Nuclear Power Plant Development: Contract Issues, Claims and Disputes 9780367228095, 9780367692094, 9780429276958

Table of contents :
Cover
Half Title
Series
Title
Copyright
Contents
Detailed Contents
Preface
Acknowledgements
Table of Cases
Table of UK Legislation
Table of International Legislation
Chapter 1 The underlying basics: Nuclear energy and reactors
Nuclear Power
Reactor Types and Designs
Nuclear Reactor Systems
Different Types of Systems – Advantages and Disadvantages
The Future
Chapter 2 Nuclear energy engineering and contracts overview
Preliminary steps
Risk Measurement
Who owns Risk?
Risk Management
Adverse Physical Conditions or Obstructions
Delay and Disruption
Defective Materials or Workmanship of Contractor
Direction and Supervision by the Employer or the Engineer
Damage and Injury to Persons and Property
Shortage of Resources
Government Policy and Change of Legislation
Conflicts and war
Labour Demands and Unrest
Inflation
Arbitration and Law
Lump sum contracts
Measurement Contracts
Cost Reimbursement Contracts
Cost plus percentage fee
Design and build procurement
For management procurement
Management contracts
Construction management
Design, manage, construct and in some instances maintain
The Joint Contracts Tribunal (JCT) Forms
Main Forms
The Main Contracts
Smaller project contracts
The Main Features
Format and structure
Main Provisions
Design and Build Contract (DB)
Standard Building Contract (SBC)
Major Project Construction (MP)
Main JCT contracts
The Government Conditions of Contract, Gc Works
The New Engineering Contract Documents (NEC3 and NEC4)
The Engineering and Construction Contract (ECC)
The Engineering and Construction Subcontract Contract (ECS)
The Engineering and Construction Short Contract (ECSC)
The Engineering and Construction Short Subcontract (ECSS)
The Professional Services Contract (PSC)
The Professional Services Short Contract (PSSC)
Framework Contract (FC)
Term Service Contract (TSC)
Supply Contract/Short Supply Contract (SC/SSC)
Adjudicator’s Contract (AC)
Guidance Notes and Flowcharts
Specific Risks
Adverse Ground or Physical Obstructions or Conditions on the Site
Delay, Disruption of the Works
Extensions of Time
Summary
Chapter 3 NPP contract issues at inception, standard form contract provisions: Regarding NPP risk, delay and potential for disruption
EPC Contracts
Forms of Standard Construction Contract
The Guaranteed Maximum Price Contract
The Remeasurement Type of Contract
The Cost Reimbursement or Cost Plus Fee Contract
Target Cost Contracts
The ICE Conditions of Contract
Measurement Version 7th Edition
ICE Design and Construct Contract
ICE Minor Works Contract
Time and Cost Issues Under the Measurement Version, Design and Construct, Minor Works
The NEC3 – The New Engineering Contract Engineering and Construction Contract – NEC ECC
Overview
Some Important Provisions
Prevention Clause 19
The Concept of Key Dates
Design Liability
Payment for Defective Work
Contractor Incentives
Variations
Contractor’s Rights and Obligations
Additional Obligations and Issues
Termination Issues
Force Majeure
The Silver Book
Damages
Sub-Clause 1.1.4.3
Sub-Clause 1.1.6.9
Sub-Clause 1.3 (Communications)
Sub-Clause 1.9 (Delayed Drawings or Instructions)
Sub-Clause 2.1 (Right of Access to the Site)
Sub-Clause 3.3 (Instructions of the Engineer)
Sub-Clause 3.5 (Determinations)
Sub-Clause 4.7 (Setting Out)
Sub-Clause 4.12 (Unforeseeable Physical Conditions)
Sub-Clause 4.24 (Fossils)
Sub-Clause 7.4 (Testing)
Sub-Clause 8.1 (Commencement of Works)
Sub-Clause 8.2 (Time for Completion)
Sub-Clause 8.3 (Programme)
Sub-Clause 8.4 (Extension of Time for Completion)
Sub-Clause 8.5 (Delays Caused by Authorities)
Sub-Clause 8.7 (Delay Damages)
Sub-Clause 10.1 (Taking Over of the Works and Sections)
Sub-Clause 10.3 (Interference with Tests on Completion)
Sub-Clause 13.1 (Right to Vary)
Sub-Clause 13.3 (Variation Procedure)
Sub-Clause 13.7 (Adjustments for Changes in Legislation)
Sub-Clause 16.1 (Contractor’s Entitlement to Suspend Work)
Sub-Clause 17.4 (Consequences of Employer’s Risks)
Sub-Clauses 19.1 (Definition of Force Majeure) and 19.4 (Consequences of Force Majeure)
Sub-Clause 20.1 (Contractor’s Claims)
The Other Form Contracts Delaying with Delay
The JCT Form Contract
Extensions of time
Clause 2.3.1.1 Delay events
Clause 2.3.1.2 Delay notices
2.3.1.3 Assessment
2.3.1.4 Delay avoidance
NEC3 Form of Contact 2013 (and the NEC4 2017)
NEC3 terminology
Delay events
Delay notices
Assessment
ICE Conditions of Contract, 7th Edition
Chapter 4 Bespoke NPP agreement terms and conditions
Sample Nuclear Power Plant Agreement
Clause 1 – Definitions
Clause 2 – Basis for the Plant Contract
Clause 3 – Scope of the Plant Contract
Clause 4 – Documents
Clause 5 – General Conditions
Clause 6 – Risks, Liabilities and Title
Clause 7 – Insurances
Clause 8 – Licensability and Licensing
Clause 9 – Training of Plant Personnel
Clause 10 – Pre-Operational Testing, Commissioning (including performance testing), Demonstration Run and Provisional Takeover
Clause 11 – Plant Contract Schedules
Clause 12 – Technical Guarantees
Clause 13 – Availability Guarantees
Clause 14 – Intellectual Property Rights
Clause 15 – Owner’s Acceptance and Final Takeover
Clause 16 – Contractual Price
Clause 17 – Price Revisions for the Contractual Price
Clause 18 – Terms of Payment
Clause 19 – Execution of Payments
Clause 20 – Force Majeure
Clause 21 – Rejection of Plant and Termination of Plant Contract
Clause 22 – Applicable Law
Clause 23 – Jurisdiction, and Dispute Resolution
Clause 24 – Miscellaneous Conditions
Clause 25 – Availability of Spare Parts
Clause 26 – Severability
Clause 27 – Survival of Obligations; Non-Waiver
Clause 28 – Relationship of the Parties
Clause 29 – Entire Agreement and Amendments
Clause 30 – Transfer
Chapter 5 Delay – an overview
But what is complete and at what cost?
Due Diligence Progression to Completion
Complying with the Programme
Standard Form Contract and Programming
Delay – Who Is at Fault?
Force Majeure
Is the Contract Terminated?
Acts of God
The Purpose of Force Majeure Clauses – Historically and Internationally
Typical Force Majeure Clause Usage Excusing Delay
The Necessary Requirements for Force Majeure
When Does Force Majeure Commence?
The Duration of the Condition
When Should Notice Be Given?
Force Majeure’s Effect
Frustration
Extension of Time
Standard Forms – Relevant Events and/or Compensation Events
Concurrent Delay Issues
Other Related Delay Issues
Time Is of the Essence Provisions
JCT, NEC3 and Others
Delay Analysis –Methods and Types
As-planned versus as-built
Impacted as-planned
Collapsed as-built
Time impact analysis
Critical Path
“Float” of non-critical works
Disruption
Chapter 6 Delay analysis tools
Delay and Disruption Claims
Complexity
Lack of a Uniform Approach
Practical Considerations
Delay Categories
Delay Classifications
Concurrent Delay Synopsis
Float
The Issue of Float
Contractor’s Right to Finish Early
Net Effect Method
Notification of Claim
But Which Method?
The Problem
Information
Deficiencies in Contractors’ Programmes
Reluctance
Baseline Programme Problems
Deficiencies in the Planning and Programming Process
The Difference between Delay and Disruption
The Methods
The Methodologies
Delay Analysis Methods Simplified
Which Method Is Best?
Disruption Analysis Methodologies
The Measured Mile Technique
Industry Studies and Guidelines
Total Cost Method
Modified total cost approach
Time and Motion Studies
System Dynamics Modelling Approach
Earned Value Management (EVM)
Final Overview
Chapter 7 Construction delay analysis
Summary diagram
Foresight (forward-looking)
Hindsight (backward-looking)
Contemporaneous
Delay Log
Where the Problems start
Requests for Information
Typical Reasons and Costs – the real world
Critical Path
Real-World of Delay
Float
Summary
Chapter 8 Forensic schedule analysis and discretionary logic
Time of performance
Legal entitlement
Technical entitlement – Delay Analysis Techniques and analysis methods
The Observational/Static/Gross (MIP 3.1)
The Observational/Static/Periodic (MIP 3.2)
The Observational/Dynamic/Contemporaneous As-Is (MIP 3.3)
The Observational/ Dynamic/Contemporaneous Split (MIP 3.4)
The Observational/Dynamic/Modified or Recreated (MIP 3.5)
The Modelled/Additive/Single Base (MIP 3.6)
The Modelled/Additive/Multiple Base (MIP 3.7)
The Modelled/Subtractive/Single Simulation (MIP 3.8)
The Modelled/Subtractive/Multiple Base (MIP 3.9)
Critical path method logic
The advantage of forensic schedule analysis in the context of the management of arbitration/adjudication procedures
Conclusion
Chapter 9 Distortion of delay analysis
Where to start
Scenario 1
Calendars
Diagram Grouping and Sorting
Constraints and Negative Total Float
Labour Resources
Other Areas for Deception
Longest Path or Critical Path?
Chapter 10 Unforeseen ground conditions
The USA
Contractor’s Duty?
Employer’s Duty?
Is Silence a Basis for a Claim?
History
Type 1 and Type 2 conditions
Type 1
Type 2
Type 3
Materiality
Chapter 11 Claims for extensions of time
The Risk Register in the Notice process
Risk identification
Risk analysis
Warnings and Risk resolutions
The Final Step – Allocating Responsibility
No Reply Needed
The risk reduction meeting
Difference between Early warnings, RFIs and TQs
Preparing and Proving an EOT claim
Creating a Systematic Approach to EOT Claims Documentation
The Baseline Programme Planning
Pre-planning tasks at the start
Who Owns the Float?
Who Owns the Float – Standard Form Contracts
JCT contracts
NEC3 contracts
ICE contracts
Baseline Programme Checklist
Programme updates
Changes to the Baseline Programme – Revisions
Identifying and Quantifying the delays to the programme updates
Categorisation of Delay
Risk Events versus Delay
Documenting delays
Concurrent Delay
Records
The Approval Process
Chapter 12 Constructive acceleration
The Requirements
Constructive Acceleration
The Courts in the UK and the USA
Chapter 13 Notice requirements
When Exactly does the 28-Day Notice Period Commence?
Who Exactly at the Contractor is Supposed to Acquire Knowledge of the Event or Circumstance?
Type of Records and Claim
The Need for Proper Records as Part of the Claim Submission
Has the Dispute Crystallised and can it be Enforced?
Is There a Dispute to Enforce?
The Standard Forms
Prevention
But When Does the Delay Impact the Critical Path?
Chapter 14 Legal systems
The Common Law
History
Common Law Countries
Civil Law
The Napoleonic Code
Differences Between Common and Civil Law
Sharia – Islamic Law
History
Enforcement of Adjudication Decisions versus arbitration awards
Dispute Resolution in Delay and Construction Matters
Other Dispute Resolution Methods
The Engineer/Arbitrator as Judge
The Engineer as Quasi-Arbitrator
Non-Statutory Adjudication
The Advent of Dispute Boards in England
Extension to International Cases
Specific Regional Differences and Methods
Chapter 15 Dispute resolution methods
The Dispute Board Concept
Mediation
Arbitration
Litigation
Dispute Board
What is a dispute board?
What makes a dispute board unique? What can be achieved by using a dispute board?
Recommendations versus Binding Decisions
Non-binding recommendations
Interim-binding decisions
Differences between dispute boards and arbitration, mediation, adjudication and alternative dispute resolution (ADR)
Mediation
Ancient Cultures
Early China
Qing Dynasty – Three Steps of Mediation
The First Step
The Second Step
The Third Step
USA
Change of Direction
United Kingdom
Islamic Tradition
Global Reach
The Development of Commercial Construction Mediation in the United Kingdom
Woolf Reforms
CPR Rules
Building and Construction Disputes
Halsey
Failure to Mediate Justified
Limited Circumstances
Enforcing Mediation
The Continuum of Dispute resolution
Index

Citation preview

NUCLEAR POWER PLANT DEVELOPMENT C on tract Issu es , Claim s an d D isput e s DR. CYRIL CHERN BArch, JD, AIA, RIBA, FCIArb, FDBF

CONSTRUCTION PRACTICE SERIES Series editors: Philip Britton and Phillip Capper

CONSTRUCTION PRACTICE SERIES Series editors: Philip Britton and Phillip Capper Construction Contract Variations Michael Sergeant and Max Wieliczko Holman Fenwick Willan LLP Adjudication in Construction Law Darryl Royce Delay and Disruption in Construction Contracts Fifth Edition Andrew Burr The Law of Construction Disputes Second Edition Cyril Chern Construction Insurance and UK Construction Contracts Third Edition Roger ter Haar QC, Marshall Levine and Anna Laney Construction Law Second Edition Julian Bailey International Contractual and Statutory Adjudication Andrew Burr Remedies in Construction Law Second Edition Roger ter Haar QC Professional Negligence in Construction Second Edition Ben Patten and Hugh Saunders Litigation in the Technology and Construction Court Adam Constable QC, Lucy Garrett QC and Calum Lamont Chern on Dispute Boards Practice and Procedure Fourth Edition Cyril Chern The Law of Construction Disputes Third Edition Cyril Chern

For more information about this series, please visit: www.routledge.com/Construction-Practice-Series/book-series/CPS

NUCLEAR POWER PLANT DEVELOPMENT CONTRACT ISSUES, CLAIMS AND DISPUTES DR. CYRIL CHERN

BArch, JD, AIA, RIBA, FCIArb, FDBF

First published 2021 Informa Law by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Informa Law from Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Dr Cyril Chern The right of Dr Cyril Chern to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book has been requested ISBN: 978-0-367-22809-5 (hbk) ISBN: 978-0-367-69209-4 (pbk) ISBN: 978-0-429-27695-8 (ebk) Typeset in Times by Apex CoVantage, LLC

CONTENTS

xvii xix xxi xxxi xxxiii

Preface Acknowledgements Table of Cases Table of UK Legislation Table of International Legislation CHAPTER 1 THE UNDERLYING BASICS: NUCLEAR ENERGY AND REACTORS

1

CHAPTER 2 NUCLEAR ENERGY ENGINEERING AND CONTRACTS OVERVIEW

11

CHAPTER 3 NPP CONTRACT ISSUES AT INCEPTION, STANDARD FORM CONTRACT PROVISIONS: REGARDING NPP RISK, DELAY AND POTENTIAL FOR DISRUPTION

47

CHAPTER 4 BESPOKE NPP AGREEMENT TERMS AND CONDITIONS95 CHAPTER 5 DELAY – AN OVERVIEW

199

CHAPTER 6 DELAY ANALYSIS TOOLS

231

CHAPTER 7 CONSTRUCTION DELAY ANALYSIS

287

CHAPTER 8 FORENSIC SCHEDULE ANALYSIS AND DISCRETIONARY LOGIC

311

CHAPTER 9 DISTORTION OF DELAY ANALYSIS

329

CHAPTER 10 UNFORESEEN GROUND CONDITIONS

357

CHAPTER 11 CLAIMS FOR EXTENSIONS OF TIME

377

v

C ontents

CHAPTER 12 CONSTRUCTIVE ACCELERATION

405

CHAPTER 13 NOTICE REQUIREMENTS

415

CHAPTER 14 LEGAL SYSTEMS

443

CHAPTER 15 DISPUTE RESOLUTION METHODS

479

Index

511

vi

D E TA I L E D C O N T E N T S

xvii xix xxi xxxi xxxiii

Preface Acknowledgements Table of Cases Table of UK Legislation Table of International Legislation CHAPTER 1 THE UNDERLYING BASICS: NUCLEAR ENERGY AND REACTORS Nuclear Power Reactor Types and Designs Nuclear Reactor Systems Different Types of Systems – Advantages and Disadvantages The Future

1 1 4 6 7 7

CHAPTER 2 NUCLEAR ENERGY ENGINEERING AND CONTRACTS OVERVIEW 11 Preliminary steps 18 Risk Measurement 20 Who owns Risk?21 Risk Management22 Adverse Physical Conditions or Obstructions 24 Delay and Disruption 24 Defective Materials or Workmanship of Contractor 24 Direction and Supervision by the Employer or the Engineer 24 Damage and Injury to Persons and Property 25 Shortage of Resources 25 Government Policy and Change of Legislation 25 Conflicts and war 25 Labour Demands and Unrest 25 Inflation 26 Arbitration and Law 26 Lump sum contracts 27 Measurement Contracts 28 Cost Reimbursement Contracts 28 Cost plus percentage fee 28 vii

D etailed C ontents

Design and build procurement 29 For management procurement 30 Management contracts 30 Construction management 31 Design, manage, construct and in some instances maintain 32 The Joint Contracts Tribunal (JCT) Forms 32 Main Forms 33 The Main Contracts 34 Smaller project contracts 34 The Main Features 34 Format and structure 35 Main Provisions 35 Design and Build Contract (DB) 36 Standard Building Contract (SBC) 36 Major Project Construction (MP) 37 Main JCT contracts 37 The Government Conditions of Contract, Gc Works 37 The New Engineering Contract Documents (NEC3 and NEC4) 38 The Engineering and Construction Contract (ECC) 39 The Engineering and Construction Subcontract Contract (ECS) 40 The Engineering and Construction Short Contract (ECSC) 40 The Engineering and Construction Short Subcontract (ECSS) 40 The Professional Services Contract (PSC) 40 The Professional Services Short Contract (PSSC) 40 Framework Contract (FC) 41 Term Service Contract (TSC) 41 Supply Contract/Short Supply Contract (SC/SSC) 41 Adjudicator’s Contract (AC) 41 Guidance Notes and Flowcharts 41 Specific Risks 43 Adverse Ground or Physical Obstructions or Conditions on the Site 43 Delay, Disruption of the Works 44 Extensions of Time 45 Summary45 CHAPTER 3 NPP CONTRACT ISSUES AT INCEPTION, STANDARD FORM CONTRACT PROVISIONS: REGARDING NPP RISK, DELAY AND POTENTIAL FOR DISRUPTION EPC Contracts Forms of Standard Construction Contract The Guaranteed Maximum Price Contract The Remeasurement Type of Contract The Cost Reimbursement or Cost Plus Fee Contract Target Cost Contracts The ICE Conditions of Contract Measurement Version 7th Edition viii

47 47 50 54 55 55 55 56 56

D etailed C ontents

ICE Design and Construct Contract 56 ICE Minor Works Contract 56 Time and Cost Issues Under the Measurement Version, Design and Construct, Minor Works 57 The NEC3 – The New Engineering Contract Engineering and Construction Contract – NEC ECC 58 Overview58 Some Important Provisions 59 Prevention Clause 19 61 The Concept of Key Dates 61 Design Liability 61 Payment for Defective Work 61 Contractor Incentives 64 Variations64 Contractor’s Rights and Obligations 65 Additional Obligations and Issues 66 Termination Issues 66 Force Majeure 67 The Silver Book 68 Damages68 Sub-Clause 1.1.4.3 70 Sub-Clause 1.1.6.9 70 Sub-Clause 1.3 (Communications) 70 Sub-Clause 1.9 (Delayed Drawings or Instructions) 71 Sub-Clause 2.1 (Right of Access to the Site) 71 Sub-Clause 3.3 (Instructions of the Engineer) 72 Sub-Clause 3.5 (Determinations) 73 Sub-Clause 4.7 (Setting Out) 73 Sub-Clause 4.12 (Unforeseeable Physical Conditions) 74 Sub-Clause 4.24 (Fossils) 75 Sub-Clause 7.4 (Testing) 75 Sub-Clause 8.1 (Commencement of Works) 76 Sub-Clause 8.2 (Time for Completion) 76 Sub-Clause 8.3 (Programme) 76 Sub-Clause 8.4 (Extension of Time for Completion) 77 Sub-Clause 8.5 (Delays Caused by Authorities) 78 Sub-Clause 8.7 (Delay Damages) 78 Sub-Clause 10.1 (Taking Over of the Works and Sections) 81 Sub-Clause 10.3 (Interference with Tests on Completion) 82 Sub-Clause 13.1 (Right to Vary) 83 Sub-Clause 13.3 (Variation Procedure) 83 Sub-Clause 13.7 (Adjustments for Changes in Legislation) 84 Sub-Clause 16.1 (Contractor’s Entitlement to Suspend Work) 84 Sub-Clause 17.4 (Consequences of Employer’s Risks) 85 Sub-Clauses 19.1 (Definition of Force Majeure) and 19.4 (Consequences of Force Majeure) 85 ix

D etailed C ontents

Sub-Clause 20.1 (Contractor’s Claims) 86 The Other Form Contracts Delaying with Delay 88 The JCT Form Contract 88 Extensions of time 88 Clause 2.3.1.1 Delay events 88 Clause 2.3.1.2 Delay notices 88 2.3.1.3 Assessment 88 2.3.1.4 Delay avoidance 89 NEC3 Form of Contact 2013 (and the NEC4 2017) 90 NEC3 terminology 90 Delay events 91 Delay notices 91 Assessment91 ICE Conditions of Contract, 7th Edition 93 CHAPTER 4 BESPOKE NPP AGREEMENT TERMS AND CONDITIONS Sample Nuclear Power Plant Agreement Clause 1 – Definitions Clause 2 – Basis for the Plant Contract Clause 3 – Scope of the Plant Contract Clause 4 – Documents Clause 5 – General Conditions Clause 6 – Risks, Liabilities and Title Clause 7 – Insurances Clause 8 – Licensability and Licensing Clause 9 – Training of Plant Personnel Clause 10 – Pre-Operational Testing, Commissioning (including performance testing), Demonstration Run and Provisional Takeover Clause 11 – Plant Contract Schedules Clause 12 – Technical Guarantees Clause 13 – Availability Guarantees Clause 14 – Intellectual Property Rights Clause 15 – Owner’s Acceptance and Final Takeover Clause 16 – Contractual Price Clause 17 – Price Revisions for the Contractual Price Clause 18 – Terms of Payment Clause 19 – Execution of Payments Clause 20 – Force Majeure Clause 21 – Rejection of Plant and Termination of Plant Contract Clause 22 – Applicable Law Clause 23 – Jurisdiction, and Dispute Resolution Clause 24 – Miscellaneous Conditions Clause 25 – Availability of Spare Parts Clause 26 – Severability Clause 27 – Survival of Obligations; Non-Waiver Clause 28 – Relationship of the Parties x

95 95 99 104 108 112 121 135 140 144 148 149 157 165 172 174 174 176 177 178 180 182 183 188 188 192 195 197 197 197

D etailed C ontents

Clause 29 – Entire Agreement and Amendments Clause 30 – Transfer

197 198

CHAPTER 5 DELAY – AN OVERVIEW 199 But what is complete and at what cost? 201 Due Diligence Progression to Completion 204 Complying with the Programme 205 Standard Form Contract and Programming 206 Delay – Who Is at Fault? 206 Force Majeure 206 Is the Contract Terminated? 208 Acts of God 209 The Purpose of Force Majeure Clauses – Historically and Internationally 210 Typical Force Majeure Clause Usage Excusing Delay 212 The Necessary Requirements for Force Majeure 212 When Does Force Majeure Commence? 213 The Duration of the Condition 213 When Should Notice Be Given? 214 Force Majeure’s Effect 215 Frustration215 Extension of Time 219 Standard Forms – Relevant Events and/or Compensation Events 220 Concurrent Delay Issues 221 Other Related Delay Issues 221 Time Is of the Essence Provisions 223 JCT, NEC3 and Others 227 Delay Analysis –Methods and Types 228 As-planned versus as-built 228 Impacted as-planned 229 Collapsed as-built 229 Time impact analysis 229 Critical Path 229 “Float” of non-critical works 230 Disruption230 CHAPTER 6 DELAY ANALYSIS TOOLS 231 Delay and Disruption Claims 232 Complexity234 Lack of a Uniform Approach 236 Practical Considerations 237 Delay Categories 239 Delay Classifications 241 Concurrent Delay Synopsis 241 Float247 The Issue of Float 248 Contractor’s Right to Finish Early 251 xi

D etailed C ontents

Net Effect Method 252 Notification of Claim 253 But Which Method? 255 The Problem 256 Information259 Deficiencies in Contractors’ Programmes 262 Reluctance262 Baseline Programme Problems 263 Deficiencies in the Planning and Programming Process 267 The Difference between Delay and Disruption 271 The Methods 272 The Methodologies 272 Delay Analysis Methods Simplified 275 Which Method Is Best? 278 Disruption Analysis Methodologies 279 The Measured Mile Technique 280 Industry Studies and Guidelines 281 Total Cost Method 282 Modified total cost approach 283 Time and Motion Studies 284 System Dynamics Modelling Approach 284 Earned Value Management (EVM) 284 Final Overview 285 CHAPTER 7 CONSTRUCTION DELAY ANALYSIS 287 Summary diagram 290 Foresight (forward-looking) 290 Hindsight (backward-looking) 290 Contemporaneous292 Delay Log 292 Where the Problems start 292 Requests for Information 293 Typical Reasons and Costs – the real world 294 Critical Path 301 Real-World of Delay 306 Float309 Summary309 CHAPTER 8 FORENSIC SCHEDULE ANALYSIS AND DISCRETIONARY LOGIC Time of performance Legal entitlement Technical entitlement – Delay Analysis Techniques and analysis methods The Observational/Static/Gross (MIP 3.1) The Observational/Static/Periodic (MIP 3.2) The Observational/Dynamic/Contemporaneous As-Is (MIP 3.3) xii

311 312 312 315 317 317 317

D etailed C ontents

The Observational/ Dynamic/Contemporaneous Split (MIP 3.4) 318 The Observational/Dynamic/Modified or Recreated (MIP 3.5) 318 The Modelled/Additive/Single Base (MIP 3.6) 319 The Modelled/Additive/Multiple Base (MIP 3.7) 319 The Modelled/Subtractive/Single Simulation (MIP 3.8) 319 The Modelled/Subtractive/Multiple Base (MIP 3.9) 320 Critical path method logic 322 The advantage of forensic schedule analysis in the context of the management of arbitration/adjudication procedures 323 Conclusion326 CHAPTER 9 DISTORTION OF DELAY ANALYSIS 329 Where to start 336 Scenario 1 337 Calendars340 Diagram Grouping and Sorting 342 Constraints and Negative Total Float 347 Labour Resources 351 Other Areas for Deception 351 Longest Path or Critical Path? 353 CHAPTER 10 UNFORESEEN GROUND CONDITIONS 357 The USA 363 Contractor’s Duty? 365 Employer’s Duty? 368 Is Silence a Basis for a Claim? 369 History369 Type 1 and Type 2 conditions 370 Type 1 370 Type 2 371 Type 3 372 Materiality374 CHAPTER 11 CLAIMS FOR EXTENSIONS OF TIME The Risk Register in the Notice process Risk identification Risk analysis Warnings and Risk resolutions The Final Step – Allocating Responsibility No Reply Needed The risk reduction meeting Difference between Early warnings, RFIs and TQs Preparing and Proving an EOT claim Creating a Systematic Approach to EOT Claims Documentation The Baseline Programme Planning Pre-planning tasks at the start xiii

377 381 382 382 382 383 384 385 385 387 387 387 388

D etailed C ontents

Who Owns the Float? 389 Who Owns the Float – Standard Form Contracts 390 JCT contracts 390 NEC3 contracts 391 ICE contracts 391 Baseline Programme Checklist 391 Programme updates 393 Changes to the Baseline Programme – Revisions 395 Identifying and Quantifying the delays to the programme updates 396 Categorisation of Delay 398 Risk Events versus Delay 398 Documenting delays 400 Concurrent Delay 400 Records401 The Approval Process 401 CHAPTER 12 CONSTRUCTIVE ACCELERATION The Requirements Constructive Acceleration The Courts in the UK and the USA

405 406 407 409

CHAPTER 13 NOTICE REQUIREMENTS 415 When Exactly does the 28-Day Notice Period Commence? 415 Who Exactly at the Contractor is Supposed to Acquire Knowledge of the Event or Circumstance? 421 Type of Records and Claim 425 The Need for Proper Records as Part of the Claim Submission 426 Has the Dispute Crystallised and can it be Enforced? 427 Is There a Dispute to Enforce? 427 The Standard Forms 430 Prevention432 But When Does the Delay Impact the Critical Path? 441 CHAPTER 14 LEGAL SYSTEMS 443 The Common Law 443 History444 Common Law Countries 448 Civil Law 449 The Napoleonic Code 449 Differences Between Common and Civil Law 451 Sharia – Islamic Law 452 History452 Enforcement of Adjudication Decisions versus arbitration awards 457 Dispute Resolution in Delay and Construction Matters 460 Other Dispute Resolution Methods 462 The Engineer/Arbitrator as Judge 463 xiv

D etailed C ontents

The Engineer as Quasi-Arbitrator Non-Statutory Adjudication The Advent of Dispute Boards in England Extension to International Cases Specific Regional Differences and Methods

464 467 469 470 474

CHAPTER 15 DISPUTE RESOLUTION METHODS 479 The Dispute Board Concept 481 Mediation481 Arbitration481 Litigation482 Dispute Board 482 What is a dispute board? 483 What makes a dispute board unique? What can be achieved by using a dispute board? 485 Recommendations versus Binding Decisions 486 Non-binding recommendations 486 Interim-binding decisions 487 Differences between dispute boards and arbitration, mediation, adjudication and alternative dispute resolution (ADR) 488 Mediation490 Ancient Cultures 491 Early China 492 Qing Dynasty – Three Steps of Mediation 493 The First Step 493 The Second Step 494 The Third Step 494 USA495 Change of Direction 495 United Kingdom 496 Islamic Tradition 498 Global Reach 500 The Development of Commercial Construction Mediation in the United Kingdom 500 Woolf Reforms 501 CPR Rules 502 Building and Construction Disputes 502 Halsey503 Failure to Mediate Justified 506 Limited Circumstances 506 Enforcing Mediation 508 The Continuum of Dispute resolution 509 511

Index

xv

P R E FA C E

A recent article points out a truth known to many in the nuclear power plant construction field, and that is nuclear power plants are costly to build, and delay is a major factor in the construction. In fact, it is noted that two of the newest additions to the world’s nuclear power plants (one in Argentina and the other in the USA) took 33 and 44 years to erect. Other studies have shown that of the current approximately 55 nuclear power plants under construction almost two-thirds are delayed and behind schedule.1 With this statistic come the other inevitable claims for extensions of time, unforeseen ground conditions, delay damages and a raft of other claims and disputes dealing with either more money or more time requests by the contractor. Most important of all is how to structure the contract between the owner (employer) and the contractor(s) so as to effectively sort out problem areas before they cause claims, disputes and delay. Dealing with these effectively on a pre-emptive basis is the main emphasis of this book, and I trust that it will be of assistance to those in this field of endeavour. The purpose of this book is to cover the most recurring questions and points of law that arise in the construction of nuclear power plants and the disputes that go with them: not all of the types of claims and disputes, but rather the most frequently encountered issues involving their basis, the law behind them and the types of contracts which effectively deal with them in advance. Also covered is an overview of how delay and disruption claims turn into disputes and the most common types of claims that arise in construction and the underlying law that applies. The book then deals with how to deal effectively with claims and disputes, the various legal systems that are encountered worldwide and how to quickly resolve such matters. The list of construction issues discussed herein is not exhaustive but rather garnered from my experience of construction and disputes regarding nuclear power plant construction throughout the Common Law Countries, the Civil Law Countries, as well as other court systems, notably Sharia Law, as all of these play a very important role in the current development of and solution to such disputes which arise in such a complex construction setting. The intent of this book is to provide the contractor, employer and international construction lawyer with selections of some of the most common problem areas in nuclear power plant construction law and, thus, allow each to obtain a better mastery of the subject. Cyril Chern January 2021 1 See The Nuclear Options – How to build a nuclear-power plant, The Economist, 28th Jan. 2017.

xvii

ACKNOWLEDGEMENTS

I am indebted to my colleagues for their assistance and encouragement in the production of this book, and I would like to thank the Fédération Internationale des Ingénieurs-Conseils (International Federation of Consulting Engineers) (FIDIC) and the Dispute Board Federation for the permission granted to me to quote and reproduce some material from their publications. I would also particularly like to thank Amy Jones, Caroline Church, Hannah Rich and Ajanta Bhattacharjee. My editors at Taylor & Francis – Informa Law, for all of their work, guidance and kind efforts on my behalf and I would like to especially thank Patrícia Rosário and Mihaela Apostal for their invaluable research and legal skills in bringing this fourth edition forward.

xix

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Australia Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236��������������������������������472 Codelfa Construction Proprietary Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337����������������������������������������������������������218, 219 Décor Ceiling Pty Ltd v Cox Constructions Pty Ltd (No 2) [2006] CILL March 2006����������������������������������������������������������������������������������������439 Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709��������������������������������������������������������������������������������������������473 Gaymark Investments Pty Limited v Walter Construction Group (2000) 16 BCL 449; [1999] 18 BCL 449 (Ct of Nn. Territory of Australia��������������������������������������������������������������380, 440, 441 Hooper Bailie Associated Limited v Natcon Group Pty Ltd (1992) NSWLR 194���������472 Murphy Corporation Ltd v Acumen Design & Development (Queensland) Pty Ltd and Derek Hooper (1995) 11 BCL 274���������������������������������������������������������82 Peninsula Balmain Pty Ltd v Abigroup Contractors Corp Pty Ltd [2002] NSWCA 211�����������������������������������������������������������������������������������������440, 441 SMK Cabinets v Hili Modern Electrics Pty [1984] VR 391 (Sp Ct of Victoria)����222, 436 Turner Corporation Ltd v Co-ordinated Industries Pty [1997] 13 BCL 378������������������439 Canada Kemp v McWilliams (1978) 87 D.L.R. (3d) 544 (Sask. CA)�����������������������������������������201 Morrison Knudsen v V British Columbia Hydro (No 2) (1978) 85 DLR (3d) 186 (BC Ct App)������������������������������������������������������������������������������������������������������405 Multiplex Constructions Pty Ltd v SOR Pty Ltd and Woodhead International Pty Ltd [2000] SASC 414������������������������������������������������������������������409 Pacific Construction Co. Ltd. v Greater Vancouver Regional Hospital District (1986) 23 CLR 35 (BCS Ct)������������������������������������������������������������������������������������263 China Leighton Contractors (Asia) Ltd v Stelux Holding Ltd HCCT 29/2004 (Ct of Fst Inst, Hong Kong)�������������������������������������������������������������������������������������259 Cyprus Cyprian Salters Case Co.10131.5.78 20 H6.18 Trin 18 Jac��������������������������������������������461 xxi

T able of C ases

France Poiré v Tripier: Cour de Cassation (Chambre Mixte), Decision of 14 February 2003�����������������������������������������������������������������������������������������������������475 SCM Port-Royal v Pebay et Samper: Revue de l’arbitrage 2003 2 p. 405 Cour d’Appel de Paris 23 May 2001�����������������������������������������������������������������������476 Germany Bremer Handelsgesellschaft mbH v Vanden Avenne Izegem PVBA [1978] 2 Lloyd’s Rep 109, HL���������������������������������������������������������������������������������420 BGH, VII ZR 197/82, 23 November 1983, NJW 1984, 669. 88 BGHZ 102, 199, 12 November 1987�����������������������������������������������������������������������474 BGH, VII ZR 344/97, 18 November 1998���������������������������������������������������������������������474 OLG Frankfurt a.M, 24 U 248/95, 7 November 1997����������������������������������������������������474 South Africa Welihockyj and Others v Advtech Limited and Others [2003] (6) SA 737 (W)�����470, 471 Ukraine Generation Ukraine, Inc. v Ukraine, ICSID case no. ARB/00/9, Award, at paras. 24.2 – 24.7��������������������������������������������������������������������������������������324 United Kingdom Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 Comm���������������������������331 Afovos Shipping Co SA v R Pagnan and Lli (The Afovos) [1982] 3 All ER 18 (CA)�����������������������������������������������������������������������������������������205 Alan Valentine v (1) Kevin Allen (2) Simon John Nash (3) Alison Nash [2002] EWCA Civ 915��������������������������������������������������������������������������������������������506 Alghussein Establishment v Eton College [1988] 1 WLR 587����������������������������������������69 Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452 (CA)������������������������������������������������������������������������223, 246 252 AMEC Civil Engineering Ltd v The Secretary of State for Transport [2004] EWHC 2339�����������������������������������������������������������������������������������������428, 429 An Arbitration between Hohenzollern Actien Gesellschaft and the City of London etc, Re (1886) 54 LT (NS) 596�������������������������������������������������������������������465 Anglia Commercial Properties Ltd v North East Essex Building Co Ltd (1982) 266 Estates Gazette 1096�����������������������������������������������������������������������������222 Arnold v Britton [2015] UKSC 36�����������������������������������������������������������������������������������80 Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (1999) 66 Con LR 119�����������������������������������������������������������������������������245, 250, 412 Astilleros Canarios S.A. v Cape Hatteras Shipping Co. Inc. and Hammerton Shipping Co. SA (The Cape Hatteras) [1982] 1 Lloyd’s Rep 518������������������433, 436 Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co (1975) 56 DLR (3d) 409 (SCC)�������������������������������������������������������������������������������210 Attorney General for the Falklands Islands v Gordon Forbes Construction (Falklands) Limited (2003) 6 BLR 280���������������������������������������������426 xxii

T able of C ases

Balfour Beatty Building Ltd v Chestermount Properties (1993) 32 Con LR 137; (1993) 62 BLR 1 (JCT 1980)��������������������222, 223, 252, 330 Balfour Beatty Construction Limited v The Mayor and Burgess of the London Borough of Lambeth (2002) 1 BLR 288������������������������������������254, 263, 278 Balfour Beatty Construction Ltd v Serco Ltd (2004) EWHC 3336 (TCC)��������������������254 BDW Trading Ltd v JM Rowe (Investments) Ltd [2011] EWCA Civ 548����������������������69 Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1, [1991] 2 All ER 477 (CA)������������������227 Big Island Contracting (HK) Ltd v Skink Ltd (1990) 52 BLR 110��������������������������������202 Bilton v Greater London Council [1982] 20 BLR 1�������������������������������������������������������436 Blackwell and Co Ltd v Derby, Hudson’s Building Contract 4th edition, 1914 Volume II, page 401�������������������������������������������������������������������������������������������������465 Bluewater Energy Services BV v Mercon Steel Structures BV [2014] EWHC 2132 (TCC), 155 Con LR 85�����������������������������������������������������������������������������������221 Bolton v Mahadeva [1972] 1 WLR 1009 (CA)������������������������������������������������������201, 202 Bolton (HL) Engineering Co. Limited v TG Graham & Sons Limited [1957] 1 WER 454; [1956] 3 ALL ER 624������������������������������������������������������380, 421 Boris Homes Ltd v Oakcliff Investment Corpn [1994] BLM (June) 5���������������������������226 Boxall v Waltham Forest LDC (2001) 4 CCL Rep 258��������������������������������������������������507 Brawley v Marczynski [2003] 1 WLR 813���������������������������������������������������������������������507 Bremer Handelgesellschaft Schaft MBH v Vanden Avenne Izegem PVBA [1978] 2 Lloyd’s Law Reports 109��������������������������������������������������������������������������439 British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842; [1989] 3 All ER 492 (CA)���������������������������������������������������������������������������������������227 Brodie v Cardiff [1919] AC 337�������������������������������������������������������������������������������������466 Brompton v Hammond (2001) 76 Con LR 148��������������������������������������������������������������254 British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842; [1989] 3 All ER 492 (CA)���������������������������������������������������������������������������������������226 Bruno Zornow (Builders) Ltd v Beechcroft Developments Ltd (1989) 16 Con LR 30; (1989) 51 BLR 16 (QBD)���������������������������������������������������199 Bunge Corpn v Tradax Export SA [1981] 2 All ER 540; [1981] 1 WLR 711����������������226 Cable & Wireless Plc v IBM UK Ltd [2002] EWHC 2059 (Comm); [2002] 2 All ER (Comm.) 1041�����������������������������������������������������������������������476, 508 Cameron v Mowlem (1991) 52 BLR 24�������������������������������������������������������������������������468 Cape Hatteras, The, see Astilleros Canarios S.A. V. Cape Hatteras Shipping Co. Inc. and Hammerton Shipping Co— Carter (RG) Ltd v Edmund Nuttall Ltd [2002] EWHC 400 (TCC); [2002] 82 Con LR 24 TCC��������������������������������������������������������������������������������������428 Carus-Wilson and Greene, Re (1886) 18 QBD 7��������������������������������������������466, 467, 469 Chambers v Goldthorpe [1901] 1 QB 624����������������������������������������������������������������������466 Channel Tunnel Group Ltd and another v Balfour Beatty Construction Ltd and others (1993) 61 BLR 1����������������������������������������������������������������������������469, 472 Charles Rickards Ltd v Oppenheim [1950] 1 KB 616 (CA); [1950] 1 All ER 420 (CA)������������������������������������������������������������������������������ 224 – 227 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101������������������������������������������������������������������������������������������������������80 xxiii

T able of C ases

City Inn Ltd v Shepherd Construction Ltd [2003] Scot CS 146 (Inner House, Court of Session); [2003] BLR 468; (2002) SLT 781; [2001] SCLR 961, Otr Hse, Ct of Sess�������������������������������������������������������������������420, 431, 432, 439, 440 City Inn Ltd v Shepherd Construction Ltd [2010] BLR 473; [2010] CSIH 68; (2010) 136 Con LR 51; (2007) CSOH 190������������������221, 259, 331 Clemence v Clarke (1880) HBC (4th. Edn), Vol. 2 p.54������������������������������������������������466 Cutler v Close (1832) 5 C & P 337���������������������������������������������������������������������������������200 Dakin (H) & Co Ltd v Lee [1916] 1 KB 566 (CA)����������������������������������������������� 200 – 202 David Wilson Homes Ltd v Survey Services Ltd (in liquidation) and Another [2001] 1 All ER (Comm) 453; [2001] EWCA Civ 34, [2001] 1 BLR 269������������������������������������������������������������������������������������468, 469, 471 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696������������216, 219 De Beers UK v Atos Origin IT Services UK Ltd [2011] BLR 274; [2010] EWHC 3276 (TCC); (2010) 134 Con LR 151�������������������������������������221, 331 Dearling v Foregate Developments (Chester) Limited [2003] EWCA Civ 913�������������507 Dixons Group plc v Jan Andrew Murray-Oboynski (1997) 86 BLR 161�����������������������489 Dodd v Churton [1897] 1 QB 562 (CA)�������������������������������������������������������������������������222 Drake & Scull Engineering Ltd v McLaughlin & Harvey plc (1993) 60 BLR 107��������������������������������������������������������������������������������������������������470 Dunnett (Susan) v Railtrack Plc [2002] EWCA Civ 302������������������������������� 497, 505 – 507 Emson Eastern Ltd (in receivership) v EME Developments Ltd (1991) 26 Con LR 57�����������������������������������������������������������������������������������������������201 Fairweather (H) and Co. Ltd v London Borough of Wandsworth (1987) 38 BLR 106��������������������������������������������������������������������������������������������������244 Fastrack Contractors Ltd v Morrison Construction Ltd [2000] BLR 168����������������������429 Frank Cowl v Plymouth City Council [2002] 1 WLR 803���������������������������������������������505 Gemma Ltd v Gimson [2004] EWHC 1982 (TCC); (2004) 97 Con LR 165�����������������202 Gibbs v Tomlinson (1992) 35 Con LR 86�����������������������������������������������������������������������226 Glenlion Construction Ltd v The Guinness Trust (1987) 39 BLR 89�����������������������������251 Great Eastern Hotel Company Ltd v John Laing Construction Ltd (2005) EWHC 181 (TCC)���������������������������������������������������������������������������������������257 Greater London Council v Cleveland Bridge and Engineering Co Ltd (1987) 8 ConLR 30; (1986) 34 BLR 50������������������������������������������������������������������204 HDK Ltd v SunshineVentures [2009] EWHC 2866 (QB) ���������������������������������������������227 Hall v Van der Heiden (No 2) [2010] EWHC 586 (TCC); [2010] All ER (D) 79 (Nov).������������������������������������������������������������������������������������������������������������������201 Halsey v Milton Keynes NHS Trust [2004] EWCA (Civ) 576�����������������������497, 503, 504 Hartley v Hymans [1920] 3 KB 475�������������������������������������������������������������������������������226 Hayes (t/a Orchard Construction) v Gallant [2008] EWHC 2726 (TCC).���������������������225 Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 ConLR 32 (TCC)����������������������������������������������������221, 245, 246, 249, 331 xxiv

T able of C ases

Hick v Raymond and Reid [1893] AC 22 (HL)������������������������������������������������������203, 312 Hoenig v Isaacs [1952] 2 All ER 176 (CA)������������������������������������������������������������200, 202 Holme v Guppy (1838) 150 ER 1195; (1838) 3 M & W 387���������������������������������433, 436 Hurst v Leeming [2002] EWHC 1051��������������������������������������������������������������������497, 506 IBM UK Holdings Ltd v Dagliesh [2015] EWHC 389 (Ch)��������������������������������������������69 Ibmac Ltd v Marshall (Homes) Ltd (1968) 208 Estates Gazette 851 (CA)��������������������200 Jackson v Barry Railway Company [1893] 1 Chan. 238������������������������������������������������466 Jacobs v Crédit Lyonnaise (1884) 12 QBD 589 (CA)����������������������������������������������������211 Jarvis (J) and Sons v Westminster Corporation (1978) 7 BLR 64 HL������������������������������82 John Barker Construction Ltd v London Portman Hotel Ltd (1996) 83 BLR 31��������������������������������������������������������������������������������������������253, 255 John Doyle Construction Ltd v Laing Management (Scotland) Ltd (2004) BLR 295�����������������������������������������������������������������������������������������������244, 247 John Holland v Kvaerner [1996] 82 BLR 83������������������������������������������������������������������313 Jones v Sherwood Computer Services plc [1992] 2 All ER 170; [1992] 1 WLR 277 (CA)������������������������������������������������������������������������������������������489 Jones v St John’s College Oxford (1870) LR 6 QB 115�������������������������������������������������222 Kiely & Sons Ltd v Medcraft (1965) 109 Sol Jo 829 (CA)��������������������������������������������202 Kinstreet v Balmargo CH 1994 G 2999��������������������������������������������������������������������������497 Koch Hightex GmbH v New Millennium Experience Company Ltd (1999) CILL 1595����������������������������������������������������������������������������������������������������439 Lamprell v Billericay Union (1849) 3 Exch 283������������������������������������������������������������226 Lawson v Wallasey Local Board (1889) 11 QBD 229����������������������������������������������������465 Leander Construction Ltd v Mulalley & Co Ltd [2012] BLR 152; [2011] EWHC 3449 (TCC)��������������������������������������������������������������������������������������204 Leicester Circuits Limited v Coates Brothers Plc [2003] EWCA Civ 290; [2003] EWCA Civ 333��������������������������������������������������������������������������������������������507 Leon Engineering & Construction Co Ltd v KA DUK Investment Co Ltd (1989) 47 BLR 139��������������������������������������������������������������������������������������������������408 Lock v Bell [1931] 1 Ch 35; [1930] All ER Rep 635�����������������������������������������������������226 London Borough of Merton v Hugh Leach (1985) 32 BLR 51��������������������������������������430 London Street Tramways v London County Council [1898] AC 375����������������������������446 Lowther v Heaver (1889) 41 Ch D 248 (CA)�����������������������������������������������������������������226 Lucas v Godwin (1837) 3 Bing NC 737�������������������������������������������������������������������������225 McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1 (CA)�����������������������������������������������������������������������������222, 252, 253 MacIntosh v The Great Western Railway Company (1848) 1 Hare 328; 19 Law J Rep (ns) Chanc 378,�������������������������������������������������������������������������462, 463 Matsoukis v Priestman [1915] 1 KB 681������������������������������������������������������������������������207 Menolly Investments 3 v Cerep [2009] EWHC 516 (Ch); (2009) 125 Con LR 75���������������������������������������������������������������������������������������������202 xxv

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Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119������������������������210, 215 Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup Partners International Ltd [2007] EWHC 918 (TCC)�������������������������������������229, 255 Moorcock, The, Re (1889) 14 PD 64 (CA)���������������������������������������������������������������������204 Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik and another (2002) 81 Con LR 44; (220) CILL 1913�������������������������������������������������246, 255, 412 Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] BLR 195 TCC; [2007] Bus LR D109; [2007] CILL 2458; [2007] EWHC 447 (TCC)�����������������������������������������������������������������������433, 434, 441 Murphy (J) & Sons Ltd v Beckton Energy Ltd [2016] EWHC 607 (TCC)����������������������79 Nevill (HW) (Sunblest) Ltd v William Press and Son Ltd (1981) 20 BLR 78���������82, 201 Nuttall v Mayor and Corporation of Manchester 4 HBC II 203�����������������������������465, 466 Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2015] EWCA Civ 712; 161 Con LR 14; [2015] BLR 521; [2014] EWHC 1028�������������������������������������������������������������������������205; 227, 361, 415 P & E Phontos Pty Ltd v McConnell Smith & Johnson Pty Ltd (1993) 9 BCL 259����������������������������������������������������������������������������������������������������408 Pacific Associates v Baxter [1988] 44 BLR 33���������������������������������������������������������������408 Palacath v Flanagan [1985] 2 All ER 161�����������������������������������������������������������������������471 Paul Thomas Construction Limited v Hyland & Another [2002] 18 Conts LJ 345�������503 Pawley v Turnbull (1861) 3 Giff 70; 66 ER 327�������������������������������������������������������������464 Pashby v The Mayor, etc. of Birmingham (1856) 18 CB 3��������������������������������������������464 Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1971) 1 BLR 111, 114 (CA); (1970) 69 LGR 1���������������������222, 246, 380, 433, 436 Practice Statement allowing House of Lords to adapt English law to meet changing social conditions1996����������������������������������������������������������������������������������������������446 Photo Production Limited v Securicor Limited [1980] AC 827�������������������������������������379 Ranger v Great Western Railway Co [1854] All ER 321; (1854) HL Case 72���������������463 Rapid Building Group Ltd v Ealing Family Housing Association Ltd (1984) 29 BLR 5 (CA)�������������������������������������������������������������������������������������220, 246 Royal Brompton Hospital NHS Trust v Hammond (No. 7) [2002] EWHC 2037; (2001) 76 Con LR 148���������������������������������������������������������������������������246, 390 Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC); [2013] Bus LR D81; [2014] BLR 43�����������������������������������������������������������������������205 Sattin v Poole (1901) 2 Hudson’s BC (4th Edn) 306, DC����������������������������������������������222 Scott v Avery (1856) 5 HL Cas 811; (1856) 10 ER 1121�������������������������������464, 472, 473 Scott v The Corporation of Liverpool (1858) 28 Chanc Cas (ns) 230����������������������������464 Sharpe v Sao Paulo Railway Co (1873) 8 Ch App 597��������������������������������������������������464 Shirayama v Danovo [2003] EWHC 3006.��������������������������������������������������������������������497 Skanska Construction UK Ltd v Egger (Barony) Ltd (2004) EWHC 1748 (TCC)��������256 xxvi

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Societe Internationale De Telecommunications Aeronautiques SC v Wyatt Co (UK) Limited and others v Maxwell Batley (A Firm) [2002] All ER (D) 189�������������������������������������������������������������������������������������506, 507 Spencer v Thorpe [1985] BLM (May) 1: (20 January 1982; unreported) (CA)�������������203 Startup v Macdonald (1843) 6 Man & G 593, Ex Ch�����������������������������������������������������205 Sumpter v Hedges [1898] 1 QB 673 (CA)����������������������������������������������������������������������200 Sutcliffe v Thackrah [1974] AC 727�������������������������������������������������������������������������������466 Taylor v Brown (1839) 2 Beav 180��������������������������������������������������������������������������������227 Taylor v Caldwell [1863] 3 B&S 826�����������������������������������������������������������������������������218 Tenloc v Errill Properties (1987) 39 BLR 30, CA����������������������������������������������������������420 Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1������������������������������������������������������422 Try Construction Limited v Eton Town House Group (2003) EWHC60 (TCC)������������279 Union Eagle Ltd. v Golden Achievement Ltd [1997] 2 All ER 215 (PC)����������������������223 United Scientific Holdings Ltd v Burnley Borough Council [1977] 2 All ER 62 (HL); [1978] AC 904 (HL); [1977] 2 EGLR 61; [1976] 1 Ch 128; (1976] 2 WLR. 686; (1976] 2 All ER 220�������������������������������������������������������225, 227 Van Oord UK Ltd & Anor v Allseas UK Ltd [2015] EWHC 3074 (TCC)�������������361, 362 Walter Lawrence and Son Ltd v Commercial Union Properties (UK) Ltd [1984] 4 Con LR 37���������������������������������������������������������������������������������246 Walter Lilly & Co Ltd v Mackay & Anor [2012] EWHC 1773 (TCC); (2012) 143 ConLR 79 (JCT 1998)�������������������������������������������������������������������221, 329 Webb v Hughes (1870) LR 10 Eq 281����������������������������������������������������������������������������226 Wells v Army and Navy Co-op Society (1902) 86 LT 764; [1902 – 1903] Hudsons Building Cases, 4th Edn, Vol 2, p. 346�������������������������������������222, 433, 436 West Faulkner Associates v Newham London Borough Council (1994) 42 Con LR 144; [1994] NPC 142; (1994) 71 BLR 1 (CA)�������������������������������������205 Westminster City Council v J Jarvis & Sons Ltd [1970] 1 All ER 943��������������������������201 Wilky Property Holdings Plc v London & Surrey Investments Ltd [2011] EWHC 2226 (Ch); Official Transcript; Ch D; 17 August 2011�������������������469 Wong Lai Ying v Chinachem Investment Co Ltd (1980) 13 BLR 81����������������������������217 Young v Bristol Aeroplane Co. Ltd. [1944] KB 718; [1944] 2 All ER 293 (CA)����������447 USA Ace Constructors, Inc. v United States [2006] 70 Fed. Cl. 253������������������������������437, 438 AFGO Engineering Corporation: VACAB No 1236, 79 – 2 BCA ¶ 13.900��������������������365 Appeal of Bean Stuyvesant: LLC9 ASBCA No. 53882, 2006 – 2 B.C.A. (CCH) P33, 420�������������������������������������������������������������������������������������������������������365 Auto Equity Sales, Inc v Superior Court, 57 Cal. 2d 450 (1962)�����������������������������������445 Baltimore Contractors, Inc. v United States: GSBCA 4808R, 80 – 2 B.C.A. 1)14,676���������������������������������������������������������������������������������������������374 xxvii

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Blaze Constr. Co. v United Staes: IBCA No. 2863, 91 – 3 B.C.A. (CCH) 1)24,071 at 120,506 (1991)��������������������������������������������������������������������������374 Burnet v Coronado Oil & Gas Co: 285 US 393��������������������������������������������������������������446 Commonwealth Edison v Allied-General Nuclear Services: 731 F. Supp. 850 (N.D. Ill. 1990)��������������������������������������������������������������������������������������������������������214 Continental Consolidation Corp. v United States: Nos. 2743 and 2766, 67 – 2 BCA 6624�������������������������������������������������������������������������������������������������������266 Dugan & Meyers Construction Co, Inc v State of Ohio, 162 Ohio App. 3d 491�����������211 Fortec Construction v United States: (1958) 8 Cl Ct 490�����������������������������������������������266 Foster Construction C.A. and Williams Brothers Company, A Joint Venture v The United States: 1936 Ct. Cl. 587, 435 F.2d 873, 1970 U.S. Ct. Cl. LEXIS 74�����������������������������������������������������������������������������������������������������366 Hallman v United States: 68F. Supp.204(Ct.Cl.1946)����������������������������������������������������374 Hunt & Willett Inc. v United States: 351 F.2d 980, 985 (1964)�������������������������������������366 M.S.I. Corp., GSBCA 2429, 68 – 2 BCA ¶ 7377�������������������������������������������������������������409 Metcalf Construction Co. Inc. v United States No. I: 100.102 Fed. Cl. 334; 2011 U.S. Claims LEXIS 2329��������������������������������������������������������������������������������367 Metcalf Construction Co., Inc. v United States No. II: 14 742 F.3d 984; 2014 U.S. App. LEXIS 2Sl5, February 11, 2014�����������������������������������������������������367 Mobile Chem. Co. v Blount Bros. Corp: 809 F.2d 1175 (5th Cir. 1987)������������������������410 Morrison-Knudsen Co v State of Alaska: 519 P.2d 834 (1974)��������������������������������������363 Murray’s Iron Works Inc. v Boyce: [2008] 158 CA 1279, 1298������������������������������������375 Natkin & Co. v George A. Fuller Co.: 347 F. Supp. 17 (W.D. Mo. 1972), reconsidered, 626 F. 2d 324 (8th Cir. 1980)������������������������������������������������������������410 Neal & Co v United States: 36 Fed. Cl. 600, 617 (1996), a ’d, 121 F.3d 983 (Fed. Cir. 1997)��������������������������������������������������������������������������������������������������������369 Norair Eng’g Corp. v United States, 666 F.2d 546 (Ct. C1. 1981)���������������������������������409 North Pacific Erectors Inc. v State of Alaska, Department of Administration: 2013 Alas. LEXIS 118 (2013)���������������������������������������������������������������������������������368 Perini Corporation v United States: 180 Ct. Cl. 768, 381 F.2d 403 (1967)��������������������365 Peter Kiewit Sons’ Co. v Summit Construction Co: 422 F.2d 242 (8th Cir. 1969)��������284 Ragonese v. United States: 128 Ct. Cl. 156, 159, 120 F. Supp. 768, 769 (1954)�����������369 Resources Investment Corp v Enron Corp, 669 F. Supp. 1038 at 1043 – 44 (D. Colo. 1987)��������������������������������������������������������������������������������������������������������214 Robert E. McKee Gen.Constr. Inc. v United States: ASBCA No.521, 60 – 1 B.C.A.(CCH) 1)2, 526 (1960)���������������������������������������������������������������������������������374 Sabine Corporation v ONG Western Inc: 725 F. Supp. 1157 at 1169 (W.D.Okla. 1989)�����������������������������������������������������������������������������������������������������215 Smith v Allwright: 321 US 649��������������������������������������������������������������������������������������446 Stuyvesant Dredging Company v United States: 15 834 F.2d 1576; 34 Cont. Cas. Fed. (CCH) 75,414 (1987).����������������������������������������������������������������������������� 368 Suerior Oil Co v Transo Energy Co.: 616 F. Supp. 98 at 108 – 109 (W.D. La. 1985)�������������������������������������������������������������������������������������������������������214 Superior Asphalt and Concrete Co.: AGBCA No. 75 – 142, 77 – 2 BCA ¶ 12,851����������410 Tobin Quarries, Inc. v United States: 53 114 Ct. Cl. 286 (1949)������������������������������������374 United Contractors v The United States: 368 F.2d 585 (1966)���������������������������������������369 xxviii

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United States v Brooks-Callaway Co: [1943] 318 US 120���������������������������������������������210 William Lagnion, ENGBCA 3778, 78 – 2 BCA ¶ 13,260������������������������������������������������410 Youngstown Sheet & Tube Co. v Sawyer 343 U.S. 579 (1952)�������������������������������������495 International International Court of Arbitration (ICC) Case No. 7453 of 1994: ICC Arbitral Awards, Vol. IV, pp. 94, 111������������������������������������������������������������������������������������324 International Court of Arbitration (ICC) Case No. 8486 of 1996 ICC Arbitral Awards, Vol. IV, pp. 321, 331����������������������������������������������������������������������������������324 International Court of Arbitration (ICC) Case no. 12654, ICC International Court of Arbitration Bulletin 23(2), 2012��������������������������������������������������������315, 322 International Minerals & Chemical Corp v Llano Inc, 770 F.2d at 885�������������������������214

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Table of Statutes Arbitration Act 1965�����������������������������������������������469 s. 1�����������������������������������������������������471 Defence of the Realm Acts (DORA) 1914 & 1939����������������������������������216 Housing Grants, Construction and Regeneration Act 1996����������������������232, 236, 429, 484,.              492, 501 Pt II����������������������������������������������������490 s. 108�������������������������������������������������490 Human Rights Act 1998������������������������447 European Communities Act 1972— s 3(1)��������������������������������������������������447 Unfair Contract Terms 1977�����������������379

Table of Statutory Instruments Civil Procedure Rules 1998, SI 1998/3132 ����������497, 501, 502, 505 Pt. 1�����������������������������������������������������502 rr. 1.1 – 1.3�������������������������������������������502 r. 1.6����������������������������������������������������503 Pt. 24���������������������������������������������������503 Pt. 25���������������������������������������������������503 Pt. 36���������������������������������������������������507 Pre-action Protocol for Construction and Engineering Disputes�������492, 503 s. 5������������������������������������������������������503 para. 1.4��������������������������������������������������502 para. 4�����������������������������������������������������503 Construction (Design and Management) Regulations 2007 (revoked) SI 2007/320�����������������������������������������259

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International Convention on Third Party Liability in the Field of Nuclear Energy, Paris 29 July, 1960 (as amended)���������������� 137 European Convention on Human Rights and Fundamental Freedoms 1950— Art. 6�������������������������������������������������� 503 Geneva Protocol On Arbitration Clauses, 1923 (League of Nations)�������������� 562 ICSID Convention, see Washington Convention— Nuclear Liability Act 2010�������������������� 150 Ottoman Code (The Majalla: Laws of the Ottoman Empire)����������������� 499 Arts. 1530 – 1560������������������������������� 499 Art. 1848�������������������������������������������� 454 Roman law of Justinian’s Corpus Juris Civilis��������������������������������������������� 448 Treaty of Paris 1763������������������������������ 451 Washington Convention: International Centre for Settlement of Investment Disputes (ICSID) Convention, between States and Nationals of Other States 1965��������������������������� 324 UNCITRAL Model Law on International Commercial Arbitration 1985 (amended 2006)������������� 456, 458, 460 Australia City and Suburban Electric Railways (Amendment) Act 1967 (NSW)����� 218 Commercial Arbitration Act 1984 (NSW)�������������������������������������������� 473

Austria Allgemeines Bürgerliches Gesetzbuch Austria (ABGB) 1811�������������������� 449 Canada Quebec Civil Code 1994����������������������� 450 Chile Chilean Civil Code 1855����������������������� 451 Galicia West Galician Code 1797���������������������� 449 France French Revolution, Declaration of the Rights of Man and of the Citizen 1789����������������������������������� 450 Napoleonic Code, Code Civil des Français, (French Civil Code), established under Napoléon I (1804)������������������������������������� 449, 450 New Code of Civil Procedure (NCPC) 1981��������������������������������� 476 Art. 122���������������������������������������������� 476 Art. 1484 – 3��������������������������������������� 475 Art. 1502 – 3��������������������������������������� 475 Germany Bavarian Codex Maximilianeus Bavaricus Civilis 1756������������������������������������ 449 German Code of Civil Procedure— s. 797(a)��������������������������������������������� 474

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Germany, Bürgerliches Gesetzbuch (or BGB) 1900�����������������������449, 450 Prussian Allgemeines Landrecht 1794,�449 Iran Iranian Arbitration Law— Art 33(1)��������������������������������������������457 Netherlands Netherlands, Bürgerliches Gesetzbuch (or BGB) 1900�������������������������������449 Spain Spain, Código Civil�������������������������������449 UK Code D’instruction Criminelle (England) 1836— Art 294�����������������������������������������������450 USA American Society of Civil Engineers (ASCE) Convention, Houston, Texas, Oct 1983 �������������������������������������������������������232 Federal Acquisition Regulation, § 52.236 – 2, Differing Site Conditions (APR 1984). (48 FR 42478, Sept.19, 1983, as amended at 60 FR 34761, July 3, 1995)����������������������������������371

Federal Rules of Civil Procedure 2019— Rule 16, initial amendment���������������496 New York Convention 1958������������������455 Puerto Rican Civil Code (Foraker Act) 1900�����������������������������������������������451 State of Louisiana Civil Code 1825 – 2017���������������������������451 Saudi Arabia Saudi Arbitration Law (SAL) 2012����������������������������456, 458 New Arbitration Regulation (NAR) published 8 June 2012 (Royal Decree No. M/34) effective 7 July 2012 (replacing Arbitration Regulation of 1983 (Royal Decree No. M/46)��������������������������458 Rules for Implementation of Arbitration Regulation 1985 (Ministerial Resolution No. 7/2021/M) (the former law)�����������������������������458 Art 31�������������������������������������������������459

xxxiv

CHAPTER 1

The Underlying Basics Nuclear Energy and Reactors

Before dealing with the issues of contracts, claims and disputes in the construction of nuclear facilities, it is important to understand the history of power generation and where this industry now finds itself. Power generation understandably goes back as far as humans have existed on this planet. From individual muscle power, which then added the use of animals, these sources of power generation stayed much the same until the late eighteenth century – thus it was draught animals leading to the use of nature, e.g. water and water wheels to windmills and then steam engines and then the introduction of fossil fuels took over, leading to coal and later petroleum as the leading sources of power production. The transition from manual labour and animals to steam and wind power was the first major transition to occur to humans, which was quickly followed by the development of the first electric generator1 (which was powered by a coal-driven steam engine) in 1880, and this created Thomas Edison’s electric plant in New York City, which led to the first electric light, to the financial sector and the New York Times. This then led in 1881 to the world’s first hydroelectric plant in Appleton, Wisconsin, in the United States. Then later in that decade petroleum took hold, and by the turn of that century oil was being converted into gasoline, and the internal combustion engine was born. The need was on for more and larger amounts of consistent energy, which after the end of World War II was the peaceful use of nuclear power and its use to produce electricity. Nuclear Power The areas of concern in the nuclear power arena centre around such matters as nuclear fission, radioactivity, reactor designs and the overwhelming need for a safety philosophy. The first of these is nuclear fission and how that works. This can be dealt with on two levels: the simplified explanation and the scientific view. From a simplified view, nuclear fission can be understood by first understanding the atom itself. As we know the atom is considered the smallest unit of matter, so for example a copper atom cannot be broken down into anything smaller and still be copper, and the copper atom, like all atoms, has further subatomic particles. These include the atomic nucleus at its centre, and this has positively charged particles known as protons along with neutral (uncharged) particles known as neutrons. Orbiting the nucleus is what is sometimes referred to as a “cloud” of negatively

1  See e.g. Vaclav Smil, (1994), Energy in World History, Westview Press.

1

the

charged particles called electrons. It is the attraction between the protons (positive charge) and the electrons (negative charge) that keeps the atom intact.2 Further it is the number of protons which tell us which element the atom is, and the electron number gives us the kind of reactions to which the particular atom will be subject. And this leads us to Uranium and Nuclear Energy and the starting point of what is fission. Simply put fission occurs when the nucleus of an atom splits into nuclei of lighter atoms which then causes the release of energy. So, for example in nuclear power plants, neutrons are directed into a sample of the isotope uranium-235 (U-235). The energy from the neutrons causes the uranium nucleus to break in any of a number of different ways. So, when a neutron passes near to a heavy nucleus, for example U-235, the neutron may be captured by the nucleus, and this may or may not be followed by fission. Capture involves the addition of the neutron to the uranium nucleus to form a new compound nucleus. A simple example is U-238 + n → U-239, which represents formation of the nucleus U-239. The new nucleus may decay into a different nuclide. In this example, U-239 becomes Np-239 after emission of a beta particle (electron). But in certain cases the initial capture is rapidly followed by the fission of the new nucleus. Whether fission takes place, and indeed whether capture occurs at all, depends on the velocity of the passing neutron and on the particular heavy nucleus involved.3 This is how the process of nuclear fission starts, and for example when using U-235 in a thermal reactor, when a neutron is captured the total energy is distributed amongst the U-236 nucleons (protons and neutrons) now present in the compound nucleus. This nucleus is relatively unstable, and it is likely to break into two fragments of around half the mass. Creation of these fission fragments is followed almost instantaneously by emission of a number of neutrons (typically 2 or 3, average 2.45), which enable the chain reaction to be sustained. About 85 per cent of the energy released is initially the kinetic energy of the fission fragments.4 However, in solid fuel they can only travel a microscopic distance, so their energy becomes converted into heat. The balance of the energy comes from gamma rays emitted during or immediately following the fission process and from the kinetic energy of the neutrons. Some of the latter are immediate (so-called prompt neutrons), but a small proportion are delayed,5 as these are associated with the radioactive decay of certain fission products. Maintaining a chain reaction – the job of the reactor – is dependent upon this delayed neutron release and the ability to control it so that the reaction is kept exactly in balance, such that the number of neutrons produced in fissions remains constant. This number of neutrons may be completely accounted for by the sum of those causing further fissions, those otherwise absorbed and those leaking out of the system. Under these circumstances the power generated by the system remains constant. To raise or lower the power, the balance must be changed (using the control system) so that the number of neutrons present

2 It should be noted that whilst most atoms have protons, electrons and neutrons only, hydrogen differs with only one proton and one electron and no neutrons. 3 See e.g. Physics of Uranium and Nuclear Energy, World Nuclear Association Press, February 2018. 4 Ibid. 5 The longest delayed neutron group has a half-life of about 56 seconds.

2

t h e U n d e r l yin g B asics

(and hence the rate of power generation) is either reduced or increased. The control system is used to restore the balance when the desired new power level is attained. As will be discussed later in this book, heat generation is a major concern as about 6 per cent of the heat generated in the reactor core originates from radioactive decay of fission products and transuranic elements formed by neutron capture, mostly the former. This must be allowed for when the reactor is shut down, since heat generation continues after fission stops. It is this decay which makes used fuel initially generate heat and hence need cooling, as very publicly demonstrated in the Fukushima accident when cooling was lost an hour after shutdown, and the fuel was still producing about 1.5 per cent of its full-power heat. Even after one year, typical used fuel generates about 10 kW of decay heat per tonne, decreasing to about 1 kW/t after ten years.6 The other issue is that of radioactivity, and the waste that is produced from nuclear reactors leads to just this – radioactive waste. Nuclear power is characterised by the very large amount of energy produced from a very small amount of fuel, and the amount of waste produced during this process is also relatively small. However, much of the waste produced is radioactive and therefore must be carefully managed as hazardous material. All parts of the nuclear fuel cycle produce some radioactive waste, and the cost of managing and disposing of this is part of the design problem and longer term issue – i.e. how do you effectively dispose of radioactive waste that has a half-life of millions of years? For radioactive waste, this means isolating or diluting it such that the rate or concentration of any radionuclides returned to the biosphere is harmless. To achieve this, practically all radioactive waste is contained and managed, with some clearly needing deep and permanent burial.7 There are several types of radioactive waste such as medical waste, but the subject here deals with nuclear fuel – uranium and plutonium. As mentioned earlier concerning this material, each radionuclide has a half-life which is the time it takes for half of its atoms to decay and in the process lose half of their radioactivity: for example plutonium-244, with a half-life of 80.8  million years, followed by plutonium-242, with a half-life of 373,300 years, and plutonium-239, with a half-life of 24,110 years. Then we have uranium, which decays slowly by emitting an alpha particle. The half-life of uranium-238 is about 4.47 billion years, and in comparison, uranium-235 is only 704 million years. Radioactive waste is typically classified as either low-level (LLW), intermediate level (ILW) or highlevel (HLW), dependent, primarily, on its level of radioactivity.8 For the sake of completeness, each of these three types of waste arise as follows: • LLW is generated from hospitals and industry, as well as the nuclear fuel cycle. It comprises paper, rags, tools, clothing, filters, etc., which contain small amounts of mostly short-lived radioactivity. To reduce its volume, LLW is often compacted or incinerated before disposal. LLW comprises some 90 per cent of the volume but only 1 per cent of the radioactivity of all radioactive waste. • ILW typically comprises resins, chemical sludges and metal fuel cladding, as well as contaminated materials from reactor decommissioning. Smaller items 6  See e.g. Physics of Uranium and Nuclear Energy, World Nuclear Association Press, February 2018. 7  Ibid. 8  Ibid.

3

t h e U n d e r l yin g B asics

and any non-solids may be solidified in concrete or bitumen for disposal. It makes up some 7 per cent of the volume and has 4 per cent of the radioactivity of all radioactive waste. • HLW arises from the “burning” of uranium fuel in a nuclear reactor. HLW contains the fission products and transuranic elements generated in the reactor core. HLW accounts for just 3 per cent of the volume, but 95 per cent of the total radioactivity of produced waste. There are two distinct kinds of HLW: • Used fuel that has been designated as waste. • Separated waste from reprocessing of used fuel. HLW has both long-lived and short-lived components, depending on the length of time it will take for the radioactivity of particular radionuclides to decrease to levels that are considered non-hazardous for people and the surrounding environment. If generally short-lived fission products can be separated from long-lived actinides, this distinction becomes important in management and disposal of HLW. Needless to say, it is HLW that is the focus of significant attention regarding nuclear power and necessitates the most caution. This then leads to the types of reactor designs. Reactor Types and Designs The various types and designs of nuclear reactors basically revolve around the control of fission and the prevention of radiation leakage  – and disaster. At the basic level discussed earlier, in a reactor to initiate fission, a high-energy neutron is directed towards a nucleus, such as U-235. The combination of these two produces U-236U, which is an unstable element that undergoes fission. The resulting fission process often releases additional neutrons, which can go on to initiate other U-235 atoms, forming a chain reaction. Normally fission of U-235 nuclei releases between two to three neutrons with one of these being needed to maintain the ongoing chain reaction at a controlled level and the others leaking from the core or being absorbed in non-fission reactions. The “power output”9 is adjusted/controlled by inserting or withdrawing neutron absorbing control rods (which normally contain cadmium and/or boron) into the actual fuel assembly. When they are slightly withdrawn from their position at criticality, the number of neutrons available for ongoing fission exceeds unity (i.e. criticality is exceeded) and the power level increases. When the power reaches the desired level, the control rods are returned to the critical position and the power stabilises.10

The ability to control the chain reaction is entirely due to the presence of the small proportion of delayed neutrons arising from fission. Without these, any change in   9  Ibid. 10  Ibid.

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t h e U n d e r l yin g B asics

the critical balance of the chain reaction would lead to a virtually instantaneous and uncontrollable rise or fall in the number of neutrons thus increasing the potential for a disaster. Thus, the safe design and operation of a reactor needs very strict limits on the extent to which departures from “criticality are permitted” and these limits need to be in the overall design of the reactor. This “balance” is necessary for whilst fuel is being burned in the reactor, it is gradually accumulating fission products and transuranic elements, which cause additional neutron absorption, and accordingly the design of the control system has to take into account and allow for compensation for this increased absorption. When the fuel has been in the reactor for three years or so, this build-up in absorption, along with the metallurgical changes induced by the constant neutron bombardment of the fuel materials, requiring replacement of the fuel. This effectively limits the burn-up to about half of the fissile material, and the fuel assemblies must then be removed and replaced with fresh fuel. Fuel life can be extended by use of burnable elements such as gadolinium, the effect of which compensates for the build-up of neutron absorbers. Reactor design, as will be discussed later, has to take into account the “moderator material” used slow the neutrons released in fission as these are initially quite fast11 with fission in, say, U-235 being caused by slower neutrons.12 As one writer put it, “moderator material comprising light atoms thus surrounds the fuel rods in a reactor. Without absorbing too many, it must slow down the neutrons in elastic collisions (compare it with collisions between billiard balls on an atomic scale)”.13 In a reactor using natural (unenriched) uranium, the only suitable moderators are graphite and heavy water (these have low levels of unwanted neutron absorption). With enriched uranium (i.e. increased concentration of U-235), ordinary (light) water may be used as moderator.14 Controlling the chain reaction is essential in any reactor, and different methods can and are used, such as adding small amounts of boron to the cooling water and then reducing its concentration as other neutron absorbers build up in the fuel elements.15 Also reactors are usually designed to have negative temperature and void coefficients so that should the temperature reach above its normal operating level, or if boiling should occur beyond an acceptable level, the balance of the chain reaction is affected so as to reduce the rate of fission and hence reduce the temperature. Another way is to take advantage of the Doppler effect, where U-238 absorbs more neutrons as the temperature rises, thereby pushing the neutron balance towards subcritical. Or in light water reactors, which can be designed so that the formation of steam within the water moderator will reduce its density and hence its moderating effect, and this again will help bring the neutron balance back to subcritical.16

11  Velocity about 109 cm/sec, or energy above 1 MeV. 12  Velocity about 105 cm/s, or energy about 0.02 eV. 13  See Physics of Uranium and Nuclear Energy, World Nuclear Association Press, February 2018. 14  Water is also commonly used as a coolant, to remove the heat and generate steam. 15  In an emergency situation provision is made for rapidly adding an excessive quantity of boron to the water. 16  It is interesting to note that in naval reactors such as submarines where fuel change is more difficult the fuel is enriched to higher levels initially, neutron absorbers are incorporated, and the initial fuel load may last the life of the vessel. Hence as the fission products and transuranic elements accumulate, these are depleted, and the two effects tend to cancel one another out.

5

t h e U n d e r l yin g B asics

Nuclear Reactor Systems Currently the six main types of nuclear reactors include the following: • BWR or Boiling Water Reactor • PWR or Pressurised Water Reactor • PHWR or Pressurised heavy Water Reactor • GCR or Gas Cooled Reactor • ACR or Advanced Gas Cooled Reactor • LGR or Light Water Cooled – Graphite Moderated Reactor There is another type which still may be encountered, and that is what is referred to as the Magnox reactor, which was built in the UK from 1956 until 1971. It, along with the AGR type, is based upon the early reactor, designs that were graphite moderated and gas cooled. The Magnox reactor’s name comes from the magnesium alloy used to encase the fuel which was uranium. In that particular reactor, the uranium fuel having been converted into rods was encased in Magnox cans and placed into vertical channels in the reactor core, which was made of graphite blocks. The necessary “strong neutron absorbers” needed to control the reaction were in adjacent further vertical channels and inserted/withdrawn to control/adjust the rate of fission as discussed earlier and the resulting heat produced by the reaction. The cooling of this whole system was accomplished by carbon dioxide gas being blown past the fuel cans, thus transferring the heat and preventing disaster. The process then moved forward by having the hot gas converting water into steam via a steam generator with electricity a result. Initially this was all done using a “steel pressure vessel surrounded by a thick radiation shield”.17 As time moved on this turned into a dual-purpose concrete pressure vessel, and radiation shield was used, and then to improve costs for this type of reactor the designs led to higher temperatures to achieve higher thermal efficiencies and higher power densities to reduce capital costs. This entailed increases in cooling gas pressure and changing from Magnox to stainless steel cladding and from uranium metal to uranium dioxide fuel. This in turn led to the need for an increase in the proportion of U-235 in the fuel. The resulting design, known as the Advanced Gas-Cooled Reactor, or AGR, which still uses graphite as the moderator, and, as in the later Magnox designs, the steam generators and gas circulators were placed within a combined concrete pressurevessel/radiation-shield. It should be noted that a variation of all this is found in the CANDU type reactor.18 CANDU stands for Canada Deuterium Uranium, because it was invented in Canada, and uses deuterium oxide (also known as heavy water) as a moderator, and uranium as a fuel. CANDU reactors are unique in that they use natural, unenriched uranium as a fuel; with some modification, they can also use enriched uranium, mixed fuels and even thorium. Thus, CANDU reactors are ideally suited for using material from decommissioned nuclear weapons as fuel, helping to reduce global arsenals.19

17  See e.g. Nuclear Reactor Types, The Institution of Electrical Engineers bulletin, November 2005. 18  Ibid. 19  See Canadian Nuclear Association, http://cna.ca/technology/energy/candu-technology/.

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t h e U n d e r l yin g B asics

Different Types of Advantages and Disadvantages In the BWR or Boiling Water Reactor, the water passes over the reactor core thus acting as a moderator and coolant, and it also then becomes the steam source for the turbine from which electricity is generated. The disadvantage here is that any fuel leak will make the water radioactive, which would then reach the turbine and contaminate the rest of the system. Further the operating temperature is such that its efficiency is only about 42 per cent with a practical operating efficiency of around 32 per cent, which is less than the Pressurised Water Reactor which is discussed next. In a PWR or Pressurised Water Reactor again the water passing over the core acts a moderator and coolant but does not flow into the turbine. Instead it is sent into a pressurised “primary loop”, which produces steam in the secondary loop, which then drives the turbine thus preventing any leakage passing radioactive contaminants to the turbine or condenser. This type of reactor also operates at higher pressure and temperature, giving a higher efficiency than the BWR. Then in the PHWR or Pressurised Heavy Water Reactor, which is also known as the CANDU, are heavy water and moderated Pressurised Water reactors. Here fuel is contained in hundreds of pressure tubes rather than in a single large pressure vessel, and most interestingly the fuel is natural uranium and are considered thermal neutron reactor designs since they can be refuelled at full power their use of uranium is very efficient. GCR or Gas Cooled Reactors (Magnox), as discussed earlier, have magnesium alloy encasing the natural uranium fuel and can have high thermal efficiency compared with PWRs due to their higher operating temperatures. AGR or Advanced Gas-Cooled Reactors resulted from the desire to achieve greater cost effectiveness by going to higher temperatures which resulted in increased cooling gas pressure and a change from uranium to uranium dioxide fuel and the need for an increase in the proportion of 235-U in the fuel. LGR or Light Water Cooled-Graphite Moderated Reactors allow for reactor heat being removed from the fuel area by pumping pressurised water up and into and through the channels where after boiling, the steam generated then drives the turbines. This type of design is also referred to as an RBMK Reactor. The future Currently there are about 450 nuclear power reactors operating in 30 countries. About 50 power reactors are currently being constructed in 15 countries (see Table 1.1), notably China, India, Russia and the United Arab Emirates. It is of interest to note that 40 years ago in the 1980s, 218 power reactors started up, an average of one every 17 days. These included 47 in the USA, 42 in France and 18 in Japan. These were fairly large – the average rated power was 923.5 MWe. With China’s and India’s nuclear sectors growing, it is not hard to imagine a similar rate of reactor construction in the years ahead. Indeed over 100 power reactors with a total gross capacity of about 120,000 MWe are on order or planned, and over 300 more are proposed. Most reactors currently planned are in the Asian region, with fast-growing economies and rapidly rising electricity demand. Many countries with existing nuclear power programmes either have plans to build or are building, new power reactors. Currently about 30 countries are considering, planning or starting nuclear power programmes, and the reactors under construction as of the time of this writing are as shown in Table 1.1. 7

t h e U n d e r l yin g B asics

Table 1.1  Nuclear Power reactors under construction20 Start †1 2019

Belarus, BNPP

Reactor

Model

Ostrovets 1

VVEr-1200

Gross MWe 1194

2019

China, CgN

Fangchenggang 3

hualong One

1180

2019

China, CgN

Hongyanhe 5

ACPR-1000

1119

2019

China, CgN

Yangjiang 6

ACPR-1000

1086

2019

China, CNNC

Fuqing 5

hualong One

1150

2019

China, China Huaneng

Shidaowan

HTR-PM

2019

Finland, TVO

Olkiluoto 3

EPR

1720

210 1400

2019

Korea, KHNP

Shin hanul 1

APr1400

2019

Russia, Rosenergoatom

Pevek FNPP

KlT40S x 2

70

2020

Belarus, BNPP

Ostrovets 2

VVEr-1200

1194

2020

China, CgN

Hongyanhe 6

ACPR-1000

1119

2020

China, CgN

Fangchenggang 4

hualong One

1180

2020

China, CNNC

Tianwan 5

ACPR-1000

1118 1150

2020

China, CNNC

Fuqing 6

hualong One

2020

China, CgN

Bohai shipyard

ACPr50S

60

2020

India, Bhavini

Kalpakkam PFBR

FBR

2020

Japan, Chugoku

Shimane 3

ABWr

1373

500

2020

Korea, KHNP

Shin hanul 2

APr1400

1400

2020

Russia, Rosenergoatom

leningrad II-2

VVEr-1200

1170

2020

Slovakia, SE

Mochovce 3

VVEr-440

2020

UAE, ENEC

Barakah 1

APr1400

2021

Argentina, CNEA

Carem25

Carem

2021

China, CNNC

Tianwan 6

ACPR-1000

1118

2021

Pakistan

Karachi/KANUPP 2

ACP1000

1100

2021

Slovakia, SE

Mochovce 4

VVEr-440

2021

UAE, ENEC

Barakah 2

APr1400

1400

471 1400 29

471

2021

USA, Southern

Vogtle 3

AP1000

1250

2022

France, EDF

Flamanville 3

EPR

1650

2022

India, NPCIl

Kakrapar 3

PhWr-700

700

2022

India, NPCIl

Kakrapar 4

PhWr-700

700

2022

India, NPCIl

Rajasthan 7

PhWr-700

700

2022

India, NPCIl

Rajasthan 8

PhWr-700

700

2022

Pakistan

Karachi/KANUPP 3

ACP1000

1100

2022

Russia, Rosenergoatom

Kursk II-1

VVEr-TOI

1255

2022

UAE, ENEC

Barakah 3

APr1400

1400

20 Courtesy of World Nuclear Association, 2019.

8

the U nderlying B asics

Start †1

 

Reactor

Model

2022

USA, Southern

Vogtle 4

AP1000

2023

Bangladesh

Rooppur 1

VVER-1200

1200

2023

China, CNNC

Xiapu 1

CFR600

 600

2023

Korea, KHNP

Shin Kori 5

APR1400

1400

2023

Russia, Rosenergoatom

Kursk II-2

VVER-TOI

1255

2023

Turkey

Akkuyu 1

VVER-1200

1200

2023

UAE, ENEC

Barakah 4

APR1400

1400

2024

Bangladesh

Rooppur 2

VVER-1200

1200

2024

Korea, KHNP

Shin Kori 6

APR1400

1400

2025

India, NPCIL

Kudankulam 3

VVER-1000

1050

2025

UK, EDF

Hinkley Point C1

EPR

1720

2026

India, NPCIL

Kudankulam 4

VVER-1000

1050

2026

Japan, EPDC

Ohma 1

ABWR

1383

†1

Latest announced/estimated year of commercial operation

9

Gross MWe 1250

CHAPTER 2

Nuclear Energy Engineering and Contracts Overview

The various types of nuclear reactors as described in Chapter 1 all have one thing in common, and that is that they generate heat which must be controlled, and the failure to compensate and correct for this heat can be the cause of a major disaster. It is good at this point to use a “real world” example, and the one notable one is Japan’s Fukushima Daiichi Nuclear Power Station. On 11 March  2011 Japan suffered a magnitude 9 earthquake which was followed in short order by an unprecedentedly severe tsunami, which together caused widespread devastation across large parts of Japan and resulted in the loss of 15,391 lives, with an additional 8,171 missing. Further damage and loss included whole towns/villages being destroyed or simply swept away. This combination of earthquake and tsunami also affected several of Japan’s nuclear power facilities: Tokai Daini, Higashi Dori, Onagawa and TEPCO’s Fukushima Daiichi and Daini. The nuclear reactors at these facilities were successfully shut down as the earthquake hit and was detected by the automatic shutdown systems installed. Following the shutdown, all available emergency diesel generator power systems also went into operation, as per design.1 In Japan it was found that whilst the large tsunami waves affected each nuclear facility to varying degrees, the most serious consequences were at the Fukushima Daiichi plant. Here the waves reached the site about 46 minutes after the earthquake hit. The larger of these was estimated to be over 14 m high. Indeed, it was so large that it overwhelmed the facility defences, which had been designed to withstand a maximum flood level of only 5.7 m. It reached areas deep within the units, causing the loss of all except one emergency diesel generator (6B), leaving the facility in a total blackout condition, with no other significant power source available either on site or off site and little hope of prompt outside assistance. To complicate matters the station blackout also meant the loss of all power to the emergency core cooling systems designed to remove decay heat from the reactor core after shutdown. The large magnitude 9 earthquake had also severely damaged the emergency cooling piping, taking the system de facto out of commission. In addition, even the postaccident monitoring instrumentation and control systems at reactors 1–4 were touched by the earthquake, which affected their reliability. Under these conditions, the reactors overheated and eventually underwent partial core meltdown, which damaged their reactor vessel, from which radioactive material and contaminated water leaks were released into 1  See e.g. Project Management in Nuclear Power Plant Construction: Guidelines and Experience, International Atomic Energy Agency, Nuclear Energy Series No. NP-T-2.7, IAEA, Vienna (2012).

