Time

05 Oct, 2015 FOREIGN & INTERNATIONAL LAW 0

Chapter 7
Time

7.1 Time in construction

The concept of time, particularly in terms of time for completion, is one of the most important legal and managerial aspects in a construction project and ranks among the top priorities of construction project participants. When discussing ‘time’ in a construction context, we usually think of time for completion. However, contracts contain many other specific time-related provisions and issues, for example, reaction periods, periods for mutual notices, fulfilment of partial duties, and so on.

7.2 Delay

Delays may be caused by the employer, the contractor, the contract administrator, third parties or by reasons beyond the parties’ control. This may lead to an extension of time for completion (EOT). Sometimes only some works (activities) are delayed and do not require an extension of time for completion, but may result in disruption (see below), i.e. more difficult working conditions.

Delay may lead to damages on the employer’s side and are typically in the form of:

delayed yield (or public benefit) from an investment;
increase in the price of the work and respective complications in relation to lenders;
defective cash flow;
loss of employer’s goodwill.

If found responsible, the contractor may be sanctioned or be ordered to pay damages, in the form of:

contractual penalty/delay damages;
damage compensation;
loss of performance bonuses; or
loss of contractor goodwill.

If it is necessary to speed up the construction process, acceleration becomes an issue of interest to construction project participants (see Chapter 8).

An excellent summary of the principles applicable to claims for delay was set forth in the ICC case no. 12654 (ICC, 2012). Two European companies (incorporated as a limited liability company in a Balkan country), as the contractor, had to build a two-lane road for the local Ministry of Transport (General Roads Directorate) as the employer from the same country. The contractor argued that it was not given possession of the site in due time because the employer was late in expropriating and evacuating the necessary plots of land. On the other hand, the employer argued that the contractor had not submitted the final design for the road on time which prevented the employer from expropriating the land necessary to give the contractor possession.

The ensuing tribunal held that if a contractor is delayed in completing the work, its cost of performance increases simply because those elements of its cost that are dependent on time require more time. For example, the contractor is likely to have ‘field’ overheads cost for its field offices, telephones and field supervision. These costs (being directly time-related) represent pure delay cost. In addition to the purely time-related delay cost, the contractor’s cost of performance may increase because: (1) delayed work itself is completed in an unproductive manner; or (2) subsequent related work may be done out of sequence or on a piecemeal basis instead of as an uninterrupted sequence as planned. Labour productivity rates may suffer as a result, causing contractor costs to increase. Although these disruption costs may, in the proper circumstances, be compensable elements of delay damages in that they are incurred as the result of delay, they may also be caused by factors unrelated to delay.

In order to recover its additional costs, it is not enough for the contractor to show that work was completed later than planned and that the contractor experienced coincidental cost increases. To demonstrate its entitlement to compensation for delay damages, the contractor must demonstrate that under the governing contractual provisions the delay is excusable—that is, the delay was of a type for which the contractor is not contractually liable—and that the delay is also compensable—that is, the delay was of a type which entitles the contractor to compensation and not just an extension of time to perform the work. Having established its entitlement to damages, the contractor must then demonstrate the quantum of its resulting damages.

Stated simply, excusable delays are those delays from which the contractor is excused from liability. As a general rule, a contractor is excused from liability for delays that are the result of causes beyond the contractor’s control and delays which are the result of causes that were not foreseeable.

The contractors are entitled to compensation if they can show that they did not concurrently cause the delay and they can quantify its damages with reasonable certainty. Once the contractors have established that the individual delay for which an extension of time sought is excusable and, if compensation is sought, compensable as well, it is necessary to determine whether or not the contractors were independently delaying the work. If the contractors would have been delayed in any event by causes within their control, that is, if there was a concurrent non-excusable delay, the general rule is that it would be inequitable to grant the contractors either an extension of time or additional compensation; unless the contractors can segregate the portion of the delay which is excusable and/or compensable from that which is not. The contractors bear the burden of proving the extent of the delays for which they seek compensation and, in addition, the burden of proving damages incurred as a result of such delays. For the purposes of determining whether the project was delayed and for the purposes of apportioning delay, only delay on the critical path of the project figure in the analysis as relevant because, by definition, delays not on the critical path will not delay the completion of the project.

