EXTENSION OF CONTRACT PERIOD IN CONSTRUCTION PROJECTS

- Extension of construction period of any project will result in additional cost to both the Employer and the Contractor (except the Engineer – most benefitted party).

- The Evaluation of EOT will determine, who will bear those additional costs.

- The Contractor has to bear all the additional costs, if the project is extended due to the delays within the contr0l of Contractor (Avoidable delays)

- In case of the delays within the contr0l of the Employer (Unavoidable delays) the Employer has to bear all the additional costs.

- In case of Neutral Event (Weather) both parties has to share the additional cost.

 

1) Requirement of EOT Clause in the Conditions of Contract

 

—  All types of Conditions of Contract have EOT Clause, (Clause 44 in FIDIC – 1987, Clause 8.4 in FIDIC 1999).

—  E.O.T. clause is required to cater for the delay caused by the Employer/the Engineer  or neither party to the Contract

—  Without E.O.T. Clause, the completion of works delayed by the Employer/Engineer or by a Neutral event will relieve the Contractor from his liability to pay liquidated damages and the time for completion may become at large.

—  In the absence of Contractual power, the Engineer could not extend the time for completion.

—  Failure by the Engineer to properly exercise the power to extend time, will relieve the Contractor from his liability to pay liquidated damages and the time for completion may become ‘at large’.

—  Under no circumstances the Contractor will be entitled to receive financial compensation for his delays.

—  If the party, who has been damaged, fails to mitigate damages, it may not be able to recover those damages which could have been mitigated. Thus it is important for the contractor to make reasonable efforts to minimize the damages it sustains as a result of a delay

 

 

2) Types of Delays in Construction Projects

 

Construction Delays can be divided into 03 categories

 

Employers delays

 

Preventive or unavoidable delays –Refer Clause  8.4 of FIDIC - 1999

                                            

- Land Acquisition

-  Utility Diversion

-  Design, Quantity and other variation

-  Main Contractor not having received instructions, drawings, details or levels from the Engineer in due time necessary for which he applied in writing.

- Delays due to different site conditions – Depth of peat layers in STDP

1. Employers delays (Cont’d)

- Delay on the part of nominated subcontractors or nominated suppliers which the Main Contractor has taken all practicable steps to avoid or reduce.

- Delay on the part of artists, tradesmen or others engaged by the Employer.

- Opening up for inspection of any work covered up for additional testing, inspection by the Engineer  of any of the work, materials or goods.

- Unforeseen shortage of labour & materials .

- Discovery of antiquities.

- Force Majeure – Clause 19.1to 19.4 – FIDIC 1999

- Loss of efficiency, out of Sequence work caused by Disruption ( Protests, court proceeding, etc)

2. Contractor’s  Delays  - Culpable /Avoidable delays

- Slow  progress due to inadequate resources or low productivity than planned or caused by both

- Strikes

- Defective  Work/Quality Issues– additional resources need for correction and affect of this work on critical path

- Suspension of work due to inadequate safety

3. Neutral Events

- Inclement  Weather or any other reasons in the Condition of Contract

- Rainfall shall exceeds the 98 percentile value of the daily rainfall for that calendar month

- Work shall be planned to be carried out on the particular day

- Delay of  that work should affect the completion of the project

 

3) Entitlement of additional cost in EOT claims:

If project delays:

- Only due to the Employers delays - The Contractor is entitled for EOT and to claim additional cost  incurred by him – in some events with reasonable profit

- Only due to Neutral Events - Both  Contractor and the  Employer  has to shear additional cost

 

- Only due to the Contractor’s delays -The Contractor has to pay LD- Additional cost of the Employer

- In case of concurrent delays, the Engineer has  to determine depending on particular situation.

 

4) Additional cost due to extension of the Project Period

1. The Employers Costs is called  Liquidated Damages (LD)

LD - The economic loss to the Employer  due to delay of  completion.  Very critical in private sector projects, since the employer has to pay  interest for bank loans without expected income

- Supervision and other direct OHs of the Employer.

- Loss of revenue due to delayed use,  interest expenses during delayed period

- Any other reasonably foreseeable damages the owner may have incurred including lost of profit from a business.

