Programmes and Contractual Entitlement

My previous two articles have examined the use of programmes to monitor progress (CES Feb 2002 p46-47) and to manage projects (CES April 2002 p28-29). A third use is to establish the time related entitlement and its measure, or to establish the circumstances necessary for the exercise of certain rights. The particular entitlement or right must be identified in order to ascertain the exact role of the programme.

The main compensation usually sought by Contractors are entitlements to additional time for completion (extension of time), to additional payment for delay and/or disruption or to additional payment for instructed acceleration. The main compensation sought by Purchasers or Employers is the exercise of rights to deduct liquidated damages for Contractor's failure to comply with the obligation to complete on time, to instruct the Contractor to accelerate due to the Contractor's failure to comply with the obligation to progress the works or to terminate the Contractor's employment for the Contractor's failure to comply with the obligation to progress the works.

These rights to compensation depend upon the extent to which the contractor is required to fulfil, has performed or is excused from performing his two main time obligations. These are first the obligation to complete the works on time and secondly the obligation to progress the works. The role of the programme needs to be determined by examination of these two main obligations. Before examining these obligations, it is necessary to add a word of caution against the reliance on the ability of programmes to accurately analyse compensation.

There is little doubt that programmes have an increasingly important part to play in establishing the rights of the parties, particularly as projects become more complex. In my view the role of the programme whilst important should not be overstated. In many cases whilst a programme allows a rapid analysis of the effect of different events, the compensation will depend not on that analysis but on legal analysis of the incidence of liability. Whilst the legal analysis frequently appears less sophisticated than the detailed programme analysis, this may be misleading. The evidential value of the programme depends upon the accuracy of the information on which the programme is based and whether the assumptions inherent in the programme and method used are correct. Frequently programmes presented as factual analysis are instead based on the opinion of the author of the programme rather than accurate information or logic.

Obligation to Complete

In the case of the first obligation to complete by a specified date, this only requires the date of actual completion to be compared with the specified date, to establish whether the obligation has been discharged. Even this conceptually most simple obligation requires interpretation of the meaning of "completion" in the contract and evidence of when "completion" actually occurred. If the date for completion is not specified in the contract, then evidence will be required to determine the reasonable time for completion, which will depend upon all the circumstances.

Of course the required date for completion will depend any right the contractor may have to extension of the date for completion. The Causative Events that entitle the contractor to an extension of time will be stated in the contract and will usually include the all-encompassing event of “breach of contract”.

Establishing the incidence of liability for a Causative Event requires the event to be identified as a fact and the liability determined by interpretation of the contract terms. Many Causative Events that change the planned progress of the works, or change actual progress, can be identified without reference to the programme of works. Ordered Variations, weather conditions, changed ground conditions or defects in either drawings, materials, plant or workmanship are some of the events which may be identified directly. Other Causative Events are identified from documents, such as notifications to contractors from subcontractors or suppliers. In some situations however, the events are first identified by their effect on progress. The late supply of information or plant and the increased quantities of work are some events that may be first identified by comparison of actual progress to planned progress. In these cases an accurate planned programme of works is essential for early identification. In some cases the Causative Event will have been caused by a previous Causative Event. The delay and loss of productivity caused by winter working for example may have been caused by the delay into winter due to an earlier Causative Event. This chain of causation, the incidence of secondary Causative Events, will need to be established by a logic analysis of the inter-relationship of activities and events. In complex situations a network programme analysis of as-built progress and events will usually be required.

Obligation to Progress the Works

In the case of the obligation to progress the works, this requires the actual progress measured in terms of both time and resources to be compared to the standard of progress specified in the contract. This obligation is most difficult to monitor and analyse. It requires the standard required to be determined by interpretation of the contract. Inevitably the obligation is specified in most general terms. A programme can provide evidence of necessary facts, either as evidence of fact or opinion, of both the reasonable standard of progress and the actual progress achieved for comparison.

The cogency of the evidence provided by the programme will depend upon the accuracy of the available information and the effort applied in producing the programme. Programmes produced at tender will reflect the usually limited time available to contractors to prepare their bid, the likelihood of being awarded the contract and the contractual status of the tender programme. In most projects the most realistic programme is usually prepared some weeks after award of the contract, when subcontract packages are more clearly defined. By then inadequacies in the contractor's bid may have become apparent. Programmes may then include an element of optimism or programmemanship and not state realistically achievable productions or durations. For all these reasons the assumptions made in any programmes must be verified and tested as accurate.

Establishing Compensation

The evidence provided by the programme of works will not sufficient in itself to justify compensation. It is necessary to establish a causal connection between the compensation and the Causative Event of the type prescribed by the contract. The measure of compensation must follow the rules and principles of valuation prescribed by the contract and/or at law.

Whether or not the Causative Event has caused the type of loss which is required to be compensated is a matter of analysis of cause and effect - a mixed question of fact and law

In the case of the right to deduct liquidated damages for the contractor's breach of the obligation to complete by a specified date, usually no complicated analysis of cause and effect is required. The contractor may however properly rely on the prevention principle to prevent a Purchaser from taking advantage of its own breach, even in the absence of an extension of time. It is suggested that this is essentially an issue of causation. The right to liquidated damages may not arise unless the pre-conditions to that right are fulfilled and this will usually be notice provisions if at all.

