction matters, including Security of Payments, Home Building Act, property and strata law, various commercial law issues, including contract drafting, liability of professionals, guarantees and indemnities, the Building & Construction Industry Security of Payments Act and the Vienna Convention for the International Sale of Goods (CISG), as well as dispute management and alternative dispute resolution, environmental and planning law, the corporations law, the liabilities and obligations of professionals in the construction industry, the use and dealing with expert evidence, and the operation of various standard form construction contracts.
He has delivered papers in Hong Kong on: the NEC3 Contract and its use in Hong Kong, Adjudication under the proposed Hong Kong Security of Payments regime, and The Use and Presentation of Evidence in Commercial Disputes including BIM.
He is a fellow of the Hong Kong based International Dispute Resolution Academy (IDRA) which provides, amongst other things, training in international arbitration and advocacy.
He is a member of the NSW Bar Association (NSWBA), the Union Internationale des Avocats (UIA) (past Regional Secretary and past secretary to the Australian conference), National Environmental Lawyers Association (NELA), Australian Construction Law Discussion Group (ACLDG), Society of Construction Law Australia (SoCLA), Resolution Institute (formerly Institute of Arbitrators & Mediators Australia), Maritime Law Association of Australia & New Zealand (MLAANZ), International Chamber of Commerce (Australia) (ICC), Australian Insurance Law Association (AILA), The French Australian Lawyers Society (FALS), and he is also a Member of the Commercial Litigation Advisory Committee for the NSW College of Law and is a member of the Construction & Infrastructure Committee of the Business Law Section of the Law Council of Australia.
He is the author of Building Disputes and the Home Building Act 1989 (NSW) published by Thomson Reuters (with the 2nd edition in preparation), the Home Building section of the Building Service (NSW) also published by Thomson Lawbook Co, as well as National Building Service also published by Thomson, as well as various other papers.