2. The Contractor’s Costs

- Indirect costs – include job site overhead (e.g. project supervision costs), extended general conditions or extended or unabsorbed overhead, job shack, portable toilet, telephone, insurance, and job site power and water

- Direct cost - Equipment rental costs and equipment ownership expenses, demobilization and re-mobilization expenses, increased (material escalation – if not paid separately) material costs, etc

- home office overhead that was incurred during the extended performance period

- lost productivity caused by the delay

- interest on the claim, lost profits on other jobs, etc

5) Evaluation EOT Claim

Evaluation EOT Claims include:

1. The determining the period of extension
2. The party or parties responsible for the delays
3. Additional cost entitlement  of the parties

The EOT determinations are very complicated due to following reasons:

- Always there will be concurrent delays of all types

- Different interpretation of the Conditions of Contract by parties to the Contract

¢  Ambiguities, contradictions, mistakes, etc in the contract documents will lead to different interpretations and disputes (No contract document is perfect).

¢  Some contractors & other parties use these conflicts for their benefit without considering reasonableness & fairness and also assuming that the other party will overlook those issues.

¢  When such disputes go before Arbitrator/Courts, they look at practicality and reasonableness of the issues, implied terms, in addition to  word to word interpretations of condition of contract.

Examples

 A: BSL Project – giving responsibility of utility shifting to the Contractor

 B: Delay in getting GSMB and other license

- In EOT claims, the Contractor will give priority for the delays of the Employer, since he can recover his costs and if project will extended more, then he will go for neutral delays

¢  The Contractor will hide all avoidable delays even there is possibility that those delays could be critical, since he will not get EOT for those delays.

¢  When the Engineer will evaluate the Contractor’s Claim, they rarely try to find whether there are any other delays of the Contract  affecting completion of the Project.

¢  Unless the Employer has people who could scrutinize these claims and point out these delays, the Contractors will always get their EOT claims with additional cost.

Examples

 A: STDP – ADB Section – Hiding delays due to Bridge repairs

 B: KG BSL Project –Hiding Delays of drainage defects

 C: STDP – JICA Pack 2 - Hiding Delays of SGT – highlighting only Rock qty increase by 200%. In the Engineer’s evaluation he used original Construction program for evaluation – which will not indicate any of the Contractor’s delays at the time of submitting EOT.

Determining  EOT caused by Concurrent  Delays

Delays going side by side or running together at the same time are considered concurrent delay. 

There are 03 basic principles on dealing with concurrent  delays:

(1)  The first in  line approach

(2)  The  dominant cause approach

       (3)  The apportionment  approach

Each approach can appear logical and correct  in appropriate circumstances but depend on view point of the interested  party. 

Examples 1. Reimbursable = > Non – Reimbursable

The contractor will argue “first in line” approach - The employer should reimburse addition cost of the contractor for entire 15.

The Employer will argue for apportionment approach – According to this approach, the Contactor will be entitled for OH for 10 month period and the Contractor has to bear the cost of balance 5 month period.

—  No LD for 15w, OH for 10w, No OH for 5w

But, most reasonable argument in this case will be the first-in-line approach, since delay due to weather would not have affected if there was no delay by the employer.  (We used same approval in the evaluation of EOT in Works Division)

—  No LD for 15w, OH for 15w -  reasonable

Examples 2. Non – Reimbursable = > Reimbursable

The Employer prefer first in line approach – As per this approach, the Contractor will not get for 1^st 10 Weeks and get OH for the balance 5W

—  No. LD for 15w, No OH for 10w, OH for 5w

 

The Contractor will prefer apportionment or the dominant approach

Dominant Approach

- No LD for 15w, OH for 10w, No OH for 5w

Apportionment Approach

- No LD for 15w, OH for 7.5w, No OH for 7.5w

Most reasonable approach will be one of the last two approaches

 

Examples 3. Reimbursable = > Culpable 

The Contractor will argue for first in line approach – request EOT of 15W, proposing that the Employer’s delay came first. 

- No LD for 15w, OH for 15w

  

The Employer will go for apportionment approach

- No LD for 2.5 w, OH for 7.5 w, LD for last  5W

usually in a dispute resolution the decision will be as follows.

