The Society of Construction Law’s Delay and Disruption Protocol was finally published on 16 October last year. The final version differed substantially from earlier drafts in particular as regards the object and purpose of the Protocol which is now simply to provide guidance on the treatment of delay and disruption. Initial plans to promote the Protocol as suitable for incorporation as a contractual document have now (rightly) been abandoned, although the approach taken by the Protocol in relation to how delay and disruption should be treated in contracts might be reflected in the drafting of future contracts. How far the Protocol’s approach is adopted in the future will therefore be a measure of its success.
The Protocol came into being because there was widespread dissatisfaction from all interest groups with how delay and disruption was being treated both during the course of the works and after the contract was completed, if there was a dispute. The Protocol purports to provide a scheme for the management of change which is fair and balanced as between the differing interests of the parties to the contract and which is clear and comprehensive.
There is much to praise about the Protocol. It can fairly be said that it has tried hard to achieve balance and it is clear and comprehensive. For anyone involved in these issues it is recommended reading. But, disappointingly, it does not provide a practical solution for some of the major problems. It is therefore comparable to the curate’s egg – good in parts. Sadly, the bad bits are likely to make the overall scheme unworkable in many contracts.
This article will focus on two elements of the Protocol that fall short of what is practical and workable. The article is therefore itself lacking in balance because it will not highlight what is good and sensible. However, commentaries published thus far in the construction and legal press have, with some exceptions, concentrated on being upbeat and encouraging and reference can be made easily to them.
In short, there are problems with the Protocol’s recommendations for handling disputes during the course of the works and the method of delay analysis.
Disputes during the course of the works
The Protocol recommends that “applications for EoT should be made and dealt with as close in time as possible to the delay event that gives rise to the application”. This must be right. However, disputes frequently arise over the level of extension of time (EoT) that is granted during the course of the contract (and this is likely to continue even if the parties follow the recommendations regarding upkeep of the programme and keeping of records). Where disputes arise the Protocol recommends swift referral to adjudication.
Adjudication on time related disputes, however, is not always a practical or helpful remedy during the course of a contract. The reasons for this include the practical difficulties that arise if it is subsequently found that the adjudicator’s decision was wrong and an EoT should/should not have been granted. By this time the parties have taken actions that they may not have taken had they not been bound by the adjudicator’s decision. Also, in some cases adjudication is not suitable because of the relationship between the parties and the potential for bad feeling. Alternatively, the Contractor may not have the resources to spend time on an adjudication at the relevant time, or there may be so many disputes that the adjudication process becomes too much of a burden and therefore unproductive.
The Protocol provides that where there is a disagreement between the Contractor and the Contract Administrator (CA) over liability for an event or the effect of an event, the CA’s view should prevail unless and until overturned by the contract’s dispute resolution procedures. If adjudication during the contract is such a bad idea, how, you might ask, is the Contractor to proceed?
In many projects a Contractor, having notified the CA of a dispute over an interim EoT award, may spend money and apply additional resources in order to satisfy its contractual obligation to complete on the contractual completion date, despite believing it is entitled to more time. Often it seeks to recover from the Employer these additional costs. Its other alternative is to complete late and take the risk of the Employer deducting liquidated damages (if in the meantime the CA has not granted an EoT to cover the delay).
In these circumstances, as long as the steps the Contractor takes to mitigate the delay are:
- reasonable and proportionate, and
- it notifies the Employer of the additional costs which are likely to arise as a result, and
- the Contractor can show after the event that it was entitled to an EoT at the relevant time,
there is no reason why these additional costs should not be claimed as disruption/loss and expense flowing from the original Employer Risk Event. Furthermore, as a matter of fairness (rather than as a reflection of current law) there can be no justification for the stance taken by the Protocol that ‘after the event’ claims for constructive acceleration are not recommended.
