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Disruption Claims in Construction Contracts
As Williams (2002) has noted, ‘the idea of delay and disruption within projects is well-known and is often the subject of litigation claims. However, the term is ill-defined, and it is difficult to justify such claims within a legal process.’
Difficulties exist in defining all parts of a disruption claim, and such claims require definitional clarity of all parts of the construction contract, from the scope of the project, to the details of what constitutes disruption and permissible delay. Within any construction project, a successful conclusion involves not only completion of the requisite work, but doing so within the time specified, within budget, and to the required technical standards. As construction projects have become more complex, and require greater investment, they have taken on added commercial importance. Time and cost considerations have become paramount, and will be as important as technical considerations in decisions to award contracts.
The increased commercialization of construction contracts has placed ever greater pressure on contractors and clients to ensure projects proceed according to plan, and that all eventualities are adequately provided for in the contract. The importance of this was noted in the case of Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (1999) 66 Con LR 119 following which the Construction Industry Newsletter (February, 2000) stated,
‘the failure of both parties to demonstrate to any real extent their contentions in respect of delay again reinforces the importance when pursuring claims for delay of some form of technical delay analysis demonstrating cause and effect.’
Lal (2002) has noted therefore that there is a clear need for methods of quantifying the cost and time effects of disruption to be developed, and for such quantification methods to be used in disruption claims by contractors. There is little doubt that disruption claim are among the most difficult claims to quantify. Disruption occurring during work days leads to productivity losses. Productivity losses generally lead to cost and time overruns. If these losses exceed any built in leeway in a project, then they will lead to claims by the contractor for extra time or extra funds, or both. These will be requested by way of disruption claims by the contractor. Lal (2002) notes the quantification difficulty at this point, stating,
‘the accurate quantification of the time and cost effects of such disruption is typically prevented because the role of labour/resource productivity is not fully recognized, site labour productivity is not correctly measured (if at all) and, finally, because the relationship between, in practice, the bill of quantities (BoQ) items (cost) and programme activities (time) is not direct or transparent.’
A simple illustration of this is the fact that even if the time that workers must remain off site, and are prevented from working at all due to disruption, is easily measurable, the reduced productivity of workers after such periods can be missed completely (Pickavance, 2005).
Employers generally try to deal with the risk of delay by passing it on to contractors, and in turn, contractors principle method of dealing with the cost associated with delay by making disruption claims against the employer (Gorse, 2004). Pickavance (2005) has given examples of a number of high profile construction projects in the UK in recent years that have suffered from severe cost and time overruns and have been subject to extensive disputes in relation to disruption claims. These include the construction of Wembley Stadium, the Millennium Dome, the British Library, the Scottish Parliament building, Brompton Hospital, the Docklands Light Railway, the Jubilee Line Tube Extension, and the West Coast Mainline upgrade for Network Rail. The annual estimate figure for disruption claims in the UK is eight billion pounds (Pickavance, 2005).
Despite these difficulties of quantification, it is also evident that the size and complexity of many of today’s construction projects also means that variations in design, technical specification, and scope are frequent, and in most cases necessary to allow for the flexibility of dealing with complex and changing circumstances. Braimah (2008) has noted the challenge that disruption causes to the industry. On the one hand, contractors suffer higher overhead costs beyond what was budgeted for the contract, and on the other hand, employers are exposed to financial and economic risks including interest on finance and lost market opportunities. The assignation of causation to losses, and the quantification of each item of loss is necessary to satisfy disruption claims fairly, resolve disputes, and enable planning and insurance mechanisms that can protect both the contractor and the employer. The quantification process is often referred to as delay analysis and uses various methodologies and techniques, often critical path methods (CPM), to assign responsibility and determine the cause of delay. Methodologies are generally divided between either CPM-based or non-CPM based methods (Braimah, 2008; Leary & Bramble, 1988; Alkass et al, 1996; Pinnell, 1998; Rubin et al, 1999). Non-CPM methods are relatively simple and include the Global Method, Net Impact Technique and S-Curve (Braimah, 2008). CPM based methods are more complex and include As-planned vs As-build, Impacted As-planned, Collapsed As-built, Window Analysis and Time Impact Analysis.
While disruption claims are routine, Pickavance (2005) and Gorse (2004) have discussed the difficulties that exist in not only quantifying claims, but also in proving them. The general formation of a disruption claim follows a logical interpretation of the events and actions leading up to the claim and the deduction of the losses from those actions and events. Disruption claims generally are retrospective, and in many cases, the documentation and records available to the contractor will not be adequate to substantiate the claim (Pickavance, 2005). Gorse (2004) has also discussed the difficulty of quantifying productivity losses. In many cases, this will lead to the contractor being forced to submit a global or total loss claim that lacks specificity or itemization. This then means that there is little evidence available to the contractor to back up the claim, and also makes it difficult to determine if the disruption, or what elements of that disruption, are actually compensable under the contract.
Despite significant amounts of effort being put into developing standard form contracts, methods of calculating the actual costs of disruption, and greater degrees of consensus between the contractor and the employer so as to avoid conflict later on (Pickavance, 2005; Braimah, 2008), there has been a increase in the concern of contractors for the efficacy and success of their disruption claims. There are steps that contractors can take to ensure that they are in a strong a position as possible when it comes to making a disruption claim however, and it is vital that contractors are taking these steps so that claims will be more effective. These steps will include ensuring that all relevant losses are covered for in the disruption clause of the contract, and that contractors keep track of the relevant documentation and data during a project, that will allow them to substantiate their claims following disruption. By doing so, contractors will be in a better position to ensure that they can avoid the financial penalties that will be associated with budget overruns and missed deadlines that are in reality the fault not of the contractor, at least in part, but by disruption.
Disruption in Construction Contracts
2.1 Disruption claims
Disruption claims can be defined as the lawful or justifiable request for more reimbursement or payment to cover the extra cost and or time required to complete a project as a result of disruption, a change in the terms of the contract, or as a result of unforeseen conditions and circumstances arising (Gibbs & Hunt, 2009). Chappell, Powell-Smith and Sims (2005) define disruption claims as the assertion of a right, usually by the contractor, to an extension of the contract period and or to payment arising under the express or implied terms of the contract, due to events provided for under the contract. Chappell, Powell-Smith and Sims (2005) set out four types of construction claims. These are firstly, contractual claims, which are a request for reimbursement of direct loss and or the cost occurring under provisions of the contract conditions. These can be requests for compensation resulting from a breach or a series of breaches under the contract. Secondly are quantum meruit claims, which are requests to recover sums in excess of the contractual price on the basis that they constitute a ‘reasonable value of service’. Third are ex gratia claims, which are requests for compensation due to unforeseen hardship or difficulty in performing the contract, or that exceed the scope or ambit of the contract. As Jayalath (2009) point out, the contractor is entitled to claim disruption compensation on a project where the overall completion is delayed even for short periods, or even when no delay is experienced, if the contractor has suffered substantial loss, particularly for labour and equipment. Abdul-Malak and El-Saadi (2000) and Bramble and Callahan (2000) discuss the making of a claim, noting that they arise under the terms of the contract as approved by the project architect or engineer, and will be included in the interim certificate for payment, and a concurrent right under common law for damages for breach of contract.
