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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
An important guide to the quantification of contract claims in the construction industry, updated third edition
The substantially expanded third edition of Evaluating Contract Claims puts the spotlight on the quantification of claims in the construction industry after liability has been established, including by reference to the terms of several standard forms of contract in common use. The authors clearly demonstrate the potential alternative approaches to quantification, the processes, principles and standard of analysis required to produce acceptable claims for additional payment. The third edition covers a number of heads claims not considered in previous editions and offers an important guide for those working with building or engineering contracts.
Evaluating Contract Claims explains in detail how the base from which evaluation of additional payments may be established, the effect of changes on the programme of work and the sources of information for evaluation of additional payments. The book also contains information for evaluating the direct consequences of change in terms of the impact on unit rates, and evaluating of the time consequences of change in terms of prolongation, disruption, acceleration and more. This important book:
- Concentrates on the quantification of contract claims after liability has been established
- Offers a guide that is appropriate for any form of contract
- Considers the potential alternative approaches to quantification of different heads of claim
- Contains the principles and methods that should be reflected in the evaluation of claim quantum
- Includes the standard of substantiation which may be required
- Presents information that is equally applicable in both building and engineering disputes
- Is substantially expanded from its previous editions
Written for construction and engineering contract administrators, project managers, quantity surveyors and contract consultants, Evaluating Contract Claims offers a revised third edition to the essential guide for quantifying claims in the construction industry once liability has been established.
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Veröffentlichungsjahr: 2019
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Table of Contents
Cover
Reviews
Preface
Acknowledgements
1 Introduction
1.1 The Legal Basis
1.2 The Standard of Substantiation
1.3 Risks
1.4 Sources of Change
1.5 Summary
2 Establishing the Base
2.1 Planned Change
2.2 Unplanned Change
2.3 Programmes and Method Statements
2.4 Summary
3 Effect of Change on Programmes of Work
3.1 Use of Programmes
3.2 Use of As‐Built Programmes
3.3 Change Without Overall Prolongation
3.4 Prolongation of the Works
3.5 Analysis of Time and Delay
3.6 Summary
4 Sources of Financial Information for Evaluation
4.1 The Contract Provisions
4.2 Tender Documents and Information
4.3 Tender Calculations and Assumptions
4.4 Cost Records
4.5 Accounting Information
4.6 External Information
4.7 Summary
5 Evaluation of the Direct Consequences of Change
5.1 Unit Rates and Prices or Actual Costs?
5.2 Unit Rates and Prices
5.3 The Valuation ‘Fences’
5.4 Inclusion of Preliminaries and General Items
5.5 Percentage Adjustments
5.6 Valuation Using Daywork Provisions
5.7 Use of Actual Costs
5.8 Unit Costs
5.9 Subcontractor and Supplier Costs
5.10 Valuation of Omissions
5.11 Add and Omit Variations
5.12 Quantum Meruit
5.13 Valuation in Advance
5.14 Requirements for Notices
5.15 Summary
6 Evaluation of the Time Consequences of Change
6.1 Introduction
6.2 Prolongation
6.3 Liquidated Rates for Delay Damages
6.4 Disruption
6.5 Acceleration
6.6 Global Claims and Similar Terms
6.7 Subcontractor Costs
6.8 Off‐Site Overheads and Profit
6.9 Interest and Finance Charges
6.10 Duplication of Recoveries
6.11 Summary
7 Termination Claims
7.1 Introduction
7.2 Termination Under Standard Forms
7.3 Claims for the Contractor's Lawful Termination
7.4 Claims for the Employer's Lawful Termination
7.5 Claims for the Employer's Unlawful Termination
7.6 Claims for the Contractor's Unlawful Termination
7.7 Summary
8 Other Sources of Claims
8.1 Letters of Intent
8.2 Bonds
8.3 Fluctuations in Costs
8.4 Suspension of Work
8.5 Incomplete and/or Defective Work
8.6 Omitted Work
8.7 Post‐Handover Costs
8.8 The Costs of Preparing a Claim
8.9 Errors, Omissions and Contradictions
8.10 Summary
9 Minimising the Consequences of Change
9.1 Introduction
9.2 Contract Preparation
9.3 Alliance, Partnering and Framework Contracts
9.4 Early Warning Systems
9.5 The Claims Industry
9.6 Summary
Appendix A: Example of Financial Accounts
Appendix B: Example of Management Accounts
Table of Cases
Index
End User License Agreement
List of Tables
Chapter 5
Table 5.1 Apportionment of cost to capacity.
Chapter 6
Table 6.1 Disruption factors by resource.
Table 6.2 Disruption factors by road element.
List of Illustrations
Chapter 3
Figure 3.1 Sample programme sequences.
Figure 3.2 Sample programme sequences with non‐concurrent delays.
Figure 3.3 Sample programme sequences with concurrent delays.
Figure 3.4 Delay in a period of culpable delay.
Figure 3.5 Delay in a period of culpable delay ‘dotted on’.
Figure 3.6 Sample activity sequence for delay impacting.
Figure 3.7 Sample activity sequence showing delay to activity C.
Figure 3.8 Result of impacted as‐planned approach.
Figure 3.9 Sample activity sequence showing existing delays to actual prog...
Figure 3.10 Sample activity sequence rescheduled for actual progress.