This recurrent issue in construction contracts needs to be recognised and a formula recommended for how it might be resolved. One way of achieving balance and fairness would be to recommend a model clause for contracts providing that where the CA fails without good cause to grant an EoT timeously following the Contractor’s application during the course of the contract, the Contractor shall be entitled to be paid any loss and expense incurred (including in effect the costs of accelerative measures reasonably adopted) flowing from that failure. This would have the same effect as a claim for constructive acceleration but would put pressure on the CA to address EoT issues as and when they arise and decide them fairly then and there (which is the policy objective of the Protocol) rather than letting him hedge his bets until the effect of an event has been played out and is certain. The hedging approach is unfair on the Contractor who has to make decisions about how to proceed with the works (including any decisions about reprogramming or increasing planned resources) at the time the event occurs, often in ignorance of whether an EoT will be granted or not.
Delay analysis methodology
A number of issues arise from the recommendations set out in the Protocol regarding the appropriate methodology to use when analysing delay. The Protocol properly differentiates between how applications for EoT should be analysed and treated as they arise during the course of the contract and how disputed EoT issues should be treated after completion of the project. For EoT applications during the course of the works, the Protocol recommends a “prospective” analysis of the delay using time impact analysis. This methodology relies heavily upon the production and updating of an accepted programme (which uses critical path method project software) and the keeping of comprehensive records of progress. The protocol’s recommendations in this respect, although somewhat onerous particularly for smaller contracts, seem sensible and logical. It appears that the time impact analysis method will show at the relevant time (ie at the time that the Event occurred) the likely effect of the particular Event which will give rise to an entitlement to EoT.
In many contracts the CA has an obligation to assess the likely effect of Events as they occur (ie the prospective approach) but also has an obligation to review entitlement to EoT at the contractual completion date and the time of practical completion. This secondary obligation to review requires from the CA a “retrospective” analysis of the delays that have actually occurred to the works. The Protocol suggests that the time impact analysis method can also provide a retrospective analysis, but does not explain how.
The CA’s decision pursuant to this latter obligation is the one that the court/arbitrator is more likely to open up and review for the purpose of identifying, after the event, the Contractor’s entitlement to EoT and relief from Liquidated and Ascertained Damages (LADs), as it would be illogical and ultimately sterile to establish and review the likely effects of an Event when the works are complete and facts relating to the actual effect are available for analysis. But this is not the approach adopted by the Protocol. The Protocol recommends that, “in deciding entitlement to EoT after completion of the project, the adjudicator, judge or arbitrator should so far as is practicable put him/herself in the position of the CA at the time the employer risk event occurred.”
In my view this recommendation is fundamentally flawed. Imagine the investigations that would have to be carried out into what the CA knew or should have known at the time of the application. Imagine the hours spent analysing what was likely to have occurred (taking into account what the CA reasonably believed the Contractor could do by way of mitigation). Such an approach is difficult and ultimately unsatisfactory. What is needed is a good old fashioned comparison of what was planned against what actually happened.
In fact, both a prospective and retrospective analysis is probably required for a proper after the event investigation into delay on a project. An assessment of likely delay at the time the delaying event occurs is helpful to demonstrate the reasonableness of acceleration or mitigation measures undertaken by the Contractor (for which the Contractor may be seeking compensation) after the delaying event in order to reduce the actual delay to the contract. However, as stated above, for the purpose of post completion analysis (by court or arbitrator) a retrospective analysis is also required to show actual delay to completion and it will be this analysis that should form the basis of an after the event EoT claim. An analysis of actual delay is also required if a claim for prolongation is to be made in respect of the event which led to actual delay to completion.
It is not clear that time impact analysis provides retrospective analysis sufficient to prove which events caused actual delay to completion and the amount of delay attributable to each. It may provide a basis for intelligent extrapolation but this may lead to an impressionistic approach that may not reflect the complexities of the situation.
In summary therefore, although good in parts, the SCL Protocol has not resolved major practical difficulties all too commonly faced when parties fall out over responsibility for delay and disruption. Sadly (but not just as a result of the Protocol) disputes over these issues are likely to continue. Nonetheless the debate that has accompanied the publication of the Protocol has certainly raised the profile of these matters and may lead to better understanding between Employers and Contractors. After all, it's good to talk.
For further information please contact Caroline Cummins at caroline.cummins@cms-cmck.com or on +44 (0)20 7367 2914.