The tribunal ultimately concluded that part of the delay in giving possession of the site was due to the employer and awarded the contractors part of their claimed cost.

7.3 The United Kingdom Society of Construction Law Delay and Disruption Protocol

In general, the common, significant aspects of construction project time management such as delay, disruption, time programme details, float and concurrency are insufficiently dealt with by sample contracts (including those of FIDIC), local codes of best practice and governing law. The most widely known exception is the United Kingdom with the SCL Protocol (the Delay & Disruption Protocol, published by the United Kingdom Society of Construction Law; free downloads are available at http://www.scl.org.uk/resources) that can be made a part of the contract by reference.

The United Kingdom Society of Construction Law published the SCL Protocol in 2002 to help construction project participants deal with time management issues that arise within construction projects by offering well-established dispute prevention and resolution methods. The SCL Protocol provides the fundamental rules applicable to delays, disruptions and compensation in its four parts:

Guidelines on the SCL Protocol’s position on Core Principles and on other matters relating to delay and compensation.
Guidelines on preparing and maintaining programmes and records.
Guidelines on dealing with extensions of time during the course of the project.
Guidelines on dealing with disputed extension of time issues after completion of the project—retrospective delay analysis.

The SCL Protocol proposes an approach to extension of time for completion claims and delay compensation at different phases, for example, before realization, during contract administration and in dispute resolution. The authors of the SCL Protocol clearly emphasize in the Introduction that the issue of delay and disruption raises many questions that have no definitive answers and must be assessed on a case-by-case basis. Despite extensive and constant critique in the UK, the SCL Protocol remains a useful reference and unique guide for time management in construction projects. A new form of contract was recently published in the UK which is the first to adopt the principles contained in the SCL Protocol (the CIOB Complex Projects Contract 2013 form of contract).

According to the SCL Protocol, delay and disruption issues that ought to be managed and dealt with by contractual provisions all too often escalate into full-blown disputes that have to be decided by third parties such as adjudicators, dispute review boards, arbitrators and judges. The number of such cases could be substantially reduced by the introduction of a transparent and unified approach to the understanding of programmed works, record keeping methods and identifying the consequence of delay and disruption. Users of the SCL Protocol should apply its recommendations with common sense. The SCL Protocol is also intended to be a balanced document, reflecting the interests of all parties to the construction process equally. Some of its main features and principles will be discussed below.

7.4 Time programme

One of the main goals of a good contract is to reduce claims and variations that may occur within construction projects while respecting that claims and variations are inevitable. Even the best contracts need tools to enable efficient claim and variation management. Next to the respective provisions for variation and claim management (such as those contained in Chapters 13 and 20 of the FIDIC forms), an instrument to control time for completion is important in this regard. The time schedule (the ‘programme’ in the FIDIC forms) is one of the most important tools to be used by individual project participants for the purpose of successful project management.

According to the SCL Protocol, the contractor should prepare (and the contract administrator should accept), a properly prepared programme showing the manner and sequence in which the contractor plans to carry out the works. The programme should be updated to record actual progress and any extensions of time granted. If this is done, then the programme can be used as a tool for managing change, determining extensions of time for completion and periods of time for which compensation may be due. Contracting parties should also reach a clear agreement on the type of records that should be kept.

According to the SCL Protocol, most standard forms of contract contain inadequate requirements for generating an accepted programme and/or keeping it up to date. The SCL Protocol recommends that the parties reach a clear agreement on the programme. The agreement should cover:

the form the programme should take (including critical path and key resources attributed to particular activities);
interaction with the method statement describing in detail how the contractor intends to construct the works and the resources (including sub-contractors) and being fully cross-referenced with the programme;
the ‘reasonable’ time within which the contractor should submit a draft programme for acceptance. Reasonable time will depend on the complexity of the project and should, ideally, be determined before the works are started.
a mechanism for obtaining the acceptance of the contract administrator of the draft programme. The contractor and not the contract administrator controls the method and sequence of construction and bases the tender price on their ability to do so. Therefore, the contract may contain a provision to the effect that if the contract administrator does not respond to the contractor regarding the programme within a specified time, it should be deemed to be accepted. Disagreements over what constitutes the accepted programme should be resolved immediately and not be allowed to continue throughout the project. The SCL Protocol recommends the use of incentives or penalties such as liquidated damages to ‘encourage’ the contractor to prepare and up-date the programme.
requirements for updating and saving of the accepted programme. Actual progress should be recorded on a monthly basis by means of actual start and actual finish dates for activities together with percentage completion of currently incomplete activities and/or extent of remaining activity duration.
methods of keeping accurate and current records.

