SOCIETY OF CONSTRUCTION LAW – CORE PRINCIPLES

On 16 October 2002, after an extended period of consultation, the Society of Construction Law issued its “Delay and Disruption Protocol”. The Protocol was produced by a drafting sub-committee formed by a group of members of the Society of Construction Law. The Protocol is not intended to be a contract document, but it does provide recommendations and guidance to those involved with drafting contracts.
The Protocol is intended to act as an aid to the interpretation of the delay and disruption provisions contained in standard form civil engineering and building contracts. The information, recommendations and/or advice contained in the Protocol are intended for use as a general statement and guide only.
The aim of the Protocol is that in time, building and civil engineering contracts will adopt the Protocol’s guidance as the best method of dealing with matters of delay and disruption which arise during the contract.
The SCL Protocol provides guidance to people dealing with submissions for extension of time and delay claims both during the contract and post contract. The purpose of the protocol is to provide a means whereby parties can resolve matters relating to extension of times and delay claims and avoid unnecessary disputes.
There are 21 core statements of principle in the Protocol which are identified below:
1. Programme and records
The programme should be prepared by the Contractor and accepted by the Contracts Administrator. The programme should show how the Contractor plans to carry out the work in regards to time and sequence. The programme should also be updated at regularly intervals and should record actual progress and any extensions of times that are granted. The principle idea behind this is that programmes can be used as a tool for calculating extensions of time for which any compensation may be due.

2. Purpose of extension of time
The main benefit to the Contractor is two-fold, firstly it releases the Contractor’s liability for any damages, normally liquidated damages that may be in place in regards to specific milestones and secondly. The extension of time adjusts the practical completion date of the project. This mechanism within the Contract will prevent the works or time at large scenario. The term Time at Large is usually used in construction contracts in the situation where liquidated damages are an issue. If time is at large then it is argued liquidated damages cannot be applied, because there is no date fixed from which the liquidated damages can be calculated. In some situations the date for completion may be relevant to termination and the issue whether or not there has been a breach of contract by failure to complete (J and J Fee Ltd v The Express Lift Company Ltd [1993] 34 ConLR 147)

3. Entitlement to an extension of time
It is essential that applications for an extension of time or made in real-time, that is they are made as close to the event as possible. This core principle is in line with the Society of Construction Law’s time impact analysis as the best form of determining an extension of time base on a Contractor’s programme. It should be noted that the Contractor should only be entitled to an extension of time to for those events or causes of delay in which the Employer had responsibility or as the Protocol calls them “Employer Risk Events”. An element of mitigation should be attempted by both parties and if there is still delay then the Contractor is entitled to additional time and cost.

4. Procedure for granting and extension of time
The procedure in place should grant an extension of time, adjust the contract completion date to that which is reasonably as a result of the Employer Rick Event. The main goal of the extension of time procedure is to establish if the Contractor is contractually entitled to an Extension of Time. The Protocol recommends that the programme is used as the primary tool to be used by the CA in determining the amount of the EOT. A programme should be used in conjunction with contemporary evidence to ensure that the resulting EOT is fair and reasonable. The procedure is not based on whether the Contractor is in need of an extension of time to prevent liquidated damages being imposed. If the Contractor is delay because of its own faults and actions then there are penalties ie liquated damages in place for the Employer to recover loss.

5. Effect of delay
The extension of time will only be granted if the Employer Risk Events has actually impeded progress or has affected the Contractor from potentially completing specific milestones or practical completion of the project. In order to understand and measure the extent of delay the Employer Risk Event has to have ended.

6. Incremental review of extension of time
Basically where the full impact of the Employers Risk Event cannot be assess fully assessed by the Contract Administrator, then the Contract Administrator should grant an extension of time for the then predictably effect. Following on the Contracts Administrator should assess the continuing delay at intervals and adjust the specific milestones or practical completion date as is required.

