Article in Construction Industry Law Letter, January 2002

Protocol for Determining Extensions of Time and Compensation for Delay and Disruption
On 4 December 2001 the Society of Construction Law issued in draft a new protocol to act as a guide on how to record and manage delay in the construction process. The protocol is intended to limit the scope for argument about causes of delay and provides detailed guidance for the efficient resolution of disputes on projects where there has already been delay. The protocol runs to some 68 pages and was drafted by a panel of experts from all sections of the construction industry. A summary of the main points in the protocol is included here but the text of the protocol in full is available on a special Society for Construction Law website at www.eotprotocol.com. The Introduction to the Protocol states that its purpose is to provide the material necessary for the parties to avoid unnecessary disputes. If the parties to a contract agree, whether at the time of entering into the contract or later, the Protocol can be used as an aid to deciding issues that are not clearly covered by the contract. This might include matters such as the ownership of float and concurrency.

If the parties have agreed that the Protocol should be used as an aid to interpretation of their contract, the Protocol will prevail over any conflicting case law, but where the Protocol conflicts with any term of the contract, the contract term shall take precedence.

The Protocol envisages that even where the contracting parties have not adopted the Protocol, decision-takers (eg contract administrators, adjudicators, dispute review boards, arbitrators, judges etc) may still find it helpful in dealing with delay issues, in much the same way that they might look at a textbook.To the extent that they are not bound by judicial precedent, decision-takers may prefer to follow the guidance in the Protocol to case law that conflicts with it.

The Protocol contains guidance as to matters which should be addressed when the contract is being drafted and negotiated in order to improve upon the way that standard forms of contract generally deal with delay issues. The protocol, which is currently in draft form, will be subject to a public consultation, until 31 January 2002. The finalised protocol is to be published in April 2002. An extract of the section of the protocol headed 'Summary of main points in the Protocol' is set out below.

* Programme - The contractor should submit and the contract administrator should approve a programme (using industry standard critical path method project planning software) showing the manner and sequence in which the contractor plans to carry out the works and identifying where the critical paths lie.

* The Protocol recommends that a provisional sum be allowed by the Employer in the contract price for the provision by the contractor of a proper programme, and further payments for properly updating the programme.

* Purpose of extension of time - An extension of time (EOT) serves only to relieve the contractor of liability for liquidated damages for any period prior to the extended contract completion date.

* Entitlement to EOT - 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.The contractor will be potentially entitled to an EOT only for Employer Delay arising from Employer Risk Events - being those causes of delay in respect of which the Employer has assumed risk and responsibility. Correspondingly the Protocol uses the terms Contractor Risk Event and Contractor Delay.

* Procedure for granting EOT - The Updated Programme (being the approved programme brought fully up to date to the point immediately before the occurrence of the relevant Employer Risk Event) should be the primary tool for determining the amount of the EOT.The EOT should be granted to the extent that the Employer Risk Event is predicted to prevent the works being completed by the then prevailing contract date for completion.

* Float as it relates to time - An EOT should only be granted to the extent that the Employer Delay is predicted at the time of the Employer Risk Event to reduce below zero (or, if already in delay, to further reduce below zero) the total float on the activity paths affected by the Employer Delay viz. only to the extent that the activity paths are (or are anticipated to be) critical to completion on the then prevailing contract completion date, at the time the Employer Risk Event occurs.

* Float as it relates to compensation - If, as a result of Employer Delay to Progress, the contractor is prevented from completing the works before the contract completion date, the contractor should in principle be entitled to be paid the costs directly caused by the Employer Delay to Progress, notwithstanding that there is no delay to the contract completion date (and therefore no entitlement to an EOT), provided also that such costs were in the contemplation of the parties when they entered into the contract.

* Concurrent delay - its effect on entitlement to EOT - Where Contractor Delay to Completion occurs concurrently with Employer Delay to Completion, the contractor's concurrent delay should not reduce any EOT due.

* Concurrent delay - its effect on entitlement to compensation for prolongation - If the contractor incurs additional costs that are caused by both Employer Delay and Contractor Delay, then the contractor should only recover compensation if it is able to separate the additional costs caused by the Employer Delay from those caused by the Contractor Delay.

* Mitigation - The contractor has a general duty to mitigate the effect on its works of Employer Risk Events.The duty to mitigate Employer Delays, however, does not extend to requiring the contractor to add extra resources or to work outside its planned working hours in order to reduce the effect of an Employer Risk Event, unless the employer agrees to compensate the contractor for the costs of such mitigation efforts.

* Delay analysis - The Protocol recommends that 'time impact analysis' should be used, as a delay analysis methodology, wherever possible, both for prospective and retrospective analysis.Time impact analysis utilises a critical path network of the works, that is updated periodically (usually each month) and when any Employer Risk Event occurs (eg any employer liability variation, delayed instruction, or a claim event such as lack of access) or contractor delays. Each of these updated networks is saved electronically. The analysis therefore records a moving simulation of the construction of the works. In respect of retrospective delay analysis, the Protocol recommends that the method of analysis should be agreed between the parties before either party begins the analysis.

* Link between EOT and compensation - Entitlement to an EOT does not automatically lead to entitlement to compensation.

* Pre-agreeing full effect of variations - The Protocol supports the practice of pre-agreeing where practicable the total likely effect of variations, to arrive at, if possible, a fixed price of a variation, to include not only the direct costs (labour, plant and materials) but also time-related costs.

* Basis of calculation of compensation for prolongation - Unless expressly provided for otherwise, compensation for prolongation should not be paid for anything else other than work actually done, time actually taken up or loss and/or expense actually suffered viz. the compensation for prolongation caused other than by variations is based on the actual additional cost incurred by the contractor.

* Relevance of tender - The tender allowance has limited relevance for the evaluation of prolongation and disruption caused by breach of contract or any other cause that requires the evaluation of additional costs, though the tender allowance may be relevant as a base line for the evaluation of prolongation and disruption caused by variations.

* Period of evaluation of compensation - Once it is established that compensation for prolongation is due, the evaluation of the sum due is made by reference to the period when the effect of the Employer Risk Event was felt, not by reference to the extended period at the end of the contract.

* Global claims - The practice of contractors making composite or global claims without substantiating cause and effect is strongly discouraged by the Protocol. o Disruption - (as distinct from delay) is disturbance, hindrance or interruption to a contractor's normal working methods, resulting in lower efficiency. If caused by the employer, it may be open to compensation either under the contract or as a breach of contract.

Reproduced with permission from Construction Industry Law Letter, December 2001/January 2002, edited by Tony Francis (http://www.informalaw.com)