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the environment. In addition, large quantities of hydrogen produced by the meltdown induced explosions that damaged the outer shell of two of the reactor buildings, exposing their containment structures.2 At the same time, the fuel in the spent fuel pools also lacked cooling and power, resulting in overheating of the fuel bundles and consequent evaporation of the fuel submerging liquid, eventually exposing the bundles, which sustained severe fuel failures contributing to the radioactive releases into the environment. The only surviving emergency diesel 6B in unit 6 provided shared emergency power to the spent fuel pools of units 5 and 6. The reactors in those units were defueled at the time of the accident; hence they required no emergency cooling. The reasons for this discussion of Fukushima lie in its design and backup systems, and that is the subject of this chapter. Indeed in Fukushima the sections most affected were those related to the pre-construction phase, when the final safety analysis report and the plant technical specification are finalised, the licensing parameters are fixed, including the maximum design flood levels, the site-specific detail engineering is completed, the evacuation routes are traced, the designs of the emergency generators, of the administrative and engineering support buildings and other facilities are finalised, the excavation plans are completed, the intake and discharge canals are laid out, the design of the emergency cooling pumping station and its structures and components is finalised.3 The reason for this can be seen in a review of the sequence of events at Fukushima. The magnitude 9.0 earthquake, was centred in the Pacific Ocean about 80 kilometres east of the city of Sendai, and that set a powerful tsunami in motion.4 This was the largest earthquake ever recorded in Japan and, according to the United States Geological Survey, the fourth largest recorded worldwide since 1900.5 Three of the six reactor units at Fukushima Daiichi Nuclear Power Station (units 1, 2 and 3) were operating at the time. When the earthquake hit, these units automatically “scrammed”, that is, control rods were inserted into the reactor cores to suppress nuclear fission. Nonetheless, the reactors still required cooling – as all reactors do immediately after shutdown, since the highly radioactive material accumulated during operation continues to decay and produce heat. With the reactor shut down and the plant no longer generating electricity, the postshutdown cooling systems at the Fukushima Daiichi reactors, like at all currently operating power reactors, required an alternative electricity supply (although there was one system in each reactor that did have limited functionality in the absence of a power supply).6

2  Ibid. 3  Ibid. 4  The description of the accident presented in this section is largely drawn from the IAEA report on Fukushima, except where otherwise stated. IAEA, IAEA International Fact Finding Expert Mission of the Fukushima Daiichi NPP Accident Following the Great East Japan Earthquake and Tsunami, June  16, 2011, www-pub.iaea.org/ MTCD/meetings/PDFplus/2011/cn200/documentation/cn200_Final-Fukushima-Mission_Report.pdf. 5  US Geological Survey, Largest Earthquakes in the World Since 1900,  https://www.usgs.gov/naturalhazards/earthquake-hazards/science/20-largest-earthquakes-world?qt-science_center_objects=0#qt-science_ center_objects. 6  The systems with limited functionality in the absence of power were an isolation condenser (in unit 1) and a reactor core isolation cooling (RCIC) system (in units 2 and 3). An isolation condenser takes steam from the

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Because all six external power lines from Japan’s grid to the plant were destroyed by the earthquake, the on-site emergency diesel generators began operating. With electricity still available, cooling appeared to proceed normally in units 2 and 3 before the tsunami arrived. In unit 1, the temperature and pressure of the core dropped unexpectedly quickly. In order to avoid damage to the reactor vessel and in keeping with the plant’s operating procedure, operators turned the emergency cooling system on and off repeatedly to slow the rate of cooling. The system happened to be disabled at the time; all electrical power to the plant was lost following the tsunami.7 Had it been operating; the subsequent accident sequence may have unfolded more slowly at unit 1.8 About 45 minutes after the earthquake, the station was inundated by a series of tsunami waves that caused serious damage. Eleven of the 12 emergency diesel generators in service at the time failed (one connected to unit 6 worked) as they required water cooling, which was no longer possible because the tsunami had destroyed the seawater pumps. This resulted in the complete loss of AC power from both internal and external sources for units 1–5, a situation that is known as a station blackout. The plants were equipped with DC batteries to compensate for the station blackout; however, the batteries in units 1 and 2 were flooded and rendered inoperable. The batteries in unit 3 continued to function for about 30 hours – far beyond their eight-hour design life. In addition, the power distribution buses that would have allowed an external power source to be connected to the plant were also swamped and extensively damaged.9 The seawater pumps and their motors, which were responsible for transferring heat extracted from the reactor cores to the ocean (the so-called ultimate heat sink) and also for cooling most of the emergency diesel generators, were built at a lower elevation than the reactor buildings. They were flooded and completely destroyed. Thus, even if electricity had been available to drive the emergency cooling systems, there would have been no way of dissipating the heat. Over the next three days, one by one, the three reactors that had been operating when the earthquake struck lost core cooling capability, resulting in a loss of coolant accident: without cooling, the water in the reactor pressure vessels boiled, uncovering the fuel, which subsequently melted. In this situation, there was a risk that the “corium” (the molten mix of fuel and reactor components) could burn through the steel reactor pressure vessel

reactor core, passes it through a tank of water to cool and condense it, and then feeds it back as water into the reactor pressure vessel. The flow is gravity driven (i.e. no pumps are needed). The system in unit 1 had a thermal capacity of about eight hours. RCICs use steam from the core to drive a turbine and pump that replenishes the water in the pressure vessel. Although electricity is not required to drive pumps in either an isolation condenser or an RCIC, it is needed for instrumentation and to open and close the valves used for control. Moreover, RCICs will only function if the steam is above a certain pressure. In addition to an IC or RCIC, all units at Fukushima Daiichi contained various cooling systems that did require electricity. One of these, the HPCI (high-pressure coolant injection) system was activated in unit 3 (where some battery power was available) after the RCIC in that unit had failed. 7  Institute of Nuclear Power Operators (INPO), Special Report on the Nuclear Accident at the Fukushima Daiichi Nuclear Power Station, INPO 11–005, revision 0, November  2011, https://www.world-nuclear.org/ information-library/safety-and-security/safety-of-plants/fukushima-daiichi-accident.aspx, 14. 8  According to one experienced nuclear power regulator, the fail-safe position for the relevant valves was closed, i.e., the isolation condenser was designed to be disabled in the event that control of the valves was lost. In this case, the state of the valves just prior to station blackout may have been immaterial. Personal communication, February 2012. 9  TEPCO, Fukushima Daiichi Nuclear Power Station: Response After the Earthquake, June 18, 2011, www. tepco.co.jp/en/press/corp-com/release/betu11_e/images/110618e15.pdf, 4.

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and the concrete and steel primary containment vessel into the earth below, thus increasing the likely quantity of radiation released into the environment. Simulations by the plant’s owner, Tokyo Electric Power Company (TEPCO), performed with extremely conservative assumptions, suggest that even in the absolute worst case where corium burned through the reactor pressure vessels in all three of the damaged units at Fukushima Daiichi, it would not have completely penetrated the containment (although in unit 1 it could have come within 37 centimetres, or 15 inches, of the outer steel lining).10 Other simulations suggest that although fuel may have melted and collected at the base of the pressure vessel, it did not burn through.11 It bears emphasising, however, that the exact extent of the damage will only be known when the pressure vessels and primary containments can be observed directly, several years from now. A large quantity of radioactivity from the damaged fuel escaped into the environment. As cooling water evaporated and turned into steam, pressure inside the primary containment grew, creating leaks that allowed radiation to escape. More radiation was deliberately released when, after some delays, workers “vented” the containments to try to reduce the internal pressure. Yet more radiation was released by a series of explosions that occurred in the reactor buildings of units 1, 3 and 4 in the four days following the tsunami. As the reactors overheated and the fuel melted, highly flammable hydrogen was generated (mostly by a reaction between steam and zirconium “cladding” that surrounds the fuel). It built up in the reactor buildings of units 1 and 3 before eventually exploding. Hydrogen may also have caused an explosion in unit 4 after it migrated there from unit 3 along their common venting system.12 In its June 2011 report to the IAEA explaining the accident, the Japanese government estimated that the quantity of radiation released into the atmosphere by the accident was about 15 per cent of the radiation released from Chernobyl. That accident resulted in the permanent evacuation of over 200,000 people and is ultimately likely to result in thousands of “excess” cancer cases.13 For many days, Soviet authorities were unable to prevent the uninterrupted release of large amounts of radiation after a severe explosion inside the reactor core directly exposed its burning fuel to the environment. By contrast, at Fukushima considerably more of the fuel inventory in the cores was contained, and Japanese authorities were able to far more quickly and effectively limit the accident’s impact on human health. In any case, the quantity of radiation released by the Fukushima accident has proved controversial, and estimates may change as more information becomes available. A much smaller quantity of radiation was released into the Pacific Ocean, most of it in the form of overflow of contaminated water that had been used to cool the reactors.

10  Justin McCurry, Fukushima Fuel Rods May Have Completely Melted, Guardian, December  2, 2011, https://www.theguardian.com/world/2011/dec/02/fukushima-fuel-rods-completely-melted. 11  INPO, “Special Report on the Nuclear Accident at the Fukushima Daiichi Nuclear Power Station,” 9–10. 12  TEPCO, Fukushima Nuclear Accident Analysis Report, summary of interim report, December 2, 2011, www.tepco.co.jp/en/press/corp-com/release/betu11_e/images/111202e13.pdf, 10. 13  This includes 1.6×1017 Bq of I-131 and 1.5×1016 Bq of Cs-137 leading to a total emission of 7.6×1017 Bq I-131 equivalent. By comparison, the total emission from Chernobyl was 5.2×1018 Bq I-131 equivalent. Nuclear Emergency Response Headquarters, Government of Japan, Report of the Japanese Government to the IAEA Ministerial Conference on Nuclear Safety: The Accident at TEPCO’s Fukushima Nuclear Power Stations, June 2011, https://www.iaea.org/report-japanese-government-iaea-ministerial-conference-nuclear-safety-accidenttepcos-fukushima-nuclear-power-stations, VI–1.

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Many writers14 including this one feel that if the plant’s owner, Tokyo Electric Power Company (TEPCO), and Japan’s regulator, the Nuclear and Industrial Safety Agency (NISA), had followed international best practices and standards, the possibility of the plant being struck by a massive tsunami could have been predicted. But most importantly is the fact that this plant would have withstood the tsunami had its design previously been upgraded in accordance with then state-of-the-art safety approaches. The methods used by TEPCO and NISA to assess the risk from tsunamis lagged behind international standards in at least three important respects:15 the first being that commentators have noted that insufficient attention was paid to evidence of large tsunamis inundating the region surrounding the plant about once every thousand years. The second was that computer modelling of the tsunami threat was inadequate and that importantly, preliminary simulations conducted in 2008 suggesting the tsunami risk to the plant had been seriously underestimated were not followed up and were only reported to NISA on March 7, 2011. Finally, it was found that NISA failed to review simulations conducted by TEPCO and to foster the development of appropriate computer modelling tools. At the time of the accident, critical safety systems in nuclear power plants in some countries, especially in European states, were – as a matter of course – much better protected than in Japan. Following a flooding incident at Blayais Nuclear Power Plant in France in 1999, European countries significantly enhanced their plants’ defenses against extreme external events. Japanese operators were aware of this experience, and TEPCO could and should have upgraded Fukushima Daiichi.16 It is in the design of such facilities where the designers could have taken the necessary steps that could have prevented a major accident in the event that the plant was inundated by a massive tsunami, and these include such design items as protecting emergency power supplies, including diesel generators and batteries, by moving them to higher ground or by placing them in watertight bunkers (so that in the event of inundation they would remain in operation) and/or by designing watertight connections between emergency power supplies and key safety systems and importantly, enhancing the protection of seawater pumps (which were used to transfer heat from the plant to the ocean and to cool diesel generators) and/or constructing a backup means to dissipate heat. A most important factor in all of this is the design and implementation of that design and to not set aside the possibility that a severe accident was very much possible particularly in an area prone to large earthquakes and tsunamis. It is interesting to note that the Fukushima accident does not reveal a previously unknown fatal flaw associated with nuclear power. Rather, it underscores the importance of periodically re-evaluating plant safety in light of dynamic external threats and of evolving best practices, as well as the need for an effective regulator to oversee this process.17 Worldwide the majority of “nuclear-capable” countries are members of the International Atomic energy Agency (IAEA) and these include:

14  See e.g. Why Fukushima Was Preventable, Paper by James M. Acton and Mark Hibbs, Carnegie Endowment for International Peace, March 6, 2012. 15  Ibid. 16  Ibid. 17  Ibid.

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AFghANISTAN AlBANIA AlgErIA ANgOlA ArgENTINA ArMENIA AUSTrAlIA AUSTrIA AZErBAIJAN BAhrAIN BANglAdESh BElArUS BElgIUM BElIZE BENIN BOlIVIA BOSNIA ANd hErZEgOVINA BOTSWANA BrAZIl BUlgArIA BUrKINA FASO BUrUNdI CAMBOdIA CAMErOON CANADA CENTrAl AFrICAN rEPUBlIC CHAD ChIlE ChINA COlOMBIA CONgO COSTA rICA COTE d’IVOIrE CrOATIA

ghANA grEECE gUATEMAlA hAITI hOlY SEE hONdUrAS hUNgArY ICElANd INdIA INdONESIA IrAN, ISlAMIC rEPUBlIC OF IrAQ IrElANd ISrAEl ITAlY JAMAICA JAPAN JOrdAN

NIgEr NIgErIA NOrWAY OMAN PAKISTAN PALAU PANAMA PArAgUAY PERU PhIlIPPINES POlANd POrTUgAl QATAr rEPUBlIC OF MOldOVA rOMANIA rUSSIAN FEdErATION

SAUdI ArABIA SENEgAl KAZAKhSTAN SErBIA KENYA SEYChEllES KOrEA, rEPUBlIC OF SIErrA lEONE KUWAIT SINgAPOrE KYrgYZSTAN SlOVAKIA lAO PEOPlE’S dEMOCrATIC SlOVENIA rEPUBlIC SOUTh AFrICA lATVIA SPAIN lEBANON SrI lANKA lESOThO SUdAN lIBErIA SWEdEN lIBYA SWITZErlANd lIEChTENSTEIN SYrIAN ArAB rEPUBlIC lIThUANIA TAJIKISTAN lUXEMBOUrg ThAIlANd MAdAgASCAr ThE FOrMEr YUgOSlAV rEPUBlIC OF MAlAWI MACEdONIA 16

nuc l ea r E ne r g y E n g inee r in g A n d C ont r acts

CUBA CYPrUS CZECh rEPUBlIC dEMOCrATIC rEPUBlIC OF ThE CONgO DENMARK dOMINICAN rEPUBlIC ECUAdOr EgYPT El SAlVAdOr ErITrEA

MAlAYSIA MAlI MALTA MArShAll ISlANdS MAUrITANIA

TUNISIA TURKEY UgANdA UKrAINE UNITEd ArAB EMIrATES

MAUrITIUS MEXICO

UNITEd KINgdOM OF grEAT BrITAIN ANd NOrThErN IrElANd

MONACO MONgOlIA MONTENEgrO MOrOCCO

UNITEd rEPUBlIC OF TANZANIA

ESTONIA EThIOPIA FINlANd FRANCE gABON gEOrgIA gErMANY

MOZAMBIQUE MYANMAR NAMIBIA NEPAL NEThErlANdS NEW ZEAlANd NICArAgUA

UNITEd STATES OF AMErICA UrUgUAY UZBEKISTAN VENEZUElA VIETNAM YEMEN ZAMBIA ZIMBABWE

The IAEA based in Vienna publishes safety standards and procedures that are binding on the IAEA for its own programmes, with the users being the regulatory bodies in the various Member States and other national authorities.18 As mentioned earlier this book is written for construction lawyers and those they advise and is meant to deal with the issues surrounding the design, construction and contract administration for the building of nuclear power plants and any disputes which may arise as a result. Nuclear power plants follow several distinct phases starting with the initial signing of the contract between the national entity (the government agency involved) and the contractor(s) who will complete the project. Usually these projects are of the design-build variety, and some are of the design-build-operate variety (all of which are discussed in greater detail later in this book). These phases however can be delineated in order as follows: • Initial Contract between the national entity and the contractor (design-build, etc.) • Engineering of the project • Procurement • Construction and the attendant contract administration • Commissioning 18  See www.iaea.org.

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Any disputes which may arise are usually dealt with in the segment of the preceding process in which they fall, and at the conclusion of the project comes the actual successful operation of the facility. The IAEA defines “success” as “completing the project with the specified quality, and within budget and schedule”.19 From this author’s experience one of the most critical aspects for success is to have a full, complete and coordinated programme well in place which acts as the bedrock for the rest of the project. The legal world is full of nightmares involving projects that have started without a fully developed programme or one that “will be developed as time goes on”, and both of these generally lead to disaster: financial in terms of the business of construction, and in the case of nuclear projects disaster takes on a much larger deadly connotation. The preliminary steps are as follows: Preliminary steps Strong Underlying policies A critical element to be completed before anything happens is to ensure that the government entity has strong policies, procedures and a culture of rigorous attention to safety in both the design and execution of any project. Programme Coordination Having strong underlying policies is just the start for there must be a system in place to coordinate the various programmes across all participants and to make sure a common goal is sought and that the pathway there is uniformly agreed at inception. What this means is that the various parties to the project, e.g. the ultimate licensee, vendors, contractors and subcontractors, are all in sync and programmed accordingly. Who watches and controls all of this must be, at a minimum, a small committee headed by a strong chair so that any discrepancies in programme or execution can be caught early and corrected before the entire programme becomes dysfunctional. Design Then based upon the programme, the design process can begin and must be followed to also ensure that the end goal is being achieved and that both time and budget are being adhered to. In most design-build situations this means extra careful coordination between the contractor and the owner or employer on the project, remembering that whilst there may be a design budget agreed at the inception, the issue always arises that the contractor’s goal is to make a profit and that can come, on occasion, at the cost of the owner/employer. Further inherent in the design process is the determination of type of reactor, the longterm costs of the various design types and the construction methods that are available.

19 Ibid.

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Another major factor that should be inherent in any design for a NPP is decommissioning and a design that can be readily implemented when the time comes. Risk Management In addition to the items just mentioned, the one which is most urgent at the start of any Nuclear Power Project (NPP) has to do with the determination of risk and its management, the type of contracts to use and a fair allocation for risk between the participants. Risk management (which is covered in greater detail later in this book) in the construction project management context is a comprehensive and systematic way of identifying, analysing and responding to risks to achieve the project objectives – on time and on budget, i.e. no delay and no cost overruns. But what is Risk? Simply put “Risk” or “Risks” are any event or situation which probably occurs during the lifetime of a project or contract that has potential consequences of damage, injury and/or financial loss or loss of time. It is the loss of time that is the issue for delay, and this can result from either or both of the first two items. “Risk” is also defined as “the chance of an adverse event depending on the circumstances.”20 The impact of a risk can be measured as the likelihood of a specific unwanted event and its unwanted consequences or loss, and for the mathematically minded, the formula is as follows: RI = L × C, where: RI = risk impact; L = likelihood; and C = consequence. According to many writers21 risk and uncertainty are part of all construction work regardless of the size of the project. Other factors that carry risk include: complexity, speed of construction, location of the project and familiarity with the work. When serious risks occur on projects the effects can be very damaging. In extreme cases, time and cost overruns turn a potentially profitable project into a loss-making venture. Research22 has shown that cost and time targets are often missed due to unforeseen events that even an experienced project manager cannot anticipate. These events are known in advance, but their extent could often not be quantified. For example, industrial disputes, delayed decisions, or changed ground conditions may all be anticipated, but their likelihood and impact are hard to predict with any precision as no two construction projects are the same; this makes it important to identify risk sources for each project.23 Indeed it may be useful to group risks according to simple measures of their probability and likely impact, by focusing on what is important and the action which controls risk.24 However, the outcome can always be unexpected, as costs may be less than anticipated, the weather may be kind, revenues may exceed expectation. Therefore, risks can sometimes be viewed as beneficial as long as they are allowed for. Indeed, it is the role of a construction manager to manage risk on behalf of the building client and in return derive income or profit from the project. 20  Mills A., A Systematic Approach to Risk Management for Construction, St Surv 2001, 19(5), 245–252. 21  See e.g. Hayes, R., Perry, J. and Thompson, J. (1986), Risk Management in Engineering Construction: A Guide to Project Risk Analysis and Risk Management, Thomas Telford, London. 22 Ibid. 23  Ibid. and also see e.g. Godfrey, P. (1996), Control of Risk: A Guide to the Systematic Management of Risk from Construction, Construction Industry Research and Information Association, London. 24  Ibid. at ftn 2.

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nuc

INSURED COSTS Employer’s liability Third-party liability Corporate liability Property damage

$1

UNINSURED COSTS Product and material damage Plant and building damage Tool and equipment damage Legal costs Expenditure on emergency supplies Clearing site Production delays Overtime work and temporary labour Investigation time Supervisors time & Clerical effort Fines Loss of expertise/experience

$11

Figure 2.1  Indirect and Uninsured Risks

Risk Measurement The likelihood, or the probability, of an adverse event is usually expressed in terms of the number of such events expected to occur in a year.25 The consequence of an adverse event, sometimes called damage, is often expressed in monetary terms. In the case of fatalities or serious delays, it is more appropriate to use other measures, like days lost or experience modification rating.26 However, the true cost of risk can be much higher than is apparent. Much of it can be indirect and uninsured, and this can best be seen from the “iceberg” diagram27 in Figure 2.1. Indeed, the study carried out by the Health and Safety Executive (1993) shows that the uninsured cost of health and safety risk can be 11 times the direct costs on a construction site. The risk, therefore, can be much more complex than appears at first sight. And to complicate matters, studies28 have also shown that the greatest degree of uncertainty is encountered early in the life of a new project. Decisions taken during the earliest stages of a project can have a very large impact on its final cost and duration. Change is an unavoidable feature of any major capital project, but its extent is frequently underestimated during these early phases. It should also be noted that risk and opportunity are related. For this reason, there is usually a commercial benefit, or “added value”, from the risk control measures taken.29 For example, a hoist is provided instead of a set of ladders to reduce the risk of people falling. 25  Ibid. at ftn 4. 26  Ibid. at ftn 1. 27  Ibid. at ftn 1 and also The Health and Safety Executive Iceberg Accident Iceberg – the Hidden Cost of Accidents, UK Health & Safety Executive, 1993. 28  Ibid. at ftns 2 and 4. 29  Ibid. at ftn 1.

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The added value of this risk control measure may be that the hoist increases people’s mobility and as a result their productivity. Potential opportunities arising from risk control should be considered as it gives a greater picture of the likely outcomes.30 Who owns Risk? It has been commented31 upon that the risk inherent in every construction project can be “assumed by another party”. The principal guideline in determining whether a risk should be transferred is whether the receiving party has both the competence to fairly assess the risk and the expertise necessary to control or minimise it32 and that both parties must have a clear and similar understanding of the risk. Contracting parties who do not have a shared understanding of their accountability may mismanage the risk event by assuming the event or its consequences are not their responsibility. The term “ownership of risk” has a variety of meanings33 including: • having a stake in the benefit or harm that may arise from the activity that leads to the risk; • responsibility for the risk; • accountability for the control of risk; • financial responsibility for the whole or part of the harm arising from the risk should it materialise. A risk allocation can be broken down in several ways, and in various studies34 it comes out as follows: Risk Allocation

Risk Description

Contractor

■ ■ ■ ■ ■

Owner

■ differing site conditions ■ defective design ■ Site access/right of way permits and ordinances Changes in government regulations ■ delayed payment on contract Changes in work

Shared

■ Financial failure – any party ■ Change-order or variation-order negotiations Contract-delay resolution

labour and equipment productivity Quality of work labour, equipment and material availability Safety defective material Contractor competence Inflation Actual quantities of work labour disputes

30  Ibid. 31  Ibid. at ftn 1. 32  See Hartman, F. (1996), Risk Allocation in Lump-Sum Contracts: Concepts of Latent Disputes, Journal of Construction Engineering and Management, ASCE, 122, 291–297. 33  Godfrey, P. (1996), Control of Risk: A Guide to the Systematic Management of Risk from Construction, Construction Industry Research and Information Association, London. 34  See e.g. Roozbeh (1995), Risk Management Perceptions and Trends in US Construction, Journal of Construction Engineering and Management, ASCE, 121, December, 422–429.

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Risk Allocation

Risk Description

Undetermined/ Undecided

■ Acts of god ■ Third-party delays ■ defensive engineering

In addition to the risk allocation shown here, risk factors on construction projects can be split into two major groups: 1. Internal risks, which fall within the control of clients, consultants and contractors 2. External risks, which include risk elements that are not in the control of key stakeholders Risk Management The prevention of “risk” thus becomes the objective, and thus risk management is born. As one writer35 aptly noted, systematic risk management is expecting the unexpected – it is a tool which helps control risks in construction projects. Its objective is to introduce a simple, practical method of identifying, assessing, monitoring and managing risk in an informed and structured way. Unfortunately for contractors and employers, the construction industry is one of the most dynamic, risky and challenging businesses, and to compound matters, the industry has a very poor reputation for managing risk, with many major projects failing to meet deadlines and cost targets. This is influenced greatly by variations in weather, productivity of labour and plant, and quality of material. All too often, risks are either ignored or dealt with in a completely arbitrary way: simply adding 10 per cent contingency onto the estimated cost of a project is typical.36 In a business as complex as construction, such an approach is often inadequate, resulting in expensive delays, litigation and even bankruptcy.37 Whilst risk can affect productivity, performance, quality and the budget of a project, it cannot be eliminated, but it can be minimised, transferred or retained.38 Construction projects are always unique, and risks arise from a number of the different sources.39 Construction projects are inherently complex,40 involve multiple feedback processes, engage a lot of participants whose interests may be positively or negatively affected as a result of the project execution or project completion.41 As a result this naturally creates problems and confusion for even the most experienced project managers and contractors.

35  Ibid. at ftn 20. 36  Ibid. 37  See e.g. Hayes, R., Perry, J. and Thompson, J. (1986), Risk Management in Engineering Construction: A Guide to Project Risk Analysis and Risk Management, Thomas Telford, London. 38  See e.g. Burchett, B. (1999), A World-Wide Survey of Current Practices in the Management of Risk Within Electrical Supply Projects, Construction Management and Economics, 17, 77–90. 39  Oyegoke A. S. Construction Industry Overview in the UK, US, Japan and Finland: A Comparative Analysis. Journal of Construction Research 2006, 7(1/2), 13–31; and Pheng L. S., Chuan Q. T. Environmental Factors and Work Performance of Project Managers in the Construction Industry, International Journal of Project Management 2006, 24(1), 4–37. 40  See e.g. Banaitiene N. and Banaitis A,. Risk Management in Construction Projects, http://dx.doi. org/10.5772/51460. 41  Project Management Institute, Guide to the Project Management Body of Knowledge (PMBOK® Guide) 4th ed., Newtown Square: Project Management Institute, 2008.

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“Cost of risk” is a concept many construction companies have never thought about despite the fact that it is one of the largest expense items.42 Risk management helps the key project participants – client, contractor or developer, consultant and supplier – to meet their commitments and minimise negative impacts on construction project performance in relation to cost, time and quality objectives. Traditionally, practitioners have tended to associate construction project success with three aspects: time, cost and quality outcomes. Again it is time and the lack of delay that is of interest here. First, however, one needs to look at risk and what risks come with any project. As a first step, risks should be recognised and assessed.43 This is the route to an efficient management of risks. Once a risk is identified and assessed, decisions may be taken to transfer it or share it with other parties or accept it and manage it. It should be noted however, that not all risks are “real and severe”.44 To determine which are and which are not, one must consider the following:45 First, how frequently it occurs and how probable and imminent it is. Here, different rates can be given according to whether the risk is: certain, or very remote or fairly possible. Second, how severe is the effect if the risk occurs? Is it within the margin calculated for overhead charges and usual contingencies, or is it manageable, or is it a serious loss and catastrophic? In general, the risks and contingencies in any construction and engineering contract may be classified to:46 Risks which the contractor should bear. They include:

• risks which the contractor can control by good management and planning, or • risks which the contractor may insure and calculate the costs in his offer, such as risks of personal injury, damage to equipment, and even political risks arising from acts of government, and • risks which the contractor may pass to others, such as manufacturers and suppliers: for example design, workmanship and maintenance risks. Risks and contingencies which the contractor should measure and attempt to shift to the employers, such as risks of force majeure, war risks and risks of unforeseen conditions. One of the common contractual risks in contracts prepared by the lawyers of employers is to impose on the contractor a liability to pay penalties or liquidated damages without a ceiling or limit for delay in completing the works. Another contractual risk is

42  Cavignac J., Managing Risk in a Construction Company [Internet]. Construction Business Owner 2009; November [cited 2012 March  10]. Available from www.constructionbusinessowner.com/topics/insurance/ construction-insurance/managing-risk-construction-company. 43  See e.g. “Risks Analysis Under Construction and Engineering Contracts”, a speech delivered by Saleh Majid during the Second German-Arab Economic Forum held on 25th June 1999 in Berlin. www.iraqilawconsultant. com/downloads/RisksAnalysis070811.pdf. 44  Ibid. 45  Ibid. 46  Ibid.

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to hold the contractor liable for damage or injury arising from the contractor’s default or negligence without any limitation.47 Generally, in practise, the concept of risk analysis comes down to a determination of which standard form contract one is going to use, with FIDIC forms of contract being the ones generally used internationally and in the UK, and elsewhere, to a lesser extent, the JCT, NEC and other forms are in use. In most standard form contracts the list of risks/ contingencies faced by contractors include:48 Adverse Physical Conditions or Obstructions • Conditions of the ground water and soil conditions • Pipes and services or even bombs left by someone somewhere in the land or water • Wells, pits, shafts, boreholes, etc. • Contaminated ground • Fossils and antiquities Delay and Disruption • • • • • •

Due to late handing-over of the site by the employer Late working drawings, instructions issued by the engineer Contractor’s inefficiency, breakdown or lack of machinery and equipment Nominated sub-contractor’s inefficiency Delay outside both parties’ control Labour disputes

Defective Materials or Workmanship of Contractor • Defective materials or workmanship of a domestic or nominated sub-contractor or supplier • Costs of Tests and Samples required by the engineer Direction and Supervision by the Employer or the Engineer • One-sidedness of the employer or the engineer • Incompetence • Inefficiency • Unreasonableness • Lack of communication

47  Ibid. 48  Ibid. at ftn 24.

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• Ambiguity or contradiction between documents prepared by the engineer or misleading description in the bill of quantities, etc. • Dispute on methods and measurement • Defective design of temporary or permanent works by owner or consultant, contractor or domestic or nominated sub-contractor or supplier Damage and Injury to Persons and Property • Due to negligence or breach of warranty of contractor in designing or in temporary works, building permanent works or otherwise • Due to negligence of consultant or owner in design or supervision • Due to nominated subcontractor’s or supplier’s negligence or breach of warranty • Due to matters outside the parties’ control but which are insurable • Due to uninsurable risks – war, riots, rebellion, disease, etc. • Consequential losses arising from above • Exclusions, gaps and time limits in insurance cover Shortage of Resources • Shortage of staff, labour, plant, materials • Shortage of finance and liquidity Government Policy and Change of Legislation • • • • •

Taxes, labour, safety or other laws Delay or refusal of planning approval for works or temporary works Foreign exchange restrictions Financial constraints by the government Potential political instability

Conflicts and war • Cost of war, civil commotion, malicious damage, etc. Labour Demands and Unrest Payment • Devaluation • Delay in settling claims and certifying • Delay in paying certificates • Legal limits on recovery of interest • Insolvency of contractor, sub-contractor or owner • Funding constraints • Shortcomings resulting from the measurement and valuation process • Governmental delay in payment and budget deficit 25

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Inflation • Absence of an escalation clause in the contract • Any element of cost or profit not covered by a price fluctuation clause • Replacement cost of plant and equipment – especially in countries where inflation is high, such as Latin America Arbitration and Law • Delay in resolving disputes • Uncertainty of result due to lack of records, unfair or ambiguous contract, or inefficiency of legal process, and even lack of the due process of law • Costs of arbitration and litigation • Enforcement of the decision Risk Distribution – Form Contracts Indeed, many international standard contracts have distributed the risks between the parties. Similarly, FIDIC Standard General Conditions of Contracts have allocated the risks between the contractor and the employer in a reasonable manner.49 Many of the risks listed and referred to here have been dealt with under different clauses of the FIDIC Conditions of Contract for Work of Civil Engineering Construction by granting the contractor a right to claim extra cost and/or extension of time and to cover costs and delay caused by encountering certain conditions or events. FIDIC allocates the various “risks” into its Sub-Clauses and as an example in the FIDIC Conditions of Contract For Construction (Red Book) First Edition 1999 Clause 17 – Risk and Responsibility the Sub-Clauses therein allocating the risks between the employer and the contractor and entitling the contractor to claim compensation or extension of time include ones for Design Discrepancies, Engineer’s delay, Differing Site Conditions, Non-conformity of Works, Damage to the work, Third Party Injury or Property Damage, Delay, Allocation of “Special Risks” and “Other Circumstances” and Frustration of the Contract, Currency Restrictions and Rates of Exchange, and the possibility of Changes in Costs and Legislation. Other than FIDIC contracts the other commonly used standard forms attempt to allocate risk in varying ways depending on the procurement types involved. Under the traditional procurement method50 used in the UK where the design is separated from construction, most such building contracts are strictly work and material contracts. The basic assumption is that the contractor is to carry out and complete the work as shown on or described in the documents supplied by the client and is responsible for its own working methods. This might include the design of any temporary works necessary to enable the contractor to achieve the desired result. Apart from this, and in the absence of anything to the contrary expressly in the contract, the contractor has no responsibility for design. The contract wording may of course be extended to expressly include a limited design obligation by the contractor. However, the contractor

49  Ibid. 50  See e.g. Dr Cyril Chern (2015 and 2019), The Law of Construction Disputes, 2nd & 3rd Editions p. 37. Informa Publishing, London 2019.

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is responsible for workmanship and materials, and this is in respect of complying with the standards of the contract as far as workmanship is concerned and of satisfying implied terms of merchantable quality etc. concerning goods and material etc.51 This will normally extend to all sub-contractors of whatever description or status. The contractor will also be responsible for any defects, other than those which are directly attributable to faulty design or arise from misuse. The contractor is not normally responsible for maintaining the building: any such requirement would have to be expressly included in the contract. There are generally three types of contract available in the UK with the traditional procurement method: • Lump sum contracts: Here the Contract Sum is determined before construction starts, and the amount is entered in the Agreement; • Measurement contracts: Here the reverse is true as the Contract Sum is only accurately known upon completion, and after remeasurement to some agreed basis; • Cost reimbursement contracts: Here the Contract Sum is arrived at on the basis of the actual costs of labour, plant and materials, to which is added a fee to cover the overheads and profit. Covering each in turn we first come to: Lump sum contracts Under this form of contract the contractor undertakes to carry out a defined amount of work in return for an agreed sum. This can be a fixed amount not subject to recalculation, in which case there would be no opportunity for the client to make variations after work has started on site. The sum is more likely to be subject to limited fluctuations, usually to cover tax etc. changes not foreseeable at the time of tendering.52 One of the complications of this form of contract is that the “sum” may be subject to fluctuations in the cost of labour, plant and materials – the so-called full fluctuations provisions. Recovery may be by use of a formula, or by the tedious business of checking vouchers, invoices, etc.53 A variation on these are the lump sum contracts “with quantities”, which are priced on the basis of drawings and a firm bill of quantities. Items which cannot be accurately quantified can be covered by an approximate quantity or a provisional sum. And following on these are Lump sum contracts “without quantities”, which are priced on the basis of drawings and another document. This may simply be a specification of a descriptive kind, in which case the lump sum will not be itemised, or one that is detailed to the extent that the Contract Sum is the total of the priceable items.54 Some writers55 feel that these sorts of jobs might be more satisfactorily described by Schedules of Work, where the lump sum is the total of the priced items. In the latter cases, an itemised breakdown of the lump sum will be a useful basis for

51  Ibid. 52  Ibid. 53  Ibid. 54  Ibid. 55  Ibid.

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valuing any additional work. Where only a lump sum is tendered, then a supporting Schedule of Rates or a Contract Sum Analysis will be needed from the tenderer.56 It should be noted that here tenders can be prepared on the basis of notional quantities, but they will need to be replaced by firm quantities if it is intended to enter into a “with quantities” lump sum contract.57 Following on these forms is the Measurement Contract. Measurement Contracts These are also sometimes referred to as “remeasurement” contracts.58 This is where the work which the contractor undertakes to do cannot for some good reason be accurately measured before tendering. The presumption is that it has been substantially designed and that a reasonably accurate picture of the amount and quality of what is required is given to the tenderer. Probably the most effective measurement contracts, involving least risk to the client, are those based on drawings and approximate quantities. It should be noted that measurement contracts can also be based on drawings and a Schedule of Rates or prices prepared by the Employer for the tenderer to complete. This type of contract might be appropriate where there is not enough time to prepare even approximate quantities or where the quantity of work is very uncertain. It should be evident here that the Employer will need to accept the risk involved in starting work with no accurate idea of the total cost, and generally this type of contract is best confined to small jobs. A variant of this is the measured term contract under which rates can be established for categories of work, although instructions or orders will be required before any single job in the anticipated programme is carried out. Cost Reimbursement Contracts These are sometimes referred to as “cost plus” contracts.59 The contractor undertakes to carry out an indeterminate amount of work on the basis that it is paid the prime or actual cost of labour, plant and materials. In addition, the contractor receives an agreed fee to cover management, overhead and profit. Checking the prime costs which are directly related to the Works is relatively straightforward. The variable is the fee, which should be agreed beforehand, and establishing precisely what it covers. The basis of the fee can give rise to many variants of cost plus contracts. Which is likely to be the most appropriate will depend on the particular circumstances.60 Cost plus percentage fee Here the fee charged is directly related to the prime cost. It is usually a flat rate percentage, but it can also be on a sliding scale. Various writers61 have also noted that the contractor 56  Ibid. 57  See e.g. ftn 33. 58  Ibid. 59  Ibid. 60  Ibid. 61  E.g. ibid.

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has no real incentive to work at maximum efficiency, and this variant is only likely to be considered where requirements are particularly indeterminate pre-contract. Cost plus fixed fee The fee to be charged is tendered by the contractor. This is appropriate provided that the amount and type of work are largely foreseeable. The contractor has an incentive to work efficiently so as to remain profitable within the agreed fee. Cost plus fluctuating fee The fee varies in proportion to the difference between the estimated cost and the actual prime cost. The presumption is that if the latter cost increases due to the contractor’s supposed inefficiency, then the fee will be reduced accordingly. This approach depends upon there being a realistic chance of ascertaining the amount and type of work at tender stage. Cost reimbursement based on a target cost This is a slight variant on the previous type. The fee is related to an agreed target. The actual prime cost above or below the target affects the fee earned. It is of course always open to the client to pay directly for the cost of labour, materials, plant, hire charges, etc., with the contractor receiving only an agreed fee for managing the execution of the Works.62 This then goes into the next type of procurement used in the UK, and that is the “design and build” method. Design and build procurement Under this procurement method the contractor may have responsibility for some or all of the design of the project. The contract wording must expressly refer to this, and the extent of the design obligation needs to be set out as clearly as possible. The requirements of the Employer should be stated briefly and simply and occasionally are so minimal that they are basically the site plan and a list of what is wanted. Usually, however, on larger projects, the contract details are stated in a document of several hundred pages with precise specifications, accompanied by a well worked out concept design.63 The design role of the contractor might even be restricted to developing design detail and preparing production information based on the design information supplied by the client. Unless the contract states otherwise, it seems that the liability for design is an absolute liability under which the contractor warrants fitness for the purpose intended.64 However, usually standard design and build forms expressly limit the design liability of the contractor to the normal professional duty to exercise reasonable care and skill. Independent consultants engaged by the contractor are therefore under a liability no greater than normal. An indemnity or acceptance of liability is likely to be of no real

62  Ibid. 63  Ibid. 64  Ibid.

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value unless backed by adequate indemnity insurance. It is considered good practice in these situations to specify in terms of the performance requirement rather than to prescribe in detail, because this leaves the responsibility for design and selection firmly with the contractor. However, with some types of development (housing, for example), the more precise the requirements, the less likely it is that a tenderer will start out with the fixed intention of utilising proprietary components or its own standard shell designs.65 Some claim that design and build contracts offer certainty on the Contract Sum and bring cost benefits. The close integration of design and working methods and the relative freedom of the contractor to use its purchasing power and market knowledge most effectively might suggest this. Unfortunately, it is often very difficult to find out just how competitive the figures are.66 One other factor that is attractive to some Employers is that design and build type contracts give the impression of being quicker, and whilst it should be possible to ensure a quicker start on site, and the close integration of design and construction should result in more effective programming, this is not always the case as time is always needed for the Employer’s consultants to prepare an adequate set of requirements, and time is also needed to compare and evaluate offers and schemes from competing tenderers. The success or otherwise of a design and build operation depends to a large extent on the client properly setting out the requirements in the first place and then carefully evaluating the contractor’s proposals.67 Once the contract is signed, any changes are likely to prove costly, and the client has little further opportunity to comment on how the requirements are to be met.68 For management procurement Basically, such contracts concentrate primarily on the management expertise of the contractor and are particularly suitable for fairly large projects with complex requirements. There are many variants, ranging from the procurement of a building designed by the Employer’s professional team to accepting a wider facilities management obligation to fit out and maintain the operation of a building for some specific period, and even perhaps playing a substantial role in the immediate funding of the project.69 Clearly in the majority of such cases, developers will have to look to forms of contract specially drafted to suit their requirements. There are some standard forms available for use with the main management procurement options, as follows. Management contracts The client appoints an independent professional team and also a management contractor. The contractor’s involvement at pre-construction stages will be as an adviser to the team, 65  Ibid. 66  Ibid. 67  Ibid. 68  Ibid. 69  Ibid.

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and during construction it will be responsible for executing the Works using direct works contractors. In theory and in practice this type of contract makes it possible to have an early start on site and achieve early completion. Because of its flexibility, it allows the client to develop the design during construction, because drawings and matters of detail can be adjusted and finalised as the work proceeds. The management contractor will normally make a written submission which includes a proposed management fee and will be appointed after interviews with the client and the professional team. The fee will include the total management service, expressed as a percentage of the total project cost, and a service to cover pre-construction stages should the project not proceed to site. The management contractor undertakes the work on the basis of a contract cost plan prepared by the quantity surveyor, project drawings and a project specification. The client accepts most of the risk because there is no certainty about costs or programme. Competitive tenders for the Works packages follow later, and they will usually, though not always, be lump sum contracts based on bills of quantities.70 There is a Standard Form of Management Contract issued by the JCT, together with the Standard Works Contracts and an Agreement for use between the client and each works contractor. Construction management Construction management (CM) has been in and out of favour over the years and lately out of favour resulting from high-profile court cases highlighting the risks of CM. It is not surprising that use of this form of procurement has fallen. CM’s reputation has shifted from its high point in the 1980s, when it was almost exclusively associated with wellmanaged and well-resourced commercial projects such as Broadgate and Canary Wharf.71 Since then it has been adopted, typically for speed or flexibility reasons, on a wider range of projects, including schemes from the arts, leisure and public administration sectors. Despite the higher risk exposure the follows the adoption of a construction management strategy, the additional benefits the Employer should seek regarding opportunities for enhanced performance include: • Acceleration of the overall project programme; • Enhanced ability to incorporate change into the design; • Delayed completion of design elements, such as retail fit-out or hotel fixtures and fittings, that can be finished later without affecting the overall programme; • Involvement of specialist trade contractors in design and construction; • Creation of a less adversarial, problem-solving project culture. Again, in construction management situations, the construction manager is appointed after a careful selection process and is paid a management fee.

70  Ibid. 71  See Davis Langdon and Simon Rawlinson, Procurement: Construction Management, 2006, Issue 35, Building.co.uk, www.building.co.uk/procurement-construction-management/3072705.article.

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One basic difference from a management contract is that the trades contracts, although arranged and administered by the construction manager, are directly between the client and the trade contractors. Although in a sense this gives the Employer a greater measure of control, it also means that it accepts virtually all of the risk. The construction manager is a coordinator and usually cannot guarantee that the project will be finished to time or cost. The Employer directs the project and is also likely to carry the greatest burden of the speculative risk. Whilst construction management may have advantages over management contracts, much work by this procurement method has been undertaken by experienced commercial clients using bespoke agreements. There are now also a few standard forms available for construction management.72 Design, manage, construct and in some instances maintain This variant is a more recent development of the management approach, offering a total integrated service from a single source. It can be led by the contractor or by some other professional. The latter is only likely when the design aspects of the project are a high priority. As an example the FIDIC Gold Book is the only standard form that provides for this variant; in practice developers or contracting organisations mostly use specially drafted forms. It should be noted that as to the maintenance portion of the FIDIC Gold Book, this is normally outside the scope of building contracts and is the subject of facilities management or other special agreements. An outline overview of the relative breakdown of “risk” between the available standard form contracts and the Employer and the Contractor is shown in Figure 2.2.73 A quick overview of the various forms of standard form contracts is in order, and they are as follows: The Joint Contracts Tribunal (JCT) Forms The Joint Contracts Tribunal was established in the 1930s by the Royal Institute of British Architects (RIBA) and the National Federation of Building Trades Employers (NFBTE), to consider future proposals for amending the Form of Contract which had been published in 1931. Important new editions of the form were published in 1939, 1963 and 1980, and after the JCT had become a limited company, further revised editions were published in 1998, 2005 and 2011. Currently the JCT is made up of seven members who represent a wide range of interests in the building and construction industries. It produces standard forms of contract, guidance notes and other standard documentation for use in the industry. The intention of the JCT is that the contracts generated by them represent a balanced allocation of risk between the parties.

72  Ibid. at ftn 51. 73  Note that this diagram is modelled on one shown in Hugh Clamp, Stanley Cox, Sarah Lupton and Koko Udom (2012), Which Contract? Choosing the Appropriate Building Contract, 5th edition, RIBA Publishing.

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Figure 2.2  Employer versus Contractor Risk Allocation per Contract Type

The JCT produces its Suite of Standard Forms, which is a group of all the mutually consistent documents necessary to operate a particular method of procurement and produced to enable them to be used together, including the following where applicable: • Consultant agreements; • A main contract between the employer and the main contractor; • Sub-contracts between the main contractor and its subcontractors (both for subcontractors selected by the employer and for other sub-contractors); • A standard form of sub-subcontract between a subcontractor and such subcontractor’s sub-sub-contractors; • A design agreement between an employer and a specialist designer; • Forms of tender for issue by an employer to prospective main contractors and for issue by a main contractor to prospective subcontractors and for issue by a subcontractor to prospective sub-sub-contractors; • A form of contract for the supply of goods; • Forms of bond (including performance bonds) and collateral warranties; and • The Construction Industry Model Arbitration Rules, adapted from those of the Society of Construction Arbitrators Main Forms JCT substantially revises and rewrites the family of forms every decade. The most recent suite, replacing the 1998 version, is the 2005 suite, commonly referred to as JCT 05. There are now, however, 2009 amendments published. The 2011 versions replaced 2009 amendments for all contracts signed after 1 October 2011. 33

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The Main Contracts 1. Major Project Form (MP11) 2. Standard Form of Building Contract (SBC11) 3. Intermediate Form of Building Contract (IC11) 4. Minor Works Agreement (MW11) 5. Management Contract (MC11) 6. Design and Build Contract (DB11) 7. Construction Management Documentation Smaller project contracts Traditional JCT contracts were seen as too detailed and difficult to use in smaller domestic projects, so JCT launched a consumer-friendly range of contracts called the “Building Contract for the Home Owner”. • Building Contract for Home Owner/Occupier (where client deals directly with the builder) (HOB) • Building Contract for Home Owner/Occupier (who has appointed a consultant) (HOC) • Contract for Home Repairs and Maintenance (HO/RMI) The Main Features The JCT contracts avoid up-front payments from payers to payees. Instead, the payee invoices the payer once work has been certified as completed by an independent third party, the Contract Administrator (often an architect or surveyor). Often interim certificates are issued where itemised components of the work have been completed or a verifiable percentage is complete. In the 2009 amendments, the payer or payee can issue the certificate if the Contractor Administrator fails to do so.74 The JCT encourages Retention of an agreed percentage of the contract sum until Practical Completion and then a percentage for a period after Final Completion. This avoids payment in advance for such things as minor defects or snagging which need to be addressed at the end of the project or come to light after the project is complete. So the invoice at each point is for a percentage of the value of the work certified complete. The payer can deduct an amount; however, under the 2009 amendments, the method for calculating the new amount must be stated. The JCT encourages up-front agreement of Liquidated and Ascertained Damages (LAD) as an estimate of the payer’s weekly losses if the payee fails to reach Practical Completion by the Contractual Completion Date. If delays are for reasons beyond the contractor’s control, the contractor can request an Extension of Time: if the Contract Administrator allows this, it in effect extends the period before which the contractor is liable to pay the LAD.

74  Ibid. at ftn 51.

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The JCT introduced the concept of Determination, whereby the contract can be terminated for suspension of works, failure to proceed regularly and diligently, failure to remove defective works, failure to execute works in accordance with the contract and bankruptcy of the contractor. If one party has ceased to perform in the contract (e.g. the contractor has gone past the Contractual Completion Date and has no plan to complete the contract), Determination enables the other party to end their obligations (e.g. to pay the contractor to finish the project). This is in addition to the Common Law remedy of Repudiation. Reference is made to adjudication as a quick way of resolving disputes which the parties cannot resolve between them. Arbitration or litigation, depending on the preferences of the parties, is also available for the settlement of disputes, but these are never appeals against the decision of an adjudicator; they are the consideration of the dispute or difference as if no decision had been made by an adjudicator. If arbitration is chosen, then the reference is conducted under the amended version of the Construction Industry Model Arbitration Rules published by the Society of Construction Arbitrators. Format and structure The standard format of a JCT contract is: • • • •

Articles of Agreement Contract Particulars: these contain project-specific information Conditions of Contract Schedules

The schedules cover some of the more commonly used “add-ons” to a construction contract, such as insurance options, a design submission procedure and fluctuations. Main Provisions There are nine main sections to the JCT suite of contracts. They cover: • Definitions • Carrying out the works • Control of the works • Payment • Variations • Injury, damage and insurance • Assignment, third party rights and collateral warranties • Termination • Settlement of disputes The JCT contract payment provisions are flexible. They may permit up-front payments from employers to contractors, usually accompanied by payment security such as a bond and/or invoicing once work has been certified as completed. Certification is usually by an independent third party (such as an architect, an employer’s agent or a contract administrator). Interim payments are usually made as the works progress. 35

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JCT provides for the retention of an agreed percentage of the contract sum until practical completion, and then a reduced percentage until a period after final completion. This is usually intended to act as an incentive to the contractor to deal with defects which come to light after the project has been completed.75 JCT provides a fixed date for completion and envisages up-front agreement of liquidated damages as an estimate of the employer’s losses if the contractor does not complete the works by that contractually agreed date. The contractor will be entitled to ask for an extension of time for completion if an event occurs which is at the employer’s risk and delays the contractor. The JCT was one of the first standard forms to embrace “third party rights” as an option for use instead of collateral warranties (although collateral warranties are still the most common option).76 Design and Build Contract (DB) The DB contract tends to be used for large, complex construction projects such as sports stadia, shopping centres and office blocks. It is used by the public and private sector with the key feature being that the contractor will design the works based on requirements given to it by the employer (i.e. what the employer wants in terms of construction). The contractor will produce the contractor’s proposals (setting out how the contractor will achieve the employer’s requirements). It will then carry out the works (as described in contractor’s proposals) for a lump sum. Standard Building Contract (SBC) As mentioned earlier, in “traditional contracting”, the contractor will tend not to be involved in any aspect of the design under an SBC. The works will be described by reference to drawings and bills of quantities prepared by or on behalf of the employer and given to the contractor. “Bills of quantities” are the lists of the items which will be needed for construction (including a description of the item and the quantity required) and on which payment is based. There are three forms of SBC and the appropriate type is likely to depend on whether the Employer wants a lump sum contract price or a measurement contract price: • Lump sum: the SBC/Q and SBC/XQ are lump sum contracts. This means that the contract price will change only if the works are varied or delayed (due to the Employer’s risk/fault). The two types of SBC are: • SBC/Q – the employer provides the contractor with bills of quantities to define the quantity and quality of the work; • SBC/XQ – the employer provides the contractor with specification or work schedules to define adequately the scope and quality of the work but with no bills of quantity. Likely to be appropriate where the degree of complexity is not such as to require bills of quantities;

75  See e.g. Standard for Contracts: JCT Pinsent Masons, Out-law.com, November 2012, www.out-law.com/ en/topics/projects–construction/construction-standard-form-contracts/standard-form-contracts-jct/. 76  Ibid.

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• Measurement: the SBC/AQ is a measurement contract: • This type of contract would be suitable where the quantity of the work is uncertain – for example in a civil engineering contract scheme where large amounts of earthworks might be needed but with the exact quantity being unknown or where there is insufficient time to prepare the detailed drawings necessary for accurate bills of quantities to be produced; • The employer provides the contractor with approximate bills of quantities, which are to be subject to re-measurement; • This means that, as in a lump sum contract, the contract price will change if the works are varied or delayed (due to the employer’s risk/fault). However, the contract price will also change to reflect the actual work carried out; • The works are “measured” and the rates given in the approximate bills of quantities are applied to the measured quantities.77 Major Project Construction (MP) MPs are designed for use on the largest design and build projects all built by one contractor. They are shorter than DB contracts and more flexible, and they are appropriate where parties: • Are experienced in undertaking large scale construction work • Are familiar with risk management • Have appropriate in house contractual procedures Main JCT contracts In summary and as previously mentioned, the main contracts in the JCT suite are: • Standard Building Contract • Design and Build • Intermediate Contract • Intermediate Contract with Design • Minor Works • Minor Works with Design • Major Projects (MP) • Framework, non-binding and binding • Various sub-contracts • Guidance books, practice notes and forms The Government Conditions of Contract, GC Works Another set of standard contracts is/was the suite of standard government conditions of contract. GC Works are still available, but they are no longer being updated by the government, which is moving to the New Engineering Contracts, now in their third edition, NEC3. 77  Ibid.

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The GC Works contracts were created primarily for government projects, but could be used in the private sector. They were published by the Stationery Office for the Property Advisors for the Civil Estate (PACE). This suite of contracts comprised: • GC Works 1: Without quantities • GC Works 1: With quantities • GC Works 1: Single-stage design and build • GC Works 1: Model forms and commentary • GC Works 1: Two-stage design and build • GC Works 1: Construction management trade contract with quantities • GC Works 1: Construction management trade contract without quantities • GC Works 2: Minor works • GC Works 3: Contract for mechanical and electrical engineering works • GC Works 4: Contract for building, small works In addition, there were a range of supporting documents to assist in the use of the suite of contracts. As mentioned earlier the 1994 Latham Report recommended that government departments then using GC Works 1 should begin to change to the New Engineering Contract, and that is currently the situation, which leads to a discussion of the NEC3 standard forms. The New Engineering Contract Documents (NEC3 and NEC4) The NEC Engineering and Construction contract historically has seen four editions, the first in 1993, the second in 1995, the third in 2005 and the most recent in 2017. The NEC3 was launched in 2005, and it was amended in April 2013. NEC4 was announced in March 2017 and has been available since June 2017. They come with an interesting history, some of which was discussed previously regarding the JCT contracts where in 1879, the Royal Institute of British Architects created RIBA forms for use in construction projects which led to the Joint Contracts Tribunal (JCT) forms. For civil engineering the need for a formalised approach to contracts led the Institution of Civil Engineers to produce the ICE formalised set of conditions of contract. In 1986, the ICE commissioned the development of a new form of contract as it was felt that there was a need for a form that had clearer language, clearer allocation of responsibilities and greater fairness. In 1991, this resulted in a consultative form of the New Engineering Contract form of contract. The first edition was published in 1993, and as mentioned earlier, the wider use of the NEC was recommended by the Latham Report in 1994. This continues to today with the third edition, the NEC3, being most widely used, and now the NEC4 taking over that lead. For purposes of this book the NEC3 will be dealt with. The NEC3 contract consists of two key parts: the Contract Data part one (Data provided by the Employer) and Contract Data part two (Data provided by the Contractor). Several approaches are included making it a family of options. It is used in the UK and internationally in countries including New Zealand, Australia, Hong Kong and South Africa. The NEC contracts now form a suite of contracts, with NEC being the brand name for the “umbrella” of contracts. When it was first launched in 1993, it was simply the “New Engineering Contract”. This specific contract has been renamed the “Engineering and 38

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Construction Contract” and is the main contract used for any construction-based project. It now sits alongside a number of other contracts that together should mean that the NEC suite is suitable for whatever stage of a life cycle the project is at and for any party within a project. The contracts available within the suite are: The Engineering and Construction Contract (ECC) Suitable for any construction-based contract between an Employer and a Contractor. It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil and gas, etc. Within the ECC contract there are six family-level options of which the Employer will choose what he deems to be the most suitable and that gives him the best option/value for money on that project: • • • • • •

Option A: Priced contract with activity schedule Option B: Priced contract with bill of quantities Option C: Target contract with activity schedule Option D: Target contract with bill of quantities Option E: Cost-reimbursable contract Option F: Management contract

These options offer a framework for tender and contract clauses that differ primarily regarding the mechanisms by which the contractor is paid and how risk is allocated/ motivated to control costs. The core clauses (of the main option just listed) are used in conjunction with the secondary options and the additional conditions of contract. The Secondary Option clauses may be incorporated or not as required, and some of them can only work in conjunction with certain Main Option clauses. There are 22 headings (X1–X20, Y(UK)2 and Y(UK)3) which can be incorporated as required to allow for performance bonds; partnering; key performance indicators; advance payment; sectional completion; limitation of contractor’s liability for design; fluctuations; retention; bonus for early completion; delay damages; low performance damages; etc. This gives great opportunity to tailor the conditions to the intended works. Further the Efficiency and Reform group of the Cabinet Office in the UK (formerly the OGC) has published generic public sector Z-clauses for the use with NEC3 contracts. As to the delay provisions, under the NEC3 the term “delay damages” refers to one of the secondary options available; thus “X7 – Delay damages (liquidated damages)” can be selected in part 1 of the contract data, and the level of damages payable can be defined. If option X7 is selected, and the contractor does not achieve the completion date, then delay damages will be due from the contractor. This is similar to liquidated damages (or liquidated and ascertained damages, sometimes referred to as LADs) in other forms of contract such as JCT contracts.78 NEC guidance recommends that this option be included in most contracts. It is also recommended that the employer maintain a record of how delay damages are calculated

78  See e.g. Designing Buildings, 28 February 2016, www.designingbuildings.co.uk/wiki/Delay_damages.

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in case they are challenged by the contractor. And a contractor wishing to avoid a claim against them for delay damages may make a delay claim, demonstrating that: • A compensation event has occurred. • The event caused a delay to the project’s completion. Compensation events are similar to relevant events and relevant matters referred to in other forms of contract such as JCT contracts. Very broadly, compensation events tend to be those events that impact on the completion date but are not the contractor’s fault. Further there is provision in Clause X7.3 for a delay damages reduction in the event that the employer takes control of a part of the works prior to the completion. The Engineering and Construction Subcontract Contract (ECS) Very similar in detail and complexity of contractual requirements to the ECC contract but allows the contractor to sub-let the project to a subcontractor imposing most of the clauses that he has within his headline contract. There is very little difference between the ECC and the ECS, other than that the names of the parties are changed (contractor and subcontractor) and some of the timescales for contractual responses are altered to take into account the timescales required in the ECC contract. The Engineering and Construction Short Contract (ECSC) This is an abbreviated version of the ECC contract and most suitable when the contract is considered “low risk” (not necessarily low value) on a project with little change expected. This contract is still between the employer and contractor but does not use all of the processes of the ECC making it simpler and easier to manage and administer. The Engineering and Construction Short Subcontract (ECSS) This allows the contractor to sub-let a simpler lower risk contract down the line to a subcontractor. It is back-to-back with the ECSC but is frequently used as subcontract when the main contract is under the ECS. The Professional Services Contract (PSC) This contract is for anyone providing a service, rather than doing any physical construction works. Designers are the most obvious party that fit into this category. Whilst they are producing a design for an employer or contractor, they would sign up and follow the clauses within the PSC. Most of the clauses within this contract are the same as or similar to those in the main ECC contract, so that all contractors, designers and subcontractors have pretty much the same obligations and processes to follow. The Professional Services Short Contract (PSSC) This was added to the family in April 2013 and was co-developed with the Association for Project Management. It is for simpler, less complex assignments than the PSC, such as the 40

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appointment of small team for managing an ECC contract on the Employer’s behalf, e.g. the Project Manager and Supervisor. It is frequently used as a subcontract to the PSC for design work. Framework Contract (FC) Parties enter into a “framework” of which work packages will then be let during the life of that framework. Any individual projects will then be awarded using one of the other contracts within the suite, meaning that the parties follow the headline clauses within the framework contract (which is a fairly slim contract) and then the individual clauses within the chosen contract for that package. Different work packages can be let using different contracts during the life of the framework. Term Service Contract (TSC) For parties on a project that is operational or maintenance based, e.g. maintaining highway signage, where the contract is to ensure that a certain standard is maintained. This contract is not generally used for constructing new works but can include some amount of betterment. There is also a “Term Service Short Contract” where the project is relatively low risk, and/or the work is primarily re-active. It is an abbreviated version of the main TSC. Supply Contract/Short Supply Contract (SC/SSC) These contracts were launched in 2010. This is for a supplier of supplies or goods to a project and puts extra contractual requirements on them during their procurement/ manufacture period. The Supply Contract is for big bespoke items, i.e. items designed and manufactured specifically for that contract, with the Short Supply Contract potentially being for more run-of-the-mill/commoditised items on a project. Neither of these contracts cover working on a site, i.e. as written they are not “supply and install” contracts. Adjudicator’s Contract (AC) If there is a dispute between the parties on a project, then the Adjudicator will follow the clauses within this contract in order to come to a decision. Guidance Notes and Flowcharts Each of the different contracts just listed comes with its own set of guidance notes and flowcharts, which should aid understanding of the intent of the drafted clauses. The guidance notes expand on each clause to give extra substance and intent of the original drafters as to how a clause should be understood and interpreted. The flowcharts then map out each of the main processes within each contract and demonstrate how it should operate and what to do next if a party has or has not carried out the next contractual action. 41

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There is an interesting comparison between the ICE forms of contract and the NEC, and one which is appropriate to the subject of this book has to do with delay, which can occur due to physical conditions encountered on the site. The differences, though slight, can be seen as follows: NEC Engineering and Construction Contract Second Edition Clause 60.1 (12) The Contractor encounters physical conditions which • Are within the site, • Are not weather conditions, and • Which an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for them.

ICE Conditions of Contract Sixth Edition Clause 12(1) If during the execution of the Works the Contractor shall encounter physical conditions (other than weather conditions or conditions due to weather conditions) or artificial obstructions which conditions or obstructions could not in his opinion reasonably have been foreseen by an experienced contractor the Contractor shall as early as practicable give written notice thereof to the Engineer.

The NEC3 refers to physical conditions which are within the site whilst the ICE does not make that specification, and the ICE uses the old rule that “could not in his opinions reasonably have been foreseen by an experienced contractor” whilst the NEC3 does not use the wording “reasonable” in that context and only requires that what occurred would have had such a “small chance of occurring” that it would have been “unreasonable” for him to have allowed for it – thus changing the reasonableness of foreseeability to one of it being “unreasonable” to have allowed for it. Of further interest is that under the NEC3, there are clear rules relating to communications (e.g. instructions, certificates, submissions, records, etc.); early warning is a significant requirement in the contract, and importantly for this chapter, a register of risks is set up at the start of the project and included in the Contract Data. The register may be added to during the course of the project, and the contractor or Project Manager may require a risk reduction meeting to discuss the noted risks. Additional key points include: • The contract may stipulate “Key Dates” by which defined operations must be complete. This allows the work of one contractor engaged under NEC3 to be dovetailed with that of another. Cost incurred by the Employer through failure to meet a key date can be claimed against the contractor in default; • Procedures for using or taking over part of the Works early by the Employer are subject to conditions. Possession of any part of the Works, or the whole site, is dependent upon certification by the Project Manager;

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• The Project Manager can require the contractor to submit a quotation for accelerating the Works in order to achieve completion ahead of the contract completion date; • Where delay occurs due to certain intervening events, these may constitute Compensation Events. There are 19 listed, and for weather in particular, precise requirements can be included in the Contract Data. The contractor is obliged to notify the Project Manager of such events, and the Project Manager will decide whether compensation is due. Obviously the “early warning” requirement will be taken into account. Compensation Events are afforded a complete Section 6 in the Core clauses, • The Project Manager may instruct the contractor to submit a quotation to deal with the monetary losses associated with the delays; • Assessment of Compensation Events is a matter for the Project Manager in accordance with certain rules and procedures. The Project Manager must notify the contractor of his or her decision; • A register of risks is set up at the start of the project and included in the Contract Data. The register may be added to during the course of the project, and the contractor or Project Manager may require a risk reduction meeting to discuss the noted risks. Specific Risks There are some recurring and very specific risks associated with construction and with all of the mentioned contracts. Dealing with these in turn we have: Adverse Ground or Physical Obstructions or Conditions on the Site Unknown and/or unforeseen ground conditions is always at the top of any list of potential risk events which lead to delay. Generally any contractor is exposed to considerable risks during the execution of the work by encountering unforeseen physical and site conditions or obstructions leading to delay of the works and extra costs – sandy soil turns into pure granite, areas of rock and sand appear to liquefy for no apparent reason; the list is endless, and such risks frequently occur, although not always with severe effects, for example high ground water, underground rocks, underground pipes and crossings, unexploded munitions, etc. These risks become more real due to the fact that the employers/owners often do not undertake a full site investigation before announcing tenders. Furthermore, in an attempt to deprive the contractor of the right to claim compensation for costs and time resulting from such risks, conditions of tenders often place an obligation upon tenderers to make site and soil investigations and fully inform themselves before the submission of their tenders.79 This trend leads to higher tender prices and often to awarding contracts to less prudent contractors with lowest tender prices, which may prove later to be less qualified for the job, and it could be avoided to a great extent by the employer doing further extensive testing to ensure that the project is not delayed due to such conditions. The FIDIC Red book contract specifically states: 79  Ibid. at ftn 24.

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4.12  Unforeseeable Physical Conditions In this Sub-Clause, “physical conditions” means natural physical conditions and manmade and other physical obstructions and pollutants, which the Contractor encounters at the Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions. If the Contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable. This notice shall describe the physical conditions, so that they can be inspected by the Engineer, and shall set out the reasons why the Contractor considers them to be Unforeseeable. The Contractor shall continue executing the Works, using such proper and reasonable measures as are appropriate for the physical conditions, and shall comply with any instructions which the Engineer may give. If an instruction constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply. If and to the extent that the Contractor encounters physical conditions which are Unforeseeable, gives such a notice, and suffers delay and/or incurs Cost due to these conditions, the Contractor shall be entitled subject to Sub-Clause  20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving such notice and inspecting and/or investigating these physical conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent these physical conditions were Unforeseeable, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent. However, before additional Cost is finally agreed or determined under sub-paragraph (ii), the Engineer may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Engineer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates. However, the net effect of all adjustments under sub-paragraph (b) and all these reductions, for all the physical conditions encountered in similar parts of the Works, shall not result in a net reduction in the Contract Price. The Engineer may take account of any evidence of the physical conditions foreseen by the Contractor when submitting the Tender, which may be made available by the Contractor, but shall not be bound by any such evidence.

It is understandable why this particular provision is one of the most frequently seen by members of the Dispute Board in the area of delay and prolongation. Delay, Disruption of the Works Delay and disruption of the works are the most frequent and common risks which contractors encounter. The reasons for delay and disruptions may be classified in three groups as follows: 1. Events caused by the employer or the engineer or other contractors, such as delay in handing over the site, delay by employers or by other contractors 44

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to complete the civil work, or delay by the engineer to issue or approve the drawings; 2. Events caused by the contractor or by someone for whose act the contractor is responsible such as his sub-contractor or supplier; 3. Events or persons causing delay for which or for whom neither party is responsible such as weather conditions or natural events, war or unexpected geological or ground conditions, as stated before. Delays may cause the contractor to suffer a wide variety of loss or damages such as stand-by time costs, losses in productivity, increased cost by inflation and the disruption of the whole programme of the Works. In addition, he may have to pay the employer liquidated damages as may be stated in the Contract. The risk of paying liquidated damages becomes more serious if the Contract does not provide for a ceiling or a limit for the liquidated damages. The payment of liquidated damages for delay by the contractor is binding under many jurisdictions if stipulated in the Contract, even if the employer suffers less loss or no loss at all. It should be noted also that the contractor is in principle entitled to recover from the employer his costs on the basis of a breach of contract by the employer or under an express or implied term of the Contract. For example, in cases of the failure of the employer to timely obtain permission from land owners to enter the site or delay in supply of materials by the employer or delay by the engineer to issue the necessary drawings.80 In such cases, where the delay is caused by the employer or his engineer, the employer has no right, unless otherwise stated in the Contract, to order the contractor to accelerate to make up for the lost time. But where the delay is due to contractor’s default, then the contractor has a duty to mitigate the delay by taking reasonable measures including acceleration, and he is not entitled to choose to be late and pay liquidated damages. Extensions of Time The other main area has to do with Extensions of Time (EOT), which are covered in a later chapter. Summary The concept of risk differs according to viewpoint, attitude and experience. To most people, risk is viewed in terms of a negative effect. Project risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, time for completion or delay and its consequences, such as cost, and quality. Each identified risk is assessed for its probability of occurrence and impact on a project.81

80  Ibid. at ftn 24. 81  See e.g. Muhammed Mufazzal Hossen, Sunkoo Kang and Jonghyun Kim, Construction Schedule Delay Risk Assessment by Using Combined AHP-RII Methodology for an International NPP Project, Nuclear Engineering and Technology, 47(3), April 2015, 362–379, www.sciencedirect.com/science/article/pii/S1738573315000236.

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The product of these assessments provides an overall measure of risk, with frequency and severity of risk items and a higher risk ranking indicating a more significant risk. The management of risks in a project is an important part of the decision-making process. The risk management process (RMP) is the basic principle of understanding and managing risks in a project. RMP is a systematic application of management policies, procedures and practices to the activities of communicating, consulting and context establishment and identifying, analysing, evaluating, treating, monitoring and reviewing risk, and like every systematic procedure, the RMP must be applied efficiently throughout the life cycle of a project. There are six phases in RMP: risk management planning, risk identification, qualitative risk analysis, quantitative risk analysis, risk response planning and risk monitoring and control. All steps in the RMP should be included when dealing with risks, in order to efficiently implement the process in the project. The RMP process mainly consists of two phases: risk assessment, which includes the identification, prioritisation, estimation and evaluation of risk, and risk management, which includes planning risk responses and monitoring and managing those responses with the goal being to attempt to ensure that the project is on time and on budget and that any delay is removed or minimised.

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CHAPTER 3

NPP Contract Issues at Inception, Standard Form Contract Provisions Regarding NPP Risk, Delay and Potential for Disruption

How to properly structure the actual NPP project becomes the issue once the decision is made to proceed, the land and location determined and the type and form of contract generally agreed: EPC, DBO, etc. There are many factors which go into this, and this chapter introduces the basic elements necessary, how to achieve them and what eventual contract with the suppliers/contractors and the owner best achieve this goal. The underlying issue is which contact to use, how to use it and when a bespoke contract should be used instead of the form-type contract. The most widely used “form” contract is the FIDIC form of contract, and in this area whilst it is sometimes the Red Book form which is the one where the contractor is given the drawings and design to build but more likely it will be either the Yellow Book which is an Engineer, Procurement and Construction Contract, also known as an EPC form of contract, and in FIDIC this is officially known as the FIDIC Conditions of Contract for Plant & Design-build with the newest edition being the one which came out in 2017. Closely related to this is the FIDIC Silver Book, which is titled Conditions of Contract for EPC Turnkey Projects, the 1999 Edition being the most current. Other forms sometimes used in NPP projects are the FIDIC Gold book (FIDIC Conditions for Design, Build and Operate Projects) and the Harmonised or Pink book (or the 2010 version, which is known as the Harmonised Red Book). EPC Contracts This form of contract is by far the most common in the NPP sector and provides for the contractor/supplier who presumably has the greater knowledge and skill to design and then build the NPP. The goal for the owner/employer is that the project will be built on time and on budget and be free of major claims, delay and disputes. The problem here is that this puts the owner and the contractor on opposite sides of the situation, with the owner hoping to have the project built to schedule and without cost overruns or delays – remembering that NPPs are very political by nature and garner much press coverage, so any issue leading to delay sparks much concern and controversy. The contractor/supplier(s), however, have the desire to make as much profit as possible, and whilst this does not necessarily cause problems, the issue of delay and unforeseen conditions and a host of other climate and ground events can lead to delay and claims for more time and money for the contractor. One way to look at this is that EPC contracts are a study in risk analysis and avoidance due to the fact that each side is faced with many unknowns arising from complex nuclear equipment issues, the close tolerances in the equipment itself and the dangerous nature of the system being constructed, followed by the fluctuation costs for lengthy projects, new 47

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technologies and the ever-shifting sands of governmental regulations. Thus, the biggest arguments/discussions in the negotiation of such contracts (and this is the same for any project involving NPPs) has to do with allocation of risk. FIDIC is rightly proud of the fact that its various contracts do an excellent job of allocating risk between the employer and the contractor, and depending upon the contract, this is a sliding scale, and this is previously discussed in Chapter 2 and shown in Figure 2.2 in that chapter. There have been many articles written1 on the subject of risk management and how EPC contracts should be written, and whilst the FIDIC Yellow Book EPC will be discussed in further detail, the overriding issues have to do with project management and what is necessary for inclusion in any such contract – whether FIDIC or Bespoke or otherwise and these include: • Pick the right EPC Contract: This has to do with risk allocation, and there is a vast difference between form and bespoke contracts, and whilst this may not appear critical, it becomes critical when dealing with any dispute – form FIDIC contracts have stood the test of many court and dispute board and arbitration decisions, and each provision has generally been well thought out and further delineated by various courts worldwide thus making sure that what is said in the contract is what is upheld in court (adjudication/arbitration/court proceedings). The key provisions include a full description of what exactly will be the contractor’s standard of performance; a full and proper schedule and agreement on who and how often this will be updated; how mechanical issues will be dealt with; what constitutes substantial and/or final completion; taking over issues; delay and performance liquidated damages; changes; limitation of liability; suspension, termination and default; and a prompt system of both claim procedures and dispute handling. • Determine a realistic budget and initial schedule: These are two of the greatest causes of claims and disputes – over-optimistic budgets and schedules. Whilst the owner/employer may have wishful thinking about how soon and how cheaply the project can be built, history informs us that this is usually not the case, and this area of any project is the greatest cause of large numbers of disputes. From the owner’s viewpoint any unallocated delay can have disastrous consequences if, as is the case in most situations, the owner has a power purchase agreement in place that contractually requires power generation by a certain date, and this then leads to onerous liquidated damage provisions, which lead to claims for extensions of time – all of this consuming more time and money to resolve at a later date when this could have been avoided or mitigated at the beginning with a realistic budget and programme schedule. The corollary of this is that the contract should also carefully define excusable delays, ones which add more time but not money, and specifically lay out what delays are to be compensated and which ones add both – time and money. The other critical factor is that the contract should be clear and define how and what are concurrent delays, or overlapping excusable delays, and also cover (or incorporate by reference the standards to be used, e.g. the SCL Guidelines) which will grant the contractor time but no money; compensable delays, which will grant the contractor both time and money; and concurrent 1  See e.g. Judah Lifschitz and Daniel A. Kapner, Allocating Risks Strategically: How to Complete Successful Power and Energy Projects, Power Magazine, May 1, 2019.

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delays and which are overlapping excusable, compensable and inexcusable delays. One other factor which is recommended is that the employer/owner should add in a bonus for early completion and also an effective provision which allows the owner to begin generating power (once it can be done without risk) prior to substantial completion without waiving any defects. Too many times this author has seen power being generated and sold prior to final completion and sign-off and the contractor using this as a defence to any defects in its work. • Determine what project delivery system and pricing model work best for the project and do this before contracting. Under most EPC-type contracts like FIDIC, the contractor/supplier both engineers and constructs the project then handles all procurement and installation of the major components/equipment, e.g. the reactor and its components, as well as procures and installs the other main items including the turbines and generators as well as all of the structures attendant to the project. There are other forms of EPC contracts or ones in which the owner/employer delegates certain responsibilities to the contractor and keeps others, such as the procurement of certain items of equipment which the owner obtains/sources and the contractor installs.2 Also if the owner supplies items of plant, the issue of warranties and liability for equipment performance to specification falls to the owner and cannot then be easily attributed to the contractor thus shifting the risk. • What type of pricing should be used? Some writers3 have noted that there can be several ways to “price” EPC projects: as either “fixed,” “firm” or “target” prices. Under a fixed-price model, the parties set a fixed price for the entire EPC scope, subject to increases for owner changes and other factors outside the EPC contractor’s control, and the EPC contractor assumes the risk of the cost of the work exceeding the agreed fixed price. Given the risk assumed by the EPC contractor under this model, it must properly estimate the cost of the work, the reasonableness of its budget and whether it has sufficient contingency for risk. Then using a firm-price model, the parties agree to a fixed price subject to an adjustment for certain escalations; e.g. if there is a risk that the cost of certain key building elements, such as steel, may sharply escalate, the final price could increase. Finally using a “target-price model”, the parties agree to engage in an open-book estimate process to identify a non-binding target price for the project, and the EPC contractor will receive reimbursements for allowable costs. • How to resolve disputes quickly and effectively: This can be one of the most critical aspects of any NPP contract for costly and time-consuming disputes which may flow into the court system can definitely ruin any project and run up huge damages and delay. As will be discussed in later chapters, the use of dispute boards has come a long way to sorting out any problems in this area of any project and should be placed into any contract – FIDIC now has provision for full-time dispute boards in all of its Contracts and this same procedure should be in any bespoke contract also. 2  It should be noted that this sort of arrangement is one which can lead to all manner of delay and disruption and blame shifting when some key element of plant does not arrive on time or is the wrong item and does not fit within the design done by the contractor – all leading to claims and disputes. 3  Ibid. at ftn 1.

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Forms of Standard Construction Contract There are many standardised forms of construction contract discussed briefly earlier, but internationally and particularly in the UK the major forms are the FIDIC Form of Contracts, the NEC3 Form Contract, the ICE Form Contract and the JCT Form Contract. Most construction disputes are bound by the rules and procedures set out in the underlying contracts of which most, if not all, are based upon one standard form or another and all of which provide for various forms of dispute resolution. There are many sources of standard form contracts in the construction industry. Internationally, there are those form contracts issued by the Federation Internationale des Ingenieurs Conseils (FIDIC). This organisation publishes a wide range of forms for use in engineering projects. The most widely used is the Conditions of Contract for Construction Works, commonly referred to as the Red Book, which is a traditional remeasurement form where the works are designed by the employer’s engineer. Additional forms include the Conditions of Contract for Plant and Design-Build, which is basically for the construction of an electrical and/or mechanical plant and for the design and execution of building or engineering works, where the contractor designs and provides plant or other works in accordance with the employer’s requirements. This is known as the Yellow Book. There is also the Silver Book titled the Conditions of Contract for EPC Turnkey Projects. This is for use when one entity is fully responsible for the engineering, procurement and construction of an engineering project, providing a fully equipped facility, ready for operation at the “turn of the key”. This has been followed by what is referred to as the Gold Book titled Conditions of Contract for Design, Build and Operate Projects, which covers what the Silver Book covers plus adds an operational aspect to the agreement. There is also a form titled the Harmonised Version, which is a compilation basically restating the Red Book and is used by the world’s development banks for large international infrastructure projects. FIDIC also publishes a Short Form of Contract, which is for works of a relatively small capital value. On a more local scale, in the UK, the most established series of construction forms in use are those published by the Joint Contracts Tribunal Ltd (JCT), whose membership includes most of the professional construction bodies, including the Royal Institute of British Architects, the Royal Institution of Chartered Surveyors, the Local Government Association, the Association of Consulting Engineers Ltd, the Association of Consultant Architects (ACA) and others. The JCT has produced a standard form of building contract since 1909, and it also publishes a number of further forms, including the JCT Intermediate form of contract, its minor works contracts and a form of contract with the contractor’s design, as well as a management contract. The Institution of Civil Engineers publishes its own version of form contracts mostly for use in civil engineering works, including a traditional remeasurement form (now ICE 7th edition), a Design and Construct form and a form for minor works. The ICE also publishes the integrated suite of contracts, sub-contracts and appointment of consultants comprising the New Engineering Contract (NEC) system. Another group that publishes its own forms is the Association of Consultant Architects (ACA) whose forms cover both contracts and sub-contracts for building works. Further, 50

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there is a government form of contract for building and civil engineering major works, known as “GC/Works/1”, and there are also government forms for related sub-contracts, for small works, for mechanical and electrical works, and for various other purposes. In addition to these, the Institution of Mechanical Engineers, the Institution of Electrical Engineers and the Association of Consulting Engineers (ACE) publish their own forms of contract. Use of Form Contracts The problem in using standard form contracts is that they leave open many areas where error can occur, particularly if lay individuals prepare them, i.e. those not experienced in the nuances of construction contracting. Thus, with the large number of standard form contracts in use, many times the parties will attempt to amend these standard forms and do so incorrectly, or the parties will fill in the blanks incorrectly thus leading to disastrous results during the construction process. A dispute may arise due to some inconsistency in the modified contract because where one contract incorporates by reference a standard form along with particular conditions, it can create problems where none should have ever existed. Standard Form Provisions Most standard construction forms contain provisions that dictate the extent of the contractor’s liability for design along with the extent of the contractor’s liability for defective work. In addition, these forms will provide a method and a procedure for how variations will be handled and the circumstances in which the contractor is entitled to be paid additional sums for these variations or for delay in progressing the Works, as well as how the contractor will be compensated in addition to the procedures for payments to the contractor. Additional clauses will undoubtedly cover the respective liability as to insurance and the circumstances in which either party may claim breach and/or terminate the contract. The main provisions to be covered, however, are the “Conditions of Contract”, which cover the basic general items dealing with the contractor’s obligations regarding the quality of work; the time for completion; variations; extensions of time; liquidated damages for delay; termination; and some form of dispute resolution, such as arbitration, mediation or a Dispute Board. Other items needed in any such contract include the most obvious – i.e. the drawings, bills of quantities or approximate quantities and specifications. Of additional use is the contractor’s “Method Statement” explaining the method(s) it intends to employ to complete the Works and a “Schedule of Rates”, which are needed in case of variations, particularly when attempting to value the changes and especially when there are no bills of quantities. A good standard form agreement will also provide a method of resolving conflicts within the documents themselves by stating, for example, that the bills of quantities are subordinate to the articles, conditions and appendix to the contract and that discrepancies are to be dealt with by either the engineer or architect’s decision. However, in the absence of such a conflict resolution procedure, the general rule is that all of the contract documents must be read together and, if possible, reconciled so as to result in a sensible interpretation. If this cannot be done then those parts of the 51

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documents which may be presumed to express the authentic intention of the parties will be given precedence, such as where a custom-drafted provision will be given precedence over a printed one. Methods of Construction Contracting There are various methods by which a project is constructed. Issues include the availability of financing, the amount of risk the employer wants to undertake and conversely how much risk any potential contractor wants to assume. Additional issues revolve around the location of the project, the materials to be used and what use is to be made of the completed project. Over the years many methods of construction contracting have developed all in one way or another varying the risks (and responsibilities) to be taken by either the employer or the contractor, and these varying methods form the basis for many of the resulting disputes during construction. It should be noted that several distinct methods of contracting have evolved, dividing the risks and responsibilities of construction between employers and contractors in a variety of ways, e.g. the basis on which the contractor’s work is to be priced and paid for as well as the extent of responsibility given to the contractor for the design and/or management of the project. The form of contract to be used in each circumstance will involve a division of risk between the employer and the contractor (and subcontractors), as well as a determination of whether the contractor or the employer will be responsible for the design. Further complications arise when the project is one where the contractor not only designs and builds the project but also is given the further responsibility of operating the project on the employer’s behalf for a fixed period of time after completion. The Traditional Method In this method, the project is designed by the employer (usually the employer’s architect and/or engineer). Here, it is the employer who obtains the design of its project independently of the contractor and its construction. This method has been commonly used for years and is the basis of most major civil engineering forms of contract such as the FIDIC Red Book. Once the design is received, it is then converted into bills of quantities by the employer’s quantity surveyor. The bills of quantities and the drawings/specifications are then put out for tender, and various contractors can review the design/specifications and bills of quantities before tender. After selection the contractor is responsible for constructing the Works based upon the design, while the employer (and its designers) remain responsible for any defects in the design itself. When the main contractor is selected, it may subcontract some, or all, of the work to subcontractors who have been “nominated” in advance by the employer’s design professionals or to “domestic” subcontractors selected by the main contractor. Frequently, these subcontractors have been selected for their specialisation and will be responsible for certain aspects of the design of their own work. The Design-Build Method In this method of contracting, the employer contracts with the contractor who is then responsible for all aspects of the project, including both the design and construction, thus 52

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removing the employer from any design responsibility and leaving total construction liability on the contractor for any variations (not employer based). Such contracts are sometimes referred to as “turnkey” contracts, i.e. the contractor does everything and turns over the “key” to the employer when completed. In this method of construction the employer prepares the requirements needed and, based upon this list of requirements, the contractor takes care of the design and construction. These sorts of contracts are generally lump sum agreements and this lump sum is a reflection of the employer’s requirement. The Management Contracting Method This method grew out of the traditional method. Here the “management contractor” takes over the position of main contractor in the traditional method but does not have any direct responsibility for the actual performance of the works contractors that it engages. While the employer still has its own professional design team (where many times the management contractor acts in effect as a member of the employer’s professional team), the management contractor engages a number of subcontractors who actually carry out the construction work. The management contractor’s role is effectively confined to managing and coordinating the performance of its various subcontractors, who are usually referred to as “works contractors”. The management contractor is generally protected by contractual provisions, which, in the event of a works contractor default, make its liability to the employer no greater than whatever it can recover from the defaulting works contractor. The management contractor is usually paid a fee for its services, which is generally calculated by a formula based on the actual cost of the Works thus making a management contract a cost reimbursement contract rather than lump sum. The Construction Manager Method A variation of the management contracting method is what is known as “Construction Management”. Under this system the construction manager is removed from the Works contract chain and is just another construction consultant who is directly hired by the employer. Under this scenario the employer directly employs all the trades that would have been subcontractors to the main contractor under the traditional method with the construction manager being in charge of marshalling their efforts to complete the project. Thus, the construction manager’s responsibility, like those of the rest of the design team, is limited to the exercise of reasonable skill and care in the performance of its duties, and it will not have any responsibility (unless otherwise agreed with the employer) for the actual performance of trade contractors. Other Methods Over the years various other methods of construction have evolved. Most are based on a variation of the traditional methods, and some combine various forms of existing relationships into a new format. Partnering is one such method. Here, the employer, the consultants, the main contractor and key specialists all sign the one partnering agreement. There is a collaborative finalisation of designs, prices and members of the supply chain. The agreement sets up a core group of individuals representing the partnering team members. The core group operates an early warning system for problems and undertakes regular 53

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reviews of progress and performance. Success is measured against key performance indicators (KPIs), and payment is usually tied to performance against the KPIs. This type of arrangement is typically used for public sector projects where, for financial reasons, it is best to allow an experienced consortium to come together and build public projects such as schools, hospitals and prisons and not only design but also construct and maintain the completed project as well as provide the services set out in the agreement for the duration of the contract period, which may be 25 or 30 years.