7. Float as it relates to time
Unless the Contract states otherwise the remaining float shall be below zero after an extension of time is awarded. The Protocol’s
position is that an Employer Delay should only result in an EOT if it is predicted to reduce the total float on the activity paths affected by the delay to below zero ie: The Project/Principal owns the float

8. Float as it relates to compensation
If the Contractor, has set itself a planned completion date and based its costs on this date which is earlier than the contractual date for practical completion. The Contractor therefore should be entitled to an extension of time and associated costs if the delay was an Employer Risk Event Only if the Employer is aware at the time of entering into the Contract of the Contractors intention and that the Contractors intentions were reasonable, realistic and achievable.

‘Float is not usually dealt with in standard form contracts, and the Protocol sensibly aims to overcome this. It has been suggested that this recommendation could lead to avoidance of disputes in circumstances where a principal uses the whole of the float and the contractor remains to be seen whether the courts will accept this approach’ . (Allens Arthur Robinson. ‘The Society of Construction Law Delay and Disruption Protocol – Breakfast Seminar ‘ (29 October 2004)

9. Concurrent delay – Its effect on entitlement to extension of time
The topic of concurrent delay is one which will be discussed in detail in Chapter 6. The Protocol recognises that were “Contractor Delay to Completion” occurs or has effect concurrently with Employer Delay to Completion”, the Contractor’s concurrent delay should not reduce any extension of time due.

10. Concurrent delay – its effect on entitlement to compensation for prolongation.
The Contractor can only recover costs which are caused by the Employer delay. If the Contractor is delayed as a result of Contractor Delays, the Contractor will not be entitled to recover those additional costs.

11. Identification of float and concurrency
The identification of float and concurrency is only possible with the benefit of a properly constructed and logically construction programme which has been updated correctly at regular intervals.

’The Protocol’s position on concurrency prevents an employer taking advantage of the contractor’s delay after the contract completion date to issue instructions and make changes without giving an EOT. That is, if the Employer’s new instructions further extend the period of the works and the Contract Completion Date that delay will be concurrent’ (Allens Arthur Robinson (n 27))

12. After the event delay analysis
This core principle recommends that the Adjudicator, Arbitrator or Judge put him or herself so far is practicable possible in the position of the Contracts Administrator at the time of the Employer Risk Event. To perform this, an analysis of the programme before and after the event is needed to establish if there is actually an extension of time entitlement.

13. Mitigation of delay and mitigation of loss
It should be recognised by the Contractor that they have a duty to perform mitigation measures regardless if the delaying event is caused by Employer or Contractor. Unless stated otherwise in the Contract the Contractor can perform measures of mitigation without adding additional resources or working extended hours. He Contractors duty to mitigate has two facets, firstly the Contractor must take reasonable steps to minimise its loss; and secondly the Contractor must not take unreasonably steps that increase its loss.

‘The contractor is usually required in construction contracts to do all it can to avoid, overcome or reduce delay. This duty does not extend to carrying out any change in scope any more efficiently than the original scope, spend more money in order to negate the
effect an Employer Risk Event, for example adding extra resources by working outside its planned working hours or otherwise. The employer should pay the contractor the costs of taking such measures to mitigate the loss if it requires the contractor to do so. The method, speed and timing of the activities under the contract are generally at the contractor’s discretion subject to any agreed programme or method’ (Allens Arthur Robinson (n 27))

14. Link between extension of time and compensation
Entitlement to an extension of time does not automatically lead to a recovery of cost and compensation. Likewise a recovery of cost or compensation does not lead to an entitlement to extension of time.
The guidance notes in the Protocol is clear and states that

‘There is thus no absolute linkage between entitlement to an EOT and the entitlement to compensation for the additional time spent on completing the contract’ (Society of Construction Law Delay and Disruption Protocol (October 2002) 1.6.3 p18)

