Chapter 7

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:

  1. Guidelines on the SCL Protocol’s position on Core Principles and on other matters relating to delay and compensation.
  2. Guidelines on preparing and maintaining programmes and records.
  3. Guidelines on dealing with extensions of time during the course of the project.
  4. 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.