The Contractor’s Financial Claim – Part Three
Part Two concluded with the proceedings of the first day of the DAB hearing. Both parties presented their position on the Contractor’s claim. On the days that followed, the DAB undertook a detailed examination of the merits of the claim and issued a decision.
Day Two and Three
- The Contractor’s delay analysis
Arnold: The Contractor adopted the Impacted As-Planned technique (IAP) for their delay analysis.
Me: What technique is this and what is the essence of delay analysis?
Arnold: The IAP technique measures the impact of the delays on the as-planned (baseline) programme. The delays are formulated as activities and added to the baseline programme to show the effect of each delay on the overall project. The amount of delay equals the difference in completion dates between the programme before and after the delay events.
The IAP technique measures the impact of the delays on the as-planned (baseline) programme. The delays are formulated as activities and added to the baseline programme to show the effect of each delay on the overall project. The amount of delay equals the difference in completion dates between the programme before and after the delay events
Regarding the delay analysis, the Contractor used the baseline (approved works) programme to demonstrate the impact of the delay events, and derived the financial implication of the delay events for which the Employer was deemed culpable. By doing so, the Contractor sought to restore himself to the position he would have been if the Employer were not in breach.
Me: Were you satisfied with the method he adopted?
Arnold: The IAP technique is a simple form of delay analysis but it is notorious for being too theoretical.
The baseline programme for this project was not static yet the IAP technique is only suitable where a baseline programme is static. In addition, it must be compared to an equivalent programme, which would show what the Contractor would have achieved with his verified inputs, taking into consideration his own delays.
The Contractor’s delay analysis was based on the as-planned programme which the Contractor did not follow precisely, and it did not account for the Contractor’s concurrent delay.
In seeking cost compensation for delays, the Contractor ought to have measured the loss of productivity and then priced the loss. Instead, the assessment performed by the Contractor ascertained the difference between the actual costs incurred versus the contracted costs for performing work, without a prior measurement of the productivity achieved with the utilised resources.
In a nutshell, we concluded that the IAP technique was not a satisfactory method to establish the delays and award associated costs.
We concluded that the IAP technique was not a satisfactory method to establish the delays and award associated costs
Me: Did you dismiss the claim?
Arnold: Would you like us to jump straight to our decision before appreciating the genesis of it?
Me: Certainly not.
Arnold: The Employer’s decision to increase the scope of work, coupled with the ambiguous political climate in the area, and delays in compensation of project-affected persons on the bypass carriageway genuinely caused disruption of work but neither the Contractor nor the Employer kept sufficient contemporary records to substantiate the delay events.
The Employers decision to increase the scope of work, coupled with the ambiguous political climate in the area and delays in compensation of project-affected persons on the bypass carriageway, genuinely caused disruption of work but neither the Contractor nor the Employer kept sufficient contemporary records to substantiate the delay events
- Evaluation of disruption costs linked to the contractor’s delay analysis
Arnold: The evaluation of labour, plant and equipment in the Contractor’s claim for unrecovered costs was on a “global apportionment” basis relative to the predicted costs at the time of tender, rather than identifying the precise effect of the delay and disruption to the affected activities and resources. This method did not account for concurrent delays and the effects of any delay mitigation measures adopted by the Contractor.
Based on past precedents, global claims are admissible when (i) the actual costs are reasonable (ii) all events contributing to the loss are compensable and (iii) if, the Contractor can prove that he did not contribute to the cost increase in any way. Thus, the Contractor was obliged to exclude costs for which they were culpable but they did not. In addition, employing resources to work on sections with hindered access cannot be justified if gainful deployment of the resources on alternative work-fronts was possible.
Whilst the contractor diligently notified the Employer of delays and disruptions, he relied on the evidence of the consequential effect that combines a flawed IAP technique with unsupported assessments of the delay events.
By the end of day three, we realised that the Contractor’s reliance on a global assessment of additional costs arose from failure to comply with the contractual requirement to keep and submit the necessary contemporary records. In addition, there was no record of the Employer monitoring the record keeping of the Contractor or instructing him to keep more records of the notified delays in accordance with the contract.
We realised that the contractor’s reliance on a global assessment of additional costs arose from failure to comply with the contractual requirement to keep and submit the necessary contemporary records
Arising from the Employer’s changes to the original scope of work, the supervising Engineer was, for much of the time, under pressure to meet the Contractor’s construction requirements. Whilst the Engineer delivered most of the revised construction drawings on time for construction works to commence, others were not delivered on time. Without bankable contemporary records, it was difficult to assess the cost increase of these disruptive effects.
However, we were convinced that in awarding a 12 months extension to complete the outstanding construction works, the Employer implicitly accepted that he was culpable for some of the delays. In addition, many of the delay events were at the early stages of the works, when re-deployment of the Contractor’s resources to alternative work-fronts was not possible because of the combined restriction of unresolved compensation and re-design issues.
In awarding a 12 months extension to complete the outstanding construction works, the Employer implicitly accepted that he was culpable for some of the delays
In view of this, we took a balanced but conservative view in our final decision.
Me: I think, on the balance of it, your approach was reasonable. How did you treat the claim heads associated with political events and loss of income linked to delayed invoicing for completed works?
Arnold: A part of the contract provision on limitation of liability states that neither party to the contract shall be liable to the other party for loss of use of any works, loss of profit, loss of any contract or for any indirect or consequential loss or damage, which may be suffered by the party in connection with the contract.
Therefore, besides the valid delays associated with unfavourable ground conditions and challenges working with existing utility services, which were, for the most part a result of additional scope of works, the Contractor’s losses resulting from political events were foreseeable.
Besides the valid delays associated with unfavourable ground conditions and challenges working with existing utility services, which were, for the most part a result of additional scope of works, the Contractor’s losses resulting from political events were foreseeable
Based on the Employer’s defence, we deemed this a consequential loss and not one of force majeure. In any case, the Contractor lacked bankable contemporary records to demonstrate the full extent of the disruption associated with political events.
Me: This seems to be a case of the Contractor failing to appropriately profile and manage all the project risks at the tender stage, or an attempt to take undue advantage of the prevailing situation to get more than their fair entitlement, out of the claim.
Arnold: Yes, normally Contractors should price these kind of risks into their financial offer.
Regarding the loss of income associated with delayed invoicing for completed works, we considered this to be substantially due to the Contractor’s slow progress and not so much the Employer’s delay. Delayed revenue ought to be accompanied by a delayed cost burden, neither of which was part of the Contractor’s analysis.
Delayed revenue ought to be accompanied by a delayed cost burden, neither of which was part of the Contractor’s analysis
- Evaluation of prolongation costs
The indirect costs associated with prolongation of the works by 12 months comprised (i) costs for extension of the advance payment and performance guarantees (ii) utility costs for running the site offices and (iii) contribution of the Contractor’s head office overheads to the road project.
We derived the Contractor’s entitlements based on the contract price(s) for executing the works and bankable documentary evidence of the actual costs incurred.
Me: How were the prolongation costs derived?
Arnold: This is a discussion we should have another day.
Day Four and Five
We spent day four gathering all the documentary evidence necessary to complete our decision. On day five, we called in the contract parties to inform them of our findings.
In Part Four: The DAB issues their decision, setting the scene for an interesting journey to an amicable settlement between the contract parties.
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