Contractual Operational and Payment Formats The Traditional Lump Sum or Fixed Price Contract The most traditional form of building contract is the lump sum or fixed price contract. This sort of contract is drafted so that the contractor carries out and completes certain specified work for a fixed sum which has been pre-agreed, i.e. a set price for a given amount of work, with both price and work being quantified at the beginning. This is sometimes referred to as an “entire contract”, meaning that the contractor’s right to payment is dependent upon full completion of the Works. There is no room for discussion at a later date, and for this sort of contract to work, the drawings and specifications need to be full and complete as well as quantified before the work is put out to tender. This usually involves the precise description of work to be constructed and accurate bills of quantities, which are calculated according to a published standard method of measurement. In this sort of contract any omissions from the drawings/specifications will result in the contractor being entitled to an additional sum of money over and above the original contract price. Additionally, should any variations to the contract occur due to the employer changing the scope of the Works, or any other unforeseen conditions arise, then any adjustments in the time for completion and/or costs incurred will result in an adjusted contract price and also entitle the contractor to reimbursement for any delay impacting the contract’s completion caused by matters under the control of the employer. Another issue that arises in lump sum contracts has to do with changes in the cost of materials, inflation and other economic developments. In this regard many such contracts provide for a method of recalculating the rates and prices quoted to accurately reflect any inflation during the life of the contract and such “Index-linking” will generally also include a way to sort out any fluctuation in such things as local and national tax rates, costs of labour/materials and related items. The Guaranteed Maximum Price Contract This form of contract is similar to a lump sum contract but in effect is really a form of cost reimbursement to the contractor. Its goal is to prevent cost overruns between the contractor and employer. This may be thought of as a particular type of cost reimbursement contract. In addition to providing a mechanism for controlling the level of the contractor’s fee, the contract imposes a maximum price on the amount of cost the employer will have to pay for the entire project. The burden is thus put on the contractor to ensure that there are no errors in pricing or other details of the project. It should be noted, however, that this form 54

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of contract usually allows for the guaranteed maximum price to be altered by allowing changes in the maximum price for items that should not be borne by the contractor but rather are risks within the ambit of the employer. The Remeasurement Type of Contract Another way to proceed is with a remeasurement form of contract. This type differs from the lump sum contract in that the payment for work done is measured as completed, and payment is made accordingly. The benefit to the contractor in this circumstance is that it is paid when the work is completed – any work – and not just what was shown or even anticipated in the drawings/specifications. These types of contracts are normally used in civil engineering situations where it would be difficult to fully determine the exact amount of work needed, such as where ground conditions cannot be fully ascertained. These are also used when the work cannot be fully quantified at the tendering stage, such as where the drawings are not fully completed. From an employer’s point of view, these can be beneficial in that estimated quantities can be used as to all tenderers, thus allowing the project to proceed even in the absence of completed drawings/specifications. Generally, the final calculation for payment is based upon “tendered unit rates” and frequently will also allow for fluctuations, variations, etc., the same as in a lump sum contract. The Cost Reimbursement or Cost Plus Fee Contract This form of contract reduces the risk to the extent that the contractor is paid its actual costs in doing the work plus (usually) a percentage on top of that for overhead and profit. This sort of contract is often used in government contracting not only for supply contracts but also works contracts and is very useful in situations involving lengthy development research situations. In these sorts of contracts, the contractor’s fees can be calculated in many different ways. The most common way includes its actual costs plus a fixed fee where the fee is fixed as a lump sum or percentage rate by reference to the estimated overall cost of the Works. There is always an argument that by using such a form of contract, the contractor has almost no incentive to keep costs to a minimum as it enjoys a percentage of the costs incurred. Yet another way is to pay for the costs plus a fluctuating fee to the contractor. Here, any initial lump sum or percentage fee is adjusted correlating with any significant increases or decreases in the actual cost of the Works and may be based either on some form of linear progression or by the use of threshold(s) which are compared to the original budgeted amounts for the project. Target Cost Contracts Target cost contracts are useful in that they give the contractor some incentive to control costs as the contractor’s fee varies in inverse proportion to the difference between the actual final cost of the Work and the initial budgeted or targeted cost. In these situations the employer and contractor agree the target cost as an estimate for the Works and also agree a formula for payment of the incentive portion at completion. The parties can then adjust this fee while the 55

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work is in progress, if needed, to factor in variations and other matters. After completion the targeted cost as adjusted is compared to the actual final costs, and the original agreed fee to the contractor is then varied according to the previously agreed formula. Specifically, then, as to the various standard forms of contract we have the following: The ICE Conditions of Contract4 The ICE produces several forms of contract, including the ICE Measurement Version, the Design and Construct, the Minor Works and the ECC Form of Contract. These all have updated current versions, such as the Measurement Version 7th Edition. Measurement Version 7th Edition This form of contract was designed for use in large civil engineering projects where the employer’s professional designers carry out the design. Further, the ICE 7th Edition, like the JCT’s Approximate Quantities Contract, is not a lump sum contract. Instead, the final amount payable to the contractor is based on remeasurement of the Works in place. Here, the tender is based upon approximations, and the final price for the Works is subject to recalculation once the actual amount of work has been completed. Like the FIDIC form contracts, in the ICE Conditions, the employer appoints the engineer who acts as a contract administrator and initial dispute resolver. ICE Design and Construct Contract This form of contract is a design and build format and is also used on major civil engineering projects. Here, the contractor bears the main duty to design, construct and complete the works using all reasonable skill, care and diligence. ICE Minor Works Contract Again, as this form of contract is from the Institution of Civil Engineers, it is also meant for civil engineering works with the difference being that it is for use on projects where the Works contemplated are fairly simple and non-complicated. As a result, any risks involved are small. Here, the contractor has no design responsibility other than possibly design of a specialised nature that would normally be undertaken by a specialist subcontractor or supplier. Two other main provisions which make this different are that the contract value does not exceed £500,000, and the period for completion does not exceed six months. Here, the contractor is only required to exercise reasonable skill and care in the completion of the Works.

4  Adapted from Dr Cyril Chern (2015), The Law of Construction Disputes, 2nd Edition, Informa Publishing, London.

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Time and cost issues under the Measurement Version, Design and Construct, Minor Works The Measurement Version Under this form of contract, the contractor is obliged to start the Works as soon as is reasonably practical after the Works commencement date, and, once started, it must proceed with the Works without delay in accordance with the contract. However, under Clause 42, the employer is allowed to set out which sections of the site can be used/accessed and to restrict the availability and nature of access provided. Further, the employer is able to prescribe the order of construction. The Works must be completed within the stated time, i.e. substantially completed, and the use of the wording “including any section required to be completed within a particular time as stated in the appendix to the form of tender” allows for sectional completion. As to any EOT, Clause 44 provides that the contractor, within 28 days after the cause of any delay has arisen or as soon thereafter as reasonable, must notify the engineer and provide full and detailed particulars justifying the extension so that it may be investigated contemporaneously with the actual delay. This Clause 44 allows the engineer to assess the delay and to grant an interim extension of time, which is subject to review once the Works or relevant section of the Works have been completed. Further, Clause 44(5) requires that within 28 days of the issue of the certificate of substantial completion for the Works, or for any section thereof, the engineer must review all the extensions of time so as to fully determine and certify the overall extension of time for which the engineer considers the contractor entitled. Any delay in completion then makes the contractor liable under Clause 77 for liquidated damages for delay in substantial completion of either the whole or a specified section of the Works. Additionally, there is a way to cap the maximum amount of liquidated damages in Clause 47(4) that allows a limit on the maximum amount of liquidated damages to be inserted in the appendix to the form of tender. However, if no such limit is stated, then there is no limit to the amount of liquidated damages. Here, the contract is not a lump sum contract but a remeasurement contract; thus, the contract does not refer to a contract sum but rather to a tender total (which represents the approximate quantities multiplied by the agreed rates) and the contract price, which is the final ascertained amount when the actual quantities have been multiplied by the rates. As to payments and certification, Clause 60.1 requires the contractor to submit monthly statements to the engineer, which should include the estimated contract value of the permanent works carried out up to the end of that month. After this, the certification of payment is issued by the engineer and must occur within 25 days of the date of delivery of the contractor’s monthly statement with payment by the employer three days later, giving a total of 28 days from the date of the submission for payment. Changes to the contract as a result of alterations, additions and/or omissions are dealt with in Clause 61, which gives the engineer a wide range of various possibilities. As to retention monies, the rate and the limit of retention are included, with 50 per cent retention being released on the certificate of substantial completion and the remaining half at the end of the defects correction period. 57

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The Design and Construct Version The only real differences between the Design and Construct Version and the Measurement Version are that references to the engineer are replaced with references to the employer’s representative. It should also be noted that the Design and Construct Contract is not by its terms a remeasurement contract as the tendering process allows for a lump sum or other sum as may be ascertained in accordance with the contract conditions. Under this form of contract, the contract price includes the design, construction and completion of the Works and the payment provisions are very similar to those of the Measurement Version. The Minor Works Contract The Minor Works Contract can be either a lump sum contract or a measurement contract using a price bill of quantities and, in keeping with its nature, provides that the start date is either specified in the Appendix or notified by the engineer, with the contractor then having to start as soon as reasonably possible after the start date. There are EOT provisions in Clause 4.4, but these cover a very limited number of relevant events, and, as to practical completion, this occurs when the Works reach a state where they can be taken, or are fit to be taken, into use or possession by the employer – this, by the way, is notwithstanding any defects or outstanding items which may still exist. Here, liquidated damages arise for a delay in completion per Clause 4.6. Interestingly as to payments, there is no provision made for any price fluctuations. This is because the Minor Works Contract is intended for periods of less than six months. As to any claims, the contractor is required to provide monthly statements and, per Clause 7.2 and Clause 7.3, the engineer is to certify any claims within 25 days of receipt of the monthly payments, and, thereafter, to pay such claims within days.

The NEC3 – The New Engineering Contract Engineering and Construction Contract – NEC ECC The ICE launched the NEC in 1993 followed by the 2nd edition in 1995 and the 3rd edition in 2005. It is now the most widely used contract in UK civil engineering. It is often used by government departments such as the Highways Agency and by local authorities. It has been used on major projects and procurement initiatives such as the Channel Tunnel Rail Link, Heathrow T5, NHS Procure 21 and the Eden Project. Overview The most striking thing about the NEC3 is that it is written in “plain English” and appears to be based on a more informal style than other standard forms.5 Further, the contract places into use a more “pro-active” form of project management throughout the running of

5  See e.g. Martin Bridgewater and Andrew Hemsley, NEC3: A Change for the Better or a Missed Opportunity?, ICLR 39, 2006.

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the project and deals with potentially troubling situations in the same manner, e.g. the main contract terms provide that, if no programme is identified in the Contract Data, one-quarter of the price is retained until the relevant programme is submitted and requires the project manager to give early warnings of any situation that could cause delay or increase prices to the contractor as well as requiring the project manager to give instructions resolving ambiguities between contract documents and similar “helpful” activities. Another factor that makes the NEC3 different is that it allows for a more varied way of selecting the various modular clauses. The main contract clauses – the “core clauses” – apply across the board to all the options, and on top of this there are six main pricing options: • Option A – a lump sum based on an activity schedule • Option B – a combination of lump sums and rates based on quantities in a bill of quantities • Option C – a target contract with activity schedule • Option D – a target contract with bill of quantities • Option E – a cost reimbursable • Option F – a management contract Some Important Provisions Clarifications There has been much effort put forward to make the contract easier to work with and understand, and this is evident in little changes such as the definition of “Working Areas”, which is contained in Clause 11.2(18), which clarifies that working areas mean only those parts of the working areas identified in the contract data which are necessary for “Providing the Works” and used only for work in this particular contract. This allows, for example, to define “Working Areas” to include areas of land to be used temporarily for the purposes of the contract. Also in this vein, the possession and use of the site is clarified as the contract in Clause 33 now gives access to and use of the site rather than possession of the site, thus preventing an assortment of potential problems. Further in this regard is the new definition of “Subcontractor” as seen in Clause 11.2(17). Now the subcontractor is a person “or organisation” that has a contract to construct or install part of the Works or provide a service or to supply plant and equipment. An important item deals with compensation events, with the contractor now having eight weeks from becoming aware of the compensation event within which to notify the project manager. The contract now also makes notification of the compensation event a condition precedent to the contractor’s entitlement to time and/or money. The intent of any such notification is so that the employer can hopefully mitigate the situation as well as gather sufficient evidence to properly respond to any claims. Under NEC3, there is an early warning procedure in Clause 16 which requires each party to serve an early warning notice as soon as it becomes aware of any matter that could increase the total of the prices, delay completion, delay meeting a key date or impair the performance of the Works in use. It is open to the project manager, when determining the contractor’s entitlement to time and/or money in consequence of a compensation event, to take into account any breach of such obligation by the contractor if, for example, such delay in notification has resulted in mitigation measures not being taken. 59

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Adjudication The NEC3 now provides two options regarding adjudication of disputes arising under the contract. Option W1 is basically non-UK compliant under the HGCRA and allows for mandatory two- to four-week periods prior to the referral of a matter to adjudication. The theory behind this is that the NEC form contract is for use internationally where the HGCRA adjudication provisions do not apply, and if one wants the UK HGCRA provisions, then Option W2 is the provision to use as it is intended for use on UK contracts to which the HGCRA does apply. While the NEC3 moves forward in promoting adjudication and, in its option W2, provides a HGCRA-compliant adjudication process, the JCT has chosen to go the other route and have removed the special JCT adjudication rules instead incorporating the adjudication procedure contained in the statutory Scheme for Construction Contracts.6 Under the NEC3, the adjudicator’s decision, rather than being binding until a final determination in arbitration, litigation or mutual agreement, is now final and binding immediately and remains so unless either party issues its notice of dissatisfaction with the decision within four weeks of the decision being made. This also puts it in the similar category provided for in the FIDIC form contracts. Capping Contractor Liability Another new provision is one that allows the parties to put a cap on a contractor’s liability for specific situations, such as for indirect or consequential losses as well as for the contractor’s total liability to the employer. The Risk Register Clause 16 provides for a risk register, which is meant to encourage good project management and promote pro-active approaches to the management of the project itself. Thus, at the start of the project, and as part of the Contract Data, the parties create a risk register by noting the risks they identify as having the potential to raise the total cost. The guidance notes to the contract suggest items such as design problems, unexpected ground conditions or potential delay in the supply of materials or plant. In addition to these sorts of events, the project manager has the increased responsibility to also put in the risk register “any matter”, of which the contractor gives him early warning, that may increase total cost. In a further move to create interaction between the contractor and the project manager, each may also instruct the other to attend risk reduction meetings and to review any already noted risks with the culmination being that the project manager keeps the risk register up to date and continually revises it after each meeting. Further, if at one of these risk reduction meetings the parties agree on a point that, for example, constitutes a compensation event under Clause 60.1(1) for the contractor, the decision should be reflected in the revised risk register issued to the contractor. After this occurs a change to the Works Information must then be instructed by the project manager under Clause 16.4. 6  More on the distinction can be found in the chapter dealing with adjudication, herein.

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Prevention Clause 19 What is new and different is the Prevention Clause 19 and its associated compensation event Clause 60.1(19), which follow the wording of the existing “unforeseen physical conditions” compensation event but provide wider time and/or money relief for the contractor in circumstances which stop the contractor from completing the Works, either by the date shown in the accepted programme or at all, provided the event could not have been prevented by the contractor and was an event that an experienced contractor would have judged, at the contract date, to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it.7 When this situation develops, the project manager is allowed to instruct the contractor on what should be done to cope with the changed events. The Concept of “Key Dates” The NEC3 makes use of “Key Dates” which allow the project manager to manage the work of different contractors working on the same project within the programme. Here, the project manager sets “Key Dates” which provide for the time for completion of specific defined activities or parts of the Works, thus allowing other contractors, or the employer, to proceed with works that follow. It should be noted that the guidance notes point out that Key Dates differ from Sectional Completion in that completion and taking over are not required to fulfil the condition. In this regard Clause 25.3 states that if a Key Date is not met, and as a result the employer incurs additional cost by either carrying out the work itself or employing others to do so, the contractor will bear the cost, thus allowing set-off between the different contractors. Design Liability Unfortunately, under the NEC3, there is no clear answer to whether the contractor’s liability for its design is based on fitness for purpose or reasonable skill and care. Under Option X15, there is an inclusion of a limitation of the contractor’s design liability to use reasonable skill and care only, but this is not stated expressly, and all of the relevant provisions refer only to the contractor’s obligation to ensure that its design complies with the Works Information. Payment for Defective Work Whether the contractor has to be paid for defective work depends on the option chosen; this varies from option to option. For example, under the “lump sum” options, options A  and B, work, which is “without defects which would either delay or be covered by immediately following work”, (i.e. work that is defective but does not fall under this limited description) has to be paid for by the employer.

7  See e.g. ibid. at ftn 5.

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Then under “non-lump sum” contracts, the project manager can disallow the cost of “correcting Defects after Completion”8 and can also deduct monies for “correcting Defects caused by the Contractor not complying with a constraint on how he is to provide the Works stated in the Works Information”. But if the defective work does not fall within these two categories allowed to disallow cost, the contractor is paid for the work. The FIDIC Forms of Contract The Three Main FIDIC Forms of Contract FIDIC publishes eight “Forms of Contract”; these include the White Book, which is the “Client Consultant Model Services Agreement”, and the Green Book, which is its Short Form of Contract. There is also an additional specialty contract known as the Blue Book, which is for dredging and reclamation works. The main construction contracts, however, are the Red Book, which is the “Conditions of Contract for Construction”; the Yellow Book, which is the “Conditions of Contract for Plant and Design-Build”; the Silver Book, which is the “Conditions of Contract for EPC/ Turnkey” projects; the Gold Book, which is its newest form of contract for “Design, Build and Operate” projects; and the Pink Book, better known as the “Multilateral Development Bank” or “MDB Harmonised Contract”. These main forms will be discussed herein. In comparison to other standard forms of contract like the JCT or NEC, which can be used across a multitude of projects, the FIDIC forms are intended for large, complex and substantial projects lasting over many years and are generally best suited for large infrastructure projects, e.g. hydroelectric projects, dams, highways, bridges and the like. The concept of risk allocation is the basis for all of the FIDIC contracts, and FIDIC has sought over the years to create a fair division of responsibility where the person best able to control or deal with the risk takes on that obligation. The goal is that contractors would not put large contingency figures into their tenders, and, if an unexpected risk did later arise, the employer would pay at that time rather than requiring it to pay a premium for price certainty on a lump sum contract. The Proper Form Employer Design of the Project The FIDIC forms vary based upon how the project is going to be designed and by whom. For example, if the employer is responsible for the general design, i.e. it has hired the engineer/architect and that design professional reports directly to the employer, and where this design professional will then also administer the project’s progress and certify payments as well as approve any variations, then the Red Book is the proper form to use.

8  However, this does not cover defects discovered after completion.

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Contractor Design of the Project Contractor designs and employer supervises Here, the situation is reversed: the employer provides the contractor with its requirements and/or outline specifications, and the contractor designs the project to meet those requirements and specifications. Under these circumstances, the Yellow Book is more appropriate as it allows the contractor to control costs to a greater degree. Here, too, as in the Red Book, the employer’s engineer administers the project’s progress against the employer’s requirements and specifications and certifies any payments due. Contractor Designs, Procures and Builds One step further removed is where the contractor is in charge of everything from design through to full completion and handing over the key to the front door of the project. Upon turning over control, the employer can operate immediately. In such cases, the Silver Book is the proper form to use. Here, the price is guaranteed as the contractor is fully responsible for everything, and, as a result of this responsibility, there is no engineer to supervise progress other than to determine whether specification criteria are being met. This sort of form is used in manufacturing facilities, i.e. plant situations where the engineer would monitor the plant performance too. Contractor Designs, Procures, Builds and Operates A variant on the Silver Book is where the employer not only wants the contractor to design, procure and build the facility, but also wants it to operate the facility for a set number of years with the asset reverting to the employer at a specified date. Under these circumstances, the proper form to use is the new Gold Book. Who Has the Risk? It should be noted that allocation of risk is a fundamental concern. Under the Red Book, risk is shared rather equally between the contractor and employer, while under the Yellow Book, the contractor has more risk because it must complete the project, and at conclusion the project must be fit for the intended purpose. The other end of the risk scale can be found in the Silver Book where all of the risk (with very few exceptions) belongs to the contractor. Common Issues Between the Forms The Role of the Engineer Although employed by the employer, the engineer, while carrying out several of its functions, is required to act in an independent capacity. There is no “engineer” under the Silver Book, but the Red Book and the Yellow Book have changed the role so as to deal with the potential conflict (the FIDIC forms of contract are dealt with in more detail following this section). In both books the engineer is deemed to be acting for the employer, and in this regard Sub-Clause 3.1(a) states: whenever carrying out duties or exercising authority, specified in or implied by the Contract, the Engineer shall be deemed to act for the Employer.

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The question that arises is: how can the engineer make fair determinations when he is deemed to act for the employer? This has led to much discussion (and litigation) and has resulted in language that, where reference to Sub-Clause 3.5 is made, the engineer must make “a fair determination in accordance with the contract, taking due regard of all relevant circumstances”. The problem that arises in administration of FIDIC contracts thus becomes whether the engineer is also required to make a “fair determination” in matters other than claims such as in the payment and variation clauses of the contract. Another difficulty is that the employer can replace the engineer under Sub-Clause 3.4, and the contractor can only give a “reasonable” objection “with supporting particulars”. As to the Silver Book, the engineer plays no role, as there is no engineer in the Silver Book. As a replacement the employer acts by itself or through the employer’s administration and can delegate similar responsibilities to an employer’s representative or assistant. In a similar vein to the Red and Yellow books the employer makes any determination needed under Sub-Clause 3.5, and it shall be “a fair determination in accordance with the Contract”. Contractor Incentives The Red, Yellow and Silver books all provide for the contractor to share any benefits derived though better or more cost-efficient methods of construction. This is sometimes referred to as “value engineering”. The provisions under the Red Book, however, are different to the Silver and Yellow books because they give incentive to the contractor to devise better (and more cost-effective) ways of working, especially if the reward to the contractor is 50 per cent of the net benefit to the employer. Under the Yellow and Silver books, any “value engineering” proposals are considered as variations only. Variations Generally, the engineer may instruct variations at any time prior to the issue of the TakingOver Certificate, either by instruction or by a request from the contractor for a proposal. The difference is that under the Red Book, the contractor is required to comply with the variation unless it is unable to obtain the goods, and, if that is the situation, it must so inform the engineer who is then required either to cancel the variation or to confirm or vary the instruction. Under the other FIDIC books, where the contractor has some design obligations, the contractor is bound by the variation unless it gives notice that it is unable to obtain the goods for the variation or that the variation will reduce the safety or suitability of the Works, or affect the performance guarantees or the schedule of guarantees. It should be noted that both the Yellow Book and Silver Book fail to specify what is to happen if the contractor fails to warn the employer that the performance guarantees or schedule of guarantees will not be met, thus causing the Works to comply with any performance requirements under the contract. The situation can, therefore, arise where the employer orders a variation that unfortunately affects the performance and then has no recourse. 64

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Contractor’s Rights and Obligations Rights Under the main FIDIC contracts, the contractor has greater power to force the employer to pay and have responsibility for payment, and, if it does not pay, the employer can stop work entirely. As an example, financing charges are recoverable, and, additionally, the contractor can suspend work for nonpayment and/or for late payment of interim certificates. Thus, where the engineer fails to certify a payment, or the employer fails to make a payment, the contractor, on giving not less than 21 days’ notice, may suspend work or reduce the rate of work. The contractor can require the employer to show reasonable evidence that financial arrangements are in place that will enable the employer to pay the contractor the contract price. It should be noted that a failure by the employer to comply with this requirement is an act of default that entitles the contractor to suspend all or part of the Works or to terminate the contract. While there is consensus that this is a reasonable clause to include, there may be some debate about what amounts to “reasonable evidence”.9 Also, the employer must comply with the claims provisions and is not allowed to make arbitrary deductions from any sum otherwise payable, with the exception of services requested by the contractor and other deductions allowed under the contract. Additionally, any right to set-off is excluded unless the employer complies with certain requirements. Obligations Under the Red Book, the contractor is required to design (to the extent specified in the contract), execute and complete the Works in accordance with the contract and the engineer’s instructions. They are also required to remedy any defects in the Works. However, under the Yellow and Silver books, there is a fitness for purpose obligation that states: The Contractor shall design, execute and complete the Works in accordance with the Contract, and shall remedy any defects in the Works. When completed, the Works shall be fit for the purpose for which the Works are intended as defined in the Contract.

Additionally, these books also require the contractor to state in its tender that it has: examined, understood and checked these documents [including the Employer’s Requirements] and have ascertained that they contain no errors or other defects.

This puts the burden on the contractor not only to really understand what is needed but also, because of the different nature of the Yellow and Silver books, to produce a result rather than just avoiding negligence in the execution of the Works. Accordingly, the contractor cannot avoid liability by arguing that the design was novel or that it used

9  See e.g. Edward Corbett, FIDIC’s New Rainbow – An Overview of the Red, Yellow, Silver and Green Test Editions, ICLR 41, 1999.

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universally accepted standards or tried and tested components – either it works or it does not – if it does not, the contractor is liable. It should be noted that, under the Yellow Book, the contractor has an obligation to review the employer’s requirements upon receipt of the notice to commence the Works but will be relieved from responsibility for errors in the employer’s requirements and will be awarded time and costs if: an experienced contractor exercising due care would not have discovered the error before submitting when scrutinising the Employer’s Requirements under Sub-Clause 5.1.

Under the Silver Book, the contractor’s responsibility for errors in the employer’s requirements has certain exceptions, e.g. the contractor has no responsibility for the intended purposes of the Works and the performance criteria. Indeed, it is expressly stated that: The Employer shall not be responsible for any error, inaccuracy or omission of any kind in the Employer’s Requirements as originally included in the Contract and shall not be deemed to have given any representation of accuracy or completeness of any data or information.

Because of the nature of the obligations on the contractor in the Silver Book, the majority of risk is placed on the Contractor and it expressly states: by signing the Contract, the Contractor accepts total responsibility for having foreseen difficulties and costs of successfully completing the Works.

Additional Obligations and Issues Under all of the books, the contractor has an obligation to provide progress reports that must be submitted with supporting documentation when applications for payments are made. As to any claims by the contractor, there is a 28 days’ notice requirement, and in the event that such a notice is not given: the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged for all liability in connection with the claim.

Termination Issues Termination for Convenience Termination for convenience is provided for upon 28 days’ notice. When this occurs the contractor is to be paid for work done and demobilisation but receives no other compensation. The actual wording additionally states: The Employer shall not terminate the Contract … in order to execute the Works himself or to arrange for the Works to be executed by another.

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Impossibility of Performance As mentioned earlier, the Red, Yellow and Silver books provide for the termination of the contract if a situation arises which makes the performance of the contract impossible. Impossibility will relieve the contractor of further performance of its contractual obligations, and the FIDIC contracts state: If an event or circumstance outside the control of the Parties … arises which makes it impossible or unlawful for either or both parties to fulfil its or their contractual obligations.

Force Majeure As already discussed, force majeure is defined quite broadly in the FIDIC contracts so that events that are beyond a party’s control, and which could not have reasonably been provided for and now cannot be avoided, are treated as force majeure. The contracts provide a list of events that is intended to be illustrative, rather than determinative, of the matters that can be considered as force majeure. The contractor is entitled to an extension of time for the force majeure event if that force majeure event will delay completion. As to the recovery of costs, the situation is more complicated. “Cost” is a defined term within the FIDIC contracts, meaning all expenditure reasonably incurred by the contractor on or off site, including overhead and similar charges, but does not include profit. Thus, one must look at the provided list as the contractor can recover cost for the listed items (1) to (4) which include war, terrorism-related events, strike and contamination by radioactivity. The contractor, however, does not receive “Cost” for “natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity”. Also, with the exception of “war, hostilities (whether war be declared or not), invasion, act of foreign enemies”, the force majeure event must occur in the country where the Works are taking place. Unforeseen Conditions The Red and Yellow Books Under these books, a contractor can claim time or cost for unforeseeable physical conditions and the relevant Sub-Clause states: “physical conditions” means natural physical conditions and man-made and other physical conditions and pollutants, which the Contractor encounters at Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions.

The Sub-Clause continues: If the Contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable.

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It should be noted, however, that the contractor must also provide information as to why it considers the conditions unforeseeable, and, despite this, the contractor is still required to continue to execute the Works. If there are unforeseeable physical conditions, and the contractor suffers delay and incurs cost, then it is entitled to an extension of time and its cost. However, in regard to the payment of cost, the engineer is allowed to have regard to other physical conditions in “similar parts” of the Works and if the conditions found are more favourable than could reasonably have been foreseen, the engineer may reduce the award of cost.10 The Silver Book Because of the different nature of the Silver Book, and the reliance by the employer on a “complete” project under this book, the contractor takes on responsibility for ground conditions and is also required to verify and interpret any data provided by the employer with the only exceptions being: portions, data and information which are stated to be in the Contract as being immutable or the responsibility of the Employer, definitions of intended purposes of the Works or any part thereof, criteria for the testing and performance of the completed Works, and portions, data and information which cannot be verified by the Contractor, except as otherwise stated in the Contract.

Other than perhaps relying on the concept of impossibility of performance, the contractor thus takes on almost all risk regarding the ground conditions. Damages Delay/Damage Claims by the Employer Any claim for damages starts with notice being given by either the employer or the engineer who “shall give notice and particulars to the contractor”. The “particulars” should cover the basis for the claim of damages and give a substantiated amount. Thereafter, the engineer must consult with each of the parties – the employer and contractor – in an attempt to reach some agreement and, thereafter, the engineer is required to give its determination with supporting details and particulars. The employer can no longer just set off any claim for delay damages against monies owed the contractor. Additionally, it should be noted that, as is stated in the FIDIC contracts11 as to any default, such as noncompliance with the time for completion and any resulting damages to the employer: delay damages shall be the only damages due from the Contractor for such other than in the event of termination [by the employer] prior to completion of the Works. These damages

10  Ibid. 11  See Sub-Clause 8.7.

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shall not relieve the Contractor from his obligation to complete the Works, or from any other duties, obligations or responsibilities which he may have under the Contract.

Damage Claims by the Contractor Claims for damages by the contractor have a pre-requisite of proper notice under the Red, Silver and Yellow books and if a contractor chooses to make a claim for either time or additional money, it must give 28 days’ notice; the exact requirement reads: If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply.

This provision must be strictly adhered to and, if the contractor does not comply with the 28-day period, then the time for completion “shall not be extended”, and the contractor “shall not be entitled to additional payment”. Thus, the court and/or arbitrator and/or dispute board will treat this 28-day notice period as a condition precedent to bringing the claim. Needless to say, this provision can lead to many problems. The issue that arises is whether an innocent contractor should be precluded from collecting if the notice period was not complied with due to the fault of the employer. This is sometimes referred to as the “prevention principle” and basically states that a party should not benefit from its own breach of contract12 and/or its own wrongdoing. Thus, if the employer fails to do something it is required to do under the contract, and as a result the contractor suffers delay or other damages, the employer should not be relieved from paying the contractor for its losses or granting an extension of time solely because the contractor missed the 28-day notice period, and, equally important, the employer should not be able to deduct any delay damages against the contractor. Despite this, the 28-day notice period stands. In the new FIDIC Gold Book, the contractor will not only give notice of a claim within 28 days of becoming aware of the relevant event or circumstance, but also give particulars within 42 days in order to prevent the claim from becoming lapsed. It should be noted, however, that the principle in Alghussien13 is a principle of construction that can be displaced by express terms in the contract – see, for example, IBM UK Holdings Ltd v Dagliesh14 and BDW Trading Ltd v JM Rowe (Investments) Ltd.15 The court in the IBM case citing BDW notes:

12  See e.g. Alghussein Establishment v Eton College [1988] 1 WLR 587. 13  Ibid. 14  [2015] EWHC 389 (Ch) at 108–109. 15  [2011] EWCA Civ 548 at 31.

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It is to be emphasised, however, that the principle exemplified in Alghussein Establishment v Eton College is a principle of construction. As such, it can be displaced by the express terms of a contract…. In order to displace this principle there must be “a clear contractual intention to be gathered from the express provisions of the contract”.

As discussed briefly earlier, the FIDIC contracts cover many forms and apply to a variety of circumstances, but the main ones for this purpose to illustrate clauses dealing with delay and disruption can be found in the Construction Contract 1st Edition (1999 Red Book); Plant Design and Build Contract 1st Edition (1999 Yellow Book); and the EPC/Turnkey Contract 1st Edition (1999 Silver Book). The provisions in each are basically the same and cover the following areas; for ease of reference the ones quoted as follows have been taken from the Red Book: Sub-Clause 1.1.4.3 This Sub-Clause defines the word “Cost”, which comes up again during any delay analysis and also covers the ability for the contractor to obtain “profit”. It states specifically: “Cost” means all expenditure reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit.

Sub-Clause 1.1.6.9 Of equal importance is the definition of what a variation is, and the Sub-Clause states: “ ‘Variation’ means any change to the Works, which is instructed or approved as a variation under Clause 13 [Variations and Adjustments]”. Sub-Clause 1.3 (Communications) As is discussed in other chapters, one of the major problems with delay arising out of a variation is that the employer and/or the engineer can make a statement which is misconstrued by the contractor, e.g. “we are certainly behind schedule” said by the employer to the contractor does not automatically mean or instruct the contractor to accelerate the works. This, under FIIDC the concept of “communications”, is spelled out for clarity and that Sub-Clause states: Wherever these Conditions provide for the giving or issuing of approvals, certificates, consents, determinations, notices and requests, these communications shall be: (a) in writing and delivered by hand (against receipt), sent by mail or courier, or transmitted using any of the agreed systems of electronic transmission as stated in the Appendix to Tender; and (b) delivered, sent or transmitted to the address for the recipient’s communications as stated in the Appendix to Tender. However:

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(i) if the recipient gives notice of another address, communications shall thereafter be delivered accordingly; and (ii) if the recipient has not stated otherwise when requesting an approval or consent, it may be sent to the address from which the request was issued. Approvals, certificates, consents and determinations shall not be unreasonably withheld or delayed. When a certificate is issued to a Party, the certifier shall send a copy to the other Party. When a notice is issued to a Party, by the other Party or the Engineer, a copy shall be sent to the Engineer or the other Party, as the case may be.

Sub-Clause 1.9 (Delayed Drawings or Instructions) The first real mention of “delay or disruption” arises in this Sub-Clause, and it is an essential set of “rules” that must be followed and which are discussed in detail in other chapters. Specifically, it states: The Contractor shall give notice to the Engineer whenever the Works are likely to be delayed or disrupted if any necessary drawing or instruction is not issued to the Contractor within a particular time, which shall be reasonable. The notice shall include details of the necessary drawing or instruction, details of why and by when it should be issued, and details of the nature and amount of the delay or disruption likely to be suffered if it is late. If the Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue the notified drawing or instruction within a time which is reasonable and is specified in the notice with supporting details, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this further notice, the Engineer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Engineer’s failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor’s Documents, the Contractor shall not be entitled to such extension of time, Cost or profit.

The issue becomes when does or should the Contractor “know” that the Works are going to be delayed? Also note that this “notice” is mandatory: “The Contractor shall give notice…” Thus, no notice no claim. Sub-Clause 2.1 (Right of Access to the Site) This particular Sub-Clause is also seen frequently in delay claims due to the “blurring” of exactly when full access has been given to the Contractor, it states: The Employer shall give the Contractor right of access to, and possession of, all parts of the Site within the time (or times) stated in the Appendix to Tender. The right and possession

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may not be exclusive to the Contractor. If, under the Contract, the Employer is required to give (to the Contractor) possession of any foundation, structure, plant or means of access, the Employer shall do so in the time and manner stated in the Specification. However, the Employer may withhold any such right or possession until the Performance Security has been received. If no such time is stated in the Appendix to Tender, the Employer shall give the Contractor right of access to, and possession of, the Site within such times as may be required to enable the Contractor to proceed in accordance with the programme submitted under Sub-Clause 8.3 [Programme]. If the Contractor suffers delay and/or incurs Cost as a result of a failure by the Employer to give any such right or possession within such time, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. However, if and to the extent that the Employer’s failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor’s Documents, the Contractor shall not be entitled to such extension of time, Cost or profit.

Sub-Clause 3.3 (Instructions of the Engineer) This, too, is a critical Sub-Clause as it deals with what the Engineer can and cannot do and forms it in the permissive tense and also sets up the line of command for instructions, and whilst what the Engineer does is stated in the permissive (“The Engineer may…”), the wording for the Contractor is mandatory (“The Contractor shall…”); the Sub-Clause states: The Engineer may issue to the Contractor (at any time) instructions and additional or modified Drawings which may be necessary for the execution of the Works and the remedying of any defects, all in accordance with the Contract. The Contractor shall only take instructions from the Engineer, or from an assistant to whom the appropriate authority has been delegated under this Clause. If an instruction constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply. The Contractor shall comply with the instructions given by the Engineer or delegated assistant, on any matter related to the Contract. Whenever practicable, their instructions shall be given in writing. If the Engineer or a delegated assistant: (a) gives an oral instruction, (b) receives a written confirmation of the instruction, from (or on behalf of) the Contractor, within two working days after giving the instruction, and (c) does not reply by issuing a written rejection and/or instruction within two working days after receiving the confirmation, then the confirmation shall constitute the written instruction of the Engineer or delegated assistant (as the case may be).

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Sub-Clause 3.5 (Determinations) This is generally the Sub-Clause where the difficulties start between the contractor and the employer as the Engineer is the first stop on the road to resolution of any claim, and this Sub-Clause states: Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. The Engineer shall give notice to both Parties of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination unless and until revised under Clause 20 [Claims, Disputes and Arbitration].

Sub-Clause 4.7 (Setting Out) This Sub-Clause is one of the first both in terms of project scheduling and in terms of the contract itself to discuss delay which may be suffered by the contractor, and it sets out that: The Contractor shall set out the Works in relation to original points, lines and levels of reference specified in the Contract or notified by the Engineer. The Contractor shall be responsible for the correct positioning of all parts of the Works, and shall rectify any error in the positions, levels, dimensions or alignment of the Works. The Employer shall be responsible for any errors in these specified or notified items of reference, but the Contractor shall use reasonable efforts to verify their accuracy before they are used. If the Contractor suffers delay and/or incurs Cost from executing work which was necessitated by an error in these items of reference, and an experienced contractor could not reasonably have discovered such error and avoided this delay and/or Cost, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent the error could not reasonably have been discovered, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent.

It is important to note here that if any delay is suffered, the contractor is entitled to both an extension of time and its costs and a “reasonable profit”, and thus the issue becomes whether the contractor was able to “reasonably” verify the accuracy of the original points, lines and levels of reference or not. Needless to say but it usually rests with the Dispute Board to sort this one out.

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Sub-Clause 4.12 (Unforeseeable Physical Conditions) Whilst this particular Sub-Clause is discussed in detail in other chapters, it is worth noting here that this is one of the major items which cause the most amount of litigation in construction matters. Whilst FIDIC attempts to balance the risk between contractor and employer, that particular point of balance is on many occasions not clear but rather murky. The Sub-Clause states: In this Sub-Clause, “physical conditions” means natural physical conditions and manmade and other physical obstructions and pollutants, which the Contractor encounters at the Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions. If the Contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable. This notice shall describe the physical conditions, so that they can be inspected by the Engineer, and shall set out the reasons why the Contractor considers them to be Unforeseeable. The Contractor shall continue executing the Works, using such proper and reasonable measures as are appropriate for the physical conditions, and shall comply with any instructions which the Engineer may give. If an instruction constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply. If and to the extent that the Contractor encounters physical conditions which are Unforeseeable, gives such a notice, and suffers delay and/or incurs Cost due to these conditions, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving such notice and inspecting and/or investigating these physical conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent these physical conditions were Unforeseeable, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent. However, before additional Cost is finally agreed or determined under sub-paragraph (ii), the Engineer may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Engineer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates. However, the net effect of all adjustments under sub-paragraph (b) and all these reductions, for all the physical conditions encountered in similar parts of the Works, shall not result in a net reduction in the Contract Price. The Engineer may take account of any evidence of the physical conditions foreseen by the Contractor when submitting the Tender, which may be made available by the Contractor, but shall not be bound by any such evidence.

Again note here that should this be found the contractor is entitled to an extension of time and additional costs but not to profit on these costs.

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Sub-Clause 4.24 (Fossils) In many projects which are built in historic areas, “found items” can have a profound effect on the schedule, and whilst may or may not being foreseeable, the issue is dealt with in FIDIC Contracts where it states: All fossils, coins, articles of value or antiquity, and structures and other remains or items of geological or archaeological interest found on the Site shall be placed under the care and authority of the Employer. The Contractor shall take reasonable precautions to prevent Contractor’s Personnel or other persons from removing or damaging any of these findings. The Contractor shall, upon discovery of any such finding, promptly give notice to the Engineer, who shall issue instructions for dealing with it. If the Contractor suffers delay and/or incurs Cost from complying with the instructions, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving this further notice, the Engineer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine these matters.

And again here the contractor only gets the extension of time and the payment of the cost – no profit. Sub-Clause 7.4 (Testing) The logic behind this particular Sub-Clause should be evident in that if the Engineer wants something tested or tests performed, this is and should be considered as additional work for the contractor, and it should be compensated accordingly; the problem arises later, however, in that once the tests are completed and the contractor seeks additional time, money and profit, it is up to the Engineer to determine those amounts. The subclause reads: This Sub-Clause shall apply to all tests specified in the Contract, other than the Tests after Completion (if any). The Contractor shall provide all apparatus, assistance, documents and other information, electricity, equipment, fuel, consumables, instruments, labour, materials, and suitably qualified and experienced staff, as are necessary to carry out the specified tests efficiently. The Contractor shall agree, with the Engineer, the time and place for the specified testing of any Plant, Materials and other parts of the Works. The Engineer may, under Clause 13 [Variations and Adjustments], vary the location or details of specified tests, or instruct the Contractor to carry out additional tests. If these varied or additional tests show that the tested Plant, Materials or workmanship is not in accordance with the Contract, the cost of carrying out this Variation shall be borne by the Contractor, notwithstanding other provisions of the Contract. The Engineer shall give the Contractor not less than 24 hours’ notice of the Engineer’s intention to attend the tests. If the Engineer does not attend at the time and place agreed, the

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Contractor may proceed with the tests, unless otherwise instructed by the Engineer, and the tests shall then be deemed to have been made in the Engineer’s presence. If the Contractor suffers delay and/or incurs Cost from complying with these instructions or as a result of a delay for which the Employer is responsible, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters. The Contractor shall promptly forward to the Engineer duly certified reports of the tests. When the specified tests have been passed, the Engineer shall endorse the Contractor’s test certificate, or issue a certificate to him, to that effect. If the Engineer has not attended the tests, he shall be deemed to have accepted the readings as accurate.

Sub-Clause 8.1 (Commencement of Works) Whilst this Sub-Clause may seem innocent enough, many disputes arise from imprecise notices of commencement. As can be seen from the language used: The Engineer shall give the Contractor not less than 7 days’ notice of the Commencement Date. Unless otherwise stated in the Particular Conditions, the Commencement Date shall be within 42 days after the Contractor receives the Letter of Acceptance. The Contractor shall commence the execution of the Works as soon as is reasonably practicable after the Commencement Date, and shall then proceed with the Works with due expedition and without delay.

The problems start with the fact that the notice shall not be less than seven days, and if that does not occur then, it is 42 days after acceptance, and this is where confusion can start, e.g. was the acceptance properly notified? When was it received? By whom? The list of possibilities is endless as are the disputes which can arise from this. Sub-Clause 8.2 (Time for Completion) Just as when the project starts can cause confusion and disputes, so does the time for completion, which, as is discussed in other chapters, is critical. The Sub-Clause states: The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be), including: (a) achieving the passing of the Tests on Completion, and (b) completing all work which is stated in the Contract as being required for the Works or Section to be considered to be completed for the purposes of taking-over under Sub-Clause 10.1 [Taking Over of the Works and Sections].

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Sub-Clause 8.3 (Programme) This subject, which is the base for many issues, is standard in most all contracts but, as is pointed out in other chapters, is missing the method of how specifically the programme is to be determined: The Contractor shall submit a detailed time programme to the Engineer within 28 days after receiving the notice under Sub-Clause 8.1 [Commencement of Works]. The Contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor’s obligations. Each programme shall include: (a) the order in which the Contractor intends to carry out the Works, including the anticipated timing of each stage of design (if any), Contractor’s Documents, procurement, manufacture of Plant, delivery to Site, construction, erection and testing, (b) each of these stages for work by each nominated Subcontractor (as defined in Clause 5 [Nominated Subcontractors]), (c) the sequence and timing of inspections and tests specified in the Contract, and (d) a supporting report which includes: (i) a general description of the methods which the Contractor intends to adopt, and of the major stages, in the execution of the Works, and (ii) details showing the Contractor’s reasonable estimate of the number of each class of Contractor’s Personnel and of each type of Contractor’s Equipment, required on the Site for each major stage. Unless the Engineer, within 21 days after receiving a programme, gives notice to the Contractor stating the extent to which it does not comply with the Contract, the Contractor shall proceed in accordance with the programme, subject to his other obligations under the Contract. The Employer’s Personnel shall be entitled to rely upon the programme when planning their activities. The Contractor shall promptly give notice to the Engineer of specific probable future events or circumstances which may adversely affect the work, increase the Contract Price or delay the execution of the Works. The Engineer may require the Contractor to submit an estimate of the anticipated effect of the future event or circumstances, and/ or a proposal under Sub-Clause 13.3 [Variation Procedure]. If, at any time, the Engineer gives notice to the Contractor that a programme fails (to the extent stated) to comply with the Contract or to be consistent with actual progress and the Contractor’s stated intentions, the Contractor shall submit a revised programme to the Engineer in accordance with this Sub-Clause.

Sub-Clause 8.4 (Extension of Time for Completion) This is one of the main provisions affecting delay claims in this form of contract as it is quite precise as to what qualifies for an extension and how it is to be notified. Again other chapters deal with this in detail. The Sub-Clause reads as follows: The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension of the Time for Completion if and to the extent that completion for the purposes

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of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes: (a) a Variation (unless an adjustment to the Time for Completion has been agreed under Sub-Clause 13.3 [Variation Procedure]) or other substantial change in the quantity of an item of work included in the Contract, (b) a cause of delay giving an entitlement to extension of time under a Sub-Clause of these Conditions, (c) exceptionally adverse climatic conditions, (d) Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions, or (e) any delay, impediment or prevention caused by or attributable to the Employer, the Employer’s Personnel, or the Employer’s other contractors on the Site. If the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Engineer in accordance with Sub-Clause 20.1 [Contractor’s Claims]. When determining each extension of time under Sub-Clause 20.1, the Engineer shall review previous determinations and may increase, but shall not decrease, the total extension of time.

Sub-Clause 8.5 (Delays Caused by Authorities) Another aspect of delay can be found in this provision, but it requires compliance with three points, all of which usually end up before the Dispute board for final determination. It reads as follows: If the following conditions apply, namely: (a) the Contractor has diligently followed the procedures laid down by the relevant legally constituted public authorities in the Country, (b) these authorities delay or disrupt the Contractor’s work, and (c) the delay or disruption was Unforeseeable, then this delay or disruption will be considered as a cause of delay under sub-paragraph (b) of Sub-Clause 8.4 [Extension of Time for Completion].

Note that all the contractor gets is an extension of time, no money and no profit. Sub-Clause 8.7 (Delay Damages) Needless to say this Sub-Clause is the main one regarding delay and disruption and it states: If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the Employer for this default. These delay damages shall be the sum stated in the Appendix to Tender, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate. However, the total amount due under this Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Appendix to Tender. These delay damages shall be the only damages due from the Contractor for such default, other than in the event of termination under Sub-Clause 15.2 [Termination by Employer]

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prior to completion of the Works. These damages shall not relieve the Contractor from his obligation to complete the Works, or from any other duties, obligations or responsibilities which he may have under the Contract.

The problem with this provision is that whilst it sets out that if the contractor fails to finish on time, it is responsible for delay damages, and it shall pay these to the employer subject to Sub-Clause 2.5 and the engineer’s determination  – so which one is it? The  damages as set out as liquidated damages or what the engineer determines? Put another way Sub-Clause 8.7 expressly states that payment of delay damages is subject to SubClause 2.5. Sub-Clause 2.5 then requires the Engineer, in accordance with Sub-Clause 3.5, to determine the amount that the Employer is entitled to be paid by the Contractor – but – liquidated damages have already been agreed between the parties as to amount and are pre-fixed – and thus the dilemma. The recent UK case of J Murphy & Sons Ltd v Beckton Energy Ltd16 dealt with the issue of whether Sub-Clause 2.5 applied to the entirety of the contract, and, as such, an agreement or determination by the Engineer was necessary in order to give rise to an obligation to pay damages. In this case the Employer, Beckton, entered into a contract with the claimant Contractor, Murphy, on 14 March 2013 related to “design, procurement, construction, start-up, testing and commissioning” of a “Combined Heat and Intelligent Power Plant” located in Beckton, in East London. The contract here was based on the FIDIC Yellow Book, and it included Sub-Clause 2.5 and the first part of Sub-Clause 3.5, which dealt with claims for payment by the Employer and determinations by the Engineer and whilst these provisions were placed into the contact exactly as is shown in the FIDIC contract (and the same as in the Red Book), the parties made changes to Sub-Clauses 4.2 [Performance Security], 8.2 [Time for Completion], 8.7 [Delay Damages] and 14.6 [Issue of Interim Payment Certificates] and others. The amended Sub-Clause 8.7 stated that if Murphy failed to obtain certain accreditation in time, it was to pay Beckton liquidated damages at a rate of £4,000 per day for the period from 2 November 2014 until the earlier to occur of (1) achievement of the specified accreditation, and (2) 31 March 2015. The amended Sub-Clause 8.7 also required Murphy to pay liquidated damages at a rate of £23,000 per day if it failed to achieve taking over before 31 January  2015 from such date until the taking-over date. Additionally, Sub-Clause 8.7 set out that any delay damages were to be deducted from the next applicable “Notified Sum,” which was defined in Sub-Clause 14.6 of the contract and which had also been taken from the original FIDIC Yellow Book. In the process the parties had removed any reference to determination of the amount payable by the Engineer appointed under the contract, as meaning simply the sum specified by Murphy. In the circumstance Murphy did not obtain the necessary accreditation by 2 November  2014. On 23 December  2014, Beckton sent a letter to Murphy notifying Murphy of its entitlement to delay damages in accordance with Sub-Clause 2.5 but stating that it would defer its right to claim, set off or otherwise deduct such damages. Murphy 16  [2016] EWHC 607 (TCC).

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also missed the completion date of 31 January 2015, so Beckton issued another letter in similar terms on 31 March  2015. On 25 January  2016, Beckton demanded payment of the sums of £592,000 for the accreditation delay and £7,682,000 for the completion delay within 30 days. Murphy did not pay such sums. Following this on 22 February 2016, Murphy submitted that it was entitled to a taking-over certificate for a large part of the works which, if Beckton were entitled to damages (which Murphy denied), would result in the amount of damages payable being significantly reduced. Murphy asked the Engineer to issue the taking-over certificate on 8 March 2016 and, the following day, applied to the court for a declaration that an agreement of determination by the Engineer appointed under the contract was a necessary prerequisite for Beckton to claim delay liquidated damages. Until such agreement or determination was reached, Murphy contended that it was not obliged to pay such liquidated damages. The court reviewed all the facts and came to the determination that the first issue was whether Murphy was obliged to pay Beckton the £8,274,000 of liquidated damages claimed. Murphy submitted that Sub-Clause 2.5 applied to the entirety of the contract, and, as such, an agreement or determination by the Engineer was necessary in order to give rise to an obligation to pay damages. Beckton took the position that it was entitled to the damages under Sub-Clause 8.7 and that Murphy’s obligation to pay arose independently of SubClauses 2.5 and 3.5, such that it was unaffected by the lack of agreement or determination by the Engineer. The court took the view, applying the principles of interpretation of written contracts summarised in Arnold v Britton,17 that it should first identify the intentions of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”.18 As such, the court noted that this meant it was to use the meaning of the relevant words in (1) the natural and ordinary meaning of the clause, (2) any other relevant provisions, (3) the overall purpose of the clause and the contract, (4) the facts and circumstances known or assumed by the parties at the time that contract was made and (5) commercial common sense, but (6) disregarding subjective evidence of any party’s intentions.19 The court noted, by way of background, that the parties had chosen to include some provisions in the exact same form as the FIDIC Yellow Book but to amend others. This suggested that where the parties had elected to make changes to the FIDIC Yellow Book, the changes had been made deliberately and with specific purpose, and that accordingly more weight should be placed on the amended terms. By removing the words “subject to Sub-Clause 2.5 [Employer’s Claims]” from the Sub-Clause 8.7 inserted into the contract, the parties could be said “to have evidenced a clear intention that their Sub-Clause 8.7 should, unlike the equivalent Sub-Clause in the FIDIC Yellow Book standard form, operate separately to Sub-Clause 2.5”. The court then looked at the wording of the amended Sub-Clause 8.7 and pointed out that it contained “precisely and expressly fixed sums” for the damages payable and the 17  [2015] UKSC 36. 18  See e.g. Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101. 19  Ibid. at ftn 1.

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timeframe in which they should be paid. As such, the amended Sub-Clause 8.7 did not expressly or impliedly (by leaving details unstipulated so as to suggest that they should be settled by reference to other terms in the contract)20 signpost Sub-Clause 2.5, 3.5 or any other Sub-Clauses. Further, Sub-Clauses 2.5 and 3.5 did not specifically set any sum or timeframe so overlaying these provisions that would cut across an important part, indeed most, of the amended Sub-Clause 8.7. In addition, the court noted that Sub-Clause 2.5 states that any amount payable “may be included as a deduction in the Contract Price and Payment Certificates” but Sub-Clause 8.7 provided for deduction from the “Notified Sum”. The court thus found that all the inconsistencies could be resolved by interpreting SubClause 8.7 as a standalone and self-contained regime and that this appeared to have been the intention of the parties when drafting the contract. It appeared that the parties had not thought out Sub-Clause 2.5 in the full context of the rest of the contract and that this error diminished the substance of the provision so less weight should be attached to it. Accordingly, based on the proper construction of Sub-Clause 8.7, the court held that Beckton was entitled to claim damages to Murphy without agreement or determination by the Engineer. This recent case highlights the fact that the Engineer’s role in the determination of liquidated damages should be confined to only making a determination as to the extent of any breach of performance standards but not as to any determination as to damages particularly if the parties have already set out an amount, i.e. liquidated damages. It would also be useful for the parties to further define their intent in this regard to avoid such situations in the future. Sub-Clause 10.1 (Taking Over of the Works and Sections) Again, in this Sub-Clause the issue becomes what happens when the employer takes over or appears to take over the Works prior to completion. The Sub-Clause states: Except as stated in Sub-Clause 9.4 [Failure to Pass Tests on Completion], the Works shall be taken over by the Employer when (i) the Works have been completed in accordance with the Contract, including the matters described in Sub-Clause 8.2 [Time for Completion] and except as allowed in sub-paragraph (a) below, and (ii) a Taking-Over Certificate for the Works has been issued, or is deemed to have been issued in accordance with this SubClause. The Contractor may apply by notice to the Engineer for a Taking-Over Certificate not earlier than 14 days before the Works will, in the Contractor’s opinion, be complete and ready for taking over. If the Works are divided into Sections, the Contractor may similarly apply for a Taking-Over Certificate for each Section. The Engineer shall, within 28 days after receiving the Contractor’s application: (a) issue the Taking-Over Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract, except for any minor outstanding work and defects which will not substantially affect the use of

20  Ibid.

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the Works or Section for their intended purpose (either until or whilst this work is completed and these defects are remedied); or (b) reject the application, giving reasons and specifying the work required to be done by the Contractor to enable the Taking-Over Certificate to be issued. The Contractor shall then complete this work before issuing a further notice under this Sub-Clause. If the Engineer fails either to issue the Taking-Over Certificate or to reject the Contractor’s application within the period of 28 days, and if the Works or Section (as the case may be) are substantially in accordance with the Contract, the Taking-Over Certificate shall be deemed to have been issued on the last day of that period.

The issue arises as to the obligation to complete the Works “in accordance with the Contract” prior to Taking-Over which to a certain extent is modified by Sub-paragraph (a) which allows the Engineer to issue a Taking-Over Certificate despite there being “minor outstanding work and defects which will not substantially affect the use of the Works or Section for their intended purpose”. What this means is that the Employer may TakeOver the Works when they are practically or substantially complete. The UK courts have dealt with this issue, and in J. Jarvis and Sons v Westminster Corporation,21 practical completion was defined as completion for the purpose of allowing the employers to take possession of the works and use them as intended (and was subsequently adopted in the Australian case of Murphy Corporation Ltd v Acumen Design & Development (Queensland) Pty Ltd and Derek Hooper)22. The court held that practical completion did not mean completion down to the last detail, however trivial and unimportant. Further the court in H.W. Neville (Sunblest) Ltd v William Press and Son Ltd23 held that practical completion did not mean that very minor de minimus work had to be carried out, but did mean that if there were any patent defects the Architect should not give a certificate of practical completion. Sub-Clause 10.3 (Interference with Tests on Completion) This Sub-Clause partially deals with one of the problems just outlined and also sets out the rules for granting an extension of time, costs and profit and states: If the Contractor is prevented, for more than 14 days, from carrying out the Tests on Completion by a cause for which the Employer is responsible, the Employer shall be deemed to have taken over the Works or Section (as the case may be) on the date when the Tests on Completion would otherwise have been completed. The Engineer shall then issue a Taking-Over Certificate accordingly, and the Contractor shall carry out the Tests on Completion as soon as practicable, before the expiry date of the Defects Notification Period. The Engineer shall require the Tests on Completion to be carried out by giving 14 days’ notice and in accordance with the relevant provisions of the Contract.

21  (1978) 7 BLR 64 HL. 22  (1995) 11 BCL 274. 23  (1981) 20 BLR 78.

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If the Contractor suffers delay and/or incurs Cost as a result of this delay in carrying out the Tests on Completion, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Sub-Clause 13.1 (Right to Vary) But what happens when the employer chooses to vary the Works? Here it breaks down into two divisions, the first being a direct instruction to the contractor to do something and the other division a request to the contractor to submit a proposal to do something. These are all subject, of course, to what is discussed in greater detail in other chapters having to do with actual versus implied instructions, i.e. was the contractor actually instructed or did it “think” it was instructed – implied versus actual instruction becomes the issue. The Sub-Clause reads: Variations may be initiated by the Engineer at any time prior to issuing the Taking-Over Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal. The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Engineer stating (with supporting particulars) that the Contractor cannot readily obtain the Goods required for the Variation. Upon receiving this notice, the Engineer shall cancel, confirm or vary the instruction. Each Variation may include: (a) changes to the quantities of any item of work included in the Contract (however, such changes do not necessarily constitute a Variation), (b) changes to the quality and other characteristics of any item of work, (c) changes to the levels, positions and/or dimensions of any part of the Works, (d) omission of any work unless it is to be carried out by others, (e) any additional work, Plant, Materials or services necessary for the Permanent Works, including any associated Tests on Completion, boreholes and other testing and exploratory work, or (f ) changes to the sequence or timing of the execution of the Works. The Contractor shall not make any alteration and/or modification of the Permanent Works, unless and until the Engineer instructs or approves a Variation.

Sub-Clause 13.3 (Variation Procedure) This Sub-Clause again suffers from the lack of specific timing which can lead and frequently does to misunderstandings and disputes, and it specifically comes from wording such as “as soon as practicable”, which should be defined specifically by the parties even if the form contract itself does not. The Sub-Clause states: 83

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If the Engineer requests a proposal, prior to instructing a Variation, the Contractor shall respond in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the case) or by submitting: (a) a description of the proposed work to be performed and a programme for its execution, (b) the Contractor’s proposal for any necessary modifications to the programme according to Sub-Clause 8.3 [Programme] and to the Time for Completion, and (c) the Contractor’s proposal for evaluation of the Variation. The Engineer shall, as soon as practicable after receiving such proposal (under SubClause 13.2 [Value Engineering] or otherwise), respond with approval, disapproval or comments. The Contractor shall not delay any work whilst awaiting a response. Each instruction to execute a Variation, with any requirements for the recording of Costs, shall be issued by the Engineer to the Contractor, who shall acknowledge receipt. Each Variation shall be evaluated in accordance with Clause 12 [Measurement and Evaluation], unless the Engineer instructs or approves otherwise in accordance with this Clause.

Sub-Clause 13.7 (Adjustments for Changes in Legislation) This particular Sub-Clause is rather straightforward and provides for not only an extension of time for the contractor but also any additional cost – but not any profit. It states: The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official governmental interpretation of such Laws, made after the Base Date, which affect the Contractor in the performance of obligations under the Contract. If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Sub-Clause 16.1 (Contractor’s Entitlement to Suspend Work) Again this particular Sub-Clause is frequently of use in delay matters as it set out what happens when the employer fails to comply with the various provisions in Sub-Clauses 2.4 and 14.7 and gives the contractor not only an extension of time but also its costs and profit; the Sub-Clause states: If the Engineer fails to certify in accordance with Sub-Clause 14.6 [Issue of Interim Payment Certificates] or the Employer fails to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements] or Sub-Clause 14.7 [Payment], the Contractor may, after giving not less than 21 days’ notice to the Employer, suspend work (or reduce the rate of work) unless and

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until the Contractor has received the Payment Certificate, reasonable evidence or payment, as the case may be and as described in the notice. The Contractor’s action shall not prejudice his entitlements to financing charges under Sub-Clause 14.8 [Delayed Payment] and to termination under Sub-Clause 16.2 [Termination by Contractor]. If the Contractor subsequently receives such Payment Certificate, evidence or payment (as described in the relevant Sub-Clause and in the above notice) before giving a notice of termination, the Contractor shall resume normal working as soon as is reasonably practicable. If the Contractor suffers delay and/or incurs Cost as a result of suspending work (or reducing the rate of work) in accordance with this Sub-Clause, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Sub-Clause 17.4 (Consequences of Employer’s Risks) This Sub-Clause deals with any delay to the contractor due to items of risk that properly belong to the employer and gives the contractor an extension of time, its costs and profit too. It reads as follows: If and to the extent that any of the risks listed in Sub-Clause 17.3 above results in loss or damage to the Works, Goods or Contractor’s Documents, the Contractor shall promptly give notice to the Engineer and shall rectify this loss or damage to the extent required by the Engineer. If the Contractor suffers delay and/or incurs Cost from rectifying this loss or damage, the Contractor shall give a further notice to the Engineer and shall be entitled subject to SubClause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. In the case of sub-paragraphs (f) and (g) of Sub-Clause 17.3 [Employer’s Risks], reasonable profit on the Cost shall also be included. After receiving this further notice, the Engineer shall proceed in accordance with SubClause 3.5 [Determinations] to agree or determine these matters.

Sub-Clauses 19.1 (Definition of Force Majeure) and 19.4 (Consequences of Force Majeure) Force majeure is covered in detail in other chapters, and it is, in effect, a way “out of the contract” if it is prolonged, and if not it provides the contractor some relief due to factors “beyond its control”. It should be remembered that the type of circumstances described which lead to the use of this provision are truly unexpected, e.g. heavy rains on a project 85

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in India during monsoon season do not qualify, but monsoon rains on a project in the Gobi Desert may qualify. Specifically, Force Majeure provisions vary in interpretation in many countries, and FIDIC attempts to clarify what exactly qualifies and what does not. SubClause 19.1 reads: In this Clause, “Force Majeure” means an exceptional event or circumstance: (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party. Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied:  (i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies,  (ii) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractor and Subcontractors,  (iv) munitions of war, explosive materials, ionising radiation or contamination by radioactivity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity, and  (v) natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.

So this Sub-Clause tells one what is mandatory for it to apply (a–d preceding) and then gives examples, which are not exclusive (may include, but is not limited to …), and then goes on in Sub-Clause 19.4 to relate how the contractor is compensated, e.g. an extension of time and costs but no profit and it reads: If the Contractor is prevented from performing any of his obligations under the Contract by Force Majeure of which notice has been given under Sub-Clause 19.2 [Notice of Force Majeure], and suffers delay and/or incurs Cost by reason of such Force Majeure, the Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) if the event or circumstance is of the kind described in sub-paragraphs (i) to (iv) of Sub-Clause 19.1 [Definition of Force Majeure] and, in the case of sub-paragraphs (ii) to (iv), occurs in the Country, payment of any such Cost. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.

Sub-Clause 20.1 (Contractor’s Claims) And, of course, the main Sub-Clause from a delay and disruption perspective is 20.1, which goes into specific detail as to how such claims can be resolved. It should be noted that it is quite broad in what qualifies “If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise”, so it in effect is not limited particularly by any Sub-Clause 86

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of the contract – in effect any claim can be brought for an extension of time, costs and profit, and unless the engineer agrees the Dispute Board will make the ultimate decision. The Sub-Clause reads: If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply. The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance. The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. Without admitting the Employer’s liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer. Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Engineer, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect: (a) this fully detailed claim shall be considered as interim; (b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and (c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer. Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time. Each Payment Certificate shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. The Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of Time for Completion], and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract. The requirements of this Sub-Clause are in addition to those of any other Sub-Clause which may apply to a claim. If the Contractor fails to comply with this or another SubClause in relation to any claim, any extension of time and/or additional payment shall

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take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause.

The Other Form Contracts Delaying with Delay In addition to the FIDIC forms of contract, as discussed earlier the other main form contracts are the JCT, the NEC3 and the ICE Form Contract. The JCT Form Contract Provisions of the JCT Standard Building Contract 2011 which deal with delay are as follows: Extensions of time Clause 2.3.1 deals with Delay events, and it should be noted that any adjustment of the completion date is to be found in Clauses 2.26 to 2.29, and these particular clauses are similar to Clauses 2.16 to 2.19 of the JCT Standard Building Sub-Contract 2011. Clause 2.3.1.1 Delay events Under the JCT forms of contract, the completion date may be altered. This form of contract sets out a list designated “Relevant Events” which can justify an adjustment of the completion date. The list includes: variations, instructions, deferment of possession of the site, suspension, works by statutory undertakers, exceptionally adverse weather, civil commotion, terrorism and strikes and importantly “any impediment, prevention or default . . . by the Employer”. Clause 2.3.1.2 Delay notices Under Clause 2.27 of the JCT, the contractor is under an obligation to give notice if and whenever it becomes reasonably apparent that the progress of the works is being or is likely to be delayed. The aforementioned notice must in addition set out “the material circumstances”, including the cause or causes of the delay, and shall identify in the notice any event which in his opinion is a Relevant Event. Moreover, in respect of each event identified in the notice, the Contractor shall, if practicable in such notice or otherwise in writing as soon as possible thereafter, give particulars of its expected effects, including an estimate of any expected delay in the completion of the Works or any Section beyond the relevant Completion Date. 2.3.1.3  Assessment Under Clause 2.28, the architect is required to consider any notice of delay given by the contractor and to fix a new (later) completion date if it is considered fair and reasonable to

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do so (a main contractor has similar obligations under Clause 2.18 of the JCT subcontract). The architect must provide a written notice of the decision about the delay as soon as reasonably practicable, but in any event, within 12 weeks of receipt of “the required particulars”. If the time period for a decision commences only once “the required particulars” have been received, the question arises as to what these particulars are. The contract does not provide an answer; no doubt because the type of particulars required are likely to vary from one case to another. Sometimes, an architect’s request for further particulars of the delay can be rather vague or generic. On occasions, contractors have simply been told that a delay notice cannot be considered until a claim is provided showing “cause and effect”. It is suggested that where requests for further information are not clear, contractors should seek clarification. Otherwise, a great deal of time and effort may be expended producing information that the architect or contract administrator finds to be of little assistance. If an extension of time is awarded by the architect during the project, the period of the extension must be reviewed after completion of the works (Clause 2.28.5). A review of the time originally awarded for an extension of time must be made within 12 weeks of practical completion. Any revision to the extension of time decided upon after this review must either confirm or increase the extension of time period, unless there has been an omission to the works that justifies a reduction. In other words, a review cannot “take back” time that has already been awarded, even if subsequent events show that the award was more generous than perhaps it might have been. This provision may lead some architects or contract administrators to take a conservative view of any delay claim submitted by a contractor; however, such an approach is not justifiable under the terms of the contract. An extension of time must be “fair and reasonable”, not cautious or understated, pending a further review after completion. 2.3.1.4  Delay avoidance Under Clause 2.28.6.1, the contractor is required to “constantly use his best endeavours to prevent delay in the progress of the Works or any Section, however caused, and to prevent the completion of the Works or Section being delayed or further delayed” and, under Clause 2.28.6.2, must “do all that may reasonably be required to the satisfaction of the Architect/Contract Administrator to proceed with the Works or Section”. Subcontractors have similar obligations under Clauses 2.18.6.1 and 2.18.6.2 of the subcontract. These clauses are considered in the RICS guidance note Acceleration, where it is suggested that the scope of such obligations should not be overstated. A  duty to “prevent delay” and to proceed with the works to the satisfaction of the architect or contract administrator does not appear to impose a positive duty on the contractor to accelerate progress or to take any action that a reasonable and prudent contractor would not ordinarily take.

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NEC3 form of contract 2013 (and the NEC4 2017)24 Unlike the JCT standard forms, the NEC3 form is not intended to be simply a standard set of contract conditions; it also seeks, as stated in page 3 of the NEC3 Guidance Notes, to be a “stimulus to good management”. To meet this aim, the NEC3 is far more prescriptive about what each party should do and the time by which this should be done. Delay events are dealt with mainly in the first section of the contract (the “Core Clauses”), particularly at Clause 16 of section 1, and also in sections 3 and 6. Clause 16 deals with notices or “early warnings”, section 3 deals generally with “time” and section 6 considers “compensation events”. Other relevant clauses may be found in other parts of the NEC3 contract, including the “Main Option Clauses”, the “Secondary Option Clauses” and the “Contract Data” section. NEC3 terminology The NEC3 contract is, according to page 2 of the NEC3 Guidance Notes, “written in ordinary language” and “as far as possible ... only uses words which are in common usage”, making it “easier to understand by people who are not used to using formal contracts and by people whose first language is not English”. However, a number of words and terms used in the contract do require explanation. Definitions of terms can be found in the NEC3 Guidance Notes. The terms defined as follows are of particular relevance to the assessment of delay: “Float”: this term is used in section 3 of the Core Clauses. It is defined as “any spare time within the programme after the time risk allowances have been included”. “Time risk allowances”: this term is defined as durations allowed within programme activities to cover contractors’ “realistic” risks. “Time risk allowances” cannot be used to off-set the effects of “compensation events”. “Compensation events”: this term is defined as “events which, if they occur, and do not arise from the Contractor’s fault, entitle the Contractor to be compensated for any effect the event has on the Prices and the Completion Date or a Key Date”.

The terms “Prices”, “Completion Date” and “Key Date”, used in the definition of “compensation events”, and other terms such as “Others”, “access date” and “weather record” are defined either in Core Clause 11.2 (the second clause in the contract), one of the Main Option Clauses, or the Contract Data section of the contract. Under the NEC3 contract, “compensation events” are subject to a quotation procedure, which is set out in Clause 62 of the Core Clauses. However, at page 75 of the NEC3 Guidance Notes, it states that “the term ‘quotation’ is not the same as the normal use in commerce”. Therefore, at least in this instance, the NEC3 departs from “ordinary language” and attributes its own, different meaning to a word in common usage. The definitions of terms provided here are from the NEC3 Guidance Notes. It should be noted that only the definitions found in the contract itself can be used for legal

24  Note that for this book the NEC3 is used for reference rather than the NEC4, which was published in 2017.

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interpretation. The guidance notes point out (on page 1, under a subheading of “Purpose of guidance notes”) that definitions in the notes cannot be relied upon for legal interpretation. Delay events Like the JCT’s list of Relevant Events, the NEC3’s list of “compensation events” (as set out in Clause 60.1) that may entitle the contractor to more time to carry out the works includes variations, instructions, deferment of possession of the site, suspension, works by others (which would include works by statutory undertakers), unusually adverse weather and events causing delay that neither party could prevent or foresee (which would include civil commotion, terrorism and strikes, if these are “Employer’s risks” under Clause 80.1). Delay notices Under the NEC3, if there is a delay to the project that could have an impact on the completion date, an “early warning notice” must be given, by either the contractor or the project manager, in accordance with Clause 16.1. On receipt of such notice, the contractor or project manager may, by virtue of Clause 16.2, instruct the other to attend a “risk reduction meeting” to discuss the early warning event. Clause 16.3 specifies what the parties must do at that meeting, including considering how the risk of delay can be avoided or reduced. However, at this meeting, consideration will not be given to extending the period for completion of the works. Changes to the completion date are dealt with as part of the “compensation event” assessment under Clause 61. Clause 61.1 provides that the project manager is obliged to notify the contractor of any delay arising from an instruction, at the time the instruction is given. If no notice is given by the project manager, the contractor is required, by Clause 61.3, to notify the project manager of an event “which has happened or which he expects to happen as a compensation event”. Under Clause 61.3, the contractor has eight weeks from becoming aware of the event to give notice of a compensation event. If the contractor fails to give notice within eight weeks, the entitlement to an extension of time (or change to the “Completion Date”) is waived (unless the project manager should have notified under Clause 61.1, but did not do so). After receipt of a compensation event notice, the project manager has just one week, under Clause 61.4, to notify the contractor of his or her decision as to whether the event is a compensation event or not (although this short time period can be extended with the agreement of the contractor). Failure by the project manager to comply with this provision entitles the contractor to confirm the failure, at which point the project manager has a further two weeks to reply. If no reply is made within this extended time period, the notified event is deemed to be a compensation event. Assessment The NEC3 form adopts an entirely different approach to most other forms of construction contract to the assessment of delays and revisions to the completion date. The NEC3 91

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procedure aims to have delays fully and finally assessed at or around the time the delays occur, with this assessment not subject to review after completion or at any other time (unless the assessment was expressly stated to be based on assumptions). Clause 65.2 expressly provides that an assessment of a delay will not be revised even if a forecast upon which it is based is shown by later recorded information to have been wrong. This prospective assessment of what impact a delay event will have on the completion date must be based on the current programme for the works. In order to operate this procedure, the programme must be thorough and up-to-date. To meet these objectives, the contract prescribes the requirements for the format of the programme and how often it must be updated. Clause 31.2 requires that each programme must show the following: • • • • •

The start date, access dates, key dates and completion date The planned completion The order and timing of the operations The order and timing of the work to be carried out by the employer and others The dates when the contractor plans to meet each “condition” stated for the key dates and to complete other work needed to allow the employer and others to do their work; and • The dates when the contractor needs: • Access to a part of the site, if later than its “access date” • Acceptances • Plant and materials and other things; and • Information from “others”. The programme must also show “float”, “time risk allowances” and health and safety requirements and procedures set out in the contract. In conjunction with the programme, the contractor is required to provide a method statement for each operation. Producing this level of information at the outset and then keeping it up-to-date may be considered to be a tall order but, if extensions of time are to be determined once and for all, at or around the time they happen, then a high level of accurate information will need to be immediately to hand. The contractor’s latest programme must be approved before it can become the document upon which extensions of time are assessed. By virtue of Clause 31.3, the employer’s project manager must agree to each programme submitted by the contractor within two weeks or, if he or she cannot agree to a programme, must inform the contractor of the reasons why. Clause 31.3 prescribes the reasons why a programme may not be accepted. These are as follows: • • • •

The programme is not practicable; The programme does not provide all the necessary information; The programme is not realistic; and/or The programme does not comply with the “Works Information” (as defined in Core Clause 11.2).

It is probably rare for a project manager confidently to assert that a contractor’s programme is impractical or unrealistic, unless there has been a fundamental error in the sequencing of activities. The length of time allowed on a contractor’s programme for 92

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individual activities may look optimistic or pessimistic to a project manager, but it is solely the contractor who will decide what level of resources to use on each part of the works, and on the degree of overlap that can be achieved between activities. The contractor therefore ought to be best placed to decide the duration of each programme activity. Once agreed to, the programme must be kept up to date. Clause 32.2 requires the contractor to provide revised programmes throughout the period of the works. The latest “accepted programme” will be used as the baseline for assessing delay events and their impact upon the completion date. As stated in subsection 2.3.2.1, the NEC3 contract deals with delays to completion as “compensation events”, with Clause 62 setting out the procedure for the provision of “compensation event” quotations. If a “compensation event” is expected to have an impact on the progress of works, the quotation must include a revised programme (Clause 62.2). The procedure and timetable for submitting and agreeing to quotations is set out in Clauses 62.3 to 62.6. In the guidance notes to the NEC3, it is acknowledged that producing a new programme for every minor change may be “counterproductive”: if several minor events occur within a short period of time, some project managers may allow the effects of such changes to be shown on one revised programme that incorporates all these minor events. Clause 64 deals with circumstances in which: • The contractor has not submitted a quotation for a “compensation event”. • The quotation is “incorrect”. • The contractor has not submitted a revised programme, or there is no agreed-on programme. In these circumstances, the project manager must make an assessment of the compensation event, including any extension of time. This is unlikely to be an easy task, particularly if the project manager does not have an up-to-date programme from the contractor. It is also unlikely that contractors’ and project managers’ views about delays will always match. If the project manager fails to make an assessment then, by virtue of Clause 64.4, the contractor’s quotation is deemed accepted after a set period of time. By virtue of Clause 65.1, a compensation event is implemented when the quotation is accepted (or treated as accepted) or when the project manager notifies the contractor of his or her own assessment. Therefore, under NEC3 a prospective assessment of delay is made, and, once made, it is not subject to review, even if it proves to be wrong. ICE Conditions of Contract, 7th edition In the ICE Conditions of Contract, 7th edition, the majority of the provisions relating to time issues are found in Clauses 41 to 48. There are also a number of other important subclauses dealing with delay and extra cost. 2.3.3.1  Delay events As with the JCT and NEC3 standard forms, the ICE Conditions of Contract provide a list of events that may give rise to an extension of time, set out in Clause 44(1). The list 93

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includes variations, increases in the quantity of works, exceptionally adverse weather and two general catchalls of: • Any delay, impediment, prevention or default by the employer; and • Any “other special circumstances of any kind whatsoever” that may occur. The list of Relevant Events in this contract also includes a failure by the engineer to issue the necessary drawings and specifications (Clause 7(4)); the discovery of unforeseen “physical conditions” or “artificial obstructions” (Clause 12(6)); compliance with instructions (Clause 13(3)); late approval of construction methods or unforeseen limitations imposed by design criteria (Clause 14(8)); and the provision of site facilities for others (Clause 31(2)). 2.3.3.2  Delay notices If the contractor considers that the works will be delayed by one or more of the delay events listed, it must, by virtue of Clause 44(1), provide full and detailed particulars to justify the period of extension claimed. This information must be provided within 28 days of the cause of the delay arising, or as soon thereafter as is reasonable. 2.3.3.3  Assessments Clauses 44(2) and 44(3) of the ICE form deal with the assessment and granting of an extension by the engineer. Clause 44(2) provides that the engineer must make an assessment of any delay that has been suffered and notify the contractor of that assessment. An assessment must be made upon receipt of particulars from the contractor (Clause 44(2)(a)) or may be made in the absence of any claim (Clause 44(2)(b)). Clause 44(3) provides that the engineer must make an interim extension of time award as soon as it is considered that the delay fairly entitles the contactor to more time to complete. Clauses 44(4) and 44(5) impose further duties on the engineer at and shortly after completion of the works to make a final determination of the extension of time due. Clause 44(4) provides that the engineer must, within 14 days of the completion date, decide whether the contractor is entitled to an extension of time or further extension, regardless of whether an application for an extension has been made by the contractor. Clause 44(5) provides that the engineer must, within 28 days of the issue of the “Certificate of Substantial Completion” for the works, review and finally determine the extension of time. Certification of “Substantial Completion” is covered by Clause 48 of the contract. As with the review under the JCT standard form, the engineer under the ICE form cannot decrease the period of any extension of time previously awarded.

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CHAPTER 4

Bespoke NPP Agreement Terms and Conditions

In addition to the various standard form contracts1 which can be used in nuclear power plant development the majority of such projects are built based upon “bespoke” agreements which take into account the various details and provisions needed for such complex projects. But what terms and conditions should be used and what should they cover. The purpose of this chapter is to highlight and show, on a clause by clause basis, the necessary items, the wording and the inter-relationships between the various elements of any typical NPP agreement. Most such contracts have three sections; the first being the Agreement itself, the Terms and Conditions of the Agreement, and any Appendices to the Terms and conditions. An example of the Agreement is as follows:

SAMPLE NUCLEAR POWER PLANT AGREEMENT2 This Agreement is made on the ___ day of _____ 20__ by and between the following: THE PARTIES: THE OWNER/EMPLOYER (strike out non-applicable name) (SHOW NAME, ADDRESS AND TAX NUMBER OF THE OWNER), referred to herein as “Owner” (or Employer if desired) -and-

1  Note that the use of the word “contract” and “agreement” are used synonymously in this book as the essential differences between a contract and an agreement are minor. In essence, a contract’s outline is more formal and more rigidly presented than the terms outlined in an agreement. 2  The author is grateful to the Dispute Board Federation for the use of this form agreement.