Figure 3.11 Sample activity sequence rescheduled for delay events.
Figure 3.12 Sample as‐built sequence of activities.
Figure 3.13 Sample as‐built sequence of activities identifying delays.
Figure 3.14 Sample as‐built sequence of activities – collapsed.
Figure 3.15 Comparative as‐planned and as‐built programmes.
Figure 3.16 Comparative as‐planned and as‐built programmes – delay identif...
Chapter 6
Figure 6.1 Sample programme extract.
Figure 6.2 Example of a road layer material price.
Figure 6.3 Work record sheet.
Figure 6.4 Time lost record sheet.
Figure 6.5 Sample accounts data.
Figure 6.6 Planned staff numbers.
Figure 6.7 Actual staff numbers.
Figure 6.8 Additional staff numbers highlighted.
Figure 6.9 Claim if prolongation is addressed first.
Figure 6.10 Claim if thickening is addressed first.
Guide
Cover
Table of Contents
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Evaluating Contract Claims
John Mullen BSc(Hons), MSc, FRICS, FInstCES, FCIArb and R. Peter Davison BA,MSc, DipArb
Third Edition
Copyright
This edition first published 2020
© 2020 John Wiley & Sons Ltd
Edition History
2nd Edition: Blackwell Publishing 2009
1st Edition: Blackwell Publishing 2003
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse material from this title is available at http://www.wiley.com/go/permissions.
The right of John Mullen and R. Peter Davison to be identified as the authors of this work has been asserted in accordance with law.
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While the publisher and authors have used their best efforts in preparing this work, they make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives, written sales materials or promotional statements for this work. The fact that an organization, website, or product is referred to in this work as a citation and/or potential source of further information does not mean that the publisher and authors endorse the information or services the organization, website, or product may provide or recommendations it may make. This work is sold with the understanding that the publisher is not engaged in rendering professional services. The advice and strategies contained herein may not be suitable for your situation. You should consult with a specialist where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
Library of Congress Cataloging‐in‐Publication Data
Names: Mullen, John, 1959- author.| Davison, R. Peter, author.
Title: Evaluating contract claims / John Mullen, BSc(Hons), MSc, FRICS,
FInstCES, FCIArb and R. Peter Davison, BA, MSc, DipArb.
Description: Third edition. | Hoboken, NJ, USA : Wiley-Blackwell, 2020. |
Revised edition of: Evaluating contract claims / R. Peter Davison and John
Mullen. 2009. | Includes bibliographical references and index. |
Identifiers: LCCN 2019017935 (print) | LCCN 2019018685 (ebook) | ISBN
9781118918135 (Adobe PDF) | ISBN 9781118917800 (ePub) | ISBN 9781118918142
(hardback)
Subjects: LCSH: Buildings-Maintenance-Costs. | Construction contracts. |
Construction industry-Law and legislation. | Remedies (Law) | Claims.
Classification: LCC TH425 (ebook) | LCC TH425 .D38 2020 (print) | DDC
692/.8-dc23
LC record available at https://lccn.loc.gov/2019017935
Cover Design: Wiley
Dedication
To Anne and Melanie
For their patience and forbearance during our long absences on projects locally and internationally.
Reviews
The previous editions have helped numerous construction professionals to apply a consistent approach to valuing claims based on good practice and founded on sound legal principles.
The third edition includes many necessary updates to deal with new standard forms, recent court decisions in the UK and overseas, the changes to the SCL Protocol, changes to the Rules of Measurement and the introduction of International Construction Measurement Standards. Above all, the third edition has now taken on an increased international tone.
The book includes detailed assistance in evaluating every type of claim which practitioners will encounter. These vary from evaluating direct or time consequences of claims to evaluating termination claims or post completion claims. The third edition also refers to claims arising from calls on bonds. No matter what type of claim, whether straightforward valuations of variations or problems of complex delay and disruption claims, the third edition of the book contains a comprehensive guide to the current state of knowledge and experience in evaluating those claims.
Whilst the previous editions were more focussed on the UK domestic market, they were used overseas by practitioners who needed to have access to specialist knowledge on evaluation of claims. This has necessarily led the authors to provide more assistance to those dealing with claims overseas. The third edition should therefore find a place, worldwide, on the shelves of all those involved in evaluating claims whether construction professional or construction law practitioners. John Mullen and Peter Davison are to be commended for providing such a practical and informative book which will assist in claims being properly formulated and established under construction contracts.
Sir Vivian Ramsey QC
Former England and Wales High Court Judge, and International Judge, Singapore
Joint editor, Keating on Construction Contracts
The authors' extensive experience is obvious from the book which contains a meticulous analysis of all (or, if not all, the vast majority of) the potential heads of claims which arise in construction disputes. The book provides an excellent route map through the issues which arise when quantifying a construction related claim and should be the starting point if you are advising on, evaluating or making a claim, whether that be a ‘typical’ final account claim involving claims for variations and prolongation costs or a more unusual claim involving a call on a bond or incomplete or defective work.