 

- No LD for 10w, OH for 10w, LD for last  5W

Examples 4. Culpable = > Reimbursable 

The Contractor will request

- No LD for 15w, OH for 15w

 

But, usually the Contractor will get

- OH for 10w, LD for last  5w

But this will depend on nature of the Employer’s delay.  If  a VO for a new work is issued during the first 5w of the Contractor’s delay, then the Contractor will be entitled to get his OH for entire 15w. In such a situation the Contractor will argue that the EOT due to Employer’s delay could not be avoided even if he completed his work on time.

Examples 5. Non reimbursable = > Culpable

Usually

No LD for 10w and LD for last5w.

But there could be instances that the Employer will argue that the Contractor’s delay could not be avoided, even if the weather was perfect.

Examples 6. Culpable = > Non reimbursable

In this situation, the Employer’s argument will be that the weather could not have affected the project, if the Contractor completed project on time,

- LD for 15w

 But, the Contractor will be argue for 10w EOT for weather

- No OH, LD for 5w

 

But In similar situation, In court case between Building Contractors Vs, Wolthom Holy Cross   UDC (1952), the Judge granted EOT for the neutral event in consideration of fairness.

6) Determining  EOT caused by Concurrent  Delays

From decisions given in some court cases, it appears that the Contractor is entitled to cover his additional cost, only when there is pure owner caused delay. And it is also clear that no recovery can be had when concurrence delays can be shown.

 In case of Concurrence delays, which attributable to the Employer and the Contractor, the Court will not generally enforce the Clause EOT  or LD.

However, there are cases, where the court has attempted to apportion the damages.

7) Analyzing Effect of Delays in Project

The construction program is used to analyses as to whether the project will extend due to particular delay.  The completion date of a project will be extended only If:

a.      The delayed activities are in the critical path

b.      The delay in particular activity will affect resources requirement of the Project (the Contractor need additional resources)

c.      Instruction to increase resources more than what is allowed in the Original schedule could be considered as instruction for Acceleration

The responsibility for preparation of construction Program rest with  the contractor,

- But the Engineer  should  review the program, submitted by the Contractor and  approve it.

- If  necessary the Engineer should request clarification and advice the Contractor to make necessary amendments, before approving it.

 

The Complete Construction program (CP) should indicate:

- All activities of the project,

- Duration, start  & finish dates of activities

- Precedence (dependence) between activities

- Resources available for the project

- Resources allocated for each activity

- Productivity of allocated resources shall be as per acceptable Construction norms.  However most of the norms could depends on conditions of particular site, type and condition of the machines available for the project, skill of the labour and operators available, etc. 

- The program should be resources driven -  reducing/increasing allocated resources should change duration of  the  activity. These facilities are available in both MS project and Primavera.

Common Deficiencies  in the Construction Programs (CP)

- CP is not done by experience programmer - Large projects have thousands of Activities. Input of full time programming engineer with adequate experience in programming software and construction work is required for preparation of CP and monitoring 

- Most of the time the Contractors are unable to achieve planned production rates, given in the programs and regular updating and monitoring of production rates not done.

- Precedence of activities incomplete

Problems in Evaluation EOTs Using Incomplete/Defective Construction Programs

- will be difficulty to identify delays in critical activities, actual requirement of resources, allocation of resources to critical activities, etc until it is  too late to take corrective measures

- will result in arbitrary awarding of EOTs without proper analysis.

- In case of concurrent delays the  Contractors will manipulate incomplete CP by allocating less resource to those activities, which could become critical by the slightest Employer’s delays.

Monitoring Progress Using Construction Program

 

- The approved program should be save as Baseline before updating the program by entering following actual conditions

- Start & finish dates, duration

- Resources allocated for activities and available  for  the project

- productivity

 

- The Engineer shall monitor the actual conditions against planned and inform the Contractor to take necessary precautions to improve the progress.  If these conditions are not monitored, the  Contractor  will come up with different reasons for delay of activities at  later stage of the  project.

 

Who has right to use available float in the Construction program

- In most of the dispute situation determination has been:

- The float belongs to neither party but is for use of both parties

- Most of the cases it has been decided that the float belongs to the party, who use it first.

