Delay, Disruption and Acceleration Contract Management in International Construction Delay, Disruption and Acceleration Michael J.R. Kremer Beijing, April 28, 2009

1. Introduction Time is of essence in basically every construction project Yet, delays of some sort are general rule, rather than the exception Consequence: claims for extension of time, issue of acceleration Therefore, closer look to: What are the obligations as to time in general? When and how does acceleration become relevant? Delay, Disruption and Acceleration · April 2009

2. Contractor‘s obligations as to time Modern construction contracts typically foresee three separate, but inter-related express obligations: First obligation: Contractor to complete works by certain date or within specified period; possibly with stage or sectional completion obligation Second obligation: Contractor to progress the works regularly and diligently Third obligation: Contractor to prepare and work to an accepted program (work schedule) Delay, Disruption and Acceleration · April 2009

2.1 First obligation: specific date/period In case of “period for completion”, identification of “commencement date” as well as periods crucial e.g.: x months from the “Commencement Date” clarification of “days” and “weeks” If no date or period foreseen: obligation to complete “by a reasonable time” Standard form contracts regularly provide for express obligation Delay, Disruption and Acceleration · April 2009

2.1 First obligation: specific date/period (cont’d) Effect of specific date of completion typically no qualification as of the essence clauses for extension of time or liquidated damages prevent such interpretation Specific date of completion of little assistance in management of the project Employer wants to take action early to avoid late completion stage or sectional completion obligations and liquidated damages give only limited recourse Delay, Disruption and Acceleration · April 2009

2.2 Second obligation: “progress regularly” If specific date for completion agreed, no “implied” second obligation Contractor has right to plan, execute and progress the works severe evidential difficulties for Employer Therefore: express obligation (regularly included in standard form contracts) Delay, Disruption and Acceleration · April 2009

2.2 Second obligation: “progress regularly” (cont’d) Effect of express obligation to proceed regularly and diligently “Proceed continuously, industriously and efficiently with appropriate resources so as to progress steadily towards completion substantially in accordance with the contract.” Contractor may not slow down even if ahead in time schedule Employer may have remedy of damages, even if completed in time, if Employer can show “loss” Delay, Disruption and Acceleration · April 2009

2.3 Third obligation: program “program/work schedule” no legal term Requires basic information of activities or operation with a list of dates for commencement and completion of respective activities Types of programs: Bar Chart Network Program Line of Balance Delay, Disruption and Acceleration · April 2009

2.3 Third obligation: program (cont’d) Potential roles of the program: Monitor role: milestone program progress program prediction program Dynamic role management program compensation program Delay, Disruption and Acceleration · April 2009

3. Employer‘s obligations as to time Completion of obligations specified in the contract e.g. supply information, provide material, execution of certain pre-condition works, permits, appointment of engineer etc. at times specified in program or reasonable times with regard to execution of works Typically no obligation to comply with approved program, rather obligation not to hinder Contractor implied obligation not to hinder implied obligation to cooperate Delay, Disruption and Acceleration · April 2009

4. Acceleration What does the term mean? What is the benchmark? Basically, tow situations relating to the overall works: Contractor is required to finish earlier than the contractual date variation of the contract, i.e. constructive order/change order constructive acceleration Contractor is likely to complete later than the contractual completion date acceleration to reduce delays Delay, Disruption and Acceleration · April 2009

4.1 Constructive acceleration typical example for constructive acceleration claim: Equipment procured by Employer from a third-party is delivered late. Contractor’s words are delayed. Contractor applies for Extension of Time (EOT). Interim assessment of the Engineer denies EOT; final review still pending. Employer presses Contractor to increase resources to make up for the delay. Delay, Disruption and Acceleration · April 2009

4.1 Constructive acceleration (cont’d) Contractor‘s stark choice: Continue in hope to prove EOT or “accept” to be in default temporarily and take steps to mitigate Nature of problem: contract’s EOT procedures and contractor’s “temporary default” Conclusion: Constructive acceleration claim presents significant legal difficulties; claim for disruption may be possible with fewer legal difficulties Delay, Disruption and Acceleration · April 2009

4.2 Acceleration to reduce delays The issue of right or obligation to reduce the effect of qualifying delays may arise in three ways: Contractor’s may have right to choose how to deal with a qualifying delay and whether to accelerate or not and to recovery on the basis of this right; Contractor may be entitled to EOT and any associated loss only to the extent that he has mitigated the effect of the delays; Contractor may be under an obligation to progress the works including an express obligation to mitigate delays and the failure to do so prevents remedies of EOT/associated losses. Delay, Disruption and Acceleration · April 2009

4.2 Acceleration to reduce delays (cont’d) Mitigation of delay by acceleration? Contractor reacts to the qualifying delay most contracts provide for EOT provisions and express terms for agreement for acceleration generally no right of contractor to accelerate and recover costs (except if “constructive order”) “reasonabless”-argument Contractor does not react to the qualifying delay Generally no obligation where EOT provisions apply Mitigation by managing delay? obligation to re-plan recourses and activities obligation to progress “regularly & diligently” includes managing of effects of delay Delay, Disruption and Acceleration · April 2009

4.3 Obligation to accelerate? Differentiation by reason for delay: Delay not caused by Contractor, i.e. entitled to EOT no obligation; only by means of separate agreement Delay caused by Contractor: in principle no obligation (discretion of contractor in regard of his own culpable delay) contract may provide power to order Contractor to adopt acceleration measures “Indirect” obligation Contractor must weigh costs of acceleration, chance of recovery against liquidated damages potentially levied against him Delay, Disruption and Acceleration · April 2009

4.4 Entitlement to acceleration Contractor may perceive commercial advantage to accelerate; generally only bound by completion date Generally no obligation of the Employer to co-operate Exception: entitlement of acceleration provided in the contract and bound to program Delay, Disruption and Acceleration · April 2009

5. Conclusion Time is of the essence in construction projects The effort of planning, negotiating and drafting does not end at providing sophisticated terms for the event of delays by finding a realistic completion date, incorporating EOT provisions and delay related liquidated damages Instead, the same though and sophistication should be put in addressing delays in terms of acceleration, rather than only dealing with them in terms of EOT and liquidated damages. Delay, Disruption and Acceleration · April 2009

Delay, Disruption and Acceleration Contract Management in International Construction Beijing, April 28, 2009 Delay, Disruption and Acceleration www.cliffordchance.com Clifford Chance, Königsallee 59, 40215 Düsseldorf, Germany © Clifford Chance 2009 Clifford Chance Partnerschaftsgesellschaft von Rechtsanwälten, Wirtschaftsprüfern, Steuerberatern und Solicitors · Sitz: Frankfurt am Main · AG Frankfurt am Main PR 1000 #960898