Rachel Ansell QC
Barrister, 4 Pump Court
Construction Silk of the Year, Chambers UK Bar Awards 2017
The main purpose of a review, is to inform the potential reader whether the book is worth his or her time and money. The answer for this magnificent book is undoubtedly ‘yes’. It is not a ‘how to’ guide for preparing claims. Rather, it provides carefully thought‐out explanations of the various types of valuation issues which arise on construction projects. The book provides in‐depth analysis of many of the most conceptually difficult subjects, such as disruption, acceleration and global claims, by reference to the available legal authorities, the authors' considerable experience, and practical worked examples. There will be few people involved with the construction industry who would not benefit from careful study of this comprehensive work.
Richard Harding QC
Barrister, Keating Chambers
Founding and current chairman of the Society of Construction Law (Gulf)
As with previous editions, the particular value of this work is the perspective which the authors bring to the discussion, particularly their long experience as practitioners, consultants, experts, adjudicators and arbitrators in the field. They address an impressively wide array of topics. Their method is to bring together for each topic not only a clear exposition of the issues which arise but also a comprehensive review of the latest authorities. The authors do not hold back in discussing the difficulties which face the practitioner. The result is a valuable work of reference for anyone concerned in the pursuit of such claims.
John Marrin QC
Barrister and Chartered Arbitrator, Keating Chambers
This is the most wide ranging and detailed reference source on the perennial issue of quantifying construction contract entitlements. It is surely a ‘must have’ for all those involved in what the authors call ‘the claims industry’.
This edition has been expanded to cover such ‘hot topics’ as acceleration, termination and duplication. It now covers new editions and forms of contract and of QS ‘standards’ and computer modelled evaluation methodologies. Perhaps most valuable of all are the practical insights from these experienced global experts – for example illustrations from their experience of the different approaches of international arbitration tribunals to that of an English Court Judge.
Neal Morris
Partner and Head of Construction Advisory & Disputes, Pinsent Masons LLP
Previous versions of Evaluating Contract Claims have been an indispensable resource for my team and I. I am happy to see that while there have been substantial updates in the 3rd edition, notably with respect to adding a more international dimension, the authors have retained their focus on the fundamentals of claim quantum evaluation which makes this book so useful to anyone working with building or engineering contracts.
This book successfully integrates the evolution of claims evaluation while reflecting the depth and breadth of the authors' experience domestically and internationally. A particularly welcome addition is the chapter on termination claims given the complexities involved in such claims.
Erin Miller Rankin
Global Partner, Freshfields Bruckhaus Deringer LLC
John Mullen's and Peter Davison's Third Edition of ‘Evaluating Contract Claims’ is a must have for those in the construction industry, and is also an ideal reference for those lawyers looking to be involved with construction disputes. This weighty and comprehensive reference book authored by two well‐known and respected experts would appear to be primarily directed at those involved with disputes and claims. It is, but there is a lot that is equally relevant and helpful to those that prepare contract documentation either on the ultimate client's behalf or those further down the construction chain.
Paul Barry FRICS
Founding partner, GBsqd LLP
After an almost apologetic introduction, this book turns out to be impressively comprehensive. The logical progression in structure is retained from previous editions – starting with the need to understand the effects of change and disruption, before moving on to the basis for evaluating those effects and the standards of substantiation needed not only to succeed in achieving compensation, but also to guide those on the receiving end as to what they can and should expect before granting or recommending that compensation. The book concludes with an up‐to‐date analysis of the movement towards partnering and the forging of better relationships within the construction industry under the auspices of novel contractual arrangements.
Christopher Ennis MSc FRICS FCIArb
Past chairman of the Society of Construction Law
Director, Time | Quantum Expert Forensics Ltd
Preface
The idea for the first edition of this book originated in spending a number of years in countless meetings on construction and engineering sites and in the offices of contractors, client organisations, consultants, and solicitors. Many of these meetings were centred around the need to define the amount of compensation due as a result of claims made for additional payment under particular forms of contract. A recurring theme was the lack of understanding among parties to such contracts and their administrators as to what could, and could not, be included in such claims. The causes of the claims varied, although certain themes recurred, and they were generally well documented. However, the calculation of the quantum was often vague and lacking in substantiation, often without any reference to the contract terms and conditions, and with an equal lack of regard for any underlying principles of quantification.
Since the first edition, and indeed the second, much has changed; however, much has remained the same. As one travels the world, the same problems of quantification appear but exacerbated by the lack of local guidance in many jurisdictions on the principles to be adopted, whether through the local courts or through authoritative publications. Much of the guidance in some parts of the world is taken from the UK because it is more mature and developed in relation to construction and engineering contract law. Furthermore, this often means that, in addition to English being adopted as the language of the contract (as an international language for an international project), English law is adopted as the substantive law of the contract. As a result, projects can be found in all parts of the world where UK practitioners are employed on commercial and claims management. In many cases, they bring good knowledge and practice. In this regard, the growth of the Society of Construction Law and the increasing international reference to its Delay and Disruption Protocol are particularly beneficial forces. However, this internationalisation can also bring some bad habits, for example, where outdated quantification methods are imported or English legal principles are applied that have no place in the context of the applicable law.
This book quotes widely from the decisions of the UK courts, and to a lesser extent some Commonwealth countries. It is recognised that these may not be relevant in a particular overseas jurisdiction. As a retired South African High Court judge once said to two English programming experts who were in the ‘hot tub’ explaining to his arbitral tribunal how delay analysis should be carried out by reference to the UK judgments: ‘Gentlemen can we just for a moment suspend your reality and pretend that we are actually here in South Africa?’ Notwithstanding this humorous interjection, that arbitration saw extensive reference to the SCL Protocol and UK court judgments on a number of the more difficult quantification issues before it, both in relation to time and money.
