The Contractor’s Financial Claim – Part Four

In Part Three, the DAB reviewed the Contractor’s delay analysis, their computation of disruption costs linked to the delay analysis, and the associated prolongation costs.

1. The DAB’s decision

Arnold: Out of the six claim heads, we awarded a total of approximately USD 5M, broken down as follows;

The basis of the award for claim heads 1 and 2 was our discretionary power, whereas the Contractor’s contemporary records facilitated our cost calculations for the sum awarded under claim head 6.

Me: What is discretionary power? 

Arnold: Discretionary means the right to decide on something based on one’s own judgement. The DAB has discretionary power. In this case, the contract parties engaged us (the DAB) from commencement of the works, and we were able to determine (based on our judgement) what the Contractor was or was not entitled to, under the prevailing circumstances.

Discretionary means the right to decide on something based on one’s own judgement. The DAB has discretionary power. In this case, the contract parties engaged us (the DAB) from commencement of the works, and we were able to determine (based on our judgement) what the Contractor was or was not entitled to, under the prevailing circumstances

Me: What was the Employer’s reaction to this award?

Arnold: When we issued our decision, the Employer had three options at their disposal.

1. Compensate the Contractor the full amount recommended by the DAB.
2. Try to negotiate the award by initiating the contract provision of amicable settlement.
3. Contest the DAB’s decision and opt for arbitration.

The Employer triggered the contract clause for amicable settlement and the contract parties mutually agreed to uphold our decision. Thereafter, the contract parties formally discharged the DAB.

The Employer triggered the contract clause for amicable settlement and the contract parties mutually agreed to uphold our decision. Thereafter, the contract parties formally discharged the DAB

Me: If the contract parties had not reached an amicable agreement, what would have been the next course of action? 

Arnold: The contract parties adopted a FIDIC form of contract, embedded in which is a comprehensive dispute resolution procedure, where the DAB is the first level of dispute resolution. Had the parties failed to reach an amicable settlement, the next step would have been international arbitration according to the rules and procedure of the International Chamber of Commerce (ICC) and possibly litigation, thereafter. These are long, complicated and expensive processes.

The DAB is a pre-arbitral step provided by the FIDIC conditions of contract. From my experience, contract parties should avoid litigation especially in scenarios where a full-time DAB issues a decision. Unlike an adhoc DAB, a full-time DAB is more intimate with the issues on the project, and they are normally in a better position to issue a balanced decision.

The DAB is a pre-arbitral step provided by the FIDIC conditions of contract. From my experience, contract parties should avoid litigation especially in scenarios where a full-time DAB issues a decision. Unlike an adhoc DAB, a full-time DAB is more intimate with the issues on the project and they are normally in a better position to issue a balanced decision

Me: What are the demerits of arbitration or seeking further redress though litigation in court?

Arnold: Well, the demerits of litigation are in a sense the merits of respecting DAB decisions.

1. Adjudication decisions may enable the contract parties form a good basis for amicable settlement if there is willingness from either contract party to preclude arbitration or litigation.
2. The DAB, if well constituted and engaged full-time, normally comprises professionals who are conversant with the complexity of the construction works, and the series of events leading up to the dispute. Opting for an arbitration or litigation process would not only be too costly for either of the contract parties, but would expose them to third parties who may not be technically competent or conversant with the genesis and complex nature of such disputes under the unique circumstances of different projects.
3. Under adjudication and arbitration, the contract parties select the decider, whereas in court, a judge is assigned without input from the contract parties, and court proceedings are controlled by statutory and procedural rules. In addition, established rules of evidence govern the conduct of the trial. Under litigation, the dispute resolution process can spiral out of control and justice for either of the contract parties is not a guarantee.

Under litigation, the dispute resolution process can spiral out of control and justice for either of the contract parties is not a guarantee

Me: Thank you.

Arnold: You are welcome.