15. Valuation of variations
The Protocol identifies that is good contracting practice that any variations and effect on time and cost are known before they are agreed, this if possible would arrive at a fixed price for a variation to include not only the direct costs eg, labour, plant and materials but also the time related costs, an agreed extension of time and an updated revision of the programme to capture the additional scope of work and adjustment to the completion date. The Protocol states that:

‘It is not good practice to compensate separately at the end of the contract, the prolongation and disruption element of a number of different variations and or changes. This is likely to result in the Contractor presenting a global claim, which is a practice that is to be discouraged ’(Allens Arthur Robinson (n 27) p13)

16. Basis of calculation of compensation for prolongation
The Protocol is clear that unless expressly provided for in the contract or otherwise compensation for prolongation should only be paid for actual work done, actual time taken or loss and expense actually suffered. The objective is clear in that the Contractor should be put back into the same financial position if it hadn’t of been for the occurrence of the Employer Risk Event.

17. Relevance of tender allowances
The Protocol is very clear that tender allowances have limited relevance for the evaluation of costs for prolongation and disruption caused by a breach of contract or any other cause that requires an evaluation of cost. The Protocol suggests that if a contractor has made no or inadequate allowance for site overheads in its tender, it is not necessarily disentitled to compensation for prolongation and or disruption on the basis of recovery of actual costs incurred.

18. Period for evaluation of compensation
The Protocol is clear that the evaluation of compensation for prolongation and the actual sum due is equated at the time of the event and not at the end of the extended period of the Contract. Furthermore it is apparent that;
‘The Protocol recommends that a contractor should be entitled to compensation for prolongation for concurrent events that cause it delay, if the contractor can prove that its losses result from Employer Delay. However, if a Employer Risk Event and a Contractor Risk Event have a concurrent effect, the contractor will not be entitled to recover compensation unless separate loss and or expense flows from the Employer Risk Event, such as the period by which the Employer Delay exceeds the duration of the Contractor delay. This may give rise to controversy where the period for which the effect of concurrent events is unclear’ (SCL Delay and Disruption Protocol (n 30))

19. Global claims
The Protocol discourages Contractors making global claims without any substantiation.

20. Acceleration
The Protocol is clear that were there is a provision within the Contract for acceleration then payment for the acceleration should be based on contractual terms. Where acceleration is not a provision within the Contract and the Employer requests that acceleration measures take place, the basis of payment should be agreed before the acceleration is commenced. If the Contractor accelerates of his own accord then they shall not be entitled to any compensation. Rochester states that;

‘The Protocol’s suggested approach in respect of agreeing to whether acceleration is necessary, following the procedures for claiming an EOT, may be unrealistic in practice, where there is an urgent need to overcome the effect of delays’ ( N. Rochester. ‘An Introduction to the Delay and Disruption Protocol’ ACLB No. 89 March /April 2003 )

21. Disruption
The Protocol classes disruption as disturbance, hindrance or interruption to a Contractor’s normal working methods which result in lower productivity. If caused by the Employer then there is a claim to be made for compensation under the Contract or as a breach of Contract. Unlike delay, the disruption may not lead to late completion of the work. Disruption is notoriously difficult to substantiate as the Contractor has to provide evidence that the work productivity has suffered, a contractor should maintain good site records to assist in making proper assessments of disruption, one approach is the measure mile which basically measures a portion of the work which was not affected by the Employer against a portion of work that was affected, the difference in productivity is therefore calculated and a cost can be evaluated.

In Conclusion, the protocol sets out ways of dealing with delay and disruption in construction projects and fore the most this is generally understood to be the law, though as Gibson points out

‘In some instances, the protocol steps outside this boundary in order to suggest what it clearly considers to be simpler or fairer way of dealing with the practicalities. All parties involved in construction contracts must be aware that the protocol does not take precedence over the particular contract in use unless it is expressly so stated in the contract itself. Therefore, the protocol’s recommendations should be viewed with caution’ (Roger Gibson)

Construction on a global scale is amongst the largest most challenging industries that exist. Global construction will outpace GDP growth over the next 10 years, with China and India accounting for 38% of the 4.8 trillion US dollars increase in output by 2020 according to PricewaterhouseCoopers (PwC 2012 Report).