Subject to the overriding consideration of the applicable law and express terms of the contract, in this book, we have attempted to set out some of the principles and methods that we believe should be reflected in the evaluation of claim quantum and the standard of substantiation that may ultimately be required. The views are our own and we naturally accept that other views are also possible on some issues and that in an international context applicable laws will be paramount. We have tried to indicate where those alternative views may lie. We also accept that some of our views may not be received too happily by some others and have tried to explain the reasoning for our views, in the hope that they will, at least, promote some constructive thoughts and considerations.
There is also a large degree to which in the quantification of construction and engineering claims, ‘one size does not fit all’. Variables between different claims will include the applicable law, the express contract provisions, the facts of the case, the records that are available, the relationship between the parties, and the need for proportionality of approach. As a result, in many areas, this book sets out a number of alternative approaches, any of which could be applicable in the right circumstances, depending on such variables.
There are many volumes available on the subject of construction and engineering contract claims, but most of them concentrate on the establishment of legal liability or are concerned with the requirements of a particular standard form of contract. In this book, we have tried to concentrate on the quantification of claims after legal liability has been established, by setting out matters of principle that may apply regardless of the form of contract used. This said, all claims are prepared within a contractual framework, and therefore, some standard forms of contract are used as illustrations.
It is almost ten years since the second edition of this book, and since then, much new has arisen on its subjects. This includes seismic economic developments, extensive new and revised standard forms of contract, voluminous new measurement rules, and the continuing attention of the commercial courts to construction and engineering disputes, particularly in the UK.
The worldwide economic crash of 2007 and 2008 saw dramatic changes in the business climate of many markets. Construction and engineering projects were suspended or terminated, mostly temporarily, but some permanently. This gave rise to a spike in claims related to suspension and termination. Accordingly, this third edition adds a new chapter devoted to the quantification of termination claims (Chapter 7) and includes a new section on suspension claims (in Chapter 8).
After lengthy consultation and debate, in February 2017 the Society of Construction Law published the long awaited second edition of its Delay and Disruption Protocol. This continues the good work of the first edition in providing much needed practitioner consensus as to good practice on many aspects of the evaluation of delay and disruption claims. The fact that the SCL Protocol provides useful guidance on resolving issues in relation to these topics is reflected regularly in international arbitrations and can be seen in court decisions in both the UK and abroad over recent years. That said, it must be considered as nothing more than guidance. One of the ironies of its increasing currency is how when many UK practitioners had long concluded that the Protocol's first edition's preference for ‘time impact analysis’ was misplaced, that method was being increasingly relied on by parties overseas by reference to its first edition's preference for it.
There is still no magic formula in relation to the quantification of disruption to the productivity of labour, plant, or equipment and this remains a thorny issue. The last ten years have seen some rise in the use of computer models and reliance on, for example, Cumulative Impact and System Dynamics Modelling as the basis of disruption claims. The extent to which these have helped or hindered those seeking to reach agreement of the quantification of disruption is questionable. They are the subject of a new section in Chapter 6.
Global claims, particularly for disruption, continue to be the subject of heated debate in the resolution of contract claims worldwide. Many employers and their advisers seem to believe that attaching that term as a pejorative label kills a claim at birth. Contractors respond with arguments such as that the claim is not global, global claims are allowed, the claim has been particularised as far as practicable, or its global nature is the result of the extent of the failures by the employer and its consultants. However, such excuses sometimes hide other motives. In the UK, the continuing difficulties on this topic are notwithstanding significant judgments addressing global claims in the UK courts over the past few years.
As a result of the above, Chapter 6 has been significantly re drafted and expanded to cover difficult heads of claims for the time consequences of change, such as disruption, acceleration, and overheads and profit. This chapter also continues our previous historical analysis of the topic of global claims, which is brought up to date and extended to cover related terms such as ‘total loss’ and ‘total costs’.
One area of the quantification of contractual claims that is hardly ever written about is the need to avoid duplication between the quantification of different heads of claim, particularly on a major project with large numbers of claim heads. Chapter 6 therefore includes a new section on some of the common areas of duplication and how suitable adjustment might be made.
In terms of the standard forms of contract, changes have arisen apace since our second edition. The NEC suite of contracts, first published in 1993, continues to gain attention both in the UK and internationally. They are now the only forms of contract fully endorsed by the UK Office of Government Commerce, which recommends them for all public sector construction projects in the UK. In 2009, they became the contracts of choice of the Institution of Civil Engineers, which withdrew from the ICE Conditions of Contract. In 2017, the NEC launched its new ‘complete family of contracts’, NEC4. Worldwide, the NEC contracts are currently in use in more than 20 countries. The proactive and prospective approaches of NEC have many benefits in the avoidance of disputes in evaluating contract claims, but they also give rise to problems of their own if they are not properly followed. Furthermore, the degree to which, in practice, these approaches suit the prevalent commercial cultures of some international markets is a matter of some debate.
