Delay and Disruption - Reducing Delays

If the Contractor is delayed by an event which entitles him to an extension of time, then he is under no obligation to reduce the delay except possibly by re-sequencing his work. The express terms may provide otherwise particularly to progress the works or mitigate delays.

1. THE NATURE OF THE REQUIREMENT TO REDUCE DELAYS

The issue of the contractor’s right or obligation to reduce the effect of qualifying delays may arise in three ways:

the contractor may be considered to have a right to choose how to deal with a qualifying delay and whether for instance to accelerate or not and to recovery on the basis of this right;
the contractor may be considered to be entitled to extension of time and any associated loss only to the extent that he has mitigated the effect of the delays;
the 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 extension of time and associated losses and may make him liable in damages.

These three possibilities are examined below. Since the issue of the contractor’s right to choose is a positive aspect of mitigation it has been examined below with mitigation.

2. MITIGATION OF LOSS

The main remedy for breach of contract is damages. The measure of damages does not include losses caused by the injured party’s failure to take reasonable steps to mitigate the loss. There are three rules relating to mitigation for breach of contract. First an injured party cannot recover damages for a loss which could have been avoided by reasonable steps. The injured party is not required to do anything other than in the ordinary course of business. Second, if the injured party takes steps which he could not reasonably have been required to do, and avoids the potential loss he cannot recover the potential loss as damages. Thirdly, the injured party may recover his loss or expense in taking reasonable steps to mitigate the loss due to breach of contract. This is so even if the mitigation is unsuccessful and even increases the loss. British Westinghouse-v-Underground Electric Railway (1912).

Although the injured party must act with the other party’s as well as his own interests in mind, he is only required to act reasonably and the standard of reasonableness is not high in view of the fact that the other party is the wrongdoer Dimond v Lovell [1999] approving the statement in McGregor on damages 16th Edition para 322.

In White and Carter (Councils) Ltd -v- Mc Gregor (1962) it was held that the rules of mitigation do not apply in the situation where the injured party has a legitimate interest in performing the contract rather than stopping and claiming damages. He is not required in that case to discontinue performance even though the Employer may no longer require him to continue.

Although commonly referred to as a "duty to mitigate" the loss, it is not a duty but a principle adopted in the measure of loss The Soholt (1983). The onus of proving the failure to mitigate rests on the party alleging the failure Garmac Grain Co -v- Faire and Fairclough (1968).

3. MITIGATION OF DELAY

The remedy of extension of time is a contractual remedy for acts of prevention and breach of contract by the Employer and for events at the risk of the Employer. It may therefore be thought that if the remedy of extension of time is based on causation, that the principles referred to as the "duty to mitigate" should apply. It is suggested that there are two situations to consider, first when the contractor responds positively and the second when the contractor takes no positive action.

In the first situation the contractor may react to the qualifying delay by making changes to his methods of working, or sequence of working or even accelerate the work. The issue then is whether he is entitled to recover the loss incurred by this reaction and that depends on whether or not he has a right to react as he did. This issue has been examined in Article two. It is suggested that subject to the express terms of the contract, the contractor has no right to accelerate and is not entitled to recover additional costs incurred in acceleration measures to mitigate the effect of qualifying delays without an instruction from the Employer. Since many contracts contain provisions for the grant of extensions of time and express terms for agreement of acceleration measures, the unilateral action by the contractor in giving priority to the fixed date for completion over the cost of working efficiently cannot bind the Employer in those contracts. It is suggested that this interpretation can be expressed in terms of the reasonableness in mitigation. It is not reasonable when there are sufficient contractual remedies for the contractor to decide to accelerate the works. This interpretation must be examined in the context of express obligations to progress the works.

In the second situation the contractor may not react to the qualifying delay and the issue then is what minimum measures he is required to take in order to mitigate the effects of the qualifying delay and if he fails to take those measures whether this affects the extent of his entitlement to extension of time. It is suggested that the rules of mitigation do not generally apply to construction contracts in relation to time where there are extension of time provisions.

In Ascon Contracting Limited -v- Alfred McAlpine Construction Isle of Man Limited (1999) His Honour Judge Hicks QC held that it was difficult to see how there could be any room for the doctrine of mitigation in relation to damage suffered by reason of the Employer’s culpable delay in the face of express contractual machinery for dealing with the situation of extension of time and reimbursement of loss and expense. This decision was made in relation a submission that the contractor should have incurred additional expenditure in accelerating the works to overcome the delay.

In Motherwell Bridge Construction Limited v Micafil Vakuumtecchnik (2002) TCC 81 CONLR44 the claim for acceleration costs of site works failed. There was a term of the contract that if unexpected delays and difficulties occurred, Motherwell was required to provide additional personnel at no extra cost at the request of Micafil in order to meet the required completion date.

4. OBLIGATION TO MITIGATE DELAY OR TO PROGRESS THE WORKS

It is suggested that although the rules of mitigation do not generally apply to construction contracts with extension of time provisions and provision for recovery of time related losses, the contractor will have some obligation to progress the works which will involve an aspect of management of resources and planning of activities in the circumstances of actual events. Although a matter of interpretation of the terms of the contract, it is suggested that such an obligation will usually be intended by the parties to apply equally to events causing qualifying delays. The obligation to progress the works may however require the contractor to take some positive action, and a failure to do so may sound in damages measured by the liquidated damages for additional period of over-run which could have been avoided but for the breach. Since the obligation to proceed "regularly and diligently" means to proceed continuously, industriously and efficiently with appropriate physical resources so as to progress the works steadily towards completion, it is suggested this will include managing the effects of the delay.