Claims are essentially productivity related (Braimah, 2008). The principle elements contained in the claim will include an outline of the work affected, the manner in which it was affected, and the comparator and method of comparison to be used to ascertain the quantity of loss. While there are many causes of delay in a construction project, such as strikes, low motivation, work rules, and technical difficulty, only some of them can be attributed under the contract to the employer, and will give rise to a claim for compensation for disruption. Even when the employer is responsible for a delay, the contractor can only claim for certain delays (Jayalath, 2009). For example, stoppage of work for an unplanned site visit by the employer for a reasonable period of time would not ordinarily give rise to a disruption claim. The contract should stipulate the events that will or will not give rise to claims, but disputes abound in this area and it is impossible for contracts to always account for every eventuality. Pickavance (2005) sets out the conditions that must be met if a contractor is to be eligible to make a claim from the employer. Firstly, the work that has been affected must be clearly identified, and the work activities that were affected by the disruption must be specified. The extra expense incurred must be explained. Secondly, the contractor must show that the event leading to the disruption and financial loss was either a breach of contract, or an event provided for in the contract for which the employer is to be made financially liable to the contractor. Thirdly, it must be shown that actual work progress has been negatively impacted. It is not sufficient to show that planned future work has been impacted as such fears may never materialize. Fourthly, the contractor must quantify the disruption costs using a selected method of quantification. The principle that applies is that the extra costs incurred, compared to the costs that would have occurred had the disruption not occurred, are recoverable by the contractor. This therefore requires fifthly that the contractor set out what the actual costs would have been had the disruption not occurred. This provides the comparator to be used in the calculation. Sixthly, the contractor must show that he has taken all reasonable steps to mitigate his loss, such as returning hired machinery, working on other parts of the project that were not affected by the disruption where possible, and redeploying expensive resources where possible so that they are not unnecessarily sitting idle.
Quantification will rely heavily on expense reports prepared onsite directly at the time of the disruption. This is because the court will seek to rely on actual figures in quantifying loss, rather than on projections and tender figures that were prepared based on accountant estimates (William, Ackermann & Eden, 2002).
2.2 Meaning of Disruption
Disruption in the construction industry can be defined as an interruption to the planned work sequence of flow of work (Bramble & Callahan, 2005), or as events that impede the contractor from completing the work as planned (Williams et al, 2008). Williams et al (2008) go on to state,
‘the idea that small disruptions can cause serious consequences to the life of a major project, resulting in massive time and cost overruns, is well established. The terms disruption and delay, or delay and disruption are also often used to describe what has happened on such projects. However, although justifying the direct impact of disruptions and delays is relatively easy, there has been considerable difficulty in justifying and quantifying the claim for the indirect consequences. Our experience from working on a series of such claims is that some of the difficulty derives from ambiguity about the nature of disruption and delay.’
Williams et al (2008) point out that a certain amount of disruption will be planned for at the bidding stage of a project. It will usually be expected on a complex project that a certain amount of rework will be required at various stages of the construction. Even when the project is going well, what are regarded as normal errors, made by both the contractor and the client, will involve a certain amount of rework and additional cost to rectify. These costs however, are built into the initial bid and will be absorbed without affecting the time frame or budget (Williams et al, 2005). Despite this however, it is possible to drastically underestimate the costs of such ‘normal’ mistakes. Williams et al (2008) note that outside of these usual estimates, there are a number of disruption costs that should be automatically factored into contracts but that are in most cases overlooked by both the contractor and the employer. They note,
‘our experience suggests that there are other types of disruptions that can be significant in their impact and are rarely thought about during original estimating. When these types of disruption do occur, their consequences can be underestimated as they are often seen by the contractor as aberrations with an expectation that their consequences can be controlled and managed,’ (Williams et al, 2008).
Ackerman et al (2007) have noted the danger of estimates missing the link between risk assessment and risk as potential triggers for disruption. It is common for employers to interfere with the flow of construction. For example, an employer could easily give back a larger than expected number of comments on design than a contractor expected, requiring additional drawings to be reworked. These comments, made by the employer, could just as easily be made by the contractor’s own engineers. In either case, the extra time taken for the drawings will have to be made up by taking mitigating action elsewhere on the project, and this will have an impact on the overall feedback on the project from the employer.
One of the most common causes of disruption is a variation or change order, coming from the employer, and amending what the contractor is required to do, or what the project is required to deliver. This can occur even after work has commenced. Variations can also occur as a result of the contractors themselves however. This frequently occurs during complex projects because of the excitement that certain solutions might generate within the contractor’s own staff. For example, when a complex problem gives rise to a novel or unique solution, not infrequently will a contractor approve such a solution even though it is more costly than the solution provided for in the original plans. It is also possible that the contractor and employer have interpreted the plans differently, and so the requirement changes when the contractor becomes aware of the discrepancy and changes the plan to meet the employers interpretation.
2.3 Causes and implications of disruption
The possible causes of disruption can be classified and analysed with the same patterns normally used to classify project risk. Castri (2003) notes that disruption occurs when risks become reality. Accordingly, causes of disruption can be broken down into either external or internal causes. External causes of disruption are generally not related to the project itself and will often fall into the force majeure category. They will include government acts such as the passing of new regulations or laws, changes to the taxation regime, and new development or investment programmes. Such events will generally involve certain rights of compensation to be passed on to the contractor. External causes can also result from acts of God, such as earthquakes, hurricanes, or a very cold winter. Such risks can generally be insured against, and therefore the uncertainty that they would introduce into a project can be transformed into a certain insurance cost. The last type of external disruption relates to social or political events that disrupt normal societal functioning. This can include the outbreak of war, included non-declared war that nevertheless involves military or other disruptions to economic activity, rebellions, protests, and general strikes In many cases, these too will be insurable risks and so the uncertainty they involve can again be avoided. Castri (2003) also notes the internal causes of disruption, which can be causally attributed to the project itself, its planning and design, and the manner in which the works are performed. Internal causes of disruption can be further broken down into technical causes, including changes id design, design errors and construction errors; economic causes including difficulties in accessing or sourcing requisite materials, labour, or skills, and financial causes such as shortfalls in the project’s ability to pay costs, unplanned resource, material or labour cost increases, and interest rate rises on borrowing.
Bramble and Callahan (2000) note the implications of disruption, which may include changes in the project scope, late completion, loss of possibility for early completion, and may be countered by acceleration of the work. Acceleration and other changes in response to delay, such as alternation of the sequence of the work, loss in efficiency, and extra time determined overheads will all cut into the potential profits of the contractor. Delays will also deprive the employer of use of the completed project and profits that could be earned from it. Delay will also place stress on the relationships between the owner, contractor, designer and other parties involved, and disputes will also result. Jayalath (2009) discuss the loss of expected benefit that a contractor will suffer from failing to finish at the anticipated time. There are also administrative costs associated with rescheduling and planning, and labour and equipment may sit idle if they are not needed at the initially planned time. In many cases, it will be difficult for a contractor to reorganize projects in a way that does not cause waste of resources. Lal (2003) also notes the financial impact of trade stacking and idle labour and plant that can result from unscheduled delays. Rescheduling will almost always lead to the same work being performed over a longer timeframe, and projects will have to wait on crucial steps to be performed before other lined up resources can be put to use. Delays can also lead to further complications such as time scales being pushed back into the winter, when work during inclement weather will be more difficult, more expensive, and slower. Gibbs and Hunt (2009) note the cost impact of changing the size or quantity of labour and plant required when disruption occurs. As Bramble and Callahan (2000) point out, more labour and equipment, over a longer period of time, is being utilsed per unit of work as a result of disruption.
One of the methods that contractors will employ to counteract the impact of disruption is to accelerate the work on the project (Pickavance, 2005). This involves speeding up those aspects of the project that have potential to be sped up, either because of the nature of the task or because of the resources or capabilities of the contractor. In either case, strengths of the contractor in one area are being used to compensate for weaknesses in another area. Acceleration can be used when there is no delay, either to counteract possible future delays that might be feared, or in order to achieve and early completion, but in many cases acceleration will be used to try and compensate for already experienced delays. Braimah & Ndekugri (2007) have noted the importance of labour management as a means of achieving acceleration, and in many cases, it will be the skillful management of available resources that will be the difference between whether acceleration can be achieved successfully or not. Braimah (2008) and Bramble and Callahan (2000) have also noted that the impact of delay will be more severe when the issue causing the disruption lies on the project’s critical path. Jayalath (2009) also points out that disruption can lead to significant cost increases for the contractor even when the disruption does not lead to a delay in the project completion date. This is because it may be due to the extra measures taken by the contractor, such as acceleration, that allow for the project to be completed on time, and these extra costs should still be recoverable in many instances.