Since the Institution of Civil Engineers withdrew its support for its conditions of contract, they were passed to the Association for Consultancy and Engineering and the Engineering Contractors Association, who published their Infrastructure Conditions of Contract in 2011. Since then, they have continued to publish further forms, with a significant revamp in 2014. In this book, the Infrastructure Conditions of Contract, Measurement Version 2011, is referred to as an example of a remeasurable form of contract in use in the UK.
December 2017 witnessed the launch of the new FIDIC suite of contracts as updates to its 1999 ‘Rainbow Suite’. However, the 1999 suite is still in some use and forms the basis of many bespoke contracts around the world, particularly for government projects. In this book, the 1999 edition of the FIDIC Red Book is therefore referred to as an example of a remeasurable form of contract, which has been used in more than 160 countries.
The Joint Contract Tribunal has also been busy since the second edition of this book. A new suite of standard contracts was published by the JCT in 2011. In 2016, an updated set was published. In this book, the 2011 edition of the Standard Building Contract with Quantities (SBC/Q) is referred to as an example of a lump sum form of contract in use in the UK.
Given the rise in popularity of the NEC suite of contracts, NEC4‐ECC is also referred to in relation to a number of types of claims, by a particular reference to its Option A: Priced contract with activity schedule. Features that are particularly covered are its prospective valuation of what NEC refers to as ‘compensation events’ by reference to the actual or forecast costs, rather than contract rates and prices, and time assessment by impacting the contractor's current accepted programme.
Other relevant market changes since our second edition are in relation to the measurement of construction work in February 2009 when the Royal Institution of Chartered Surveyors published its New Rules of Measurement. These new rules comprise more than 1000 pages of rules for measurement and the preparation of cost estimates and elemental cost plans. July 2017 witnessed the publication of the International Construction Measurement Standards by a worldwide coalition of bodies with the aim of creating a global common standard for reporting and costing construction works. The extent to which this improves things such as cost prediction, management, accounting, and benchmarking with a positive impact in relation to the incidence of contract claims and their evaluation is yet to be seen.
We have also taken the opportunity to bring the text up to date and reflect some pertinent decisions of the UK commercial court. These courts have continued to be busy considering issues arising out of construction and engineering contracts. Much of this has addressed subjects outside the remit of this book, such as the UK's security of payment legislation and the enforcement of adjudication decisions, but there have been a number of decisions that are significant to the evaluation of contract claims. Particular issues addressed here include ‘penalties’, the valuation of omissions, global claims, claims for wasted management time, and head office overheads. In addition to UK judgments, this book also considers a few interesting overseas decisions.
We also set out some examples of our experience of how arbitration tribunals in international arbitration have resolved some issues of claim quantification. This is not because those awards are in any way even persuasive to future tribunals but because they may illustrate the potential different approaches to some heads of claim that practitioners could adopt and how other tribunals might address similar issues.
As part of the increased international tone of this third edition, Chapter 8 addresses some heads of claim that were not in the second edition because they are rare in the UK but common overseas. These include, for example, claims in relation to the extension or calling of various types of contractual bonds and for the contractor's additional costs after handover of the works.
In terms of statutes, 14 countries have now passed security of payment legislation similar to the UK's Housing Grants, Construction and Regeneration Act 1996. In fact, much of this is even more ‘on point’ in relation to payments because it focusses on security of payment and does not also address the UK Act's other topics of grants and repairs. These statutes can have significant impacts in relation to rates of interest and also in the consequences of the adoption of adjudication as a means of temporarily resolving disputes. Even where there is no statutory legislation, recent years have seen increasing adoption of ad hoc adjudication procedures internationally. As explained in this book, this can have significance to the quality of claim submissions, particularly from subcontractors.
Information technology has played an increasing role in relation to construction and engineering contract claims, particularly in the form of Building Information Modelling, including the use of multidimensional modelling. Although the extent of use of such systems for creating, modelling, and managing information on construction and engineering projects might best be described as ‘embryonic’ in some countries, if it lives up to its billing, then it may have profound implications for the extent to which change occurs on engineering and construction projects, particularly unplanned change, and also the methods adopted to evaluate the consequences of such change where it does occur.
Although this book is largely written with reference to claims between contractors and employers, many of the discussions and methods are equally applicable in relation to claims between contractors and subcontractors and even suppliers.
John Mullen
R. Peter Davison
Acknowledgements
We would like to acknowledge all the help, advice, assistance and experiences we have received or gained from all those we have worked with down the years. In particular, our colleagues in Driver Group plc and the dedicated expert witness service, Diales, for their constructive comments and encouragement in producing this edition.
While not detracting in any way from the acknowledgements above, we should make clear that the opinions expressed and contents are the responsibility of the authors, as are any errors or omissions.
The authors and publisher would like to express their thanks to the following organisations for permission to reproduce extracts from their publications.
The Society of Construction Law (
www.scl.org.uk
), for permission to reproduce material from the second edition of the Delay and Disruption Protocol.
NEC Contracts (
www.neccontract.com
), for permission to reproduce material from the NEC4 Engineering and Construction Contract (ECC).
The International Federation of Consulting Engineers (FIDIC,
www.fidic.org
) for permission to reproduce material from the FIDIC Construction Contract (1999 Red Book).
The Association for Consultancy and Engineering (
www.acenet.co.uk
) for permission to reproduce material from the Infrastructure Conditions of Contract Measurement Version (August 2011).