The Builders’ Garage convened a follow up meeting with Arnold in October 2019 to discuss the latest developments on delay analysis methodologies and global claims.

Me: We have learnt that there have been new developments in regards to delay analysis methodologies and global claims. Is that so?

Arnold: Yes, please. However, these new developments occurred in special circumstances and they somewhat set a precedence for resolution of future disputes.

1. The SCL Protocol and delay analysis methodologies

The SCL Delay and Disruption Protocol (now in its second edition) is a document published by the Society of Construction Law (SCL) to provide useful guidance on some of the common delay and disruption issues that arise on construction projects. It sets out six commonly used forms of delay analysis in construction disputes, together with certain criteria which it recommends be applied to determine the most suitable method.

However, in late 2019, the New South Wales Court in Australia considered the evidential requirements for proving delay claims in construction disputes. The court’s decision comments on the relevance of the SCL Delay and Disruption Protocol and on two popular delay analysis methodologies i.e. As-Planned v As-Built Windows Analysis and Collapsed As-Built Analysis, contained in the SCL Protocol. In the circumstances of this case, the court ultimately rejected both methodologies and preferred a broad common sense approach.

The court’s decision highlights the importance of delay experts attempting to agree on an appropriate methodology at the outset. Although differences in methodology can favour one parties’ case over another, disagreement over methodology can prove extremely wasteful. Debates over methodology can take on a life of their own and distract adjudication, arbitration or court proceedings from important factual issues. The court, in this case, felt unable to support either of the methodologies adopted by the contract parties, and was forced to do its best with a broad common sense approach.

Although differences in methodology can favour one parties’ case over another, disagreement over methodology can prove extremely wasteful. Debates over methodology can take on a life of their own and distract adjudication, arbitration or court proceedings from important factual issues

     2. Global claims

Global claims are claims where a claimant simply puts forward a sum as contractual compensation arising from various breaches of contract. By advancing a global claim, claimants consider it easier, quicker and cheaper to seek compensation of whatever form because they avoid the need to attribute specific losses to specific breaches of contract.

When construction projects experience delays from either of the contract parties, some of these delays have the tendency to prolong the critical path to completion while some may only consume part of the available float on the programme of works. The former are compensable while the latter are not. Delay events start and end at different times and they may or may not be interlinked.

Arising from this complex interaction of delay events, claimants tend to advance global claims because it is extremely difficult, if not impossible, to precisely identify the actual cause and effect of isolated delay events, and hence the overall compensation claimed. Global claims do not provide a proper basis for claimants to meet the required standards of proof and in the past, the courts dismissed them out of hand.

Global claims do not provide a proper basis for claimants to meet the required standards of proof and in the past, the courts dismissed them out of hand

Lately, some courts have adopted a more permissive stance on global claims, rejecting the narrow approach to global claims in which the claimant’s claim might fail simply because small elements of it are not shown to be the responsibility of the defendant. These courts now support recourse to a global claim where there is a complex interaction between various different heads of claim, and where it is impractical or impossible to breakdown the claim between those heads.

This means that even if some of the events on which a claimant relies are not actually the responsibility of the defendant, the global claim should not necessarily fail because it may still be possible to apportion the loss as between the causes for which the defendant is responsible and other causes, if sufficient evidence is presented. The global claim can now only be defeated where the defendant shows he is not liable for a significant part of the total costs claimed. 

Even if some of the events on which a claimant relies are not actually the responsibility of the defendant, the global claim should not necessarily fail because it may still be possible to apportion the loss as between the causes for which the defendant is responsible and other causes, if sufficient evidence is presented. The global claim can now only be defeated where the defendant shows he is not liable for a significant part of the total costs claimed

 

Me: Thank you. This is quite insightful.

Arnold: You are welcome.

The End

© The Builders’ Garage 2020. Permission to use this article or quotations from it is granted subject to appropriate credit being given to thebuildersgarage.com as the source.