2.4 Contract, collateral warranties, and propensity to dispute
Disruption claims are made under the contract, and must be seen in the context of the wider developments in the field of contract law in relation to construction contracts. Deeley (2005) has discussed the background and context of construction industry disputes and their relation to disruption. In looking at the literature surrounding the context of disruption claims, it is also useful to discuss the literature in relation to construction contract claims more generally. The first point to note is the relationship between disruption and contract. Construction contract disputes raise various specific challenges to contract law, not only with regard to the difficulty of quantifying damages, but also because of the large number of parties who are not necessarily part of the primary contract between the contractor and the employer. While the employer will certainly have a contractual relationship with the contractor, he will not necessarily have a contract with subcontractors and other persons involved in the construction of the project and who have been called in not by the employer but by the lead contractor. This is an area that has been extremely important in the context of construction contract claims, and one that is affected by the Contracts (Rights of Third Parties) Act 1999, provisions of the Joint Contracts Tribunal (JCT) and British Property Federation (BPF) contractual documents, and a complex body of case law.
This area is crucial in the context of disruption claims due to the fact that in many cases, the disruption will affect not only the head contractor, but also any subcontractors working on the project. If they do not have a direct contract with the employer, then they will find it difficult to be able to make a claim against the employer at all. This highlights the importance of collateral warranties not only for protecting the employer, but also for protecting subcontractors in cases where they are making disruption claims against the employer. While in many cases a subcontractor will be able to recover any contractual losses from the head contractor, there will always be cases in which this will not be possible, for example, in cases where the head contractor has become insolvent or bankrupt.
Literature on the subject includes Whittaker (1996) who has examined the different approaches adopted by various different courts in a number of jurisdictions internationally. He notes the traditional approach that has been adopted by the courts and the difficulties that have arisen as a result of those approaches. He notes the remedies that exist in both contract law and tort law that allow employers to seek redress in construction contracts against third parties and does not recommend that any new sui generis legal reform be initiated in the area. Brown (2006) has looked at the difficulties that arise through the use of collateral warranties, and the attempts in the JCT 2005 to avoid the need for including such collateral warranties in construction contracts. It should be noted that collateral warranties are warranties offered by subcontractors to the employer and are used to create a contractual nexus directly between the subcontractor and the employer. If the subcontractor breaches the contract or fails to perform his obligations adequately, then the employer can pursue a remedy for breach of contract directly from the subcontractor, rather than being forced to go through the lead contractor. Brown notes that the JCT 2005 relies heavily on the terms of the Contracts (Rights of Third Parties) Act 1999, which permits certain third parties, such as the employer in a construction contract, to avoid a strict application of the doctrine of privity of contract and therefore benefit from protection under that contract. Brown notes that the use of such terms however will not completely remove the need for collateral warranties and as such, collateral warranties will remain an important part of large construction contracts. Gosnell (2000) looks at the steps that have been taken in both England and Canada to avoid the strictest interpretations of the doctrine of privity. This has generally been achieved through development by the courts of the tort of negligence. However, it is the rule against recovery of pure economic loss under tort that makes this an uncertain development and not one that is likely to solve the need to use collateral warranties. Building on this, van Boom (2004) has examined comparatively, the approach of a number of jurisdictions in Europe to the question of whether or not pure economic loss is recoverable under tort. He goes on to examine the impact that these differing approaches have on construction contracts and the terms that are inserted.
Deeley has also discussed the objective of the court when making any award for contractual damages, that it is the task of the court to place the injured party in the financial position he would be in had the breach of contract not occurred. This makes it necessary in all contractual claims that the injured party suffer a financial loss, and that loss be quantifiable. The basis of calculating the quantity of the loss must be fair and reasonable, must be substantiated by the party claiming them, and should not put the injured party in a more advantageous position than he or she would have been in had the other party performed their duties under the contract adequately. The precise losses that a contractor can recover for disruption have been hotly contested by both contractors and employers over the years, and one of the illustrations of this ongoing contest is the recoverability by the contractor for the costs of running its administration at its head office when a project is delayed through the fault of the employer. From the point of view of the contractor, when its operational capabilities are tied up and wasting time due to the fault of the employer, then the employer should compensate the contractor not just for the costs of operational equipment and staff, but also for the associated overheads of the contractor’s administrative offices. From the point of view of the employer, the contractor will have to maintain offices regardless of whether an individual project is delayed or not, and therefore the cost of the offices is not directly caused by the disruption of the employer. As explained by Deeley,
‘it can be difficult to prove that an actual loss was suffered… home office overheads by their very nature are fixed in the short run and not directly related to specific contracts. Since the contractor would have usually incurred these costs regardless, the question then arises as to how the contractor could be out of pocket.’
If it is accepted that overhead costs are to be recoverable, then the court is again faced with the challenge of quantifying the proportion of such overheads as are to be attributed to the delay in the relevant project (Cushman et al, 1996). Because of the nature and competitiveness of the construction industry, relationships are generally seen as competitive rather than cooperative, and this is related to the way in which contracts are tendered and awarded, the organization of workforces into unions, and the demands of employers and in cases tenants on contractors. Because of this competitive and pressurized atmosphere, with so many competing interests at stake, and such large sums being expended, the construction industry has shown itself to have a higher propensity for legal and contractual dispute than most other contract forms. There are a number of factors specific to the construction industry that make disputes so frequent. As Hohns (1979) has noted, even the most well run and best organized projects can end up in dispute due to unforeseen circumstances arising.
Even in the best construction projects, a contract will be concluded in the face of numerous uncertainties. Neither party can be sure how the construction is going to go, what the weather, political and economic conditions will be like during the project, how well the design and the site will work and will facilitate or hinder a speedy completion, and what the attitude of the other party will be when unexpected difficulties arise. In most cases, a contract will be awarded after a competitive bidding process, whereby the contractor awarded the job will be the one who gave the lowest bid for the work. This will generally be the result of extremely optimistic calculations that have been made by the contractor, calculations that have allowed that contractor to arrive at a price for the job that is lower than more moderate or conservative calculations made by the unsuccessful bidders. Any contractor who factors in all of the risks and makes contingencies for some of the uncertainties facing the project, will rarely come in at the lowest bid. In fact, it is reasonable to conclude that in the case of lowest bid winning a contract, it is not the contractor that is best placed to perform the task on time and on budget who will be awarded the contract, but rather, it will be the contractor most desperate for the work, and therefore most willing to make the unrealistic promise without planning for difficulties that could arise.
Within construction contracts, there will usually be allowance for what are termed excusable delays, and these will be differentiated from non-excusable delays. Excusable delay includes items regarded as outside the control of the parties, such as labour strikes, inclement weather, and acts of God. Mismanagement and fault of the contractor however will not fall within the category of excusable delay. It will always that the contract defines precisely what is to be regarded as excusable and what is not to be regarded as excusable delay under the contract. When delays are caused by an excusable reason, then they will push back the completion date for the project without penalty to the contractor. In many contracts, excusable delays will be further broken down, into those that are compensable, and those that are not. Bramble and Callahan (2005) note that compensable delays will result in the employer compensating the contractor for extra work or loss incurred as a result of an excusable delay, so that for example, if the employer delayed the start date and as a result, the contractor would have to work through bad winter conditions, this would be compensable. However, if the employer delayed the start date without any impact on the weather that occur, this would be excusable, and would push back the start date, but would not be compensable and so the employer would not be required to pay the contractor for the extra cost associated with performing the work later than had been originally agreed.
Legal steps taken by contractors in making disruption claims
It is almost inconceivable in today’s commercial construction industry to imagine a construction project that does not have a specified commencement date and completion date. Virtually all financial aspects of the project, from the cost of construction, prices of materials, exposure to financing costs and financial risks, and the commencement of revenue from the project, will depend heavily on the dates that construction commences, and the date construction is completed (Ndekugri, 2007). Between commencement and completion however, there are a number of important deadlines for concluding specified parts of the project, and these are termed ‘sectional completion dates.’ Arditi et al (1985), Ogunlana et al (1996), Chan et al (1997) and Aibinu (2002) have all looked at the proneness of projects to delay. Studies generally concentrate on the financial responsibility for delay, and look for both immediate and root causes of delay. The immediate cause of delay will be the specific action or event that started the chain or events resulting in delay, while the root cause approach looks for the most important or influential factors behind the delay and ascribes causation to these factors (Ndekugri, 2007).