1Introduction
It may be thought that there is enough literature on claims in the construction industry, although the continuing incidence of disputes arising from such claims suggests that recent developments in the means of addressing such problems have not eliminated contentious claims. That such disputes feed commercial courts and arbitration centres of many countries with a ready supply of cases to hear at great expense further emphasises the point. This book aims to examine the quantification of contract claims on the basis that many disputes arise from disagreement of the financial consequences of events, even where the liability for those events may not be contested.
The objective of this text is to examine various aspects of evaluating claims for additional reimbursement arising from contracts for construction projects. There is no intention to produce a legal treatise or to address the issues of establishing liability for additional reimbursement. That said, the operation of any contractual machinery relies on the express terms of that contract and the legal background. It is of course necessary to have a basis for considering how remuneration should be properly established. Whilst a few overseas judgments are also considered, this text considers the issues assuming English law applies and is therefore referred to, where appropriate, to establish relevant authorities.
Before commencing any evaluation it is preferable if the person undertaking the task understands how change and disruption to a contract can arise in a manner that requires evaluation of the financial consequences on behalf of one party or another. This chapter briefly considers aspects of the process that provide the basis for evaluation.
Succeeding chapters then go on to consider how the base from which evaluation of additional payments may be established, the effect of changes on the programme of work, the sources of information for evaluation of additional payments, the evaluation of the direct consequences of change in terms of the impact on unit rates, etc., and the evaluation of the time consequences of change in terms of such as prolongation, disruption, acceleration, etc. Some other sources of claims (such as suspension and termination) and the means of minimising the impact of claims are also considered.
The approach taken is to attempt to demonstrate the process, principles and standard of analysis that will be required to produce acceptable claims for additional payment, not to produce a guide to calculating payments under any specific form of contract. The approach does, however, provide those on the receiving end of such claims with guidance on what they should expect to receive in the form of a properly detailed claim and also how to respond to claims that are not properly supported. We have also set out alternative approaches to many of the claims considered, including some unusual and hopefully thought provoking methodologies.
1.1 The Legal Basis
This is not a legal textbook and it goes without saying that proper advice on the applicable law should always be sought before taking any contractual position based on a legal premise. There are, however, many references in the text to the decisions of the courts in relation to a number of matters, with relevant extracts from the judgments. These extracts and quotations are included to illustrate the various principles under discussion and to underline the standard of analysis and substantiation that is required for claims taken before a formal tribunal. There is no better source for this purpose than published judgments, and the standard required by the courts is the standard by which all evaluations can be judged. However, whilst English legal principles and precedents may have significance in Commonwealth countries and be of interest elsewhere, the difference particularly with codified civil jurisdictions can be marked. Local legal advice must always be sought, particularly from lawyers with experience of construction contracts and disputes. This latter criteria can, however, sometimes be difficult to satisfy in some parts of the world.
The case references and extracts are not intended to be exhaustive but are intended to provide a basis for the reader to conduct further research if he or she so wishes. Full details of cases can be obtained through the internet from sites such as the British and Irish Legal Information Institute (BAILII) (www.bailii.org). Other sites are available both free of charge and commercially.
1.1.1 Forms of Contract
The number and range of published standard forms of contract for construction works are extensive. Not only does this text not address all of the many published forms, it is not a guide to any one of the more commonly used forms. The intention of this book is to provide guidance on matters of principle that will have to be addressed under most, if not all, construction contracts under English law. That said, it is obviously useful to apply the provisions to be found in different types of contract to illustrate various points. References are therefore made in the text to the following contracts, using the abbreviations shown below, to show the way in which they deal with specific issues:
‘Infrastructure Conditions’
Infrastructure Conditions of Contract published in August 2011, Measurement Version, published by the
Association for Consultancy and Engineering
(
ACE
) and
Civil Engineering Contractors Association
(
CECA
).
‘FIDIC Red Book’
The
Fédération International des Ingénieurs‐Conseil
's (
FIDIC
) Conditions of Contract for Construction, for Building and Engineering Works designed by the Employer, First Edition 1999.
‘SBC/Q'
The Joint Contract Tribunal's
Standard Building Contract with Quantities
(
SBC/Q
), published in 2011 by Sweett and Maxwell. The successor to the previously published ‘JCT’ Standard Form of Contract.
‘NEC4‐ECC’
The Engineering and Construction Contract, Fourth Edition 2017, published by Thomas Telford Ltd. In this book references to ‘NEC4‐ECC’ are generally to its Option A: Priced contract with activity schedule.
The FIDIC Red Book and the Infrastructure Conditions are used to illustrate how contracts that contemplate complete remeasurement of the works address certain evaluation issues, internationally and in the UK domestic market respectively. SBC/Q illustrates the approach of lump sum contracts subject to adjustment under stated circumstances. The NEC Form of Contract is used to examine some of the concepts that have gained this contract increasing popularity over recent years, particularly among critics of what are considered by some to be the more adversarial traditional forms of construction contracts. For example, NEC's proactive and prospective approach to the evaluation of change and its use of actual costs, or forecast actual costs, rather than contract rates and prices, as a basis of remuneration for change.