7.4.1 Critical path method

The critical path method (CPM) was developed to reduce time-related disputes and enable efficient time management. In practice, a contract may include the contractor’s obligation to mark out a critical path in the programme whenever it is submitted (updated). Under the SCL Protocol, the critical path is defined as the ‘sequence of activities through a project network from start to finish, the sum of whose durations determines the overall project duration’. There may be more than one critical path depending on workflow logic. A delay to progress of any activity on the critical path will, without acceleration or re-sequencing, cause the overall project duration to be extended, causing a critical delay.

The critical path method is, therefore, the process of describing the critical activities in a programme by tracing the logical sequence of tasks that directly affect the date of project completion. It is a methodology or management technique that determines a project’s critical path. The resulting programme may be depicted in a number of different forms, including a Gantt or bar chart, a line-of-balance diagram, a pure logic diagram, a time-scaled logic diagram or as a time-chain diagram, depending on the nature of the works represented in the programme.

The position of the SCL Protocol is that the contractor should submit (and the contract administrator should accept) a programme (using commercially available critical path method project planning software) showing the manner and sequence in which the contractor plans to carry out the works. This should be done as early into the project as possible. Both the contractor and contract administrator should have a copy of the software package used to prepare the project programme. For the programme to be suitable for use as a tool for the analysis and management of change, it must be properly prepared so that, when a change occurs, it can accurately predict the effects of that change. The programme should be provided in electronic form to the contract administrator and the critical path should be identified by the contractor. Every project has at least one critical path consisting of a list of activities that should be under constant supervision to secure the timely completion of the project.

The continuous monitoring and evaluation of the critical path and the causes of delay and disruption are often the only way to manage the variations and claims (including the effect on cost). The CPM allows easier and more efficient coordination of mutually related activities within a project.

7.5 Ownership of floats

Comprehensive time schedules in large construction projects cover an enormous volume of activities that are interrelated, overlapping and running concurrently. Each of them can contain a time allowance at their beginning and end. In the case of delay and extension of time for completion, it often becomes difficult to determine who is entitled to make use of this allowance (the float, that is, the time for completion not described in the critical path). A time schedule is usually prepared for tender by the contractor who distributes floats in their own favour (to procure materials, subcontractors, plants, and so on) and to reduce realization risks on their side. Such an apparent float may sometimes be a part of an indicative time schedule in employer tender documents. A widely accepted approach is to stipulate within the governing law or in a contract clause who owns these floats (their creator, the employer, the project, etc.).

In Section (a) 1.3.1, the SCL Protocol deals with ownership of floats, concluding that:

Unless there is express provision to the contrary in the contract, where there is a remaining float in the programme at the time of an Employer Risk Event, an EOT should only be granted to the extent that the Employer Delay is predicted to reduce to below zero the total float on the activity paths affected by the Employer Delay.

The authors of the SCL Protocol themselves warn that the adequacy of this rule must be considered on a case-by-case basis. For example, a situation may appear when the contractor-scheduled float may need to be drawn down due to a delay caused to the contractor by the employer, for example, when the employer delays the contactor by late submission of design approval. The contractor then appears to be in default by reason of milestone delay. This means that if a contractual penalty is sought by the employer, it would almost certainly be in conflict with good manners.

The SCL Protocol further advises the contractor to identify every such float for the related activity by demonstrating their ‘ownership’ of it.