Because of the high financial implications of delay, Ndekugri (2007) has noted,
‘whoever is ultimately determined to be responsible for the event that caused the delay must bear the financial consequences.’
This is a difficult task however, and legal measures must be taken by both parties prior to the commencement of any project to protect their position and provide certainty as to who will be deemed responsible for certain events and occurrences (Society of Construction Law, 2002; Pickavance, 2005). As Ndekugri (2007) notes,
‘considering the wide range and mutually interactive nature of events that may impact negatively on progress, identification of the event or events that caused the delay and, where they impact concurrently or sequentially, delineating individual causative impacts have been matters of the greatest controversy.’
This chapter looks at the legal measures that must be adopted by both parties in order to give the greatest certainty to the contract, ascertain responsibility, apportion compensation, and contribute to speedy dispute resolution. It also looks at a number of technical legal issues that cause difficulty for parties seeking to interpret contracts and resolve legal disputes. It is suggested here that contractors have an enormous financial stake in preparing sound contractual protections to deal with disruption. Making successful disruption claims is closely related to the provisions of the underlying contract and the degree to which that contract protects the contractor. Therefore, there will be focus in this chapter on the legal issues that should be tackled prior when drafting the contract, and prior to disputes arising, as these will strongly influence the success of later claims under the contract.
3.2 Contractual aspects of contractor’s claims
Issues that require to be examined include the terminology used in the contractual terms relating to delay and disruption, the degree to which the contractor specifies the programme of work to the employer, whether the programme of work will be contractually binding, contractual specification of disruption by the employer, the optimism with which the programme was drafted, provisions relating to acceleration, the interaction between delay caused by one party after the other party is already in breach of the contract, and the issue of concurrent delay.
Looking at contractual terminology, it is vital that the contract sets out who is responsible for each delay. The way contracts usually allocate this responsibility is through the use of such distinctions as excusable and non-excusable, culpable and non-culpable, or compensable and non-compensable delay (Ndekugri, 2007). While the general principle will be that the party most in control of the set of circumstances that could cause or prevent a delay will be responsible for it, it is possible to alter this assumption in the contract.
Delays caused by the contractor will not be recoverable. In many cases, the contractor will be liable for delays caused by a wide range of other subcontractors. This type of delay is termed culpable delay, and while not directly caused by the head contractor, such delay will be the contractor’s responsibility, and will also not give rise to claims for extension, recovery of loss, or recovery of additional expenses.
Other delays will be caused by factors outside the control of both parties. This are termed neutral events and will include for example, extremely bad weather conditions. Because these events are not the fault of the contractor, they will usually give rise to a claim for time extension, to make up for the delay caused by the event. However, because the event is not the fault of the employer either, they will not give rise to a claim for financial compensation for the extra cost incurred by the event. These types of delay are termed excusable, because the contractor is excused from liability for liquidated damages for missing deadlines.
The third type of delay that should be set out in the contract will be delays caused by the employer. This will include delays caused by parties for which the employer is responsible, and will usually under the contract entitle the contractor to both time extensions and recovery of the financial cost of the delay. This type of delay is termed compensable delay.
Concurrent delay arises when there are a number of different events occurring, any one of which would individually have been sufficient to delay the project. Frequently, a mix of compensable, excusable and culpable events can arise at the same time, and it may become a source of dispute as to which should be regarded as the cause of the delay. For example, if the employer failed to pass on information necessary for the project to progress, and there was also bad weather, the contractor might seek compensation for the failure of the employer, while the employer would wish the delay to be excusable but not compensable.
A good disruption claim will be based on a contract that not only clearly delineates between the different categories of delay, but also sets out how concurrent delays are to be treated, reducing the scope for disputes to arise (Ndekugri, 2007).
3.3 Programme of work
Another aspect that will weigh heavily on claims is the degree to which the contractor’s programme provides for contractually binding guidance on responsibility for delay. As Ndekugri (2007) notes,
‘a major function of a contract is to provide for risks with such comprehensiveness and clarity as to minimize justifiable disagreement as to how the consequences of the occurrence of any risk is allocated between the parties. The fact that there has been very high incidence of disputes on delay and disruption points towards possible deficiencies in contractual provisions on time management, including requirements on contractor’s programmes.’
While the contractor’s programme places contractual obligations on the contractor, they are vital to the sound and successful arrangement of disruption claims, as they provide certainty and clarity on the progress of the project, and therefore protect the contractor in cases of disruption claim. While the JCT2005 requires the programme to be provided by the contractor to the employer ‘as soon as possible’ after the contract is concluded, the Institution of Civil Engineers (1999) and the FIDIC provide specific time limits by which the programme is to be past on to the employer.
The contract will state the form and information to be contained in the programme and should be as detailed as possible as according to Ndekugri (2007) ‘virtually none of them goes far enough if the programme is to be the powerful management tool that it should be.’ Because of the complex interplay between different project activities, the more detail contained in the programme, the less scope for uncertainty that there will be when a disruption claim is made. As the cases of Royal Brompton Hospital National Health Service Trust v Hammond (no. 9)  EWHC 2037 and Moody v Ellis (1983) 26 BLR 39 demonstrate, there is potential for a detailed programme to reduce the evidentiary requirements of a disruption claim later on.
3.4 Employer Prevention
The basis of any disruption claim is ultimately that the employer is contractually responsible for the delay (Bell, 2006). The first thing to note from the case law is that if the contractor is prevented from meeting the contractual completion date as a result of being prevented from doing so by the employer, then the contractor is not bound by that deadline and will not be liable for liquidated damages for late completion. This has been shown in numerous cases including Holme v Guppy (1838) 3 M & W 387, Dodd v Churton  1 QB 562, Wells v Army & Navy Cooperative Society Ltd (1902) 86 LT 764, Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111, and Rapid Building Group Ltd v Ealing Family Housing Association Ltd (1984) 29 BLR 5. In some cases, the contract will provide the basis for the completion date to be extended, and if it does not do so, then at common law, the time of completion is legally termed ‘at large’ and means that because of being prevented from completing on time by the employer, the contractor is given the less onerous duty of completing ‘within a reasonable time.’ This is known as the ‘prevention principle’ and is the first important legal aspect of many disruption claims (Baker et al, 2005).
When a completion date is nullified due to the employer’s prevention, then any liquidated damages clause for late completion is nullified, and the employer must rely on a claim of general damages if he feels that the contractor has failed to complete the project within a reasonable time following the prevention (Smith, 2002). General damages are far more difficult to substantiate and the employer would have to show that the time taken to complete had become unreasonable, that a financial loss had directly resulted from this, and that the loss is not too remote to recover (Smith, 2002). In most cases therefore, an extension of time clause will be of benefit to the employer as it will allow him to keep the liquidated damages clause operable (Lal, 2002).
Prevention by the employer can take a number of forms, and can include direct and willful prevention such as denying the contractor access to the site or failing to provide necessary approvals or plans (Wallace, 1995; Fletcher, 1998). Or prevention can arise from actions expressly provided for under the contract such as such as variations (Baker et al, 2005), or actions by third parties for which the employer is liable (Pickavance, 2006). Pickavance (2005) has noted that it is extremely common for a contractor’s claim to involve resort to the prevention principle.
