Global landscape changes are taking place at an unprecedented speed as countries strive to stay ahead of the Covid-19 pandemic, and the changes or uncertainties coming about have disrupted many sectors.
Undoubtedly, construction projects the world over have not been spared and many parties are trying to get to grips with the impact which may result in delays and/or increased costs arising from a shortage of materials and equipment, or difficulty in sourcing them due to challenges in the international supply chain, closure of project sites, travel restrictions and, where relevant, the temporary inability of the subcontractors to perform their contractual obligations, relying on the operation of force majeure clauses in their contracts.
Many governments are gradually lifting some of the restrictions imposed during the Covid-19 pandemic, in an effort to re-open their country's economy. It follows that many projects will soon be faced with the challenge of assessing and thereafter resolving the consequences on the timelines and costs of such projects, arising from the Covid-19 pandemic.
Delay, disruption and acceleration are familiar concepts in construction projects, and are the likely options parties will consider as they refocus their efforts to moving forward in the "new normal".
Delay
The concept of delay is concerned with an analysis of time. A claim for an extension of time (EOT) is usually at the forefront of a contractor's mind and this is because an EOT relieves a contractor from liability for damages due to a delay, such as delay-related liquidated damages.
An event of delay may be expressed as an employer risk event, where the employer bears the risk and responsibility, a contractor risk event, where the risk and responsibility is borne by the contractor, or a neutral event, where one party bears the time risk and the other party bears the cost risk. Exceptionally adverse weather, a change of law, and force majeure are typical examples of neutral events.
Force majeure and EOT are intertwined; a contractor would typically be entitled to an EOT if a force majeure event has impacted the ability of the contractor to perform the works. As an example, standard form contracts, such as the International Federation of Consulting Engineers (FIDIC) forms of contract, provide that contractors affected by delays and/or who incur an increase in cost/expenditure as a result of a force majeure event can claim an EOT provided that such contractor has complied with the relevant prescribed mechanisms for triggering and relying on the benefits of the particular force majeure clause in its contract.
At the outset of the Covid-19 pandemic, and as an initial step in handling the contractual ramifications, the parties to a project are likely to have exercised their contractual rights of 'force majeure', to have claimed temporary relief from their immediate contractual obligations, including compliance with strict completion obligations. However, once the impact is more clearly understood (and perhaps the project is able to recommence albeit on an altered basis in terms of manpower, material and equipment), the parties to a project would need to conduct a more detailed delay analysis to ascertain whether, and to what extent, an EOT ought to be granted, particularly where the critical path of the project has been impacted. The allocation of risk in projects tends to be peculiar to each project, so the parties will need to check the project documentation carefully.
Disruption
The concept of disruption refers to when disturbances, hindrances or interruptions to a contractor’s normal working methods result in a contractor experiencing lower productivity or inefficiency in the execution of particular project activities. Projects that face disruptions may (but not necessarily) lead to delay if the impacted activities are on the critical path but it is also possible that works could be completed on time despite a disruption. This also means that not all disruptions will necessarily be compensated.
Most standard forms of contracts do not prescribe specific mechanisms for a disruption claim. For example, whilst FIDIC forms of contract provide mechanisms for an EOT for delay, there is no specific mechanism for a disruption claim, and instead a contractor would have to utilise it's the general rights to make a claim.
Given the general lack of mechanisms governing disruption, and the practical reality that disruption might be caused by multiple, separate and/or overlapping events, claims for disruption have a reputation for being difficult to establish and succeed. Generally, in a claim for disruption, a contractor must:
- clearly identify the activities affected by the disruption and explain the additional expenses incurred;
- establish that the event leading to the disruption and loss suffered by the contractor arises from either a breach of contract or an employer risk event;
- demonstrate that the actual progress of the project has been negatively impacted; and
- quantify the disruption costs.
It is therefore very important for a contractor to maintain accurate records of its level of productivity, when carrying out the project, and to show where and how the disruption was caused.
In the context of Covid-19, we have previously written about the applicability of change of law claims, in relation to travel restrictions imposed during the Covid-19 pandemic. A change (including change of law) may also cause disruption. As such, parties to a project would need to analyse whether any change during the Covid-19 pandemic impacts productivity levels in the execution of particular project activities causing disruption.
Many projects all over the world halted or scaled back progress during the earlier phase of this Covid-19 pandemic and such action will, most likely, have caused lower productivity in the execution of the project as well as prevented projects from proceeding in accordance with their programme. Depending on the terms of the specific project documents (in particular the allocation of risk as between employer and contractor) and the disruption analysis, in addition to a delay claim for the time related impact, a disruption claim may be an option for dealing with productivity related impact.
Delay and disruption are distinct concepts that inter-relate but are often conflated so care should be taken in analysing the differing impacts and remedies sought before launching any claim in order to avoid duplication and/or confusion.
Acceleration
Acceleration in projects refers to the execution of a planned scope of work in a shorter time than anticipated or the execution of an increased scope of work within the originally planned duration. The concepts of delay and disruption are distinct, but in both cases a contractor may be required to accelerate to overcome all or part of a delay or a disruption, entitling a contractor to claim additional reward/costs for the measures implemented. Most standard form contracts do not expressly govern acceleration and acceleration is more commonly negotiated and agreed upon in a collateral agreement setting out in advance the cost implications of the acceleration measures to be implemented.
It is usually the employer that would require the acceleration measures be implemented, i.e. a directed acceleration. However, there are circumstances where the contractor has a justifiable claim for delay and/or disruption and has properly complied with all the notice requirements but the employer has refused to allow such claim thus the contractors are still expected to complete the project in accordance with the original scheduled timelines, by incurring additional expenditure. In such circumstances, the contractor may submit a claim for acceleration costs. However, it should be noted that, in these circumstances, the employer and contractor are likely to be in dispute in relation to the underlying claim for delay and/or disruption.
As a result of the Covid-19 pandemic, parties to a project are faced with an unprecedented crisis putting them in the very difficult position of having to establish and assess claims for delay and/or disruption and to determine the corresponding EOT to be granted or compensation to be allowed. To deal with these issues requires a thorough analysis of the contractual documentation, the factual position surrounding the project and the risk allocation documented. Great care should be taken in formulating, preparing and determining any claims due to the unprecedented nature of the Covid-19 pandemic and the government reactions to the situation. Although parties should be aware of their legal rights and ensure that these are protected through thorough analysis and advice, there will nevertheless be great value in engaging in discussions to try and reach a common understanding on how to address and allocate the impact of the Covid-19 pandemic on the project and if relevant, to agree on any acceleration measures required.
Please see:
- Delay and Disruption in Construction Contracts (2005) by Keith Pickavance.
- The Delay and Disruption Protocol (2nd Edition) by the Society of Construction Law.