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THE CONTRACTOR/SUPPLIER (strike out non-applicable name) (SHOW NAMES, ADDRESSES AND TAX NUMBERS OF THE SUPPLIERS)… …… …… The above companies (or consortium, etc.,), who are acting jointly and severally together are referred to herein as “Supplier” (or Contractor if desired). RECITALS: A. This Agreement and Plant Contract has been Awarded to the Supplier pursuant to the established tendering process and as a result the Owner is contracting with the Supplier for a the provision of a complete Nuclear Power Plant that will be ready for immediate use upon turnover to the Owner, otherwise known as a “Turnkey” _________ Nuclear Power Plant to be located ___________________ with the Supplier to perform and provide all that is required (but not limited to) the following:

The complete design, engineering, procurement and equipment manufacture, supply, construction, erection, testing and commissioning, licensing, fuel supply and remedying of defects, as well as project management.

B. The Supplier represents and warrants to the Owner that it is fully expert and competent to provide the services and activities set out in item A above and that it has the necessary financial, technological and staffing necessary to undertake the performance of this Agreement. BASED ON THE FOREGOING THE PARTIES AGREE AS FOLLOWS: 1. This Agreement along with the following documents shall be deemed to constitute this Agreement and in this order: a. The Terms and Conditions and its Appendices annexed to this Agreement and the Fuel Contract signed between the Owner and ________________ which is incorporated into this Agreement as provided for in item 6 below and Sub-Clause(s) 2.1.4 and 2.5 of the Terms and Conditions; and b. The Contract Specifications comprising the following documents: 1.  Scope of Supply and Services (SS); 2.  Project Implementation (PI); 3. General Technical Requirements (GR); 4.  Power Generation Plant Requirements (PG); and c. Such other documents and amendments agreed in writing to be part of or complementary to this Plant Contract d. The Supplier’s Bid (as updated showing clear indications of any change to the original Supplier’s Bid. e. Any other documents and amendments which have been agreed in writing between the Parties to become part of or part of the Plant Contract. 96

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2. In the event of non-conformity or divergence of interpretation bet ween the above referenced Plant Contract documents, the above documents shall take precedence in accordance with the above order of listing, unless in any particular case the context expressly indicates otherwise. 3. The Parties further agree that in reference to agreed item number 1d above if any changes to the updated Supplier’s Bid are made, that are, in the Owner’s opinion affect the safety, availability, operability or maintainability of the Plant or cause it to be weakened in any way as compared with the original Supplier’s Bid and that this matter is not dealt with in any of the other Plant Contract Documents, then the Owner shall be entitled to mandate and require that change be changed to comply with the original Supplier’s Bid and that this be accomplished within 10-days from the date of the Owner’s notification. Failure to comply will justify immediate referral of this to the Dispute Adjudication Board Referred to in the Terms and Conditions. 4. In consideration of the payments to be made by the Owner to the Supplier under the Plant Contract, the Supplier shall carry out and complete the Works and discharge all the other obligations on its part specified in, and in all respects accordance the Plant Contract and as to the Fuel Contract (show name of Fuel Supplier here) shall carry out and perform and complete its scope of supply in all respects and in strict accordance with the Fuel Contract. 5. In consideration of the full and complete discharge of the Supplier’s obligations under the Plant Contract, the Owner shall pay to the Supplier the Contractual Price as set out in ___________________________ of the Plant Contract at the times and in the manner prescribed and in consideration of the full and complete discharge of the Supplier (list name) and its obligations under the Fuel Contract, the Owner shall pay (show name of Fuel Supplier here) the Price prescribed in ________ of the Fuel Contract at the time and in the manner prescribed therein. 6. The Parties further acknowledge and agree that is an integral part of this Agreement that the Owner and (show name of Fuel Supplier here) have on the same date signed the Fuel Contract. The First Core Loading and the first Reload Batch to be provided under the Fuel Contract shall be considered a part of the Plant Contract in all material respects such as but not limited to the Plant Contract guarantees, delay of Provisional Takeover, suspension, rejection and termination which are governed by the Terms and Conditions of the Plant Contract as applicable to the First Core Loading and the first Reload Batch. 7. This Agreement constitutes the entire agreement between the Parties in relation to its subject matter and supersedes all prior agreements and understandings whether oral or written with respect to such subject matter and shall be subject to the Laws of _____________ as to any interpretation and enforcement. Further the Parties agree that no amendment of this Agreement shall be effective unless it conforms to the procedures set out and agreed in the Plant Contract, has been reduced to writing and signed by or on behalf of a duly authorised representative of each of the Parties. 8. The effective date of this Agreement is _______________________. This Agreement has been executed in ___________________ by the Parties in ____ counterpart originals, one for each signatory, on the day and year first written above. 97

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FOR AND ON BEHALF OF THE OWNER (full name of Owner): Signed: ______________________________ Printed Name: Title: President & CEO Signed: ______________________________ Printed Name: Title: Secretary FOR AND ON BEHALF OF THE SUPPLIER (full names of all Suppliers): Name of Supplier: _____________________ Signed: ______________________________ Printed Name: Title: President & CEO Signed: ______________________________ Printed Name: Title: Secretary Name of Supplier: _____________________ Signed: ______________________________ Printed Name: Title: President & CEO Signed: ______________________________ Printed Name: Title: Secretary Name of Supplier: _____________________ Signed: ______________________________ Printed Name: Title: President & CEO Signed: ______________________________ Printed Name: Title: Secretary … Following the Agreement itself would be the Terms and Conditions. It is considered good practise to break this down into Clauses and Sub-Clauses with interrelating cross references and as with most such documents the starting point should be the “Definitions” so that all parties can be certain exactly what it is that is being referred to in the document itself. Typically, this will be entitled “Clause 1” and an example of this is as follows: 98

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Clause 1 – Definitions 1.1 The following terms being an integral part of this Plant Contract shall have the meanings stated below, unless the relevant Clause covering the matter or in any particular instance the context expressly indicates otherwise. Words indicating persons or parties include corporations and other legal entities, except where the context requires otherwise, and the singular includes the plural and vice versa when the context so requires: 1.1.1 Acceptance Test: A test conducted to verify that the whole Plant or a particular component or system satisfies the applicable specifications. 1.1.2 Agreement: The document signed by the Owner and the Supplier which specifies the documents are part of the Plant Contract and which expresses the agreement and the acceptance of the Plant Contract by the Owner and the Supplier. 1.1.3 Authorities: The governmental, regional or municipal bodies which have the appropriate jurisdiction over this Project and Plant Contract and its performance including their representatives, who are responsible for ensuring that the Plant is designed, built and operated and further that the operations in the fuel cycle are according to the relevant laws, acts, decrees, decisions, regulations, codes, standards, resolutions and other official stipulations valid in the jurisdiction in which this contract exists. 1.1.4 Availability: The definition and meaning which is assigned to this term is as defined in Sub-Clauses 13.1 and 13.23. 1.1.5 Availability Guarantee: The availability guaranteed by the Supplier under the terms and conditions established in Clause 13. 1.1.6 Business Day: Any weekday (other than a Saturday or Sunday) when banks are open for the transaction of business in the jurisdiction in which this contract is being performed. 1.1.7 Commissioning: A period of testing and measurements starting with initial fuel loading and power raising in which the performance of the Plant is demonstrated with regard to start-up, shutdown, part-load operation, load changing capabilities, and all other modes of operation, and which is concluded by a continuous twenty-four (24) hour Performance Test. 1.1.8 Construction Site: The area on which the Plant is to be constructed, including the staging, laydown and construction areas. 1.1.9 Construction Time: The time starting on the Effective Date and ending at the Contractual Date of Provisional Takeover. 1.1.10 Consultant: Such consultant(s), as may be appointed by the Owner, to assist and support it in technical, commercial or legal matters. 1.1.11 Contractual Date of Provisional Takeover: The date guaranteed by the Supplier for the Provisional Takeover being sixty (60) calendar months counting from the Effective Date or any other date determined in accordance with Sub-Clause 5.4 or Sub-Clause 11.3 herein. 1.1.12 Contract Performance Bond: The guarantee being defined in Sub-Clause 18.2 and Appendix 4.

3  Note that references given are to Clauses and Sub-Clauses which will follow in this Chapter’s examples.

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1.1.13 Contract Specifications: The documents being defined as such in Sub-Clause 2.3.1. 1.1.14 Contractual Price: The price to be payable by the Owner for Supplier’s Scope of Supply to be provided by the Supplier under the Plant Contract calculated as provided for in Clauses 16 and 17. 1.1.15 Cycle: The period between closing of the breaker after a scheduled refuelling outage and closing of the breaker after the following scheduled refuelling outage. 1.1.16 Demonstration Run: A period of operation to demonstrate Plant performance over a period of thirty (30) consecutive days. The Demonstration Run begins after the successful completion of the twenty-four (24) hour Performance Test. 1.1.17 Direct Costs: All expenditure properly and reasonably incurred by the Supplier (or the Owner, as applicable), including overhead and similar charges, but excluding profit. 1.1.18 Documents for Information and Scrutiny (DIS): The Documents for Information and Scrutiny prepared by the Supplier specifying in detail how the Supplier will meet the Owner’s requirements and specifications as prescribed in the Contract Specifications as defined in detail in Sub-Clause 4.2. 1.1.19 Duration Test: A test which is part of the Demonstration Run, at which the Plant is operated without any interruption for a fourteen (14) day period in accordance with Sub-Clause 10.3. 1.1.20 Effective Date: (to be filled in). 1.1.21 Environmental Permits: Any and or all approvals, permits, licences, consents, certificates, qualifications, specifications, registrations and other authorisations including any conditions which attach to any of the above, and the filing of all notifications, reports and assessment required under any applicable environmental or other laws applicable in the jurisdiction in which the Plant is being built (except for the nuclear legislation) in respect of the activities undertaken by the Supplier at the Construction Site unless they have to be applied for by the Owner. 1.1.22 Existing Nuclear Power Plant (if relevant add this definition): The nuclear power plant(s) and associated facilities already existing at the location where the Plant is going to be constructed. 1.1.23 Extended Guarantee Periods: The guarantee periods, set forth in SubClause 12.1.6 following the Provisional Takeover. 1.1.24 Extended Guarantee Period Bond: The guarantee being defined as such in Sub-Clause 18.6. 1.1.25 Final Price: The price to be finally paid to the Supplier and being the Contractual Price, adjusted as provided by Clause 17 of the Plant Contract. 1.1.26 Final Takeover: Takeover of the Plant by the Owner at the end of the Guarantee Period as defined in Clause 15. 1.1.27 First Core Loading: A complete group of Fuel Assemblies, which shall include four reserve Fuel Assemblies fabricated and delivered for the initial core in one operation by the Fuel Supplier under the Fuel Contract. 1.1.28 Force Majeure: Events defined in Clause 20 herein. 100

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1.1.29 FSAR: Final Safety Analysis Report. 1.1.30 Fuel Assembly: An assembly of fuel rods containing special nuclear material, supplied by the Owner, together with structural components such as spacers, upper and lower tie plates, designed, fabricated and delivered by the Fuel Supplier under the Fuel Contract. 1.1.31 Fuel Contract: The contract entered into between the Owner and the Fuel Supplier as named in the Contract which together with the Terms and Conditions (as far as they are applicable to the Nuclear Fuel) contains the entire agreement between them for the design, fabrication, quality assurance, control, delivery and associated services for the First Core Loading and the reserve Fuel Assemblies as well as options for Reload Batches and other services as provided for therein. 1.1.32 Guarantee Period: The period, set forth in Sub-Clause 12.1.3, following the Provisional Takeover. 1.1.33 Guarantee Period Bond: The guarantee being defined as such in Sub-Clause 18.6 and Appendix 5. 1.1.34 Guarantee Test: Testing of the purpose of verifying that the Net Rated Output and Mean Heat Rate values of the Plant have been met as defined in Sub-Clause 12.2.3. 1.1.35 Intellectual Property Rights: The rights to all current and future interests in registered or unregistered trademarks, service marks, patents, designs, utility models, applications for any of the foregoing, copyrights, inventions, confidential or proprietary information, “know-how” or other intellectual property (whether in written form or generated by or maintained on a computer or similar system) subsisting in or relating to all specifications, plans, drawings, graphs, sketches, models and other documents or materials including software prepared at any time relating to the Plant or any part thereof or their design, construction, commissioning, completion, operation and/or maintenance. 1.1.36 Main Time Schedule: The time schedule defined in Sub-Clause 11.1 and Appendix 6. 1.1.37 Mean Heat Rate: The heat rate value guaranteed by the Supplier as defined in The term “mean heat rate” refers to the actual or measured value of the quantity defined herein. 1.1.38 Net Rated Output: The electrical output of the Plant, guaranteed by the Supplier at the generator terminals under nominal conditions minus the power required by the auxiliaries in the Supplier’s Scope of Supply as stated in the Contract Specifications and minus the corresponding power losses in the busbar connection between the generator terminals and the high-voltage terminals at the main transformer. The term “net rated output” refers to the actual or measured value of the quantity defined herein. 1.1.39 Nuclear Fuel: The Fuel Assemblies (including single fuel rods if delivered separately for any reason) fabricated and delivered under the Fuel Contract. 1.1.40 Nuclear Steam Supply System (NSSS): Equipment and systems as required to receive feedwater and to furnish steam for driving the turbine generator at the stated pressure, temperature and steam quality conditions. 101

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1.1.41 Owner: (list name of Owner(s) here) 1.1.42 Owner’s Representative: The person(s) appointed by the Owner to act as Owner’s representative for the purposes of the Plant Contract or any other person appointed from time to time by the Owner and notified as such to the Supplier according to Sub-Clause 24.1. 1.1.43 Owner’s Scope of Supply: The supplies and services to be provided by the Owner in accordance with Sub-Clause 3.3. 1.1.44 Party: The Owner or the Supplier, as the context requires. 1.1.45 Performance Test: A  twenty-four (24) hour test at the end of the Commissioning according to Sub-Clause 10.2.9. 1.1.46 Plant: (list the name of the Nuclear Power Plant and its location) to be constructed at the Construction Site. 1.1.47 Plant Contract: The contract entered into between the Owner and the Supplier, which contains the Agreement between them for the turnkey delivery of the Plant as defined in the Plant Contract Documents. 1.1.48 Plant Contract Documents: The documents specified in Sub-Clause 2.3.1. 1.1.49 Pre-Operational Testing: The period of testing of individual components and systems as well as a combination of systems conducted prior to initial core loading. 1.1.50 Provisional Takeover: Takeover of the Plant by the Owner following successful Commissioning and Demonstration Run after the conditions in Sub-Clause 10.3.14 have been fulfilled. 1.1.51 PSA: Probabilistic Safety Assessment. 1.1.52 PSAR: Preliminary Safety Analysis Report. 1.1.53 Rated Output: Electrical output of the Plant measured at the generator terminals under the nominal conditions as specified in Sub-Clause 12.2.1 herein. The term “rated output” refers to the actual or measured value of the quantity defined herein. 1.1.54 Reference Plant (use only if necessary): (and if necessary, list the plant names here and locations, all including but not limited to matters described in the reference lists attached to Contract Specifications or the Supplier’s Bid, however, the Existing Nuclear Power Plant for civil construction, all in the condition as of the Effective Date. 1.1.55 Reload Batch: A group of Fuel Assemblies fabricated and delivered in one campaign by (list name of Fuel Supplier here) for the refuelling of the reactor under the Fuel Contract. 1.1.56 Risk Transfer Date: The date defined in Sub-Clause 6.1.2. 1.1.57 Scope of Supply of the Owner: Same meaning as Owner’s Scope of Supply. 1.1.58 Scope of Supply of the Supplier: Same meaning as Supplier’s Scope of Supply. 1.1.59 Simulator Reference Data: Plant, system or component design, construction or operation data concerning the Simulator Reference Plant, which the Supplier needs for design, development or testing of the Simulator Software. 1.1.60 Simulator Reference Plant: The Plant. 102

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1.1.61 Site: The area where (add if an existing plant already exists: the Existing Nuclear Power Plant and) the Construction Site is/are located. 1.1.62 (Note need to add the name of the local Radiation and Nuclear Safety Authority) here. 1.1.63 Subcontract: The agreement, contract or other arrangement under Subcontractor is appointed, employed or engaged by the Supplier. 1.1.64 Subcontractor: Person, enterprise or corporation furnishing materials, equipment, engineering services or other forms of service to the Supplier in connection with the Scope of Supply of the Supplier. 1.1.65 Supplier: (list name of Supplier from Agreement here) 1.1.66 Supplier’s Representative: The person(s) appointed by the Supplier to act as Supplier’s Representative for the purposes of the Plant Contract or any other person appointed from time to time by the Supplier and notified as such to the Owner according to Sub-Clause 24.1. 1.1.67 Supplier’s Scope of Supply: Means the same as the Works. 1.1.68 Terms and Conditions: The document specifying the terms and conditions agreed upon between the Owner and the Supplier for the turnkey delivery of the Plant. 1.1.69 Technical Specifications: The Technical Specifications of Plant operation constitute the technical rules, which guarantee that the assumptions concerning the status of the Plant or different systems applied in the safety analyses are fulfilled. 1.1.70 Training Simulator: The full scope replica training simulator based upon the design of the Plant to be provided by the Supplier. 1.1.71 Works: All engineering, design, procurement, manufacturing, transport, fabrication, erection, construction, interconnection, commissioning, testing, licensability, labour, supervision, training, services, facilities, equipment, supplies, tools, materials, spares and consumables to be furnished by the Supplier and its Subcontractors, or that may be required to design, build, commission test and complete the Supplier’s Scope of Supply and to fulfil the Supplier’s obligations in respect of any guarantees thereon as well as project management, coordination, interface control and all other activities and obligations to be executed by the Supplier under the Plant Contract for the completion of the Plant, but excluding for the avoidance of doubt any supplies or services which are in the Owner’s Scope of Supply. Following the list of applicable definitions on which the rest of the Terms & Conditions rely the bespoke contract should next go into what the actual basis for the Plant Contract is and the applicable law, what takes precedence, and other key details. In any nuclear power plant project you actually have two contracts: the Plant Contract and the Fuel Contract and both of these are usually executed at the same time – contemporaneously with each other and this needs to be made clear in the section that follows the definitions. An example of such a clause is as follows:

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CLAUSE 2 – Basis for The Plant Contract 2.1  General 2.1.1 The fulfilment of the obligations of the Supplier under the Plant Contract shall be in accordance with the following requirements: • Laws, acts, decrees, regulations and resolutions applicable in (the country where the NPP is to be built), including applicable (local, regional) Directives, which cannot be derogated by the Parties to the Plant Contract. • Other licensing requirements imposed by the Authorities. • The Plant Contract. • Matters, not regulated by the above provisions, to be governed by local law. 2.1.2 In case of nonconformity or divergence of interpretation between the above-listed requirements, these items shall take precedence in the above order of listing unless in any particular case the context expressly indicates otherwise. 2.1.3 It is the responsibility of the Supplier to ascertain the existence and to become acquainted with the above listed requirements valid and in force at each particular time in order to duly carry out its contractual obligations. The Owner shall to the extent reasonably determined by the Owner assist the Supplier in obtaining the above information on the requirements. Any such assistance however shall not relieve the Supplier from the responsibility for the requirements or its contractual obligations herein. 2.1.4 In the case of delay or Plant performance problems due to First Core Loading or first Reload Batch causes, these Terms and Conditions shall be applied unless the matter is exclusively covered by the Fuel Contract. 2.2  Laws, Acts, Decrees, Regulations and Resolutions 2.2.1 It is the responsibility of the Supplier to take into account laws, acts, decrees, regulations and resolutions valid in (the country in which the NPP is to be built) and/or any other applicable legislation, rules and/or regulations of any governing body, so that they will be fulfilled in conformity with its contractual obligations. 2.2.2 In carrying out its contractual obligations under the Plant Contract, the Supplier shall fulfil the requirements of the relevant laws, acts, decrees, decisions, regulations and resolutions applied by the Authorities for design, building, operating and maintaining of nuclear power plants. In the case that no such laws, acts, decrees, decisions, regulations or resolutions exist for nuclear power plants the applicable ones for conventional power plants, which are applied by the Authorities also for nuclear power plants, shall be fulfilled. 2.2.3 The latest editions of such law, act, decree, decision, regulation or resolution applied by the Authorities shall be applicable at each particular time. Changes after the Effective Date, which are obviously foreseeable on the Effective Date and listed in Appendix 8, shall be included in the Scope of Supply of the Supplier. Changes in the Scope of Supply of the Supplier after the Effective Date due to changes in, or due to new laws, acts, decrees, decisions, regulations 104

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or resolutions, which were not obviously foreseeable on the Effective Date and not listed in Appendix 8, will only be performed if required by the Authorities or the Owner and are dealt with in Clause 5.4.3. 2.2.4 The Supplier shall keep itself informed regarding changes in or new laws, acts, decrees, decisions, regulations or resolutions which may affect the performance of the Plant Contract and review and investigate the consequences thereof related to Plant design. The Supplier shall inform the Owner accordingly. 2.3  Plant Contract Documents 2.3.1 The Plant Contract comprises the following documents all of which shall be considered as an integral part of this Plant Contract: ▪ The Agreement executed by the Owner and the Supplier. ▪ The Terms and Conditions, and its Appendices, as follows: – Appendix I: Price and Price Revision Formula – Appendix II: Payment Schedule – Appendix III: Form of Parent Company Guarantee – Appendix IV: Form of Contract Performance Bond – Appendix V: Form of Guarantee Period Bond – Appendix VI: Main Time Schedule – Appendix VII: Approved Subcontractors List – Appendix VIII: List of Obviously Foreseeable Requirements – Appendix IX: Form of Advance Payment Bond – Appendix X: Extended Guarantee Periods for Components and Systems – Appendix XI: Items for which Owner Can Require Demonstration of Equivalency to US Codes – Appendix XII: List of Sensitive Proprietary Information – Appendix XIII: Options and the Fuel Contract integrated into the Agreement as provided for in item 6 of the Agreement and Clauses 2.1.4 and 2.5 of these Terms and J Conditions. ▪ The Contract Specifications, comprising: – Scope of Supply and Services (SS) – Project Implementation (PI) – General Technical Requirements (GR) – Power Generation Plant Requirements (PG) ▪ Other documents and amendments agreed in writing to be part of or complementary to the Plant Contract ▪ The Supplier’s Bid as updated with clear indications of changes to the original Supplier’s Bid which changes are well grounded based on the other Plant Contract Documents. If in the justified opinion of the Owner, and if agreed between the Owner and the Supplier, the safety, availability, operability or maintainability of the Plant is weakened in any updated part of the Supplier’s Bid compared with the original Supplier’s Bid and the matter has not been dealt with in the other Plant Contract Documents, then the Owner shall within ninety (90) days of the Effective Date have the right to require the said part in accordance with the original Supplier’s Bid. 105

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2.3.2 The Plant Contract is the final and entire agreement between the Owner and the Supplier. 2.3.3 In the event of non-conformity or divergence of interpretation between the abovementioned Plant Contract Documents, the said documents shall, take precedence in accordance with the above order of listing, unless in any particular case the context expressly indicates otherwise. 2.3.4 By the sole act of signing the Agreement, the Owner and the Supplier express their agreement and acceptance of the above Plant Contract Documents. 2.3.5 All documents mentioned above shall be issued in English, and the official language of this agreement shall be English, unless otherwise agreed upon in writing. 2.4  Codes and Standards 2.4.1 All equipment and systems of the Plant shall be designed in accordance with codes and standards in force and applicable (in the country where the NPP is to be built). 2.4.2 Where there are no applicable codes and standards as defined above, agreement shall be reached in writing between the Owner and the Supplier upon the use of current international or US codes and standards or codes and standards of the Supplier’s home country used by the Supplier in his current existing nuclear power plant design. 2.4.3 Notwithstanding the above, US codes and standards have to be applied for all Nuclear Steam Supply System structures, systems and components and related nuclear safety and protection structures, systems and components, if so required by the Authorities or the Owner. Other codes and standards as set forth above may, however, be used if the Supplier can demonstrate to the satisfaction of the Owner and relevant Authorities, that such codes and standards are equivalent to the requirements of corresponding US codes and standards. Such demonstration of the equivalency for the Owner shall be done for the items listed in Appendix 11, if so required. In such a case this demonstration shall not be done in an item by item comparison of the relevant codes and standards, but in a general way and mainly related to the design (e.g. stress and rupture analysis) of these components. For the avoidance of doubt there shall be no restriction in the demonstration of equivalency required by the Authorities. 2.4.4 The application of non-(country where the NPP is being built) codes and standards for design, materials, fabrication, erecting, constructing and testing shall be subject to the review and approval of the Authorities as well as of the Owner before they are applied. Further: – The codes and standards including practices which the Supplier shall apply to all structures, systems and components in Supplier’s Scope of Supply are set forth in the Contract Specifications. – If due to the provisions of Clauses 2.4.1, 2.4.2 or 2.4.3 above and subject to Clauses 2.4.5 below, any other code or standard than the ones set forth in the Contract Specifications is to be applied, then the Supplier may submit a proposal to the Owner and such proposal shall be dealt with in accordance with Clause 5.4. 106

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2.4.5 The design, materials, fabrication, manufacture, erection, construction, testing and acceptance of the Plant structures, systems and components shall be in accordance with the latest valid edition of codes and standards in force or as listed in Appendix 8. Changes to the Works after the Effective Date due to changes in codes and standards will only be performed if required by the Authorities or the Owner (see Clauses 2.2.3. and 5.4). 2.4.6 In the choice of codes and standards, the code and standard which will ensure the licensable, safe, reliable and efficient operation of the Plant must be chosen. In case of doubt the Owner shall be consulted in writing first. 2.4.7 Parallel use of different codes for one particular item or component is not allowed, unless otherwise agreed upon in writing between the Owner and the Supplier. 2.4.8 Where no code or standard as provided for under this Article applies, prudent and generally accepted design, materials, fabrication, erection, construction and testing practices for nuclear power plants shall be followed. 2.5  Relationship between Fuel Contract and the Plant Contract 2.5.1 Introduction Contemporaneous to the execution of the Plant Contract, the Owner has executed the Fuel Contract with (insert name of Fuel Supplier). The First Core Loading and if the context so requires the first Reload Batch to be provided under the Fuel Contract shall be considered as part of the Plant Contract for, among others but not limited to, the purposes as described hereinafter. 2.5.2 Guarantees Should any of the guarantees as per Clauses 12 and 13 of this Plant Contract not be met due to a deficiency of the First Core Loading or the first Reload Batch for which (insert name of Fuel Supplier) under the Fuel Contract is responsible, The Supplier’s responsibility under the Plant Contract shall be as regulated pursuant to the Clauses of this Plant Contract. 2.5.3 Suspension, Rejection, Termination In the event of suspension, rejection or termination of the Plant Contract as per Sub-Clause 11.3.2.5 and Clause 21, the Owner, the Supplier or (insert name of Fuel Supplier) under the Fuel Contract, as the case may be, shall have the right to reject, suspend or terminate also the Fuel Contract, applying mutatis mutandis the provisions of the Plant Contract. The Owner may exercise its right of rejection or termination of the Plant Contract as described in Clause 21, if the preconditions for such rejection or termination are fulfilled due to a deficiency in the First Core Loading or a delay in delivery of the First Core Loading for which (insert name of Fuel Supplier) under the Fuel Contract is responsible, as the case may be. 2.5.4 Liquidated Damages and Delay of Provisional Takeover All liquidated damages which may become due under the Plant Contract or the Fuel Contract shall be independent and separate from each other, so that payments for liquidated damages under one contract shall not be considered 107

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as payments in fulfilment of obligations under the other contract. However, in respect of delay in the delivery of the First Core Loading or a defect or nonconformity in such First Core Loading which leads to a delay in the Provisional Takeover, only the liquidated damages stipulated to this effect under Sub-Clause 11.3.3 of the Plant Contract shall apply and shall be paid by the Supplier. In essence the first three clauses of the T&C’s should cover what things mean, what is being built under what laws and what documents and in the next section the actual “Scope” of the plant contract should be delineated – i.e. who is to do what and under what parameters. It should be noted that in most such bespoke contracts the term contractor is not always used and instead the term “Supplier” is used – again your have two generally the first Supplier being the “Plant” Supplier and the second being the “Fuel” Supplier. This Clause should also set out the design parameters and characteristics for the NPP and the responsibilities of both the Owner and Supplier. A typical such clause is as follows:

Clause 3 – Scope of The Plant Contract 3.1  General 3.1.1 The Plant as completed by the Supplier shall be wholly in accordance with the Plant Contract and fit for the purpose for which it is intended, as defined in the Plant Contract which means the purpose of generating electric power in accordance with the provisions of the Plant Contract. Supplier’s Scope of Supply shall include any design, equipment, work, documentation and other things which are necessary to satisfy the compliance with the requirements of the Plant Contract and Plant Contract Documents (the design characteristics), the Authorities’ requirements, or is implied by the Plant Contract, or arises from any obligation of the Supplier, and all works not mentioned in the Plant Contract but which may be inferred to be necessary for stability or completion or the licensable, safe, reliable and efficient operation of the Plant. 3.1.2 The terms and conditions relating to the supplies and services for the Nuclear Fuel are set forth in the Fuel Contract. 3.1.3 The main design characteristics of the Plant Contract under nominal conditions are approximately as follows: – Thermal rating of the reactor (or reactor power level) (calculated value) …………………………………….(list value in MW) – Gross 100% rated output at main generator terminals (calculated value) …………………………………….(list value in MWe) – Auxiliary power consumption of auxiliaries within the Supplier’s Scope of Supply at Gross Rated Output. …………………………………(list value in MWe) – Net rated output of the plant ……………………..….(list value in MWe) The design criteria and other main characteristics of the Plant are given in the Contract Specifications. 108

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3.1.4 Unless otherwise specified, the design of the Plant shall be based upon and shall have as a minimum requirement the same provisions as the Reference Plant, as far as functionality and implementation is concerned. The right of the Owner to request changes and additions is not, however, diminished by this provision. 3.1.5 The Supplier shall in addition and supplementary to his obligations under the Plant Contract in the execution of the Works apply prudent and generally accepted practises, methods and standards of performance currently observed by the nuclear power plant industry in (list location(s) applicable) for similar types of nuclear power plants/facilities. 3.2  Supplier’s Scope of Supply 3.2.1 Introduction The Supplier’s Scope of Supply under this Plant Contract shall be as outlined herein and further described in detail in the Contract Specifications (Scope of Supplies and Services). 3.2.2 Description of the Supplier’s Scope of Supply 3.2.2.1 The Scope of Supply of the Supplier includes, but is not limited to: – Nuclear Island (NI) comprising: Nuclear Steam Supply System (NSSS) Balance of Nuclear Island (BONI) – Turbine Island (TI) comprising: Turbine-generator and auxiliaries Thermal cycle systems Balance of Turbine Island (BOTI) – Balance of Plant (BOP), including auxiliary buildings outside the Nuclear Site and Turbine Site, together with the corresponding systems and equipment that is not included in the portion of the BOP supplied by the Owner, if required for the Plant as described in Sub-Clauses 3.1.1. – Electrical Power Systems – Instrumentation and Control (I&C) – Training Simulator – Civil construction work 3.2.2.2 The Supplier is responsible for the pre-operational tests, functional tests and commissioning of individual Plant equipment and systems. It is also responsible for the Commissioning of the Plant, including handling and loading of the First Core Loading, subcritical and zero power tests, part-load tests and the Performance Test, and the carrying out of the Demonstration Run. 3.2.2.3 The Supplier is responsible for submitting all Plant licensing documentation required by the Authorities and for supporting the Owner during the licensing process. 3.2.2.4 Unless otherwise required by applicable regulations, codes and standards, or by the Authorities, or by the requirements set forth in the Contract Specifications, the design, material and workmanship of equipment and systems, fulfilling the functions and operational requirements set forth in the Contract Specifications, shall be, as a minimum requirement, equivalent 109

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to the design solutions and quality applied for the structures, systems and equipment in the Reference Plant, as far as functionality and implementation is concerned. 3.2.2.5 The Supplier is responsible for preparing a list of recommended spare parts for the Plant equipment and systems, [(Add the following if an existing NPP exists on site) taking into account the spare parts of the Existing Nuclear Power Plant at the Site] intended to cover the requirements for the replacement of parts subject to wear for a 3-year operating period from the date of the Provisional Takeover. The Owner may purchase the spare parts from a third party or through the Supplier if the Owner so decides. 3.2.2.6 The Supplier is responsible for the availability of spare parts and consumables (including but not limited to computer software) to meet the potential requirements of the Plant up to twenty (20) years from Provisional Takeover. This Sub-Clause 3.2.2.6 shall in no regard affect the requirements of Sub-Clause 12.3 or be interpreted as diminishing in any way the Supplier’s responsibility thereunder. 3.2.2.7 With respect to the execution of the civil construction works to be supplied by the Owner, the Supplier shall nevertheless be responsible for the Plant design, including layout, and for the conceptual civil design. 3.2.2.8 The Supplier’s Scope of Supply includes supplies within the Supplier’s buildings, including but not limited to pipes, pipe penetrations, instrumentation and control systems, and safety systems, and other accessories such as furnishing of the Plant as provided for in the Contract Specifications (Scope of Supply and Services). 3.2.2.9 The Construction Site including the limits of the Supplier’s Scope of Supply and the Owner’s Scope of Supply is defined in the Contract Specifications. The limit of supply for pipes, cable ways and cable channels, etc., to which the Owner has to connect is, however, 1.0 m outside the buildings of the Plant to be supplied, except for electrical cables, and where in special cases other limits have been agreed as defined in the Contract Specifications in detail. 3.2.3 Supplier’s Scope of Supply and Obligations During Construction at the Construction Site 3.2.3.1 Before the Owner hands over the Construction Site to the Supplier, for the avoidance of doubt, the obligations of the Supplier shall be according to the Supplier’s Scope of Supply. After the Owner has handed over the Construction Site to the Supplier, the Supplier’s responsibility comprises, but is not necessarily limited to, the following facilities, supplies and services to be provided at the Construction Site during the construction of the Plant. Such facilities, supplies and services shall cover the needs of the Supplier. The Owner may, subject to separate agreement utilise such facilities, supplies and services of the Supplier. Such agreement shall not be unreasonably withheld and shall be on reasonable terms. These

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facilities, supplies and services to be provided at by the Supplier at the Construction Site include but are not limited to the following: – Construction Site organisation and planning for Supplier’s Scope of Supply taking into account the needs of the Owner as well as provision and installation of construction equipment; – Management of safety rules at the Construction Site; – Total coordination of all works during the construction period until Provisional Takeover; – Temporary facilities for the Supplier’s personnel and the personnel of its Subcontractors, such as workshops, storage, offices, first-aid room and workers’ sheds; – Provision and operation of loading and unloading facilities; – Transport of components to the Construction Site and inside the Construction Site including lifting and off-loading Care, custody and conservation under adequate storage and maintenance of equipment and components at the Construction Site; – Provision of consumable materials up to Provisional Takeover, with the exception of Nuclear Fuel, which will be provided on the basis of the Fuel Contract, unless otherwise provided for in the Contract Specifications Collecting and disposal of waste material from his work into the Owner’s garbage containers; – Scaffolding; – Any and or all other works on the Construction Site necessary to complete the Scope of Supply of the Supplier. 3.2.3.2 The Supplier shall take full responsibility for the adequacy, stability and safety of all Construction Site operations, of all methods of construction and of all the Works irrespective of any approval or consent by the Owner’s Representative. The Supplier shall, for the avoidance of doubt, perform the coordination and interface control also for the Owner’s Scope of Supply at the Construction Site. The Owner’s personnel and suppliers shall follow the Supplier’s instructions in relation to the Construction Site. The Supplier shall also be responsible for complying with the Environmental Permits and for completing the Works in an environmentally friendly way. 3.2.4 Information and Services 3.2.4.1 The Supplier’s responsibility comprises, but is not necessarily limited to, the provision of the following information, documentation and services related to its obligations under the Plant Contract: – Plot plan and layout drawings for the Plant for the Owner to carry out the detailed civil design and execution of the Owner’s civil construction works as set out in Contract Specifications (Scope of Supply and Services, Appendix 3);

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– Fulfilling his obligations with respect to all necessary approvals, permits and licenses by the Authorities as set out in Clause 8; – To demonstrate that the Plant meets the design requirements, achieves the stated performance and complies with applicable codes, standards, regulations and test requirements as specified in the Contract Specifications; – To enable the Owner to follow the implementation of the design, manufacture, erection, construction, quality assurance and control and testing of the Plant, and to become familiar with the Plant and its structures, systems and components; – For training of the Owner’s personnel; – For operating and maintaining the Plant until Provisional Takeover. 3.2.4.2 The information to be submitted by the Supplier to the Owner (and the information management system) shall comply with all the requirements in the Contract Specifications. 3.4  Scope of Supply of the Owner The Owner’s Scope of Supply is specified in Contract Specifications (Scope of Supply and Services), which shall be without prejudice to the Owner’s other obligations under the Plant Contract. Once the early details are sorted the agreement should then move on to what documents and items will be provided and by whom and when. Such a Clause would be:

Clause 4 – Documents 4.1  General 4.1.1 The Supplier shall provide for information, review, approval or record, the information and documentation specified in the Plant Contract. The procedure and time schedule for the submission of the main information and documentation, which shall be issued in English unless otherwise agreed upon in writing, is indicated hereafter. 4.1.2 All information and software to be supplied by either of the Parties under the Plant Contract for fulfilling their respective contractual obligations shall be made available in accordance with the time schedules specified in the Plant Contract, so as to avoid any delay. In this context, particular reference is made to the document submittal schedule (DIS Schedule) based on the Overall Time Schedule and categories of documentation attached to the Contract Specifications (Project Implementation, DIS Schedule, Appendix 5; Overall Time Schedule, Appendix 6) and to document submittal dates according SubClauses 11.2.4–6. 4.1.3 The Supplier’s and the Owner’s respective time schedules shall take into consideration the particular needs of the other. 112

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4.1.4 Notwithstanding the provisions hereinafter for copies of documents in addition, the Supplier shall comply with the Owner’s requirements concerning delivery of documents in electronic format (according to and compatible with the information management system for the project and future Plant operation). 4.1.5 The document delivery process including document formats and version control shall be as specified in the Contract Specifications (Project Implementation). The formats and versions of electronically provided documentation shall be provided as agreed in Contract Specifications (Project Implementation). 4.1.6 The Owner shall have access to the Supplier’s project and Plant document systems according to the definitions of the information management system (IMS) solution. 4.1.7 The documentation shall form a logical entity as a whole. The documentation principles, the use of graphical symbols, the designation system and the documentation system shall be as defined in the project design manual and related design procedures included in the Contract Specifications (Project Implementation, Project Procedures, Appendix 4) and the rules shall be applied to all documents. Special attention shall be paid to the content, consistency and form of documents from Subcontractors. Computer information processing techniques and protocols shall be utilised taking into consideration the compatibility between different software versions and systems and the life(longevity) of the documentation. 4.2  Documents for Information and Scrutiny (DIS) 4.2.1 The Documents for Information and Scrutiny (DIS) shall consist of drawings, specifications and descriptions and other technical information which show how the Supplier will meet the requirements of the Plant Contract and will allow the Owner – to have good knowledge of the Plant design in its entirety and of the function and operation and maintenance of its structures, systems and components – to monitor the execution of the Works – to check if the Plant meets the design requirements, achieves the stated performance and complies with applicable codes and standards, regulations and test requirements as specified in the Plant Contract – to review and approve the documentation. The Supplier shall provide to the Owner the DIS for information (I), for review (R) or for approval (A) – where: – “I” refers to documentation that normally will not be reviewed by the Owner during the design period but is required for start-up and operation phases. – “R” refers to documentation that the Owner will review and comment during design phase. – “A” refers to acceptance or approval as set forth in this Plant Contract. Documents subject to approval by the Owner or the radiation and/or nuclear approval authorities (list names here) in (list country in which the NPP is 113

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being built) and are classified according to different approval processes, as defined in the Contract Specifications (Project Implementation). 4.2.2 The DIS include, but are not limited to, the following: – Design documents and execution drawings like definitions of the Plant design basis which include but are not limited to the following: – conceptual design drawings and documents – basic design drawings and documents – detailed design drawings and documents – as-built drawings and documents – technical notes and calculations, reports – equipment manufacturer’s drawings and documentation – specific fuel design and manufacturing information as provided for in the Fuel Contract – procurement specifications with supplier data and references – Licensing documentation including drawings and specifications which include but are not limited to the following: – material specifications – formal requirement specification for the systems including details about classification of components, such as safety class, tightness class, environmental class, pressure class, and special requirements as well as the chosen codes and standards for the design and manufacturing – formal requirement specification for the components including technical specifications and procurement specifications – Project procedures, quality assurance and lists, which include but are not limited to the following: – Plant design manual and related procedures and guides – equipment lists – quality control/assurance documentation and reports – manufacturing inspection documents, test reports and acceptance certificates – Erection and installation instructions – Commissioning documentation, Pre-Operational Testing documentation – Operation and maintenance documentation. 4.2.3 The comprehensive scheduled list of all type of DIS shall be supplied to the Owner for approval not later than forty-five (45) calendar days after the Effective Date. The date of submittal of each of these documents shall be notified to the Owner at the latest one hundred eighty (180) calendar days in advance to the submittal date. The scheduling of the DIS shall be performed based on the categorised types of documents linked with events (e.g. start of erection of a specific equipment) in the Overall Time Schedule. The Supplier shall submit six (6) copies of the above documents to the Owner as per the approved schedule of the DIS, however, at least two (2) months prior to the beginning of the respective work, unless otherwise 114

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defined in the Contract Specifications (Project Implementation). The Plant design manuals and related procedures and guides shall be supplied to the Owner for approval not later than the Effective Date, unless otherwise defined in Contract Specifications (Project Implementation). The detailed requirements for documentation will be described in relevant project procedure, which is defined in Contract Specifications (Project Implementation) and subject to Owner’s approval. 4.2.4 All information sent to the Owner in connection with the DIS shall be marked accordingly. The contents of the DIS shall be sufficiently comprehensive and in a form and to an adequate level of detail in order to comply with the provisions outlined in Sub-Clause 3.2.4. The Owner, however, has the right to request further information if he deems that it is necessary. The DIS is to be supplemented and completed or amended, on a continuous basis, in order to reflect the current status of the Works. 4.2.5 Within an appropriate time, at the latest sixty (60) calendar days, after the receipt of any DIS, the Owner shall notify the Supplier with the relevant comments he may have on the information contained in the DIS, unless otherwise defined in the Contract Specifications (Project Implementation). In case of urgency, the Owner shall do his best on special request by the Supplier to provide the responses as soon as possible. 4.2.6 The Supplier shall meet as far as possible the particular requirements of the Owner in connection with the review by the Owner of the DIS in designing, erecting, constructing and testing the Plant and he shall respond to written requests of the Owner in this context within thirty (30) calendar days. Within the same period of time the Supplier shall send updated and/or corrected DIS, where the comments of the Owner are incorporated, to the Owner. In case of urgency, the Supplier shall do his best on special request by the Owner to provide his response within fourteen (14) calendar days. If such requirements result in changes or extensions in the Scope of Supply of the Supplier, then Sub-Clause 5.4.4 shall apply. 4.2.7 In order to give the Owner the opportunity to make comments on and proposals in relation to designing, erecting, constructing and testing the Plant, the Supplier shall stay in close contact with the Owner throughout the construction period and shall keep the Owner regularly informed with regard to the Supplier’s engineering, design, procurement and construction operations. Reference is made to the Supplier’s regular progress reports specified in the Contract Specifications (Project Implementation). 4.2.8 No Relief from Liability The scrutiny, examination or review of, or the giving or withholding of approval to any information or documents under this Clause 4 by the Owner, or the making of objections, representations, comments, suggestions, or any failure to make the same in relation to any of said information and documents, or any other aspect of the Works shall not relieve the Supplier in whole or in 115

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part of any duty, obligation or liability undertaken by the Supplier in relation to the Works under this Plant Contract (except as provided in Sub-Clause 24.5). 4.2.9 Subject to Sub-Clause 24.5 the Supplier shall be responsible for verifying the correctness of all information received from the Owner, his Consultant, his subcontractors or any other person acting on behalf of any of them, whether before or after the Effective Date. As provided for in Sub-Clause 4.2.8, the scrutiny, examination, review, comment or approval or withholding of approval by the Owner or its (Representative acting on his behalf to any of said information and documentation shall not relieve the Supplier from any responsibility under this Sub-Clause 4.2.9 unless the Supplier has disclaimed responsibility in accordance with Sub-Clause 5.5.3. The Supplier shall bear the costs and expenses it may incur as a result of any such errors, omissions or discrepancies and it shall at its own cost and expense carry out any alterations, remedial and additional work necessitated by or consequent upon such errors, omissions or discrepancies and shall modify the Supplier’s Scope of Supply and project information and documentation accordingly. 4.2.10 The DIS shall be issued and updated periodically in a manner and with a frequency that the objectives of Sub-Clause 4.2.1 can be satisfactorily met. 4.3  Interrelated Documents 4.3.1 The Supplier shall be responsible for preparing and delivering to the Owner the plot plan, layout drawings and conceptual civil design documentation for the complete Plant, as well as the basic civil design documentation, as set out in Contract Specifications (Scope of Supply and Services, Appendix 3). 4.3.2 The Supplier shall as specified under Sub-Clause 4.2 submit detailed engineering and design information about structures, buildings, systems, and components, which are within the Supplier’s Scope of Supply and interrelated to other Plant structures, buildings, systems and components, which are outside the Supplier’s Scope of Supply so that such structures, buildings, systems and components can be designed and manufactured in accordance with overall Plant design requirements. 4.3.3 The Supplier shall as specified under Sub-Clause 4.2 submit all specific design and fuel manufacturing information that is necessary for the Owner to be able to purchase nuclear fuel on a competitive basis. Such information shall contain the physical and geometrical characteristics, tolerances and other information, which would allow a competent fuel manufacturer to supply compatible nuclear fuel. 4.3.4 If the Owner or its Consultants or its subcontractors on behalf of the Owner submit to the Supplier for the approval of the Supplier, drawings, specifications or other technical documents concerning equipment, systems, buildings or structures within the Scope of Supply of the Supplier, or which have a relationship with it, then the Supplier shall give his comments on these drawings, specifications or other technical documents, unless otherwise agreed upon, within thirty (30) calendar days of their submittal and shall in particular inform the Owner within that period whether he considers that the 116

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technical solutions proposed in such documents will in any way conflict with the intention or responsibility of the Supplier. 4.3.5 The scrutiny by the Supplier and its approval do not in any way impose any responsibility on it for systems, components, etc., outside the Scope of Supply of the Supplier. The Supplier, however under the Plant Contract, is responsible for verifying the correctness of the information, as well as for the comments given to the Owner in accordance with Sub-Clauses 4.2.9 and 5.5.3. 4.4  Licensing Documents 4.4.1 Reference is made to Sub-Clauses 8.2 and 8.3 regarding submission of the Preliminary and Final Safety Analysis Reports (PSAR and FSAR) and other licensing documents required by the Authorities which have to be provided by the Supplier, as well as to the Supplier’s support to the Owner during the licensing process. 4.5  Project Documents 4.5.1 The Supplier shall establish the project procedures specified in the Contract Specifications (Project Implementation). The procedures shall be submitted to the Owner for approval according to the project procedure schedule specified in the Contract Specifications (Project Implementation). 4.5.2 The Supplier shall inform the Owner periodically and in detail about the progress of the Works. The Supplier shall submit to the Owner progress reports in triplicate every month from the Effective Date to the Provisional Takeover. The progress reports shall be in sufficient detail to enable the Owner to follow the progress. Reference is made to the form of the progress reports specified in the Contract Specifications (Project Implementation). The Supplier shall allow the Owner to verify such statements at short notice, which may require a joint examination. The Supplier undertakes to answer such questions as the Owner may require, either generally in relation to progress or arising out of any particular progress report. 4.5.3 The progress reports shall be of an informative character only and any suggestion, comment, approval or requirement which the Owner may make in regard thereto shall not in any way affect the obligations of the Supplier with regard to the time for completion of his performance of the Plant Contract. 4.5.4 If some of the long-lead components of the Plant seem to become critical with regard to the Construction Time, the Supplier is obliged to identify them to the Owner and use corrective measures and to report the progress of those components as often as required by the Owner. If changes in schedules are agreed upon or if any deviations between planned and actual progress or forecasts occur, each of the Parties is responsible for re-planning his schedules at his cost provided, however, that any change to the Main Time Schedule is dealt with in accordance with Sub-Clause 5.4. 4.6  Information and Documentation for Plant Operation and Maintenance 4.6.1 The Supplier shall submit to the Owner continuously during the project and according to separately agreed schedule, but in any case not later than twelve (12) months before scheduled Provisional Takeover a current and valid edition 117

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of component and material lists, functional specifications, system descriptions, piping and instrumentation diagrams (P&IDs), flow sheets, control diagrams, schematic and wiring diagrams, equipment specifications, data sheets, drawings, operation and maintenance manuals (subject to Sub-Clause 4.6.5), chemistry and radiation protection manuals, training material for operation and maintenance personnel, and any other documentation, which are required for the operation and maintenance of the Plant. Documents and instructions needed for training of the operators shall, however, be supplied well in time before the Training Simulator is in operation. In particular, engineering and design drawings and instructions of components subject to wear and tear and, therefore, needing periodic replacement or repair shall be provided, which shall indicate in detail assembly and disassembly of such parts. Functional specifications, system descriptions, P&IDs, flow sheets, control diagrams, schematic and wiring diagrams, and the arrangement drawings and project documents in general shall allow easy interrelated identification of all parts of the systems as defined in the Contract Specifications. All this technical as-built information furnished in the form of drawings, written documents, Plant data books and databases must be successively updated by the Supplier and certified by it as to the compliance with the Plant as built. 4.6.2 The above-mentioned documents shall be submitted to the Owner within thirty (30) calendar days after the completion of the erection of the corresponding Plant structure, system or component or as soon thereafter as is reasonably possible but in any event not later than twelve (12) months prior to the Contractual Date of Provisional Takeover. The documents shall be submitted to the Owner with six (6) copies on paper as well as one (l) in commonly agreed electronic format as specified in the Contract Specifications (Project Implementation). 4.6.3 The Supplier shall prepare and provide to the Owner six (6) copies on paper and one (l) in commonly agreed electronic format of each operation and maintenance manual as well as Plant data books and databases for all Plant structures, systems and components, unless explicitly otherwise defined in the Contract Specifications (Project Implementation). 4.6.4 The operation and maintenance manuals shall be written in a comprehensive way, such that the Owner’s operation and maintenance personnel trained by the Supplier shall be able to operate and maintain the Plant in a proper and efficient manner, and in particular (but without limitation) shall give all necessary instructions for operation and maintenance of the Plant, Plant structures, systems and components, replacement and disassembly and assembly of components, lubrication specifications and as to the frequency required for the carrying out of checks, inspections and examinations. 4.6.5 The operation and maintenance manuals and the Plant data books and databases shall be provided to the Owner by the Supplier in a preliminary write-up 118

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according to a separately agreed schedule, but concerning the operation and maintenance manuals in any case not later than twelve (12) months before the scheduled Operating License. Preliminary operation manuals shall be provided not later than sixty (60) calendar days before the start of simulator training. 4.6.6 The operation manuals including the emergency operating procedures, and the maintenance manuals intended to be used by the Plant personnel in the operation and maintenance of the Plant shall be provided by the Supplier in bilingual versions – English and (insert the language of the country in which the NPP is being built). All terminology and wording shall correspond in detail with the corresponding one in the person-machine interfaces in the Central Control Room and local control posts. 4.6.7 Subject to Sub-Clause 5.1.1, the Owner shall receive the right of use of the Supplier’s transient and accident analysis codes. The Supplier is responsible for arrangement of the necessary training and guidance for the use of these codes for the Owner’s personnel. Training will be provided by the Supplier in form of on-job-training for two (2) persons or more as agreed in writing between the Parties. The Owner shall bear the costs for his personnel. The Owner shall also receive complete code descriptions, system and Plant model descriptions and complete input data decks. 4.7  Final Documents 4.7.1 In order to have full knowledge of the Plant, its design, safe operation and efficient maintenance, the Supplier shall submit sixty (60) calendar days before Provisional Takeover the latest version of the final documentation to the Owner for approval up to Provisional Takeover. Documents which are subject to changes during this approval phase up to Demonstration Run shall be updated and submitted up to Provisional Takeover and changes during Demonstration Run shall be handled according to Sub-Clause 10.3.14. 4.7.2 The Supplier shall prepare the final DIS as specified in Sub-Clause 4.2 such as as-built drawings, updated system specifications and descriptions, P &IDs, flow sheets, control diagrams, schematic and wiring diagrams, specifications, certificates, data sheets and complete test reports. To assure a uniform structure and quality of the system descriptions, they shall be included in the Final Safety Analysis Report (FSAR) both for safety and non-safety systems. 4.7.3 The Supplier shall modify and supplement the information and instructions contained in the operation and maintenance manuals provided under Sub-Clause 4.6 to take account of experience gained during Pre-Operational Testing and Commissioning. The form of the documents incorporating any modifications as mentioned above is specified in the Contract Specifications (Project Implementation). The final documentation for operation and maintenance manuals, Plant data books and databases incorporating any modifications as mentioned above shall be submitted according to Sub-Clause 10.3.14 in six (6) copies and one (1) in electronic format in accordance with Sub-Clause 4.1.5, unless otherwise mutually agreed. 119

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4.7.4 If operating experience gained during the Guarantee Period following Provisional Takeover shows that modifications or supplements to the operation and maintenance manuals, Plant data books or databases can usefully be made or added, then, such modifications and supplement shall be incorporated by the Owner with the approval of the Supplier in the relevant manuals, data books and data sheets. 4.7.5 The Supplier shall submit to the Owner all inspection and test records and reports as specified in Sub-Clause 5.3. 4.8  Tax and Custom Documents

All documents related to taxes and custom duties paid by the Supplier shall be retained until the Final Takeover of the Plant.

4.9  General Requirements Regarding Documentation 4.9.1 Besides copies of documents submitted in electronic format and reproducible drawings (if any), all other documents shall be submitted to the Owner folded to the size of DIN A4 (dimension: 210 x 297 mm) and adapted to be bound in folders. 4.9.2 Each consignment of documents shall be provided with delivery note in triplicate, showing the exact identification number and precise and complete designation of the corresponding document. 4.9.3 The international system of units (SI) shall be applied. 4.9.4 All documentation must be in English (or insert the chosen language). However, (insert language of the country where the NPP is to be built) language shall be used in the operation manuals, including the emergency operating procedures, and maintenance manuals (bilingual versions – (insert language of the country where the NPP is to be built) and English) as required in Sub-Clause 4.6.6 as well as whenever required by law or applicable regulations. Extra space shall be reserved on drawings, P&IDs, flow sheets and diagrams in order to make it possible for the Owner to add translation of titles and remarks into (insert language of the country where the NPP is to be built). Exceptions are accepted for existing drawings of standard components. The Final Safety Analysis Report (FSAR) and the Technical Specifications shall be provided in bilingual versions – English and (insert language of the country where the NPP is to be built) – and both versions shall be kept up-to-date by the Supplier until Final Takeover. 4.9.5 The Supplier’s Plant filing, and document handling system shall be as outlined in the Contract Specifications (Project Implementation). 4.9.6 All documentation provided by the Supplier to the Owner under this Plant Contract shall be in an up-to-date form, which is accessible by the Owner. This shall include computer CD-ROMs or suitable alternatives. The Supplier shall be responsible for the total coordination and design of an information management system (IMS). The Owner shall have access to the Supplier’s IMS as specified in Contract Specifications (Project Implementation). 120

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4.10  Plant Design Manual, Plant Identification System 4.10.1 The Supplier shall implement in the project an overall Plant Design Process with related design and quality procedures (The Plant Design Manual). The manual shall cover both working processes and software items (e.g. drawings, specifications and documents) and hardware items (e.g. Plant structures, systems and components). The principles of the Plant Design Manual are specified in the Contract Specifications (Project Implementation). The finalised Plant Design Manual shall be submitted to the Owner for approval not later than six (6) weeks after the Effective Date. 4.10.2 The Plant identification system, which shall be defined in the Plant Design Manual, shall be used in a logical and consistent way in every circumstance the identification system is used (documents, databases, computer software or system hardware). Verbal texts, based on rules in the identification system on signs, labels and tags on structures, systems, equipment and components, shall be in (insert language of the country where the NPP is to be built). Some forms of bespoke NPP agreements place the General Conditions after the Definitions but this author favours it after the initial clauses as shown above and it should cover disclosure issues, ownership of the essential documents, proprietary information, whether subcontracting is allowed or not, quality control, and other such details. A General Conditions clause would look like the following:

Clause 5 – General Conditions 5.1  Proprietary Information, Confidentiality 5.1.1 All data specification sheets, diagrams, drawings and other documents, including the information contained therein, furnished by one Party (or a subcontractor) to the other Party prior or subsequent to the Effective Date, shall remain the exclusive property (proprietary information) of the Party (or a subcontractor) supplying such information. The Supplier hereby grants to the Owner an irrevocable, royalty-free, nonexclusive license to use (and to copy and reproduce for use by him) the Supplier’s proprietary information for the project, so that the Owner, as receiving Party has the right, subject to the following provisions of this Art. 5.1, at his cost to copy, develop, use and communicate any such proprietary information of the Supplier for the purposes of constructing, completing, operating or maintaining of the Plant by himself or a third party including the right to use such information for repairs or modifications of the Plant as well as for the Existing Nuclear Power Plant at the Site, but not for manufacturing spares or replacement components, equipment, etc. for any third party or any other plant. Any compensation for the use described in the previous sentence shall be considered as included in the Contractual Price (and the Supplier shall ensure that he has the right to grant the above right to use 121

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information). In case proprietary information of Subcontractors are concerned this obligation shall be subject to express agreement of such Subcontractor. Supplier shall use all reasonable efforts to obtain such approval. With respect to information protected under patents and sensitive proprietary information as listed in Appendix 7 the above-mentioned disclosure to any third party shall be subject to prior written consent of the Supplier or the Subcontractor concerned. Such consent shall not be unreasonably withheld, and the Supplier shall use all reasonable efforts to obtain such consent from the Subcontractors. This prior written consent shall not be necessary in case and to the extent to emergency repairs, i.e.: repairs where the safety or production of the Plant is in danger. Disclosure of any proprietary information to third parties shall be subject to conclusion of confidentiality undertakings not less stringent than those contained in this Sub-Clause 5.1. The Supplier as receiving Party may, subject to the limitations of this SubClause 5.1 use proprietary information from the Owner arising from the Commissioning or operation of the Plant for the purpose of the implementation of this Plant Contract, but not for any other purpose. 5.1.2 Except as provided for in this Art. 5.1 the Owner shall neither publish nor otherwise disclose or otherwise make available proprietary information of the Supplier or a Subcontractor to a third party. Consultants or subcontractors of the Owner are for the purposes of this Sub-Clause 5.1 not considered to be a third party, but no such information shall be made available to any such Consultant or subcontractor unless they undertake not to use the information other than in connection with the design, manufacture, construction, operation or maintenance of the Plant and not to disclose or otherwise make available such information to any third party. 5.1.3 Except to the extent the Owner may in writing specifically agree, the Supplier shall keep confidential all proprietary information of the Owner (or of his shareholders) and will not disclose the same or any parts thereof to a third party. Consultants and Subcontractors and prospective Subcontractors shall not be considered a third party with respect to information necessary for such parties to perform obligations under this Plant Contract to the Supplier. The Supplier shall procure that such consultants and Subcontractors and prospective Subcontractors shall have the same obligations as the Supplier regarding such proprietary information of the Owner. Each Party undertakes that any proprietary information of the other Party shall be treated as confidential, not be disclosed to any third party and shall not be used for any other purpose than for the implementation of or permitted use under this Plant Contract. 5.1.4 The Supplier and the Owner recognise that the other Party may require or may be required to disclose confidential proprietary information of the first Party or of a subcontractor of the first Party for the purpose of the Plant Contract or the Fuel Contract to the Authorities, to any other third party (e.g. the National Grid 122

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Company) that needs to know this information for the purposes of carrying out their duties as they relate to the implementation of this Plant Contract, or during the course of legal or arbitration proceedings and, whilst such disclosure in itself shall not constitute a breach of this Sub-Clause 5.1, the other Party will protect the confidential nature of proprietary information so disclosed and to restrict its further use by concluding confidentiality undertakings not less stringent than those contained in this Sub-Clause 5.1. With respect to the disclosure of information to Authorities, Sub-Clause 5.1.6 shall apply. 5.1.5

Subject to Art. 5.1.1, the Owner shall have the right to make, or have made by a third party, modifications to project specific application software specifically designed for the Works. For this purpose, the Supplier shall deliver only Supplier’s own source codes for all programs that are needed for updating FSAR, PSA, Technical Specifications and Training Simulator in case of modifications to the Plant or Nuclear Fuel, and also for other project specific application software to the extent agreed upon. The Supplier shall not be responsible for any such modifications made by the Owner or a third party. For the purpose of this Sub-Clause 5.1, own source codes means source codes which the Supplier is allowed to deliver.

5.1.6

In the event that one Party requires or is required to disclose to the Authorities confidential proprietary information of the other Party or of any of its subcontractors, then the first Party shall make the Authorities aware of the confidential nature before the information is submitted. In particular, documents containing confidential or proprietary information shall only be submitted to the Authorities with an accompanying note specifying the confidential nature and the reasons for confidentiality of each submitted document. The first Party will also use all reasonable endeavours to afford the other Party the opportunity to participate in any discussions with the Authorities with regard to the use and disclosure of such information.

5.1.7 The Supplier shall not publish any information regarding the project without the written approval of the Owner. The Owner shall be entitled to publish information regarding the Plant before Provisional Takeover but with prior notification of the Supplier. An information policy will be made for the project by the Owner with the assistance of the Supplier. 5.1.8 The Supplier covenants that neither the Supplier’s proprietary information nor its use will infringe the rights of any third party. 5.1.9 The Supplier shall indemnify and hold harmless the Owner against any penalties or liabilities of any kind for the Supplier’s breach of the warranties or covenants contained in this Sub-Clause 5.1 whether such penalties or liabilities arise before or after Provisional Take Over. 5.1.10 The obligations of the Parties under this Sub-Clause 5.1 shall survive any completion, termination, rejection or cancellation of the Plant Contract or the Fuel Contract, provided, however, and without prejudice to the Owner’s right of use under this Sub-Clause 5.1 that no restriction to disclose proprietary information as set forth in this Sub-Clause 5.1 shall exist after (set expiry date here) except for sensitive proprietary information listed in Appendix 7 (part of which includes 123

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Class A information comprising tools and methods documentation needed for detailed design engineering disclosed in paper copies only), where no restriction to disclose such sensitive proprietary information shall exist after (set expiry date here). However, this shall not prevent the Owner to publish or make presentations on the Plant features on a general basis. All confidential proprietary information (whether in documental or machine readable form) provided for the project by either Party shall be clearly marked as confidential (indicating Class A if applicable). 5.1.11 Further, no restriction to use or disclose the said proprietary information shall exist if such information is, or later becomes, part of the public knowledge other than by breach of this Plant Contract or the Fuel Contract, or is already in the possession of the recipient with full and free rights to use and disclose it, or is independently received from a third party without restrictions as to use or disclosure in good faith and believed by the recipient to have full rights of disclosure. For the avoidance of doubt, the submittal of information to Authorities as provided for in Sub-Clauses 5.1.4 and 5.1.6 does not mean that between the Parties the information would be deemed to be public knowledge and does not limit in any way the obligations of either Party to keep the information confidential regardless of whether or not the information are regarded as public according to government of (list country in which NPP is to be built) legislation regarding the publicity of administrative documents. 5.2  Assignment of Work and Subcontracting 5.2.1 The Supplier shall not subcontract the whole nor substantially the whole of the Works under the Plant Contract or assign the Plant Contract in its full content or in part to a third party. The Supplier shall retain under his direct control those services and responsibilities which have been assigned to it on the basis of his qualifications and special experience. 5.2.2

With the exception of certain major parts of the Works (see Sub-Clause 5.2.3), the Supplier shall be free to select Subcontractors. The Supplier shall, however, inform the Owner of any selection of Subcontractors as a part of his monthly reports. The Supplier shall apply appropriate conditions in the subcontracts with his Subcontractors in order that the Supplier can fully comply with the Terms and Conditions of the Plant Contract.

5.2.3

Major systems, works, areas etc. of the Works (e.g. engineering and design, construction and erection, mechanical, electrical and I&C equipment supply, etc.) are listed in Appendix 7. Where Subcontractor candidates have been named in Appendix 7 for the systems, works, areas etc. or any components thereof, the Supplier shall select the Subcontractors for such systems, works. areas etc. only from those listed in Appendix 7. Prior to selection of the Subcontractors from the list in Appendix 7, the Supplier shall inform the Owner of his choice and give the Owner the opportunity to comment and change the Subcontractor proposed. 124

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The consequences of such a change shall be dealt with according to Sub-Clause 5.4.3. If no Subcontractor have been mentioned in Appendix 7 for the systems, works, areas etc. in question, the Supplier shall propose the Subcontractor(s) to be selected (or added to Appendix 7), which selection shall be subject to the Owner’s approval. The Supplier and the Owner shall have the right to propose other work, equipment, components, or Subcontractors to the list, which will be added subject to mutual consent of the Parties which shall not be unreasonably withheld. At the request of the Owner, the Supplier shall submit to the Owner information on procurement specifications (including technical specifications and technical guarantees) for major systems etc. as listed in Appendix 7 when bid invitations are sent out. The Owner shall give his comments to such documents within one thirty (30) calendar days after receipt of the documents, For justified reasons, the Owner shall have access to the commercial and legal parts of such Subcontracts through an independent auditor acceptable to the Supplier. with the right for the auditor to report to the Owner. The Supplier shall inform the Owner about the potential Subcontractors to whom enquiries are sent. Such information shall be treated as confidential by the Owner. The Parties shall agree on the procedures for evaluating and controlling the Subcontractors. The Supplier shall be responsible for that all relevant laws and regulations concerning taxation, working conditions, working hours and applicable collective labour agreements are followed. 5.2.4 In any case of assignment or subcontracting, the Supplier shall remain fully responsible and liable to the Owner for every act, breach, neglect and failure of its Subcontractors in the carrying out of the Works or of the Plant Contract as fully and in the same way as if it were the Supplier itself or the Supplier’s agents or employees that were carrying out the subcontracted supply or Works. 5.3  Quality Assurance/Quality Control and Rights of Inspection 5.3.1 Quality Assurance/Quality Control 5.3.1.1. The quality management system to be applied in the project shall be in accordance with modem quality management system principles as laid down in the (list which country or regional) standard (list which of the SO 9000, 9001 family of standards for Quality management systems) – “the Model for quality assurance in design/development, production, installation and servicing”. Quality assurance related general requirements specified in Contract Specifications (General Technical Requirements, Chapter 2.15 “Quality Assurance”), shall also apply. The quality management system shall be complemented with the requirements laid down in IAEA Safety Series 50-C-QA: “Quality Assurance for safety in nuclear power plants – a Code of Practice” for safety class I and 2 items. 125

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The Supplier and those of his Subcontractors delivering safety class I and 2 systems and components (safety classes as specified in the Guide YVL 2.1) or design services for such systems and components have a well-established and implemented formal quality management system in operation. Subcontractors supplying other than the safety class 1 and 2 systems and components shall have a quality system in accordance with the relevant requirements set forth by the ‘Supplier and fulfilling the requirements of the appropriate ISO 9000 series documents. The turbine plant supplier shall, however, have a quality system in accordance with the EN ISO 9001; (list which one of the ISO 9001 e.g. “2000”) standard. The Supplier shall have a project management system in accordance with the principles as laid down in the standard EN ISO 10006: 1997 “Quality management – Guidelines to quality in project management”. The Supplier shall furthermore apply the Occupational Health and Safety Management System OHSAS 18001. The Supplier shall have an environmental management system in accordance with the principles as laid down in the standard EN ISO 14001: 1996 “Environmental management systems. Specification with guidance for use.”. 5.3.1.2. The Supplier’s quality management/assurance system and project management system documents and those of his Subcontractors of the said safety class 1 and 2 systems and components suppliers shall be submitted to the Owner for review. For the implementation of the quality assurance program, the Supplier shall pay special attention to the use of clear and unambiguous written procedures in the areas of quality assurance activities as specified in Contract Specifications (General Technical Requirements, Section 2.15 “Quality Assurance”). 5.3.1.3. The quality assurance procedures shall be available for review by the Owner and the Authorities. 5.3.1.4. The Supplier shall ensure that his Subcontractors implement their quality assurance and control program in accordance with written procedures. 5.3.1.5. Particular care and attention shall be given to the inspection procedures of all those items of equipment, systems and structures which are essential and/or important from the standpoint of Plant safety and reliability. For each of the different inspection stages, the following points, as a minimum, shall be defined by the Supplier in agreement with the Owner or his representative: – Important checkpoints (quality and manufacturing schedule related) – Supervision, frequency thereof (audit, witness, control, inspection) 126

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– Acceptance criteria (definitions, limits, tolerances) – Inspection and acceptance test methods – Documentation and record keeping systems (material certificates, inspection and test data, radiographic films, etc.) – Number of documents and record copies required – Transmittal of documentation and records. 5.3.1.6. The Supplier shall assure the quality of the Works by appropriate inspection and/or testing, in designing, engineering, manufacturing, erecting, constructing and testing the Plant or parts thereof in the manufacturer’s shops and at the Construction Site. The quality assurance has to be carried out according to the technical and quality requirements laid down in the Contract Specifications and according to the applicable codes or standards, specifications and test programs. If the inspection and/or test reveals that a material or a part of the Works does not correspond to the technical and quality requirements of the Contract Specifications or any applicable code, standard or regulation, the Supplier shall take appropriate corrective measures so that the said requirements are met, and, if the non-compliance may be of importance, the Supplier shall not proceed with a work that has caused such a non-compliance until it has been ascertained that the said requirements are met. In cases where the Supplier intends to apply the deviation report method, all major non-conformances regarding such specifications, procedures, etc., which originally had been reviewed by the Owner, shall be submitted to the Owner for review and approval. The Supplier shall give his recommendations on how to proceed for each case. 5.3.1.7. The Supplier shall set up quality assurance and control programmes and plans for the Supplier’s Scope of Supply including the scope of supply of his Subcontractors. The quality assurance and control programs must be subject to review by the Owner or his representative as well as the Authorities. For certain Plant structures, systems and components, etc., which are specified in the Contract Specifications, the programs and plans have to be submitted to the Owner for review before procurement of raw material for the relevant Plant structures, systems or components. In any such case, the Owner shall advise the Supplier of his opinion within 30 (30) calendar days after receipt of the relevant program and plan. In case of urgency, the Owner shall endeavour, on special request by the Supplier, to provide his comments within fourteen (14) calendar days. 5.3.1.8. The Supplier may delegate the establishment and execution of the activities related to the quality assurance and control program, or any part thereof, to other organizations accepted by the Owner and the Authorities. However, the Supplier shall retain complete responsibility for the fulfilment of the program. 127

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5.3.1.9. The Supplier shall submit all detailed information required by the Owner and the Authorities about all organizations taking part in the Plant project implementation from a quality-related point of view. The Supplier and his Subcontractors shall have a smoothly functioning and feasible quality assurance division or department, which is capable of matching the actual requirements for constructing the Plant. 5.3.1.10. The Supplier shall take full responsibility for the quality assurance and control programs established by each of his Subcontractors, which shall be in conformance with Supplier’s program, and for their correct application. It shall also be responsible for all quality control works carried out by them or any independent agencies under their control. The Supplier shall have a program for regular audits of its own and its Subcontractor’s quality assurance systems and programs. The results of the audit program shall be documented, and a report of these audits made available to the Owner for review. Audit reports concerning safety class 1 and 2 equipment suppliers shall be submitted to the Owner. The Owner and his representatives as well as the Authorities shall have the right to participate in such audits performed by the Supplier. The Owner shall in relation to such inspections bear the costs of its own representatives and the representatives (list the local country safety authority) 5.3.1.11. It shall be the Supplier’s responsibility to ensure that the proper requirements for all items of equipment etc. in the Plant are included in the quality assurance and control programs and that the quality assurance actions required are in accordance with Authorities’ and the Owner’s requirements. 5.3.1.12. Quality assurance with all the inspection and testing shall cover the time from the procurement of raw materials up to the Provisional Takeover. For remedy work, this time is extended up to the Final Takeover. 5.3.1.13. The Supplier shall carryall costs related to quality assurance and control, such as: costs for labour, consumables, certificates required, test installations, probes, instruments and other necessary work and provisional equipment. Only the costs for the presence of the Owner or its representatives during the tests shall be for the account of the Owner. 5.3.1.14. The Supplier shall retain for the Owner’s inspection all records, inspection and test reports on materials and parts inspected in its workshop or those of its Subcontractors irrespective of whether or not the Owner was represented at such inspections or tests. The Supplier shall hand over these documents to the Owner at the Provisional Takeover. In special cases and at the request of the Owner, the Supplier shall, however, hand over these documents earlier if this is practicably possible. 128

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5.3.1.15. The Supplier or his Subcontractors shall retain for the Owner’s inspection the original copy of all radiographic masters and test records and other test certificates made at tests during manufacture and construction of the Plant or parts thereof, together with all reports evaluating such masters, records and certificates. The Supplier shall hand over these documents to the Owner at the Final Takeover. In special cases and at the request of the Owner, the Supplier shall, however, hand over these documents earlier if this is practically possible. 5.3.1.16. The Supplier shall submit a well-organized clear filing system for documents related to the quality assurance and control of the Plant and parts thereof in order that all items of the Plant can easily be traced back to the procurement of raw materials for the corresponding items. 5.3.2  Rights of Inspection 5.3.2.1 The Owner, the Authorities and their representatives shall have the right, as regards the Plant or parts thereof, to verify the progress of the work, to examine and inspect the basic and detailed design and layout, to check the quality of materials and of the work carried out and to survey testing of materials, structures, systems and components in the works of the Supplier and his Subcontractors as well as at the Construction Site. 5.3.2.2 For this purpose, the Owner, the Authorities and their representatives after giving reasonable advance notice may inspect and have access to the facilities (which shall include but not be limited to the design and drawing offices and workshops) of the Supplier and his Subcontractors. The Supplier shall at his cost provide suitable personnel to assist the Owner, the Authorities and their representatives in obtaining relevant information during the inspection. The Owner shall in relation to such inspections bear the costs of its own representatives and the representatives of the (insert name of the relevant radiation and nuclear safety authority for the country in which the NPP is being built). Particularly, the Owner shall have the right, after giving reasonable advance notice to carry out periodic or continuous inspections and audits in the Supplier’s premises and/or Subcontractors’ premises if deemed necessary, and to participate or delegate representatives at any time during manufacturing or testing of items of structures, systems and equipment for the purpose of checking general engineering practice and effectiveness of processes or methods used. It is the intention of the Parties that the above Owner’s inspections and access to the Subcontractors will, to the extent possible under the circumstances, be in the presence of a Supplier representative. The Owner shall endeavour not to cause undue burden to Supplier and its Subcontractors with regard to work progress and time constraints. 5.3.2.3 The Supplier shall to a reasonable extent give the Owner, the Authorities and their representatives the necessary assistance and put 129

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at their disposal in the workshops of the Supplier and those of its Subcontractors, and at the Construction Site, available means which they need for the purpose of carrying out the inspections.

5.3.2.4 After the Owner has received the test and inspection programs and plans of the Supplier referred to in Sub-Clause 5.3.1.7, the Owner shall inform the Supplier in which tests or inspections it or its representatives intend to participate. The Supplier shall notify the Owner in writing as early as possible about the place, the date and the time relating to such tests or inspections. In any case, the Supplier shall give the Owner a preliminary notice at least fourteen (14) calendar days in advance and confirm the place, the date and the time seven (7) calendar days in advance. 5.3.2.5 The inspections and tests of which the Owner has informed the Supplier of its intention to participate are only binding if they have been carried out in the presence of the Owner or its representatives. If the Owner or its representatives do not appear at the inspection or the test in spite of a timely notice by the Supplier, the inspections and tests will however be binding. The presence of the Owner or his representatives shall be confirmed on the corresponding test certificates and protocols. 5.3.2.6 The Owner retains the right to undertake its own tests and inspections. The Supplier shall provide on request of the Owner the required number of samples or probes from parts of the Plant to be supplied or delivered by the Supplier. The number of samples or probes which the Supplier has to provide from parts of the Plant to be delivered by the Supplier shall be agreed upon as well as the cost thereof. 5.3.2.7 The Owner shall have the right to reject the application of a design, material, part or execution of the Works in case that the results of tests or inspections reveal that such design, material, part or execution of the Works do not correspond to the requirements set forth in the Contract Specifications, applicable codes or standards or specifications. The Supplier shall then promptly make good the defect and ensure that the rectified item complies with the Plant Contract. 5.3.2.8 The Supplier shall also promptly make good any other defect in carrying out the Works under this Plant Contract which comes to its attention and shall notify the Owner forthwith upon it coming to the Supplier’s attention that any item of the Works is defective or otherwise not in accordance with the Contract Specifications, or applicable regulatory requirements, codes, standards or specifications, and shall comply with any reasonable instruction of the Owner in connection therewith. 5.3.2.9 If the Owner requires that the Plant or any defective Plant item or other element of the Works that have been made good to be retested, the required tests shall be repeated by the Supplier under the same terms and conditions and all costs and expenses in connection with the repetition of the tests shall be paid by the Supplier. 130

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5.3.2.10 If the Supplier fails to carry out its obligations under Sub-Clause 5.3.2, and does not cure such failure within a reasonable cure period to be determined by the Owner, the Owner may undertake the relevant work, and an amount equal to all costs and expenses incurred in doing so, which the Owner would not have incurred had the Supplier complied with its obligations under Sub-Clause 5.3.2, shall be paid by the Supplier to the Owner on demand. 5.3.2.11 The Supplier must obtain from his Subcontractors the equivalent rights of inspection for the Owner and its representatives. 5.3.2.12 The Owner will maintain a construction surveillance team at the Construction Site, to follow up the progress of the work at the Construction Site and survey the construction, erection and Commissioning activities of the Supplier and its Subcontractors. 5.3.2.13 The Owner is free in its choice of Consultants and specialised experts and has the right to assign any task and responsibilities to them. The Supplier will be informed of such assignments by the Owner. It is understood, however, that such Consultant or expert shall have no direct relation or controlling interest in firms involved in the supply of nuclear power plants. 5.3.2.14 If, as a result of the Owner’s inspection, special requirements by the Owner necessitate modifications of the contractual design of the Plant, then the Supplier shall comply with such requirements; provided, however, that if such modifications would involve the Owner in extra cost or require schedule adjustments or other contractual adjustments, such modifications shall only be carried out after the Supplier has obtained the Owner’s written consent after having fully informed the Owner as to the extra costs or schedule or other adjustments involved and such modifications shall be dealt with in accordance with Sub-Clause 5.4 below. 5.3.2.15 The Supplier’s obligations under the Plant Contract shall in no way be diminished by the fact that the Owner may or may not exercise its rights of inspection. 5.4  Changes 5.4.1 The Supplier has the right to make modifications to its Works, which do not reduce the quality of the Plant structures, systems and components or have a disadvantageous effect on the performance, operation, maintenance or the safety of the Plant and do not change the basic design of the Plant and the functional specifications of Plant structures, systems and components as laid down in the Contract Specifications, and providing also that the Plant continues to be fully licensable and in compliance with the applicable regulatory requirements, codes, standards and specifications. The modifications shall be presented with appropriate technical documentation to the Owner for its consideration thirty (30) calendar days before the proposed initiation of such 131

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modification. If the Owner approves such a change (such approval not to be unreasonably withheld) then the Supplier may put the modification into effect provided that it shall not cause any additional cost for the Owner and shall not extend the Construction Time. 5.4.2 The Supplier shall currently inform the Owner about all important improvements known to the Supplier which are achieved in the status of technology and which may be in any way relevant to the Plant. It is the obligation of the Supplier to bring to the attention of the Owner all important changes in the Supplier’s design with regard to structures, systems and components which will improve safety, operation and maintenance features of the Plant and to put forward a proposal concerning such improvements to the Owner. The Parties shall mutually agree on the terms of any such improvements or changes and issue a contract amendment duly signed by authorised representatives of both Parties covering adjustments and modifications with respect to price, schedule, guarantees and other terms and conditions of the Plant Contract. 5.4.3 New or revised laws, regulations, acts, decrees, resolutions (Sub-Clause 2.2) or codes and standards (Sub-Clause 2.4), including prudent and generally accepted design, materials, fabrication erection, construction and testing practices for nuclear power plants (Sub-Clause 2.4.8) or new or modified requirements of the Authorities with regard to activities such as design, engineering, manufacture, erection, construction, operation, maintenance and environmental protection shall, subject to Sub-Clauses 2.2.3 and 2.4.5, be complied with and given effect to by the Supplier. The Supplier shall be entitled to compensation for the additional Direct Costs which are proved to have been necessarily incurred by the Supplier resulting from changes and extensions in the Supplier’s Scope of Supply as a consequence of the new requirements as aforesaid, provided, however, that such additional Direct Costs are not the result of requirements obviously foreseeable on the Effective Date in accordance with Sub-Clause 2.2.3. In case of changes or deletions to the Supplier’s Scope of Supply leading to a reduction in the Supplier’s costs, the Owner shall be entitled to a corresponding price reduction. Prior to putting into effect of any change, extension or deletion in the Supplies and Services of the Supplier, the Parties shall mutually agree on a contract amendment to be duly signed by authorised representatives of both Parties and covering adjustments and modifications with respect to the Supplier’s Scope of Supply, price, schedule, guarantees and other terms and conditions of the Plant Contract. If such agreement cannot be reached before the said change in the reasonable opinion of the Owner has to be implemented, the Supplier shall upon the Owner’s instruction without delay and pending agreement on the contract amendment implement the proposed change in the Supplier’s Scope of Supply. However, the Supplier shall be entitled to refer the matter without delay to Dispute Adjudication according to Sub-Clause 23.2. In deviation to Sub-Clause 23.2.9, the Dispute Adjudication Board’s (DAB) decision rendered shall under all circumstances become binding upon the Parties, as long as and 132

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to the extent that this decision is not overruled by arbitral decision or award according to Sub-Clause 23.3. If new or revised laws, regulations, acts, decrees, resolutions or codes and standards or new or modified requirements of the Authorities derive from a nuclear incident or safety problems on a nuclear plant supplied by the Supplier, or in technology or equipment supplied by the Supplier and the incident or safety problems are due to the Supplier’s performance in relation to the supply in question, the Supplier shall during the Construction Time carry out required analysis and make the necessary changes or extensions to the Supplier’s Scope of Supply at its own cost. 5.4.4

The Owner may, if he considers it desirable, at any time during the carrying out of the Plant Contract, request changes resulting in changes or extensions in the Supplier’s Scope of Supply. The Supplier shall fully inform the Owner regarding the effect of any such change and in particular with regard to any possible effect on prices, schedules, guarantees, licensability of the Plant and other contractual conditions. Prior to the putting into effect of any such change, a contract amendment shall be issued and duly signed by authorised representatives of both Parties covering adjustments and modifications with respect to price, schedule, guarantees and other terms and conditions of the Plant Contract as may be mutually agreed. If such agreement cannot be reached before the said change in the reasonable opinion of the Owner has to be implemented, the Supplier shall upon the Owner’s instruction without delay and pending agreement on the contract amendment implement the proposed change in the Supplier’s Scope of Supply. However, the Supplier shall be entitled to refer the matter without delay to Dispute Adjudication Board according to Sub-Clause 23.2. In deviation to Sub-Clause 23.2.9, the Dispute Adjudication Board’s decision rendered shall under all circumstances become immediately binding upon the Parties, as long as and until this decision is overruled by arbitral decision or award according to Sub-Clause 23.3.

5.4.5 The Supplier shall be entitled, at any time during the carrying out of the Plant Contract, to request changes for justified reasons. The Supplier shall fully inform the Owner regarding the effect of any such change and in particular with regard to any possible effect on prices, schedules, guarantees, licensability of the Plant and other contractual conditions. Prior to the putting into effect of any such change, a contract amendment shall be issued and duly signed by authorised representatives of both Parties covering adjustments and modifications with respect to price, schedule, guarantees and other terms and conditions of the Plant Contract as may be mutually agreed. 5.4.6 The Supplier shall not make any change, alteration and/or modification of the Supplier’s Scope of Supply, or in the time schedules unless and until a contract amendment duly signed by authorised representatives of both Parties. The Parties shall agree on change control procedures to deal with changes and such procedures shall be made part of the Plant Contract. Any of said changes, alterations and/or modifications shall not relieve the Supplier of his responsibilities under this Plant Contract. 133

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5.4.7 Changes referred to in this Sub-Clause 5.4 include all changes to the Supplier’s Scope of Supply, the time schedule and Contractual Price. For the avoidance of doubt any change under this Sub-Clause 5.4 does not impact on the Supplier’s duties for licensability of the Plant under Sub-Clause 8.1. 5.5  Mistakes in Information 5.5.1

The Supplier shall be responsible for any design or detailed engineering in respect of the Plant and its structures, systems and components and for any discrepancies, errors or omissions in the drawings and information supplied by him under the Plant Contract, whether or not they have been approved by the Owner.

5.5.2 The Supplier shall at his own expense carry out any alterations or remedial work necessitated by reason of such discrepancies, errors or omissions and modify the drawings and information accordingly. The performance of the Supplier’s obligations under this Sub-Clause 5.5.2 shall not relieve the Supplier of his liability under Sub-Clause 11.2 (Construction Time and Project Target Dates) and Art. 12.2 (Plant Performance Guarantees) or Sub-Clause 12.3 (Rectification of Defects and Failures). 5.5.3 With the exception of Sub-Clause 24.5 the Supplier shall be responsible to review and verify the correctness of any drawings, documents and information supplied by the Owner. In this respect the provisions of Sub-Clause 4.2.9 fully apply. The Supplier shall bring to the attention of the Owner for resolution any matters, which appear to be deficiencies, omissions, contradictions or ambiguities, or any doubt about the meaning or correctness of any information supplied to the Supplier by the Owner. The Supplier shall take full responsibility for the Plant Contract irrespective of any approval, deficiency, omission, contradiction or ambiguity in relation to drawings, documents or information on the part of the Owner unless the Supplier in writing on reasonable grounds has disclaimed responsibility for any such information supplied by the Owner. Should the Owner nevertheless instruct the Supplier to proceed, regardless of any Supplier’s notification of deficiencies, omissions, contradictions or ambiguities, or any doubts about the meaning or correctness of any information supplied by the Owner, Sub-Clause 5.44 shall apply.