3.5 Obligations on the contractor when making a claim
When preparing a claim, it is vital that the contractor ensures that the event founding the claim is compensable or at least, non-culpable (Pinnell, 1998). As noted above, the more precisely an event is provided for in the contract, and the more detail surrounding the requirements and obligations of the contractor set out in the programme, the better placed the contractor will be to substantiate the claim (Lal, 2003). Carnell (2005) note that issues such as whether the event was on the critical path, whether notice was required and given, whether the delay or the event could have been avoided by the contractor or the employer, was the event foreseen at the time of contract formation, and whether the contract was misinterpreted by either party will be vital aspects to consider when preparing the claim (Carnell, 2005; Abdul-Malak et al, 2000). Grose (2004) notes the common misconception among contractors that all disruptions and delays automatically give rise to a claim for compensation.
It will fall on the contractor to identify the clause of the contract under which to bring a claim (Pinnell, 1998). The greater the contractor’s input has been in drafting the contract defensively, to protect him in cases of disruption claims, the easier it will be to identify the clause to claim under. The greater certainty with which the contractor can claim under the contract, the less opportunity there will be for a dispute to arise with the employer.
The burden of demonstrating a causal link between the disruption and the contract term being claimed under also will fall on the contractor (Gorse, 2004). The claim will be successful if it can be established that the cause claimed against was the principle cause of the delay. The breach of contract by the employer, and the disruption caused, must be actual and not speculative (Carnell, 2005). It is vital therefore that the contractor maintains detailed documentary evidence of project and the actions of both contractor and employer. The greater the detail of the documentation supporting the claim, the greater the chance for success.
Another aspect of the claim that the contractor must perform is to comply with the notification requirements set out in the contract. The contract will provide that the contractor must notify the employer of disruption is quickly as is practicable, and in certain cases will impose time limits on notification. Notification will specify the nature of the disruption and the clause under the contract that is being invoked. The provision of prompt notice will enable the employer to react and possibly avoid the delay, or at least asses the situation and possibly provide a solution that will mitigate its effects (Pinnell, 1998). The contractor might lose his right to recovery if he does not make prompt notification. When the contract is being drafted, the contractor should make sure that the notification requirements are not overly onerous, especially given the complexity of a busy site when the project is under full operation, and the difficulty of ascertaining the nature and implications of different events immediately.
Once notification has been made, the contractor must also take all practicable steps the mitigate the effect of the disruption. This would include returning hired equipment that would otherwise sit idle, direct resources towards other aspects of the project that can proceed, and redeploying labour if possible. Lal (2003) has noted that if disruption relates only to one section of the project, then if possible, work should continue, and even be accelerated, on other sections. This obligation can also become a source of dispute as the contractor and employer will have different expectations of what is a reasonable adjustment for the contractor to make in attempting to mitigate the impact of a disruption.
A number of research methodologies have been employed in the preparation of this paper. Chapters two and three have been based on a critical review of the available literature relating to disruption claims, with chapter two looking at the background and context of disruption claims, and chapter three looking at the specific steps that should be taken by contractors when preparing for disruption claims. This includes the defensive steps to be taken when drafting and agreeing on the contract, the notification and evidentiary requirements of the contractor, and the task of identifying the cause of the disruption, the type of disruption that is at issue, and the relevant contractual terms under which the claim can be made. At all of these steps, the greater the detail of the contract and the programme of work, and the greater the quantity and quality of the data and evidence that the contractor can get a hold of during the project and the framing of a claim, the better will be the chance of success of the claim. The methods of legal research that were adopted during these two chapters are described by Holborn (2001), Jeffries and Miskin (1993) and McKie (1993).
As Kothari (2005) have noted, the development of the methodology to be applied to a research project is a fundamental task of the project and sets out the principles and methods by which the data under review will be discussed. It also sets out the rules and postulates that will be applied to the research study. Rather than just being seen as a set of methods that will be applied to a study however, the research methodology goes farther, stating the rationale and underlying philosophical assumptions behind the study also. This chapter presents the research methodology underlying this paper and sets out the rationale behind topic selection, research strategy, research design, and the approach adopted to gather and analyze the information presented. This will be used to meet the objectives and intentions of the study.
4.2 Topic selection
The initial step of the research methodology in the present work was a comprehensive review of the literature surrounding project disruption and disruption claims, with the intention of providing a clear conceptual and academic background to the issues at stake, and a comprehensive framework within which to ground the present research. Kothari (2005) emphasizes the value of carrying out an initial literature review, noting that it provides not only an insight into whether the research proposed is worthwhile, but also assists in defining the topic and scope of the research, and supports the development of the approach to be adopted in pursuing that research.
As Pickavance (2005) and Pinnell (1998) have reported, and was noted above, for several years now there has been an increasing awareness and academic interest in the subject of disruption claims. Despite the attention paid to the issue, the resolution of disputes regarding disruption continues to to pose a great challenge to both employers and contractors. This has played a key role in defining the current research topic, which looks at the ways in which contractors can improve disruption claims in construction contracts, and the steps that they can take both during but importantly, before a contract has been concluded, to improve their position and reduce the scope for dispute and legal uncertainty. Given the severe financial implications of disruption for a contractor, the framing of sound and robust disruption claims is vital to the success of the company and the profitability of the project as a whole. The purpose of this research is to identify the different methods that are used by contractors to frame their disruption claims, the steps that they take to improve the likelihood of success, and to analyze the strengths and weaknesses of these approaches. This will be achieved by reference to actual and previous projects and disruption claims, and methods will be proposed for improving the structure and basis of such claims.
4.3 Description of the research strategy
The philosophical assumption underlying this research is that an objective and descriptive approach will provide insights into what an ideal claim structure and contractual basis will look like. This will inform issues of agreeing the contract, selecting the contractual basis for a claim, framing the claim, complying with necessary claim procedures, and recovering an adequate sum, or receiving a time extension, to compensate for the loss. The research is both objective and descriptive, concentrating on actual disruption claims, the practices that are current in the industry, and the past successes or failures of such claims (Naoum, 2007).
Descriptive research seeks to assess what the current state of affairs is (Yin, 2002). Based on the current objectives, the current research will seek to determine: what the different methods used in large construction projects currently are to frame disruption claims; an assessment of the strengths and weaknesses of these claims in terms of the claimant’s success or failure in substantiating their claims; and identifying proposals that can be put forward to diminish the weakness and improve the potency of disruption claims in general.
Descriptive research and a case study approach are said to provoke ‘why?’ questions regarding the subject matter, and through such questions, lead to fresh insights and new ideas regarding current practices and states of affairs (Kothari, 2005). Descriptive research should accurately describe factual scenarios, systematic findings, and different contexts in order to provide fresh insights into an issue. The current research does so by looking at a number of interesting case studies, which have been specifically selected because they raise important issues with regard to the framing of successful disruption claims and offer insights into the reasons for the relative success and failure of such claims.
4.4 Qualitative research design
The importance of research design is that it provides guidelines on the direction that the research will take, and provides a framework within which the research can take on a standardized and familiar research structure. Naoum (2007) has pointed out that n the majority of cases, the nature of the research theme, the research aims and objectives, and the availability of research data and resources are the most important factors influencing research design. Kothari (2005) has noted that such factors will largely determine the design of any given piece of research and the format of the contribution that it will make to the existing body of work on a subject. Myers (2009) has noted that the research design should inform the entire process of the research, from the initial framing of the research objectives and question, to the analyzing of the issues and the reporting of data (Alavi & Carlson, 1992; Cash & Lawrence, 1989; Gable, 1994). While the decision of which research design to use will be strongly determined by the purpose of the study and the type and availability of the information that is required, the researcher is not limited to the use of a single method or strategy (Naoum, 2007).