Time extension and float ownership under the FIDIC Red and Yellow Books (1999 editions) (BAMCO FDTEA final argument) by Frank Thomas (France)

In the construction industry, delay claims have been the subject of many debates and disputes between employers and contractors. This is especially so in cases where construction contracts do not explicitly establish the quantum technology to be applied when determining time extensions and handling float ownership. Disputes then usually become unavoidable. Currently, the majority of planning of the design and construction works is performed by powerful critical path method (CPM) planning software on computers operated by program specialists. Today, more and more Employers require Contractors to prepare their programs with specific CPM planning software. The main advantage of CPM planning software is that it is capable of breaking down the works into multiple detailed activities. Each activity has a specific duration and is interlinked to a sequence of activities (networks) with specific relationships in accordance with the construction logic and other time constraints (key dates, resources, working time, etc.). A CPM program also enables the Contractor to identify the critical path and to monitor the works progress in real time, thus enabling the preparation of program updates whenever required. In addition, the contractor is also able to more precisely forecast the cost expenditures and to achieve the project within the planned time and cost budget by allocating and uploading the resources in the program.

Programs prepared with CPM techniques also have another great advantage: they are ‘dynamic’. This simply means that any program with a proper critical path is able to simulate a ‘what if’ scenario. For example, if a delay occurs during the construction period and delays specific activities, then it is possible to insert such a delay into the program. The potential effect on the project completion date can then be simulated by using a specific delay analysis technique (e.g. impacted as planned, time impact analysis). It is then possible to predict the effect of such a delay on the project completion date in a prospective manner which should then enable the engineer to determine any time extension efficiently. The CPM planning software is therefore a ‘dynamic’ tool capable of demonstrating the effect of delays on the completion date.

One major disadvantage of CPM planning software is that it is complicated to use. Prior to becoming a successful CPM planning software operator, a long training period will be necessary in order to become familiar with all its features. This long learning curve and the difficulties encountered with CPM algorithm planning technicalities often discourage many construction engineers and lawyers from learning even the basic principles of the CPM planning software language. Operating CPM scheduling software should, however, be distinguished from programming such software. To draw a comparison: many people today use smartphones without knowing how they are actually programmed. It is true that construction planning software is not as user-friendly as the millions of applications developed for smartphones. However, some fundamentals like the intrinsic critical path logic of the planning software can be relied upon in order to establish the effect of delays on the project completion. In other words, it is possible to understand the meaning of a critical path in the CPM planning software language without the need to become a specialized CPM operator.

In this vignette, I analyse the question of time extension determination and float ownership under the FIDIC Red and Yellow Books (1999 editions). The aim is to demonstrate that the time extension mechanism provided under these Contract forms is actually reasonably clear and understandable when the standardized critical path terminology of the CPM planning software language is well understood and applied by the FIDIC contract users. It is true that Sub-Clause 8.4 does not refer to any ‘critical path’ or ‘float’ terminology. It does not mean, however, that such terminology should be ignored when it comes to the evaluation and determination of delay claims under the FIDIC conditions of contract. ‘Critical path’ and ‘float’ terminology is sometimes used by construction engineers and lawyers without knowing its true meaning in the CPM scheduling software language. Its proper definition and understanding in the CPM algorithm planning language are, however, very useful for FIDIC practitioners because it should help them to anticipate or solve disputes on many delay claims issues.

At first glance, it seems that the FIDIC Red and Yellow Books do not regulate the manner in how time extensions should be actually presented, evaluated and determined. Is it really so? By cross-referencing the relevant Sub-Clauses 8.2, 8.3, 8.4 and 10.1 of the general conditions of contract (‘GCC’) of the FIDIC Red and Yellow Books (together with the meaning of the critical path mechanics of the CPM planning software language), it is possible to determine appropriate time extension quantum methodologies and to resolve the float ownership question unambiguously. The aim of this vignette is to give some practical guidance on how time extensions can actually be evaluated and properly quantified and to resolve the float ownership question in accordance with Sub-Clause 8.4.

First, I will briefly analyse:

FIDIC Red and Yellow Books provisions related to time extension determinations;
the critical path and float terminology defined by the most common CPM planning software.
The resulting float ownership under the FIDIC Red and Yellow Books.

In addition to the capitalized definitions in the general conditions of contract (CoC), the following definitions will be used:

contract completion date (CCD): the date of the last day of the time for completion period stated in the appendix to tender;
actual completion date (ACD): the date certified by the engineer in the taking over certificate on which the works or Section were completed in accordance with the contract.
planned completion date (PCD): the completion date of the works as planned by the contractor in its programme, which can be earlier than CCD but not later, i.e. the contractor’s planned date for the ACD as shown in its programme.