It is suggested that faced with delay, the contractor will not be able to claim extension of time for delays which could have been avoided by changing the planned sequences of working, unless the sequence is a specified sequence, so that he could carry on with other work as best he could. It cannot be considered reasonable that a contractor should maintain his sequence of working, doing no further work and incurring delay when by changing the sequence he would be able to open up other areas of work and progress some of the works. It is suggested that the contractor is not required to take steps which would reduce productivity such as acceleration measures, and increase his direct costs by procuring additional plant or materials. He will usually be required to properly manage the progress of the works, including terms as to proceeding regularly and diligently. The obligation will apply to the consequences of the delay.

In DSND Subsea Ltd v Petroleum Geo-Services ASA and PGS Offshore Technology AS [2000] the contractor was under an obligation to carry out and complete the work involving deep sea diving in an expeditious and timely manner. The sequence of the phases of work was specified in a programme incorporated in a Memorandum of Agreement agreed by the parties as the way to deal with delays that had occurred. There were further delays. It was held that the obligation to progress the works in an expeditious and timely manner did not impose an obligation on the contractor to carry out the work in a different sequence and particularly to carry out deep sea diving work before all other work specified to be carried out (the riser installations), had been completed. The contractor had carried out a significant amount of diving before the installation of the risers, but that was not something he was obliged to do. Since plant was on site it made sense for it to do some diving work as and when it was able to do so, but there was no obligation to do so.

It is suggested also that if the entitlement to extension of time is on the basis of what is fair and reasonable, that this must include consideration of the positive steps taken by the contractor to reduce the consequences of the delay, and the steps which could have been taken, without the expenditure of substantial sums.

It is because of these difficulties that many standard forms require the contractor to take steps to reduce the effects of delays, to mitigate the delay, but the extent of the obligation differs. Failure to comply with the obligation may reduce or even extinguish the contractor’s entitlement to extension of time.

The most onerous obligation is that the contractor must use his best endeavours to reduce the delay. It is suggested that the obligation does not require the contractor to expend substantial sums to reduce the delay. In Midland Land Reclamation Ltd -v- Warren Energy Ltd (1997) it was held that the best endeavours obligation was not the next best thing to an absolute obligation or guarantee. In Terrell -v- Mabie Todd and Co (1952)it was held that a best endeavours obligation only required a party to do what was commercially practicable and what it could reasonably do in the circumstances.

It is suggested that an express obligation to proceed regularly and diligently will include applying resources in such a way as to reduce the consequences of a qualifying delay, so that work is carried out efficiently. It is suggested that the reasonable steps to be taken by the contractor when faced with a qualifying delay is to provide the appropriate notices required by the contract together with the details required or requested by the Engineer/Architect. It is also suggested that where a contractor takes reasonable steps to mitigate the effects of the delay and succeeds in reducing the effect of the delay, then his entitlement to extension of time is reduced accordingly. If the entitlement is based on actual delay evaluated retrospectively and if he is entitled to recover losses due to the delay, then it is suggested that loss incurred in taking reasonable steps are part of the recoverable loss. If on the other hand the Contractor is awarded an extension of time prospectively, there is then no reason to mitigate the delay, since he has been granted the compensation under the contract. Whether or not he would be entitled in that case recover his loss due to the delay depends upon the terms of the contract.

5. EXPRESS TERMS OF STANDARD FORMS

The terms of some standard forms in common use are described below.

FIDIC 1999 Forms

Clause 8.1 of the FIDIC Red, Yellow and Silver Books 1999 require the contractor to proceed with the Works with due expedition and without delay. The determination of the extension of time is required under clause 3.5 to be a fair determination taking due regard of all relevant circumstances. It is suggested that this requires account to be taken of the steps which could reasonably have been taken by the contractor to mitigate the delay. In this regard the contractor is also required, under clause 8.3, to promptly give notice of specific probable future events or circumstances which may delay execution of the Works.

ICE 6th and 7th Edition

Clause 41(2) ICE 6th and 7th Edition requires the contractor to proceed with the works with due expedition and without delay in accordance with the contract. If part of the delay has been caused by the contractor’s failure to comply with Clause 41(2) then it is suggested the Engineer can take that into account in his assessment.

The Engineering and Construction Contract 2nd Edition

Clause 63.6 of the Engineering and Construction Contract 2nd Edition provides that any assessment for the revised completion date is to be based on the assumption that the Contractor reacts competently and promptly to compensation events.

MF/1 Rev 4

Clause 33.3 MF/1 Rev 4 requires the contractor to consult with the Engineer in order to determine the steps (if any) which can be taken to overcome or minimize the actual or anticipated delay.

IChemE Red Book 3rd Edition

Clause 14.3 IChemE Red Book requires both parties to the contract at all times to use all reasonable endeavours to minimize any delay in performance of their obligations under the Contract, whatever may be the cause of such delay.

JCT 1998

Clause 25.3.4 JCT 1998 requires the contractor to constantly use his best endeavours to prevent delay in the progress of the Works.