After overtaking the US as the biggest construction market in 2010, China’s construction sector will more than double in size to 2.5 trillion USD by 2020, accounting for a fifth of world construction, emerging markets, with their fast-growing populations, accelerating urbanization and robust economic growth, will account for 55 percent of global construction by 2020, up from 46%, according to PwC.

A study, conducted by market research firms Global Construction Perspectives and Oxford Economics also forecasts that 97.7 trillion USD will be spent on construction globally during the next decade and the sector will expand by 5.2% on average every year, outpacing global GDP growth.

The construction sector worldwide currently accounts for more than 11% of global GDP and the report predicts that it will account for 13.2% of world GDP by 2020.

As a result of the above statistics, it is not surprising that construction productivity has formed a major research area for a considerable time (Olomolaiye et al 1998). However despite all the research that has been expended over the last 40 years there appears to be a broad consensus in the construction industry that productivity has declined. The graphic below extracted from Paul Teicholz’s research on ‘Labor Productivity Declines in the Construction Industry: Causes and Remedies’ (2009), shows the comparison between Construction productivity and non – Farm labour productivity.

The graphic indicates that there has been a decline in productivity in construction projects and that ‘the construction industry seriously lags other industries in developing and applying labour saving ideas and in finding ways to substitute equipment for labour. While there are a number of construction tasks that have been made more productive through the use of labour saving equipment, it is clear that, looking at the whole industry, there is a significant productivity problem’(Teicholz 2009).

An avenue of study which has not been explored in depth is the role of Psychology and project control management and their relationship with productivity and performance on construction projects.

To study performance in the work place or in the business world, we must first look at Industrial and Organisational Psychology (I-O). This is the study of relationship between man and the world of work. Blum & Naylor (1968) defined it as the application of psychological facts and principles to the problems concerning people operating within the context of business and industry. Stemming from social psychology, psychologists examine the role of the work environment in performance and other outcomes including job satisfaction and health.

How do we identify and understand the role that Psychology and Project Control Management plays in the performance and productivity of construction projects? To even achieve planned productivity is considered a major success in today’s projects. To go one better and achieve greater than planned productivity, it is essential that the organisational leadership develop and maintain a culture of excellence in how projects are planned, measured and executed. Organisational leaders can use varying psychological – behavioural based methods to harness their energy for performance and productivity through to the white collar within the project management and project controls team and down through to the blue collar labour that are physically performing construction activities.

If we look at another key area of the industry. Safety, in the Construction Industry companies who provide a psychological – behavioural based awareness systems and procedures have significantly reduced accidents on their projects and improve safety ratings (Bhattacharjee, Ghosh, Young Corbett 47th ASC Annual International Conference Proceedings 2011). The behavioural based safety approach underlying promotes the individual being accountable for safety of themselves and work colleagues.

Can the same be true for improving construction productivity and performance? What would the outcome be if all construction staff from CEO, senior management to blue collar workers took responsibility and accountability for their own performance and productivity and that of their friends and colleagues?

When leadership is committed to improving productivity and they reinforce that by implementing best practices for project control management combined with psychological – behavioural based training, then it might be possible to achieve increased productivity and performance improvement.

To be continued……..

REFERENCES

a)       Labor Productivity Declines in the Construction Industry: Causes and Remedies – Paul Teicholz’ (2009).

b)      Industrial Psychology: Its Theoretical and Social Foundations – Milton L. Blum, Jack C. Naylor (1968)

c)        Safety Improvement Approaches in Construction Industry: A Review and Future Directions Bhattacharjee, Ghosh and Young Corbett; (2011 47th ASC Annual International Conference Proceedings)