FIDIC Red and Yellow Books provisions related to time extension determinations

Before considering the issue of which date is determinative in any entitlement to an extension of time (the CCD or the PCD) under Sub-Clause 8.4, it is necessary to first look at whether Sub-Clause 10.1 of the GCC refers to the CCD, the PCD or the ACD. Sub-Clause 10.1 states:

Except as stated in Sub-Clause 9.4, the works shall be taken over by the employer when:

the Works have been completed in accordance with the contract, including the matters described in Sub-Clause 8.2 and except as allowed in sub-paragraph (a) below, and
a taking over certificate has been issued, or is deemed to have been issued in accordance with this Sub-Clause. The contractor may apply by notice to the engineer for a taking over certificate not earlier than 14 days before the works will, in the contractor’s opinion, be complete and ready for taking over … The Engineer shall, within 28 days after receiving the contractor’s application:
1. issue the taking over certificate stating the date on which the works or Section were completed in accordance with the contract, except for …
2. reject the application, giving reasons.

The reading and understanding of Sub-Clause 10.1 of GCC are clear. The contractor is free to apply for a taking over certificate if, ‘in his opinion’, the works are ‘complete and ready to be taken over’. The contractor has total freedom to determine (at any time) that the works have been completed for the purpose of Sub-Clause 10.1. If this is the case and the Engineer confirms that the works have in fact been completed for the purpose of Sub-Clause 10.1, then the Engineer shall issue a taking over certificate and the employer shall take over the works.

Note that the GCC states that the employer shall take over the works at ACD and is not allowed to refuse to do so by arguing, for example, that he would rather prefer to wait until the CCD prior to taking over the completed works. Completion for the purpose of Sub-Clause 10.1 means that completion of the works shall occur at the time notified by the contractor. The contractor is also authorized to anticipate the ACD by indicating such date in its programme as the PCD. If the PCD is prior to the CCD, there is an inherent terminal float existing between these two dates. The term ‘terminal float’ means the time period between the PCD and the CCD appearing in the contractor’s programme. If the contractor will have substantially completed its works at the ACD, as confirmed by the engineer’s taking over certificates, several scenarios may then occur:

The ACD equates to the PCD: the original terminal float remains intact.
The ACD is achieved prior to the PCD: the terminal float increases.
The ACD is achieved between the PCD and the CCD: the terminal float decreases.
The ACD is achieved exactly at the CCD: the terminal float is completely exhausted.
The ACD is achieved beyond the CCD: the terminal float falls into negative.

Sub-Clause 8.2 stipulates that:

the contractor shall complete the whole of the works, and each section (if any) within the time for completion for the works or section (as the case may be), including:

achieving the passing of the tests on completion, and
completing all works which is stated in the contract as being required for the works or section to be considered to be completed for the purpose of taking over under Sub-Clause 10.1.

Sub-Clause 8.2 makes it clear that the contractor may complete the works at any time ‘within the time for completion’, i.e. at any date occurring prior to the CCD. Just as the contractor may actually achieve the ACD before the CCD, so too he has total freedom in his programme to plan to achieve completion for the purpose of Sub-Clause 10.1 at the PCD prior to the CCD.

Sub-Clause 8.3 stipulates:

The contractor shall submit a detailed time programme to the engineer within 28 days after receiving the notice under Sub-Clause 8.1 [commencement of works]. The contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the contractor’s obligations. Each programme shall include:

the order in which the contractor intends to carry out the works, including the anticipated timing of each stage of design (if any), contractor’s documents, procurement, manufacture, inspection, delivery to site, construction, erection and testing, commissioning and trial operation,
…
the sequence and timing of inspections and tests specified in the contract, and a supporting report which includes:
1. a general description of the methods which the contractor intends to adopt, and of the major stages, in the execution of the works, and
2. details showing the contractor’s reasonable estimate of the number of each class of contractor’s personnel and of each type of contractor’s equipment, required on the site for each major stage.