There are, of course, many different forms of contract (both standard and bespoke) that can be adopted by the parties to a construction project depending upon, among other matters, the nature of the enterprises concerned and the nature and size of the project. To consider the detailed requirements of every standard form of contract would need a considerably larger volume than this. It would also require detailed consideration of the applicable law. It is therefore necessary to restrict the consideration to matters of principle, using the requirements of the various contracts considered in this book to illustrate particular points. That is not to say that the principles examined will not relate to other standard forms of contract, or to ad hoc contracts agreed between parties, but that the discussions herein will need to be considered in the light of specific requirements in particular contracts as well as the underlying applicable law. The prime source of information for any evaluation has to be the contract between the parties and its requirements. There is no substitute for reading the contract and any incorporated relevant documents. Regrettably, this is often a starting point more often honoured in the breach than in observance in practice. Domestically, the early use of the NEC contracts approach saw many practitioners applying the traditional approaches of such as the JCT and ICE contracts that they had grown up with, without reading what NEC actually requires them to do and when. As the NEC contracts have gained popularity internationally, many of the problems arising have been the result of practitioners applying approaches that were accustomed to conform to more traditional international forms such as the FIDIC Red Book. These included the very approaches that NEC sought to change. Internationally, many practitioners also fail to consider the applicable law and assume that the law and approaches of their home country will apply. Where such naivety and/or laziness leads to otherwise avoidable disputes is unforgivable.
The parties to a contract can of course agree additional reimbursement in any manner they wish, and can also waive the requirements of their contract if that is expedient and acceptable to both parties. This is often the case in commercial negotiations of additional reimbursement, where the parties may not wish to insist on the detailed substantiation of every component of the evaluation.
This text, however, assumes that the evaluation needs to be substantiated in detail to the standard required in formal dispute resolution procedures under English law. These are also the methodologies that the authors have found are regularly applied internationally. A theme of this book is the benefit that can be obtained by good substantiation in avoiding unnecessary disputes. Such a standard is not only necessary in the event of some form of dispute procedure but is of course the standard of substantiation required by the contract itself. This raises the question of defining the standard required in a formal dispute resolution process.
1.2 The Standard of Substantiation
While there may be many facets to the standard required, there are two general principles that should always be borne in mind:
The first principle is that he or she who asserts must prove, i.e. the party claiming an item of damage, cost expense, loss or value, will have to support it with evidence.
The second principle is the general standard of proof in many jurisdictions, as it is put in English law, that matters need to be established as being correct ‘on the balance of probability’. This contrasts with the standard required in criminal matters where ‘beyond reasonable doubt’ is the test under English law. This second principle might, however, be subject in practice to a ‘sliding scale’, i.e. major and central parts of the issues need to be fully substantiated while ancillary or subsidiary parts may be subject to a lesser degree of substantiation. Those minor parts may perhaps be assessed by reference to the results of the more rigorous analysis of the major parts, perhaps on a pro rata basis. If a sufficient and representative sample of preliminaries and general item costs in a prolongation claim have been agreed following detailed checking at
x
% of their claimed values, then it might be concluded that the unsampled costs could also be agreed at that
x
%.
The apparently lower standard of proof in civil matters does not imply that assertions need not be fully evidenced where it is reasonable to expect such evidence. Thus, for instance, a matter of evaluation that involves establishing the cost of materials bought specifically for a contract will require production of invoices and possibly other procurement documents (such as a matching purchase order and delivery receipt note) if relevant. Where such project‐specific support for a claimed item of cost is not possible, for instance in establishing off‐site overhead charges in a prolongation evaluation, it will still be necessary to produce evidence of the claimant's wider company overhead costs incurred, such as audited company accounts, with a reasoned analysis of the amount considered to be relevant to the claim.
This introduces the two tiers of evaluation common to most change items: its direct consequences in terms of the value of the physical work done and its time consequences in terms such as delay, disruption and acceleration. In many instances the evaluation may require only one or the other but in many cases both tiers will be necessary.
The level of substantiation for the evaluation may vary depending upon the particular instance and circumstances. As noted elsewhere, the express terms of the contract should always be a first point of reference. Local law and other authorities may also be relevant. Internationally there is often a lack of express provision in the contract and also guidance by way of interpretation from the local courts and other authorities. One of the great benefits of English law is that these do exist, as highlighted throughout this book.
For example, in C.J. Sims Ltd v Shaftesbury PLC (1991) 60 BLR 94, deciding what was meant by the expression, ‘such costs to include loss of profit and contributions to overheads, all of which must be substantiated in full to the reasonable satisfaction of our quantity surveyor’, Judge John Newey stated:
Its words are peremptory – ‘all … must be substantiated in full’ and the substantiation is to be ‘to the … satisfaction of (the defendants') quantity surveyor’. The only qualification is that the quantity surveyor cannot require more than is ‘reasonable’, which I think means that he cannot require more than the ordinary competent quantity surveyor would.
In this provision, the extent of substantiation to be produced, in the absence of specific requirements, is therefore that required by the ordinary competent quantity surveyor, and it is that substantiation that is the subject of this book.
Having considered the standard to which substantiation is required for such evaluations, the matter arises of the extent of support or analysis deemed necessary to establish that any particular sum would satisfy the principle. Thankfully, the courts have also had to consider such support and analysis by experts on a regular basis and have given useful guidance to those seeking to present reasoned evaluation of claims for additional payment.