The current research is of a qualitative nature for a number of reasons. Firstly, the study is intended to gather in depth information looking behind the bare facts and outcomes of cases, so that it can gain an understanding of the strengths and weaknesses of different disruption claims structures and methods, and inform the future development of such claims. Qualitative research methods are extremely well suited to helping gain an understanding of the issues under review, and gain an in depth insight into such issues (Kaplan & Maxwell, 1994). Secondly, while this study intends to get an impression of the general trends existing in claims structure practice, it is more focused on identifying specific strengths and weaknesses, and developing recommendations based on these specific issues. Kothari (2005) has pointed out that because of the synthetic nature of qualitative research, it can embrace a multitude of variables. It is suggested here that the success or failure of disruption claims is currently, to a large extent, undetermined, and that any one of hundreds of factors could be important in any given case. It is too early therefore to break down causes and factors into a limited number of groupings and conduct quantitative analysis methods on these limited factors. Rather, the less narrowly focused and broader outlook of a qualitative review will currently allow for any factor deemed important to be identified and examined. Third, the resources that are available for the current research are for the most part limited to previously published books and articles, and give interpretive information rather than empirical data (Myers, 2009). A quantitative analysis would depend on far more empirical and numerical data than is readily available for this research, and to an extent, the availability of qualitative rather than quantitative data has determined the decision to use a qualitative approach here also. Fourth, because this study is intended to use previous claims records as examples and case studies, a qualitative approach is better suited to identifying factors relevant to the outcomes of such case studies (Kothari, 2005). Fifth, a qualitative approach will allow for all three of Myers’ (2009) epistemological categories, positivist, interpretive and critical, to be accommodated.
For these reasons, it was determined that a qualitative approach could be satisfactorily accomplished, and would be better suited to the current research objectives, and because of a lack of quantitative data, and the lack of specificity of the factors that are to be identified, a quantitative approach would be less suitable.
4.5 A case study research approach
The materials and working method of this research is a deskwork research approach based on previously prepared, secondary materials. The data interpretation methods that are best suited to this type of research include the case study (Naoum, 2007) and this is an approach that will be adopted in the current work. This methodological choice has been extremely important in framing the way the current research is conducted. The case study approach is well suited to the current research because it allows for the review of a relatively small number of disruption claims, which reflects the resource availability and constraints of the current research, while at the same time allowing for an in depth analysis of a number of different disruption claims. As Yin (2002) notes, a case study approach can refer to a specific unit of analysis, such as a specific firm (Yin, 2002).
The advantage of selecting a case study methodology is that firstly, this methodology permits the analysis of real, existing phenomena (Yin, 2002), and in the context of the present research, will allow for an analysis of actual contractor practice in the framing and preparation of disruption claims. Sharp and Howard (1998) have noted the importance of being able to define the margins between cases and the different issues that each case gives rise to, when adopting a case study approach. The analysis of cases in this research will show that there are certain factors which can be identified in the context of individual disruption claims. Each case study will have to be conducted based on documentary evidenced and published materials, often court records, of the details of the claim. The strengths and weaknesses will be assessed based not only on the outcome of the case, but on a qualitative assessment of the facts of each individual case, regardless of whether the claim as a whole was successful. Obviously, it is possible for a poorly framed disruption claim to be successful, and a well framed claim to be unsuccessful. Courts do not award contractors based on their skill in preparing claims, or at least they should not, but rather on the merits of the case. However, because this research is concerned with the framing of claims rather than the merits of contractor disruption claims, the case studies will focus on the claims, more than on the outcomes of the cases and the reasons for the courts decisions, where it is appropriate to do so.
This research therefore will focus on developing an understanding of single events, the claim in each case, and assessing that claim for strengths and weakness as to form and structure, rather than on the basis of the underlying factual dispute between the employer and the contractor. A case study methodology is perfect for this as it is designed for analysis of single instances (Sharp and Howard, 1998).
4.6 Case study selection
This research is comprised of a number of individual case studies, each of which demonstrates some or all of the following characteristics: they are from existing or past large scale construction projects; each case involves the submission of a disruption claim by the contractor; the claim may have been successful, unsuccessful or still pending; and there is enough public information regarding the claim to make an assessment of its structure, content and legal basis possible. It is expected that the information necessary to conduct the case studies will be available in both primary and secondary formats. Primary information will include case reports and published court records, and information from the companies involved in reports to shareholders, annual reports, and public statements. Secondary information will also be available in the form of academic and professional commentary on the cases in books and academic journals, and in specialized industry media.
This chapter comprises of six specific disruption claims that have been analysed to come up with general rules that can be followed by contractors when they are preparing disruption claims.
5.2 Case 1: John Doyle Construction Ltd v Lain Management (Scotland) Ltd  BLR 295
This was an extremely important claim as it had far reaching legal implications on the effectiveness of global claims for loss and expense. The case was brought before the Court of Session, the highest civil court in Scotland, and demonstrates the importance of developing in a disruption claim, a causal link between the causes of delay, and the associated costs created by such delays. In this case study, Laing were the head contractors on the project, and they employed Doyle as their subcontractor, responsible for erecting the superstructure of the new corporate headquarters of Scottish Widows. Doyle was not able to meet the timeframe agreed contractually, and requested from Laing a twenty-two week extension and compensation for £4.8 million in losses and expenses.
The claim provided a number of schedules that set out a list of causes for delay and disruption. Each item was accompanied by narrative accounts explaining the item and its nature. However, Doyle was not able to place a calculation next to each item of the schedule, setting out the cost of each delay, or the portion of the delay for which that item was responsible. Rather, they simply stated,
‘despite best efforts, it is not possible to identify positive links between each such cause of delay and disruption and the cost consequences thereof.’
Laing argued that without any link being made in the claim between each causal event, and the claimed impacts of such events, in terms of time and money, that the claim should be struck out summarily. It will be noted that in chapters two and three of this paper, an extensive review was made of the literature outlining the importance of identifying causes and apportioning effects between these causes. This is because some causes will be the fault of the contractor and some will be the fault of the employer, while still others will be fault neutral. Each is generally treated differently, although this will depend on the precise wording of the contract. However, for the most part: disruption caused by the employer is compensable, meaning extensions should be granted to the contractor, and financial compensation should be paid for extra costs, and other financial losses; disruption caused by neutral events such as bad weather will generally allow for a time extension only; and disruption caused by the contractor will give rise neither to financial compensation or a time extension. The present claim failed completely to make such differentiations because, even though it was theoretically possible to determine who was responsible for each event listed in the schedule, on the basis of the accompanying narrative, it was impossible to say how much of the delay and cost could be apportioned to that cause.
It is generally accepted that when all of the causes of disruption listed in a schedule are completely the responsibility of the employer, then it is not necessary to apportion the costs of each delay, as in any event, the employer is liable for them. In such cases, a claim like the present claim, which is known as a global claim, will be permitted. In the present instance however, Laing only accepted responsibility for some of the causes, and argued that Doyle was responsible for others. This meant there was a need to apportion the cost of each delay between the parties, to allocate responsibility for the financial cost of the delay. Laing also argued that because of the way in which the claim had been framed, that is, a global claim, such apportionment was impossible.
The court stated that it would adopt a common sense approach. It noted that while it was risky to submit a global claim without any attempt to apportion responsibility for each event, the court would nevertheless look at all of the evidence that was placed in front of it, and come up with a reasonable allocation of each party’s responsibility for the complicated mix of concurrent delays that were being argued. In his judgment, Lord Drummond Young stated,
‘it is… clear that if a global claim is to succeed, whether it is a total cost claim or not, the contractor must eliminate from the causes of his loss and expense all matters that are not the responsibility of the employer.’
This requirement is mitigated by three considerations. Firstly, the contractor might be able to draw causal links between particular events for which the employer is liable, and the loss that was suffered. In some cases, groups of events might be linked to groups of losses, where there is no other significant cause for that group of losses. The dominant cause approach will be helpful in determining what is a significant cause for the losses. This would allow parts of the claim to be extracted from the global claim, so that the global claim can be made smaller, or less global, and thus easier to tackle. Secondly, if it is possible to identify a dominant cause of a loss, and if the employer is responsible for that dominant cause, then concurrent secondary causes that are the responsibility of either party or both parties can be disregarded as the employer will be liable. Thirdly, when items are left over that are still impossible to determine responsibility for, it may be possible to apportion a precise degree of responsibility to some of the causes, causes for which the employer is known to be liable, again reducing the size of what is left as un-apportioned loss.