A major consideration in any plant project is the proper allocation risk and whilst this is covered in later chapters in the bespoke contract there should be a clause devoted to this issue and one which specifically sets out who bears the risk of what and when. This can be either very broad e.g. “all risk” to the Supplier (or Owner) or split between the Owner and Supplier but in most NPP projects which are a “design-build” or even a “turn-key” operation the bulk of the risk will fall to the Supplier. One item that should be agreed, especially if an existing NPP is on site which will be demolished is who has responsibility for an “nuclear incident” during that phase. Also, there can be both nuclear and non-nuclear incidents and those should be covered and set out in this clause. An example is as follows:

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CLAUSE 6 – RISKS, LIABILITIES AND TITLE 6.1  Risk of Loss or Damage 6.1.1 Without prejudice to Clause 20, the Supplier shall bear the risk of any loss of or damage to the Works or any part thereof or any component and material, which is intended to be part of the Plant from the Effective Date, until the Risk Transfer Date set forth below, unless the loss or damage is caused by any of the following acts or events occurring in (name of country in which the NPP is being built): – War – terrorism – civil commotion, or confiscation – nationalization – requisition or order of government or public or local authorities, or – (add if an existing NPP is on site) a nuclear incident in the Existing Nuclear Power Plant. The Supplier shall also be responsible for the care and bear the risk of loss or damage of any part of the Works upon which outstanding or remedial work is being performed by the Supplier during the Guarantee Period or Extended Guarantee Periods, as applicable until completion of such outstanding work. 6.1.2 Risk Transfer Date The Risk Transfer Date is the earliest of a) the date of Provisional Takeover, or b) the date of termination of the carrying out of the Works in accordance with this Plant Contract. 6.1.3 Loss of or damage to the Works occurring before the Risk Transfer Date shall be made good forthwith by the Supplier at its own cost and expense and the Supplier shall, notwithstanding such loss or damage, proceed with the execution of the Works in accordance with the Plant Contract. 6.1.4 Loss of or damage to the Works occurring after the Risk Transfer Date with respect to the Works for which the Supplier is responsible pursuant to Sub-Clause 6.1.1 shall be made good forthwith by the Supplier before any minimum warranted operating hours have expired at its own risk and cost, to the satisfaction of the Owner. 6.1.5 The passing of the title of the Plant or parts thereof is independent of carrying the risk of loss or damage. 6.2  Non-Nuclear Liability 6.2.1 The Supplier shall indemnify, defend and hold harmless the Owner against any and all liabilities arising out of any claim or cause of action in respect of injury to or sickness, disease or death of any person or loss of or damage to any property of any third party arising out of or in connection with the Plant Contract caused or contributed to by the negligence of the Supplier and shall, at 135

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its own cost and on the Owner’s request, defend the Owner in any proceedings involving the same provided that such indemnity by the Supplier shall not extend to, and that the Owner shall indemnify, defend and hold harmless the Supplier against any and all liabilities arising out of any claims or cause of action to the extent that the said injury, sickness, disease, death, loss or damage is caused or contributed to by the negligence of the Owner. For the avoidance of doubt, the Supplier shall be liable for any loss or damage to any Owner’s property caused or contributed by its negligence. 6.2.2 It is understood, however, that the indemnified Party without delay notifies the indemnifying Party of any such claim. The indemnifying Party may require the indemnified Party to assign the handling of the defence of the claim to the indemnifying Party. Likewise, the indemnified Party may require the indemnifying Party to carry out the negotiations or assist in litigation in relation to the claim. The indemnified Party shall not in any event make any admission which may be prejudicial to the indemnifying Party and if it does shall be held liable for any loss resulting. 6.3  Nuclear Liability 6.3.1 The Owner shall at all times be considered as operator of the Plant and is in such capacity liable for any damage, whether inside or outside (list the name of the country in which the NPP is being built) to any person and property resulting from any nuclear incident occurring within the Plant. The Owner shall, further, be liable for any damage, whether inside or outside (list the name of the country in which the NPP is being built), due to a nuclear incident during transportation, handling or storage outside the Plant, whether inside or outside (list the name of the country in which the NPP is being built), of any contaminated material or part of the Plant except transportation, handling or storage outside the Construction Site by the Supplier or his Subcontractors. 6.3.2 Neither the Supplier, its Subcontractors of any kind and of every tier (including suppliers of information and licensors) nor any persons employed by any of them shall under any circumstances at any time be considered as operator of the Plant. 6.3.3 Neither the Supplier, his Subcontractors nor any persons employed by any of them shall under any circumstances at any time be liable for any damage to the Plant or any part thereof, including the Nuclear Fuel, or to any other property at the Site, whether belonging to the Owner, the Supplier, a subcontractor or any person employed by any of them or any third party, (and if there is an existing NPP then add: or to the Existing Nuclear Power Plant), or to any other property of the Owner outside the Site due to a nuclear incident occurring at the Plant or during transportation, handling or storage outside the Plant, whether inside or outside (list the name of the country in which the NPP is being built) of any contaminated material or part of the Plant. This disclaimer of liability does not, however, affect the Supplier’s obligations as provided in the Plant Contract to rectify a defective component or piece of equipment where the Supplier is responsible for the defect, but any such rectification shall be subject to agreement 136

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between the Parties. This disclaimer shall be effective according to its terms with respect to malfunction, damage or loss arising as a consequence of such a detect. 6.3.4 Should a third party make a claim against the Supplier, any of his Subcontractors or any person employed by any of them and resulting from a nuclear incident for which the Supplier is not liable under Sub-Clause 6.3.1 above, the Owner shall indemnify and hold harmless the Supplier, his Subcontractors and the person employed by any of them from and against any such claim provided that Supplier without delay notifies Owner of any such claim. Owner may require Supplier to assign the handling of the defence of the claim to Owner. Likewise, Supplier may require Owner to carry out the negotiations or assist in litigation in relation to the claim. Supplier shall not in any event make any admission which may be prejudicial to Owner, and if it does shall be held liable for any loss resulting. 6.3.5

With the exception of Owner’s rights under Sub-Clause 5.1 in order to protect the Supplier against nuclear liability the Owner agrees not to transfer any interest in the Plant or a part thereof or any information supplied by the Supplier and that the Plant and any parts thereof or any information supplied by the Supplier will not be transferred to another nuclear facility owned or operated by the Owner or another owner for use therein, without providing protection for the Supplier, its Subcontractors and any person employed by any of them equivalent to that provided in this Sub-Clause 6.3. This shall not, however, apply to “sale/leaseback” or other financing arrangements when the Works is used only in the Plant and Owner remains the owner and operator of the Plant.

6.3.6

For the purpose of nuclear liability, if any, the Owner shall take over the Fuel Assemblies supplied by (insert name of Fuel Supplier) under the Fuel Contract at the moment of beginning of unloading of the relevant Fuel Assembly or fuel rod, as the case may be, from the transportation carriage at the Site.

6.3.7 For the purpose of the Plant Contract the term “nuclear incident” shall have the meaning given to the corresponding term “nuclear incident” under the Convention on Third Party Liability in the Field of Nuclear Energy, Paris 29 July, 1960, as amended. The term “a critical safety application” as used in this Sub-Clause 6.3 is the use where there is a plausible possibility that a failure, malfunction or error could cause a nuclear incident or aggravate the consequences of such an incident. 6.3.8

The provisions of this Sub-Clause 6.3 providing for limitation of liability of the Supplier and his Subcontractors and any person employed by any of them for damage due to a nuclear incident shall be of unlimited duration and shall be unaffected by any completion, termination or cancellation of the Plant Contract or any part thereof or of the Fuel Contract or any other contract or agreement or the rejection of the Plant or any part thereof, and shall apply notwithstanding any other provisions of the Plant Contract, the Fuel Contract or of any other contract or agreement.

6.4  General Liability 6.4.1 Liability for Indirect and Consequential Damages 137

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Neither Party shall be liable to the other Party or to any subcontractor of the other Party in any tier or to any person employed by any of them for loss of profit, loss of use, losses by reason of plant shutdown, slow-down or interruption, or cost of capital or other similar indirect or consequential losses or damages that may be suffered by the other Party and arising from any cause whatsoever, including the negligence of the Party, except: a) as explicitly and clearly provided for in Sub-Clause 11, 12, 13, 14, 18, 19 or 21, or b) in situations where either Party has caused to occur the said loss or damage by an act or omission of intent or of gross negligence as provided for in Sub-Clause 6.4.4. The exceptions under Sub-Clause 6.4.1 (a) and (b) shall in no event apply to Nuclear Liability (Sub-Clause 6.3) including damages to the Owner’s property or loss arising as consequence of a nuclear incident. 6.4.2 The system of limitation of liability of Sub-Clauses 6.2 and 6.3 shall not be affected by any transfer of title or any other transfer of the Plant or any part thereof or of the Nuclear Fuel or any part thereof. 6.4.3 The above provisions regarding limitation of liability shall be unlimited induration and unaffected by any completion, termination, cancellation of the Plant Contract or any part thereof or of the Fuel Contract or any other agreement or any rejection of the Plant or any part thereof. 6.4.4

For the avoidance of doubt and with the exception of Nuclear Liability (SubClause 6.3) any exclusion or limitation of liability contained in the Plant Contract shall not apply in case of intent or gross negligence of the liable Party which shall be tested or ruled in accordance with the settlement of dispute mechanism as set forth in Clause 23. Gross negligence under this Plant Contract could for example mean acts or omissions of the liable Party which are contrary to the most elementary rules of diligence which a conscientious and professional contracting owner or supplier would have followed in similar circumstances and/or which show a serious reckless disregard for the consequences of the acts or omissions. With respect to either Party’s liability for intent or gross negligence the liable Party shall only be liable for a Subcontractor or supplier of the Owner, as applicable, with which the liable Party has a direct contractual relationship (in deviation from the principle contained in Sub-Clause 5.2.4).

6.5  Maximum Liability 6.5.1 The exclusions and limitations of liability set out in this Clause 6 shall apply to all claims of any kind vis-it-vis the Supplier and his Subcontractors whether as a result of breach of contract, negligence or otherwise on the part of the Supplier or any of its Subcontractors in relation to the Plant Contract, its rejection of the Plant or its termination except in case of intent or gross negligence as provided for in Sub-Clause 6.4.4. Any liability of the Supplier or his Subcontractors for environmental damage shall cease after a period of five (5) years following Owner’s knowledge of the event causing the damage or ten (10) years after the event whichever occurs first. 138

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6.5.2 The total aggregate liability for damage or loss of any kind caused by defects of parts of the Plant or faulty act of the Supplier on all claims shall not in any event exceed an amount equal to one hundred percent (100%) of the Contractual Price, including civil construction works within the Supplier’s Scope of Supply, in the aggregate including liquidated damages. This limitation shall not apply in the event of Supplier’s acts or omissions by intent or gross negligence as provided for in Sub-Clause 6.4.4. 6.5.3 The above-mentioned limitations, however, do not apply to liabilities of the Supplier pursuant to Sub-Clauses 5.1.8 and 14.4 and third party liability (SubClause 6.2), which are unlimited, and shall not apply to nor be affected by the costs incurred by the Supplier in performing the Works (including the remedying of defects). 6.5.4 (Add additional liability issues here) 6.5.5 For the avoidance of doubt, any exclusion or limitation of liability contained in these Terms and Conditions shall apply to both the contractual and the noncontractual liability of either Party. 6.6  Transfer of Title 6.6.1 Subject to Sub-Clause 5.1 the title to all or any documents, materials, goods, equipment, systems or structures intended for inclusion in or for use in connection with the Plant under the Plant Contract shall pass to the Owner upon the same being delivered to the Owner or received at the Construction Site or being paid by the Owner, whichever is earlier. However, the Intellectual Property Rights contained in any documents, materials, goods, structures, systems or components shall remain vested in the Supplier. Without prejudice to the Owner’s rights under Sub-Clause 5.1. the Supplier grants to the Owner a non-exclusive, non-transferable right to use such Intellectual Property Rights for the sole purpose of the use of the Plant. 6.6.2 The passing of title shall not raise any implication as to acceptance by the Owner or obligation by the Owner to make any payment in respect thereof and shall not in any way affect the Supplier’s obligations under the Plant Contract and the Supplier shall continue to bear the risk of loss and damage of all such materials, goods, structures, systems and components including but not limited to the risk of loss and damage for handling, maintenance, storage, installation, testing and operating as otherwise provided by the Plant Contract until the Risk Transfer Date of the Plant as provided for in Sub-Clause 6.1.2. 6.6.3 Liens Subject to Art. 6.6.1 hereof, the Supplier shall ensure that title to all project documents, equipment and parts of the Plant is vested in the Owner under this Plant Contract and that they are free from any lien, claim, charge or encumbrance (collectively referred to as “liens”), and that no person other than the Owner shall have any claim to title thereto. The Supplier shall indemnify and hold harmless the Owner from any liens arising in connection with the Works or the performance by the Supplier of 139

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its obligations in respect of defects herein, including all costs, expenses and legal fees incurred in discharging any liens. If, notwithstanding this Sub-Clause 6.6.3, any such project documentation, equipment or parts of the Plant are subject to any lien, the Owner may discharge the lien, and the Supplier shall reimburse the Owner all reasonable costs and expenses and legal fees incurred by the Owner. In order to give the Owner full power and authority to protect itself and the Works against any and all claims filed by or against the Supplier, or by any Subcontractor or anyone acting under or through the Supplier in violation of the foregoing covenant, the Supplier hereby covenants to execute or re-execute any agreement or instrument as the Owner shall request at no cost or expense to the Owner to effect the agreements contained herein. 6.6.4 Setting Aside When any equipment, documents, material, goods, system or structure intended to be included in the Plant and belonging to the Owner is on the Supplier’s or Subcontractor’s premises or on the premises of third parties, Supplier shall immediately procure that it is set aside and clearly marked as the Owner’s property to ensure traceability. When breaking down the risk allocation on any NPP project the agreement should give responsibility for the various types of events and whose responsibility insurance cover should be with the critical issue being covered that all costs arising from a damage or loss, which are not covered by insurance are to be borne by the Party carrying the risk or being liable. In this regard there should be provision for non-nuclear insurance cover and as well as nuclear cover and by whom – Owner and/or Supplier, Plant contracts works cover and third-party insurance liability cover also. These can be broken down as follows: CLAUSE 7 – INSURANCES 7.1  General 7.1.1

The obligations for insurances do not change the provisions set forth in Art. 6 or elsewhere in the Plant Contract about the division of risk and liability of the Parties. All costs arising from a damage or loss, which are not covered by insurances are to be borne by the Party carrying the risk or being liable.

7.1.2 The Parties shall provide and maintain the types and amounts of insurance as set forth in this Clause 7 from the Effective Date unless otherwise specified in this Clause 7. 7.1.3

The Owner is not liable to provide any other insurances than those specified under Sub-Clauses 7.3 and 7.4. The Supplier is responsible to take out and maintain insurances specified under Sub-Clause 7.2, or required in accordance with the legal requirements, and all insurances the Supplier considers necessary for his coverage. 140

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7.2  Non-Nuclear Insurances taken out by the Supplier 7.2.1 Without limiting the Supplier’s obligations and responsibilities under this Plant Contract the Supplier shall maintain or cause to be maintained in full force and effect at his cost as required for the purposes of performing his obligations under the Plant Contract the insurances set forth in this Sub-Clause 7.2. 7.2.2 The Supplier shall take out and maintain a professional indemnity insurance, which shall insure the Supplier’s liability by reason of professional negligence in the performance of his contractual obligations under this Plant Contract. 7.2.3 The Supplier shall have an All Risk insurance against physical loss of or damage to the Supplier’s and Subcontractors’ tools for a sum equivalent to the replacement value thereof. 7.2.4 The Supplier shall take out and maintain Marine Cargo insurance, having the Owner and the Subcontractors additionally insured, covering any and all materials and equipment while they are in transit whether by road, rail, water or air between any two locations including all manufacturers’ works, the Site and any intermediate storage within transit. The insured limit shall not be less than the full replacement value in a freely convertible currency. The starting date of insurance shall be the Effective Date, or another later date decided by the Supplier, but not later than commencement of the loading of the materials or equipment for transport. The Marine and Transit Insurance shall insure on the basis of Institute Cargo Clauses “A” 1.1.82, Institute War Clauses (cargo) 1.1.82 and Institute Strike Clauses (cargo) 1.1.82, (and as may be amended). 7.2.5 The Supplier shall have a Workmen’s Compensation insurance or equivalent in relation to all personnel employed by the Supplier or Subcontractors working on the construction of the Plant in accordance with the applicable laws. 7.2.6

The Supplier shall have all other insurance policies required in accordance with the legal requirements including, but not limited to motor vehicle liability insurance.

7.2.7 (Note: Use this Sub-Clause only if an existing NPP is on site) The Supplier shall take out insurances which include all loss or damage occurring to the Existing Nuclear Power Plant in the limit of (list amount of the limit) on a first risk basis. 7.3  Nuclear Insurances taken out by the Owner 7.3.1 The Owner shall take out, at his own cost, according to the (Country) Nuclear Liability Act a third party liability insurance against nuclear damage caused by a nuclear incident in the Plant. The insurance starts at the moment 0 f arrival of the first Fuel Assembly or, in case of site assembly, of the first fuel rod at the Construction Site. 7.3.2 The Owner shall, at his own cost, from the moment when the insertion of the first Fuel Assembly into the reactor commences, insure the Plant and all property on the Construction Site against nuclear damage caused by a nuclear incident. The insurances referred to in this Sub-Clause, 7.3.2 shall also include 141

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fire, explosion, lightning and storms. Such insurances will also, to a reasonable extent, cover the expenses of decontamination on a first-risk basis. 7.4  Non-Nuclear Insurances taken out by the Owner 7.4.1. General 1.  Without limiting the Supplier’s obligations and responsibilities under this Plant Contract, the Owner shall in the joint names of the Owner and the Supplier, subsuppliers, Subcontractors, consultants, maintain in full force and effect at his cost the following insurances, provided that the insurances are obtainable on the international insurance market on reasonable terms: a) Plant Contract Works Cover/ Construction Erection All Risk b) Third Party Liability. 2.  The obligations of the Owner to insure shall be limited to providing the said insurances as set out in this Clause. The Owner is not liable for and shall not insure the deductibles as set out in this Clause. The Supplier shall comply, and shall be responsible that all his Subcontractors comply, with and be subject to the terms, exceptions, conditions and limitations of the insurance maintained by the Owner. 3.  The Owner is not liable to insure against loss or damage to the Supplier’s or Subcontractors’ tools. 4.  The obligation of the Owner to maintain Third Party Liability insurance shall not render the Owner liable to insure against a) any claim made against the Supplier by an employee of the Supplier for death or personal injury arising out of and in the course of his employment; b) loss of or damage to property in the ownership, care, custody or control of the Supplier. 7.4.2 Plant Contract Works Insurance 1. The Owner shall maintain in the name of the Owner, having the Supplier, all suppliers, subcontractors and consultants regarding the whole Plant additionally insured, Contract Works insurance I CEAR in a form reasonably acceptable to the Supplier, on all risks basis covering direct physical loss or damage to the permanent and temporary works at the Construction Site, including risks of loss or damage arising out of any enabling works and including the materials, and all things used for or intended for incorporation within the Plant Contract. This CEAR policy shall cover to the full replacement value in a freely convertible currency. This CEAR policy shall cover damage to the Supplier’s and Subcontractors’ constructional plant, equipment and temporary buildings up to a maximum amount of (insert amount and currency). The deductibles shall not be superior to (insert amount and currency) per event until start of Pre-Operational Testing (Nuclear Fuel included) and (insert %) of the loss, minimum (insert amount and currency) per event after start of Pre-Operational Testing. 142

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2. The period of insurance shall be from the Effective Date or another later date decided by the Owner, including the agreed time for testing and Commissioning, until the Provisional Takeover date plus maintenance during Guarantee Period (extended maintenance). 7.4.3 Third Party Liability Insurance 1. The Owner shall take out and maintain in the name of the Owner, having the Supplier. all suppliers. subcontractors and consultants regarding the whole Plant additionally insured, a Third Party Liability insurance covering the liability at law of the insured parties in respect of death or bodily injury to third parties or loss or damage to third party property arising out of or in connection with the performance of the Plant Contract within (insert country). 2. The period of insurance shall be from the Effective Date or another later date decided by the Owner, including the agreed time for testing and Commissioning, until the Provisional Takeover date plus maintenance during Guarantee Period (extended maintenance). 7.5  Other Insurance Matters 1. The Owner shall on request of the Supplier, furnish the Supplier with a copy of each policy of insurance which the Owner is required to take out to which the Supplier is additionally insured and satisfactory evidence that the insurance required to be effected by the Owner pursuant to Sub-Clause 7.4 continues to be in effect. 2. The Supplier shall provide the Owner with evidence of insurance required under Sub-Clause 7.2 in the form of insurance certificates or cover notes prior to the execution of the Plant Contract and from time to time thereafter as reasonably requested by the Owner. 3. The Supplier shall provide the Owner with all assistance in the provision of information required to effect and maintain the insurance described in Sub-Clause 7.4 or any other insurance the Owner may be required to effect and maintain. 4. All insurance policies arranged by the Parties shall include, to the extent it is reasonably possible, a waiver of recourse to the other Party, their subcontractors, agents, other representatives and their personnel as well as for the purpose of Sub-Clause 7.3.2 their insurers. 5. All insurance policies described herein shall be effected with reputable insurance companies on terms consistent with normal international market practice. 6. The Owner and the Supplier, also on behalf of his Subcontractors, hereby undertake to comply with the conditions of the insurance which the Owner is obliged to effect and maintain in accordance with Sub-Clause, 7.4 and not at any time do or omit to do anything whereby any such insurance would be rendered void or voidable or suspended, impaired or defeated in whole or in part. 7. All policies of insurance provided by the Parties, as required pursuant to this Clause 7, shall be written as primary and non-contributing with respect to any other similar coverage that the other Party, and their assignees, subsidiaries and affiliates may carry. 143

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8. Each Party shall give the other prompt notice of any insurance claim together with full details of the incident giving rise to such claim and shall afford the other Party with all such assistance and information as may be reasonably required for the preparation and negotiation of any such claim. But can the NPP be licensed, is it licensable, who has to obtain the licenses and permits to operate, approvals and inspections and other details should also be carefully delineated as set out next: Clause 8 – Licensability and Licensing 8.1  Nuclear Licensability 1. The Supplier is responsible for that the Plant with the Nuclear Fuel is a fully licensable Plant in (insert country) and it will comply with the applicable (insert countries) legislation and the regulations and requirements of the Authorities. The licensability responsibility of the Supplier shall inter alia mean the following: 1) The technical solutions of the Plant shall be such that the Plant will meet all licensing requirements in accordance with Sub-Clause 2.2.3; 2) The licensing documentation is complete and meets all licensing requirements so that all relevant licenses, permits and Authority approvals can be obtained in due time; 3) The licensing documentation will be submitted in accordance with the licensing schedule (Contract Specifications, Project Implementation, Licensing Plan, App. 9). 2. The Plant with the Nuclear Fuel shall also correspond to and meet the design criteria and specifications with respect to nuclear safety set forth in the Contract Specifications. 3. In the event that laws, regulations and stipulations of the Authorities related to nuclear safety requirements have not been issued or otherwise addressed adequately in (insert country), the Supplier shall apply the requirements specified in Sub-Clauses 2.4.2 and 2.4.3 for the design, manufacture, construction, inspection and testing of the Nuclear Steam Supply System and related safety systems and reactor protection systems, components and structures. 4. The contractual consequences of any changes of the laws, regulations, acts, decrees, resolutions, decisions and stipulations of the Authorities are governed by Sub-Clause 5.4.3. 5. Unless otherwise required by the Authorities or provided for in the Plant Contract, the Plant shall be built to the safety standards of the Reference Plant or in case there is no applicable Reference Plant as such for the whole design, then reference deliveries of key systems and components shall be used as references. If in a particular case the safety standard of the said Reference Plant or system differs then the Supplier will supply the Plant according to the higher applicable safety standard unless otherwise recommended by the Supplier and accepted by the Owner. 144

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6. Without prejudice to Sub-Clause 8.1.1, which shall prevail, the Nuclear Island concept shall in addition be licensable in (insert country) unless otherwise instructed by the Owner. 8.2  Permits, Licenses and Authority Approvals 8.2.1 Permits and Licenses 1. The Supplier shall prepare all necessary documentation and shall apply for and obtain the necessary non-nuclear permits and licenses (including the Environmental Permits) required for the design, manufacture, transport, erection, construction, quality assurance and control, testing, Commissioning and Demonstration Run of the Plant and parts thereof and for fulfilling his contractual obligations and shall carryall costs related to them insofar as such permits or licenses are not the Owner’s obligation to apply for. However, in the case of specific non-nuclear permits and licenses that are required by (insert country) law to be applied for by the Owner itself, then the Supplier will provide the necessary documentation and support to the Owner for the nonnuclear permission and licensing process. 2. The Owner shall primarily apply for all permits and licenses based on the nuclear legislation which are necessary for design, manufacture, transport, construction, erection, quality assurance and control, testing, Commissioning, Demonstration Run and operation of the Plant, such as construction permit, special permits for Nuclear Fuel and operating license and also such other permits for which only the Owner can apply. In these cases the Owner shall deal with the Authorities with all the necessary documentation and support provided by the Supplier, and shall carry the costs involved in the licensing procedure for such permits and licenses, except and insofar as the said costs arise from failure of the Supplier to meet his commitments under this Plant Contract. 3. The Supplier, however, is with respect to the Supplier’s Scope of Supply and subject to Sub-Clause 8.2.1.5 below responsible for producing the necessary documents to support the applications for the permits and licenses for the Owner, such as but not limited to the Preliminary Safety Analysis Report (PSAR), Final Safety Analysis Report (FSAR), Probabilistic Safety Assessment (PSA) and amendments thereto, and he shall deliver these documents in due time to the Owner who shall submit them to the Authorities and obtain the required licenses and permits. Additionally, the licensing support services to be provided by the Supplier shall also cover the integration of all license-related documents and information prepared by the Owner. The Supplier shall ensure that all licensing documentation and information for the Plant as a whole is duly integrated, complies with the requirements of the Authorities, and is delivered in due time to the Owner and in accordance with the licensing schedule (Contract Specifications, Project Implementation, Licensing Plan, App. 9) for him to submit to the Authorities. 4. The Supplier shall at his cost provide safety analyses of the Plant. For this purpose, the Owner shall provide at his cost all necessary Construction Site and environmental data and other information related to the Supplier’s Scope of Supply. The information supplied by the Supplier must be complete and in such a form that it can be submitted to the Authorities. The analyses to be made by 145

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5.

6.

7. 8.

the Supplier shall include hazards associated with normal operation of the Plant and those arising from adverse operating conditions, component failures or accidents, as may be required by the Authorities and the applicable regulations, Codes and Standards. The information to be given to the Owner and further to the Authorities shall also include mathematical models, basic assumptions, data and methods of calculation, as required by the Authorities. The Supplier shall carry the costs for preparing and making available the PSAR, FSAR and PSA documents and amendments thereto, as well as additional documents, technical and safety data, detailed technical descriptions, drawings, design specifications, stress reports, and calculations and examination and test procedures, data, results and reports for presentation to the Authorities as may be required by them in order to assure the necessary licenses, permits and approvals, for construction and operation of the Plant. The Supplier shall carry all costs related to material, acceptance, leak rate and commissioning tests which have to be carried out under this Plant Contract to obtain the necessary permits and licenses, except the costs for the presence and possible assistance of the Owner or the Authorities. The Supplier shall be liable for the costs relating to his work according to SubClauses 8.2.1.1, 8.2.1.3, 8.2.1.4, 8.2.1.5 and 8.2.1.6 above until Provisional Takeover, except for items mentioned in the punch list. The Supplier shall continue to provide licensing support to the Owner beyond Provisional Takeover, as may be required by the Owner under the conditions to be mutually agreed between Owner and Supplier.

8.2.2  Authority Approvals and Inspections 1. The Supplier is responsible for preparing at his own cost all necessary documents and information for all structures, systems and components as well as all associated activities within Supplier’s Scope of Supply, subject to detailed review and approval by the Authorities (pre-inspection, etc.), as specified in the relevant YVL guides. 2. The Supplier is responsible for arranging and administrating at his cost all applicable inspections to be performed by the Authorities at the component manufacturers as well as at the Construction Site as specified in the relevant YVL guides. The Owner shall carry the costs for the presence of the representatives of the Authorities, which for the avoidance of doubt shall mean the (insert authorities), and the Owner during such inspections. 8.3  Nuclear Licensing Procedure 8.3.1 General 1. The permits and licenses required to construct and operate a nuclear power station In (insert country) are issued by the Ministry of Trade and Industry or the Government. The technical review and approval of the nuclear safety aspects of the Plant is performed by the (insert authorities). 2. The Supplier shall provide all documentation and support needed to license the Plant or granting of specific permits, meeting the requirements of the (insert country) laws and the regulatory authorities. 146

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Regulatory authorities refers not only to the (insert authorities) but all other (insert country) or foreign authorities that require specific permits, approvals or inspections. 3. The Supplier shall provide a licensing plan, covering the licensing documents to be elaborated, their milestones (including Owner comments and approval) and the commitments to comply with that plan under this Plant Contract as defined in Contract Specifications (Project Implementation, App. 9). 4. The elaboration of the general and specific documentation required for the Plant licensing process shall be elaborated based on computerised word processing systems integrated to data bases that allows for a continuous configuration management including: input data, commitments tracking, changes follow-up, licensing status, etc. 5. The Supplier shall support the Owner during all the Plant licensing process with the Authorities. 8.3.2 Permits and Licenses 1. A construction license is required prior to the start of construction. To obtain such a license, a finalised PSAR and a design phase PSA (design phase PSA as defined in the Guide YVL 2.8) have to be prepared by the Supplier and (insert number) copies of the finalised PSAR and the design phase PSA, in addition to (insert number) copy in electronic format, shall be submitted to the Owner at the latest on the Effective Date. Reports and other documents referred to in the PSAR shall be submitted in (insert number) copies of each in addition to copies in electronic format. 2. A specific operating license is required prior to the start of the initial fuel loading. To obtain such a permit, the FSAR and the PSA (ref. Guide YVL 2.8) shall be prepared by the Supplier. (insert number) copies and (insert number) copy in electronic format of the FSAR shall be submitted to the Owner (insert number) months prior to the start of initial fuel loading together with (insert number) copies and (insert number) copy in electronic format of each report and other documents referred to in the FSAR. 3. The information and data given in the FSAR and in the documents referred to in the FSAR shall be revised, amended and modified according to the results and experience gained during Pre-Operational Testing, Commissioning and Demonstration Run. These revisions and amendments to the FSAR and to the documents referred to in the FSAR shall be provided without delay for timely submittal to the Authorities in (insert number) copies and (insert number) copy in electronic format. 4. The content of the FSAR shall in principle follow current practices established as a result of licensing requirements of the relevant YVL Guides with possible additions as demanded by the Authorities. 5. The information and documents to be supplied by the Supplier for obtaining the necessary permits and licenses have to be complete and shall be submitted by the Supplier in an appropriate and easily understood format. 6. The Supplier shall provide at the request of the Owner to the necessary extent and free of charge his specialists for assisting the Owner in presenting the applications and in dealings with the Authorities. 147

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8.3.3 Authority Approvals and Inspections 1. The Supplier shall provide successively during the project implementation the documents and information mentioned in Sub-Clause 8.2.2.1 in due time (and in accordance with the time schedule and document management procedures) to allow the Owner and the Authorities enough time for review and for giving the corresponding approvals so that no delay is caused to the project implementation and to the Contractual Date of Provisional Takeover. 2. The content of the documents and information shall be in conformance with the requirements of the Contract Specifications and relevant YVL Guides. The documents and information have to be complete and shall be submitted in an appropriate format to allow easy identification, handling, revising and completing successively with additional information and Authority approval decisions, etc. 3. The documents and information for obtaining the Authority approvals shall be submitted to the Owner in (insert number) copies and (insert number) copy in electronic format of each, unless otherwise specified in the Plant Contract. 4. The Supplier shall provide on the request of the Owner to a necessary extent free of charge his specialists for assisting the Owner in dealings with the Authorities for obtaining the necessary Authority approvals. 5. Inspections to be performed at the component manufacturers and at the Construction Site by the Authorities shall be planned and administered by the Supplier so that invitations to the inspections are submitted to the Owner and through the Owner to the Authorities in due time in advance. 6. The Supplier shall prepare the inspections mentioned in Sub-Clause 8.3.3.5 above so that the items in question and the associated documentation are correct, complete for inspection. The Supplier shall put his specialists free of charge to assist the Authorities and the Owner during the inspections and to present the items and associated documentation to the Authorities. The Owner shall carry the costs for the presence of the representatives of the Authorities and of the Owner during such inspections. Due to the complexity of NPP projects and to avoid arguments and costs increases it should be agreed, at the start, who is responsible for personnel training and who is paying for this. Does this include training and operation manuals and are they part of the Plant Contract? Where will this training take place and in what language? Also closely following this would be a clause dealing with pre-operational testing and commissioning, the initial demonstration run and then provisional take-over. Thess and other details are covered in the next two clauses: CLAUSE 9 – Training of Plant Personnel 1. The Supplier shall be responsible for providing full and comprehensive Plant specific training for the Owner’s personnel for the purpose of enabling such personnel to fully, safely and efficiently operate and maintain the Plant without interfering with 148

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2.

3.

4. 5. 6.

its commercial operation. Such personnel shall be specified by the Owner and have educational and experience qualifications appropriate to achieve the purpose of the training. The Supplier shall, within (insert number) years before the planned fuel loading, provide a time schedule and program for the training of the Owner’s intended Plant personnel. The schedule and program for training of the Owner’s personnel shall be agreed between the Owner and the Supplier or in the absence of agreement shall be in accordance with the criteria set by Authorities and the reasonable requirements of the Owner. The total number of Owner’s personnel trained is limited to (insert number) people. The training of the Owner’s personnel by the Supplier shall take place during the period of construction, installation, Pre-Operational Testing and Commissioning and the Owner will make his personnel available to meet the schedule and program. The extent of training shall meet the criteria set by the Authorities in, including but not limited to, Guides YVL 1.6 and YVL 1.7 concerning operation, maintenance and technical support. The Owner shall free of charge to the Supplier make arrangements for the practical training of the Owner’s operating personnel at the Plant and other Owner’s facilities. All costs and expenses for the training to be arranged by the Supplier as specified in the Contract Specifications are for the account of the Supplier. However, all costs of the Owner’s personnel to be trained are for the account of the Owner. The full-scope training simulator, which is part of the Supplier’s Scope of Supply, shall be an essential element in the Plant personnel training program to be provided by the Supplier in compliance with Guide YVL 1.6.

CLAUSE 10 – Pre-Operational Testing, Commissioning (including performance testing), Demonstration Run and Provisional Takeover 10.1

General

1. All costs involved in Pre-Operational Testing, Commissioning and the Demon­ s­tration Run are for the account of the Supplier. The Supplier will, however, free of charge use the First Core Loading and the reserve Fuel Assemblies for these purposes. 2. The Supplier shall provide at his own expense all operating fluids, consumable materials, tools, spare parts, temporary installations, test equipment, labour and supervisory personnel as may be required for Pre-Operational Testing, Commissioning (including Performance Test) and Demonstration Run and for all other tests or adjustments as may be required in connection there with up to the Provisional Takeover, beyond what is provided by the Owner as per Sub-Clause 3.3. The Supplier is in relation to the Owner responsible for radiation protection in the Plant up to Provisional Takeover. The Owner shall however, free of charge put at the disposal of the Supplier the necessary health physics personnel for radiation protection. 149

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3. The sequence of the different operations and tests up to the Provisional Takeover is given below: Pre-Operational Testing Commissioning, starting with initial fuel loading and ending with the (insert number) hour Performance Test Demonstration Run Provisional Takeover. The schedule is given in the Main Time Schedule. 4. The Operator of the Plant in the sense of the Nuclear Liability Act is the Owner. 5. The Supplier shall be responsible for all tests relating to the Pre-Operational Testing, Commissioning (including the Performance Test), Demonstration Run and Provisional Takeover of the Plant. Any decision or approval of the Owner does not relieve the Supplier from his contractual obligations. The Owner shall be entitled to request reasonable proof’s, checks, information and any other action from the Supplier to ensure the fulfilment of his contractual obligations. 6. With respect to Sub-Clause 10.2 and Sub-Clause 10.3 the Supplier shall remain responsible for all maintenance and operation of his Scope, of Supply under the overall Plant direction of the Owner up to Provisional Takeover except for the commercial operation pursuant to Sub-Clause 10.3.13. The overall Plant direction shall cover general instructions concerning power dispatch to the grid etc. 10.2  Pre-Operational Testing and Commissioning (including Performance Testing) 1. The Supplier shall prepare and submit to the Owner for the approval of the Owner a comprehensive program for Pre-Operational Testing and Commissioning (including the Performance Test). A preliminary overall test program including an indicative time schedule shall be submitted in (insert number) copies to the Owner (insert number) months before testing starts and a final test program and time schedule shall be submitted in (insert number) copies to the Owner at least (insert number) month prior to the actual date at which the tests are to be carried out. The program shall also include testing of components, systems and structures within the Owner’s Scope of Supply in accordance with the relevant subcontract between the Supplier and the Owner (which shall cover inter alia provision of information, test and commissioning programmes etc). The Supplier shall be responsible for the coordination of the PreOperational Testing of the Supplier’s Scope of Supply and of the Owner’s Scope of Supply. The Supplier shall comply with the overall test program as approved by the Owner. The test program shall contain all tests which are necessary for fully proving the safety and performance of the Plant and shall also contain such other tests as may be required by the licensing Authorities for licensing purposes for the Plant. 2. The Owner shall have the right to check the Supplier’s activities, inspect the structures, systems and components and to have his nominated operating and maintenance personnel to participate in Pre-Operational Testing and Commissioning to the extent he may require. Irrespectively of any checks or approvals by the Owner or any failures on the part of the Pre-Operational testing or commissioning of the Owner’s Scope of Supply, the Pre-Operational Testing and the Commissioning will be carried out under the full responsibility of the Supplier. The Supplier shall 150

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provide the necessary qualified supervisory personnel and specialists to carry out his test program. The Owner shall have the right to and will to the extent possible make his operating and maintenance personnel available for these tests free of charge to the Supplier. The delegated Owner’s operating and maintenance personnel shall work under the direction and responsibility of the Supplier and the Supplier shall be wholly liable for the acts, omissions and defaults of such Owner’s personnel except for acts, omissions or default contrary to instructions and due to wilful misconduct or gross negligence of such personnel. 3. The Supplier shall periodically report in writing on progress and difficulties during Pre-Operational Testing and Commissioning to the Owner on a (insert number) basis. 4. During the Pre-Operational Testing of structures, systems and components, the Supplier may, in coordination with the Owner, operate Plant systems and components as required for functional testing and adjusting in order to assure good performance of systems and components. However, appropriate measures are to be taken by the Supplier to avoid unnecessary interference in systems and components already successfully tested. 5. The Supplier shall inform the Owner in writing as soon as the erection of a system has been completed and examined regarding design, materials and workmanship and that the system is ready for functional testing. Following this notice, the functional tests including measurements of the performance data shall be carried out by the Supplier. The Owner or his Representative has the right to be present during the tests. 6. The Supplier shall inform the Owner in writing as soon as all relevant systems have been tested successfully and the Plant is ready to be commissioned. 7. Thereafter, the Supplier shall carry out to his satisfaction an examination of the installation of the overall Plant. In particular, the performance of the control and protection systems as well as the safety equipment has to be demonstrated. Thereafter, preparations by the Supplier for Commissioning of the overall Plant shall be made according to the test program taking into account the work still in progress on the Construction Site. The special start-up permit (operating license) required must have been granted by the Authorities (see Sub-Clauses 8.2 and 8.3). 8. The Commissioning to be carried out by the Supplier starts with the initial fuel loading, low-power tests of the Nuclear Steam Supply System, start-up of the turbine-generator set and increasing Plant power up to Rated Output or the maximum load allowed by the load dispatching centre. During Commissioning, the performance of the Plant is tested with regard to start-up, shutdown, part-load operation, load-changing capabilities, etc., in order to demonstrate that the Plant is ready for the (insert number) hour Performance Test and further Demonstration Run and commercial operation. 9. The Plant is then successfully operated at Rated Output or maximum load allowed by the load dispatch centre for an uninterrupted (insert number) hour Performance Test. After demonstration that the Plant is capable of providing the Rated Output or maximum load allowed by the load dispatch centre over the 151

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period of (insert number) hours without interruption, the Demonstration Run can be started. Minimum performance criteria for the Performance Test as measured by the main Plant output meters is to achieve (insert number) of the Rated Output over an uninterrupted (insert number) hour Performance Test. 10. During the Commissioning period, the Owner’s operating personnel shall be trained and take active part in the operation of the equipment and all phases of the plant operation. 11. The Owner retains the right to set daily load limits during Commissioning. Revenues from selling the electricity generated during the Plant testing, Commissioning and demonstration shall vest in the Owner. Any load limits impacting adversely the Commissioning shall be dealt with according to Sub-Clause 5.4. 12. The Supplier may, subject to advance notice to the Owner, interrupt operation during Commissioning to carry out adjustments and repairs. If the adjustments or repairs are of such a kind that they might affect the performance of the Plant or parts thereof or influence test results obtained in an earlier stage of the Commissioning period, and retesting is required, then the Commissioning program shall be revised accordingly and by mutual agreement of the Parties. A revision of the Commissioning period within the terms of this Sub-Clause 10.2.12 shall not, however, entitle the Supplier to any extension of time for his performance of the Plant Contract. 13. The Supplier shall maintain full and accurate records of the Commissioning activities, listing all failures and malfunctions, which appear in this period and shall provide the Owner with (insert number) copies of such records. The Supplier shall be responsible for repairing and making good all defects and failures listed or referred to in such records. 14. As soon as the (insert number) hour Performance Test, terminating the Commissioning, has been successfully completed and the Plant is capable of fulfilling the requirements of the Plant Contract, the Supplier shall notify the Owner in writing that the Plant has successfully completed the Performance Test and that the Demonstration Run has started. The Supplier shall provide the Owner with full details of the results and of his evaluation of those results. 15. If the Owner is satisfied that the Performance Test has been passed and the minimum performance criteria specified in Sub-Clause 10.2.9 have been achieved, it shall, within (insert number) Business Days after having received the details of the results of the Performance Test and the evaluation of these results, issue a Performance Test certificate to that effect. The Supplier may proceed directly with the Demonstration Run following the (insert number) hour Performance Test provided that this shall be at the Supplier’s risk in the event that the Owner with valid reason does not issue a Performance Test certificate according to the following Sub-Clause 10.2.16 16. If the Owner does not issue a Performance Test certificate under Sub-Clause 10.2.15, it shall give notice to the Supplier stating the reasons for not doing so. 17. In the event that the Performance Test has been passed and the minimum per­ formance criteria have been achieved, but not the full Rated Output performance, 152

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specified in Sub-Clause 10.2.9 the Performance Test certificate shall certify the actual performance achieved, adjusted by reference to an agreed Performance Test Procedure. as required in the Contract Specifications. 10.3  Demonstration Run and Provisional Takeover 1. The Demonstration Run shall be carried out by the Supplier under his responsibility, technical supervision and direction. 2. The required operating and maintenance personnel of the Owner will be made available free of charge to the Supplier for carrying out this Demonstration Run. The supervisory personnel and required specialists of the Supplier shall be present in sufficient number on a (insert number) -shift basis during the Demonstration Run. 3. The purpose of the Demonstration Run is to demonstrate that the Plant is capable of all necessary operations such as start-up, shut-down, part-load operation, load changing capabilities, operation at maximum output, etc., in order to prove that the Plant is ready for commercial operation and is fully operable. 4. The Demonstration Run is conducted on a (insert number) hour-per-day basis for a period of not less than (insert number) days. The Owner will establish the Plant operation program for the Demonstration Run in consultation with the Supplier and with his approval. The Owner retains the right to set daily load limits during the Demonstration Run and to shut down and start up the Plant at any time he desires. 5. During the Demonstration Run, there shall be a continuous Duration Test in which the Plant is operated at Rated Output without any interruption for a (insert number) day period. 6. If the Demonstration Run, except during the time of the continuous Duration Test, is interrupted for any reason within the responsibility of the Supplier, then the whole Demonstration Run shall, subject to the provisions set forth in Sub-Clause 10.3.7 below, be prolonged or repeated after the cause of the interruption has been eliminated. Such prolongation or repetition shall not entitle the Supplier to an extension of the Construction Time. 7. Interruptions to the Demonstration Run shall lead to prolongation of the Demonstration Run, provided the duration of any single interruption does not exceed (insert number) hours or the accumulated duration of the interruptions does not exceed (insert number) hours. The said prolongation shall correspond to the accumulated duration of the interruptions. Interruptions in the Demonstration Run shall lead to a repetition of the Demonstration Run including the (insert number) day Duration Test provided the duration of any single interruption exceeds (insert number) hours or the accumulated duration of the interruptions exceeds (insert number) hours or the number of interruptions exceeds (insert number) times. For the purpose of this Sub-Clause 10.3, the term interruption shall only mean interruptions for reasons within the responsibility of the Supplier. If the power has to be reduced for reasons within the responsibility of the Supplier. the said 153

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reduction shall not be defined as an interruption in the sense of this Sub-Clause 10.3 unless the reduction is to a power level below ninety percent (90%) of Rated Output. 8. If the (insert number) day continuous Duration Test is interrupted or a maximum power achieved is less than (insert number) of the Rated Output for any reason within the responsibility of the Supplier, then the (insert number) day continuous Duration Test shall be repeated after the cause of the interruption or the power deficiency has been eliminated but such repetition shall not entitle the Supplier to an extension of the Construction Time. 9. If for reasons outside the responsibility of the Supplier the Plant cannot be operated at Rated Output, then the Demonstration Run, including the continuous Duration Test, will be carried out at maximum available load, and prior written agreement of the Owner shall be obtained by the Supplier. Should the Demonstration Run including the Duration Test be interrupted for reasons outside the responsibility of the Supplier, then the Demonstration Run will be resumed if requested by the Owner. In such case, the Demonstration Run shall be extended for a period of time equal to the duration of such interruptions. The Duration Test, however, will be repeated without interruptions over a (insert number) period. The Owner shall allow the Supplier a corresponding extension of the Construction Time and, if the total length of the extension exceeds (insert number) days, compensate the Supplier for the Direct Costs incurred, according to the provisions of Sub-Clause 11.3 .2. 10. Upon the achievement of the test criteria of the Demonstration Run, the Supplier shall immediately notify the Owner in writing that the Demonstration Run has been successfully completed together with an acceptance protocol satisfactory to the Owner, which shall contain a report on the Demonstration Run and describe the results obtained. The protocol shall also contain a list of all defects and failures, which occurred during the Demonstration Run. 11. If the Owner is satisfied that the test criteria of the Demonstration Run have been passed so as to achieve the Demonstration Run acceptance criteria established in this Sub-Clause 10.3, he shall issue a Demonstration Run certificate to that effect, together with a punch list of work to be carried out by the Supplier at its sole cost and expense to make good the defects and failures that have occurred prior to or during the Demonstration Run. 12. If the Owner does not issue a Demonstration Run certificate under SubClause 10.3.11, it shall give notice to the Supplier stating the reasons for not doing so. 13. The Provisional Takeover shall be deemed to be effective at the exact hour and date certified by the Owner in writing that the Provisional Takeover has been achieved in accordance with Sub-Clause 10.3.14. Without prejudice to the conditions for Provisional Takeover defined in Sub-Clause 10.3.14 below the following shall apply concerning the operation of the Plant and generation of electricity by the Owner (meaning the delivery of power to the grid not for test purposes) prior to Provisional Takeover (hereinafter referred to as commercial operation): 154

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1) The Owner shall be entitled to commercially operate the Plant at times when the Plant is not being under rectification by the Supplier in accordance with the rectification schedule agreed by the Parties. The Supplier shall not unreasonably withhold his agreement to allow the Owner to commercially operate the Plant; 2) The Owner shall bear the risk for loss of or damage to the Plant during the commercial operation, but the risk of loss or damage shall be transferred back to the Supplier upon the Owner’s notification that the Plant is not being commercially operated (see Sub-Clause 6.1.1.); provided, however, that Sub-Clause 6.3.1. shall, for the avoidance of doubt, not be affected; 3) The Owner shall own the electricity generated from the Plant; The period of commercial operation of the Plant before the Provisional Takeover shall be taken into account in the determination of time periods pursuant to Sub-Clause 12.2.3.1 and Sub-Clause 12.2.3.10; 4) The Supplier may be granted relief from liquidated damages pursuant to Sub-Clause 11.3.3. after mutual agreement of the Parties on a case by case basis taking into account all circumstances; 5) Once an aggregate (insert number) month period of commercial operation has expired any subsequent periods of commercial operation shall be deducted from the Guarantee Period and the Extended Guarantee Periods taking into account pro rata the output levels of electricity generated by the Plant and dispatched to the grid; 6) The Supplier shall be obliged to fulfil the missing conditions for Provisional Takeover as fast as reasonably possible. 14. Conditions for Provisional Takeover The Owner shall issue a Provisional Takeover certificate certifying in writing the exact hour and date of the Provisional Takeover of the Plant by the Owner under this Plant Contract when the following conditions for Provisional Takeover have been demonstrated and fulfilled: ▪ ▪

▪

The Plant has demonstrated compliance with the minimum performance criteria during the (insert number) hour Performance Test, as specified in Sub-Clause 10.2.9. The Demonstration Run has been completed satisfactorily, i.e., it has been demonstrated that the Plant is operable according to the program mutually agreed upon in Sub-Clause 10.3.1 through SubClause 10.3.2. The Plant has been completed in all respects in accordance with this Plant Contract and the requirements laid down in the Contract Specifications have been met and the Works to be provided by the Supplier according to Clause 3 and which are required for a safe, reliable, efficient and proper operation of the Plant, in accordance with the legal requirements and the requirements of the Authorities, are complete and satisfactory, save for the punch list of additional work to be carried out by the Supplier to make good any detected defects and 155

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failures (see Sub-Clause 10.3.11). Defects or failures, which can be eliminated or rectified by minor adjustments or repairs shall not hinder the Provisional Takeover. ▪ However, defects or failures for which the Supplier is responsible, and which may prevent the operation of the Plant in the manner required for Provisional Takeover shall be satisfactorily repaired or eliminated before the Provisional Takeover can take place. ▪ A reasonable proof from Plant instrumentation records is available that the Plant will achieve at least (insert number) of the Net Rated Output and not more than (insert number) of the Mean Heat Rate value. ▪ All “as-built” drawings, documents and manuals to be provided by the Supplier pursuant to Sub-Clause 4.6 and Sub-Clause 4.7 have been delivered to the Owner except for any “as-built” drawings, documents and manuals which have been subject to changes after start of the Demonstration Run and which are not required for Plant operation. The modified drawings, documents and manuals shall be part of the punch list and be delivered within a period of (insert number) months at the latest. ▪ The Owner’s operating license has not been cancelled or restricted with regard to power output (insert number) of the Net Rated Output according to Sub-Clause 12.2.1) by the Authorities due to reasons within the responsibility of the Supplier. ▪ All spare parts to be provided by the Supplier under this Plant Contract have been delivered to the Site except for those utilized before Provisional Takeover which will be immediately replaced. ▪ The punch list of pending Work by the Supplier to make good the Plant defects and failures has been accepted by the Supplier. Each work item on the punch list shall have the date by which the Supplier proposes to complete the items set beside it. Acceptance of the punch list by the Supplier does not deprive Supplier to make objections to the punch list items after Provisional Takeover. For the avoidance of doubt the burden of proof for the objections remains with the Supplier. ▪ The Owner and the Supplier shall forthwith after completion of the Demonstration Run undertake all measures necessary for determining that the conditions mentioned here above have been demonstrated and fulfilled. 15. Provisional Takeover Certificate As soon as in the Supplier’s reasonable opinion, the conditions for Provisional Takeover set forth in Sub-Clause 10.3.14 have been met, the Supplier may apply by notice to the Owner for the Provisional Takeover certificate. The application shall be accompanied by a certificate from the Supplier that, in the Supplier’s opinion, the Works have been completed and the conditions set forth for Provisional Takeover have been fulfilled, save for the punch list items. The Owner shall within (insert number) month after receipt of the Supplier’s application either: 156

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a) issue the Provisional Takeover certificate stating the exact time and date at which the Provisional Takeover conditions have been met together with the punch list of all items of the Works to be rectified or completed after the Provisional Takeover with the date by which they are to be rectified or completed by the Supplier at its sole cost and expense; or b) reject the application, giving the reasons for doing so and specifying the work required to be carried out by the Supplier to enable the Provisional Takeover certificate to be issued. 16. The Guarantee Period shall commence on the Provisional Takeover date and hour. 17. The Owner shall be responsible for the operation of the Plant from the date and hour of the Provisional Takeover. 18. The Owner also takes over the responsibility for the whole Plant and its structures, systems and components at the Provisional Takeover date and hour apart from the responsibilities, which the Supplier carries during the Guarantee Period. 19. If the Provisional Takeover has not taken place within (insert number) months after the Supplier has notified the Owner that the Plant is ready for the Demonstration Run due to reasons solely attributable to the Owner, and not due to Force Majeure, then the Guarantee Period and the Extended Guarantee Periods as well as the periods according to Sub-Clause 12.2.3.1. and SubClause 12.2.3.10 shall start after the expiry of the (insert number) month period and the payment associated with the Provisional Takeover shall be due and payable immediately at the end of this (insert number) month period, irrespective of whether the conditions for the Provisional Takeover or the said payment has been fulfilled or not. In such a case, the risk of loss or damage according to Sub-Clause 6.1.2. shall pass to the Owner (insert number) days after the Supplier’s notification to the Owner that the Plant is ready for the Demonstration Run. Any Direct Costs resulting from such delay shall be borne by the owner. Whose responsibility is it to prepare and maintain the schedules for the project. The schedule is a very important part of any construction project for against it delay is determined and the swift completion of the project is determined. Liquidated Damages should also be covered here, and this type of clause also sets the completion date and various target dates to keep the construction timely. This should be set out in the Terms and Conditions as a separate clause which would read as follows:

Clause 11 – Plant Contract Schedules 11.1  Time Schedule 1. The Supplier shall prepare the time schedules as defined in the Contract Specifications using a comprehensive and effective, modem, computerized method of scheduling. 157

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2.

3.

4.

5.

The Supplier shall manage a Main Time Schedule, an Overall Time Schedule and partial time schedules for the project. Of these, the Supplier shall prepare the Main Time Schedule, which is included in Clause VI to Terms and Conditions and the Overall Time Schedule which is appended to Contract Specifications (Project Implementation). The time schedules shall include, but not be limited to, the preparation and furnishing of engineering and design drawings, diagrams, specifications and other documents, procurement of materials, procurement and execution of the subcontracted portions, the various steps of equipment manufacture and testing in the factory and construction on the Construction Site, transportation and delivery to the Construction Site, erection on the Construction Site, Pre-Operational Testing, Commissioning including Performance Test, and Demonstration Run. A separate schedule for the training simulator shall also be prepared by the Supplier. The Owner shall have access to the Supplier’s time schedules and the Supplier shall have access to the Owner’s time schedules as part of the information management system to be established in the project. The Main Time Schedule shows the time schedules for the main project phases and activities and key milestone events, as well as the time periods allocated for those project activities to be carried out by the Owner. The approval of the Owner of this Main Time Schedule shall not relieve the Supplier of any obligations under this Plant Contract. Changes to the Main Time Schedule shall only be made by means of a contract amendment in accordance with the provisions of Sub-Clause 5.4. Other time schedules shall be updated by the Supplier and agreed by the Owner when the interest of the Owner is concerned. The time schedules shall be submitted to the Owner every (insert time period). The Owner shall review the time schedule(s) presented by the Supplier and such amendments or changes shall be incorporated therein as the Supplier and the Owner may mutually agree. It shall be the Supplier’s responsibility to ensure that his progress is in accordance with the time schedules mutually agreed. The fact that the Owner makes his review of the Supplier’s time schedules or proposes changes therein shall not by itself affect the Supplier’s obligation to complete his performance of the Plant Contract in time. The Owner shall provide the Supplier in time and in accordance with the Main Time Schedule with the necessary time schedules with regards to the Owner’s Scope of Supply. The Supplier shall, as soon as possible, and considering the time the Owner may reasonably require for his decision-making concerning the time schedules bring to the attention of the Owner by way of a clear indication in writing, matters where the Supplier requires or will require to have the decision of the Owner during the course of the project in accordance with the Plant Contract. Any such decision or lack of decision by the Owner shall, however, not relieve the Supplier from adhering to the time schedules or from any other obligation under the Plant Contract. The Supplier is fully responsible to supply comprehensive and adequate material, information and documents for the Authorities to the extent that the handling of permits and licenses can take place at the right time without delay caused by e.g. lack of or non-adequacy of the information and documents. The time limits given in the concerned YVL Guides shall be followed. 158

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6. The Main Time Schedule including the milestones will be agreed by the Effective Date. All other schedules shall be provided by the Supplier for the Owner’s acceptance or review and agreed between the Parties before they become valid and be integrated in the Main Time Schedule. 7. Both Parties recognize that it is essential for the timely fulfilment of the Plant Contract that all communication with and all requests from the other Party are dealt with without any delay. 8. The Main Time Schedule commences to run as from the Effective Date. The schedule is fixed in months and is reckoned from calendar date to calendar date. Should the appropriate calendar date not exist in the month when a delivery date terminates, the same shall expire at the end of the last day of that month. 11.2  Construction Time and Project Target Dates 1. The Supplier guarantees that the Provisional Takeover shall take place at the Contractual Date of Provisional Takeover. 2. The Supplier is obliged to keep the project target dates integrated into the Main Time Schedule, which are within his responsibility as set forth in the Plant Contract. 3. The Owner is obliged to keep the project target dates integrated into the Main Time Schedule, which are within his responsibility as set forth in the Plant Contract. 4. The Supplier undertakes to furnish the Owner with the documents specified, within the time frame prescribed in Clause 4 for each type of document. 5. The Supplier shall provide, within (insert number) weeks from the Effective Date, the first edition of a detailed list (schedule) with the document submittal dates, to be updated on a monthly basis. The general timeframe and obligations for the submittal of documents are given in Sub-Clauses 4.1 to 4.7 for the different types and categories of documents. This list (schedule) shall include also the dates of intermediate document issues, part document submissions or preliminary versions as requested in Clause 4 and the delivery dates of the (last or) final version document. 6. The Supplier shall propose target dates for the submission of the interrelated document packages (Sub-Clause 4.3) as required for development of the detail civil design, and for the execution of the civil construction works to be carried out by the Owner. This schedule of the Supplier’s civil-related design document packages to be furnished in predefined stages shall be based on the related target date (see Sub-Clause 11.2.3) or on any other requirements concerning the detail civil design and the execution of the civil construction works by the Owner. 7. The Supplier shall propose target dates for the first access to buildings, which will be integrated in the time schedule. The Owner and the Supplier shall agree on those dates (insert time period) before each such target date, upon the detailed study of the erection access date required for each building. 11.3  Consequences of Delays, Suspension of Works 11.3.1 General The Supplier shall keep the date for Provisional Takeover and use all reasonable efforts to minimize any delay in the execution of the Plant Contract. Such efforts by the Supplier 159

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may involve rescheduling or acceleration of works or other steps to expedite progress in order to achieve the Provisional Takeover according to the Main Time Schedule of the Plant Contract. The Supplier shall follow closely the execution of the works and inform the Owner as soon as possible of any event, which could influence the Main Time Schedule of the Plant Contract (Sub-Clause 11.1). 11.3.2 Postponement of Contractual Date of Provisional Takeover 1. Delays due to Force Majeure In the event of any delay being caused to the Supplier in the carrying out of the Plant Contract or the Fuel Contract as a result of events which are defined as Force Majeure or caused by impediments by Authorities other than for reasons within the responsibility of the Supplier or the Owner, then the Supplier shall be entitled to a) have the Contractual Date of Provisional Takeover and any other target dates, provided by the Plant Contract or the Fuel Contract for the fulfilment of an obligation of the Supplier or of (insert name), postponed by such a period as is proven necessary and approved by the Owner, and b) be paid such part of the payment next falling due, in accordance with payment schedule in App. II to Terms and Conditions in accordance with the payment schedule for the Nuclear Fuel in the Fuel Contract, as corresponds to the progress of work at the time the payment concerned is due. The Parties shall agree upon a reasonable amendment of the relevant payment schedule for the remaining part of such payment, and c) be compensated by the Owner for all reasonable Direct Costs due to such delay, which have been proven necessary and agreed by the Owner. The Supplier shall use all reasonable endeavours to avoid in his Subcontracts with his Subcontractors the obligation to compensate the Subcontractor for additional costs in case of Force Majeure, and d) be compensated for all reasonable Direct Costs proved to be necessary by the Supplier due to a delay, in case the delay is caused to the Supplier in the carrying out of the Fuel Contract and the delay is the result of Force Majeure which delays a contractual obligation of the Owner, either under the Plant Contract or the Fuel Contract, provided agreement has been reached with the Owner on the measures and costs incurred; provided, however, that the Owner in relation to items c) and d) above shall have no obligation to pay any Direct Costs to the Supplier for any delay occurring in relation to the handling of the Construction License at the (insert authority name). 2. Delays due to the Owner In the event of any delay being caused to the Supplier in the carrying out of the Plant Contract or the Fuel Contract as a result of events, which are within the responsibility of the Owner and not due to Force Majeure nor caused by impediments by licensing Authorities then the Supplier shall be entitled to 160

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have the Contractual Date of Provisional Takeover or any other target date provided by the Plant Contract or the Fuel Contract for the fulfilment of an obligation of the Supplier or of (insert name) in respect of the Fuel Contract, postponed by such a period as is proven necessary and agreed between the Parties, and be paid the full payment next falling due, in accordance with the Payment Schedule in App. II to Terms and Conditions or in accordance with the payment schedule in the Fuel Contract, at the time the payment concerned is due, had no such delay occurred. The following payments will be effected in accordance with a revised payment schedule to be mutually agreed upon on the basis of the change in the time schedule for the performance of the Plant Contract due to such delay, and be compensated by the Owner for all reasonable Direct Costs due to such delay which have been proven necessary and agreed by the Owner. 3. Delays due to the Supplier In the event of any delay being caused by the Supplier in the carrying out of the Plant Contract or the Fuel Contract as a result of events which are within the responsibility of the Supplier or (insert name) in respect of the Fuel Contract (and not due to Force Majeure which is governed by Sub-Clause 11.3.2.1 above), then a) each payment which would have fallen due under the Plant Contract and the Fuel Contract, as applicable, during the delay, had no such delay occurred, shall be postponed until the key events associated with the relevant payment have been carried out, and b) the Supplier shall pay the Owner all reasonable Direct Costs which after consultation with the Supplier have been proved to be necessary and incurred by the Owner due to such delay; provided, however, that the consequences of a delay of the Provisional Takeover or of the delivery date of a Reload Batch are dealt with exclusively in Sub-Clause 11.3.3 of the Plant Contract and the Fuel Contract, respectively. 4.  Notifications of Delays The Supplier shall without delay, and in any case within (insert number) days after having learned about a delay, give notice to the Owner in writing of any cause or event which causes him the delay and shall as soon as the consequences can be estimated give notice to the Owner as to the effect or possible effects of such cause or event on his time schedules concerning the Plant Contract or the Fuel Contract. The Supplier shall as soon as possible and in any event not later than (insert number) days after the cessation of the cause or event giving rise to the delay give notice to the Owner in writing of such cessation. The Supplier shall as soon as possible substantiate the events giving rise to the delay including evidence, the measures he has taken to prevent or circumvent the delay and the necessity of any deferral of 161

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the Contractual Date of Provisional Takeover to which he may propose to be entitled. In case the Supplier does not notify the Owner in writing of a delay within (insert number) days after having learned about the same, the Supplier shall not be entitled to an extension of the Contractual Date of Provisional Takeover or any other target dates. The giving of substantiation and evidence to the Owner shall be a precondition for the Supplier’s right to propose any extension of the Contractual Date of Provisional Takeover or of any other target dates. The Supplier shall also without delay after having learned about any cause or event, which may cause a delay, give notice to the Owner in writing of such cause or event. 5.  Suspension of Works The Owner may, at any time, for his convenience or for any other reason whatsoever suspend the carrying out by the Supplier of the Plant Contract or the Fuel Contract as concerns the First Core Loading and the reserve Fuel Assemblies, by giving written notice thereof to the Supplier specifying the nature, effective date and anticipated duration of such suspension of Works and the Supplier shall immediately give full effect to and comply with such notice of suspension. The Supplier shall during the period of suspension protect and care for all work, goods, materials, equipment, systems and structures supplied or to be supplied under the Plant Contract or the Fuel Contract, whether at the Construction Site or elsewhere. Upon receipt of notice of suspension of Works and whilst giving full effect to the suspension, the Supplier shall consider and as soon as possible inform the Owner whether such suspension in the opinion of the Supplier would have any serious effect on any part of the Works performed or on any goods, materials, equipment, systems or structures supplied or to be supplied or whether any hazard is likely to be caused or arise or whether any additional safety precautions should be adopted. If by reason of such suspension of Works by the Owner, the Supplier incurs Direct Costs which the Supplier would not otherwise have incurred, then the Owner shall compensate the Supplier for such reasonable Direct Costs to the extent the Supplier demonstrates and proves that such reasonable Direct Costs have been incurred and would not otherwise have been incurred and are agreed by the Owner and will be added to the Contractual Price. The Supplier shall be paid in accordance with the Payment Schedule in App. II To Terms and Conditions and in accordance with the payment schedule in App. II of the Fuel Contract, the payment next falling due after the suspension having become effective, as though no suspension had taken place. The following payments will be effected in accordance with a revised payment schedule to be mutually agreed upon on the basis of the change in the time schedule for the performance of the Plant Contract due to such suspension and

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taking into account some compensation for components and equipment which have not been delivered and paid by the Owner but for which the Supplier has incurred costs. The Supplier shall not be entitled to be paid any additional cost for suspension of Works if: a) such suspension is otherwise provided for in this Plant Contract, or b) such suspension is necessary by reason of an act, omission or default on the part of the Supplier, or c) such suspension is necessary for the proper execution or for the safety of the Works or any part thereof unless such a necessity results from an act, omission or default of the Owner or third parties within the responsibility of the Owner. The Supplier shall not be entitled to make any claim for additional suspension costs unless it notifies the Owner of its intention to make such claims within (insert number) days after the receipt of the Owner’s order to suspend the works. Prolonged Suspension If the suspension at the request of the Owner as per this Sub-Clause 11.3.2.5 continues for more than (insert number) years, the Supplier shall have the right to terminate the suspended Plant Contract with (insert number) days notice to the Owner and to be compensated for his reasonable and justified Direct Costs (including overhead costs in proportion to work performed and costs incurred by the Supplier) caused by the suspension and termination, with the exception of such costs during the suspension period as are defined in this Sub-Clause 11.3.2.5 above and which have already been paid by the Owner. 6. In the determination of an excusable delay or any compensation associated with an excusable delay allowable or a suspension of works under the provisions of this Sub-Clause 11.3.2 the following conditions shall also be taken into account in addition to Sub-Clause 11.3.1: a) The Supplier shall use all reasonable endeavours to avoid unnecessary costs and otherwise to minimize his costs proposed to be paid by the Owner. b) The Supplier is only entitled to a postponement of the Contractual Date of Provisional Takeover to the extent that he can demonstrate that the said delay has caused a delay to the Provisional Takeover. c) In the determination of any allowable extension of the Contractual Date of Provisional Takeover no account shall be taken of any period during which the Contractual Date of Provisional Takeover was already being delayed by cause(s) the Supplier was responsible for.

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d) The Supplier and the Owner shall endeavour to agree upon any period of postponement to which the Supplier is reasonably entitled under Sub-Clause 11.3.2. The Supplier has the obligation to minimize such delay as far as possible, after a mutual agreement by the Parties has been reached upon measures to be taken to prevent or circumvent such delay and the costs thereof according to SubClause 5.4. 7. Subject to Sub-Clause 18.9 the sole remedies of the Supplier in relation to any delay which may be caused to him in the carrying out of his obligations under the Plant Contract or the Fuel Contract shall be as expressly provided by these contracts, and except as so expressly provided, the Supplier shall not be entitled to, and hereby waives, any claim to increased payment or compensation for any such delay, or for damages or losses which he may suffer or incur from any such delay. 11.3.3  Liquidated Damages for Delay to Achieve Provisional Takeover 1. If the Provisional Takeover date and time as stated in the Provisional Takeover certificate, for reasons within the responsibility of the Supplier, is more than (insert number) days later than the Contractual Date of Provisional Takeover, the Supplier shall pay to the Owner liquidated damages for delay at the rate of (insert number) of the Contractual Price at the Effective Date with escalation adjustment as stated in App. I to the Terms and Conditions for each (insert number) days during the first (insert number) weeks and (insert number) for each (insert number) days thereafter and pro rata for any unexpired portion of (insert number) days of such delay. 2. Cap on Liquidated Damages for Delay. The total sum of liquidated damages for delay as foreseen herein above for delay of Provisional Takeover is limited to an amount corresponding to (insert number) of the Contractual Price at the Effective Date with escalation adjustment as stated in App. I to Terms and Conditions. 3. The payment of the liquidated damages for delay is due by the Supplier within (insert number) weeks of the Owner’s written statement rendered with regard to the delay. The Owner shall render an invoice for such payment to the Supplier on a (insert number) week basis. The liquidated damages may, at the option of the Owner, and without prejudice to any other method of recovery, be deducted from payments otherwise due by the Owner to the Supplier at the Provisional Takeover or from any payments, which may become due thereafter. 4. The obligations of the Supplier to pay such liquidated damages, either by payment or deduction of such damages, shall in no way relieve the Supplier of his obligation to duly complete the Works or of any other of his obligations and liabilities under this Plant Contract with the exception of any other liabilities related to consequences of delay but subject to Sub-Clause 6.4.4. As a consequence, and with the exception of Sub-Clause 11.3.2.3 (b) and SubClause 11.3.3.5 payment of liquidated damages shall be the sole and exclusive remedy for delay.

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5. Prolonged Delay In the event the Contractual Date of Provisional Takeover is exceeded bv more than (insert number) years, for reasons within the responsibilities of the Supplier, the Owner shall have the right to reject the plan in accordance with Clause 21. Following along in the process would be the issue of guarantees, by whom and to whom and for how long are critical matters. They fall into categories such as the guarantees dealing with design and engineering, materials and workmanship but also should cover performance guarantees, guarantee testing – how and when, and what the rectification process should be in case of any failure covered by the guarantee(s). Such a clause would read as follows:

CLAUSE 12 – TECHNICAL GUARANTEES 12.1.  Design, Engineering, Materials and Workmanship Guarantee 1. The Supplier guarantees that all Plant structures, systems and components as well as the associated documentation are of the kind and quality described in the Contract Specifications suitable for its intended purpose and free from any defect or failure in engineering, design, materials and workmanship. 2. The Supplier shall do all that is necessary by way of replacement, repair or modification or otherwise to rectify any defects and failures referring to this guarantee (see Sub-Clause 12.3). 3. The Guarantee Period for engineering design, material and workmanship, unless otherwise provided by the Plant Contract, is (insert number) months. If (insert number) effective operating hours have not been achieved within such (insert number) months, the Guarantee Period is extended until (insert number) effective operating hours have been achieved. In the event that the Plant has not been in operation for (insert number) effective operating hours within (insert number) months from the start of the Guarantee Period due to reasons outside the reasonable control of both Parties, the Supplier and the Owner shall use all reasonable efforts to reach an agreement on the extent of any continuing technical guarantees under this Sub-Clause 12.1. The term “effective operating hours” herein shall be considered as those hours when the Plant is producing at least (insert number) % of the Rated Output, or according to the load demand by the dispatch centre. 4. The said Guarantee Period shall start at the actual date and hour stated in the Provisional Takeover certificate. 5. The Plant operation records will serve as a basis for the verification of the operating time, duration of interruptions and the produced power.

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6. The Extended Guarantee Period for the components and systems listed in App. X shall be extended until (insert number) years from Provisional Takeover. The Extended Guarantee Period in respect of the components and systems which are listed in App. X shall be extended until (insert number) years from Provisional Takeover. 7. The Owner shall without delay after becoming aware of a defect or failure during the Guarantee Period or the Extended Guarantee Period according to Sub-Clause 12.1.6, 12.1.8 and 15.2, inform the Supplier in writing and the Supplier shall, as soon as practicable, rectify the same in accordance with the provisions of Sub-Clause 12.3 8. The liability of the Supplier towards the Owner is limited with respect to time, to the periods stipulated for the different guarantees. 9. The guarantees of the Supplier shall neither cover consumable materials nor components the operating life of which normally is shorter than the Guarantee Period. The operating life of such components have to be recorded accordingly in the operating and maintenance instructions. The guarantees of the Supplier shall likewise not apply to normal wear and tear and ageing of the Plant, its components or systems. 10. The Supplier’s liability under the guarantees does not cover defects or failures which are proven to be due to a) improper use, operation or maintenance of the Plant not substantially in accordance with the corresponding instructions set forth in the Plant operation and maintenance manuals; b) alterations carried out by the Owner or a subcontractor of the Owner without the Supplier’s consent in writing; c) repairs carried out improperly by the Owner or a subcontractor of the Owner with exception of the provisions in Sub-Clause 12.3.12. 12.2.  Plant Performance Guarantees 12.2.1.  Net Rated Output The Supplier guarantees that the Plant is capable of continuous operation at the Net Rated Output of (insert number) MWe under the performance conditions specified in the Contract Specifications (General Requirements, App. D). 12.2.2.  Mean Heat Rate Value 1. The Supplier also guarantees that the Mean Heat Rate value for the Plant will not exceed (insert number) kJIkWh The Mean Heat Rate value for the Plant is defined as: HR = 0.7 × HR100% + 0.2 × HR90% + 0.1 × HRSO% where HR100% = specific net Plant heat rate at Rated Output 9,517 kJ/k Wh HR90% = specific net Plant heat rate at 90% of Rated Output 9,619 kJ/kWh HR50% = specific net Plant heat rate at 50% of Rated Output 10,306 kJ/k’Nb

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The specific Plant heat rate is defined as the ratio of the thermal output of the reactor core and the Plant electrical power net output. 2. The net power output and heat rate values to be measured for the above guarantee shall be measured over a period of at least (insert number) hours at the corresponding loads. The Guarantee Test will be carried out with the Plant at stable operating conditions and conditions set forth in Sub-Clause 12.2.1 and Sub-Clause 12.2.3. 12.2.3.  Guarantee Test 1. After the Plant has been successfully commissioned (including a successful (insert number) hour Performance Test) and following completion of the (insert number) day Demonstration Run, the Owner with the assistance of the Supplier will conduct a Guarantee Test if required by the Owner or if required to verify the guaranteed Plant performance values. The Guarantee Test shall be performed within (insert number) months following the Provisional Takeover. 2. The results regarding the net rated output and the mean heat rate value achieved during the Guarantee Test or during a repeated Guarantee Test after remedy work in accordance with Sub-Clause 12.2.4 are final and binding for both Parties for the purpose of settlement of liquidated damages and right of rejection according to Clause 21. The results of the repeated test shall be the basis for the calculation of the liquidated damages to be paid by the Supplier. However, if a repeated Guarantee Test following remedy work by the Supplier during the Guarantee Period shows that, after taking into account normal ageing, a different result regarding the net rated output or the mean heat rate values is achieved, a new settlement of liquidated damages shall be made. The right of rejection according to Clause 21 is not affected in such a case. 3. The costs of the Guarantee Test will be borne by the Owner except for the cost of the representation of the Supplier, which will be to its own account. The Supplier shall be prepared to offer as an option the provision and installation of the required special calibrated instrumentation and measuring equipment costs thereof to be paid by the Owner. The Guarantee Test will be directed and conducted by the Owner’s personnel and the Owner reserves the right to engage a competent expert to witness and evaluate the Guarantee Test. The costs for such an expert shall be shared equally between the Owner and the Supplier. Representatives of the Supplier must be present during the Guarantee Test. 4. The date at which the Guarantee Test shall take place shall be determined by the Owner. The Owner will give the Supplier reasonable advance notice of the date on which the Owner has determined the Guarantee Test to take place. The Supplier will inspect the Plant and its equipment and perform preliminary tests before the start of the Guarantee Test in order to satisfy himself that the Plant and its equipment are in a proper condition in accordance with the Plant Contract and ready for the Guarantee Test. If the Supplier is not satisfied that the Plant and its equipment are in such a proper condition or so ready, then he shall immediately inform the Owner giving full particulars as to the reasons why he is not so satisfied. A new date for the Guarantee Test will then be decided by the Owner after consultation with the Supplier. 167

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5. The Guarantee Test may be repeated if so required by the Owner or the Supplier. Costs and expenses relating to or resulting from a repetition of the Guarantee Test or from the carrying out of an additional test shall be payable by the Party who required the repetition or additional test. However the costs for a repetition of the Guarantee Test, including the costs for an independent expert, are for the account of the Supplier in case the Guarantee Test has to be repeated following remedy work, in order to verify the guaranteed performance values. Normal operating costs shall in any case be borne by the Owner. 6. In case that test conditions do not correspond to the conditions specified under SubClauses 12.2.1 and 12.2.2, the net rated output and the mean heat rate value will be correspondingly adjusted on the basis of correction curves given in the Contract Specifications. 7. The accuracy of the special instruments, used for verifying the guaranteed Plant performance parameters, has to correspond to the applicable test codes and standards as stated in the Contract Specifications. The Owner and the Supplier are entitled to inspect all the instruments to ensure the accuracy of the measured data. Recently calibrated instruments are to be used. 8. The overall tolerances including measuring tolerances and other allowances shall be kept within (insert number) % for the net rated output and within one and a (insert number) % for the mean heat rate value. 9. The Guarantee Test shall be carried out in accordance with the performance test code or standard specified in the Contract Specifications. The measuring methods and procedures to be applied during the Guarantee Test will be established mutually by the Owner and the Supplier according to the current status of the measuring technology as outlined in the Contract Specifications. 10. The Mean Heat Rate and the Net Rated Output values apply to a new plant and are based on the assumption that the Guarantee Test shall be carried out within (insert number) months after the Provisional Takeover. If the test is carried out at a later date than that specified above, the Mean Heat Rate and the Net Rated Output values shall be corrected for the ageing of the Plant in accordance with the provisions in the Contract Specifications. 12.2.4.  Rectification of Deficiencies in Guaranteed Performance and Damages 1. If, following completion of the Guarantee Test, the measured Net Rated Output of the Plant, taking into account in accordance with Sub-Clause 12.2.3.8 above the addition of an overall tolerance of (insert number) %, is below the guaranteed value, and or if the measured Mean Heat Rate value, taking into account in accordance with Sub-Clause 12.2.3.8 above the deduction of an overall tolerance of one and a (insert number) % exceeds the guaranteed heat rate value, the Supplier is obliged to undertake at his cost and expenses all necessary rectifications in order to achieve the guaranteed values. 2. Liquidated Damages for Failure to meet Performance If, in spite of the rectifications contemplated by these Terms and Conditions of the Plant Contract, the Supplier cannot meet the Net Rated Output or the Mean Heat Rate values with reasonable efforts taking into account all aspects, the Supplier shall be liable for liquidated damages for performance defined below and subject to Clause 21 be relieved from 168

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further rectification for the purpose to meet the Net Rated Output or the Mean Heat Rate values above the levels determined in the Guarantee Test according to Sub-Clause 12.2.3. For the avoidance of doubt, this shall not mean that the Supplier shall be relieved from proper rectification of other defects or failures according to Sub-Clause 12.3 or Sub-Clause 15. a) Liquidated Damages for Failure to Meet the Guaranteed Net Rated Output The Supplier shall pay the Owner (insert number) per MWe below the guaranteed Net Rated Output, after taking the mentioned above overall tolerance of (insert number) % into account. The said payment will be subject to revision according to the provisions of App. I to the Terms and Conditions using the ratio of escalation of indices between the date of payment of the liquidated damages and the Effective Date. b) Liquidated Damages for Failure to Meet the Guaranteed Mean Heat Rate The Supplier pays the Owner (insert number) per each full (insert number) above the guaranteed Mean Heat Rate value after taking into account the mentioned above overall tolerance of one and a (insert number) %. The said payment will be subject to revision according to the provisions of App. I to the Terms and Conditions using the ratio of escalation of indices between the date of payment of the liquidated damages and the Effective Date. 3. Cap on Liquidated Damages for Performance The total sum of liquidated damages for lack of performance with respect to Net Rated Output and Mean Heat Rate is limited to (insert number) % of the Contractual Price at the Effective Date with escalation adjustment in accordance with the provisions in App. I to the Plant Contract Terms and Conditions using the escalation ratio of indices between the date of agreement of the liquidated damages and the Effective Date subject to Sub-Clause 19.7. 4. The payments of the liquidated damages for performance are due within (insert number) weeks after receipt by the Supplier of a written statement from the Owner giving a detailed calculation of the liquidated damages. The liquidated damages may, at the option of the Owner, and without prejudice to any other method of recovery, be deducted from payments otherwise due by the Owner to the Supplier at the time of the Guarantee Test or from any payment that may become due thereafter. 5. The right of rejection by the Owner according to Clause 2 is not affected by the provisions of this Clause 12. 6. For the avoidance of doubt, if any restrictions in the output of the Plant are imposed on the Owner in the operating license for the reason that the Plant does not meet the licensing requirements according to Clause 8 the Parties shall meet and discuss any means to overcome the problem. If despite the Supplier’s rectifications the restrictions are not cancelled, the licensing restriction shall be deemed as a failure to meet the guaranteed Net Rated Output or guaranteed Mean Heat Rate, despite the fact that the Plant is capable of meeting the guaranteed Net Rated Output or the guaranteed Mean Heat Rate, the provisions of Clause  12 shall apply and the Supplier shall be liable to pay the liquidated damages under Sub-Clause 12.2.4.2. which liquidated damages however, shall be reduced 169

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pro rata to the period of restriction if the period of restriction is less than (insert number) years. 12.2.5 The technical data contained in the Contract Specifications may be subject to necessary adjustments during preparation of detailed design or taking into consideration, at a later stage, the data of the equipment to be provided by selected vendors subject to agreement by the Owner which shall not be unreasonably withheld. 12.3.  Rectification of Defects and Failures 1. The Supplier is obliged at his own cost to rectify all defects and failures in design. engineering, documentation, materials and workmanship (Sub-Clause 12.1) as well as in performance (Sub-Clause 12.2) of Supplier’s Scope of Supply after notification in writing by the Owner. Such notifications shall be made within a reasonable time after the Owner has become aware of any such defects or failures. 2. The Supplier bears all transportation, supervision, labour, overhead and other costs of such rectifications which include but are not limited to any necessary dismantling, decontamination, temporary repairs (reasonably required by the Owner), reassembly and associated costs of the Authorities. 3. Whether rectification shall be carried out by replacement, exchange or repair, lies within the Supplier’s choice and responsibility having due regard to the requirements of the Authorities, Owner’s opinion and the time schedules. 4. If the defect or failure of the structure, system or equipment is caused by faulty design or engineering or faulty manufacture, construction or erection of a specific component. the Supplier is obliged to modify or replace that component and all identical components or parts of structures, systems or equipment operating under equivalent conditions, provided it is probable that such identical components or parts of a structure, system or equipment will become defective even if such components or parts of a structure, system or equipment have not yet failed or became defective. If the defect or failure of a structure, system or component is caused by faulty design of a system, the Supplier is obliged to modify such systems in order to prevent further defects and failures. 5. Any rectification required under the technical guarantees has to be initiated by the Supplier without undue delay. The rectification work itself has to be carried out speedily and without ul1iustified interruptions and at a time so that normal Plant operation is not unduly disturbed. 6. The Owner will, if requested in due time, provide free of charge assistance to the extent possible by placing at the disposal of the Supplier health physics personnel and Plant facilities such as cranes, workshops and decontamination equipment. For repair work, the Owner shall put his personnel, to the extent possible and as far as suitable, at the disposal of the Supplier free of charge. In case decontamination of equipment is necessary for rectification work, this work shall be carried out by the Supplier and on his own costs. The Owner’s personnel may be used for decontamination of equipment for rectification work only if the Owner agrees with it. Such agreement shall not be unreasonably withheld. The Owner may 170

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charge reasonable Direct Costs for such use of the Owner’s personnel to the Supplier. 7. The Supplier shall ensure that the Owner’s Plant operating personnel working for the Supplier in connection with such rectification work (and the Supplier’s Subcontractors or personnel) only works within the Owner’s Plant regulations for operational safety, radiation protection and related instructions, as established by the Owner. However, the Supplier shall not be responsible for the non-observance of such regulations due to acts, omissions or defaults caused by the wilful misconduct or gross negligence of such Owner’s personnel. 8. All non-radioactive parts and materials, except consumables, which have been replaced or have to be disposed of due to a rectification of defects or failures, will become the property of the Supplier. The Supplier shall remove these parts and materials from the Construction Site within reasonable time and transport them in accordance with the governing rules in the countries concerned. Should, due to rectification of defects or failures, any radioactive parts or materials be replaced, or should a rectification lead to contamination of a part, material or equipment, or generate excessive volumes of radioactive waste, then, if the Supplier so desires, such part, material, equipment or waste shall be disposed of by the Owner and stored in the normal premises for radioactive waste at or in the vicinity of the Site, and the corresponding Direct Costs incurred by the Owner shall be to the account of the Supplier. 9. The Supplier may use goods, materials and equipment provided as spares for they Plant for the purpose of rectification work, but the Supplier shall replace any spares so used as quickly as possible and without costs to the Owner. 10. After the Provisional Takeover and during the whole duration of the Guarantee Period, the Owner will provide all consumable materials and electricity at his own cost as may be needed by the Supplier for carrying out rectifications. 11. If components, equipment, systems or structures are repaired or replaced, they shall be subject to a prolonged guarantee period of (insert number) months from the date of acceptance of such repaired or replaced item, however, limited to a maximum of (insert number) years following the expiry of the Guarantee Period or Extended Guarantee Periods, whichever is applicable. The guarantee period for such replaced or repaired items shall cease at the end of the Guarantee Period or the Extended Guarantee Periods, whichever is applicable, but shall be a minimum of (insert number) years after the repair or replacement. 12. Failure to Rectify Defects or Failures If the Supplier has not rectified a defect or failure as provided for in Sub-Clause 12.3.5 within a reasonable time after having been notified in writing a second time by the Owner about the same and with a reference to this Sub-Clause 12.3.12, then the Owner may proceed to effect rectification either by himself, or by a third party, by repairing or replacing equipment or otherwise at the 171

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expense of the Supplier. If the Owner decides not to proceed with remedial work then the Owner shall be entitled to a reduction in the Contractual Price corresponding to the reduced value of the Plant, or finally reject the Plant if the prerequisites for rejection set forth in Clause 21 are fulfilled. Such repair or replacement by the Owner or a third party does not influence the guarantees of the Supplier under this Clause 12 nor the obligations and liabilities of the Supplier under the Plant Contract. 13. Modifications or repairs necessary for the resolution of pending Authority decisions based on regulatory requirements in force or obviously foreseeable at the Effective Date and listed in App. VIII to be implemented in the Plant or derived from notifiable events as per Technical Specifications shall also be carried out by the Supplier at his own costs, if due to the responsibility of the Supplier. 14. Without prejudice to the other rights of the Owner under this Plant Contract the Owner’s rights and remedies under this Sub-Clause 12.3 shall be in place of and to the exclusion of any other right or remedy whatsoever in relation to the design, engineering, documentation, materials and workmanship guarantee (Sub-Clause 12.1). The next major issue has to do with the “other” type of guarantee, and that is the availability of the Plant and over what period of time.