For example, in McAlpine Humberoak Ltd v McDermott International Inc. (1992) 58 BLR 1, during the course of considering a decision by an Official Referee relating to the analysis of time, delay and disruption in a contract for the fabrication of steel sections of deck for an offshore drilling platform, the Court of Appeal made the following comment on the evidence given by one party's expert and the judge's treatment of that evidence:
The judge dismissed the defendant's approach to the case as being ‘a retrospective and dissectional reconstruction by expert evidence of events almost day by day, drawing by drawing, TQ by TQ [technical query] and weld procedure by weld procedure, designed to show that the spate of additional drawings which descended on McAlpine virtually from the start of the work really had little retarding or disruptive effect on its progress’. In our view the defendant's approach is just what the case required.
While these comments relate to the examination of time and the analysis of delay and disruption, there is no reason to believe that similar comments would not have been made in respect of the calculation of additional payment. However, the McAlpine Humberoak case was decided before the introduction of the Civil Procedure Rules 1998 (CPR), following the review of the litigation system by Lord Woolf and the concept of proportionality as an overriding objective in civil litigation, i.e. that the amount of analysis and evidence should be proportionate to the issues in question. Rule 1.1(c) of the CPR requires cases to be dealt with in ways that are proportionate to the amount of money involved, the importance of the case, the complexity of the issues and the financial position of the parties. It is therefore possible that a lesser standard may be satisfactory in some circumstances but that is unlikely to mean that the level of analysis and evidence will be materially reduced, or that evidence that should be available and would be expected by the ordinary competent quantity surveyor, e.g. invoices, receipts, etc., will not be required. A sampling approach might particularly be appropriate. For large sums of money it may be ‘proportionate’ to expect full substantiation, but lesser sums may be addressed by an abbreviated method. For instance, if the cost of additional visits to site by engineers has been established as being a necessary part of the claim and the costs of the engineer's time has been fully substantiated, it may be quite reasonable to simply present the travel expenses as a schedule without producing every receipt and invoice. Such costs are generally known, and any exceptional differences should be recognisable without production of a full ‘audit trail’.
1.2.1 SCL Delay and Disruption Protocol
The Society of Construction Law (SCL) is a body of lawyers, surveyors, engineers, architects and others with an interest in the subject of law as applied to construction projects. Whilst it is UK based, the SCL has various branches around the world and its work is referred to regularly by practitioners as a source of some authority in relation to the evaluation of construction contract claims. Its international reach and influence continues to grow.
In October 2002 the SCL published the First Edition of its Delay and Disruption Protocol (‘the Protocol’) which deals with the analysis of those matters and the compensation that may be due when they occur. The First Edition was not without its critics and was regarded, by some commentators and practitioners at least in some respects, as controversial. However, it represented a body of thought and opinion from a respected group of specialists, only reached after a long and extensive consultation process with interested parties in the industry. The Second Edition was published in February 2017, following further lengthy consultation, and this has addressed some of the criticisms of the First Edition. It remains to be seen what critics make of the changes that have been made. Reference is made in this book to some of the conclusions of the Second Edition where they are relevant to the discussion of aspects of the quantification of claims.
For these authors, one of the ironies of the increasing reference to the First Edition of the SCL Protocol internationally over recent years was the knowledge that whilst, for example, its description of time impact analysis as the recommended method of delay analysis was being relied on by practitioners and referred to in arbitrations in many jurisdictions, the SCL committee was busy rather watering down that recommendation.
Judicial comment has been limited. There are a number of examples of it being referred to in support of a party's approach. However, in Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm), [2011] BLR 384, Mr Justice Hamblin noted that:
… the SCL Protocol is not in general use in contracts in the construction industry and nor has it been approved in any reported case. There was no evidence that the parties were aware of it or that they contracted with it in mind. Further, the SCL Protocol itself says that ‘it is not intended to be a contractual document. Nor does it purport to take precedence over the express terms of a contract or be a statement of law.
He concluded that:
In such circumstances the SCL Protocol can be of little assistance in relation to the legal causation issues which arise in this case.
In relation to approaches to analysis of delays and extensions of time, it has been quoted a number of times in reported cases by parties seeking support for their particular approach: for example, in the English courts in Great Eastern Hotel Company Limited v John Laing Construction Ltd and Another [2005] EWHC 181 (TCC); Balfour Beatty Construction Ltd v The Mayor of the London Borough of Lambeth [2002] EWHC 597; and Mirant Asia‐Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners International Ltd &Anor [2007] EWHC 918 (TCC) (20 April 2007); and similarly in the Hong Kong case Leighton Contractors (Asia) Ltd v Stelux Holdings Ltd HCCT 29/2004. In Australia, the Supreme Court noted in Alstom Limited v Yokogawa Australia Pty Ltd (No. 7) [2012] SASC 49 that the SCL Protocol supported several different approaches to analysis and considered that one of these was to be preferred to a method proposed by the claimant's expert that had no support in any current literature. More recently, in Santos v Fluor Pty Ltd [2‐17] QSC 153, the Supreme Court of Queensland took guidance from the most recent edition of the SCL Protocol in relation to the use of a measured mile analysis in relation to a claim for delay and disruption.
The Protocol is not intended to