The court did also note however that when the contractor is concurrently responsible for a delay, then again on a basis of dominance, it may be appropriate to completely deny recoverability for that loss.
The court in this case indicated that it would be willing to adopt an apportionment approach to claims that were difficult to ascertain responsibility for, but the apportionment would be ‘rough and ready’ and would hack off areas of the claim that were completely lacking in certain apportionment to the responsibility of the employer. What this case shows is that it is not strictly necessary, in every single case, for the contractor to perfectly frame a disruption claim. When the circumstances of the case make it very difficult to set out precisely the elements of the disruption and the impact that each element had, the court will give the contractor a little slack, and will endeavor to apportion responsibility as best it can, so that the contractor’s claim does not completely fail. While this approach has been criticized as prejudicial to employers, it does reduce the pressure placed on contractors to ensure that every disruption claim is perfect. This suggests that while the literature above on how best to frame a disruption claim might represent best practice, it is in practice possible to fall short of the standards called for academically, and still submit a successful claim.
5.3 Case 2: ICI plc v Bovis Construction Ltd (1992) 32 Con LR 90
This case demonstrates a contrast with the previous case, and shows the severe detriment that can be suffered by the contractor if he fails to adequately apportion responsibility for each item of delay and cost when making a disruption claim.
In this case, ICI was refurbishing and reconstructing its corporate headquarters, and the costs spiraled out of control as a result of a series of delays and mistakes, jumping from £30 million to £53 million. In this case, it was the employer who claimed against the contractor, and the case study therefore also shows the reciprocal nature of the issues at stake, and the fact that the definitions and contractual provisions with regard to each aspect of disruption and delay are for the protection of both parties and the increased certainty that they offer is beneficial to both parties. The claim was actually brought not only against the lead contractor, but also the consulting engineers and the architects. While the claim was multifaceted, the part that we are concerned with is a specific global claim for £840,211 that was claimed to be caused by hundreds of listed items. ICI claimed that it was impossible to apportion the cost of each individual claim, but that all items were the responsibility of the contractor and that their total cost could be calculated.
In this case, the court offered clear guidance on what the best practice would have been in framing the claim, stating that the claimant, ICI, could prepare what it called a Scott Schedule, that would identify each specific complaint, the defendant against which that complaint was being made, what clause of the contract had been breached by that specific complaint, and a factual narrative including the financial cost of each breach.
ICI did submit a Scott Schedule, but again the details were not specific, and the company claimed that it was impossible for it to prove the exact quantity of the financial cost of each individual item on the list. It simply lacked the detail in financial records necessary to do so. However, it went on to claim that even though it could not apportion responsibility between each individual cause, that any single cause on its own would also be sufficient to justify the claim being made. The company also noted that it was not seeking to recover more than actual loss suffered. However, unsurprisingly, the defendants in the action argued heavily that the claim should be struck out on the ground that it was not adequately framed.
This case study demonstrates the opposite of the first one. In this case, the court took a very different view on the way in which the company had framed its claim, and after a review of a large number of older authorities, the court observed that the purpose of the claim being made, and the details in it, and in the present case, the particulars of the Scott Schedule, was always to ensure that when the claim was being made, the defendant was being given adequate and fair notice of what was being complained of so that they could frame their defense and make a case. The court noted that while the Scott Schedule was inadequate, there was no evidence or suggestion that ICI was being intentionally vexatiuous or difficult, and the fact was simply that sufficient documentary evidence was unavailable to substantiate what were likely well founded claims. The court noted firstly,
‘on the basis of the decision in Merton it is permissible in certain circumstances to plead that a large number of matters contributed to prolongation and therefore additional expense.’
However, this did not allow a claim to be so unspecified as simply stating that any delay or mishap whatsoever, could just be plugged into a claim to substantiate a claim for sums far in excess of what that delay could be responsible for. In essence, the court found it unacceptable for the claimant simply to claim that a large number of events were responsible for a large expense, and then reverse the onus of proof so that the defense had to prove the contrary.
The court held that while the claim did not have to perfectly set out exactly what delay and cost was associated with each delay, revision, and mistake, it had to give some indication of what was important to the claim so that the other side had a fair chance to respond. In the event, ICI’s claim was reduced to just two items that were adequately substantiated and these were, ‘circuits need changing’ and ‘fire bell repositioning’. Therefore, it was the financial consequences that followed from these items that could be used to substantiate the whole of the £840,000 claim. The court did not accept that these items were sufficient and therefore the claim failed.
This case study therefore demonstrates a very different aspect that is necessary in claims. While John Doyle Construction Ltd v Lain Management showed that the courts are willing to overlook some of the difficulties involved in perfectly framing a disruption claim, the ICI claim showed that when a group of causes are being claimed as causing a global cost, this will be accepted, but only those causes that can be adequately substantiated and supported, and which the other side has a fair chance of defending themselves against, will be taken into account. In the ICI case, it was only two relatively minor items in the Scott Schedule that were accepted as substantiating the claim. And given the size of the claim, and the large financial sum that was being claimed, the numbers simply did not add up and the claim was unsuccessful.
The conclusion to be drawn is again that it is far safer if a claim has a full Schedule outlining the details of the claim, setting out the cause, the party responsible, the type of disruption caused, the contractual term breached, and the quantification of the financial loss sustained.
5.4 Case 3: Attorney General for the Falkland Islands v Gordon Forbes (Falklands) Construction Ltd (2003) 19 Const LJ T1 49
This case study is intended to demonstrate the importance of keeping precise supporting evidence and records that can support the claim. As seen above in case study 2, when a global claim is being made, it will only be the substantiated items on a list of grouped events that will be held as capable or incapable of supporting the financial claim being made. Similarly, in case study 1 it was shown that even though that claim was largely successful, the court will usually pluck from a global claim, any part of it which is adequately substantiated, and use these parts to justify awarding that element of the claim. The elements of the claim for which nothing has been provided by the contractor by way of evidence however will fall to be unsuccessful. While the court in case study 1 was willing to work with what it had to minimize the parts of the claim that would fall to be unsuccessful, not all courts will be as willing and the contractor should not assume it will have such an accommodating court, that will be willing to take measures to make up for shortcomings in the evidence supporting the claim.
In this case study, the importance of backup evidence is again highlighted. As Chappel, Powell-Smith and Sims (2005) note,
‘the nature of the back-up evidence will obviously depend on the type of claim, but in almost every case detailed cost records and comparative programme/progress schedules will be necessary, together with references to correspondence, records of site meetings, site diaries and the like.’
These types of records, that can be used by the contractor to support the financial claims being made are often referred to as ‘contemporary records’ and in the Falkland Islands case, the court had to examine the meaning of this phrase as it was contained in the contract, which was based on the FIDIC Conditions of Contract 4th Edition, clause 53, which referred to the necessity of keeping ‘contemporary records’ to support a claim. The meaning given to the phrase was that it referred to original or primary documents, or copies of such documents, and reference to generalizations, averages, percentages of productivity, and similar figures were not acceptable. The court held that documents relating to actual figures of the actual case, prepared at the time of the disruption in question, and in response to it, and not later evidence brought forward for the purposes of the trial, such as witness statements, were what was necessary, particularly when the wording of the contract explicitly stated this.
While it may be that the contractor will wish to paraphrase and provide summaries of original correspondence, meeting notes, and other documents, and this can be done to highlight the point that the contractor is trying to make, it is vital that the actual documents are also available and that the other side to the dispute has the opportunity to examine and refer to the documents themselves and frame their own argument to defend their case. This case study also highlights the importance of paraphrasing such documentation accurately as any party falsely paraphrasing such evidence is likely to be harshly penalized in the final view of the court.