CLAUSE 13 – AVAILABILITY GUARANTEES 1. The Supplier guarantees that the availability of the Plant will be (insert number) equivalent full power hours over a period of (insert number) years starting from the date and hour of the Provisional Take Over. 2. The term “equivalent full power hours” is the time integral of the net electrical output divided by measured Net Rated Output determined according to the provisions of Sub-Clause 12.2.1. 3. Liquidated Damages for Failure to Meet Availability Guarantee If the Plant is not available for operation at demanded load for at least (insert number) equivalent full power hours during the (insert number) year availability guarantee period as a result of defects or failures of components, equipment or systems or any other causes within the Supplier’s control and responsibilities under the Plant Contract, the Supplier shall pay the Owner liquidated damages for failure to meet the Availability Guarantee of (insert number) for each full (insert number) hour that the (insert number) hours are not attained. The said payment will be subject to revision according to the provisions of App. I to the Terms and Conditions using the ratio of escalation of indices between the date of payment of the liquidated damages for failure to meet the Availability Guarantee and the Effective Date. 4. However, should the Owner, for reasons outside the Supplier’s control, decide to operate the Plant below the measured net rated output (Sub-Clause 12.2.1) for a certain time, the Plant is then considered as having operated at 172

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5. 6.

7.

8. 9.

10.

11.

the said Net Rated Output for this period for the purpose of this Availability Guarantee. The Availability Guarantee pre-supposes that the Plant and the Nuclear Fuel are being operated in all material respects according to the operating instructions. The Supplier, at its own cost, has the right to delegate personnel for the purpose of observing Plant operation and inspections. Such personnel will have reasonable access to operating records during the period of and for the purpose of this Availability Guarantee. If the Plant is shut down for reasons outside the Supplier’s responsibility, the Supplier may with the Owner’s consent, which shall not be unreasonably withheld, carry out preventive repairs and maintenance on the Plant without this being considered as loss of availability provided that such repairs or maintenance do not disturb the Owner’s activities in the Plant during such shut downs. The Supplier shall always have the right, but not be obliged, to carry out at his own cost adjustments, modifications and repairs for the purpose of improving Plant availability. The goods, materials and equipment held in store by the Owner, as spares shall be available to the Supplier during the Availability Guarantee period for his rectification work, subject to Sub-Clause 12.3.9. The payment of the liquidated damages for failure to meet the Availability Guarantee is due within (insert number) weeks upon receipt of a written statement of the Owner with a detailed compilation of the liquidated damages. The liquidated damages may, at the option of the Owner, and without prejudice to any other method of recovery, be deducted from payments otherwise due by the Owner to the Supplier at the Provisional Takeover or from any payments, which may become due thereafter. Cap on Liquidated Damages for failure to meet the Availability Guarantee The maximum liquidated damages for failure to meet the Availability Guarantee is limited to (insert number) of the Contractual Price at the Effective Date with escalation adjustment as stated in App. I to the Terms and Conditions using the ratio of escalation indices between the date of payment of the liquidated damages for failure to meet the Availability Guarantee and the Effective Date. Without prejudice to the other rights and remedies of the Owner under this Plant Contract, the payment by the Supplier of liquidated damages as aforesaid shall be the exclusive remedy for failure to meet the Availability Guarantee. For the avoidance of doubt, this shall not mean that the Supplier shall be relieved from proper rectification of defects or failures according to Sub-Clause 12.3 or Sub-Clause 15. Without prejudice to any rights of the Owner under this Plant Contract the maximum liquidated damages for delay, performance and Availability in the aggregate is limited to (insert number) of the Contractual Price.

The next major area of concern has to do with Intellectual Property rights, who owns them and the other needed details. 173

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CLAUSE 14 – INTELLECTUAL PROPERTY RIGHTS 1. The Supplier guarantees that the Plant design, engineering, manufacture, construction, structures, systems and equipment as well as the intended use of the Plant shall be free from any third-party Intellectual Property Rights. It is the Supplier’s responsibility to apply at his cost for licenses, manufacturing rights, etc., which may arise from the use of any third-party Intellectual Property Rights as provided for in the Plant Contract. 2. The Owner shall without delay notify the Supplier of any claims made or action brought against him or of such claims or actions which might possibly result in any failure of the Supplier to comply with the guarantee mentioned in Sub-Clause 14.1. The Supplier shall, after notice has been made by the Owner, conduct negotiations and litigation on behalf of the Owner, or, if this is not possible, to assist, at the Supplier’s own cost, the Owner in the negotiations and the litigation, and may, if possible and in agreement with the Owner, replace or modify the matter giving raise to the claims or the actions. 3. Neither Party shall without the written consent of the other Party make any admission, which might be prejudicial to the other Party. 4. The Supplier shall indemnify and hold harmless the Owner against all or any claim or action by any third party regarding Intellectual Property Rights as hereinbefore mentioned and against all damages or other sums, including costs which the Owner has been ordered to pay, or which the Owner may reasonably have to pay and, in respect of costs incurred by the Owner in relation thereto. 5. Without prejudice to the other rights and remedies under this Plant Contract, the Owner’s rights and remedies set forth in this Sub-Clause 14 shall be the Owner’s exclusive rights and remedies with respect to infringement of third party Intellectual Property Rights and shall be in place of any other of Owner’s rights and remedies whatsoever. The next five Clauses deal with when and how does “acceptance of the work take place and once that happens how the final contract price is determined, dealing with Price Revisions, and finally how payment will actually be made.

CLAUSE 15 – OWNER’S ACCEPTANCE AND FINAL TAKEOVER 1. The Final Takeover of the Plant including the acceptance of the Plant structures, systems and equipment within the Supplier’s Scope of Supply will be at the end of the Guarantee Period according to Sub-Clause 12.1.3 subject to the provisions below. 2. Before the expiry of the Guarantee Period according to Sub-Clause 12.1.3, a general inspection of the Plant shall be carried out by the Owner with the Supplier in order to ascertain whether all guaranteed conditions are met and whether all obligations of the Supplier under the Plant Contract are fulfilled. 174

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As part of this inspection and subject to Sub-Clause 13.4, the Owner may also demand final Acceptance Test to be carried out to verify the overall condition of the Plant structures, systems and components. If this inspection does not reveal any defects or failures and if the Plant meets all technical guarantees according to Sub-Clause 12.1, then the Plant is ready for the Final Takeover provided all other conditions for Final Takeover are met. All costs resulting from carrying out the general inspection including the Acceptance Tests are borne by the Owner, except the requested representation of the Supplier. 3. Should the inspection, including the Acceptance Tests, reveal defects or failures in the Plant or any part thereof, these defects and failures will be listed in the corresponding protocol and submitted to the Supplier and the Supplier shall correct all such defects and failures before the Final Takeover can be declared by the Owner by issuing the corresponding Final Takeover certificate. The Owner and the Supplier will agree on a mutually acceptable schedule to make good the defects and failures found. However the Supplier still remains liable to carry out at his cost any required remedial measures during the Extended Guarantee Periods for any defects or failures in components and systems listed in App. X to these Terms and Conditions. 4. The Final Takeover certificate shall be issued by the Owner once all the following conditions have been met: a) The Guarantee Period according to Sub-Clause 12.1.3 has been completed b) All the works necessary for the rectification of defects and failures pursuant to Sub-Clause 12.3 and Sub-Clause 15.3 have been completed by the Supplier c) All pending licensing issues with the Authorities for which the Supplier is responsible have been satisfactorily resolved by the Supplier d) All liquidated damages which may be due pursuant to this Plant Contract have been paid in full by the Supplier to the Owner e) The Supplier has delivered to the Owner a satisfactory waiver and release of liens in connection with the Plant and all liens against the Plant have been remitted therefrom, or the Supplier has provided such forms of security as may be acceptable to the Owner in lieu thereof f ) The final “as-built” version of the information and documentation required for safe and reliable operation and maintenance of the Plant has been provided by the Supplier g) The Supplier has removed equipment and non-radioactive waste from the Construction Site and paid for any amount to the extent reasonable, that may be due for the storage at Site and disposal thereafter of any radioactive waste generated by the Supplier pursuant to Sub-Clause 12.3.8. Once that, in the opinion of the Supplier, the above-mentioned conditions have been met, the Supplier may send notice to the Owner, applying for the Final Takeover certificate. 175

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Within (insert number) days after receipt of such notice, the Owner will either: a) notify the Supplier of any outstanding item or items that must be completed, furnished or corrected in order to satisfy the conditions of Final Takeover, or b) issue the Final Takeover certificate, stating the date on which the last of the above listed conditions for Final Takeover have been satisfied, which shall constitute the date of the Owner’s Final Acceptance of the Plant.

5. In case of minor defects or failures within the responsibility of the Supplier, the issue of the Final Takeover certificate shall not be postponed if the total number of such minor defects or failures is considered as acceptable by the Owner. Such minor defects and failures shall be corrected by the Supplier within (insert number) months from the Final Takeover date but, before proceeding with any proposed repairs or rectifications, the Supplier shall obtain the Owner’s approval to his proposals and the Owner’s consent to proceed. The issue of the Final Takeover certificate does not have any influence on the length of the guarantee periods as set forth in Clause 12. 6. If a second Acceptance Test is required, after repairs have been made by the Supplier, such additional Acceptance Tests to the extent required for the testing of the repaired components shall be at the cost of the Supplier, except for the costs of the representation of the Owner and the normal operating costs. 7. On request by the Owner and under terms and conditions to be agreed upon, the Supplier shall offer and provide services for operation and maintenance of the plant. CLAUSE 16 – CONTRACTUAL PRICE 1. The Contractual Price to be paid by the Owner to the Supplier shall be as indicated in App. I to the Terms and Conditions taking into account the Ceiling Price for Civil Works in accordance with App. I, part 1.3 to these Terms and Conditions. The Contractual Price shall be considered a lump sum. The Contractual Price shall be paid at the times and in the manner prescribed in Clause 18 of this Plant Contract. 2. The Contractual Price is inclusive of all costs for transportation to and on the Construction Site, freight, insurance, all social charges and fees, insurance premiums agreed to be paid by the Supplier, all direct taxes levied on the Supplier on the basis of income or property, and other expenses wherever these expenses and charges occur and, inclusive of the custom duties valid on the Effective Date, but exclusive of all indirect taxes levied by the authorities in (insert country). Taxes on insurance premiums are, however, considered to be part of the said premiums. 3. The Supplier shall make his best endeavours to take appropriate measures and precautions to avoid multiple taxation. 176

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4. The Supplier shall be deemed to have satisfied himself as to the correctness and sufficiency of the Contractual Price. Unless otherwise stated in the Plant Contract, the Contractual Price shall cover all his obligations under the Plant Contract and all things necessary for the proper design, engineering, supply of materials an equipment, construction, pre-operational testing, commissioning and completion of the plant and the remedying of any defects. CLAUSE 17 – PRICE REVISIONS FOR THE CONTRACTUAL PRICE 17.1.  Contractual Price Adjustment The Contractual Price will, starting from (insert date) be subject to price revision to reflect increases or decreases in labour and material costs in accordance with the methodology and formulas in App. I to the Terms and Conditions. 17.2.  Revision of the Contractual Price – Payment of the Price Revisions 1. Each single partial payment of the Contractual Price shall be revised by the method described in App. I to the Terms and Conditions. Payment of the price revision for each of these partial payments (i.e., the difference between the revised price part and the corresponding price part belonging to the base Contractual Price) shall be made by the Owner to the Supplier or vice versa when the relevant indices have been published and (insert number) days after receipt of the invoice. 2. Discontinuation of Indices In case of the discontinuation of indices to be applied for the revision of the Contractual Price, the Supplier and the Owner will choose a replacement index which as closely as possible reflects the same items as the original index. 17.3.  Other Price Adjustments 1. Adjustments to the Contractual Price, either reductions or increases, shall be made with respect to changes coming into effect after the Effective Date in duties, charges or assessments of any nature, or any new such duties, etc., levied by any governmental authority in (insert country) directly in connection with the obligations of the Supplier under this Plant Contract (see Sub-Clause 16.2). These adjustments shall, however, only be made if the effective costs and percentages included in the Contractual Price have been indicated separately in the Plant Contract. 2. Any price adjustments agreed pursuant to Sub-Clause 5.4 shall be deemed to be part of the Contractual Price. 3. In case of a delay of the Provisional Takeover attributable to the Supplier or due to Force Majeure any resulting escalation costs due to such delay will not be accepted by the owner. 4. The liquidated damages given in Arts. II, 12 and 13 shall be based on the revised contractual price. 177

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CLAUSE 18 – TERMS OF PAYMENT 1. During the course of execution of the Plant Contract, partial payments tied to the progress of the work are made to the Supplier, in accordance with the Payment Schedule given in App. II to the Terms and Conditions. Partial payments are due at the end of the periods indicated, however, a partial payment will be effective only when all key milestone events associated with such partial payment as defined in App. II to the Terms and Conditions, have in fact been satisfactorily carried out and approved by the Owner unless otherwise provided for in Sub-Clause 11.3.2. Thus, payments will be deferred until completion of all key milestone events to which they relate unless otherwise provided for in Sub-Clause 11.3.2. The Supplier shall against receipt of advance payment deliver to the Owner the Advance Payment Bond amounting to (insert number) % of the Contractual Price for the repayment the Supplier may be obliged to make. The Advance Payment Bond shall expire at the date of receipt of the construction license provided that the performance of Works by the Supplier corresponds to the advance payments made. (insert number) weeks prior to any potential expiry date of the Advance Payment Bond the Supplier shall, at the request of the Owner, have the Advance Payment Bond extended if the above conditions for the expiry of the Advance Payment Bond have not been met prior to (insert number) weeks prior to the expiry date, confirm the extension in writing to the Owner and deliver the extended Advance Payment Bond to the Owner. 2. Contract Performance Bond The Supplier shall deliver to the Owner by the date (insert number) days after the Effective Date a Contract Performance Bond amounting to (insert number) % of the Contractual Price in the form specified in App. IV to the Terms and Conditions. The Contract Performance Bond shall be provided by an entity approved by the Owner. The Contract Performance Bond shall be valid until the Provisional Takeover has occurred. (insert number) weeks prior to any potential expiry date of the Contract Performance Bond the Supplier shall, at the request of the Owner, have the Contract Performance Bond extended if the conditions for Provisional Takeover have not been met prior to (insert number) weeks prior to the expiry date, confirm the extension in writing to the Owner and deliver the extended Contract Performance Bond to the Owner. The Contract Performance Bond shall be returned to the Supplier, upon delivery to the Owner of the Guarantee Period Bond established in Sub-Clause 18.6. 3. Liquidated damages are due within (insert number) weeks after receipt by the Supplier of a written statement from the Owner giving a detailed calculation of the liquidated damages. The Owner is entitled to deduct liquidated damages of any kind from partial payments. 4. The Supplier shall submit to the Owner at the end of each calendar year a list of the registered payments according to the agreed Schedule of Payments. At the Final Takeover, the Supplier shall submit a final list of all payments. 5. The payments shall be made in (insert currency) as specified in Sub-Clause 19.3 and 19.4. 178

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6. Guarantee Period Bond and Extended Guarantee Period Bond (insert number) days before the Owner’s payment at the Provisional Takeover, the Supplier shall provide a Guaranteed Period Bond amounting to (insert number) % of the Contractual Price to cover the Supplier’s obligations during the Guarantee Period. The Guarantee Period Bond shall be provided by an entity approved by the Owner and issued on the basis of the terms and conditions detailed in App. V to the Terms and Conditions. (insert number) prior to any potential expiry date of the Guarantee Period Bond the Supplier shall, at the request of the Owner, have the Guarantee Period Bond extended if the conditions for Final Takeover have not been met (insert number) weeks prior to the expiry date of such Bond, confirm the extension in writing to the Owner and deliver the extended Guarantee Period Bond to the Owner. The Guarantee Period Bond shall be returned by the Owner to the Supplier when all the outstanding issues and conditions relating to the Guarantee Period have been fulfilled. Upon return by the Owner of the Guarantee Period Bond, the Supplier shall provide an Extended Guarantee Period Bond amounting to (insert number) % of the escalated value of the components and systems being subject to a (insert number) years Extended Guarantee Period according to App. X (value calculated on the price basis of (insert number) at Effective Date as escalated pursuant to App. I up to the date of issue) to cover the Supplier’s obligations during the remaining years of the first (insert number) years of the Extended Guarantee Period and upon expiry of the said (insert number) years period the Extended Guarantee Period Bond shall be of an amount of (insert number) % of the escalated value of the components and systems being subject to an (insert number) years Extended Guarantee Period according to App. X (value calculated on the price basis of (insert number) at Effective Date as escalated pursuant to App. I up to the date of issue) which shall be valid until the expiry of the Extended Guarantee Periods. The Extended Guarantee Period Bond shall be provided by an entity approved by the Owner. The Extended Guarantee Period Bond shall be returned by the Owner to the Supplier when all the outstanding issues and conditions relating to the Extended Guarantee Periods have been fulfilled. 7. In case the Supplier has to pay any indirect tax (or public charge) levied in (insert country), which according to the Plant Contract shall be borne by the Owner, the Supplier has the right to invoice the Owner for the paid tax or charge immediately, upon receipt of invoice. 8. If a payment, payable under the provisions of the Plant Contract, has not been effected at the due date for reasons within the control of the Supplier, the Supplier has the right to charge the Owner interest according to the law on interest payments. 9. If the Owner should fail to make a payment payable under the provisions of the Plant Contract, related to the payment schedule or to price revisions, as provided in Clause 19 and such delay continues for more than (insert number) months, then the Supplier may, without prejudice to any other remedy, after giving the Owner (insert number) days’ notice in writing of his intention to do so, stop the work or any part thereof until the said payment has been made. The consequences of such delay shall be dealt with according to Sub-Clause 11.3.2.5. 179

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10. In case of a dispute regarding a particular payment, this payment will be put by the Owner in a bank in (insert country) in a blocked account, so that the money will not be available to either of the Parties until the dispute is resolved. The Supplier will in such a case not have the right to stop the work. The money in the account shall be paid to the Supplier if so directed by the Owner or in accordance with an agreement between the Owner and the Supplier or in accordance with an arbitration award. If it is determined by agreement between the Owner and the Supplier or by arbitration that all or part of the said money is not payable then the Owner shall be able to withdraw the relevant money from the said bank. 11. In case the Owner has made a payment to a blocked bank account due to a dispute, then the interest accrued on the account shall be paid: to the Owner, if the Owner, by placing the payment in the blocked account, is found to be in delay with the payment and consequently is obliged to pay interest in accordance with Sub-Clause 18.8, or to the Owner for the time the Owner was not found to be in delay with the payment, which was deposited in the blocked account, or to the Supplier if it is found that the corresponding key event has not been satisfactorily fulfilled and the supplier is obliged to pay interest in accordance with Sub-Clause 19.5 during the time the payment was in the blocked account. CLAUSE 19 – EXECUTION OF PAYMENTS 1. When the key milestone events relating to the partial payments as per App. II to the Terms and Conditions have been satisfactorily carried out, the Supplier shall submit to the Owner an invoice for the corresponding amount. The last invoice shall contain the final payment statement. Earliest possible date for submitting an invoice is specified in App. II to the Terms and Conditions after each payment milestone, which means that the payments shall be triggered either on the basis of the respective key milestone events related to the payment milestones or the date specified, whichever is later. 2. Price revisions due to the escalation formulas shall be subject to separate invoices. The Supplier shall prepare and submit such invoices as soon as the respective indices up to and including the month of invoicing have been published. These invoices shall be based on the relevant data on the price revision formulas or indices and information on the partial payment concerned. 3. Subject to Sub-Clause 19.1, payments shall be made within (insert number) days from the receipt of the respective invoice and no banking fees or charges by the Owner’s bank shall be deducted from the payments. Payments are payable in (insert country) in (insert currency) to a bank account to be specified in the invoice. 4. Subject to Sub-Clause 19.2 payments related to the price revisions of the Contractual Price shall be made (insert number) days after receipt of the respective invoice and no banking fees or charges by the Owner’s bank shall be deducted from the payments. Price revision payments are payable in (insert country) in (insert currency) to a bank account to be specified in the invoice. 180

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5. In case the Owner has made a payment and it is found that the corresponding key milestone events have not been satisfactorily fulfilled at the date of receipt of the payment, the Supplier shall pay the Owner interest according to the law on interest payments for the period from the date that the payment was received until the relevant key events have been satisfactorily carried out. 6. Deductions Where any amount is to be paid to or reimbursed to the Owner by the Supplier under the provisions of the Plant Contract or any amount incurred by the Owner is for the account of the Supplier, including any sums to be paid by way of liquidated damages, the Owner may, without prejudice to its other remedies, deduct the amount from any payment due to the Supplier. Where the amount has not been ascertained, the Owner may, pending ascertainment, deduct an amount reasonably estimated by the Owner in that regard and upon ascertainment the payment shall be adjusted accordingly. 7. Cap on Indices The Parties agree that any yearly increase in indices used for calculating the price revision of each single part payment shall not exceed (insert number) %. For the avoidance of doubt, the said (insert number) % cap shall, during each (insert number) month period, starting from (insert date), be calculated on the basis of the closing value of the relevant index at the end of the previous (insert number) month period, or a value deriving from the cap at the end of the previous (insert number) month period, whichever is lower. The next critical area in any construction contract has to do with unforeseen situations, riots, uprisings, and things of that sort, collectively referred to as Force Majeure and more importantly how to deal with it effectively. Properly worded clauses such as this should make the distinction between Force Majeure and any event or circumstance outside the control of the Parties (including, but not limited to Force Majeure). force majeure means anything outside the control of the contractor and is not limited to only acts of God. Indeed, the concept has had less than distinct borders over the years and some cases have suggested that the events which constitute force majeure should be set out in the clause itself and that phrases such as “usual force majeure clauses apply” are unenforceable as not being specific enough. The term “force majeure” is, thus, either defined precisely, or the contract states what is to happen if an event of force majeure occurs. In some contracts, for example, force majeure is defined to mean certain specified events such as war, terrorism and nuclear and/or chemical contamination. Indeed, some contracts specify what must happen if there is a force majeure event. Generally, such clauses allocate the risk if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled. To determine whether this has been the case one must first determine whether the unanticipated event is defined in the contract as a force majeure event. Then, a review should be made of what evidence exists as to whether the unanticipated event was beyond the reasonable control of the party seeking the force majeure protection. Once this is done successfully, a determination must be made as to whether 181

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the contract can still be performed and a determination as to whether the contract included procedures for delay or other damages and if these were adhered to or not. It should be noted that most force majeure clauses set out the type of unforeseeable events that might excuse performance. Thus, the party relying on the force majeure clause bears the responsibility of showing that the event was: (1) beyond the party’s control; and (2) not a consequence of its own fault or negligence. A force majeure clause is not intended to insure against “normal risks” of a contract – bad weather, for example, or a change in market conditions. CLAUSE 20 – FORCE MAJEURE 1. Neither the Owner nor the Supplier nor (insert company name) shall be liable for failure to meet contractual obligations under the Plant Contract or the Fuel Contract due to Force Majeure. 2. Force Majeure is taken to mean unforeseeable events which occur after the Effective Date and are outside the control of the Parties or against which the Parties could not have reasonably made provision. In this Clause, “Force Majeure” means an exceptional event or circumstance: (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party. Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied: (i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (ii)  rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractor and Subcontractors, (iv)  munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radioactivity, and (v)  natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity. and insofar as such an event prevents or delays either Party from fulfilling any of his obligations under the Plant Contract or the Fuel Contract. For the avoidance of doubt, any licensability problems for which the Owner is not 182

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3. 4.

5.

6.

responsible resulting in a delay of the handling of any nuclear license or permit at the (insert governing body) or in any refusal of such license or permit and thus preventing or delaying either Party from fulfilling any of his obligations under the Plant Contract or the Works to proceed according to the Main Time Schedule shall not entitle the Supplier to claim Force Majeure. Any delay occurring in the deliveries of Subcontractors shall be regarded as Force Majeure only if it has been caused by events as defined in Sub-Clause 20.2 above. The Party involved in a case of Force Majeure shall take reasonable steps to limit or minimize the consequences of such an event and shall present a detailed plan to the other Party in respect thereof. The Supplier and the Owner respectively shall endeavour to continue to perform his obligations as far as reasonably practicable. The Parties shall make their best efforts despite the Force Majeure event to complete the Plant Contract according to the time schedule. Such efforts may involve rescheduling or acceleration of works or other steps to expedite progress in order to achieve the Provisional Takeover according to the Main Time Schedule. Upon request of the Owner the Supplier shall make a proposal including measures to mitigate the effects of Force Majeure including the additional costs in relation thereto to the Supplier and the Owner. In connection therewith the Supplier and the Owner shall cooperate to prevent delays and minimize additional costs or any other consequences. The Party who wishes to plead Force Majeure is under obligation to inform the other Party without delay but in no case later than (insert number) days after knowing of the event, of the time it began and its probable duration and produce evidence to that effect. The moment of cessation of the event shall also be reported. The party who has pleaded Force Majeure is under obligation to demonstrate in detail its effect on the fulfilling of the plant contract.

The next clause deals with when and how there can be a rejection of plant and how and when the termination of plant contract can take place. CLAUSE 21 – REJECTION OF PLANT AND TERMINATION OF PLANT CONTRACT 21.1.  Rejection of Plant 1. If due to circumstances within the responsibility of the Supplier, before the end of The Guarantee Period (Sub-Clause 12.1.3), if applicable: a) the Provisional Takeover has not taken place within (insert number) years after the date stipulated in Sub-Clause 11.2.1 or b) the measured net rated output value, taking the overall tolerance of (insert number) % into account in spite of rectifications in accordance with SubClause 12.2.4 and subject to the provisions of Sub-Clause 12.2.3.10, is less than (insert number) % of the guaranteed Net Rated Output, or 183

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c) the measured mean heat rate value, taking the overall tolerance of (insert number) % into account, in spite of rectifications in accordance with Sub-Clause 12.2.4 and subject to the provisions of Sub-Clause 12.2.3.10, exceeds the guaranteed Mean Heat Rate by more than (insert number) % or d) the Plant cannot be licensed for reasons due to the Supplier’s noncompliance with the applicable (insert country) licensing and regulatory requirements of the Authorities for which the Supplier is responsible under Clause 8, or e) the Plant suffers from such severe defects or failures that further operation of the Plant is rendered unsafe or unreasonable, then the Owner may reject the Plant by giving a written notice thereof to the Supplier, which shall have the consequences set forth in Sub-Clause 21.1.2. to 21.1.4. 2. In the first instance, the Owner and the Supplier shall try to find a mutually acceptable solution to be agreed upon. If this is not possible, the following shall apply: i.

The Supplier is obliged and entitled at his own cost and responsibility to continue his work, or to make repair or to make replacement of structures, systems and components and to take other measures in order that the Plant will comply with the requirements of the Plant Contract. The Supplier shall consult the Owner regarding what measures are appropriate to take. The Supplier shall compensate the Owner for the following costs of the Plant which arise from the date of rejection and until the rejection is terminated pursuant to Sub-Clause 21.1.2(vi) or until the termination of the Plant Contract according to Sub-Clause 21.l.3, whichever is applicable: operating costs, fuel costs being the net cost for the Owner based upon the MWh delivered to the grid, insurance costs, maintenance costs, interest at seven and a (insert number) % per annum on the capital invested by the Owner in the Plant (straight-line depreciation costs calculated on the basis of (insert number) years). The Supplier shall be entitled to have examined the books and records of the Owner by an independent auditor acceptable to the Owner to verify the costs of the Owner due hereunder. ii. The Owner may not, during the time when the Plant is rejected, without the consent of the Supplier, engage any third party to complete the Plant, or to carry out repair work in the Plant. iii. If the Plant was rejected for any reason other than a delay of the Provisional Takeover, then the risk for loss or damage shall remain with the Owner and the Owner shall maintain in force the insurances required by SubClause 7.3.1 and Sub-Clause 7.3.2. iv. When the Supplier, in his own Opinion, has successfully completed his work, the Plant shall if the Plant was rejected for delay in the Provisional Takeover undergo the relevant tests stated in Sub-Clause 10.2 and 10.3, and when it has been demonstrated that the conditions for the successful completion of the Demonstration Run have been fulfilled, the Provisional Takeover shall take place according to the Plant Contract. If the Plant 184

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was rejected for any of the other reasons as specified in Sub-Clause 21.1.1 above, a new Guarantee Test of the rejected Plant shall take place according to the Plant Contract. The rejection is automatically terminated upon the Provisional Takeover, or successful completion of the new Guarantee Test, as the case may be. Liquidated damages according to Sub-Clause 12.2.4 will be recalculated on the basis of the results of the Guarantee Test or new Guarantee Test, as the case may be. Any period during the rejection during which the Plant is operated for purposes other than testing purposes shall reduce the Guarantee Period according to Sub-Clause 12.1.3 and the Extended Guarantee Periods according to SubClause 12.1.6. 3. If the rejection has not been terminated pursuant to Sub-Clause 21.1.2(vi), or by agreement between the Parties, within (insert number) months from the date of rejection, then: a) if the rejected Plant can, under reasonable conditions, be operated with the necessary licenses and produce power which can be used, the Owner shall be entitled to a fair and reasonable price reduction corresponding to the reduced value of the Plant, and any repayment by the Supplier to the Owner shall be made by instalments during a period of (insert number) months after the price reduction has been finally determined; or b) if the rejected Plant cannot, under reasonable conditions, be operated with the necessary licenses and produce power which can be used, the Owner shall have the right to terminate the Plant Contract immediately upon written notice to the Supplier. The Owner will not, however. terminate the Plant Contract if it is likely that an on-going measure will be successful within a reasonable time limit. 4. In the event of a termination pursuant to Sub-Clause 21.1.3 the provisions of Sub-Clause 21.2.1. shall apply. 21.2.  Termination of Plant Contract 1. Termination by Owner If the Supplier, before the Provisional Takeover i. becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, or carries on business under a receiver, trustee or manager for the benefit of his creditors, if the Supplier suspends his payments to its creditors due to lack of liquidity or if any act is done or event occurs which has a similar effect to any of these acts or events, or ii. abandons or repudiates the Plant Contract, or iii. assigns the Plant Contract in its full content or in part to a third party or subcontracts the whole or substantially the whole of the Works without the Owner’s consent as described under Sub-Clause 5.2.1, or iv. without prejudice to Sub-Clause 21.1.1, which should prevail, fails to carry out any of his other material obligations in accordance with the Plant 185

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Contract and fails to commence remedying the non-compliance within (insert number) days of the Owner’s written notice to comply with the Plant Contract and subsequently fails to remedy the non-compliance within a reasonable time, or if the Owner is entitled to terminate the Plant Contract pursuant to Sub-Clause 21.1.3, then the Owner may have, without prejudice to any other rights or remedies the Owner may have under the Plant Contract including for the avoidance of doubt the Advance Payment Bond, the Contract Performance Bond and the Guarantee Period Performance Bond, but excluding any rights or remedies by law, immediately by written notice thereof to the Supplier exercise all or any of the following remedies: a) Suspend payment in whole or in part under the Plant Contract. b) Terminate the future performance of the Plant Contract, in which event the Owner has the right to, against reasonable compensation to the Supplier, take over such of the Supplier’s equipment, tools, materials and systems on the Construction Site as the Owner deems necessary to complete the Plant. The Owner may in such a case, at the cost of the Supplier, complete the Plant either himself, or by engaging another supplier. Any payment made by the Owner under the Plant Contract with respect to the Plant and not already repaid to the Owner by the Supplier shall be refunded to the Owner, less an amount corresponding to the value to the Owner of such parts of the Plant which the Owner can use and which the Owner shall have right to retain. The components parts/items of the Plant constructed, erected and/or installed at the Construction Site, and/or which are contaminated, shall be kept by the Owner, and all other items delivered to the Construction Site and not taken over by the Owner shall be removed by the Supplier without delay. All such other items shall become the property of the Supplier. The Supplier shall also reimburse the Owner for the Owner’s reasonable costs for storage and disposal of contaminated parts. The Supplier shall be entitled to pay the reimbursement as a one-time payment based upon an agreed estimate of such costs. The amounts to be refunded to the Owner shall be paid in instalments during a period of (insert number) months. The Owner will be responsible for proper handling and maintenance of the items to be returned to the Supplier until the said items have been removed from the Construction Site by the Supplier as required hereto. c) The Supplier shall additionally pay to the Owner the actual and evidenced Direct Costs incurred by the Owner in relation to the event or breach giving rise to the termination under the Plant Contract up to the date of termination; provided, however, that such Direct Costs have not been compensated under Sub-Clause 11.3.2.3 or Sub-Clause 21.2.1. b) and provided further that those Direct Costs shall not exceed the maximum liability of the Supplier under Sub-Clause 6.5 except in case of intent or gross negligence as provided for in Sub-Clause 6.4.4. 2. Termination by Supplier If the Owner is late by more than (insert number) months in making to the Supplier a payment which is due according to the provisions of the Plant 186

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Contract and the said payment is in excess of (insert number) and the Supplier has given the Owner (insert number) days notice in writing of his intention to do so, or if the Owner becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, or carries on business under a receiver, trustee or manager for the benefit of his creditors or if the Owner suspends his payments or if any act is done or event occurs which has a similar effect to any of these acts or events, then the Supplier may, without prejudice to any other rights or remedies the Supplier may have under the Plant Contract, but excluding any rights or remedies by law, immediately terminate the Plant Contract in whole or in part by written notice thereof to the Owner. In the event of such termination the actual Direct Costs incurred by the Supplier in relation to the event or breach giving rise to the termination under the Plant Contract prior to such termination, together with such reasonable Direct Costs, as are incurred by the Supplier in giving effect to the termination, less the amount of any sums already paid to the Supplier for the performance of the terminated part of the Plant Contract shall be due and payable to the supplier. 3. Termination as a Consequence of Force Majeure If: a. the Provisional Takeover is delayed with more than (insert number) months, or b. it is obvious that the Provisional Takeover will be delayed with more than (insert number) months, and the delay is caused by Force Majeure, then the following shall apply: Each Party shall have the right to terminate immediately the future performance of the Plant Contract, by giving written notice thereof to the other Party. If the Plant Contract is so terminated, the Owner shall have the right, to take over such equipment, tools, materials and systems of the Supplier, which are on the Construction Site against compensation to the Supplier. Such compensation shall be on the basis of the reasonable value of such equipment, tools, materials and systems, which the Owner shall determine in consultation with the Supplier. Owner shall thereafter have the right to complete the Plant by whatever method the Owner may deem expedient. The Owner shall additionally pay to the Supplier the actual and evidenced Direct Costs incurred by the Supplier in relation to the event giving rise to the termination in the performance of the Plant Contract up to the date of termination provided that such Direct Costs have not been compensated under Sub-Clause 11.3.2.1, together with such reasonable Direct Costs, as are incurred by the Supplier in giving effect to the termination, less the amount of any sums already paid to the Supplier by the Owner, for such performance of the Plant Contract. For the avoidance of doubt any Direct Costs which are not to be compensated under Sub-Clause 11.3.2.1 shall not be compensated under this Sub-Clause 21.2.3. 187

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4. Termination by Owner for Convenience The Owner shall be entitled to terminate the Plant Contract at any time for the Owner’s convenience by giving notice of such termination to the Supplier. The termination shall take effect within (insert number)) months and the Owner shall immediately return all outstanding bonds. The Owner shall not terminate the Plant Contract under this provision in order to execute the Works himself or to arrange for the Works to be executed by another contractor. After this termination, the Supplier shall cease all further work, hand over materials, equipment, systems etc parts of the Plant for which the Supplier has received payment and remove all other materials, equipment, systems etc. from the Construction Site except as necessary for safety. The Owner shall in such case pay to the Supplier the actual and evidenced Direct Costs incurred by the Supplier in the performance of the Plant Contract together with such reasonable Direct Costs, as are incurred by the Supplier in giving effect to the termination, less the amount of any sums already paid to the Supplier by the Owner, for such performance of the Plant Contract. 5. Use of Supplier’s Equipment in Case of Termination In any case of termination under this Sub-Clause 21.2 the ownership to the equipment, materials, etc. shall be retained by the Owner; provided, however, that the Owner has paid to the Supplier any and all amounts due to the Supplier under this Sub-Clause 21.2, and the Supplier shall thereafter have no risk, responsibility or liability whatsoever in relation to the Owner, for any work performed, or any equipment, material, etc., supplied or taken over, or any completion of the Plant. The following clauses deal with the law applicable, and jurisdiction, and dispute resolution. All very important provisions and especially those dealing with how disputes are to be resolved and the entire process.

CLAUSE 22 – APPLICABLE LAW The Plant Contract shall be governed by and construed in accordance with (insert country) law. CLAUSE 23 – JURISDICTION, AND DISPUTE RESOLUTION 23.1.  Negotiation of Disputes arising under this Plant Contract 1. Should a dispute arise in connection with this Plant Contract, it shall be settled, if possible, by amicable negotiation of the Parties. If the matter is not resolved by negotiations, any Party may by the giving of written notice, cause the matter to be referred to a meeting of appropriate higher management of the Parties. Such meeting shall be held within (insert number) days following the giving of the written notice requesting such a meeting. 188

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2. If the matter is not resolved by negotiation within (insert number) days after the date of the notice referring the matter to appropriate higher management, or such later date as may be unanimously agreed upon, then the dispute shall be referred to a Dispute Adjudication Board as per Sub-Clause 23.2. Each Party shall have the right by giving notice to the other Party to refer a dispute or controversy to the Dispute Adjudication Board at any time. The notice shall identify the points of dispute. 23.2.  Referral to a Dispute Adjudication Board (DAB) 1. Disputes shall be adjudicated by a DAB in accordance with the provisions set forth hereinbelow [Obtaining Dispute Adjudication Board’s Decision]. The Parties shall jointly appoint a standing DAB within 30-days of the execution of the Contract. 2. The DAB shall comprise three suitably qualified persons (‘the members’). 3. Each Party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon the third member, who shall be appointed to act as chairperson. 4. However, if a list of potential members is included in the Contract, the members shall be selected from those on the list, other than anyone who is unable or unwilling to accept appointment to the DAB. 5. The agreement between the Parties and each of the three members shall incorporate by reference any General Conditions of Dispute Adjudication Agreement agreed by a majority of the selected DAB members. 6. The terms of the remuneration of each of the three members, including the remuneration of any expert whom the DAB consults, each of the parties to this Contract shall be responsible for paying one-half of this remuneration. 7. If at any time the Parties so agree, they may jointly refer a matter to the DAB for it to give its opinion. Neither Party shall consult the DAB on any matter without the agreement of the other Party. 8. If at any time the Parties so agree, they may appoint a suitably qualified person or persons to replace (or to be available to replace) any one or more members of the DAB. Unless the Parties agree otherwise, the appointment will come into effect if a member declines to act or is unable to act as a result of death, disability, resignation or termination of appointment. 9. If any of these circumstances occurs and no such replacement is available, a replacement shall be appointed in the same manner as the replaced person was required to have been nominated or agreed upon, as described in this Sub-Clause. 10. The appointment of any member may be terminated by mutual agreement of both Parties, but not by the Employer or the Contractor acting alone. Unless otherwise agreed by both Parties, the appointment of the DAB (including each member) shall expire when the Contract termination shall have become effective. 11. If any of the following conditions apply, namely: a. the Parties fail to agree upon the appointment of the DAB by the date stated above; b. either Party fails to nominate a member (for approval by the other Party) of a DAB of three persons by such date, 189

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12. 13. 14. 15.

16.

17.

18.

19.

20.

c. the Parties fail to agree upon the appointment of the third member (to act as chairperson) of the DAB by such date, or d. the Parties fail to agree upon the appointment of a replacement person within 42 days after the date on which the sole member or one of the three members declines to act or is unable to act as a result of death, disability, resignation or termination of appointment, then the appointing entity, which for purposes of this Contract shall be the Dispute Board Federation (Geneva) shall, upon the request of either or both of the Parties and after due consultation with both Parties, appoint this member of the DAB. This appointment shall be final and conclusive. Each Party shall be responsible for paying one-half of the remuneration of the appointing entity or official. If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, The DAB shall be deemed to have received such reference on the date when it is received by the chairman of the DAB. Both Parties shall promptly make available to the DAB all such additional information, further access to the Site, and appropriate facilities, as the DAB may require for the purposes of making a decision on such dispute. The DAB shall be deemed to be not acting as arbitrator(s). Within 84 days after receiving such reference, or within such other period as may be proposed by the DAB, the DAB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the DAB’s decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the DAB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference, then either Party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction. In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. Neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. If the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB’s decision, then the decision shall become final and binding upon both Parties. Any dispute in respect of which the DAB’s decision (if any) has not become final and binding shall be finally settled by international arbitration. Unless otherwise agreed by both Parties: 190

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21.

22.

23. 24.

25.

26. 27.

28.

a. the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce, b. the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and c. the arbitration shall be conducted in the language following language (set out language). The arbitrator(s) shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of the Engineer, and any decision of the DAB, relevant to the dispute. Nothing shall disqualify the Engineer from being called as a witness and giving evidence before the arbitrator(s) on any matter whatsoever relevant to the dispute. Neither Party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision or to the reasons for dissatisfaction given in its notice of dissatisfaction. Any decision of the DAB shall be admissible in evidence in the arbitration. Arbitration may be commenced prior to or after completion of the Works. The obligations of the Parties, and the DAB shall not be altered by reason of any arbitration being conducted during the progress of the Works. In the event that: a. neither Party has given notice of dissatisfaction within the period stated in Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision], b. the DAB’s related decision (if any) has become final and binding, and c. a Party fails to comply with this decision, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under this Sub-Clause. If a dispute arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works and there is no DAB in place, whether by reason of the expiry of the DAB’s appointment or otherwise then any dispute may be referred directly to arbitration as set out above. The DAB appointment(s) may be terminated only by mutual agreement of the Parties. If, at any time, the Parties jointly agree, they may appoint a suitable qualified person to replace any DAB member. The appointment will come into effect if the DAB member declines to act or is unable to act as a result of death, disability, resignation or termination of appointment. Unless the Plant Contract has already been repudiated or terminated and except where the Plant Contract provides for otherwise, the Parties shall, in every case, continue to proceed with the Works with all due diligence and the Parties shall give effect forthwith to every decision of the DAB, unless and until an arbitral award is issued.

23.3.  Arbitration 1. In the event the Parties are unable to resolve any dispute: a) by amicable negotiation, pursuant to Sub-Clause 23.1 or 191

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b) by referral to the Dispute Adjudication Expert, pursuant to Sub-Clause 23.2, such dispute shall be finally settled under the Rules of Arbitration of the Inter­national Chamber of Commerce by three arbitrators appointed in accordance with the said Rules of Arbitration. The arbitrators shall also settle who shall bear the costs of the proceedings, including the legal costs of the Parties. 2. The arbitration proceedings shall take place in (insert country), unless otherwise agreed and be conducted in the English language, unless otherwise agreed. 3. The Owner and the Supplier shall both give effect forthwith to every decision and shall comply with the award. 23.4.  Works to Continue Performance of the Plant Contract shall continue with due diligence during negotia­tions for amicable settlement of dispute and during any reference to the Dispute Adju­dication Expert or to arbitration procedure under this Clause 23 or during any proceedings under the courts of law, provided that performance of that part of the Works in dispute shall only continue if, and in the manner, the Owner so directs. No payment due or payable by the Owner shall be withheld on account of pending reference to arbitration or courts or other dispute resolution mechanism, except to the extent that the amount of such payment is the subject of such dispute. The final provisions of the Contract deal with miscellaneous details and items that pull the final part of the contract together.

CLAUSE 24 – MISCELLANEOUS CONDITIONS 24.1.  Representation 1. Owner’s Representation The Owner shall, if not otherwise stipulated in the Plant Contract, by notice in writing to the Supplier designate any persons of its choice to represent him, or to deal with the Supplier on questions concerning the execution of the Plant Contract (Owner’s Representatives). The Supplier shall not refuse to communicate or to deal with these persons. Towards the Supplier, the Owner is responsible for and bound by the acts and omissions of these persons as if the Owner were their employer with the exception for Plant Contract amendments which always shall be dealt with in accordance with Sub-Clause 5.4. In particular, these persons are obliged to protect confidential and proprietary information. These persons are placed under the authority of a qualified representative of the Owner 2. Supplier’s Representation The Supplier shall designate a qualified person and a deputy to him to represent the Supplier to deal with the Owner or the Owner’s Representative(s), regarding all questions relating to the carrying out of the Plant Contract and including, but not limited to, matters related 192

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to design, manufacturing in workshops and factories and construction, erection and fabrication at the Construction Site. During the period of the Plant Contract when the work is being performed at the Construction Site, a designated representative of the Supplier shall be resident and available at the Construction Site. In particular, these persons are obliged to protect confidential and proprietary information. 3. The Supplier shall, during the period of validity of the Plant Contract, have a person or organization in (insert country) assuming responsibility for the supervision of the Supplier’s (insert country) sub-supplies and with whom decisions and agreements can be made regarding the fulfilment of the sub-supplies. 24.2.  Notices and Addresses 1. Any notice or other communication given or made under or in connection with the matters contemplated by the Plant Contract shall be made in writing. 2. Unless otherwise agreed by the Parties communications between the Parties with respect to the Plant Contract are to be made in writing by verifiable means including but not limited to registered post and facsimile to the following addresses: (insert addresses) 3. The other Party has to be informed in writing in case one of these addresses changes in the course of the Plant Contract. Such notification shall only be effective on: a) the date specified in the notification as the date on which the change is to take place b) if the date is specified or the date specified is less than (insert number) Business Days after the date on which notice is given, or the date following (insert number) Business Days after notice of such change has been given. 24.3.  Shipment and Transportation Any supplies within the Supplier’s Scope of Supply are to be forwarded to the address of the Supplier’s construction management on the Construction Site, or to any other address of the Supplier. The offices of the Owner on the Site are not allowed to receive or accept any goods or components, which are within the Supplier’s Scope of Supply. 24.4.  Modifications and Communications 1. No waiver, alteration or modification of any of the provisions of the Plant Contract shall be binding, unless agreed by the Parties in writing and signed by the duly authorized representatives of the Parties. 2. Any communication between the Owners and the Suppliers is only to be regarded as part of the Implementation of the Plant Contract if made in writing. 24.5.  Local Conditions and Data 1. The Supplier confirms that he is acquainted with the general conditions at the Construction Site, or otherwise is responsible for obtaining all information, 193

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that to the best knowledge of the Supplier is necessary for his fulfilment of the Plant Contract, including the possibilities for access to the Construction Site, the facilities or lack thereof for delivery, handling and storing of goods and materials on the Construction Site, as well as with labour conditions, including any national or local agreements applicable to labour. The Owner shall be responsible for soil and rock conditions as provided for in Sub-Clause 24.5.3 below. 2. The Supplier confirms having received from the Owner all data and details regarding Construction Site conditions, which the Supplier requires from the Owner for the satisfactory carrying out of the Plant Contract, with the exceptions agreed upon in writing. If, during the course of the performance of the Plant Contract, the Supplier requires further information, which only the Owner can supply or obtain, then the Owner will, on request, use all reasonable endeavours to supply such information. In such a case, the Supplier shall inform the Owner without undue delay and, if possible, sufficiently early about the need of such information. All other information has to be provided by the Supplier himself unless otherwise agreed upon. 3. The Owner is responsible for the accuracy and adequacy of the soil and rock data according to applicable (insert country) regulations and standards and of the investigations regarding geological, meteorological and hydrological conditions on the Construction Site or environment of the Construction Site, as well as of other information that have been, or will be submitted to the Supplier. In addition the Owner is responsible for that the soil and rock conditions after finishing of the excavation work by the Owner are fulfilling the requirements of the (insert country) regulations and standards. If the soil and rock conditions do not fulfil the said requirements the Parties shall meet and discuss means to resolve the matter. In case it is agreed that the Supplier shall perform any additional work he shall be compensated for his Direct Costs in relation thereto and be granted any extension to the Main Time Schedule and/or Overall Time Schedule or any other time schedules as proven necessary. The Supplier acknowledges and represents that nevertheless, for the purpose of the Plant Contract, the Supplier has to verify himself on the usefulness of the information received from the Owner and the Supplier shall in his design take into account the aforesaid (insert country) regulations and standards. The Supplier shall furthermore confirm in writing to the Owner the conformity of the design with the (insert country) regulations and standards. For the avoidance of doubt, any damage originating from the soil or rock due to construction works, vibration or loads initiated by the Works shall be at the Supplier’s responsibility. 24.6.  Construction Site Rules 1. The Supplier shall for the Owner’s approval provide and maintain common rules, which shall be followed by all legal entities and physical persons at the Construction Site. These rules shall cover inter alia the handling of material, general occupational safety, first aid, fire protection, personnel discipline, guarding, fencing etc. The Supplier shall ensure that his personnel and the 194

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personnel of his Subcontractors observe the common Construction Site rules. The Owner may deny access to any person who fails to observe the Construction Site rules. 2. All persons and vehicles coming to the Construction Site shall have an access card, which is issued by the Supplier based on the Owner’s safety and security criteria. All persons (and/or vehicles) carrying a valid access card are authorised to work on and visit the Construction Site. The Supplier shall be responsible for keeping unauthorised persons off the Construction Site and the Owner shall be responsible for keeping unauthorised persons off the Site. The access to the Existing Nuclear Power Plant is supervised by the Owner. 3. The Supplier shall by written notice inform the Owner of any special hazards which may be caused by the Works. The Supplier shall keep diary regarding circumstances, which are of importance to the Work at the Construction Site. The Supplier shall regularly submit the diary to the Owner’s Representative for attestation. 4. The Supplier shall conduct all activities at the Construction Site with due consideration to the potential restrictions that the Existing Nuclear Power Plant at the Construction Site may impose on the Plant to be constructed. In particular, his activities shall not jeopardise the safety and operation of the Existing Nuclear Power Plant. In this respect, any construction planning, physical security provisions, emergency plans, use of existing infrastructure at Construction Site, etc shall be duly coordinated by the Supplier with the Existing Nuclear Power Plant. Also, any need for access of construction personnel to the Existing Nuclear Power Plant shall be subject to safety, access control and emergency planning requirements in force at the Existing Nuclear Power Plant. The emergency organisation of the Existing Nuclear Power Plant shall have authority to order evacuation and other rescue measures in the Plant area. Construction Site personnel shall participate in emergency exercises and drills as required by the Existing Nuclear Power Plant and to the extent required by the emergency organisation of the Existing Nuclear Power Plant. 24.7.  Joint and Several Liability when Supplier is a Joint Venture or a Consortium Since the Supplier is a consortium of three legal persons, each and all of these persons shall be jointly and severally liable to the Owner for the fulfilment of the terms of the Plant Contract. The Supplier has named (insert business name) as the leader of the consortium with authority to bind the Supplier and each of the persons forming the consortium. The Supplier shall not alter its composition or legal status without the prior consent of the Owner. CLAUSE 25 – AVAILABILITY OF SPARE PARTS 1. In this Clause 25 “parts” means “spare or replacement parts”. The Supplier shall have a duty for a period of (insert number) years from the date of 195

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execution of this Plant Contract to notify the Owner if the Supplier or any of his Subcontractors intends to discontinue manufacture of any or all parts for the Plant. 2. If the Supplier or any of his Subcontractors intends to discontinue manufacture the Owner shall have a (insert number) day option: a) to order such quantities of parts as the Owner shall require commensurate with the anticipated life of the Plant at reasonable prices and on reasonable delivery terms, which shall in any event be no less favourable than the prices and periods available at the market at the time the Owner orders such parts; and b) to procure at a reasonable price such drawings, patterns, specification and other information (the “Information”) as may be required to enable the Owner to make or have made such parts for use in the Plant. 3. If the Supplier: a) fails to give notice under Sub-Clause 25.1; or b) fails to fulfil an order for the supply of parts under Sub-Clause 25.2(a); or c) becomes insolvent or has a receiving order made against it or commences to be wound up, not being a member’s voluntary winding up for the purposes of reconstruction; then the Supplier, so far as it is legally entitled to do so and at the request of the Owner, shall deliver the Information free of charge to the Owner as soon as reasonably practicable and the Owner shall be entitled, without payment of any royalty or charge, to make parts or have them made by any other person for the purposes of the Works. To give effect to this provision one copy of the Information necessary or useful for the manufacture of parts and which is or becomes the property of the Supplier shall forthwith become the property of the Owner for use in the Plant. 4. The Owner undertakes for itself and on behalf of its employees and agents that the Information obtained from the Supplier under this Clause 25 shall be kept confidential and not be disclosed except to such persons as it may be necessary for the purpose of making parts for the purposes of the Works. 5. The Supplier shall procure the observance of the provisions of this Clause 25 by each Subcontractor such that the Owner has the same benefits and rights specified in this Clause 25 in respect of subcontracted works. 6. Nothing in this Clause 25 affects the right of the Owner to make parts or have Parts made by others.

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CLAUSE 26 – SEVERABILITY If at any time any provision of the Plant Contract is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair: a) the legality, validity or enforceability in that jurisdiction of any other provision of the Plant Contract; or b) the legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of the Plant Contract. CLAUSE 27 – SURVIVAL OF OBLIGATIONS; NON-WAIVER 1. Notwithstanding the termination of this Plant Contract, any indemnities, warranties and remedies which have been created for the benefit of either Party and which have not yet been fully enjoyed, enforced and/or satisfied shall survive such termination until such indemnity, warranty or remedy has been fully enjoyed, enforced and/or satisfied. 2. Failure by either Party to enforce at any time any of the provisions of this Plant Contract, or to require at any time performance by the other Party of any of the provisions hereof shall in no way be construed to be a waiver of such provision, nor in any way to affect the validity of this Plant Contract or any part hereof, or the right of either Party thereafter to enforce each and every provision. Notwithstanding the above, the Parties may modify or amend any provisions of the Plant Contract if in writing and signed by both Parties. CLAUSE 28 – RELATIONSHIP OF THE PARTIES The Parties are independent contracting parties. Nothing contained in the Plant Contract shall create an association, joint venture or partnership between the Parties or impose any partnership obligation or partnership liability on either Party with the exception of the fact that the Supplier is a consortium whose partners are jointly and severally liable. Neither Party shall have any right, power or authority to enter into any agreement or commitment, act on behalf of, or otherwise bind the other party in any way. CLAUSE 29 – ENTIRE AGREEMENT AND AMENDMENTS The Plant Contract constitutes the entire agreement between the Parties in relation to its subject matter and supersedes all prior agreements and understandings whether oral or written with respect to such subject matter. No amendment of the Plant Contract shall be effective unless made in writing and signed by or on behalf of a duly authorised representative of each of the Parties.

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CLAUSE 30 – TRANSFER Prior to any transfer of the Works as a whole to another party (except temporary transfer for installation, storage or repair work or permanent transfer for disposal) the Owner will obtain for the Supplier written assurances from the transferee of limitation of and protection against liability following the proposed transfer at least equivalent to that afforded to the Supplier and its Subcontractors under the provisions of the Plant Contract. This shall, however, not apply to sale/leaseback or other financing arrangements when the Owner remains the owner and operator of the Plant.

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CHAPTER 5

Delay – An Overview

As mentioned earlier, one of the biggest factors in NPP project completion is delay and its effects for both the Employer and the Contractor. This is also one of the primary areas of claims and disputes. Delay, prolongation and disruption in construction projects generally and in NPP ones in particular all flow from and are related to one basic concept: What was the contractual time for completion as agreed compared to the real actual time for completion, and what was the cause of any difference, i.e. where does the fault lie? Thus “completion” becomes the starting point for any discussion and for any failure on the part of the contractor to complete its work as per the agreed completion date sets the whole damages process in motion. These damages, as will be discussed in greater depth throughout this book, may vary from liquidated damages which end when completion is achieved to actual damages, which can represent any loss to the employer which the employer can prove was attributable to the failure to complete on time by the contractor. So how can completion be determined, and by whom and when, exactly, was the project “done”? There are also the other issues that surround the claim of failure to complete, and these can vary from damages for loss as to the amount of time of delay to the actual termination of the whole contract. Thus “when” becomes the main issue, and the “certification” of “when” by an independent observer also sorts out “when” the employer takes over possession and the contractor gets paid, employer retention rights are sorted and it starts the clock running for any defects liability period such as the “defects liability period” under JCT form contracts (discussed later) and also referred to as the “defects correction period” under the NEC form contracts. Further as odd as this may appear to non-construction people, determining exactly when the works are “complete” is not an easy matter, and this is due to the fact that construction projects and their contracts lend themselves to defects both patent and latent and thus difficult to determine at any particular point in time. Latent defects may not be visible for years, and even some patent defects are not that obvious. So the question always remains  – Is the construction “complete” – really “complete”? And from this uncertainty grew the concept of “Substantial Completion”. But by its own name it just creates more difficulties, and this is due to the word “substantial”, which is yet another term of art giving the reader a feeling of finality but in reality just another, more finely ground word trying to define “done” – not quite black and white but real dark shade of grey. Some groups take this and try to further shave off the edges and define substantial completion as follows:

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Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or use the Work or a portion thereof for its intended use.1

So this definition gets closer but then uses the words “sufficiently complete” – darker grey but not yet black – and this is about as close as one can get. There are several court cases which allow the contractor to be paid once it has substantially performed its part of the contract, less a deduction to reflect the cost of defective or outstanding works.2 This mitigates the potential injustice which would follow where a contractor, having virtually completed the works, might, in the case of an entire contract, be denied payment simply because of minor outstanding defects or might be required to pay liquidated damages for the delay until those minor defects are remedied. It is this balancing act that hopefully prevents any injustice to the contractor and/or the employer, so ever finer and finer approximations of completion allow for finer and more precise payments from the employer to the contractor and prevent the employer from taking any advantage of the contractor for truly minor omissions or inconsistencies from the contract. Needless to say, this concept of substantial completion, practical completion, etc. is inapplicable to situations where the work in not completed at all3 and perhaps even worse where the work, whilst completed, is so poorly done that the employer gets absolutely no benefit from it at all. This of course would then become an issue of total failure of effective performance and be a breach of contract. Indeed the PPC 2000 (Amended 2013), which is also known as PPC 2000 “Standard form of contract for project partnering”, was the first standard form Project Partnering Contract developed following the government’s Construction Task Force report, “Rethinking Construction”, published in 1998, and was formulated by the Construction Industry Council (CIC) in collaboration with the Association of Consultant Architects (ACA). It is published by the Association of Consultant Architects and is a joint venture with the Association of Consulting Engineers (ACE) and notably, it, along with other partnering contracts, just simply refer to “completion”. This however can put the contract administrator in a difficult position as to when the project becomes “useable” by the client. If the project reaches a stage when the intended use by the client (either immediate use, such as installing furniture or fitting-out, or actual occupation by the end users) is possible, safely and without affecting warranties, then the project may be deemed “complete”. The size and extent of the list of outstanding works and defects requiring rectification will be the measure on which the contract administrator (or later the adjudicator, arbitrator, or judge) determines whether completion has actually been achieved. Additionally, the general standard forms in use in the UK differ on terminology, and whilst the JCT refers to “practical completion”, the NEC3 uses plain the term “completion”.

1  See e.g. the AIA general conditions, § A.9.8.1. 2  See e.g. Cutler v Close (1832) 5 C & P 337; H Dakin & Co Ltd v Lee [1916] 1 KB 566, CA; Hoenig v Isaacs [1952] 2 All ER 176, CA; Ibmac Ltd v Marshall (Homes) Ltd (1968) 208 Estates Gazette 851, CA. 3  Sumpter v Hedges [1898] 1 QB 673, CA.

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Whilst the JCT does not provide a definition of the term, NEC3, cl 11.2(2) provides the following definition for the purposes of that form: Completion is when the Contractor has done all the works which the Works Information states he is to do by the Completion Date and corrected notified Defects which would have prevented the Employer from using the works and Others from doing their work. If the work which the Contractor is to do by the Completion Date is not stated in the Works Information, Completion is when the Contractor has done all the work necessary for the Employer to use the works and for Others to do their work.

The courts have dealt with the meaning of the term “completion” within the JCT contracts, and it appears defined as that point in time when the “necessary construction work specified in the contract has been performed”; the works can be considered to be “practically complete” for the purpose of the JCT forms even though there remain latent defects which arise after the employer has taken possession of the building.4 However, where patent defects exist in the work, practical completion cannot be said to have occurred,5 nor can a certificate be issued,6 unless those defects can be classified as de minimis7 – accordingly, logic would dictate that such views should also apply to the JCT contract. But What is Complete and at What Cost? What happens when the project cost was a hypothetical £100,000, and the contractor states that it is complete whilst the employer claims that it is defective? If, for example, the cost to “remedy” the defects is £5,000 (5 per cent of the contract price) is this, in effect complete – substantial completion? What if the cost to remedy is £40,000? £23,000? – at what point is the cost to correct such that it can be said that the works are not worth completing or put another way – not complete. This leads to what is referred to as the de minimus exception. If the uncompleted or defectively completed portion is relatively minor (not “material”) in the context of the entire contract, the contract will be found to be substantially performed, and the innocent party will not be entitled to terminate the contract, but will be able to claim a reduction in contract price8 for an example where a building contract was found to be substantially performed despite significant defects, but see Bolton v Mahadeva,9 where the court was far stricter on the defaulting contractor or Kemp v McWilliams10, a Canadian case in which a painting contractor was compensated on a quantum meruit basis despite having completed only three quarters of a painting job.

4  See Emson Eastern Ltd (in receivership) v EME Developments Ltd (1991) 26 ConLR 57 at 63–64, and see also Westminster City Council v J Jarvis & Sons Ltd [1970] 1 All ER 943 at 949, applied in relation to JCT 1998 in Hall v Van der Heiden (No 2) [2010] EWHC 586 (TCC), [2010] All ER (D) 79 (Nov). 5  H W Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78. 6  Hall v Van der Heiden (No 2) [2010] EWHC 586, [2010] All ER (D) 79 (Nov). 7  H W Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78. 8  Dakin v Lee [1916] 1 K.B. 566 (C.A.). 9  [1972] 1 W.LR. 1009 (Eng. C.A.). 10  (1978) 87 D.L.R. (3d) 544 (Sask. C.A.).

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Reviewing these cases teaches that the underlying principle is that what is looked at closely are the costs of remedying the defects as against the total price of the works. In H Dakin Lee, the total contract was for £1,500 and the defects were valued at £80, and the work was determined to be substantially complete. In Hoenig v Isaacs the price was £750 and the defects worth £55 18s 2d, and again, the work was found to be substantially complete. But in Bolton the cost of correcting the defects was £174, and the contract price £650; here the works had fallen short of being substantially complete. Despite these cases the situation always falls back to what the facts actually are, and in Kiely & Sons Ltd v Medcraft11 the claimants contracted to paint the defendant’s house for £520, but despite the fact they performed the work so badly that it cost £200 to rectify, it was held that the contract had been substantially completed. Then in Big Island Contracting (HK) Ltd v Skink Ltd,12 a decision of the Court of Appeal of Hong Kong put forth the view that suggests the correct approach regarding the definition of “practical completion” is to follow the case of Hoenig v Isaacs and Bolton v Mahadeva. Once this is done the term becomes indistinguishable from “substantial performance”. Some writers13 argue however that the two terms are in fact distinct: the doctrine of substantial performance or completion was developed in order to ascertain the right to payment under an entire contract, whereas practical completion governs such issues as the date on which liquidated damages cease to be payable. It is important to note that the suggestion that practical completion cannot be distinguished from substantial performance was given support, albeit obiter, in Menolly Investments 3 v Cerep.14 As has been noted Taking both judicial dicta and prevailing practice into account, it can be said completion for the purposes of JCT 2011 arises at that moment when the architect, by inspection of the works, decides that he may with all reasonableness certify completion with its resulting payment, regard being had to the number of days latitude, if any, permitted by the contract, and when he is satisfied that the amount of retention money held is adequate to its particular purpose.15 A certificate of practical or substantial completion is issued when the works have reached the stage where they are fit for occupation, but before all defects are made good and minor outstanding works completed. Whilst similar principles are likely to apply in respect of NEC3, these principles must be modified slightly to reflect the complexity introduced by the definition of completion adopted in that form. In particular, where defects have been notified, and these prevent the employer, or others, from performing their own works, completion will not be achieved until these defects are rectified.16

Staged Completion In addition to the issues which revolve around full and final completion, there is the additional issue which arises in situations where the contract provides for staged completion 11  (1965) 109 Sol Jo 829, CA. 12  (1990) 52 BLR 110. 13  David Myhill and James Sharpe, Emden’s Construction Law 2016 Chapter 9, LexisNexis. 14  [2009] EWHC 516 (Ch) at 63, (2009) 125 ConLR 75. 15  If there is no retention provided for in the contract, “completion” will be interpreted more strictly: see Gemma Ltd v Gimson [2004] EWHC 1982 (TCC), (2004) 97 ConLR 165, HHJ Thornton QC. 16  Ibid. at ftn 13.

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and related payments and, as with final completion, the trier of fact, be that adjudicator, arbitrator or judge, has to make a determination of what was required, per the contract, for that particular portion of the work. In Spencer v Thorpe17 the facts presented showed that the contract in that case provided that the builder would be paid upon completion of each of five stages of works to construct a bungalow, the fourth of which required “reaching plate level for roof”. The court found that the works required to reach stage four had not been completed. In reaching this conclusion, the court enunciated some general principles of application to such disputes: in particular, that the court should consider what is required at each stage by reference to the contract as a whole, and ought not to be too rigorous or meticulous in determining whether that stage had been reached. It held that under a contract such as the one in question, completion of a specific stage did not require the builder to “have every brick in place”. However, the contract made it clear that other factors, besides a simple test of whether it was physically possible to “step on the roof”, were relevant and required that a substantial part of the work on site should have been completed before stage four payment was due. Completion Due Date Whilst it is usually clear that if the contract contains a due date for completion, unless there is some agreed method for extending this due date, the contractor will be in breach and subject to the terms of the contract as to what happens next. However, if the contract is silent on the completion date, that is when problems arise. Normally the completion date is implied to be “within a reasonable time”, but under some circumstances, it may be best to look to the intent of the parties instead. This was the situation in Bruno Zornow (Builders) Ltd v Beechcroft Developments Ltd,18 where the parties entered into a contract for preliminary works for a housing development, with a specified completion date for these works. The contract was subsequently varied so as to include the remaining work on the development; however, the variation agreement contained no express date for completion. Here the court implied a particular date for completion on the basis of the time period both parties had envisaged at the time of agreeing to the variation. In implying such a term, the court had regard to the fact that this involved a commercial development with the risk of an intermediate loss of profits claim, such that it would be “commercially unrealistic” to leave the date of completion at large, with only an implication that the works should be finished within a reasonable time. As to what is a reasonable time, the court in Hick v Raymond and Reid19 wrote: the party upon whom it is incumbent duly fulfils his obligation, notwithstanding protracted delay, so long as such delay is attributable to causes beyond his control, and he has neither acted negligently nor unreasonably.

17  (20 January 1982, unreported), CA. For a discussion of this case see [1985] BLM (May) 1. 18  (1989) 16 ConLR 30, (1989) 51 BLR 16, QBD. 19  [1893] AC 22, HL.

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So one must review all of the circumstances surrounding any delay, but it should also be remembered that just instructing a variation of and by itself does not result in a time extension, a subject covered in more detail later in this book. Due Diligence Progression to Completion The other issue which arises is whether or not the contractor has any duty of due diligence to progress the works in situations where the contract contains a specified completion date. The general rule is that no requirement of due diligence can be implied in a contract in which there is a specific date for completion, and thus the contractor is not required to adhere to any notion of due diligence or expedition. Thus in Greater London Council v Cleveland Bridge and Engineering Co Ltd20 the Court of Appeal considered a contention by the GLC that the Cleveland company was in breach of an implied duty to execute the works with due diligence and expedition. The defendant had complied with certain key dates laid down in the contract for the completion of certain sections. The claimant contended that an increase in costs (recoverable under the contract) had arisen primarily by reason of the defendant’s failure to proceed with due diligence and expedition, irrespective of when the due date for completion arose. The court wrote: that there was no express term in the contract to the effect that the contractor should proceed with due diligence and that it was not possible to imply such a term on The Moorcock21 principle so as to give business efficacy to the contract. The contractor has the right, within the stipulated completion dates, to plan and execute his work as he wishes.

This decision was followed in Leander Construction Ltd v Mulalley & Co Ltd22 where a subcontract provided commencement and completion dates for performance of groundworks, drainage works and construction of a concrete frame. One of the subcontract documents was entitled an “Activity Schedule” and set out dates for the programme of works, but it was accepted that this was not contractually binding, and as a result there were no contractual terms as to interim performance. The court held that the employer could not issue withholding notices prior to the completion date on the basis that the contractor had not proceeded regularly and diligently with the works. There was no need to imply such a term in order to “make the contract work” and “provided that the main contractual obligation was an obligation to complete by a certain date, it was unnecessary and unhelpful to impose other interim progress obligations upon the contractor”. The rule that, where there is a specified completion date, the contractor has the right to plan and execute its work as it pleases may prove disadvantageous to the employer who wishes to be sure that the work will be completed on time. If it considers that the work is not being proceeded with sufficient speed, it will be able to bring an action only when it can show that the “slow working” will inevitably result in a breach of contract. The employer in such a situation will be claiming that an anticipatory breach has occurred, since the

20  (1987) 8 ConLR 30, (1986) 34 BLR 50. 21  (1889) 14 PD 64, CA. 22  [2011] EWHC 3449 (TCC), [2012] BLR 152.

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contractor will not be capable of fulfilling its contractual obligation as to completion by the due date. Needless to say proof of such a state of affairs will necessarily be difficult.23 Indeed, if the employer is concerned that the completion date must be met, and would be inadequately compensated by an award of damages for late completion, it will be to its advantage to insert a term into the contract stipulating that the contractor should not only complete the works by the due date, but also that he should proceed with due diligence. For example, such a provision is to be found in the JCT 2011 standard form and will override the common law inference that the contractor is entitled to proceed with the works at his own pace, provided it meets the contractual completion date – Clause 8.4.1.2 permits the employer to terminate the contract where the contractor fails to “proceed regularly and diligently with the Works”. Alternatively, it may specify a programme for the works, but it should be noted that no such general obligation exists within NEC3, although NEC3 makes greater provision for programming.24 And as usual the issue of whether the contractor is in breach of an obligation to proceed “regularly and diligently” with the works must be judged objectively against that of the general standard expected of other contractors under the same or similar circumstances. The general rule is that the clause requires contractors to “go about their work in such a way as to achieve their contractual obligations”. This requires them to plan their work, to lead and manage their workforce, to provide sufficient and proper materials and to employ competent tradesmen, so that the works are fully carried out to an acceptable standard and that all time, sequence and other provisions of the contract are fulfilled.25 Then as to what exactly “proceeding with due diligence” means, the court in Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd26 described it as completing the construction works “industriously, assiduously, efficiently and expeditiously”. And further even if performance by the contractual completion date becomes impossible, the obligation to proceed with due diligence remains and becomes no less onerous.27 And of course unless otherwise provided in the contract, the contractor has up to the last moment (midnight) of the day fixed for completion in which to complete the contract.28 Complying with the Programme As some writers29 have noted, although there is no general obligation to perform works in any particular order, provided the completion date can be achieved, it is now frequently the case that contracts include an obligation to comply with a set programme of works. Often such a programme is tied to the payment clauses, such that payment is due upon completion of specific stages of the work. A  programme of works may set out certain

23  See e.g. ibid. at ftn 13. 24  Ibid. 25  West Faulkner Associates v Newham London Borough Council (1994) 42 Con LR 144, [1994] NPC 142, (1994) 71 BLR 1, CA. See also Obrascon Huarte Lain SA v A-G for Gibraltar [2015] EWCA Civ 712, 161 ConLR 14, [2015] BLR 521. 26  [2013] EWHC 2916 (TCC), [2013] Bus LR D81, [2014] BLR 43 at [27]. 27  Ibid. 28  See e.g. Startup v Macdonald (1843) 6 Man & G 593, Ex Ch; Afovos Shipping Co SA v R Pagnan and Lli (The Afovos) [1982] 3 All ER 18, CA. 29  Ibid. at 23.

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works which must be completed by given dates, or may specify works on the basis of quantities which are required to be completed at various stages of a project. The effect of programming works in this manner allows the employer greater control over the manner in which the works are completed. Standard Form Contract and Programming The main forms of contract make provision for the incorporation of programming terms such as the provisions in NEC3 which are the most extensive. Clause 31, as an example, places an obligation on the contractor to provide a programme where none is already included in the contract data. Clause 31.2 sets out the requirements for such a programme, including a starting date, access dates and a completion date, together with “key dates”. Key dates are the dates on which work is to meet the condition stated, with both the date and condition included in the contract data1. Not only must the contractor provide this information, but Clause 31.2 also provides for the contractor to give a statement of how he plans to do the work. The project manager must then accept the programme, or give reasons for not accepting it, within two weeks of its submission. Clause 32 then makes provision for any revisions to the programme. Additionally, NEC3 Options A and C allow for priced and target contracts respectively, each with an activity schedule, whilst Option X5 allows for sectional completion. JCT 2011 also allows for programming, by virtue of allowing for work to be divided into sections which are set out in the contract particulars. The contract particulars of JCT 2011 then allow for the sections (and the date by which each is to be completed) to be defined, together with the amount of damages for delay in respect of each section of the works.30 Delay – Who Is at Fault? Not all delay can be placed at the feet of the contractor. First a determination has to be made whether or not fault is involved or whether or not other factors excuse the delay. As an example there can be reasons why the delay is allowable – an extension of time was granted by the employer, or claimed by the contractor; it can be implied or actual or a combination of the two. Or there can be extrinsic reasons for the delay which are excused, such as force majeure and impossibility of performance. Of the various reasons for delay that do not necessarily lead to damages against the contractor. the first and most important is force majeure, followed by frustration of purpose, and whilst frustration is slightly different, both are significant in discussing the concept of delay. Force Majeure Force majeure provisions in construction contracts excuse performance if a specified event occurs and also allocate the risk of any unanticipated events.31 The concept of force majeure originated with the French Napoleonic Code and is frequently used in most construction

30  Ibid. 31  See e.g. Cyril Chern (2015), The Law of Construction Disputes, Informa Publishing.

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contracts. For example, in the JCT contracts, force majeure is listed as a “relevant event,” and under the common law, a related concept is “commercial impracticability”. FIDIC (1999 Suite of contracts) define it (in Sub-Clause 19.1) as follows: In this Clause, “Force Majeure” means an exceptional event or circumstance: (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party. Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied:

(i) war, hostilities (whether war be declared or not), invasion, act of foreign enemies, (ii) rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war, (iii) riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractor and Subcontractors, (iv) munitions of war, explosive materials, ionising radiation or contamination by radioactivity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity, and (v) natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity. Force majeure clauses sometimes expressly state that it is the exclusive remedy, or it may specifically assign the risk of some future unexpected event to one party. It should be noted, however, that if the clause does not state that this is the sole remedy, then the affected party might also rely on the defence of commercial impracticability. Allocating all possible risks becomes burdensome and cannot cover the entire spectrum of possibility, and, even if the contract does not include a specific event in the force majeure provision, a party may still be excused from performance if that specific event occurs. This is the reason why, for example, the FIDIC contract is worded as it is – to allow any manner of exceptional event to fall within the purview of the Sub-Clause. In Matsoukis v Priestman,32 the defendants agreed to build a steamer for, and deliver her to, the plaintiff on or before 28 February 1913. The contract contained the following exceptions clause: If the steamer isn’t delivered entirely ready to purchaser at the above-mentioned time, the builders hereby agree to pay to the purchaser for liquidated damages, and not by way of penalty, the sum of £10 sterling for each day of delay and in deduction of the price stipulated in this contract, being excepted only the cause of force majeure, and/or strikes of workmen of the building yard where the vessel is being built, of the workshops where the machinery is being made, or at the works where steel is being manufactured, for the steamer, or any works of any subcontractor.

Due to the universal coal strike of 1912, the defendants could not obtain their materials and, consequently, could not complete the vessel in time. Accordingly, the plaintiff’s 32  [1915] 1 KB 681.

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steamer completion and delivery were late, and the plaintiff claimed damages. The construction of the steamer was, in fact, delayed, not just by the coal strike, but also by events including bad weather, the absenteeism of workers because of a football match and the funeral of the shipyard manager. The court took the position that these causes were the “usual incidents interrupting work” so did not constitute force majeure, but, as to whether the coal strike constituted force majeure, the court held that: (1) the general dislocation of the business of defendants, and of those from whom they obtained materials, operated indirectly on the completion of plaintiff’s steamer, and this constituted a case of force majeure within the meaning of the exceptions clause and, therefore, excused defendants in respect of the delay so caused; (2) as to delay due to breakdown of machinery, it comes within the words “force majeure”, which certainly cover accidents to machinery. The term “force majeure” cannot, however, in any view, be extended to cover bad weather, football matches or a funeral. These are the usual incidents interrupting work, and the defendants, in making their contract, no doubt took them into account. Here, the contract provided for liquidated damages except “the cause of force majeure” and certain types of strikes. The logic from this case suggests that force majeure means anything outside the control of the contractor and is not limited to only acts of God. Indeed, the concept has had less than distinct borders over the years, and some cases have suggested that the events which constitute force majeure should be set out in the clause itself and that phrases such as “usual force majeure clauses apply” are unenforceable as not being specific enough. The term “force majeure” is, thus, either defined precisely, as in the FIDIC contract language described earlier, or the contract states what is to happen if an event of force majeure occurs. In some contracts, for example, force majeure is defined to mean certain specified events such as war, terrorism and nuclear and/or chemical contamination. Indeed, some contracts like FIDIC specify what must happen if there is a force majeure event. Generally, such clauses allocate the risk if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled. To determine whether this has been the case, one must first determine whether the unanticipated event is defined in the contract as a force majeure event. Then, a review should be made of what evidence exists as to whether the unanticipated event was beyond the reasonable control of the party seeking the force majeure protection. Once this is done successfully, a determination must be made as to whether the contract can still be performed and a determination as to whether the contract included procedures for delay or other damages and if these were adhered to or not. It should be noted that most force majeure clauses set out the type of unforeseeable events that might excuse performance. Thus, the party relying on the force majeure clause bears the responsibility of showing that the event was (1) beyond the party’s control; and (2) not a consequence of its own fault or negligence. A force majeure clause is not intended to insure against “normal risks” of a contract – bad weather, for example, or a change in market conditions. Is the Contract Terminated? Typically, the contractor is given relief from liquidated damages and there is an option for either party to terminate the contract after a suitably lengthy period of time – under the FIDIC contracts Sub-Clause 19.6: 208

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If the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of Force Majeure of which notice has been given under Sub-Clause 19.2 [Notice of Force Majeure], or for multiple periods which total more than 140 days due to the same notified Force Majeure, then either Party may give to the other Party a notice of termination of the Contract. In this event, the termination shall take effect 7 days after the notice is given, and the Contractor shall proceed in accordance with Sub-Clause 16.3 [Cessation of Work and Removal of Contractor’s Equipment]. Upon such termination, the Engineer shall determine the value of the work done and issue a Payment Certificate, which shall include: (a) the amounts payable for any work carried out for which a price is stated in the Contract; (b) the Cost of Plant and Materials ordered for the Works which have been delivered to the Contractor, or of which the Contractor is liable to accept delivery: this Plant and Materials shall become the property of (and be at the risk of) the Employer when paid for by the Employer, and the Contractor shall place the same at the Employer’s disposal; (c) any other Cost or liability which in the circumstances was reasonably incurred by the Contractor in the expectation of completing the Works; (d) the Cost of removal of Temporary Works and Contractor’s Equipment from the Site and the return of these items to the Contractor’s works in his country (or to any other destination at no greater cost); and (e) the Cost of repatriation of the Contractor’s staff and labour employed wholly in connection with the Works at the date of termination.

Also, if the force majeure situation is of such nature that work cannot proceed, the claimant party is entirely excused from further performance. A typical clause, such as the FIDIC Sub-Clause 19.7, states: Notwithstanding any other provision of this Clause, if any event or circumstance outside the control of the Parties (including, but not limited to, Force Majeure) arises which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations or which, under the law governing the Contract, entitles the Parties to be released from further performance of the Contract, then upon notice by either Party to the other Party of such event or circumstance: (a) the Parties shall be discharged from further performance, without prejudice to the rights of either Party in respect of any previous breach of the Contract, and (b) the sum payable by the Employer to the Contractor shall be the same as would have been payable under Sub-Clause 19.6 [Optional Termination, Payment and Release] if the Contract had been terminated under Sub-Clause 19.6.

It should be noted that this FIDIC Sub-Clause 19.7 includes more than just force majeure but also “any event or circumstance outside the control of the Parties (including, but not limited to Force Majeure)”. Additionally, the party alleging force majeure has the burden of proof, based upon the balance of probabilities, and it must also mitigate any losses and show that there was no other way of resolving the problem and moving forward with the Works. Acts of God Although the terms are sometimes used interchangeably, force majeure and “Acts of God” are different concepts. An Act of God excludes the concept of human agency, whereas force majeure does not. Traditionally, Acts of God included events such as tornados, 209

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lightning, floods, earthquakes, droughts and unusually severe weather conditions. Force majeure events typically include not only “Acts of God” but also human-made or humancaused events such as strikes, lockouts, riots, wars, explosions, sabotage and governmental acts. However, contracting parties are free to create, identify and bargain for their own force majeure events. As mentioned earlier the term “force majeure” is derived from the French Napoleonic Code and is based on the concept that it is fair to allow a party to escape contractual obligations without fault when satisfaction of those obligations is made impossible. While force majeure may be universally applicable under French law, as mentioned earlier, under the common law, it is a contractual right allowing one party to be relieved from liability upon the happening of certain defined events. Force majeure should also be distinguished from the concept of “frustration of purpose”,33 which occurs when, after a contract is made, a party’s principal purpose is substantially frustrated without their fault by the occurrence of an event that negates a basic assumption on which the contract was made. When this happens the remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. Additionally, although commercial frustration is akin to the doctrine of commercial impracticability, it is different in that performance remains possible but the expected value of the performance to the party seeking to be excused has been destroyed by an unanticipated event. Thus, if the frustrating event was foreseeable at the time of entering the contract, the concept does not apply.34 The Purpose of Force Majeure Clauses – Historically and Internationally35 As previously mentioned force majeure clauses exist to exclude liability where unforeseen events, beyond a party’s control, prevent the performance of its contractual obligations.36 The Supreme Court of Canada gave a very good definition of force majeure in Atlantic Paper Stock Ltd v St Anne-Nackawic Pulp & Paper Co,37 where the purpose of force majeure clauses were described as follows: [A force majeure clause] generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond the control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill.

Internationally, force majeure events are also considered to be events “beyond the control and without the fault or negligence of the party excused”.38 Normally, these

33  Discussed in Chapter 2 herein. 34  See Chapter 2 herein, e.g. Metropolitan Water Board v Dick, Kerr & Co Ltd [1918] AC 119. 35  See generally Philip Lane Bruner, Force Majeure And Unforeseen Ground Conditions in the New Millennium: Unifying Principles and Tales of Iron Wars, ICLR 47, 2000. 36  See generally Jan Van Dunné, The Changing of the Guard: Force Majeure and Frustration in Construction Contracts: The Foreseeability Requirement Replaced by Normative Risk Allocation, ICLR 162, 2002. 37  [1975] 56 DLR (3d) 409 (SCC). 38  United States v Brooks-Callaway Co [1943] 318 US 120.