 Example: 1

- there is 15 day float in the program

- Experience two sequential delays of 10 days each – first 10 days contractor delay, 2^nd 10 days the Employer’s delay.

- In such situation the Contractor will be entitled for 05 days EOT

       Example 2

- The Contractor is 30 days ahead of the schedule expecting to complete the Contract early and leave the site early. This will save his overheads

- At the Final stage, the Employer issue a VO for additional work and the Contractor will not be able to complete the job on expected date

Decision of dispute;

- By the terms of contract, the Contractor has to complete the scope by a given date, not required to remain on the jobsite until a given date.

- In this situation, the Contractor will be entitled to fair and reasonable compensation for the increase in indirect cost incurred  plus profit on those cost.

Analyzing Effect of Delays in Project

Monitoring progress

When the program is updated with actual progress, it will show when the delay of activities will start affecting the completion date. the Completion date will affect only if

- the critical path activities are delayed

- A non critical activity has become critical due to reduction of float.

- Even though some activities have float, moving of that activity forward due to delays will affect the resource requirement during the  balance period of the project (will require increasing of resources). If this happens due to

- Avoidable delay, it is Contractors responsibility take mitigatory measures.

- Unavoidable delay the Contractor will be entitled for EOT or acceleration cost.

—  If the activities are delayed due to avoidable reasons, the Contractor will require to mobilize additional resources to complete the remaining work within the balanced period.  The Contractor should show as to how he is going complete this work ( the additional resources  he will mobilize), when the CP is updated

Common Problems observed in updating CP

 

- The contractor will always try to hide culpable delays by allocating less resources to varied work or new works and making that those activities come to  critical  path, which  is  difficult   to prevent unless there is close monitoring by the Engineer.

- Every effort shall be made to minimize issuing variations at latter stage of the project.

- CPs are updated without saving the  baseline details of the programs making it difficult to monitor where the delays have occurred

- When the programs were updated the balance durations of the activities are reduced, without considering resources required or technical possibility to complete the balance volume of work within shorter period.

8) The Details to be included in presenting EOT Claims:

a) Description of the cause of delay.

b) The contractual provision which is being relied upon.

c) The date when the delay commenced and the period of delay.

d) The date of notice of delay.

e) A summary of records and particulars relied upon.

f) A description of the event and effects on progress.

g) A diagrammatic illustration showing the status of the program, progress and current completion date prior to the commencement of the delay.

 

9) Major obstacles to EOT claim :

 

a) Late or lack of notice from the Contractor.

b) Failure to recognize delay that results in contemporary records not being kept.

c) Failure to regularly update the program.

d) Poor presentation of the claim to show how the progress of the work has been delayed.

e)   Insistence on the part of the Employer’s professional advisers, that unreasonably detailed critical path programs are essential in order to assess the effects of the delay.

10) Notice Requirements for Loss & Expense Claim

 

a) Some notice requirements are condition precedent to the Contractor’s entitlement and therefore the Contractor loses his right to claim if he fails to comply with such a notice requirement.

 

b) Failure to give notice in accordance with the contract may bar or severely prejudice a claim for additional payment

 

c) If specific notice provisions are inserted, the Contractor must comply with these requirements

 

d) Advance warning of the possibility of an increase in the contract price

 Acceleration

Acceleration – Action taken by the contractor  in order to speed up the progress on a job to accomplish early or to make up for the lost time

Three types of Acceleration

       1-Voluntarily – the Contractor at his own initiative, makes effort to

-  Overcome his own delays

-  Complete earlier than planned

Additional cost will be borne by the Contractor

      2-As per the instruction of the owner – directed or ordered

If any additional cost involved that has to be borne by the Contractor

      3-Constructive – the Contractor finish the job as planed, where unavoidable ( Employer’s) delays has occurred, but no EOT has given  - no directive of the        Employer required

  If the Contractor want to recover any additional cost – he has to submit notice of claim

 

CONCLUSION

- If the Employer is unable to handover certain section of the site at the commencement of the project, always the schedule of handing over of possession of site shall be included in to the bidding documents or to the Contract documents in the negotiation stage.  This will make the Contractor to consider those delays in the preparation of the CP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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