Unless the engineer, within 21 days after receiving a programme, gives notice to the contractor stating the extent to which it does not comply with the contract, the contractor shall proceed in accordance with the programme, subject to his other obligations under the contract. The employer’s personnel shall be entitled to rely upon the programme when planning their activities.

The contractor shall promptly give notice to the engineer of specific probable future events or circumstances which may adversely affect the work, increase the contract price or delay the execution of the works. The engineer may require the contractor to submit an estimate of the anticipated effect of the future event or circumstances, and/or a proposal under Sub-Clause 13.3 [variation procedure].

If, at any time, the engineer gives notice to the contractor that a programme fails (to the extent stated) to comply with the contract or to be consistent with actual progress and the contractor’s stated intentions, the contractor shall submit a revised programme to the engineer in accordance with this Sub-Clause.’

Under Sub-Clause 8.3, the function of the programme:

is to plan the stages of the works by showing the ‘order’ of the contractor’s activities during the design, construction and commissioning phases accompanied by a supporting report on the contractor’s construction methods and reasonable estimate of resources;
must be updated whenever actual progress falls beyond the current programme as may be notified by the Engineer.

Under Sub-Clause 8.3, the contractor also has an early warning obligation. They shall give prompt notice to the engineer if of the opinion that ‘probable future events or circumstances’ may adversely affect/delay the progress of the works or increase the contract price. Sub-Clause 8.3 does not specify if a ‘delay to the execution of the works’ caused by a ‘probable future event’ is to be proven on the basis of the programme produced under this Sub-Clause. Indeed, Sub-Clause 8.3 does not require the contractor to prepare its programme with a critical path (even if it is wise to establish a critical path). A linked Gantt Chart programme showing work activities without CPM relationships fulfils the requirements of Sub-Clause 8.3 (a), (b) and (c), namely, to show ‘the order [in which] the contractor intends to carry out the Works’. In other words, unless specified otherwise in the particular conditions, the contractor is not obliged to show the CPM interconnections between activities by using the CPM planning software. Of course all contractors seek to gain by establishing and showing links between activities, relevant constraints and resulting critical path in their programme. Any programme update usually requires CPM critical path analysis which can be facilitated by using the CPM planning software. It is thus in the contractor’s best interests to demonstrate that their programme or update is technically feasible and in compliance with the Contract by providing a clear critical path.

No guidance is actually given in Sub-Clause 8.3 on the manner in which delays in the execution of the works should be quantified. This is probably due to the fact that contractor’s notification is to be given in anticipation of a ‘probable future event’ which may or may not occur. The contractor shall, if required by the engineer, produce an estimate of the time and cost effect of such future event on the execution of the works.

Sub-Clause 8.4 refers to any delay or projected delay in completion of the works for the purpose of Sub-Clause 10.1 (i.e. a delay to the completion of the works beyond the PCD), as being a condition precedent to the contractor’s entitlement to an extension of the time for completion:

The contractor shall be entitled subject to Sub-Clause 20.1 [contractor’s claims] to an extension of the time for completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [taking over of the works and sections] is or will be delayed by any of the following causes:

…

If the contractor considers himself to be entitled to an extension of the time for completion, the contractor shall give notice to the engineer in accordance with Sub-Clause 20.1 [contractor’s claims]. When determining each extension of time under Sub-Clause 20.1, the engineer shall review previous determinations and may increase, but shall not decrease, the total extension of time.

The extension of time objectives of the Sub-Clause 8.4 provisions of the GCC are of benefit to both parties as follows:

Contractor: First it relieves the contractor from the payment of delay damages in the case of delays for which the employer is responsible under the contract terms.
Employer: Second it establishes new section completion deadlines under the contract (subject to the application of delay damages) and therefore prevents the CCD becoming unknown/uncertain. This is also known as ‘time at large’ in common law countries, i.e. it preserves the contractual validity of any new, extended Section deadlines.

Sub-Clause 8.4 clearly stipulates that the contractor is entitled to an extension of the time for completion each time that any PCD of a section as forecast by the contractor in its programme (i.e. for the purpose of taking over in accordance with Sub-Clause 10.1) is delayed (even if the effect of such delay does not result in the PCD exceeding the CCD due to the existence of a terminal float between the PCD and the CCD).

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