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clauses contemplate wars and natural disasters and include “acts of God” and can also include commercial events such as supply failures, labour unrest and even equipment failure. In Jacobs v Crédit Lyonnaise,39 the defendant shippers claimed force majeure after they failed to deliver shipments because of a war that had broken out in Algeria. Under the French law in force in Algeria at the time, the defendant would not have been subject to claims of damages “when, by means of a superior force (force majeure) or an accident, the obligor has been prevented from giving or doing that which he was bound to give or do”. The court found that while French law may have given relief, English law applied, and there was no equivalent common law principle (including frustration) that could grant relief. While the intervening war had disrupted performance, it did not destroy the “entire subject matter” of the contract or the underlying rationale for the bargain, as was required for relief under the doctrine of frustration. The contract did not provide for the concept of force majeure, and the defendant shippers were held liable. Needless to say, this result was not commercially acceptable, and, as a result, it was not long before very specific force majeure provisions began to appear regularly in English contracts to provide assistance to parties where performance was impossible or unfeasible, but where the strict technical requirements for a defence of frustration were not available.40 Its use (and/or justification for its use) varies in the common law jurisdictions. In the United States, for example, it is more common for the doctrine of impracticability or impossibility of performance to be used instead. In the United States, if the parties do not provide otherwise in their contract, “where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered”.41 There is also a line of thought which suggests that the courts there have literally invented the concept of impossibility of performance so as to alleviate the difficulties encountered when the contracting parties did not quite anticipate, or provide for, what actually happened and this is a way to prevent unintended results. Thus, it becomes an equitable defence and as such the factors to be taken into account include the foreseeability of the event and whether the means of performance will be entirely different than that originally agreed to. Other factors include whether the risk of the event that occurred was allocated to a party, and whether the cost of performance will be substantially increased. Thus, the elements for impossibility of performance are the unexpected occurrence of an intervening act, which is of such a character that its nonoccurrence was a basic assumption of the agreement of the parties, and that occurrence made performance impracticable.42

39  (1884) 12 QBD 589 (CA). 40  Ibid. at 347. 41  Dugan & Meyers Construction Co, Inc v State of Ohio, 162 Ohio App. 3d 491, at 503. Also see e.g. William D. Lyman, “To Pay or Not to Pay – To Stay or Not to Stay: Contractors and Subcontractors Right to Receive Payment for Work performed and the Contractual and Legal Obstacles to Receiving It” (Paper presented to the American Bar Association Forum on the Construction Industry, 12–13 October 2006, unpublished). 42  Ibid.

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Typical Force Majeure Clause Usage Excusing Delay Though the traditional rationale for force majeure clauses involved “unanticipated events” and “impossibility” of performance, more recent practice has been to use force majeure provisions as a broader risk allocation tool.43 The structure of a “typical” force majeure clause should include a definition of the term and the results of what will happen if invoked. A typical force majeure clause should describe an event that renders the performance impossible and is beyond the parties’ control, as well as reasonably inevitable and unforeseeable. This should be followed by either a list of possibilities or a list of factual circumstances of force majeure, e.g. war, riots, armed conflict, natural disasters, labour disruption, disease, damage to assets, etc. A distinction should also be made as to whether interference or lack of performance by third parties, such as subcontractors or ancillary suppliers, qualifies as force majeure. Further, there should be delineation of, should force majeure arise, the requirements and procedures for notification and the evidentiary burden to prove the event. FIDIC contracts, for example, define force majeure as “an exceptional event or circumstance that is beyond a party’s control”, and it allows the scope of its application to be widened. Furthermore, in the event of contractual performance turning illegal or impossible, or if the parties are discharged from performing according to the applicable law, either party may terminate the contract by notification before the end of the 84-day period previously established in the FIDIC Form of Contract Book, i.e. the Red Book. The contractor, in this case, is reimbursed on the same terms as it would have been in case of “full” force majeure. Force majeure clauses may also be used to anticipate uninsurable risks or risks that render performance merely inconvenient or uneconomical, as opposed to impossible. In short, the clauses deal with risks deemed unacceptable by the parties. For example, problems associated with labour disruptions are often addressed through force majeure provisions, even though they may fall outside the traditional rationale of such clauses.44 The Necessary Requirements for Force Majeure An effective force majeure clause should provide/require that: 1. The specified event is beyond the control of the claiming parties and a description of events that can trigger force majeure; 2. The event prevents or delays, in whole or in part, the performance of the contract and the terms that define the duration of that condition; 3. The event makes performance of the contract imprudent, substantially more difficult or substantially more expensive; 4. The event was not due to the fault or negligence of the claiming party; and

43  See Lowell A. Westersund, Force Majeure Clauses in Construction Contracts, (2008), Fraser Milner Casgrain, LLP, https://www.bartleby.com/essay/Force-Majeure-Clauses-and-Construction-Contracts-F3FNWJK D3D6TA. 44  Ibid.

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a. The claiming party has exercised reasonable diligence to overcome or remove the specified force majeure event; b. A notice provision describing how a declaration of force majeure is to be communicated; and c. A description of the effects that a force majeure event will have on the contractual obligations of the parties. Further, it is good practice for the parties to also agree the consequences of the force majeure and provide details as to: • The extent of the liability of the party claiming force majeure; • Whether the contract is to be terminated, and, if so, what will then happen to the respective rights and obligations of the parties; • Whether there is to be an extension of the time for performance of the contract obligations as originally agreed, or they are to be varied; • Whether, in the event of an extension of the time for performance of the original obligations, the extension is to be open ended or subject to a specific period before those obligations are waived, or the contract comes to an end; and • Whether any sums under the contract should be paid immediately, or sums paid prior to the force majeure event should be repaid. When Does Force Majeure Commence? The common law generally provides a specific event or events that will enable a declaration of force majeure. “Acts of God”, flood, fire, war, civil disturbance, governmental or judicial orders or actions, sabotage, explosions, landslides, lightning, earthquakes, fires, storms, floods and washouts are commonly included as events that trigger force majeure.45 Further, in the common law jurisdictions, it is also common to customise a force majeure to the type of project or industry to which it is being applied. The Duration of the Condition The duration of the force majeure condition must be defined within the contract. Usually it is expressed to correspond to the period during which the situation giving rise to it cannot be overcome. Any well-drafted force majeure clause will carry within it an express duty to mitigate. In most contracts, the party declaring force majeure must, so far as possible, remedy the situation with due diligence or “with all reasonable dispatch”. While the obligation clearly includes a duty to mitigate the force majeure event, what is less clear is whether the duty to mitigate also includes a duty to mitigate the effects of the force majeure event.46 While the duty to mitigate assumes that force majeure events (and their effects) are only temporary, the real issue arises if the condition becomes permanent, or nearly so. For instance, many force majeure clauses state that certain detrimental changes to

45  Ibid. 46  Ibid.

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statutory or regulatory environments can amount to force majeure. These events may be permanent and, if so, may effectively terminate the contract. In this sense, the terminology of “temporary” and “permanent” seems inapt because a law, regulation or order can always be repealed and is, therefore, never permanent in the literal sense. However, literal permanence is not required. In the United States case of Commonwealth Edison v AlliedGeneral Nuclear Services,47 the court discussed the differences between temporary and permanent conditions in force majeure clauses and held that: The point of distinguishing between temporary and permanent conditions constituting impossibility or impracticability or force majeure is merely to prevent the promisor from walking away from the contract because of some transitory impediment to performance. When conditions preventing performance persist throughout the life of the contract, they are permanent enough to excuse liability. It would be neither efficient nor fair to impose on the promisor a perpetual duty of readiness to perform if and when the regulatory ban was lifted.

The concept is clear, but at what stage a force majeure condition has sufficient permanence and impact to allow abandonment of all contractual obligations is not. The court in Commonwealth Edison found that the applicable duty to mitigate did not require performance if, after a temporary force majeure moratorium was lifted, performance would be “materially more burdensome” than if the force majeure event had never occurred. When Should Notice Be Given? Notice of the event giving rise to the condition is an essential element that provides the condition precedent to a declaration of force majeure. When notice is properly given, force majeure protection normally commences (retroactively) from the time of the triggering event itself. In many instances, force majeure clauses will treat a failure to give notice within a particular time frame as a barrier to valid declaration – even where a force majeure triggering event has been known to occur (such as a hurricane, for example). The logic to providing a reasonable notice period after the triggering event is to give a party an opportunity to cure or mitigate the force majeure event without necessarily having to make a declaration. In some instances, the “acts of God” and other events enumerated within a force majeure clause may not have a major impact upon operations, and in such instances, declarations of force majeure may prove to be counter-productive to the party entitled to make such a declaration.48 Further, any failure to properly give notice will prevent a defence based upon a force majeure clause.49 Strict adherence to notice requirements is usually necessary. For example, in the United States case of International Minerals & Chemical Corp v Llano, Inc,50 a buyer notified the seller that its gas consumption would be reduced because of testing, but

47  731 F. Supp. 850 (N.D. Ill. 1990). 48  See ibid. at ftn 43. 49  See e.g. the US cases International Minerals & Chemical Corp v Llano Inc, 770 F.2d at 885; Resources Investment Corp v Enron Corp, 669 F. Supp. 1038 at 1043–44 (D. Colo. 1987); Superior Oil Co v Transco Energy Co, 616 F. Supp. 98 at 108–109 (W.D. La. 1985). 50  Ibid.

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not that its reduced consumption would be permanent. The buyer argued that the notice was sufficient to allow a permanent reduction in volumes under the force majeure clause. The United States Court of Appeals found that this was not proper notice within the meaning of the force majeure clause, which required that “the party whose performance … is so affected shall immediately notify the other party of all pertinent facts”. The notice did not indicate the pertinent fact that reduced consumption would be permanent.51 Force Majeure’s Effect Depending on the drafting of the contract, a force majeure clause, and the resulting actual event, may cause the contract to be ended, suspended or just merely altered. Thus, it is necessary to make a determination of which contractual obligations will remain in force throughout the event (if any) and which will be suspended or just modified. Additionally, if the underlying contract provides for obligations that are time-contingent, one should carefully look to determine if the force majeure clause addresses the effect any consequential suspensions might have on these time periods. Although the protection of force majeure is intended as temporary protection against unavoidable events, the passage of key time frames (such as an expiration or termination date) while a party is within the protection of force majeure may lead to unintended consequences unless directly contemplated and addressed within the clause. For example, one would not necessarily want an operational failure or labour strike to warrant the same relief from performance obligations that might otherwise be appropriate in an earthquake.52 Frustration If the original purpose of the contract has been brought to an end by external forces, then the “doctrine of frustration” will apply, and delay does not exist as a result. This doctrine was originally applicable when events arose during the performance of the contract which were unexpected and made the continued performance of the contract impossible. As this concept developed, it expanded to situations where the performance of the contract was not the issue, but rather where performance, if continued, became fundamentally different from that originally bargained for between the parties. For example, in the 1918 House of Lords decision in Metropolitan Water Board v Dick, Kerr & Co Ltd,53 Dick, Kerr & Co contracted in July 1914 with the Water Board to construct a reservoir to be completed within six years, subject to a proviso that, if by reason of (inter alia) any difficulties, impediments or obstructions whatsoever and howsoever occasioned, the contractors should, in the opinion of the engineer, have been unduly delayed or impeded in the completion of the contract, it should be lawful for the engineer to grant an extension of the time for completion. By a notice given by the Ministry of Munitions in February 1916,

51  See e.g. the United States case of Sabine Corporation v ONG Western Inc, 725 F. Supp. 1157 at 1169 (W.D. Okla. 1989). 52  Ibid. at 360. 53  [1918] AC 119.

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in exercise of the powers conferred by the Defence of the Realm Acts and Regulations, the contractors were required to cease work on their contract, and they ceased work accordingly. The contractors claimed that the effect of the notice was to put an end to the contract. The court held that the provision for extending the time did not apply to the prohibition of the Ministry; that the interruption created by the prohibition was of such a character and duration as to make the contract, when resumed, a different contract from the contract when broken off; and that the contract had ceased to be operative. Lord Dunedin wrote that: the action of the Government, which is forced on the contractor as a vis major, has by its consequences made the contract, if resumed, a work under different conditions from those of the work when interrupted. I have already pointed out the effect as to the plant, and, the contract being a measure and value contract, the whole range of prices might be different. It would in my judgment amount, if resumed, to a new contract; and as the respondents are only bound to carry out the old contract and cannot do so owing to supervenient legislation, they are entitled to succeed in their defence to this action.

Here, the concept of frustration can be clearly seen and was due to a supervening party and could not have been contemplated by the parties at the commencement of the contract. Merely being more difficult to perform, or even being more costly, would not be sufficient as both could easily have been within the contemplation of the parties. In this regard the House of Lords case of Davis Contractors Ltd v Fareham Urban District Council54 is illustrative. There, the contractors entered into a building contract to build 78 houses for a local authority for a fixed sum within a period of eight months. They had attached to their form of tender a letter, dated 18 March  1946, stating that it was subject to adequate supplies of labour being available as and when required. Owing to unexpected circumstances, and without fault of either party, adequate supplies of labour were not available, and the work took 22 months to complete. The contractors contended that the contract price was subject to there being adequate supplies of labour available by reason of the letter of 18 March 1946 and that the contract was frustrated, and claimed to be entitled on a quantum meruit to a sum in excess of the contract price. The court held, however, that the letter of 18 March 1946 was not incorporated in the contract and that the contract had not been frustrated. The fact that, without the fault of either party, there had been an unexpected turn of events which rendered the contract more onerous than had been contemplated was not a ground for relieving the contractors of the obligation which they had undertaken and allowing them to recover on the basis of a quantum meruit. In this regard Lord Reid wrote: In a contract of this kind the contractor undertakes to do the work for a definite sum and he takes the risk of the cost being greater or less than he expected. If delays occur through no one’s fault that may be in the contemplation of the contract, and there may be provision for extra time being given: to that extent the other party takes the risk of delay. But he does not take the risk of the cost being increased by such delay. It may be that delay could be of a character so different from anything contemplated that the contract was at an end, but in this case, in my opinion, the most that could be said is that the delay was greater in degree

54  [1956] AC 696.

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than was to be expected. It was not caused by any new and unforeseeable factor or event: the job proved to be more onerous but it never became a job of a different kind from that contemplated in the contract.

When reviewing the event(s) which are claimed to have frustrated the purpose of the contract, the court will also look at the actual terms of the contract to make its determination. This was the situation in Wong Lai Ying v Chinachem Investment Co Ltd.55 There, the Privy Council were faced with a situation where the respondents intended to develop a site in the mid-levels of Hong Kong Island by constructing thereon two blocks of flats to be known as “University Heights”. Before they started work they sold leasehold interests in the proposed flats to the appellants. Each of the contracts with the appellants was on substantially the same terms. Each appellant paid the purchase price in full on signing the contract of sale. The respondents agreed to complete the flats within 18 months from the date of issue by the building authority of the buildings ordinance permit. Time was expressed to be of the essence in the contract. Of special interest was Clause 2, which provided: It is further agreed that notwithstanding anything hereon contained should any dispute arise between the parties touching or concerning this Agreement or should any unforeseen circumstances beyond the vendor’s control arise whereby the vendor becomes unable to sell the said undivided shares and Apartments to the Purchaser as hereinbefore provided, the Vendor shall be at liberty to rescind this Agreement forthwith and to refund to the Purchaser all instalments of purchase price paid by the Purchaser hereunder without interest or compensation and upon such rescission and upon repayment of the instalments of purchase price this Agreement shall become null and void as if the same had not been entered into and neither party hereto shall have any claim against the other in respect thereof.

The respondents obtained the buildings ordinance permit on 17 November 1971, and the work started on 11 December  1971. On 18 June  1972, part of the hillside near the Po Shan Road, above the building site, slipped down the hill, and debris from collapsed buildings and many hundreds of tonnes of earth obliterated the building works already completed. As a result, the work could not continue, and the buildings ordinance permit lapsed. The flats were eventually built some time later. The respondents contended that the contract had been frustrated. The Privy Council held that the landslip was a frustrating event, interrupting the performance of a contract, and was an event of such a character and duration as to make the contract, when resumed, a different contract from the contract when broken off. Accordingly, the effect of the event should have been considered at trial as it had to be considered by the parties when they came to know of the cause and the probabilities of delay and had to decide what to do. Further, the clause in question could not be construed as making provision for the possibility of this particular unforeseen contingency. It was a general clause, which came at the end of a contract replete with specific provisions and time limits and conferred upon the vendor a remedy of rescission if a dispute arose or if it became clear that he could not complete in accordance with the contract provided he acted “forthwith” to terminate the contract. It did not follow, from the provision of a summary

55  (1980) 13 BLR 81.

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remedy avoiding litigation in such circumstances, that the parties must have agreed that their contract could continue after such an unforeseen natural disaster. Here, an unforeseen natural disaster caused the doctrine of frustration to be applied. In situations where the delay is caused by acts of the public, there can also be frustration. This was seen in the Australian case of Codelfa Construction Proprietary Ltd v State Rail Authority of New South Wales,56 where a rail authority commissioned the construction of a railway. Codelfa agreed to excavate two tunnels for the Authority, at a price calculated on the basis that excavation work would proceed around the clock, seven days per week. The work was authorised by the City and Suburban Electric Railways (Amendment) Act 1967 NSW, which provided that Codelfa would not be restrained from blasting or causing a nuisance. The contract was made on the explicit understanding that the work could proceed on this basis, even though it involved considerable noise and vibration, because the parties believed that the Authority was immune by statute from actions for nuisance. The local council and residents, nevertheless, brought an action, and an injunction was granted. Codelfa’s undertaking not to carry out noisy work at night or on weekends settled the litigation. As a result it incurred extra costs in carrying out the work. In the written contract, Codelfa acknowledged that it knew all the conditions involved in carrying out the Works and would carry them out regardless of their difficulty. However, after the injunction was issued, Codelfa claimed compensation for the extra costs and argued that there was an implied term in the contract entitling them to this, if the work was impeded by an injunction. It also argued that the contract was frustrated from the time of the injunction, and they were entitled to be paid for the value of the work done afterwards, on the basis of a quantum meruit. The issue related to whether the effects of the injunction resulted in a totally different situation based on the true construction of the contract. As to the contract, it was agreed upon that the project should be completed within 130 weeks. Similarly, the contract assumed that an injunction would not affect the operations of the construction company as agreed upon, which is a three-shift six-day workweek and without restrictions on Sundays. Here, the judge declared that the situation was significantly and radically different from the original agreement considered in the contract and that the contract had been frustrated by the injunction. Thus, in this case, the contract was discharged by frustration. The existence of frustration is tested in a couple of ways. One is the implied term theory as stated in Taylor v Caldwell.57 In this case Caldwell concurred to let a music hall to Taylor so that four performances could be held there. The court stated that the claim for breach of contract had to fail in view of the fact that it had become impracticable to accomplish. The contractual obligation was reliant upon the sustained subsistence of a specific entity. It should be noted here that the theory appears to be that, in agreements in which performance relies on the sustained existence of a specified person or thing, it is implied that the unfeasibility of performance being caused by the perishing of the individual or thing shall forgive the performance.

56  (1982) 149 CLR 337. 57  [1863] 3 B&S 826.

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Another test is characterised by the radical change in obligation. This is presented in the case of Davis Contractors v Fareham UDC.58 In that case, Lords Reid and Radcliffe asserted that the “radical change in the obligation” test required the court to interpret the contractual stipulations in the light of the agreement and immediate state of affairs at the moment of its conception. It is also necessary to scrutinize the new conditions and come to a decision on what would transpire if the presented conditions were applied to it. In the Codelfa case, there was an established frustrating event, the injunction provided by the court. To this end, the contract is discharged right there and then. This means everything that the company, Codelfa, had completed, with regards to their obligations, continued to be binding; however, the moment the injunction was served, the obligations performed by the company became non-binding. Thus, frustration takes place at any time when the law acknowledges that, devoid of the nonpayment of either party, the obligation has become incapable of being carried out since the situation is radically different from the original contract and that the demanded obligation is impossible to carry out. Moreover, the courts have also taken into account, in the context of deciding on a contract being frustrated, the extrinsic evidence on the surrounding material circumstances. Extension of Time Force majeure and frustration aside, that leaves the actual granting of an extension of time by the employer to the contractor, and thus if events occur which prevent the contractor completing on time, and for which the employer is not responsible, and without any clause in the contract allowing any extension of time, the contactor, in the absence of force majeure and/or frustration, will be held liable for delay even if it is not due to any fault on its part. The general rule has the potential to create difficulty given the complexity of building projects: in particular, the potential for delay for reasons outside the control of the contractor or which could not have been foreseen at the time of contracting. In addition, it is to the employer’s advantage to be able to have the completion date adjusted to take account of any delay or prevention on the employer’s part (since such delay or prevention would otherwise nullify the employer’s right to liquidated damages for delays for which the contractor is responsible).59 Because of this, most common construction contacts have a built-in mechanism allowing the grant of an extension of time in specific defined situations. An extension clause enables the contractor to undertake the contract with greater certainty as to his potential liabilities. The employer, on the other hand, is enabled by the extension clause to insist on maintaining a fixed date for completion, albeit a delayed date.60

When these type of clauses appear, they, in effect, apportion the risk between employer and contractor. It should be noted that most standard form construction contracts list the various events for which an extension of time is to be granted, and both in standard 58  [1956] AC 696. 59  See e.g. ibid. at ftn 13. 60  Ibid.

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forms and in bespoke contracts, the drafter (or amender) should take care to not too severely limit what events qualify but rather take a broad approach. An example of what not to do comes from the case of Rapid Building Group Ltd v Ealing Family Housing Association Ltd,61 where the contract did not have any clause providing for an extension if the employer delayed in giving possession of the site. So when such a delay occurred, the contractor was released from the specified completion date, thus ending the employer’s right to liquidated damages. Standard Forms – Relevant Events and/or Compensation Events Both the JCT 2011 and the NEC3 contain what are referred to as either “relevant events” (JCT 2011) or “compensation events” (NEC3), but no matter what they are called, they both entitle the contractor to an extension of time in which to complete the works.62 Relevant events under the JCT 2011 the include such items as: variations instructed by the employer;63 deferment of giving possession of the site;64 any impediment, prevention or default of the contractor by the employer, the architect, quantity surveyor or other of the employer’s persons;65 exceptionally adverse weather;66 loss or damage by a specified peril;67 and strikes.68 Similarly, NEC3 provides for extensions of time for similar events but refers to them as “compensation events”. The NEC3 suite sets out Compensation Events at Clause 60.1. As an example the Compensation Event for weather is defined at Clause 60.1(13) as occurring when: (13) A weather measurement is recorded • within a calendar month, • before the Completion Date for the whole of the works and • at the place stated in the Contract Data the value of which, by comparison with the weather data, is shown to occur on average less frequently than once in ten years. Only the difference between the physical conditions encountered and those for which it would have been reasonable to have allowed is taken into account in assessing a compensation event.

As the last part of this clause makes very clear, it is only the difference between the actual weather recorded and the average one-in-ten-year value that is considered when assessing the Compensation Event. Also covered in the NEC3 in Clause 60 are variations where the employer does not allow access to the site; the project manager gives an instruction to stop work; the contractor encounters physical conditions, other than weather

61  (1984) 29 BLR 5, CA. 62  JCT 2011, cl 2.29, for the purposes of cl 2.27 and 2.28; NEC3, cl 60 and cl 63.3. 63  JCT 2011, cl 2.29.1. 64  JCT 2011, cl 2.29.3. 65  JCT 2011, cl 2.29.7. 66  JCT 2011, cl 2.29.9. 67  JCT 2011, cl 2.29.10. 68  JCT 2011, cl 2.29.12.

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conditions, which no experienced contractor would have judged on entering the contract as having a sufficient chance of occurring so as to allow for them; or an event occurs which is expressly at the employer’s risk – and the list goes on. Concurrent Delay Issues Whilst this subject is covered in greater detail later in this book a real issue arises as to how to deal with a situation where something has occurred which would entitle the contractor to an extension of time under the contract and at the same time (concurrently) some sort of delay caused by the contractor or which can be categorised as at the contractor’s own risk. As an example in De Beers UK v ATOS Origin IT Services UK,69 the court held that the contractor was entitled to an extension of time where there were such concurrent causes of delay, but that the contractor could not recover in respect of loss caused by the delay. But then in City Inn Ltd v Shepherd Construction Ltd,70 the court in Scotland held that in such circumstances it will be open to the decision-maker, whether the architect, or other tribunal, approaching the issue in a fair and reasonable way, to apportion the delay in the completion of the works occasioned thereby as between the relevant event and the other event.

But then in Walter Lilly & Co Ltd v Mackay,71 which involved the 1998 form of JCT contract, the court wrote: I am clearly of the view that, where there is an extension of time clause such as that agreed upon in this case and where delay is caused by two or more effective causes, one of which entitles the Contractor to an extension of time as being a Relevant Event, the Contractor is entitled to a full extension of time.

Many authors,72 including this one, feel that the court’s holding in Walter Lilly & Co Ltd affirms the position under English law,73 but it is submitted that it is more consistent with the correct interpretation of the JCT form of contract and avoids adding the complication of assessing the parties’ relative responsibility for the delay. Other Related Delay Issues A related subject has to do with variations and extras which are instructed by the employer which should be covered in bespoke contracts and which are covered in detail in most standard form contracts such as the JCT 2011, cl 5.1 and NEC3, 60.1, and under both the result of any such variations is to extend the completion date for the contact so that the

69  [2010] EWHC 3276 (TCC), (2010) 134 ConLR 151. See also Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 ConLR 32, TCC. 70  [2010] CSIH 68, (2010) 136 ConLR 51. 71  [2012] EWHC 1773 (TCC), (2012) 143 ConLR 79 (JCT 1998). 72  Ibid. at 59. 73  See also the analysis in Bluewater Energy Services BV v Mercon Steel Structures BV [2014] EWHC 2132 (TCC), 155 ConLR 85.

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“extra” work can be done and also extend the date from which the contractor becomes responsible for liquidated damages. Thus if any contract has a defined completion date, along with an extension(s) clause as well as a liquidated damages clause, and any delay falls within the terms of the extension clause, the effect of the delay will be to delay the completion date by the determined length of time, and any liquidated damages to which the employer would be entitled would start from the new calculated completion date. However, where a delay caused by the employer does not fall within the extension clause or there is no extension clause, time will be at large and there will thus be no date from which liquidated damages can run.74 If an employer, in those circumstances, cannot establish an entitlement to liquidated damages then he is not prevented (provided that the terms of the contract do not confine the employer’s remedy for delay to liquidated damages) from pursuing a claim for unliquidated damages. The Court will determine such a claim allowing for any delay attributable to the employer’s ordering of variations.75,76

Other related items in this regard include the situation where the employer instructs additional work but either forgets to extend the time or agrees to complete within the same time period then the situation develops that, lacking any additional time agreement being stated and if the additional amount of work appears to be onerous, the court may construe the contract as meaning that only the specified works will be completed by the time specified.77 However, where a contract is construed such that it contemplates that certain additional works may be ordered to be completed by the date specified in the contract, it will be enforceable despite being onerous on the contractor.78 But what if the contractor is guilty of delay, and then the employer, despite this, orders additional work or a variation which also increases the time for completion – what happens then? The standard form contracts try to deal with this, and by way of example, the NEC3, Option X7, cl X7.2 provides that if the completion date is changed to a later date after delay damages have been paid, the employer repays the overpayment of damages with interest, but in the preceding example, the contractor has failed to perform and complete on time and afterward receives a variation request. It should be noted that whilst an instruction of a variation is a “relevant event” pursuant to JCT 2011, cl 2.29.1, the JCT 2011 does not make express provision for this situation, and as a result, the presence of an extension clause, together with provision for liquidated damages, means that a variation ordered during a period of culpable delay will not have the effect of setting time at large.79 It should also be noted that in Balfour Beatty Building Ltd v Chestermount Properties

74  Wells v Army & Navy Co-Operative Society (1902) 86 LT 764; SMK Cabinets v Hili Modern Electrics Pty [1984] VR 391 (Supreme Court of Victoria). See also Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111. 75  McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1, CA. 76  Ibid. at 59. 77  Dodd v Churton [1897] 1 QB 562, CA. 78  Jones v St John’s College Oxford (1870) LR 6 QB 115; Sattin v Poole (1901) 2 Hudson’s BC (4th Edn) 306, DC. Also see ftn 59. 79  Ibid. at 59.

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Ltd,80 the contractors argued that a variation instructed after the completion date but before completion discharged the entire contractual structure relating to liquidated damages. The court however rejected this as it would defeat the underlying contractual purpose of the completion date/extension of time/liquidated damages regime, which is to arrive at the aggregate period for completion of the work, having regard to the occurrence of noncontractor’s risk events and then to calculate the extent to which the completion of the works has exceeded that period. One way to handle such situations is for the architect to re-calculate based upon taking as the starting date the actual agreed completion date and then calculating a new completion date forward from this, taking into account the extension which should be allowed for the extra work represented by the variation order, even though this may mean setting a new completion date falling some time prior to the date on which the variation was ordered.81 Time Is of the Essence Provisions Most construction contracts contain a clause stating that “time is of the essence”, and the problem arises that such clauses may not be operationally the same in construction contracts as they are in other types of agreements. Generally, contracts specify dates for the performance of various obligations, and even if specific date is not listed in the contact, the courts will imply that performance will occur within a reasonable time. The issue becomes that if the date is not adhered to, then is the statement “time is of the essence” a condition such that there has been a fundamental breach entitling the innocent party to rescind or terminate the contract, or is time not of the essence, meaning only an action for damages is applicable? Whether time is of the essence depends on the intention of the parties, and as a result “time is of the essence” provisions are used not merely to indicate time is important, but rather so that breach of a time obligation will be treated as a condition thereby allowing the non-breaching party to rescind or terminate the contract and obtain damages. Normally “time is of the essence” clauses are used in real estate and sale of goods commercial matters where there is some express reason for demanding strict adherence to a rigid time schedule. As an example, in Union Eagle Ltd. v Golden Achievement Ltd.,82 the purchaser in a conveyancing transaction delivered a deposit cheque ten minutes late. In response, the vendors elected to rescind the contract, relying on the missed time deadline and the “time is of the essence” clause in the contract. The court upheld the vendors’ rescission of the contract on the basis that the parties made express provision for the event, and commercial certainty demanded the contract be enforced. Specifically, the court wrote: In many forms of transaction it is of great importance that if something happens for which the contract has made express provision, the parties should know with certainty that the terms of the contract will be enforced. The existence of an undefined discretion to refuse to enforce the contract on the ground that this would be “unconscionable” is sufficient to create uncertainty. Even it is most unlikely that a discretion to grant relief will be exercised, its mere existence enables litigation to be employed as a negotiating tactic. 80  (1993) 32 ConLR 137, 62 BLR 1 (JCT 1980). 81  Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452, CA. 82  [1997] 2 All E.R. 215 (P.C.).

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The realities of commercial life are that this may cause injustice which cannot be fully compensated by the ultimate decision in the case.

This rather strict approach is generally less severely enforced in construction contracts with the reasons being that due to the nature of construction contracts, they usually have their own “internal remedies addressing delay” so as to avoid the disproportionate effect of the remedy as compared to the breach, particularly when a building contract is only partially performed. Indeed, construction contracts are different from agreements for the sale of goods or real estate as they involve various stages of development, numerous parties and countless variables. Additionally, delay is often consequential, expected and outside the control of either party. Moreover, most construction contracts incorporate a variety of terms compelling the contractor to perform its duties in a timely fashion; for example, liquidated damages and express termination provisions specifically address delays in performance. These specific clauses may well override a generic clause declaring time to be of the essence as they raise the question as to whether the parties intended the clause to operate in a field occupied by an express provision. Indeed, there is a good argument that where a party stipulates for liquidated damages, it has declared an intention that damages are an adequate remedy, meaning the time obligation is not a condition that would entitle that party to terminate the contract. Another difficulty in giving effect to “time is of the essence” clauses in construction contracts as compared to real estate contracts is the sheer number of time references in construction contracts for various duties, obligations and notices. At that point, it is a matter of construction as to the scope of the clause. Is it intended to apply to every time stipulation in the contract or only the really important ones? And, how does one determine which deadlines are important and which ones are unimportant? It is likely a court will construe the clause narrowly and in a manner that avoids permitting termination of the contract.83 Generally, the view84 is that unlike a missed deposit in a conveyancing transaction, a missed time deadline in a construction contract may well arise after substantial performance, leading to concerns of unjust enrichment. Accordingly, there may be reluctance in arriving at an interpretation that permits termination. This general approach in construction contracts and the reasoning behind that approach are reflected in the comments of I.N. Duncan Wallace in Hudson’s Building and Engineering Contracts:85 However, in examining a contractor’s obligation to complete his work to time, construction contracts differ very markedly from nearly all others in that the contractor can be expected to have expended very heavily in performing the contract prior, for example, to a relatively trivial delay after completion, and also that upon fixing of the work to the soil the property in it will have passed to the owner irrespective of the degree of payment, thus conferring a major and irretrievable benefit on the owner as against a possibly only minor or nominal

83  See e.g. Phillip J. Scheibel, Canada: Time Is of the Essence, Mondaq Feb. 13, 2009, Dentons (Canada), www.mondaq.com/canada/x/74398/Building+Construction/Time+Is+Of+The+Essence. 84  Ibid. 85  I.N. Duncan Wallace, Hudson’s Building and Engineering Contracts, 11th ed. (London: Sweet & Maxwell, 1995) vol. II at p. 1107.

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loss suffered by him. No doubt for these reasons the courts have shown an exceptional assiduidity in avoiding a time of the essence interpretation of the contractor’s completion obligation in construction contracts, it would seem even in cases where express language has been used in the contract.

This comment flows from the intent of the parties – e.g. the parties would probably not expect the contract to be terminated where a contractor is a day late for some matter or the other on a contract of long duration, and, equally, probably not expect the contract to be terminated where the owner is a day late with a progress payment. More difficult are the cases of significant delay on a significant matter. Even then, however, it is suggested that the use of a general “time is of the essence” clause is ambiguous and therefore suspect.86 Basically the mere insertion of a clause declaring time to be of the essence in a construction contract, unlike its insertion in other contract forms, will not normally, in and of itself, allow the innocent party to rescind or terminate the contract for any breach of a time condition. In determining the party’s intentions, the court will look to all the particular terms and circumstances and may well import little meaning to the “time is of the essence” clause. In this regard construction contract drafters should be aware of the potential limitations of a “time is of the essence” clause and give some thought to how they use such clauses. Generic or boilerplate use may result in the clause having little or no meaning, even in the face of a significant delay. Drafters may wish to be more selective in the employment of such clauses or alternatively consider other more particular contractual measures to address delay87 – a subject covered throughout this book. There are several noteworthy cases dealing with this issue of “time is of the essence”, and in United Scientific Holdings Ltd v Burnley Borough Council 88 and in Charles Rickards Ltd v Oppenheim,89 the holding in each went to the point that where time is of the essence, timely completion will be a condition of the contract, such that a failure by a contractor to complete the works on time will entitle the employer to treat the contract as repudiated. Furthermore, in the rare case of entire contracts, if time is of the essence and the contractor fails to complete the work in the specified time, it is not entitled to payment for the work done. It should be remembered that in a building contract situation, time does not automatically become “of the essence”, and in Hayes (t/a Orchard Construction) v Gallant,90 the court was clear that it will not be considered as such in the absence of express language stating that it is “of the essence”. And in Lucas v Godwin91 the court wrote that an obligation to complete building work by a specified date was not a condition of the contract, but was instead a stipulation, the non-observance of which entitled the claimant to recover damages. In order to determine whether or not time will be of the essence in a particular building contract, note should first be taken of the division of contractual terms taking the form of promises into three categories: conditions, innominate terms and warranties. For 86  Ibid. at 83. 87  Ibid. 88  2 All ER 62, HL; AC 904, HL. 89  [1950] 1 KB 616, CA. 90  [2008] EWHC 2726 (TCC). 91  (1837) 3 Bing NC 737.

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time to be of the essence, as the court wrote in Bunge Corpn v Tradax Export SA,92 it must be a condition of the contract. Conditions are terms of crucial importance to the contract, the mere breach of which automatically gives the innocent party the right to treat the contract as at an end and be excused from all subsequent performance thereunder, as well as to seek damages in respect of the unperformed obligations of the party in breach.93 If the term dealing with time is construed as merely an innominate term or a warranty, unless the breach is very serious or substantial, it will give rise only to an entitlement to damages. In determining the status of terms dealing with time, the courts have tended to consider whether time is of the essence to a particular term or terms in a contract, rather than as to the contract in general.94 The court in Bunge Corpn v Tradex SA95concluded that time will be of the essence in three types of cases: (1) where the contract expressly so stipulates,96 (2) where the circumstances of the case or the subject matter of the contract indicate that the time for completion is of the essence and (3) where a valid notice to complete has been given.97 It should be noted however that just having casual discussions as to when the employer would like to have completion or even more serious chats where the employer emphasises the importance of completion of the works by a particular date will not suffice to make time of the essence.98 Thus it comes down to whether a particular term dealing with time is a “condition” (or condition precedent) thus making time of the essence or whether it is merely an “innominate term” or warranty. To reach this decision a court is likely to consider the precise form of words used, and to consider how they interact with the contract as a whole, and thus in Anglia Commercial Properties Ltd v North East Essex Building Co Ltd,99 the court held that the failure of the defendant developers to develop the claimant property company’s site within the contractually stipulated four-year period was a “mere breach of warranty” given the contractual circumstances. Further, in several other cases such as Lowther v Heaver,100 Charles Rickards Ltd v Oppenheim101 and Gibbs v Tomlinson,102 the respective courts took the view that where a term which appears to make time of the essence is inconsistent with other terms, such as those permitting extensions, time is unlikely to be of the essence. And in Lamprell v Billericay Union,103 the court held that time cannot be of the essence to the contract where there is a provision for the payment of liquidated damages for delay or where there is a bonus for such as where the terms provide a mechanism allowing for an extension of time.104

92  [1981] 2 All ER 540. 93  Ibid. at 59. 94  Ibid. 95  [1981] 1 WLR 711. 96  See e.g. Boris Homes Ltd v Oakcliff Investment Corpn [1994] BLM (June) 5. 97  British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842, [1989] 3 All ER 492, CA. 98  Gibbs v Tomlinson (1992) 35 ConLR 86. 99  (1982) 266 Estates Gazette 1096. 100  (1889) 41 Ch D 248, CA. 101  [1950] 1 KB 616, [1950] 1 All ER 420, CA. 102  (1992) 35 ConLR 86. 103  (1849) 3 Exch 283. 104  See e.g. Webb v Hughes (1870) LR 10 Eq 281; Hartley v Hymans [1920] 3 KB 475; Lock v Bell [1931] 1 Ch 35, [1930] All ER Rep 635.

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One other approach to creating “time is of the essence” situations can be found in cases such as United Scientific Holdings Ltd v Burnley Council and HDK Ltd v Sunshine Ventures105 where time was also made of the essence despite not having been the case by giving of “reasonable notice, after the original – or a reasonable – time for performance has expired”. Or the other way around: the court in Charles Rickards Ltd v Oppenheim106 found that whilst time had been of the essence, this was no longer the case due to waiver or otherwise. And in Taylor v Brown107 and in Obrascon Huarte Lain SA v A-G for Gibraltar,108 the courts held that the employer still has a right by notice to fix a reasonable date by which to require completion of the work, and in such case, if the contractor does not complete by that date, the employer may dismiss the contractor. But in British and Commonwealth Holdings plc v Quadrex Holdings Inc,109 the court wrote that in determining reasonable periods of time in which to complete, it would not take into account the financial circumstances of the defaulting party, and then in Behzadi v Shaftesbury Hotels Ltd,110 the court there stated that it was the circumstances surrounding the facts which determined what was a reasonable time. And finally in United Scientific Holdings v Burnley Council,111 the court took the view that if a contractor fails to complete within the specified time, provided that the time limit was in fact reasonable, this constitutes a repudiation which the employer may accept. JCT, NEC3 and Others Generally, the JCT and NEC3 forms of contract appear not to be concerned about “time being of the essence” as they both have detailed provisions for extensions of time,112 and as a result these form contracts provide only one relief, with liquidated damages being the main remedy for delay; see e.g. JCT 2011, cl 2.32, NEC3, Option X7. Many writers,113 including this one, are of the mind that such elaborate provisions for time extensions are inconsistent with the making of time being of the essence. But what is an employer to do in situations where the contractor is blatantly disregarding the provisions of the contract re completion; can the employer consider this a major breach, in essence a violation of the “understood” underpinnings of time is of the essence and terminate the contract? The JCT provides for just such situations, and at Clause 8.4 of JCT 2011, there is language which identifies in detail the circumstances in which the right of determination will arise and the method by which a determination shall be effected. Despite all of this it should be clear that as the court wrote in Charles Rickards Ltd v Oppenheim,114 where time is not made of the essence, a party which is late in giving

105  [2009] EWHC 2866, QB at [87] to [89]. 106  [1950] 1 KB 616, [1950] 1 All ER 420, CA. 107  (1839) 2 Beav 180. 108  [2015] EWCA Civ 712, 161 ConLR 14, [2015] BLR 521. 109  [1989] QB 842 at [859]–[860], [1989] 3 All ER 492, CA. 110  [1992] Ch 1, [1991] 2 All ER 477, CA. 111  [1977] 2 All ER 62. 112  See e.g. JCT 2011, cls 2.26–2.29. 113  Ibid. at 59. 114  [1950] 1 KB 616, [1950] 1 All ER 420, CA.

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performance will be liable to pay either liquidated damages, if provided for in the contract, or damages which reflect any loss to his employer by reason of the delay. Delay Analysis – Methods and Types A useful guide can be found in the Society of Construction Law Protocol for delay and disruption, which provides a useful guidance on some of the common issues that arise on construction projects, where one party wishes to recover from the other an extension of time and/or compensation for the additional time spent and the resources used to complete the project. The purpose of the Protocol is to provide a means by which the parties can resolve these matters and avoid unnecessary disputes.

And whilst this is not a contract document, it provides a way forward and gives good approaches for the parties to use. The SCL Protocol provides helpful guidance and is divided into four sections titled: 1. Guidelines on the Protocol’s position on Core Principles and on other matters relating to delay and compensation; 2. Guidelines on preparing and maintaining programmes and records; 3. Guidelines on dealing with extensions of time during the course of the project; and 4. Guidelines on dealing with disputed extensions of time issues after completion of the project – retrospective delay analysis. Whilst these topics are covered in great detail later in this book, it is good to give an overview of the various methods currently in use to perform an analysis of any claimed/ actual delay. Where there have been delays in the completion of works, different methodologies have been devised to assist in determining the causes of the delays. There are four main methods: 1. 2. 3. 4.

As-planned versus as-built Impacted as-planned Collapsed as-built Time impact analysis

As-planned versus as-built This method compares the planned works with the works that eventually occurred and is simple to use and is usually the least expensive method. The SCL Protocol notes that “it is a useful starting point in relation to other, more complex methods of analysis”. The problem with this method however is that it is not able to identify concurrency, mitigation, acceleration, sequence, etc., and it really only works if there are good records available for both the as-planned and as-built programmes.

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Impacted as-planned Under this method, unlike the first example, this situation involves taking the planned programme and adjusting it over the course of the project to reflect the events which may impact on the length of a programme. Unfortunately to those attempting to determine delay, the problem arises that the effects which the events may have are purely theoretical and are dependent upon the feasibility of the as-planned programme. Collapsed as-built Here one first looks at what was actually built and then subtracts out, in reverse chronological order, the events which have caused the delay, leaving a programme minus the delaying events – thus the end result should be the date the works would have been completed but for the events. Unfortunately, as in the impacted as-planned method, this method relies upon estimates being made as to the effects of particular events on the programme, as well as on having to hand a reliable record of what was actually built. Time impact analysis Currently in the construction industry this method is the most popular and most accurate and involves consideration of the state of progress of the project prior to the delaying event in question and then impacting the effect of that delaying event on the Contract Programme in order to establish the time effect of that event, in particular the delay to the Project Completion Date. In effect it looks at the position at the time of a delaying event and then looks at the predicted impact that delaying event would have on the programme of works. This method has the advantage that it can deal with more complex scenarios such as concurrent delays. Critical Path The critical path of a project shows the various defined activities of a project linked together in a logical way, and thus the total of all of these equal the overall time a project takes. There may be more than one critical path. If an activity on the critical path is delayed, the duration of a project will be extended accordingly: this is known as a critical delay. Critical path programmes are often used in more complex delay claims to show cause and effect of relevant events. Events that are not on a critical path will therefore not delay the completion of works (non-critical activities). As the court wrote in Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup Partners International Ltd:115 As computers have become more sophisticated, the critical path analysis has been enabled to become more sophisticated. This has become an invaluable tool which enables a complex construction project to be managed with better available information. The analysis will

115  [2007] EWHC 918 (TCC) at [129].

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identify at a given date which important aspects of the project are falling behind the programme, particularly if they are on or close to the critical path; what, if any, is the impact on other aspects of the programme and where additional resources need to be placed. It will also demonstrate where activities are ahead of what is planned and enable a decision to be taken on whether planned activities need to be rescheduled.

In this regard the various types of computer programmes currently in use and their benefits and drawbacks are discussed later in this book. “Float” of non-critical works “Float” refers to the non-critical time between critical events on a critical path and is also included on a critical path to allow for activities taking longer than planned and expected. Float is calculated by the amount of time in excess of the intended time before it impacts on the critical path. Disruption Disruption, also covered in detail later, is different than delay as it does not necessarily result in a delay to completion. It is best described as an event which reduces the efficiency and productivity of the works, and some common examples of causes of disruption are variations to the works; the employer disrupting the works; the late provision of instructions, plans or information; and the weather.

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CHAPTER 6

Delay Analysis Tools

The underlying problem with delay, which should be obvious, is that for the employer/ owner in a NPP project, any delay in completion denies them the benefits they had hoped to achieve by timely performance, which may vary from slight inconvenience to major financial losses due to varying interest rates, lack of occupancy, lack of use of the proposed project and numerous other factors – the simplest of which is that the owner contracted for a specific project to be completed on a specific date and did not get what was bargained for. Especially if the owner/employer was not at fault, then, as far as the owner is concerned, it is breach of contract … “pure and simple” … or that is the view most owners take. However, from the contractor’s point of view, any delay means loss of money, stature and inability to proceed with other work … with equipment laying idle, not being able to be put to use properly, re-scheduling difficulties, more home and site office expenses whilst the delay is dealt with, idle labour and possible inability to procure other new work. As mentioned in the Preface, two of the newest NPPs (Argentina and USA) took 33 and 44 years respectively to erect. Indeed, delay has a long and sad history both in the UK and elsewhere around the globe. Milan Cathedral, for example, took more than 500 years to complete, beginning with medieval bishops and ending with Napoleon. The wilful, vegetable-like Expiatory Temple of the Holy Family, Barcelona (better known as the Sagrada Familia, designed by Antoni Gaudi) is still nowhere near completion more than a century after work began.1 Other lesser buildings over the years took several generations of builders to complete, but these were all hand-crafted. In the contemporary world however not much has changed, with several examples here in the UK such as the British Library, which at £445 million was both severely delayed and the UK’s most expensive building of the last century. This is followed closely by the Channel tunnel which was first proposed in the early nineteenth century. And worldwide let us not forget the Sydney Opera House, which started in 1958 but was not completed until 1973, or the Panama Canal’s third set of larger locks, which had the first ship go through in June 2016 and was a massive expansion project which was more than a year and a half behind the original target date of October 2014 and an estimated $150 million over the $5.25 billion budget set a decade earlier. The list is endless and thus the purpose of this book – in how to deal with delay and disruption and their close companion “prolongation”.

1  See Jonathan Glancey, What Took Them So Long? The British Library Saga Has Precedents. Jonathan Glancey Looks At Other Building Marathons, Independent, 11 July 1994, www.independent.co.uk/voices/whattook-them-so-long-the-british-library-saga-has-precedents-jonathan-glancey-looks-at-other-1413100.html.

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As has been discussed in other chapters, delay and the resulting claims and disputes are most usually dealt with through specific contract provisions which also provide a method for their resolution, e.g. dispute boards, arbitration, etc., and certain types of delay are also excused, and for what remains, it then falls to either the employer or the contactor to bear the burden of any particular form of delay. In those situations, where there is no specific contract provision for dealing with delay issues, there is recourse to local legislation such as the Housing Grants Act in the UK and similar type legislation elsewhere all aimed at providing a reliable and fast method for sorting out delay claim issues. The real goal however is to manage potential delay issues during the works themselves so that they are resolved to everyone’s satisfaction. Unfortunately delay issues frequently turn into claims situations and subsequently disputes, and then these disputes are often resolved through expensive forms of dispute resolution such as court litigation and with the high cost attendant to such endeavours. The Dispute Resolution Federation in Geneva estimates that worldwide, the costs of such disputes exceed £130 billion on an annual basis. Delay and Disruption Claims The term “claim” is defined in the context of construction projects as any application by the contractor, whether for an extension of time, payment, or otherwise, which arises other than under the ordinary contract provisions for payment of the value of work.2 From a legal perspective, a claim can arise one of four ways:3 • • • •

Under express contract conditions – contractual claims For breach of contract at common law – common law claims On quasi-contractual or restitutionary basis – quantum meruit claims On “out of kindness” basis – ex gratia awards or claims

By far the vast majority of claims brought by contractors are based upon contract, either written or oral, and often result from the project’s delays and/or disruption4 and arise from some act of the employer – thus the employer’s responsibility, the contractor’s own responsibility or by neither party (e.g. Acts of God).5 Many writers,6 including this one, feel that most typically whomever is bringing the claim has to go through five main processes: 1. Establishment of contractual/legal basis for the claim (Liability) 2. Establishment of causal link between each delay and/or disruption event and the resulting extended duration and/or additional cost (Causation) 2  Braimah, Nuhu. An Investigation Into the Use of Construction Delay and Disruption Analysis Methodologies, 2008. 3  Powell-Smith, V. and Stephenson, D. (1989), Civil Engineering Claims. BSP Professional Books, London. 4  See e.g. Diekmann, J. E. and Nelson M. C. (1985) Construction Claims: Frequency and Severity, Journal of Construction Engineering and Management, 111(1), 74–81. 5  Ibid. at ftn 2. 6  See e.g. Lee, D. M. (1983). Time Impact Analysis-Forensic Scheduling. Liability in Construction Management, Proceedings, Symposium of the Construction Division, ASCE, in conjunction with the ASCE convention, Houston, Texas, Oct. pp.  43–55; Williams, T., Ackermann, F. and Eden, C. (2003). Structuring a Delay and Disruption Claim: An Application of Cause-Mapping and System Dynamics, European Journal of Operational Research, 148, 192–204; Klanac, G. P. and Nelson, E. L. (2004) Trends in Construction Lost Productivity Claims, Journal of Professional Issues in Engineering Education and Practice, 130(3) July, 226–236.

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3. Evaluation of effect and quantifying the amount of time and/or cost of the impacts (Quantum) 4. Compilation and submission of claim 5. Negotiation of settlement It should be noted that delay claims are not the same as those for disruption and indeed are two completely different heads of claims, although the two terms are often referred to as one – “delay and disruption”. Different methodologies are therefore used for analysing claims based on delay from those based upon disruption. However, due to the close association between events that cause project delay and or disruption, the actual proving of a claim usually requires a combination of two separate methodologies in order to develop a winning argument for contractual entitlement to additional time and/or money. In the context of construction claims, the term “delay”, in its most basic form, entails an increase in the time necessary to complete the project beyond that which was contemplated at the time the contract was signed. Damages under such claims usually involve claims for extended home and field office overhead, additional costs of financing and other time-related claim items;7 however and in contrast, the term “disruption” is used to describe any material alteration in the performance conditions that were expected at the time of tender from those actually encountered, resulting in increased difficulty and cost of performance8 and include changes in working conditions including “out-of-sequence work, trade stacking, unbalanced crews, excessive labour fluctuations, overtime, and working in adverse weather conditions”.9 It has been noted that a typical result of disruption is loss in productivity as more labour and equipment hours will be required to do the same work in the end than would otherwise have been the case. The types of damages that are recoverable under delay claims and under disruption are therefore different. Another significant difference between the two heads of claims is that unlike delay damages, disruption damages can occur regardless of whether the project completion date changes or not. Delay in completion only occurs when the delays and/or disruption events lie on the project’s critical path. It is for this close association between delay and disruption that the two are often combined in the proof of claim.10 And in proving each, the delay analysis usually makes use of scheduling techniques based upon the Critical Path Method which are mostly analytical in nature involving impacting a form of the construction schedule with facts surrounding the claims to establish the amount of project delay caused by each of the parties involved. But the disruption analysis involves the collection of facts, particularly on productivity, and interpreting them to demonstrate cause-and-effect relationships between the alleged disruption events and the extra time and/or costs suffered as a result. This process is thought of as deductive and that of delay analysis as inductive

 7 Haese, G. H. and Dragelin, T. J. (2001) Types of claims, Chapter 1, in Proving and Pricing Construction Claims, Cushman, R. F., Carter, J. D., Gorman, P.J. and Coppi, D. F (ed.), Aspen Law & Business, New York.  8 Finke, M. R. (1997a), Claims for Construction Productivity Losses, Public Contract Law Journal, 26(3) 311–338.   9  Hanna, A. S. and Heale, D. G. (1994) Factors Affecting Construction Productivity: Newfoundland Versus Rest of Canada, Canadian Journal of Civil Engineering, 21, 663–673; Schwartzkopf, W. (1995), Calculating Lost Labour Productivity in Construction Claims, John Wiley & Sons, New York. 10  Ibid. at ftn 2.

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on the basis that the former often begins with moving from the general to the specific and vice versa for the latter.11 Complexity A mistake which is often made has to do with the idea that a delay event is a simple matter, and one only has to trace the days lost or attributable to the event to come up with an answer. What is forgotten in this type of thinking is the fact that delay and its quantification may have many variables all in play at the same time, and this is what leads to the problems encountered in making a claim for delay and disruption and/or loss of productivity. One example12 which is given is the situation where there is a delay in the issue of drawings to a contractor, which can bring about consequences such as out-of-sequence work, work stoppages, poor morale and diminishing of the learning curve. The effect of these then backs into the contractor working less efficiently than originally anticipated, which then manifests itself in additional cost being incurred and/or delay to the project completion as a whole. Then to complicate matters as a result and to overcome such delay, the contractor may be asked to accelerate the work or may do this constructively, which may result in parallel working with concomitant disruptions impacting negatively on productivity. Thus a very simple delay event such as the delay in issuing drawings to the contractor can evolve entropically into a very complex interaction involving many different events, which then become very difficult to unravel and sort out clearly into their individual causes and effects.13 To make matters worse, a more complex situation is often triggered when a number of changes or variations are ordered by the employer. The cumulative (synergistic) impacts of multiple changes are particularly difficult to understand (or worse yet, to present to a tribunal be it adjudicator, arbitrator or judge to resolve) and have been described as follows: when there are multiple changes on a project and they act in sequence or concurrently there is a compounding effect – this is the most damaging consequence for a project and the most difficult to understand and manage. The net effect of the individual effect of the individual changes is much greater than a sum of the individual parts.14

Part of the problem has arisen due to the fact that many individuals start the delay process by trying to void delay in the first place and/or have mechanism in place to deal with it in an amicable fashion so as to minimise it, and if that can’t happen, then to find a way to deal with it quickly to prevent further delay. As a result this has led to the procedures for amicable resolution of claims or, if possible, for complete avoidance of claims situations. Starting at the bottom, we have the need for the contracting parties using suitable contract language which contains appropriate the Alternative Dispute 11  Boyle, J. G. (2007) Productivity Claims: Beyond “Smoke and Mirrors”. AACE International Transactions. AACE International, Morgantown, WV. CDR.02.1- EST.02.10. 12  Ibid. at ftn 2. 13  Ibid. 14  Hester, W. T., Kuprenas, J. A. and Chang, T. C. (1991), Construction Changes and Change orders: Their Magnitude and Impac,. Construction Industry Institute (CII), Source Document 66 at 35, CII, Austin, Texas.

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Resolution (ADR) mechanisms. Moving up to the next level is the proper allocation of risk and the adoption of equitable risk allocation and a better understanding and interpretation of contractual provisions.15 It should be noted however “Equitable risk allocation” entails recognising known project risks and properly assigning them to the appropriate party. This is done based on a number of principles, but many writers16 agree with the main principal being that the responsibility for a particular risk under the contract should be assigned to the party that has the competence and capability to deal with it, should it arise. For example, it is unreasonable to assign the risk of project design to the contractor in projects procured using the traditional form of procurement. As a dispute-reduction strategy, the concept of risk allocation has been employed, over the past decade, to change the way projects are procured in the UK. These include the amendments of procurement routes and promotion of innovative procurement strategies such as Design and Build, Partnering and Public-Private Partnership/Private Finance Initiative. The use of these procurement methods, particularly for major works, is highly encouraged by the UK government.17 In this regard there are many form contracts available; as mentioned FIDIC is one and in the UK the Engineering and Construction Contract developed in the UK by the Institute of Civil Engineers is also contended to be one of the most innovative contract forms aimed at ensuring dispute-free projects.18 The main departures of this form from the other forms is that, not only does it divide the historical role of the Engineer/Architect between the Project Manager, Supervisor, the designer and the Adjudicator, it also deals with claims situations in a more comprehensive and effective manner. Following this is the debate over whether in an effort to minimise claims, more time and money should be allocated to a project’s design phase in order to reduce the number of changes to the contract.19 It should be noted that this recommendation is based on the fact that the majority of delay and disruption claims are caused by unforeseen/differing site conditions, variations and inadequate and inaccurate design information.20 Areas of particular attention recommended include increasing the design period, improving ground investigations and employing proper documentation checks.21 However, even if such suggestions are possible to implement, which is not always so in practice, the nature of construction is such that changes to the work are to be expected no matter how much effort is expended on the design. Generally, changes are inevitable due to the high level of uncertainty of the conditions in which construction projects operate (and the inability of designers to provide for all possible eventualities).

15  Ibid. at ftn 12. 16  See e.g. Ward, S. C., Chapman, C. B. and Curtis, B. (1991). On the allocation of risk in construction projects, International Journal of Project Management, 9(3), 140–147. 17  Ibid. at ftn 12. 18  Latham, Sir. M. (1994), Constructing the Team. Final Report of a Government/Industry Review of Procurement and Contractual Arrangements in the UK Construction Industry. Department of the Environment, London. 19  Wilson, R. L. (1982) Prevention and Resolution of Construction Claims, Journal of Construction Division, Proceedings of the American Society of Civil Engineers, 108(C03), 390–405. 20  See e.g. Ibbs, C. W. and Ashley, D. B. (1987), Impact of Various Construction Contract Clauses, Journal of Construction Engineering and Management, 113(3), 501–521. 21  Ibid. and at ftn 12.

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And, of course, there is the view that the best practice is to quickly resolve disputes whilst they are in their “infancy” rather than waiting until they grow and mature into monsters incapable of any resolution. This view can be seen in the UK’s Society of Construction Law’s adoption of its Delay and Disruption Protocol (which is discussed more in later chapters), which seeks to prevent the “wait and see” approach by promoting the resolution of matters of extension of time and cost compensations on an ongoing basis. Although, to a large extent, the protocol has had a good reception in the industry, the main criticism of it has been on the potential difficulty of implementing it in practice.22 Most of the protocol’s recommendations are based on proper preparation and maintenance of programmes and other project records, which are thought by some writers to be at variance with industry practice.23 Lack of a Uniform Approach Another issue which faces those in construction who deal with delay and disruption is that there are no clear guidelines or procedures for how to proceed and no uniform method to take a claim forward – each delay analyst has its own best method and frequently gives it a name different than a similar method used by someone else. Thus, as mentioned throughout this book, one finds that two delay analysts, each reviewing the exact same data, come to two sometimes wildly different results, and this causes the ultimate resolver, be it an adjudicator, arbitrator or judge, undue difficulties. To compound this situation there is also a lack of any specific guidance24 from the contracts used in the construction industry, which when coupled with poor planning and record keeping add to the misery. Indeed, as has been noted by other writers in this field, there are several acceptable delay and disruption analysis methodologies, each requiring a unique set of procedures and assumptions in their application.25 The differences in their approaches coupled with the way individual analysts deal with some subjective aspects of the analysis often lead to results of staggeringly different levels of accuracy for any particular delay and/or disruption claims situation,26 and as mentioned the various techniques and methodologies have different names either intentionally or given to them by the users, thus adding to the confusion. Nor is there any guidance as to which to use in determining what the delay and/ or disruption actually is and how it can be measured. Thus as has been noted27 analysts rely on their own judgement, which is generally based on their accumulated experience, expertise and intuition, which has been a recipe for disputes.28 Compounding the situation is the trend in the UK to use adjudication under the Housing Grants, Construction and Regeneration Acts 1996 instead of arbitration and in place of

22  Ibid. 23  See e.g. McCaffrey, G. (2003). Practical planning and the SCL Delay and Disruption Protocol. “The Devil is in the Detail”. Proceedings of seminar of Adjudication Society, Edinburgh, UK. Feb. 24  Ibid. at ftn 12. 25  See e.g. Callahan, M. T., Quackenbush, D. G. and Rowings, J. E. (1992), Construction Project Scheduling, McGraw-Hill, UK. 26  Ibid. at ftn 12. 27  Williams, T. (2003), Assessing Extension of Time Delays on Major Projects, International Journal of Project Management, 21, 19–26. 28  Ibid. at ftn 12.

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the courts, thus leaving practitioners unable generally to ferret out the underlying facts and law in delay claim cases as the private nature of these dispute resolution forums very rarely results in the publication of any decision related to delay and disruption, and thus any chance to learn from the practical experience of others in their use of the methodologies has been limited.29 Practical Considerations There have been several well-documented studies and surveys on the current problems facing delay and disruption analysis, with the leading one30 making the following points: 1. The majority of the respondents felt that delay and disruption claims are not often resolved contemporaneously in the course of project as is commonly recommended. They are rather resolved toward the end of the project or after and are also often attended by considerable difficulties leading to frequent disputes. 2. Delay and disruption analysis is a multidisciplinary task requiring the input of many experts from construction and consulting organisations. Quantity surveyors have the greatest involvement in all these organisations. This conflicts with provisions in most forms of contract as to the leading role of the Architect/Engineer in contractors’ claims assessments. This suggests the need for reviewing quantity surveyors’ functions towards better management of this role and their training needs. 3. The most frequent reasons for disputes over delay and disruption claims are failure to establish causal link, followed by inadequate supporting documentation on quantum and then insufficient breakdown of claims amounts. This suggests that the methodologies for proving causation and good records are important considerations in research seeking to avoid or reduce claims disputes. 4. Delay and disruption analysis methodologies that are reported in literature to have major weaknesses are the most well-known and widely used methodologies. Lack of adequate project information, poorly updated programmes and baseline programme not in CPM format were reported as factors posing obstacles to the use of these methodologies, particularly the more accurate and reliable ones. In addition, it was found that there are four main causes of problems affecting delay and disruption analysis: 1. The first is that contractors often prepare their construction programmes in linked bar chart format, which has logic difficulties when used for projects with a complex sequence of activities. Such programmes do not facilitate the use of more accurate delay analysis methods as they are highly based on CPM; 2. Second, most contractors produce their programmes using planning software packages that do not possess adequate functionalities for performing forensic analysis of project delays;

29  Ibid. 30  Ibid. at ftn 2.

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3. Third, programmes produced are usually not resource-loaded and levelled, which affects their reliability as a source of information for undertaking delay and disruption analysis; and 4. Fourth, contractors do not keep records of crew productivity for major activities, which makes it virtually impossible to analyse disruption claims using most reliable methodologies such as the measured mile technique. Thus, the problem is having a uniform method of delay analysis that is both accurate and uniform, not just for actual project but also for presenting claims regarding delay and disruption in a litigation setting. The study just mentioned also had several good solutions/ recommendations to these problems, these included:31 1. Employers should make it a contractual requirement for contractors to provide a fully resource-loaded and levelled baseline programme in CPM format, except for projects which are less complex. This should be produced using industry standard planning software and submitted to the employer or its representative for review and acceptance. The programme should be accompanied by a method statement on which it was based; 2. The contract should provide for joint review of the programme by the parties for purposes of checking its reliability and modifying it if necessary or accept it as is. This review should examine the programme for flaws and errors in respect of the project scope, activity details, durations and relationships. The review should also serve as a means of reaching agreement on some aspects of the programme and its updating. Aspects that need to be agreed on include the planning software used, project calendar, unit of planning, preferential logics used, major assumptions made in estimating activities durations and any contingencies factored into the programme for managing risk. Other issues that need consideration are the mode and frequency of updating, float ownership, records to be kept and their contents and frequency of site progress reporting; 3. The final accepted programme and its updates should be submitted electronically to the employer or his representative in addition to hard copy versions. Each update should be accompanied by a detailed progress report describing any changes in planned scope of project activities, their start and finish dates, logic and durations which are inconsistent with the previous progress report; and 4. Contractors should also be required to keep adequate documentation including records on daily site progress, original and actual job cost for each activity and records of crew productivity for major activities. One additional point that should be considered in all construction matters is at the start the parties should agree on a methodology to be used in case of any claims for delay and/or disruption so as to avoid the real problem of conflicting results and disagreement. Whilst money may be the mother’s milk of construction, time is the most critical element – when will it be done, what is lost if it is not done timely and a myriad of other

31  Ibid.

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issues that arise from the concept of time and the duration of any given project and ultimately the cost of the project. The list32 includes: 1 Claims by contractors against employers for extensions of time and/or for loss and expense; 2 Time delay to the project’s progress that caused the delay to one or more completion dates; 3 Prolongation of contractor’s and/or subcontractor’s time-related costs; 4 Delay to the job progress that caused loss and/or expense to be suffered by contractors or subcontractors; and 5 Reduction in productivity (or disruption) that caused loss and/or expense to be suffered by contractors and/or subcontractors. As previously mentioned one must be cautious in differentiating between “delay” and “disruption” and so too for the methods used in analysing each; thus you have “Delay Analysis Methodologies” and “Disruption Analysis Methodologies” (DSAM). In doing each of these, the necessary items for determination include types of delays; the resolution of concurrent delays; float ownership; resolving delays when programme shows early completion; delays experienced after completion date and the requirements for the production or assessment of delay and disruption claims.33 Delay Categories One of the difficulties facing any delay analysis is that there is no exact meaning for the term “delay” in construction contracts, and it can literally have many different meanings in the execution of any given project. It is generally accepted however that “delay” refers to occurrence(s) or event(s) that extend the duration of either the start or finish of any of the activities of a project. Most writers34 agree that delays therefore increase the time and cost allocated for executing the various project activities, resulting in project cost overruns and late completions. The latter effect will only occur when the delay lies on the critical path of the programme. Further it is common ground amongst those in the construction industry that the delayed completion of projects is generally caused by the actions or inactions of the project parties, including the employer, contractor, subcontractors and project designers/supervisors or none of these parties (e.g. acts of God).35 Based on these sources and the contractual risk allocation for delay-causing events, and as discussed in other chapters, three main categories of delays are generally recognised: excusable, nonexcusable and compensable delays. To reiterate, excusable delays are those against which the contractor is entitled to extension of time under the terms of the contract. The contractor is said to be “excused” from liability for liquidated damages for the period of the extension, which otherwise would

32  Ibid. 33  Ibid. 34  See e.g. ibid. 35  Ibid.

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have been payable to the employer. An excusable delay is therefore one for which the employer is generally responsible, although some excusable delays are outside the control of employers, e.g. exceptionally adverse weather conditions. Compensability concerns the issue of whether the contractor is entitled to extra payment on account of the delay. Thus, a compensable delay is one for which the contractor is entitled to such payment. There is generally no such entitlement for delay caused by events over which the contractor exercises some control, e.g. productivity of its labour or equipment.36 Whether a delay is excusable or compensable is a matter of the allocation of risk between the contractor and the employer, as defined in the contract based on a number of principles.37 Generally, the risks of project delays from events over which the employer has control or for which he is responsible are usually allocated to the employer. For such delays, the contractor is entitled to time extensions and recovery of extra cost consequential upon the delay; these are often referred to as “excusable compensable” delays. Examples include ordering variations and additional work and late supply of necessary information to the contractor. The risk of delays from events over which neither party has control, e.g. acts of God and strikes, are usually shared. The contractor is usually entitled to extension of time but not recovery of additional payment. Thus, the employer forfeits entitlement to recover delay damages from the contractor. This type of delay is referred to as “excusable non-compensable” delay.38 The contractor usually assumes the risks of costs and consequences of delay events which are within its control, e.g. shortage of staff or equipment, late mobilisation, etc. This type of delay is referred to as “non-excusable non-compensable” (NN) delay, which could be compensated to the employer in the form of liquidated or actual damages paid by the contractor for late completion.39 It should also be noted that there is a balancing between the terms compensable, excusable and non-excusable, which are from the perspective of the contractor. Thus a delay that is compensable is compensable to the contractor but non-excusable to the employer. On the other hand, a delay deemed non-excusable and non-compensable is compensable to the employer because it results in levying of liquidated damages.40 A further breakdown occurs as between “critical” and “non-critical” delays. Critical delays are those that cause delay to the project completion date whilst non-critical delays affect progress but not overall completion. Most contracts require that in order for delay to warrant an extension of contract time, it must affect the completion of the project (i.e. the delay must be critical). This provides the basis for the high importance attached to the use of the critical path method (CPM) of scheduling for proving or disproving time-related claims such as extension of time and prolongation cost.41 Following along these lines the terms “independent delays”, “serial delays” and “concurrent delays” are also used to describe delays based on the interrelation of the 36  Ibid. 37  Smith, R. J. (1995) Risk identification and allocation: Saving money by improving contracts and contracting practices. International Construction Law Review. Vol. 40, p. 40. 38  Ibid. 39  Ibid. 40  Ibid. 41  See e.g. Wickwire, J. M., Hurlbut, S. B. and Lerman, L. J. (1989) Use of Critical Path Method Techniques in Contract Claims: Issues and Development, 1974 to 1988. Public Contract Law Journal, 18, pp. 338–391.

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preceding delay types with respect to their duration and time of occurrence.42 Independent delays are delays that occur in isolation or without other consecutive or simultaneous delays while serial delays occur in sequence consecutively and not overlapping with each other on a particular network path. On the other hand, two or more delays in which their time of occurrence or effects overlap are often termed “concurrent delays”.43 As a summary, Figure 6.144 classifies the different types of delays based on their various attributes. Delay Classifications Many writers,45 including this one, feel that independent and serial delays are relatively easy to resolve compared to concurrent delays. The concept of concurrent delays has thus been the subject of much discussion and debate among researchers and practitioners and whilst covered in greater detail later in this book, a logical progression mandates it being touched on now. Concurrent Delay Synopsis There has always been a certain amount of disagreement by analysts and lawyers as to how exactly to approach concurrent delay, and this flows from the need for first resolving the interaction of many disparate elements, such as the time of occurrence of the delays, their length of duration, their criticality, the legal principles of causation and float ownership.46 And to complicate matters the resolution of these situations also involves the consideration of defensive views of the parties involved, such as argument over concurrent delays as delay-pacings strategy with the situation made worse by the lack of a uniformly accepted definition among practitioners as to what concurrent delays means in the first place.47 A good definition48 of concurrent delays arises from the situation in which two or more delays occur at the same time, either of which, had it occurred alone, would have affected the ultimate completion date. It means each of the delays must independently affect the critical path. Some argue that to be considered concurrent delays, the delays need not commence precisely at the same time as discussed in greater detail in later chapters. There is the view49 also that the delays need not occur in the same activity on the same critical

42  Ibid. at ftn 40. 43  Ibid. 44  The author is grateful to Braimah, Nuhu, An Investigation Into the Use of Construction Delay and Disruption Analysis Methodologies (2008) from which this diagram is taken. 45  See e.g. ibid. 46  Ibid. and also see e.g. Arditi, D. and Rubinson, M. A. (1995), Concurrent Delays in Construction Litigation, Journal of Cost Engineering, 37(7), 20–30. 47  Ibid. at ftn 45, see also Zack, J. G. (2000), Pacing Delays  – The Practical Effect, Journal of Cost Engineering, 42(7), July, 23–27, and SCL (2002) Society of Construction Law. Delay and Disruption Protocol, Printmost (Southern) Ltd, England (www.eotprotocol.com, accessed 22/08/2005). 48  See Rubin, R. A., Guy, S. D. Maevis, A. C. and Fairweather, V. (1983), Construction Claims: Analysis, Presentation, Defence, Van Nostrand Reinhord, New York. 49  Ponce de Leon, G. (1987) Theories of concurrent delays. AACE Transactions, Morgantown, WV.

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Employer

Neither party

Figure 6.1 Delay types and flowchart

Contractor

Responsibility

Extension of time only

Excusable noncompensable

Critical

Extension of time + prolongation cost

Excusable compensable

Excusability/ compensability

Delay classification

Liquidated damages

Non-excusable non-compensable

Concurrrent effect of delays

Independent delays

Serial delays

Non-concurrency

Timing & duration of delay

Concurrency

True concurrrent delays

Non-critical

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path but may also exist in different activities on parallel critical paths. The SCL Protocol50 defines a true concurrent delay as “the occurrences of the delays, one an employer risk event and the other a contractor risk event, at the same time, and their effects felt at the same time”. This occurrence is, however, extremely rare in practice since time is infinitely divisible. For instance, two delay events occurring on the same day would not necessarily be true concurrent delays because one may have occurred in the morning and the other in the afternoon.51 Concurrent delay is also somewhat misleadingly used to refer to the occurrence of two or more delay events at different times whose effects are felt (in whole or in part) at the same time.52 To avoid confusion, this is termed “concurrent effect” of sequential delay events.53 The underlying problem with determining concurrent delay has to do with allocating responsibility for the totality of the delay in situations where the delay is composed of different types of delay, such as employer delay coupled with contractor delay. It has been shown54 that different delay types can be combined to give four main categories of concurrent delays as follows: • Excusable non-compensable delay and non-excusable non-compensable delay • Excusable non-compensable delay and excusable compensable delay • Excusable non-compensable delay, non-excusable non-compensable delay and excusable compensable delay • Non-excusable non-compensable delay and excusable compensable delay However each of these is by no means agreed to in the industry, and the difficulty arises in deciding which remedy fits best in any given situation where extension of time is being requested and/or damages for delay are being sought. Various writers55 have felt that there are four different ways in which this can be done, and these are all discussed here for sake of clarity and then in more detail in other chapters. These are as follows: First cause defines liability This approach argues that liability must rest with the party responsible for the first delay encountered and that subsequent delays occurring during the period of the first delay should not affect liability. For example, assume that an activity on a critical path is being delayed by an adverse weather condition and in the course of this delay, an activity on a parallel critical path begins to experience delay as a result of poor planning on the part of the contractor. If this second delay ends before that of the first then the main cause of the project delay would be attributed to the first delay. The philosophy behind this approach is that once

50  Ibid. at ftn 47. 51  Ibid. at ftn 40. 52  Ibid. 53  Ibid. at ftn 47. 54  Kraiem, Z. M. and Diekmann (1987), Concurrent Delays in Construction Projects, Journal of Construction Engineering and Management, 113(4), 591–602. 55  See e.g. Marrin, J. (2002), Concurrent Delay. A paper given at a meeting of the Society of Construction Law in London on 5th Feb. 2002.

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the job is stopped by one cause of delay, it cannot be any more stopped by another delay, unless and until the second delay continues after the first delay has ceased.56

The main weakness of this approach is that it does not provide solution for situations where all the delays begin at the same time. Furthermore, the approach would be inapplicable to concurrent delay situations arising from consecutive delays with little, if any, overlap.57 Using the “first-in-time” test to resolve causation issues is based upon the “but for” test. By this test, a party seeks to lay responsibility for project delay on the other party by arguing that the delay would not have occurred but for the latter’s actions or inactions, which occurred first.58 Unfortunately, the use of this test has received unsympathetic receptions, making it an approach that no longer has a wide appeal.59 Dominant cause approach Under this view it is necessary to establish that the delay is the overriding or the “dominant” cause of the loss suffered; however, what is dominant becomes the issue and one of fact and can only be established by the trier of fact using basic “common sense” standards, not an accounting of which occurred first in time.60 This method was approved in John Doyle Construction Ltd v Laing Management (Scotland) Ltd.61 Here the court wrote that in respect of apportionment of loss and expense in situations of concurrent delay: In the second place, the question of causation must be treated by “the application of common sense to the logical principles of causation”…. In this connection, it is frequently possible to say that an item of loss has been caused by a particular event notwithstanding that other events played a part in its occurrence. In such cases, if an event or events for which the employer is responsible can be described as the dominant cause of an item of loss, that will be sufficient to establish liability, notwithstanding the existence of other causes that are to some degree at least concurrent…. If an item of loss results from concurrent causes, and one of those causes can be identified as the proximate or dominant cause of the loss, it will be treated as the operative cause, and the person responsible for it will be responsible for the loss.

However, in the case of H. Fairweather and Co. Ltd v London Borough of Wandsworth,62 the court considered obiter that this approach was not correct and that each separate cause of delay should be assessed on its own individual merits. Another weakness of this approach is the common-sense criterion relied on, which could result in unfair apportionment, particularly where the competing causes are of approximately equal causative potency. Additionally, the approach may not suffice on projects that sustained multiple overlapping

56 Ibid. at ftn 40 and see also Scott, S. (1993b), The Nature and Effects of Construction Delays, Journal of Construction Management and Economics, 11, 358–369. 57 Ibid. at ftn 40. 58 Ibid. 59 Ibid. at ftn 55. 60 Furst, S. (2006), Keating on Construction Contracts, 8th ed. Sweet & Maxwell, London. 61 (2004) BLR 295. 62 (1987) 38 BLR 106.

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changes or delays with long durations because of all the assumptions that must be made regarding the remaining durations of activities being affected.63 In the USA In the United States the prevailing view, as discussed in more detail later in this book, is that as to concurrent delay where both the employer and the contractor bear some responsibility, neither will recover unless and to the extent that they can segregate delay associated with each competing cause,64 and it has been described by some writers as “easy rule” and “fair rule” as shown in the following table.65 Remedies for concurrent delays Concurrent delay type

Remedy (for critical path)

Any delay concurrent with excusable non-compensable

Time extension

Excusable compensable concurrent with non-excusable non-compensable

Easy rule Time extension

Fair rule Apportionment

The underlying problem with this approach is that it may not work well in contracts where the contract administrator is given some discretion in dealing with contractors’ claims such as in JCT contracts, for as a result of that discretion, there is the possibility of the employer recovering liquidated damages even when the proof of contractor’s default as the sole cause of the delay is not possible.66 The “Malmaison” Test The issue of responsibility for project delay resulting from two concurrent delays was a fundamental issue in the case of Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd,67 which deals with a dispute on pleadings in an arbitration regarding one of the contractors’ extensions of time claims. Here the court stated certain areas of common ground that had been agreed between the parties including: it is agreed that if there are two concurrent causes of delay, one of the which is a Relevant Event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the Relevant Event notwithstanding the concurrent effect of the other event.

The view purported by this case is that provided one of the causes of delay in any given concurrency situation affords grounds for extension of time under the contract, then the 63  Reynolds, R. B. and Revay, S. G. (2001), Concurrent Delay: A Modest Proposal. The Revay Report, Revay and Associates Limited, 20(2), June 2001. 64  See e.g. Marrin, J. (2002), Concurrent Delay. A paper given at a meeting of the Society of Construction Law in London on 5th Feb. 2002. 65  See e.g. Kraiem, Z. M. and Diekmann (1987). Concurrent Delays in Construction Projects, Journal of Construction Engineering and Management, 113(4), 591–602, from which this table has been taken. 66  Ibid. at ftn 64. 67  (1999) 70 Con L.R. 32.

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contractor should be given time extension notwithstanding any default on his part. This is quite similar to the American approach on the aspect of time extensions entitlement. The approach sounds reasonable just in the sense that denying the contractor time extension in such circumstances could make him liable for the payment of liquidated damages even though the project would have been delayed anyway due to the employer’s default. This denial of time extension conflicts with the prevention principle that “a person asking another to do something cannot insist upon a condition if it is his own fault that the condition has not been fulfilled”.68 The approach was considered and afforded support in The Royal Brompton Hospital NHS Trust v Hammond (No. 7)69 However, if Taylor Woodrow was delayed in completing the works both by matters for which it bore the contractual risk and by Relevant Events, within the meaning of that term in the Standard Form, in light of the authorise to which I have referred, it would be entitled to extensions of time by reason of the occurrence of the Relevant events not withstanding its own defaults.

A slight departure from the Malmaison case arose in the case of Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik (2002),70 where the Judge stated that it is necessary to apply a test of common sense and fairness in deciding matters of extensions of time involving issues of concurrency. He considered that a full extension of time should be awarded where there is concurrent contractor-caused and employer-caused delay, if it is fair and reasonable to do so. Earlier cases supporting this view suggest that the approach is not new. As is further discussed later in this book, earlier cases such as Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd71 and Rapid Building Group Ltd v Ealing Family Housing Association Ltd72 suggest that if the separation of delays caused by the employer from those which are the contractor’s own fault is impossible to achieve, then the contractor must be given the benefit of the doubt in regard to an extension of time. Also in Walter Lawrence and Son Ltd v Commercial Union Properties (UK) Ltd, the court held that the contractor was entitled to an extension of time in respect of the inclement weather which occurred irrespective of whether or not the contractor was at that time in culpable delay. In the UK the Malmaison approach is favoured, and the SCL Protocol adopted it, stating on page 15 of the document that: where contractor delay to completion occurs concurrently with employer delay to completion, the contractor’s concurrent delay should not reduce any extension of time due.

This approach, however, does not appear to deal specifically with the entitlement to loss and expense. The view of the SCL Protocol on this is that:

68  See e.g. ibid. at ftn 40 and also see Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC (1952) All ER 452 at 455. 69  (2001) 76 Con L.R. 148. 70  81 Con L.R. 44. 71  (1970) 1 BLR 111. 72  (1984) 29 BLR 5.

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If the contractor incurs additional costs that are caused both by Employer Delay and concurrent Contractor Delay, then the contractor should only recover compensation to the extent it is able to separately identify the additional costs caused by the employer Delay from those caused by the Contractor Delay.

This view is similar to the view in the USA and received support in the Laing case, where the court wrote: In the third place, even if it cannot be said that events for which the employer is responsible are the dominant cause of the loss, it may be possible to apportion the loss between the causes for which the employer is responsible and other causes. In such a case it is obviously necessary that the event or events for which the employer is responsible should be a material cause of the loss. Provided that condition is met, however, we are of opinion that apportionment of loss between the different causes is possible in an appropriate case. Such a procedure may be appropriate in a case where the causes of the loss are truly concurrent, in the sense that both operate together at the same time to produce a single consequence.

Despite all of this the issue of how to deal with concurrent delays is still not fully settled nor is the concept of “who owns the float” in any given project. Float If a contractor has assigned a specific period of time to complete a task (activity) and that task in on the critical path, what happens if he completes the task earlier than planned? The number of days earlier is considered the “float”, and the issue is whether it belongs to the contractor or the employer. Remember that the schedule has not changed, the project will be completed on time and so who gets the reward if any for finishing a task/activity sooner than expected? Some feel that the float is “owned” by the Contractor and that this extra time can be utilised later or as needed by the contractor. Others however feel that the float belongs to the Employer and still a third group think it should be split or allocated fairly. Technically the term “float” is used to refer to the time assigned to an activity, which is longer than the shortest time that is reasonably necessary to undertake that activity. It can also be used in the alternative sense of the length of time before an activity becomes on (or very close to) the critical path  – so for example an activity is said to have five days of float if that activity has, say, 15 days available to it to be completed although the activity will only require ten days of work. The start or finish date of this activity could therefore be delayed up to five days without delaying the project completion date. The unit of measurement of float can be days, weeks or months depending on the unit of planning of the project. Whilst there are various types of floats, total float as described earlier is of most importance in the resolution of delay and disruption claims.73 Why does float ownership matter? Who owns the float becomes an issue when there is concurrent delay, and the parties (and/or adjudicator/court) must make a determination as to which party is responsible for the delay(s) and then calculate the delay’s length and whether the contractor should receive extra time to finish its work.

73  Ibid. at ftn 40.

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So if the employer owns the float, it can require that the contractor perform additional work that is not on a critical path without extending the original contract’s deadline and without paying additional compensation to the contractor. Another consequence of the float belonging to the employer arises when the owner does not deliver the job site on time. In that situation, the employer loses the float time, but the contractor loses nothing because it never had the right to use the employer’s float. However if the contractor owns the float, then any change the employer issues to an activity not on the critical path could result in an extension to the contract completion date. Another potential downside to contractor ownership: giving every contractor access to the float. In that circumstance the float becomes communal property. Although there is no agreement on this issue, this writer feels that if the contract does not specify who owns the float, it belongs to the contractor because the contractor should have the right to control its work. Float is a valuable resource to both employers and contractors as they tend to rely on it for planning and control purposes. Typically, it offers flexibility to contractors in the arrangement and performance of non-critical activities, as a means of making good delays on the critical path. Employers, on the other hand, often see it as an opportunity to make changes since it can accommodate the impact of such changes.74 For these reasons, a situation can easily be occur where an employer’s changes cause a delay such that the majority of float on a particular activity is consumed, making it a near-critical activity. As such, any subsequent contractor-caused delay to this activity will force it to become critical and delays the project. In this situation, some writers75 are of the view that the contractor is unlikely to get an extension of time but rather would be liable for liquidated damages. Contractors often have difficulty accepting this, arguing that had the employer’s delay not occurred, it would not have caused the delay to the project. Whether the contractor’s argument is valid or not is a question of who owns the float that was consumed by the employer’s delay. The Issue of Float What float is and who owns it are major topics of discussion in the construction industry and keeps contractors, employers and of course lawyers very busy. Traditional view – Contractor owns the float There is the traditional view which many writers76 adhere to, including this author, which take the view that as “float” is part of the contractor’s programme, and it is the contractor

74  Ibid. at ftn 40. 75  Ibid. 76  See e.g. Wickwire, J. M. and Smith, R. F. (1974), The Use of Critical Path Method Techniques in Contract Claims, Public Contract Law Journal, 7(1), 1–45; Fondahl, J. W. (1975), Some Problem Areas in Current Network Planning Practices and Related Comments on Legal Applications. Technical Report No. 193, The Construction Institute, Standard University, USA; Antill, J. M. and Woodhead, R. W. (1982), Critical Path Methods in Construction Practice, 3rd edn. Wiley, New York; De La Garza J. M., Vorster, M. C. and Parvin, C. M. (1991),

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who constructs the job, that the float belongs to it and not the employer. Taken to its extreme some77 take the view that float, being something that is “owned”, can be bought and sold, so under this theory the contractor can “sell” some of the float or all of it to the employer should the need arise. Under this view some contractors could be in a position, albeit unpleasant (or worse), of the employer of seeking to obtain an extension of time “for any or all employer delays to allow for float restoration, irrespective of whether or not there has been a total delay to the project”.78 However the contractor “owning” the float is not always well received by the courts, and in Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd,79 the court in response to McAlpine’s argument that the subcontractor Ascon cannot claim the benefit of float in the main contract and that it belongs to the contractor for use as it wishes, stated that: In my judgment that argument is misconceived. The float is certainly of value to the main contractor in the sense that delays of up to that total amount, however caused, can be accommodated without involving him in liability for liquidated damages to the employer or, …. He cannot, however, while accepting that benefit as against the employer, claim against sub-contractors as if it did not exist…. No doubt those different situations can be described, in a sense, as ones in which the “benefit” of the float has accrued to the defaulting party or parties, but no-one could suppose that the main contractor has, or should have, any power to alter the result so as to shift that “benefit”.