5.5 Case 4: Wharf Properties Ltd v Eric Cumine Associates (1991) 52 BLR 1
This is another important case study for showing the importance of detailing and supporting the aspects of a claim, and presenting it properly. This was a case brought by the architecture firm and again, the issue was whether or not the claim, as it was framed, was sufficiently framed so as to establish the essential link between the breaches of contract that they were claiming had been made by the defendants, and the damages that they were claiming for. The defendants argued that no cause of action at all was being asserted, or alternatively that the claim was an embarrassment to the claimants and the court and should be struck out as an abuse of process. The Privy Council of the House of Lords stated that the claim being made involved ‘extraordinary evidential difficulties’ and although capable of supporting a reasonable cause of action, must ultimately be seen as an abuse of process. Lord Oliver noted,
‘the pleading is hopelessly embarrassing as it stands… in cases where the full extent of extra costs incurred through delay depend upon a complex interaction between the consequences of various events, so that it may be difficult to make an accurate apportionment of the total extra costs, it may be proper for an arbitrator to make individual financial awards in respect of claims which can conveniently be dealt with in isolation and a supplementary award in respect of the financial consequences of the remainder as a composite whole. This has, however, no bearing upon the obligation of a plaintiff to plead his case with such particularity as is sufficient to alert the opposite party to the case which is going to be made against him at the trial.
In this case, it was held that in previous cases where the court had adopted a generous view on contractor’s obligation to substantiate claims, this had been adopted in relation to the quantification of the precise financial amount to be apportioned to each cause. However, in such cases, such as the one seen in case study 1, it had clearly been shown that the conduct complained of had causally been linked to the loss. In this case however, the claimant had not even managed to show how the breaches of contract that were claimed were causally linked to the financial losses claimed for.
5.6 Case 5: Mid Glamorgan Count Council v J Devonald Williams & Partner (1993) 8 Const LJ 61
The case studied above in number 4 was actually followed and supported by this case, which involved a similar set of facts, namely the establishment of a causal link between the breach of contract and the loss suffered. This is vital as even before a party can go on to begin attempting to quantify the financial impact of each breach of contract stated in the claim, they must be able to show that the breaches of contract claimed against, actually were the cause of the financial loss being claimed. In this case, clear guidelines on what is necessary were set out by the court. The first requirement was that a clear cause of action be pleaded by the claimant. After this, the court held that where specific events were being relied upon as giving rise to a claim for compensation under the contract, then any other requirements of the contract term that were set out in the contract would also have to be complied with. This was noted above in relation to notice requirements and other similar requirements that might be elements of the contractual provisions being claimed under. The next step that is required was said to be a nexus which relates the event relied upon to a specific quantum of damages. The final point noted by the court however, and important in the context of the case studies that have gone before, was that,
‘where, however, a claim is made for extra costs incurred through delays as s result of various events whose consequences have a complex interaction that renders specific relation between event and time/money consequence impossible and impracticable, it is permissible to maintain a composite claim.’
This case study also gives guidance on the reasons by which the court has justified the permissibility of a composite claim, given the fact that they are generally regarded as prejudicial to the other party.
This case also shows the court’s justification for accepting ‘total cost’ claims, noting three steps in the logical process. Firstly, the contractor will reasonably expect to be able to perform the contractual work for the contractual price. Secondly, the employer will have breached the contract. And thirdly, the actual reasonable cost for completing the work will have increased, and will exceed the contractually agreed sum, as a result of the employer’s breach of contract. However, such logic only permits a court to make a finding in favour of a contractor to the extent that the claim proves each one of these steps. The other factor that is highlighted in this case study is the importance that was placed on the employer’s actions being the only causal factor in generating the loss.
5.7 Case 6: How Engineering Services Ltd v Lindner Ceilings Partitions PLC 17 May 1995, unreported
The final case study to be examined here gives exceptionally clear guidance on the way ideal claims should be framed, even though as an authority the case has not been regarded as particularly important. The important aspects of the decision in this case, and the guidance that it gives in relation to the framing of claims can be broken down into a number of factors. Firstly, this case set out that when making a disruption claim, it is for the contractor to set out clearly and intelligibly the loss he has suffered, the reasons that loss occurred, and why the other party has a legal obligation to be responsible for that loss. Secondly, the contractor should set out clearly which parts of the contract have been breached, the details of those terms, and the type of disruption that they involve. After this has been done, the contractor should next set up his demonstration of cause and effect. He has to show that the breaches of contract that he is complaining of, directly and certainly led to the losses that are being claimed. The next part of the claim process is to note that the contractor is not obliged to break down the total loss, so that each individual breach of contract, is stated to have led to a specific part of the loss suffered. However, when a group of breaches are being joined together to support a global claim, the court will only take into account those breaches that are adequately supported by documentary evidence. If any of the breaches are not adequately proven, they will be disregarded, and the risk is that the remaining causes will not be adequate to support the total sum being claimed, in which event the claim will fail. If this is the case, the contractor might still be able to recover the part of the loss that he has substantiated. However, to do so there will have to be a method of calculation in place that is capable of dividing the loss among the remaining breaches. As noted by Chappell et al (2005)
‘the means by which the loss is to be calculated if some of the causative events alleged have been eliminated. In other words, what formula or device is put forward to enable an appropriate scaling down of the claim to be made?
Or alternatively (Chappell et al, 2005)
‘the means of scaling down the claim to take account of other irrevocable factors such as defects, inefficiencies, or events at a contractor’s risk.’
These then conclude the findings that can be drawn from the six cases that have been studied in greater detail in this chapter.
This paper has made a number of important findings that can be taken on by contractors when they are preparing disruption claims. These findings will assist in increasing the likely success of the disruption claims. As noted from the literature, and despite the findings of the first case study, the vast majority of disruption claims will benefit significantly from having adequate documentary evidence supporting each element of a claim. The law requires that a claimant satisfies the burden of proof, and not only offers evidence to support claims for compensation, but does so in a manner that permits the other side to develop their own case in defense of the claim. Therefore, from the outset, the more detail that a claim can include, and the more documentary evidence that can be provided to support the claim, the greater will be that claim’s chance of success.
To do so, a claim should clearly set out what factual events have led to a delay or a financial loss and make a statement as to why the employer is responsible for these events. The next step is to show that each of these events is covered by the contract, and that any stipulations for making the claim that are contained in the contract have been complied with, such as time limits for making a claim. The next step is to show a strong causal link between the events complained of and the delay or financial loss. If there are a number of events leading to loss, then ideally, each event will be apportioned its share of the loss that it has caused, and this will be backed up by contemporary documentary evidence. However, if this is not possible, then groups of events can be claimed to have caused larger loss amounts. The risk of this is that any single events that are not adequately substantiated will be thrown out, and the claim will only succeed if the remaining events, for which there is adequate evidence adduced, are sufficient to justify the entire sum being claimed. As the first case study showed however, the courts are willing to take a proactive approach to finding out what parts of a claim have been adequately substantiated.
As the first case study noted, it is generally accepted that when all of the causes of disruption listed in a schedule are completely the responsibility of the employer, then it is not necessary to apportion the costs of each delay, as in any event, the employer is liable for them. In such cases, a claim like the one set out in the first case study, which was a global claim, will be permitted. In that instance however, Laing only accepted responsibility for some of the causes, and argued that Doyle was responsible for others. This meant there was a need to apportion the cost of each delay between the parties, to allocate responsibility for the financial cost of the delay. Laing also argued that because of the way in which the claim had been framed, that is, a global claim, such apportionment was impossible.
The court stated that it would adopt a common sense approach. It noted that while it was risky to submit a global claim without any attempt to apportion responsibility for each event, the court would nevertheless look at all of the evidence that was placed in front of it, and come up with a reasonable allocation of each party’s responsibility for the complicated mix of concurrent delays that were being argued. In his judgment, Lord Drummond Young stated,
‘it is… clear that if a global claim is to succeed, whether it is a total cost claim or not, the contractor must eliminate from the causes of his loss and expense all matters that are not the responsibility of the employer.’
In short therefore, the best advice is that the contractor needs to have contemporaneous documentary evidence supporting all aspects of his claim. The greater the detail of the evidence, the ability of each breach to be causally linked to the loss, and the ability to apportion each part of the loss to each individual breach of contract by the employer, the better the claim will be received by the courts and the more likely the claim is to be successful.
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