In the case of compensation in the form of the right to an extension of time, the contract will usually prescribe causation, either in terms of the actual delay to the date for completion and/or the estimated future delay and/or the probable future delay. These provisions will therefore determine the method of analysis that is required. It is usual in all but the most simple of cases to carry out the analysis using a Network Analysis Programme. The method of network analysis, whether impact analysis on the planned programme, window or snapshot analysis or collapse method using the as-built programme will depend upon the prescription for causation in the extension of time clause. The accuracy of any analysis will depend upon the accuracy of the information on which it is based.

In the case of compensation in the form payment for delay and/or disruption and/or acceleration, the role of the programme is usually to demonstrate the period in which the delay or disruption or acceleration occurred so that a separate analysis can be carried out of the change in resources in the period and hence the compensation.

Once it has been established that there is a right to compensation, then the same method used to establish causation may determine the measure of compensation. In the case of the right to extension of time, a network analysis will show not only the link between event and change in progress, but also the extent of the change. Problems of concurrency will usually be resolved by interpretation of the extension of time clause or principles of causation at law. The standard of proof for the measure of compensation for time may not be the same as the measure for time related financial compensation, a matter of interpretation of the contract. Frequently, available evidence is not sufficient to establish the precise measure of compensation even in the case of extension of time, but more so in the case of disruption and acceleration compensation. The contract itself may state the standard to be adopted by terms such as "he ... estimates is fair and reasonable" or "... the delay suffered fairly entitles the Contractor to an extension of time .." or "... such extension of the Time for Completion as may be reasonable".

Standard Forms of Contract

In modern forms of contract the key question in determining the role of the programme is whether the programme is a Compensation Programme that establishes by analysis the compensation due, or instead whether it is simply evidence for determining compensation. Usually the programme is only evidence used to establish compensation, and does not establish the entitlement or right sought. The exception is the Engineering Construction Contract. The role of the programme is examined below for common standard forms.

The Clause 8.3 programme in the FIDIC 1999 Forms is not the specified basis for evaluation of extension of time - it is not a Compensation Programme. The entitlement to compensation under Clause 8.4 arises if completion "is or will be delayed" by the particular cause. The extension of time may therefore be retrospective or prospective. In a retrospective analysis, the programme will only be cogent evidence if it accurately recorded actual progress. The Contractor has the primary obligation to proceed in accordance with the programme and to update the programme and the Employer has the right to terminate for failure to follow the programme. In view of this, it is not clear why the entitlement to extension of time should not be determined by analysis of the Clause 8.3 programme. It is suggested that unless the programme clearly does not accurately predict future progress, that it would not be a "fair determination" to ignore the results of analysis of the entitlement to extension of time based on or using the Clause 8.3 programme.

The Clause 14 programme in the ICE 7th Edition is not intended to be a a Compensation Programme. The Contractor's entitlement to extension of time under Clauses such as Clause 42(3) (possession), Clause 7(4) (information), Clause 13(3) (instructions) or Clause 44(2)(a), (3) or (5) is based on actual delay. Clause 44(2)(a) requires the Engineer to consider all the circumstances known to him at the time of making his assessment of the delay suffered by the Contractor. Clause 44(3) requires the Engineer to consider if the delay suffered fairly entitles the contractors to an extension of the time for substantial completion of the Works. The entitlement does not depend upon an analysis of the Clause 14 programme, nor do the Employer's obligations of possession and access (Clause 42(2)) or supply of information (Clause 7(1)) refer to the programme. Any entitlement is based on actual delay.

The Accepted Programme in the ECC 2nd Edition is also used to establish the delay to the Completion Date and it is suggested is a Compensation Programme. Under Clause 62.2 the Contractor is required to submit a quotation for a Compensation Event which includes an assessment of any delay to the Completion Date. Crucially if the "programme for remaining work" is affected by the Compensation Event then the Contractor is required to include a revised programme in his quotation showing the effect. It is suggested that the clear intention is that analysis of delay is intended to be based on the Accepted Programme revised to take into account not only the delay but also time risk allowances for the consequences of the Compensation Event. Clause 63.3 provides that a delay to the Completion Data is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme. It is suggested that the terminology used in Clause 63.3 confirm that the compensation for delay is based on the assessment in the revised programme. The revised programme may need to be modified to take into account Clause 63.4 when used as a Compensation Programme. Clause 63.4 is the early warning sanction.

The Programme in MF/1 Rev 4 2000 is not intended to be a Compensation Programme, since under Clause 33.1 the entitlement is based on actual delay. Under Clause 33.1 the extension of time granted is such as may be reasonable and under Clause 33.3 the Contractor is required to determine what steps can be taken to overcome or minimise the actual or anticipated delay in consultation with the Engineer. There is no mention of the Programme in Clause 33.

The Programme in IChemE Red Book 4th Edition 2001 is not intended to be a Compensation Programme, since under Clause 14.1 the entitlement is based on actual delay and indeed the resultant Variation Order is only given once the extent and consequence of any delay are known.