Further, in Henry Boot v Malmaison, in addressing the question of the effects of the employer’s risk event on project completion date, the court wrote: In my view the employer is entitled to advance these other matters by way of defence to the extension of time claim. It is entitled to say (a) the alleged employer risk event was not likely to or did not cause delay e.g. because the items of work affected were not on the critical path, and (b) the true cause of the …

Following the “traditional view” of the contractor owning the float, the other view is that float belongs to “the project”. Project owns the float The other view is that as it is the “project” that is the subject of the work, it is the project that really owns the float and that it may be put to use by whomever gets to it first – whilst this is not used in most forms of contract in the UK, the construction field in the USA does

Total Float Traded as a Commodity, Journal of Construction Engineering and Management ASCE, 117(4), 716– 727; Chern, C. (2015), The Law of Construction Disputes, 2nd Edition, Informa Publishing, London. 77  De La Garza J. M., Vorster, M. C. and Parvin, C. M. (1991), Total Float Traded as a Commodity, Journal of Construction Engineering and Management ASCE, 117(4), 716–727. 78  Zack, J. G. (Sept. 1993), Claimsmanship: Current Perspective. Journal of Construction Engineering and Management, ASCE, 119(3), 480–497. See also ibid. at ftn 2. 79  (1999) 66 Con L.R. 119.

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favour it, and it is in use most frequently in public procurement projects there. It should be noted that this view of who owns the float is upheld by the courts in the USA, which hold that float is not for the exclusive benefit of any party to the project but should be available to either party on a “first come, first served basis.”80 In the UK however the case which comes closest to this view is Ascon v McAlpine, where the court rejected the contention that float belongs to the contractor and concluded (using an example) that if a number of contractors caused delay to a project, they should equally share in the “benefit” of any available float. Further support to this approach is offered by the SCL Protocol (SCL, 2002), which recommends this approach as the “fallback position” if float ownership is not specified in the contract. Its main drawback, however, lies in the fact that “it could lead to artificial scheduling on the part of some unscrupulous contractors, by showing all activities as critical, in an attempt to defend themselves”.81 Then following this view is the view that float belongs to either party but that it must be reasonably used. This view is basically a compromise between the contractor owns the float and the project owns the float schools of thought, with the position being that float can belong to either the contractor or the employer and should be used by the party which has the more reasonable need and basis to use the float. The goal here is fairness in that neither party is entitled to the exclusive control of float time nor can use it unreasonably on a first come, first served basis. However, the use of this approach is likely to be contested in practice as the term “reasonableness” is vague in practical terms.82 Other writers have taken differing approaches on this issue with one83 suggesting a compromise approach in which float is to be allocated in a shared way. This sharing involves allocating a percentage of the total float available to a given path to each activity on that path based on its duration. In the event of an excusable delay that consumes an activity’s float beyond zero into negative, time extensions may be justified to preserve the other activities’ floats in the approved schedule. Another proposed compromise approach84 suggests that the best way forward would be to distribute total float to each activity based on some qualitative factors. Unfortunately, these factors are to be subjectively assessed and thus may be subject to manipulations.85 Other writers86 propose that float ownership should be based on the allocation of risk associated with the project cost, and that float should be owned by the party who loses or gains as a result of fluctuation in project cost. Thus contractors should own float in a fixed-price contract since they bear the ultimate risk of project cost whilst the owner should own it in costplus contracts for the same reason.

80  Wickwire, J. M., Hurlbut, S. B. and Lerman, L. J. (1989) Use of Critical Path Method Techniques in Contract Claims: Issues and Development, 1974 to 1988, Public Contract Law Journal, 18, 338–391. 81  Zack, J. G. (Sept. 1993) Claimsmanship: Current Perspective, Journal of Construction Engineering and Management, ASCE, 119(3), 480–497. 82  Ibid. at ftn 40. 83  Ponce de Leon, G. (1982), Float Ownership – Some Recommendations, Stratagem, 1(1). 84  Pasiphol, S. and Popescu, C. (1994), Qualitative Criteria Combination for Total Float Distribution, Transactions of AACE International, DCL.3.1–DCL.3.6. AACE International, Morgantown, WV. 85  Ibid. at ftn 40. 86  Householder, J. L. and Rutland, H. E. (1990), Who Owns Float?, Journal of Construction Engineering and Management, 116(1), 130–133.

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Contractor’s Right to Finish Early Whilst it does not occur frequently, contractors do finish early, and many if not all strive to do so for a variety of reasons, not the least being good client relationships and also potential profit. The other reason, of course, is to avoid liquidated damages, and to do so most contractors strive to programme the work to take up a shorter working period than the accepted contractual period, thereby finishing early, and as has been discussed the surplus time between the early finish date and the contractual completion date is often termed “project float”. However, the principle that time extensions or liquidated damages be awarded for only delays that affect the completion date poses two main questions on the right for the contractor to finish early:87 1. Is the employer obliged to facilitate an earlier completion than the specified contractual completion date? 2. Is the contractor entitled to time and cost compensations for employer-caused delays that prevent early completion, even though completion is not delayed beyond the contractual completion date? The problem arises however with what and who owns the float, and this is what makes the resolution of these questions very difficult. The first question was considered by a UK court in Glenlion Construction Ltd v The Guinness Trust.88 Here the court was faced with a contractor who had prepared a programme showing completion of the works (in 101 weeks) before the contractual date for completion of 114 weeks. The court ruled that the contractor was entitled to complete on an earlier date, but the employer only had an obligation to provide information to achieve the actual date for completion, without deliberately hindering the contractor. Then as to the second question, some writers89 have argued there is no need for time extensions as work has been completed within the contract period. Others90 feel that any payment of delay damages to the contractor in such circumstances has also been opposed on the basis that the contractor’s early completion programme may be unreasonable and give as an example that contractors typically bid projects for the full time of performance and often discover after tendering and award that the job can be accomplished in less time. Therefore, to prevent the possibility of over-recovery of compensation by contractors or exposing the contractor to the possibility of liquidated damages for failure to complete by the early completion date, certain proofs have to be satisfied by the contractor. These include establishing that the contract was bid on an early completion basis, the work was managed to schedule, there was no concurrent contractor delay and the contract allowed time for completion to be reduced to the early completion date.91 It should also be noted that a number of US cases suggest that the contractor may well have a case for compensation as long as the contractor’s original plan can be proven to be reasonable, and he can show that he would have completed earlier “but for” the 87  Ibid. at ftn 40. 88  (1987) 39 BLR 89. 89  Birkby, G. and Brough, P. (1993), Extension of Time Explained, RIBA Publications Ltd, London. 90  Ibid. at ftn 81. 91  Ibid. at ftn 81 and also see Galloway, P. D. and Nielsen, K.R. (1990). Concurrent Schedule Delay in International Contracts, The International Construction Law Review, Pt. 4, 386–401.

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employer’s action or inactions.92 This writer concurs with the view of the SCL Protocol that contractors should be awarded time extensions and paid overhead cost in situations where the employer delays the contractor’s early completion. But what of delay which occurs after completion? This may appear odd but it is the situation where employer-caused delays occur after the expiry of the contractual completion date when the contractor is in culpable delay.93 There have been some questions as to whether the Contract Administrator (e.g. Architect/Engineer) has the power to extend time or issue variations in such situations and how the delay assessment should be done. In the past, courts in the US resolved this matter in favour of contractors by awarding a per se time extension from the contract completion date to that date when the delay ends.94 This approach, which is referred to as the “gross method”, is supported by contractors who assert the argument that since all project activities were showing negative floats as at the time of occurrence of the employer delay, it would be unreasonable to expect the contractor to complete the works before an event had occurred that delayed the completion date.95 Net Effect Method This method refers to the addition of the amount of time taken by the delay to the date upon which the contractor should have finished the work, be it the original or adjusted completion date, even though this may be well before the date upon which the change was ordered.96 Courts in the UK have supported this view, and this can be seen in Balfour Beatty Building v Chestermount Properties,97 where the court upheld the arbitrator’s decision that the architect did have jurisdiction under Clause 25 of the JCT contract and that only a “net” extension of time should be awarded. Earlier UK cases that offer support to this approach are Amalgamated v Waltham98 and McAlpine Humberoak v McDermott International.99 The court in Amalgamated noted as an example that if a contractor is in culpable delay near the end of the work and a strike (neutral event) occurs and lasts for a month, then the contractor can get an extension of time for that month and nothing for the earlier delays caused by his own fault.

In the case of McAlpine, the court rejected the claimant’s argument against the gross effect, stating:

92  Wickwire, J. M., Hurlbut, S. B. and Lerman, L. J. (1989) Use of Critical Path Method Techniques in Contract Claims: Issues and Development, 1974 to 1988, Public Contract Law Journal, 18, 338–391. 93  Ibid. at ftn 40. 94  See e.g. Wickwire, J. M. and Smith, R. F. (1974), The Use of Critical Path Method Techniques in Contract Claims, Public Contract Law Journal, 7(1), 1–45; Jentzen, G. H., Spittler, P. and Ponce de Leon, G. (1994), Responsibility For Delays After The Expiration Of The Contract Time. Proceedings of the 38th Annual Meeting of AACE International, (Conf. Code 21128), San Francisco, CA, USA. 95  Wickwire, J. M., Hurlbut, S. B. and Lerman, L. J. (1989) Use of Critical Path Method Techniques in Contract Claims: Issues and Development, 1974 to 1988. Public Contract Law Journal, 18, 338–391. 96  Ibid. at ftn 40. 97  (1993) 62 BLR 1. 98  (1952) All ER 452 at 455. 99  (1992) 58 BLR 1 at 55.

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Mr Thomas submits, that since the extra work is covered by the definition of the work in clause 1 of the contract, and since the extra work was not ordered until 11 June, the date for completion of the work cannot precede that date. Accordingly the defendants’ claim for damages cannot run from 1st May. We do not agree … if a contractor is already a year late through his culpable fault, it would be absurd that the employer should lose his claim for unliquidated damages just because, at the last moment, he orders an extra coat of paint.

Notification of Claim The vast majority of standard form contracts whether they be the JCT, the NEC3, or FIDIC all have requirements which mandate that the contractor notify the Engineer or similar person of any event as soon as it becomes apparent that it has caused or may cause delay to the completion date and provide an estimate of its expected effect on the completion date. Thereafter the Engineer when receiving this notification claim, is often required to act fairly and reasonably in its assessment, and in all circumstances some type of analysis will be required to determine what, if any, extension of time and/or money should be awarded. However this is many times easier to say rather than actually accomplish as rarely is there any truly accepted approach or guidance given in advance on exactly how to perform the analysis. In McAlpine Humberoak Ltd v McDermott International,100 McAlpine was engaged as a subcontractor by McDermott in respect of a North Sea oil rig project and claimed for delay damages as a result of a large number of drawings issued by his contractor. Initially the court upheld that the contract had been frustrated by the number of drawings issued to the extent that McAlpine was no longer under an obligation to complete within the contract period; however this decision was overturned by the Court of Appeal, which held that McAlpine’s approach was simply theoretical and inappropriate, and wrote: When the Defendants’ witnesses came to give evidence, they undertook the task which was never undertaken by the Plaintiffs, of tracing the impact of every drawing revision, VO and TQ…. The judge dismissed the Defendants’ 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 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 Defendants’ approach is just what the case required.

Further, in John Barker Construction Ltd v London Portman Hotel Ltd,101 the way and manner contractors’ delay damages claims assessment should be carried out was a fundamental issue. In this case, the court stated that: I accept that Mr. Miller believed, and believes, that he made a fair assessment of the extension of time due to the Plaintiffs. It is fairly apparent that the Defendants were concerned by the overrun of the contract in time and costs, and I have no doubt that Mr. Miller was conscious of this, but I  believe also that he endeavoured to exercise his judgement independently.

100  (1992) 58 BLR 1. 101  (1996) 83 BLR 31.

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However, in my judgment his assessment of the extension of time due to the Plaintiffs was fundamentally flawed in a number of respects, namely:

1. Mr. Miller did not carry out a logical analysis in a methodical way of the impact which the relevant matters had or were likely to have on the Plaintiffs’ planned programme. 2. He made an impressionistic, rather than a calculated, assessment of the time which he thought was reasonable for the various items individually and overall. (The Defendants themselves were aware of the nature of Mr. Miller’s assessment, but decided against seeking to have any more detailed analysis of the Plaintiffs’ claim carried out unless and until there was litigation). This case was then later considered in Balfour Beatty Construction Limited v The Mayor and Burgess of the London Borough of Lambeth,102 in which the claimant sought to enforce an adjudicator’s decision in relation to an extension of time and loss and expense claim  – the court wrote: “In the context of a dispute about the time for completion a logical analysis includes the logic required for in the establishment of a CPN (critical path network)”. Thus it would appear that courts in the UK are more likely to accept analysis based on methodical calculation, rather than theoretical and vague impressions. Thus the need to show proper proof is often shown by whether the event was on or will be on the critical path of the work. This is then commented upon in Henry Boot v Malmaison, where the court wrote: The respondent was entitled to respond to the claim both by arguing that the variations, late information and so on relied on by the claimant did not cause any delay because they were not on the critical path and positively by arguing that the true cause of delay was other matters.

And then in Brompton v Hammond (No. 7),103 where it was alleged that the architect had been negligent in awarding extension of time, the court wrote: In order to make an assessment of whether a particular occurrence has affected the ultimate completion of the work, rather than just a particular operation it is desirable to consider what operations, at the time of event with one is concerned happens are critical to the forward progress of the work as a whole.

Further, in Balfour Beatty v The Mayor and Burgesses, the court spoke to the issue of CPM-based delay claims analysis: From the material available to me it is clear that BB did little or nothing to present its case in a logical or methodical way. Despite the fact that the dispute concerned a multi-million pound refurbishment contract no attempt was made to provide any critical path. The work itself was no more complex than many other projects where a CPM is routinely established and maintained…. A valid critical path (or paths) has to be established both initially and at every later material point since it (or they) will almost certainly change.

102  (2002) 1 BLR 288. 103  (2001) 76 Con L.R. 148.

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This was then followed by Motherwell v Micafil Vakuumtechnik104 where the court noted: Crucial questions are (a) is the delay in the critical path and, if so, (b) is it caused by Motherwell? If the answer to the first question is “Yes” and the second question is “No” then I must assess how many additional working days should be included.

And in Balfour Beatty Construction Ltd v Serco Ltd:105 I note that it is common ground between the programming experts, Mr  Kaletka and Mr Dedha that, in the event, the critical aspect of the works has turned out to be the installation of two signs, known as “19TO3” and “19TO4” at Penrith. These signs have yet to be installed. In these circumstances it seems to me that, for the purposes of assessing Balfour Beatty’s entitlement to an extension of time, it is necessary to focus on these two signs and examine the effect of the requirement to comply with the NOD regime upon them. In these circumstances I ignore, for these purposes, the events summarised in claim 12 under the heading, “Actual delays” and Balfour Beatty’s other extension of time claims on the footing that those events were non-critical.

But Which Method? Whilst the UK courts may have determined that a CPM analysis is preferred, the next issue is which method should be employed. In John Baker v London Portman, the court accepted the “impacted as-planned analysis”, which requires the analyst to take the original programme as the basis of the delay calculation and once this is accomplished to then insert the delay so as to determine when the work should have finished as a result of those delays. This is then followed by Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup Partners International Ltd,106 where the dispute had to do with claims brought against Arup (defendants) by Mirant (claimants) for losses in connection with failings of boiler house foundations that were designed by Arup. One of the issues examined by the court was whether delay to one part of the construction programme was on the critical path and whether delays due to remedial works, which were carried out as a result of foundation settlement, had delayed completion. The court’s decision, which was upheld by the Appeal Court, was that Arup had been negligent in its duty in contract and tort not to cause economic loss to its client, but a careful evaluation of the facts and of the programming data concerning the project revealed that this negligence had not caused the damages being claimed, and therefore all of Mirant’s claims were dismissed – the court wrote: What is known as the Critical Path Method is frequently used by the construction industry both in the United States, the United Kingdom and elsewhere in planning construction projects and in analysing the causes of delay…. As computers have become more sophisticated, the critical path analysis has been enabled to become more sophisticated. This has become an invaluable tool which enables a complex construction Project to be managed with better available information. The analysis

104  (2002) 81 Con L.R. 44. 105  (2004) EWHC 3336 (TCC). 106  (2007) EWHC 918 (TCC).

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will identify at a given date which important aspects of the Project are falling behind the programme, particularly if they are on or close to the critical path, what if any is the impact on other aspects of the programme and where additional resources need to be placed. It will also demonstrate where activities are ahead of what is planned and enable a decision to be taken on whether planned activities need to be rescheduled…. Windows analysis is the most accepted method of critical path analysis. As Pickavance makes clear at page 572 of his book, “Windows” (and “Watersheds”) are not methods of analysis in themselves: they are merely aspects of conducting the critical path analysis. In essence they represent the division of the overall construction period into smaller periods into which each new set of corresponding progress can be entered into the programme and analysed…. The term “Windows analysis” refers to the regular reviews and updates undertaken by the contractor, normally monthly. These periods of time would be described as monthly windows. Unlike previous monthly reviews, the planner would use sophisticated software programmes to plot which activity or activities were on and which were near to the critical path each month. The programmes would take into account those activities which had started early or had been delayed. Also built into the programmes would be the progress of those activities which had started since the previous monthly window. This would enable the employer and the contractor to analyse over the relatively short periods of time what changes had occurred, and identify what problems needed to be investigated and put right…. The analysis would also identify delay, enabling those concerned to investigate and, if appropriate, agree the cause at an early stage. A monthly review would, in a complex Project like Sual, have enabled the consortium to see what activities were at or close to the critical path and to take urgent action where necessary. It would also have enabled a much more sophisticated retrospective analysis of the delay to be undertaken than that which was able to be carried out.

The Problem One of the problems with CPM in the computer age is that it is subject to abuses and can be used to provide the results the analyst desires rather than just provide results with no manipulation. As some writers107 have noted, including this author, the major concern now becomes one where the modern computers have become more sophisticated and userfriendly, providing the opportunity to easily handle, sort, manipulate and present, in a short space of time, vast quantities of data and results of a complex delay analysis problem.108 Other writers109 have also noted that adjudicators, the courts and other “triers-of-fact” have therefore been extra vigilant with CPM usage in delay claims and will not “naively accept as accurate complicated and unintelligible analysis based on fancy computer-generated results”. Thus “getting it right” becomes the goal, and the courts follow in this path. Thus, in Skanska Construction UK Ltd v Egger (Barony) Ltd,110 Egger, a wood and other timber-based product firm, entered into a contract with Skanska for the construction of a sophisticated wood chipping plant in Scotland. The project’s guaranteed maximum price was £12m. The

107  Ibid. at ftn 40. 108  Ibid. 109  Schumacher, L. (1995). Quantifying and Apportioning Delay on Construction Projects, Journal of Cost Engineering, 37(2), 11–13; see also Wickwire, J. M. and Groff, M. J. (2004). Update on CPM proof of delay claims. Schedule Update, Project Management Institute College of Scheduling, 1(3), 3–9. 110  (2004) EWHC 1748 (TCC).

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disputes concerned claims made by Skanska in the order of a further £12 million relating to what it argued were delays, extensions of time and loss and expense. There was also a counterclaim from Egger for more than £4 million. At trial, each party adduced expert evidence of programming experts, who used very different methods to analyse the evidence relating to delays. Even though the expert engaged by Skanska employed less sophisticated computer software with few resources at his disposal compared to those of Egger, the court expressed preference for the approach adopted by Skanska, describing him as “objective, meticulous as to detail, and not hide bound by theory when demonstrable fact collided with computer program logic”. However, as to the approach of Egger’s witness, the court was not favourable and in fact found that the analysis was highly flawed, criticising it for errors made in reconstructing the initial contract programme in a computer-based CPM and therefore not reliable to use as a baseline for the analysis: Mr Pickavance produced a report of some hundreds of pages supported by 240 charts. It was a work of great industry incorporating the efforts of a team of assistants in his practice. It was evident that the report, … was largely based upon factual matters digested for Mr Pickavance by his assistants…. There were times when the impression was created that Mr Pickavance was not entirely familiar with the details of the report, which he signed and presented…. There were pressures of time upon him. This and the extent of reliance upon the untested judgment of others in selecting and characterising the data for input into the computer programme however impeccable the logic of that programme, adversely affects the authority of the opinion based upon such an exercise. . . . It is evident that the reliability of Mr Pickavance’s sophisticated impact analysis is only as good as the data put in. The court cannot have confidence as to the completeness and quality of the input into this complex and rushed computer project. I preferred the evidence of Mr Simpson as to programming and planning matters to that of Mr Pickavance.

Then in Great Eastern Hotel Company Ltd v John Laing Construction Ltd,111 which concerned the refurbishment and extension of the Great Eastern Hotel in London, the works were carried out by trade contractors with Laing as construction manager of the project. The dispute involved claims raised by Great Eastern in respect of a project delay of about 44 calendar weeks. By way of defence, Laing made a counterclaim based upon alleged material misrepresentation and also denied culpability for the delay by pointing fingers at both other parties and other concurrent causes of delay. In relation to the case on delay, the expert witnesses of the parties approached their analyses of the delay using two different approaches which attracted “insightful comments from the court”, but the court did not find favour with the approach adopted by the defendant’s expert witness: I reject Mr  Celetka’s evidence that the late design information either caused or contributed to the critical delay in the Project. His analysis was self confessedly incomplete. He did not have the time to approach the research of this aspect of the case in the complete and systematic way, furthermore, the impacted as planned analysis delay takes no account of the actual events which occurred on the Project and gives rise to an hypothetical answer when the timing of design release is compared against the original construction programme. Thus it would take no account of the fact that the

111  (2005) EWHC 181 (TCC).

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design team would have been aware of significant construction delays to the original master programme, and would have been able to prioritise design and construction to fit this. Furthermore, Mr Celetka in his report compares the timing of the actual design releases against an original programme which was superseded by later versions of the procurement programme on which Laing showed later dates for the provision of the information required.

The court however was “rather satisfied” with the analysis of the claimant’s expert witness and wrote: I accept Mr France’s careful evidence as to the impact of the flow of design information throughout the Project. It was based on thorough research and objective analysis. Whilst there was some delay in relation to the provision of design information, it was not critical delay. It was the delay endemic in a large and complex Project when it is anticipated that the design would evolve and some information was provided “just in time”…. “Mr  France took account of the actual events in his researches and exhibited in his researches and conclusions the clear-sighted objectivity that informs the whole of his report”.

Then in City Inn v Shepherd Construction Ltd112 the court was faced with the construction of a hotel in Bristol under an amended JCT 80 Form. The dispute dealt with City Inn wanting the court to hold that the defendant, Shepherd Construction Ltd, were not entitled to the contended 11 weeks’ time extension and even the four-week extension granted by the architect. Both parties relied upon the evidence of their programming experts, who were described by the court as “well qualified to speak about the issues that arose in the case”. However, Shepherd’s delay expert did not carry out a critical path analysis, as he did not have access to an electronic version of the defendant’s original programme for the project. His approach, which was a form of “As-planned v As-built method”, was therefore criticised for not being based on the critical path analysis. Although City’s expert carried out critical path analysis of the as-built programme, it was rejected by the court, and the court wrote: In my opinion the pursuers clearly went too far in suggesting that an expert could only give a meaningful opinion on the basis of an as-built critical path analysis. For reasons discussed below (at paragraphs [36]-[37]) I am of opinion that such an approach has serious dangers of its own. I further conclude, as explained in those paragraphs, that Mr Lowe’s own use of an as-built critical path analysis is flawed in a significant number of important respects. On that basis, I conclude that that approach to the issues in the present case is not helpful. The major difficulty, it seems to me, is that in the type of programme used to carry out a critical path analysis any significant error in the information that is fed into the programme is liable to invalidate the entire analysis. Moreover, for reasons explained by Mr Whitaker (paragraphs [36]-[37] below), I conclude that it is easy to make such errors. That seems to me to invalidate the use of an as-built critical path analysis to discover after the event where the critical path lay, at least in a case where full electronic records are not available from the contractor.

112  (2007) CSOH 190.

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Finally, the court also expressed its preference for analysis based on “factual evidence, sound practical experience and common sense” despite the fact that such analysis might not be based on critical path analysis, and the court “jettisoned” the approach based on flawed as-built critical path analysis. The importance of analysts doing their work with accuracy and based upon the facts as they really happened cannot be overemphasised – i.e. real events that happened on the project and not speculation or hypothetical situations passed off as reality are exceedingly important for a successful presentation. In their vein is Leighton Contractors (Asia) Limited v Stelux Holding Ltd,113 a case from the Court of First Instance of Hong Kong, where disputes between the parties, which were referred to arbitration, included claims arising from critical delays allegedly due to the defendant releasing tender information for the heating, air conditioning and electrical subcontract works late. Leighton took the position that the contract made it clear that both “delay” and “likely delay” gave proper grounds for an extension of time, and therefore if the arbitrator thought that an event was likely to cause delay by standing in the architect’s shoes at the time of the delay events, then an extension of time should have been granted. The arbitrator rejected these contentions, concluding that the late information could not have caused actual delay. This decision was upheld by the court. The best way forward is for analysts and parties to understand that whilst CPM techniques are recognised as appropriate for delay analysis, it is very important for contractors and employers or their agents to employ techniques that consider what actually happened on site based on factual evidence114 with theoretical delays calculated without taking into account actual project records being unlikely to succeed. Information A good generalisation is that all projects run on information, and all difficulties which arise come from lack or improper use of information. So information is key. Think back a couple of hundred years, and the amount of information needed to construct a building was minimal. A medieval church would require the architect/master builder to sketch out what was being built, and over the next 80–120 years, slowly the building would take place, trial and error style, collapse and re-build, etc., until the finished product was delivered. Slow easy pace, minimal information, many generations to complete and no CPM. Today the pace of information is growing at an exponential rate, and so are the complexities which come with it. Construction is at the top of the list of complexities which survive on information passing both from the employer to the contractor and from the contractor to the employer and also do not forget from the government to both parties and return, and the list of information given, needed and lost continues. A good example of the complexity is, for example, the UK’s Construction (Design and Management) Regulations, which require that construction clients provide “pre-construction information” as soon as is practicable to every designer and contractor appointed, or being considered for appointment, to the project. Where there is more than one contractor, the principal designer should provide

113  HCCT 29/2004. 114  Ibid. at ftn 40.

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advice and help compile the pre-construction information and provide it to the designers and contractors. And this is just “pre-construction”, with the regulations defining preconstruction information as information in the client’s possession or which is reasonably obtainable by or on behalf of the client, which is relevant to the construction work and is of an appropriate level of detail and proportionate to the risks involved, including information about: • The project. • Planning and management of the project. • Health and safety hazards, including design and construction hazards and how they will be addressed. • Information in any existing health and safety file.

Pre-construction information should be provided in a convenient form and should be clear, concise and easily understandable. It should be prepared early in the project so that it can be provided to designers and contractors as part of the tendering or procurement process. This enables those preparing bids to assess the resources they will need to allocate to perform their duties under the regulations. • Designer must then take account of the pre-construction information when preparing or modifying designs. • Pre-construction information may be added to as the project progresses and should be provided as appropriate to designers and contractors throughout the project before work starts on any particular element. • The amount of detail included in pre-construction information should be sufficient to ensure that significant risks can be anticipated, focussing on those risks that that could not reasonably be anticipated. And further the 2007 Regulations Approved Code of Practice suggested that preconstruction information might include: • • • •

A description of the project Key dates Contact details for the project team The extent and location of existing information

And don’t forget Project arrangements: • • • • • • • • • • • •

Planning and managing the construction work Communication and liaison Security Site hoarding Site transport Permit-to-work systems Fire precautions Emergency procedures Means of escape Authorisation requirements Confined spaces Smoking and parking restrictions 260

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• Safety hazards • Boundaries and access • Restrictions on deliveries, waste collection or storage • Adjacent land uses • Existing services • Ground conditions • Existing structures • Issues relating to plant and equipment • Health and safety information in earlier design, construction or ‘as-built’ drawings And in addition the information regarding Health hazards is also needed: • Asbestos • Contaminated land • Client’s activities • Storage of hazardous materials • Significant design and construction hazards • Assumptions and working methods • Arrangements for co-ordination of ongoing design work • Significant risks identified during design • Materials requiring particular precautions And the list goes on, and on, and remember this is just for “pre-construction”, which is then followed by the actual construction with more information being generated on a daily basis with computer input and now apps for our mobile phones, and emails, texting and all the related electronic ways of communication along with field sketches, field notes, shopdrawings and all this before any variations or instructions start happening or unforeseen ground conditions develop ... and thus the issue of compiling the proper information in advance of any claim becomes a monumental task and one which unfortunately later falls to the claims analysts, the lawyers, the engineers who come in to do a forensic “postmortem” on any claim and are then faced with reams and mountains of information, all of which has to be put right to determine the exact cause of any delay and to decipher exactly where fault lies. Thus exactly how can the issue of information and documentation be resolved? As has been discussed and as will be discussed in greater detail later in this book, a vital part of the procedure in the resolution of delay claims is for claimants to produce adequate documentation to show that the opposing party is responsible for the additional time and/or cost being claimed. Often at the centre of this is the question of availability and accuracy of information on two matters: (1) exactly what the contractor would have done had the event or circumstance complained of not occurred and (2) what the contractor actually did. Sources of information for answering these questions include the contract documents, baseline programme, progress reports, project correspondence, site dairies, minutes of meetings, supervision and inspection reports, resource usage and costs, and a major source of the information is also generated by contractors on a periodic basis in the form of statused/updated and revised programmes. Timely keeping of this information in an accurate, well-organised manner throughout the life cycle of the project is a key task in preparing, analysing and resolving delay and disruption claims for often at the centre of 261

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this is the question of availability and accuracy of information on two matters: (1) exactly what the contractor would have done had the event or circumstance complained of not occurred and (2) what the contractor actually did.115 So where does one look for the necessary information? Normally one would search the contract documents, baseline programme, progress reports, project correspondence, emails, texts, site dairies, minutes of meetings, supervision and inspection reports, resource usage and costs. Further and an essential part would be a review of the various and sundry updated and revised programmes. But all the record keeping and documentation is worthless unless it is properly put together in the first place, the schedules accurate and not based upon “fairy tale” thinking, and ultimately the analyst accurately and properly analyses the documentation provided for. If this does not occur, any delay and disruption claim will be built upon inaccuracies and be worthless. Thus the investigation of preliminary issues such as construction planning and programming, which is one of the major sources of needed information, is vital if one is to properly develop an accurate basis for delay analysis. Deficiencies in Contractors’ Programmes116 Most construction contracts require the contractor to provide a programme at the commencement of the works to show the sequence and timing of the construction activities. Not only do programmes serve as tools for managing projects, they are also valuable sources of information for identifying and modelling delays and their effect on progress.117 Charting the effect of delay on the progress of the project, as is discussed in detail in later chapters, has become much more efficient and accurate in large measure due to the new forms of computer scheduling programmes in use as these programmes contain historical records, which enable the determination of the effects of delay events and calculation of damages. In the early development of scheduling programmes in the mid-1990s and forward until about 2006, many writers,118 including this one, were of the view that most contractors’ programmes had deficiencies which in reality only contributed to the difficulty in resolving delay claims. However today most of the more popular programmes (discussed in later chapters) have resolved these issues and provide the necessary output for proper analysis – but remember that what comes out is only as good as the information input into the programme, and there lies the problem. Reluctance Even with the advent of excellent scheduling programmes, this writer has found that there is a general reluctance on the part of many contractors to provide the employer with a proper programme and/or manage it properly and in a certain number of projects fail to provide and/or agree to a programme in the first place. Part of the problem lies with a

115  Ibid. at ftn 40. 116  See ftn 40 to which this author is grateful for this particular topic. 117  Ibid. 118  See e.g. Scott, S. (1991), Project Plans and Record-Keeping on Construction Sites in the UK. PhD thesis, Department of Civil Engineering, University of Newcastle-upon-Tyne, Newcastle-upon-Tyne, UK.

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general lack of experience/willingness on the part of those who work for contractors in doing this work and also the fact that the programming part of a project is done “clean”, i.e. in a remote office way from the construction site, and the vagaries that exist in the real world of construction practice are not in front of the one doing the scheduling. Then there is the problem of inertia – the programmer is loathe to change what he/she has created, and it “must be the best that one can do” in the first place, so changes may be frowned upon in the organisation, and then the eternal concept of “magical thinking” occurs, which leads the programmer to believe that if he/she schedules it, it must be so and will be carried out … usually a recipe for disaster. Indeed research119 has shown that there is a marked reluctance by contractors to update programmes even when the nature and number of activities has altered over time. The reasons given for this reluctance ranged from the amount of work reprogramming would entail to the almost certain knowledge that as soon as any revision had been submitted, further changes would invalidate it. This is further compounded by the view also found through research120 that in practice contractors tend to treat programmes as a recording mechanism instead of as a “forward planning tool”, lack of adequate information on various procurement times of some activities and the tendency of relying entirely on computers with little consideration of the users of the plans on error checking. The result of all of this is that most constructors’ programmes are likely to suffer from a number of deficiencies which impact accurate delay analysis: poor baseline programmes, failure to update programmes and inadequately updated programmes. These deficiencies can lead to difficulties and disputes in resolving claims because, in the absence of properly prepared and timeously updated CPM programme, it would be difficult to determine whether delayed completion is indeed due to the specific types of delays complained of, i.e. causal connection between breach and damage is not readily apparent.121 Baseline Programme Problem In the case of Pacific Construction Co. Ltd. v Greater Vancouver Regional Hospital District,122 the British Columbia Supreme Court emphasised the necessity of evaluating the validity and reasonableness of contractor’s baseline schedule before employing it in delay analysis. Similarly, the court in Balfour Beatty v London Borough of Lambeth123 noted: By now one would have thought that it was well understood that, on a contract of this kind, in order to attack, on the facts, a clause 24 certificate for non- completion (or an extension of time determined under clause 25), the foundation must be the original programme (if

119  See e.g. Nahapiet, J. and Nahapiet, H. (1985), The management of construction projects: case studies from the USA and UK, The Chartered Institute of Building, England. 120  Mace, D. (1990), Problems of Programming in the Building Industry, Chartered Builder, Mar./Apr., 4–6. 121  Ibid. at ftn 40. 122  (1986) 23 CLR 35 (B.C.S.Ct). 123  (2002) 1 BLR 288.

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capable of justification and substantiation to show its validity and reliability as a contractual starting point) and its ….

The baseline programme is the starting point for the contractor and shows the employer what the “intended” time for completion will be, along with what various aspects of the works will be done and when … it is the map to the project and is very important as a tool in delay analysis as it shows what the contractor thought it would take in terms of time to build the project. Obviously it is what the entire scope of works is based upon – or should be. The underlying purpose is to show to the employer how long it will take to build the project absent any delaying events – so the time for a thoughtful and truthful analysis is at the time this is prepared and when it is given to the employer … and throughout the project itself. But these programmes are subject to many problems and/or “shortcomings”124 that often make them invalid or unreliable tools for this purpose, including the following. (i) Programmes prepared in a format other than CPM: Except in simple delay claims, CPM format is the highly recognised tool for proving delay because it allows the determination of the critical path and shows the interrelationships among multiple causes of delay. (ii) Incomplete programmes: That is failing to include all the work that must be undertaken. This makes it difficult to evaluate how all activities and their delays interact to affect project completion. (iii) Insufficient details provided for the programme activities: This makes it difficult to measure progress and the effect of delays adequately. For instance, consider an employer ordering a variation in a building project that affected an activity on the critical path described as “construct first floor slab”. If this variation actually affected the scope of some of the specific work tasks within this activity, then the actual delay incurred as a result of the variation cannot be accurately determined. (iv) Unreasonable logic or relationships between activities: Such relationships do not accurately represent the contractor’s intended sequence of work and thus would result in erroneous delay analysis results. (v) Insufficient provisions for constraints likely to be encountered: Examples of such constraints include local weather conditions; statutory requirements and restrictions, contractual stipulations on the order in which the works are to be completed; time required for employer or other agency for approvals, inspections and information; and availability of equipment and material. (vi) Unrealistic planned resource allocations: This results in incorrect duration and cost allocation of activities, making the baseline programme unreliable. (vii) Unrealistic durations of major activities: The effect of this is the creation of unreasonable floats and incorrect project completion date in the baseline programme.125

124  Ibid. at ftn 40. 125  Ibid. at ftn 40.

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Other problems arising include failure to update the programme, failure to review the status of the programme, failure to sift in the progress of the work and many other related matters as the project moves forward and changes either due to external conditions or due to variations instructed or implied. Updating is not progress monitoring, nor is it schedule revision. It is simply the addition of as-built data to the working schedule and the recalculation of the critical path in the light of progress actually achieved. The records of progress are used to add as-built start and finish dates to those activities which have achieved either status and progress data to those started but incomplete at the defined data date.126 For those who feel that this is an indulgence and not a necessity, it should be remembered that updating a schedule is essential to the management of the time model and that without it, the schedule is merely a target against which historical failure might be plotted. However, by updating with progress against the progress records and recalculating the critical path, the working schedule becomes a dynamic model by which: • • • •

predictions can be made; problem issues can be identified early; mitigating recovery and acceleration can be implemented; and the future conduct of the works can be effectively managed.127

Thus the prompt identification of disruption and delay to progress is vital if the consequences are not to result in loss of quality, cost overruns and delayed completion. Further, once identified, difficulties can always be addressed, their potential consequences calculated and strategies implemented to avoid or reduce those consequences.128 An essential part of the updating process is recalculation of the critical path following the addition of progress. The recalculation of the critical path identifies the start and finish of activities to be commenced, those which are then on the critical path, and provides a cogent baseline against which the effect of intervening events can be calculated. It should also be evident that there are numerous advantages in updating the schedule on a regular basis, which include the fact that the impact of any change can be accurately predicted against the model, whether it be to an activity duration, sequence (logic) or resource (money, labour, plant and materials). Further resource planning is rendered more reliable because past and current experience of productivity can be better used to forecast future trends, and the effect of changes to construction activities can be better calculated with “what-if scenarios”, enabling the project team to choose the most efficient sequences. To add to this it also assists in the identification of potential problems earlier with resulting increased time available to mitigate any risks, deal effectively with any issues from any “crystallised” risks and thus improve the likelihood of maintaining the project’s time and resource targets, and of course the cause and effect of disruption can more readily be identified and its consequences managed.129

126  Guide to good practice in the management of time in complex projects, the Chartered Institute of Building, 2011. 127  Ibid. 128  Ibid. 129  Ibid.

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It is also essential that there be a direct correlation between the timing of the schedule update and the reporting cycle. In other words, the data date of the updated schedule should match the reporting requirements. Additionally, during the schedule update, an audit trail should be maintained of the source of the as-built data, and afterwards, upon completion of each update, the critical path should be recalculated and recorded and the resultant changes to the critical paths noted and recorded in the planning method statement.130 As a result of the inevitable changes in construction projects, failure to update the programme would result in lack of important information such as changes in critical path, actual start and finish dates and percent complete for each activity; milestone status and potential problem areas; logic changes from previous updates.131

In delay analysis the real goal, of course, is to make a determination as to any particular delay item in what is called “real time”, i.e. as and when it happens, rather than reconstructing it years later, and it is the failure to do so timely that cause a great many problems and can cause even further difficulties once the matter ends up in court as can be seen the USA cases of Fortec Construction v United States132 and Continental Consolidation Corp. v United States,133 where the CPM schedules used to evaluate delays were rejected by the courts because they were not updated to reflect changes as they occurred. Unfortunately, even when updating is done timely, whether it was done adequately becomes the question. Thus, for example, an updated programme that does not adequately reflect the contractor’s as-built progress as the project unfolds would not be able to accurately predict project delays and their impacts.134 To properly sort this out one needs to understand that there are several ways in which “updating” can be accomplished, each of which can have an impact – good and/or bad – on the quality of the updated schedule and thus either help or render the schedule useless for delay analysis. These are, for example: • Updating when the original scheduler thinks appropriate, such as when the project is behind schedule; unexpected changes take place, force majeure for example; or when the contract mandates this as required by the contract documents. Some writers135 add to this the occurrence of specific control events, the degree of uncertainty, the magnitude of the project, the time of completion and the troubles encountered. • Another approach involves pre-determined periodic updates. This approach has the tendency to give a more accurate picture of how the work progressed than in the first approach. This is because in this first approach, for instance, the scheduler may not be fully aware of project slippage so that, by the time he/she agrees that an update is needed, the project might have slipped considerably, and contemporaneous information for updating might not be readily available.

130  Ibid. 131  Ibid. at ftn 40. 132  (1985) 8 Cl. Ct. 490. 133  Nos. 2743 and 2766, 67–2 BCA 6624. 134  Ibid. at ftn 40. 135  See e.g. Kursave, J. D. (2003). The Necessity of Project Schedule Updating/Monitoring/Statusing, Journal of Cost Engineering, 45(7), July, 8–14.

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Further there is the need, when updating, to identify the actual start dates, actual finish dates, per cent complete and remaining durations per schedule activity136 for without these accuracy and timing are impacted, and the actual updated programme is not as useful as it could be. Deficiencies in the Planning and Programming Process Again if the baseline programme is the “solid” foundation on which any construction schedule should be based both in theory and in practise, one must be vigilant to the various and sundry items which can be deficient and which can creep into the baseline programme thus causing issues later in the process. Whilst there are many possible causes of deficiencies, numerous writers137 have singled out the following: • • • • • • •

Inadequate planning expertise Poor enforcement of planning obligations Poor personal liaison of planners with others Lack of proper communication Inadequate planning effort Inefficient allocation of construction planning resources Inadequate contractual provisions for programming; poor involvement of field personnel • Insufficient time and information for tender preparation • Contract administrator’s programming expertise and programmesmanship Dealing with each in turn, the first is inadequate planning expertise, which has been linked to the fact that over the past 30 years it has been found that the majority of “planners” have little or no actual site experience.138 And in one study139 that reviewed “pitfalls” CPM scheduling on construction projects, it was noted that most contractors do not have in-house CPM expertise, which of course would likely result in poorly developed and poorly maintained schedules. This is then followed by poor enforcement of programming obligations. Whilst many contracts have programming requirements, that in and of itself does not mean that contractors will automatically comply nor do such clauses encourage the use of CPM-based programmes, and in the absence of managements support, these matters studies140 have shown that they will not be enforced. Unfortunately, this then leads to a lack of strict adherence to scheduling specifications that are meant to ensure proper scheduling of the work.141

136  Ibid. 137  Ibid. at ftn 40 for example. 138  Kelsey, J. Winch, G. and Penn, A. (2001) Understanding the Project Planning Process: Requirements Capture for the Virtual Construction Site. Bartlett Research Paper 15, a VIRCON Project Report: University College London, UK. 139  Street, I. A. (2000). The pitfalls of CPM Scheduling on Construction Projects, Journal of Cost Engineering, 42(8), Aug., 35–37. 140  Esthete, S. and Langford, D. (1987), Planning Techniques for Construction Projects, Journal of Building Technology and Management, Feb./Mar., 30–31. 141  Ibid. at ftn 40.

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The third possible cause of deficiencies has to do with poor personal liaison of planners with others, which further breaks down into two reasons – the first being that planners are often isolated from formal administration channels due to the nature of their work, and this creates difficulties for them in gathering of information,142 and secondly that planners are not always completely open on their programmes, particularly with the employer, probably for fear that their own programmes could be used to defeat any of their claims.143 And of course such a lack of openness makes the employer “very cautious about being tied to a contractor’s programme. Apprehension of this sort is likely to affect proper preparation and maintenance of programmes”.144 Fourth on the list is lack of proper communication in planning, and at its core is the need for timely, reliable and clear information gathering and distribution during construction,145 and of course what follows is that improper communication between project stakeholders particularly site managers, subcontractors and architect/engineer team will affect the availability of information for effective programme management. For instance, the practice of issuing verbal instructions and hand drawn sketches by the designer’s site representative without a confirmation by the contractor (as some contract forms require), often result in difficulty in finding project records when investigating causes of delay some time later.146

Another example is the situation where the architect or engineer issues drawings under cover of instructions, letters, transmittal sheets and other forms, without distinguishing between explanatory details and changes to the original design. This practice may not facilitate possible review of effects on programme and thus contributes to failure by the contractor to give notice of delay or extra cost at the earliest possible time.147 Then other types of deficiencies arise from inadequate planning efforts, and studies148 have shown that the extent to which emphasis is placed on the determination of construction methods during planning has a significant effect on the improvement of construction planning effectiveness. Further other studies149 have shown that relatively little effort is made by planners to seek required additional information during planning with the usual practice being to “feed deterministic planning models with pure guesswork data”. An anomaly also exists and is a cause of deficiencies in that the inefficient allocation of construction planning resources can result in difficulties, and whilst it has been found150 that

142  Cullen J. D. and Nankervis C. W. (1985), Overcoming the Luddite Factor: Some Behavioural Aspects of the Field Supervisor’s Role in Construction Planning, International Journal of Project Management, 3(3), 133–140. 143  Ibid. at ftn 40. 144  Ibid. 145  Ibid. 146  Ibid. 147  Ibid. 148  See e.g. Faniran, O. O., Oluwoye, J. O. and Lenard, D. (1994) Effective Construction Planning, Journal of Construction Management and Economics, 12, 485–499. 149  Laufer, A. and Tucker, R. L. (1988), Competence and Timing Dilemma in Construction Planning, Journal of Construction Management and Economics, 6, 339–355; Arditi, D. and Patel, B. K. (1989), Impact Analysis of Owner-Directed Acceleration. Journal of Construction Engineering and Management, 115(1), 114–157. 150  Faniran, O. O., Oluwoye, J. O. and Lenard, D. (1998). Interactions Between Construction Planning and Influence Factors, Journal of Construction Engineering and Management, ASCE, 124(4), 245–256.

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construction planning effectiveness can be improved by increasing the amount of resources invested in construction planning, there is also evidence that investing in construction planning beyond an optimum point will lead to deterioration of project performance;151 thus inefficient allocation of resources for construction planning has the potential of negatively affecting project performance. This is then closely followed by the lack and/or poor involvement of field personnel for if planning is to be effective, it must rely on a multitude of personnel both in the home office and also importantly in the field – field supervisors must be totally familiar with and in agreement with all details of the programme.152 And as some writers153 have stated, the more input the person responsible for carrying out the plan has in the development of the plan, the more likely it is to be followed. Further early research154 on this subject in the UK showed that field personnel are often excluded from strategic planning and from receiving planning information. This exclusion would work detrimentally against scheduling process thereby resulting in deficiencies in programmes that could have been avoided had the field personnel been consulted. The lack of time is also a difficulty, generally and specifically as to planning, and insufficient time and information for proper tender preparation are also significant issues. Indeed, adequate planning time prior to commencement of work on site is one of the factors significantly responsible for effective planning,155 and research156 has shown that most planners work under shorter time constraints during tender preparation, which may affect the quality of pre-contract programmes submitted with the contractors’ tenders. The planners interviewed in that research also complained of consistently poor quality and insufficient information for tender programme preparation leading to guessing for missing information. This affects the use of the tender programmes as proper bases for construction programmes or sometimes for assessing extensions of time when it is the only programme available prior to experiencing delays.157 Other deficiencies then include inadequate contractual provisions for programming, which arise from the fact that in most standard form contracts and in particular in most of the UK contract documents, there are neither adequate provisions nor sufficient emphasis for effective preparation and maintenance of contractors’ construction programmes. Indeed scheduling specifications that lack important programming requirements offer an advantage to unscrupulous contractors.158 In contrast, the situation in the USA may be better because as late as over three decades ago, most conditions of contract required a schedule

151  Faniran, O. O., Love, P. E. D. and Li, H. (1999), Optimal Allocation of Construction Planning Resources, Journal of Construction Engineering and Management, ASCE, 125(5), Sept./Oct., 311–319. 152  Ibid. at ftn 40. 153  See e.g. Baki, M. A. (1999), Delay Claims Management in Construction-A Step-By-Step Approach, Journal of Cost Engineering, 41(10), Oct., 36–41. 154  Cullen J. D. and Nankervis C. W. (1985), Overcoming the Luddite Factor: Some Behavioural Aspects of the Field Supervisor’s Role In Construction Planning, International Journal of Project Management, 3(3), 133–140. 155  Ibid. at ftn 40. 156  Kelsey, J. Winch, G. and Penn, A. (2001), Understanding The Project Planning Process: Requirements Capture for the Virtual Construction Site, Bartlett Research Paper 15, a VIRCON Project Report: University College London, UK. 157  Ibid. 158  Ibid. at ftn 40.

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in CPM or PERT format with a requirement to update the schedule periodically to reflect contract performance.159 Additionally another discrepancy flows from the issue of the contract administrator’s programming expertise or lack thereof; this is because as to the prompt and proper assessment of extensions of time claims, most forms of contract require the contractor to provide timely notice of delay and its particulars to the contract administrator. However, as one researcher160 has noted, it is not uncommon for contractors to provide brief information (if any) on particulars of delay events, making it difficult for the contract administrator to assess properly the effects of delay. Presumably the contract administrator might be expected to identify all relevant particulars required to make a decision on the extension of time and ask the contractor to supply them.161 Indeed it should be noted that some contract forms require the contract administrator to consider the reasonableness of the contractor’s endeavour to prevent or minimise delay and the effect of all other events even if not notified by the contractor when reviewing extension of time claims. As a result of these responsibilities, contract administrators with inadequate expertise on programming would not facilitate proper maintenance of programmes for effective delay assessment.162 The next area of discrepancy has to do with what is known as “Programmesmanship”, which is best defined as “a ploy used by contractors by deliberately submitting overoptimistic programmes in the hope of sustaining a delay claim even if the contract is completed within the contract period”.163 Typical examples include a contractor’s programme having an unrealistic early completion date, artificial logic to exaggerate known delay, artificial activity durations and logic to hide float.164 Thus the underlying reasons why contractors’ programmes can become unreliable when analysing delay claims are poor baseline programmes, failure to update programmes and inadequately updated programmes. Possible causes of these deficiencies include poor enforcement of planning obligations, inadequate planning expertise, poor inter-personal interaction of planners with others, lack of proper communication, inadequate planning effort, inefficient allocation of construction planning resources, inadequate contractual provisions for programming, programmesmanship, poor involvement of field personnel, insufficient time and information for tender preparation and lack of contract administrator’s programming expertise. Ways to resolve these types of deficiencies and ensure better planning and programming practice for improved delay claim analysis are employer and planners involvement in scheduling after contract award, programme management, the importance/use of programmes in delay damage claims progress reporting and its

159  Wickwire, J. M., Hurlbut, S. B. and Lerman, L. J. (1989), Use of Critical Path Method Techniques in Contract Claims: Issues and Development, 1974 to 1988, Public Contract Law Journal, 18, 338–391. 160  Thomas, R. (2001), Construction Contract Claims. 2nd Edition, Macmillan Press Ltd, UK. 161  Ibid. at ftn 40. 162  Ibid. 163  Ibid. 164  Zack, J. G. (1993), Claimsmanship: Current Perspective, Journal of Construction Engineering and Management, ASCE, 119(3), Sept., 480–497.

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content output of the planning process and nature of the programmes produced and the extent of use of scheduling software packages.165 The Difference between Delay and Disruption There is general consensus166 on what the two terms mean, and as to “delay”, that is taken to mean an occurrence(s) resulting in an increase in the time necessary to complete the project beyond that which was contemplated at the time the contract was entered into, with the resulting damages involving claims for extra overhead, costs such as the additional time needed to carry financing and other similar “time-related” items. However “disruption” is taken to mean any material alteration in the performance conditions that were expected at the time of bid from those actually encountered, resulting in increased difficulty and cost of performance.167 Research168 has shown that these changes in working conditions include out-of-sequence work, trade stacking, unbalanced crews, excessive labour fluctuations, overtime and working in adverse weather conditions, with the usual result of disruption being loss in productivity as more labour and equipment hours will be required to do the same work in the end than would otherwise have been the case. Thus it should be noted that the types of damages that are recoverable under delay claims and those of disruption are therefore different, and further yet another difference is that unlike delay damages, disruption damages can occur regardless of whether the project completion date changes or not. Delay in completion only occurs when the delays and/or disruption events lie on the project’s critical path. The difference between the two is further shown in the methods used for, and whilst “Delay Analysis” tends to utilise scheduling methods such as CPM, “Disruption Analysis” differs in that rather than viewing it from the perspective of how it impacted the construction schedule as is done in Delay Analysis, Disruption Analysis involves the collection of facts, particularly on productivity, and interpreting them to demonstrate cause-and-effect relationships between the alleged disruption events and the extra time and/or costs suffered as a result.169 One writer170 describes this process as deductive and that of delay analysis as inductive on the basis that the former often begins with moving from the general to the specific and vice versa for the latter.

165  Ibid. at ftn 40. 166  Haese, G. H. and Dragelin, T. J. (2001) Types of claims, Chapter 1 in Proving and Pricing Construction Claims, Cushman, R. F., Carter, J. D., Gorman, P. J. and Coppi, D. F (ed.), Aspen Law & Business, New York. 167  Finke, M. R. (1997a), Claims for Construction Productivity Losses, Public Contract Law Journal, 26(3), 311–338. 168  Hanna, A. S. and Heale, D. G. (1994) Factors Affecting Construction Productivity: Newfoundland Versus Rest of Canada, Canadian Journal of Civil Engineering, 21, 663–673; Schwartzkopf, W. (1995), Calculating Lost Labour Productivity in Construction Claims, John Wiley & Sons, New York. 169  Boyle, J. G. (2007), Productivity Claims: Beyond “Smoke and Mirrors”, AACE International Transactions. AACE International, Morgantown, WV. CDR.02.1- EST.02.10. 170  Ibid.

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The Methods There are various Delay Analysis methodologies used currently; some do the same thing and are called differently, and some actually are different. Whilst discussed in greater detail later in this book, they all share the common goal of showing how delays experienced by the various project activities affect others and the project completion date and then to determine how much of the overall project delay is attributable to each party. However, the various methodologies achieve this at different levels of accuracy due to their different attributes. The following gives an overview of the difference between the various methodologies and their brief descriptions.171 Common Name

Also Known As

Non-CPM based techniques S-Curve global Impact Technique Net Impact

Dollar-to-Time Relationship Bar Chart Analysis As-built Bar Chart

CPM based techniques

Adjusted as-built CPM Total time Impacted as-built CPM What if Baseline adding impacts As-planned-plus delay analysis As-planned CPM but for As-built but for As-built subtracting impacts As-built-minus analysis Contemporaneous Period Analysis Snapshot Periodic update analysis Watershed End of every delay analysis Chronological and cumulative approach

As-planned versus As-built As-planned but for Impacted As-planned Collapsed As-built Window Analysis Time Impact Analysis

The Methodologies Indeed the various methods used are different, and each differs from the others based upon the scheduling techniques required, the baseline schedule used and the mode of application. A  useful diagram172 showing the various interrelations is found in Figure 6.2.

171  Ibid. at ftn 40. 172  Ibid. at ftn 40.

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Figure 6.2  Delay analysis methodologies173

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173  Ibid. at ftn 40.

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Many writers including this one have felt that the various methodologies employed in delay analysis can be grouped as “CPM-based” techniques and “non-CPM-based” techniques. CPM-based techniques are more popular and highly recognised because of the numerous advantages of CPM in delay analysis, and as commented on earlier, non-CPMbased techniques, particularly bar charts, are of limited help on larger projects in proving the impact of delays because of their inability to show the true effects of delays on project completion. This author and others175 are of the view that the baseline or reference point used in delay analysis varies for the various methodologies depending on the choice between the following three options: 174

(i) Forward pricing – valuing the delay at its inception by impacting the contractor’s baseline programme with the delaying events. Methodologies relying on such analysis include the impacted as-planned and the as-planned but for methods. (ii) Contemporaneous pricing – valuing the delay as it is occurring or immediately after it has occurred. Methodologies for performing this include the Contemporaneous Period Analysis and the Time impact analysis. (iii) Hindsight pricing – determining and valuing the delay after the project is completed. This is performed using methodologies such as Collapsed as-built, As-planned versus as-built and the Window analysis. These options are highly influenced by the timing of the analysis. However, in practice methodologies suitable for performing forward and contemporaneous pricing (i.e. prospective analysis) can also be used for hindsight pricing (retrospective analysis). In this case the analysts would have the full benefit of hindsight as the analysis will be carried out after the fact.176

Additionally it should be noted that the exact use/application of these methodologies varies on three different modes: direct analysis, subtractive simulation and additive simulation.177 Direct analysis Here the claims analyst reviews the schedules as they are and without making any major adjustments or evaluations on the schedule. Thus these sorts of methodologies using this type of analysis are therefore relatively easy, simple and less expensive to implement. Examples include As-planned versus as-built, Net impact and Global impact.178

174  See e.g. Wickwire, J. M. and Groff, M. J. (2004), Update on CPM proof of delay claims. Schedule Update, Project Management Institute College of Scheduling, 1(3), 3–9; ibid. at ftn 40. 175  See e.g. Wickwire, J. M., Hurlbut, S. B. and Lerman, L. J. (1989). Use of Critical Path Method Techniques in Contract Claims: Issues and Development, 1974 to 1988, Public Contract Law Journal, 18, 338–391; ibid. at ftn 40. 176  Ibid. at ftn 40. 177  Ibid. 178  Ibid.

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Subtractive simulation In this mode the delay analyst removes (subtracts) the delays of each party from the as-built programme to establish their effects on the completion date of the project. There are two main ways by which the delays can be removed:179 removing all the delays in one go from a single as-built schedule (i.e. single stage simulation) or removing the delays in stages from multiple schedules (multistage simulation).180 The collapsed as-built method is an example of this type of simulation. Additive simulation Here the delay analyst formulates the delays as activities and then adds them to a schedule (the baseline programme or its updates) to establish their effects on the project completion date. As in the subtractive method, the additions can also be done in a single stage or multistages. Methods falling under this type of analysis are the impacted as-planned, as-planned but for, window analysis and time impact analysis.181 It has been stated that based on these different modes of operations, the level of analysis detail required varies for the various methodologies. Methodologies that make use of direct analysis are therefore often termed “simplistic methods” while those involving extensive modifications of the schedules as in additive and subtractive simulations are termed “sophisticated methods”.182 The latter groups tend to give more accurate results than the former, but they require more expense, time, skills, resources and project records to operate.183 Delay Analysis Methods Simplified A quick synopsis of each of the methods used and their differences is as follows: The S-curve Here the delay analyst reviews delay based on the relationship between cost and time. It involves developing a time/cost S-curve for the original plan together with the S-curve representing actual income.184 The actual S-curve must exclude any cost for additional works so that comparison of the two curves is valid. The amount of delay at any point along the actual curve is the horizontal distance between these curves at this point.185 However, there are limitations with this technique in that it does not identify and track the activities on the critical path; the original planned S-curve might not be accurate due to

179  Trauner, J. T. (1990), Construction delays-Documenting Causes; Wining Claims; Recovering Costs. R. S. Means Company Inc. USA. 180  Ibid. 181  Ibid. at ftn 40. 182  Alkass, S., Mazerolle, M. and Harris, F. (1996). Construction Delay Analysis Techniques, Journal of Construction Management and Economics, 14, 375–394. 183  Lovejoy, V. A. (2004). Claims Schedule Development And Analysis: Collapsed As-Built Scheduling for Beginners. Journal of Cost Engineering, 46(1), 27–30. 184  Ibid. at ftn 40. 185  Rubin, R. A., Fairweather, V. and Guy, S. D. (1999). Construction Claims: Prevention and Resolution, 3rd ed., Van Nostrand Rienhold, New York.

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“front end loading” or other factors; payments for stored materials and equipment could result in misleading progress of an updated S-curve.186 Global Impact technique This technique takes a simple approach of analysing the impact of delay on projects. All the delay events are first shown on a summary bar chart by determining their start and finish dates. The total project delay is then calculated to be the sum total of the durations of all delaying events,187 and via this technique the analyst can obtain a simple and clear statement of the amount of delay that is incurred. It has a major limitation: it does not consider concurrent delays and the actual delay types that took place presuming that all delays automatically caused project delay.188 Net Impact technique The next methodology deals with the difficult issue regarding concurrency. Under this technique, all delays are plotted on an as-built bar chart schedule where the actual durations, start and finish dates of activities are shown,189 and as a result only the net effect of all the delays is depicted, and the amount of delay to the project is the difference between the as-planned and the as-built completion dates. The limitation of the methodology is that it does not scrutinise delay types and could lead to overstatement of the number of delays having an effect on the project completion date.190 Unfortunately the methodologies just mentioned are generally not recommend by many writers including this one because a CPM network is not used, and as a result float, as well as criticality and interdependencies of activities, are not readily apparent, making it difficult to determine the true impact of delays. For this reason, the use of these methodologies is generally discouraged by most practitioners.191 As-planned versus As-built This method is rather simple as it compares the activities of the original CPM baseline schedule with those of the as-built schedule for detailed assessment of the delays that

186  Ibid. at ftn 40. 187  Alkass, S., Mazerolle, M. and Harris, F. (1996). Construction Delay Analysis Techniques. Journal of Construction Management and Economics, 14, 375–394; Pinnell, S. (1998). How to Get Paid for Construction Changes: Preparation, Resolution Tools and Techniques, McGraw-Hill Companies, Inc. New York; and Bramble, B. B. and Callahan, M. T. (2000), Construction Delay Claims, 3rd ed., Aspen Law & Business, Gaithersburg, MD. 188  Ibid. at ftn 40. 189  Leary, C. P. and Bramble, B. B. (1988), Project Delay: Schedule Analysis Models and Techniques. Project Management Institute Seminar/Symposium, San Francisco, California, 17–21 Sept., 63–69. 190  Alkass, S., Mazerolle, M. and Harris, F. (1996), Construction Delay Analysis Techniques, Journal of Construction Management and Economics, 14, 375–394. 191  Ibid. at ftn 40; SCL (2002) Society of Construction Law. Delay and Disruption Protocol. Printmost (Southern) Ltd, England (www.eotprotocol.com, accessed 22/08/2005); and Wickwire, J. M. and Groff, M. J. (2004), Update on CPM proof of delay claims. Schedule Update, Project Management Institute College of Scheduling, 1(3), 3–9.

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occurred.192 The main advantages of this methodology are that it is relatively inexpensive, simple and easy to use or understand,193 but it is limited by the fact that it fails to consider changes in the critical path and does not have the ability to deal with complex delay situations.194 Impacted As-planned The Impacted As-planned method takes and incorporates delays encountered as activities into the as-planned CPM schedule to demonstrate how a project completion date is/was being delayed by those delays. The amount of project delay due to each delaying event is the difference between the schedule’s completion dates before and after the addition.195 Whilst this method does not require an as-built schedule to operate, it has major drawbacks such as failure to consider any changes in the critical path and the assumption that the planned construction sequence remains valid.196 Collapsed As-built Following on one finds the Collapsed As-built method, which first creates an as-built CPM schedule including all the delays encountered. Delays are then removed from the schedule to create a “collapsed” as-built schedule, which indicates how the project would have progressed but for those delays.197 The advantage with this approach includes producing results of good accuracy,198 but it has limitations which include ignoring any changes in the critical path and the great deal of effort required in identifying the as-built critical path.199 Window Analysis In this methodology, the total project duration as given by the as-built CPM schedule is first divided into a number of time periods or “windows”. The dates defining the boundaries of these windows are often determined by major project milestones, significant changes in the critical path, occurrence of major delay events and dates for the issue of schedule

192  Ibid. at ftn 40. 193  Lovejoy, V. A. (2004), Claims Schedule Development And Analysis: Collapsed As-Built Scheduling For Beginners, Journal of Cost Engineering, 46(1), 27–30. 194  Stumpf, G. R. (2000), Schedule Delay Analysis, Journal of Cost Engineering, 42(7), 32–43; and Zack, J. G. (2001), But-for Schedules – Analysis and Defense, Journal of Cost Engineering, 43(8), 3–17. 195  Ibid. at ftn 40. 196  Ibid. and Zack, J. G. (2001), But-for Schedules – Analysis and Defense, Journal of Cost Engineering, 43(8), 3–17; and Wickwire, J. M. and Groff, M. J. (2004), Update on CPM proof of delay claims. Schedule Update, Project Management Institute College of Scheduling, 1(3), 3–9. 197  Ibid. at ftn 40. 198  Lovejoy, V. A. (2004), Claims Schedule Development And Analysis: Collapsed As-Built Scheduling For Beginners, Journal of Cost Engineering, 46(1), 27–30. 199  Ibid. and Zack, J. G. (2001), But-for Schedules – Analysis and Defense, Journal of Cost Engineering, 43(8), 3–17

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revisions or updates. These factors determine the number and durations of the windows for the whole project duration.200 The more windows there are or the shorter their durations, the better the accuracy of the analysis.201 Here the delay analyst starts by updating the schedule within the first window using as-built information including all the delays encountered in that period, while maintaining the remaining as-planned schedule beyond this window. The difference between the project completion date of the schedule resulting from this and that prior to the review process gives the amount of project delay as a result of the delays within the first window.202 This analysis is repeated successively for each of the remaining windows to determine the effect of all other delay events on project completion. The main strength of this methodology is its ability to take care of the dynamic nature of the critical path. However, it is usually more expensive due to the amount of time and effort needed to perform it.203 Time Impact Analysis and Fragnets Time impact analysis is really a variation of the earlier window technique just described, except that in this, the delay analyst concentrates on a specific delay or delaying event and not on time periods containing delays or delaying events.204 This approach evaluates the effects of delays chronologically, starting with the first delay event, by incorporating each delay (sometimes using a “fragnet” or sub networks) into an updated CPM baseline schedule that represents the actual status of the project before the advent of the delay.205 The amount of project delay caused by each of the delaying events is successively determined by computing the difference between the project completion date of the schedule resulting from the addition of each delay and that prior to the addition. Which Method is Best? Because of the various and different methods of analysis, the issue become which one to use and/or which one is best. In this regard in Balfour Beatty Construction Ltd v The Mayor and Burgesses of the London Borough of Lambeth,206 the defendant

200  Ibid. at ftn 40. 201  Finke, M. R. (1999), Window Analysis Of Compensable Delays, Journal of Construction Engineering and Management, 125(2), 96–100; and Hegazy, T. and Zhang, K. (2005), Daily Window Delay Analysis, Journal of Construction Engineering and Management, 131(5), 505–512. 202  Ibid. at ftn 40. 203  Zack, J. G. (2001), But-for Schedules – Analysis and Defense, Journal of Cost Engineering, 43(8), 3–17. 204  Alkass, S., Mazerolle, M. and Harris, F. (1996), Construction Delay Analysis Techniques, Journal of Construction Management and Economics, 14, 375–394. 205  Ibid. at ftn 40. 206  (2002) 1 BLR 288.

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challenged the adjudicator’s decision in court for, among other things, not having given any opportunity to the parties to comment on the appropriateness of the methodology which the adjudicator had adopted in determining extensions of time or to seek their observations as to its use. The court stated that the adjudicator ought to have informed both parties of the methodology that he intended to adopt and sought their observations on its appropriateness and held that, in the light of such serious omissions, it could not uphold the decision. Then in Try Construction Limited v Eton Town House Group207 the defendant also challenged the Adjudicator for using a methodology that it did not have a chance to consider. Thus the issue remains, and in one particular study208 assessed the reliability of three of the existing methods using a case study and came to the conclusion that none of the methods is perfect and that the best method should be chosen based upon the time and resources available and the accessibility of project documentation. Indeed the general view has been that no single methodology is suitable for all claims situations and that the most appropriate methodology for any situation should be selected based on a number of factors or criteria.209 Disruption Analysis Methodologies Whilst proving “delay” is relatively straightforward, the difficulty arises in proving “disruption” deals with the inherent complicated nature of labour productivity, which varies due to variability of human responses to different working conditions. The conditions can be either task- related factors, such as type of work being performed, the resources assigned and the means and method used to perform the task, or non-task related (external) such as crowding, adverse weather, out-of-sequence work, etc.210

Or as one writer211 puts it: “The responsibility for lost efficiency rarely rests with one side or the other of the claim. It is generally recognized that some fault for labour inefficiency will rest with both parties”. And to further complicate matters the disruption event or events can occasionally happen at the same time thus adding further complications to the mix. Further, the various methods, just as with delay analysis, can have many different names, not all of which have been agreed upon by the delay-disruption community of analysts and in tabular form these are as follows:

207  (2003) EWHC60 (TCC). 208  Bubshait, A. A. and Cunningham, M. J. (1998), Comparison of Delay Analysis Methodologies, Journal of Construction Engineering and Management, ASCE, 124(4), July/Aug., 315–322. 209  Ibid. at ftn 40. 210  Ibid. at ftn 40. 211  Zink, D. A. (1990), The Measured Mile: Proving Construction Inefficiency Costs.

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Common Name

Also Known As

Total Cost Modified Total Cost Measured Mile Technique Industry Studies and guidelines Jury Verdict Time and Motion Studies Earned Value Management System dynamic Modelling

global method Rolled up claim Adjusted Total cost differential Cost Method/Calculation Productivity Comparison Method Measured Productivity Method Comparison of Productivity Levels Cause-and-Effect Method differential Studies Estimating Estimated Evaluation Method Productivity Factors Factor-Based Methods Trade Publications Model Productivity Curves and Factors Industry Standards Earned value analysis

Discussing the most popular methods one should start with the “Measured Mile”. The Measured Mile Technique This method seeks to determine lost productivity on a project by comparing the cost of “impacted” work with the cost incurred to perform the same or similar “unimpacted” work. This method is straightforward and preferred by many as the comparison method is based on comparing the impacted productivity and unimpacted productivity on the same project. Assuming that the contractor has kept productivity records by location, type of work and the crews involved, the actual measured mile method is straightforward and can be broken down into phases:212 1. Identify and define the impacted work, including the unit of measurement for the work. For example, certain aggregates designated by the agency as suitable for use in concrete may not be suitable if the soils contain large lumps of clay. Under this first step, you need to identify and define the impacted work. 2. Identify the impacted and unimpacted time periods and project locations for the analysis. Selecting the unimpacted (measured mile) period and location for the project is crucial. Most common tasks on projects are constructed in different phases, at different times of the year and in different locations. In the preceding example, the contractor may be able to achieve a higher production after identifying and approving a different aggregate source. 3. Carefully evaluate the difference between the two periods and select a representative unimpacted period. Remember that a potential challenge to this approach is the argument that the unimpacted selection is not representative of the 212  Matthew DeVries, Measured Mile: How Contractors Can Recover for Lost Productivity, February 14, 2012, Posted in Claims and Disputes, Federal Construction, Transportation.

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project. This is because the measured mile method assumes all work on the project would have been performed at the same rate as the unimpacted segment. 4. Locate and assemble job-cost records, identifying man-hours, equipment and material used. Record keeping is critical to calculate and support any lost productivity claim. On highway construction projects, contractors must break the work down by location, activity and event. Review records for all unimpacted work periods. Field personnel need to maintain the records in generally the same manner for the impacted and unimpacted sections. 5. Determine whether you will base the analysis on hours or dollars. Then develop an unimpacted benchmark productivity measurement. An hourly approach is based on the total crew hours required to complete a work task, such as yards of concrete paved. A dollar approach is based on the total cost to complete a task, including labor costs, equipment rental, operating costs and consumables that vary with time. Once you have developed the productivity factors and crew costs, simply apply these to the impacted work quantities. The goal here and for the sake of accuracy is that it should be based upon reasonably similar work to the impacted work. The impacted and unimpacted work activities should draw on labour from the same labour pool, and both activities should involve similar skill level and effort. It should be noted that whilst in theory the measured mile technique appears simple, there are a number of shortcomings affecting its use in practice including: • considerable amount of investigation required to establish the cause-and-effect relationship prescribed by this method; • the analysis will generally be based on calculations performed after the fact, making it inapplicable for prospective analysis of disruption particularly when negotiating changes; • the assumption that the future progress of the project will be a linear extrapolation of the measure mile; • it may be difficult to find unimpacted parts particularly when disruptions to the work are so pervasive.213 Industry Studies and Guidelines Another favoured technique is one referred to as “Industry Standards and Guidelines” which grew, in the USA, out of research performed by various groups such as the US Corps of Engineers, National Electrical Contractors Association of America, Mechanical Contractors’ Association of America (MCAA) and others who have developed factors and statistical models of productivity curves for estimating productivity losses. These have been developed for productivity factors like overtime, overmanning, weather, learning curve and change orders.214 The advantage of this method over the others is that it allows a prediction of the most likely losses when negotiating changes prospectively. It is also

213  Ibid. at ftn 40. 214  Ibid.

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very useful in evaluating lost productivity resulting from multiple impacts by enabling the analyst to isolate certain impact events and assign a particular value to that event215 (Klanac and Nelson, 2004). However, its limitations include: • the data collection of these studies were limited to specific project environment and to a number of specific trades thus raising questions on their general applicability; • the sources of the data for some of the studies are not revealed, suggesting that they may be anecdotal and judgmental; • the quality of the data in respect of some studies is doubtful, for example, that of the overtime charts produced by MCAA and AACE; • the objectivity of most of the guidelines is questionable because they were developed by parties with vested interests without the involvement of the other project party; and • most of the guidelines are silent on how they should be properly used as terms such as “minor” and “severe”, which are subjective, are not defined in the guide (e.g. the MCAA guidelines).216 Total Cost Method The next method which is used is referred to as the “total cost method”, and here the party claiming the loss of productivity uses an estimate as to the difference between the actual cost and the contractual cost without establishing any causal link between the reason for their entitlement and the quantity of the corresponding loss.217 It can thus hide losses not caused by the employer such as those resulting from the contractor’s own poor project management or bidding errors. This has been its main criticism, making it the least favoured method. However, because construction projects can generate very complex sets of interacting activities, which are impossible or impracticable to separate into their individual causes and effects, there has been a long-standing debate over the acceptance or rejection of claims produced using this method.218 This method however has its criticism,219 and the “total cost method” for quantifying construction claims has long been controversial. In situations where it is “allegedly impractical” to itemise increased direct costs, a contractor is allowed to total its actual costs, subtract its bid price and impute the overrun to the project owner. The contractor need only show that its bid was reasonable, its actual costs were reasonable and it was not at fault for the situation causing the cost increase – hardly conducive to full acceptance by employers. A USA case in point illustrates the difficulty  – there, a dredging subcontractor was allowed to price a claim against the prime contractor using the total cost method. The

215  Klanac, G. P. and Nelson, E. L. (2004), Trends in Construction Lost Productivity Claims, Journal of Professional Issues in Engineering Education and Practice, 130(3), July, 226–236. 216  Ibid. at ftn 40. 217  Ibid. 218  Ibid. 219  Bruce Jervis, Is the “Total Cost Method” for Quantifying Construction Claims Fair?, ConstructionPro Week 1(22).

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subcontractor presented no independent evidence that it had been impractical to track its actual increased direct costs. Instead, the subcontractor’s technical witness, a bucketdredging expert, told the jury it would have been impractical to itemise direct costs. The jury awarded the subcontractor more than USD $2.9  million. The United States Sixth Circuit allowed this to stand. It had been the jury’s role to evaluate the credibility of the expert witness’s testimony. It should be noted that many courts are sceptical regarding the use of the total cost method. Some courts recognize only the “modified” total cost approach, requiring the claimant to break out any actual costs for which it may be responsible. But despite relentless criticism, the total cost method is still frequently used in disruption claims. This constant criticism has led to a variant in the USA as it has been considered a bad practice because it is imprecise, and it lacks proof of causation by the Employer. As a result the technique has been resurrected as the “modified total cost method”. The modified version of the claim quantification method addresses the concerns that led to the previous version’s ill repute – and lack of persuasive effect with courts, arbitrators and administrative boards. The modified method confronts both the imprecision and causation issues by segregating the aspects of the work affected by the project owner’s shortcomings. And the modified approach does not blindly accept the contractor’s pre-bid cost estimates or the contractor’s as-performed job cost records.220 Following this in the USA one court in Ohio illustrated the effective use of the modified total cost method in the context of pricing an acceleration claim. The contractor’s expert segregated the aspects of the work where labour costs were affected by the accelerated pace. He examined the contractor’s pre-bid labour hour estimates and adjusted them upward in accordance with industry cost data publications, making the estimates more reasonable. He tested and confirmed the accuracy of the contractor’s job cost tracking system as it applied to labour hours. And he itemized and broke out labour hours incurred in the correction of defective work and other efforts unrelated to the acceleration.221 Modified total cost approach This method is similar to the total cost except that in this approach the contractor’s bid estimate is adjusted to account for activities that were underbid or deemed to be his responsibility. The total cost differential is thus modified to eliminate cost factors that are the responsibility of the contractor and also correct inaccuracies in the original estimate. This makes the approach a more reliable method than the total cost method. In certain instances, the project is reanalysed retrospectively to determine what the project should have cost as a baseline instead of relying on the original estimate or its adjusted value. The method is correctly termed “should have approach” in such a situation (Shea, 1989).

220  Bruce Jervis, Much Maligned “Total Cost Method” Gets New Life, Construction Advisor Today, WPL Publishing July 9, 2010. 221  Ibid.

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Time and Motion Studies Time and motion studies, or motion and time studies, are generally a set of tools used by industrial engineers to increase operational efficiency through work simplification and the setting of standards, usually in combination with a wage-incentive system designed to increase worker motivation. Originally developed to drive productivity improvement in manufacturing plants, motion and time studies are also now being used in construction claims. It was used in the USA in Peter Kiewit Sons’ Co. v Summit Construction Co.,222 where a determination was made as to the amount of time model activities should reasonably take to accomplish in like conditions based on an analyst making sample observations as to how work is performed on site. Thus once this is established Contractors claiming for productivity loss may consider setting up such studies to measure increases in labour costs and equipment inefficiencies. All conditions experienced by the contractor on the job together with the conditions attributable to disruption should be simulated, preferably at the actual job site if possible.223 System Dynamics Modelling Approach In this method the cause and effect structure of a dynamic model is developed and the mechanism by which project disruption occurs is traced. It has been noted that in this model the simulation which occurs follows, on a daily basis, the way the project itself unfolds “so that the impact of events at one stage of the project feed forward to their longer-term consequences”.224 A  particular significance of this model is the ability to replicate the impact of vicious cycles caused by management mitigation actions taken to accelerate the project,225 and it also allows a wide variety of “what if” scenarios to be assessed. However, the use of it in practice is limited because it requires significant time from experienced modelers to execute.226 This is partly due to the sophisticated nature of the method and the extensive research required in discovering the categories of events that disrupt or delay tasks on the project.227 Earned Value Management (EVM) EVM is a technique used to track the progress and status of a project and forecast the likely future performance of the project. EVM integrates technical scope with the timephased cost or budget required to complete the scope to facilitate integrated management of program planning and execution. It can result in meeting the project scope within

222  422 F.2d 242 (8th Cir. 1969). 223  Ibid. at ftn 40. 224  Ibid. 225  See e.g. Eden, C., Williams, T. and Ackermann, F. (2004) Analysing Project Cost Overruns: Comparing The “Measured Mile” Analysis And System Dynamics Modelling, International Journal of Project Management, 22(7), Oct., 445–451. 226  Cooper, K. G., Reichelt, K. S. and Moore, J. (2004), Quantifying Disruption through Simulation and Heuristics, AACE International Transactions, EST.08.1–EST.08.9. 227  Ibid. at ftn 225.

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cost and schedule parameters, reducing or eliminating schedule delays and reducing or eliminating cost overruns. Specifically, earned value (EV) consists of three dimensions: (1) the plan or budgeted cost of work scheduled, (2) the performance or budgeted cost of work performed and (3) the cost of performance or actual cost of work performed. These three data elements are used as the basis for computing and analysing project performance. Then these three data elements are shown in cumulative curves on the same diagram; both budgeted cost of work scheduled and actual cost of work performed curves are only shown as far the project has progressed over time. By overlaying these curves, a profile of changing cost and time is shown reflecting changes in resource levels, resource costs, activity durations, scope or logic changes. In this regard in analysing any disruption using EVM, changes in the forecasts, which are often due to reduction in productivity, are related to certain events using usual contemporaneous record sources. The difference between planned and actual productivity of the causative events in terms of earned value is then quantified  – unfortunately the limitation of this methodology is that it relies on the availability of accurate progress and cost information, which is often not available. Final Overview The strengths of the various methods discussed earlier all differ depending on the nature and sources of the data relied on, and of course that is why their use in a given claims situation can generate many different results, each with a different level of accuracy, and whilst no method is generally acceptable for use in all cases, some, by habit or general use, are more frequently seen in practise – however it would appear from many writers228 including this one that currently the most preferred or acceptable methodology is the Measured Mile technique while the least preferred methodology appears to be the total cost.

228  See e.g. ibid. at ftn 40.

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CHAPTER 7

Construction Delay Analysis

Worldwide the question always arises as to why the construction industry seems to generate an enormous amount of delay claims as compared to any other industry. In the field of NPP projects, this issue becomes more acute due to both the complexity and precision needed in the construction progress. This author favours the answer that construction is complex, especially NPP projects, and that these have many “moving parts” all interacting starting on the Employer side with the designer and employer requirements, time considerations and fee considerations; thus the design tends to be pushed so that it is completed and the employer can get the project completed. The drawings/design goes out for tender, and the situation is compounded by contractors trying to give the lowest price in the shortest period of time based upon drawings that may be lacking in sufficient detail or worse yet the view that as contractors, “we can make it up with variations” – all this leading to a schedule which is in trouble from the start, and then adding to this we have different categories of problems which impact the project schedule1 – these include the following: • Architect/Engineer – poor design, incomplete design, slow response time; • Employer – excessive changes, delayed approvals/permits, prolonged planning, delayed payment; • Contractor and Construction personnel – poor planning/scheduling, poor contract management, coordination issues/unachievable schedule, poor data management/ mismanagement of resources, unachievable tender/bid, poor productivity, poor performance, labour shortages, default; • Other issues  – unanticipated weather, changing market conditions, unforeseen conditions, force majeure. Adding to these causes of problems, we also have the actual construction delays themselves and other “unplanned events” that happen during both the planning stages of a project and the actual construction which impact the totality of the works. Thus delay can and does impact both the cost of the project and the actual schedule for its delivery. Further compounding this is the other fact of construction that a delay can also lead to litigation, which further delays the project, and before the advent of dispute boards, the delay of lawyers, courts and appeals could kill the project and run the costs beyond any reason. So the issue of delay can be grouped into three categories with the first being the prevention of delay in the first place, which is discussed in other chapters, and then with the analysis of the 1  See e.g. Construction Delay Analysis Presentation by Michael Pink, published 18 August 2015 by Construx Solutions Software Applications.

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delay to determine who has the blame and/or to whom any compensation can directed, and the third arm of this is how to minimise the resolution of the damage caused, i.e. swift dispute resolution, which is also covered in detail later in other chapters. The first stage of all of this has to do with either the prevention of delay or if that cannot be done then establishing a standard reporting and assessment process to “capture” any delay and document it for future use: in other words the three-stage process which entails “capturing construction delay”,2 categorising the construction delay and then assessing the impact of the delay on the project schedule. Capturing, assessing and reporting on delays is a standard project management process to manage the unplanned events that happen during the planning and execution of any major project, and what is needed to accomplish this is to first have an established project plan which covers not only the scope of the project but also the full schedule and the related costs. This is normally done using one of the many project scheduling tools available3 and covered in a later chapter. The use of these sorts of software allows the project managers to thoroughly organise the work schedule, costs and for our purposes delay tracking and eventual outcomes – on schedule or not.4 Many writers including this one recommend creating a form that can be used to capture delay which on a regular basis allows for a standard method to capture the details of the delay at the point where the delay actually occurs. This is especially true for site delays during the actual construction and to note, for future use in either a claim or a dispute presentation to a dispute board, arbitrator or court, exactly what happened at or near the time of the event and by whom, thus establishing a reliable “business record” for use in evidence. The next step is to categorise the type of delay, and as discussed in earlier chapters it is commonly agreed that there are four categories: 1.  Critical versus Non-Critical Delays You want to identify if the delay is on the critical path – because if it is, the delay is going to extend your project’s completion date and will require you to update your project plan. Critical delays need to be resolved immediately. Being alerted through an email notification or some other method when these delays happen and formulating a plan to resolve the delay as quickly as possible are very important for successful project execution. Depending on the type of delay you encountered and the criticality of the delay, you may want to record a non-conformance around the delay and plan corrective and preventative actions to avoid another occurrence of that delay. You may additionally need to update your risk profile for the project if there’s potential a similar delay may happen as the project progresses. Non-critical delays still need to be captured, but they do not necessarily impact the project delivery date. They may still have a cost impact, so they also need to be reported on and resolved.5

2  See e.g. How To: Categorize, Analyze and Report Project Construction Delays, http://industrialaudit.com/ construction-delays/. 3  E.g. Oracle Primavera P6, Microsoft Project, etc. 4  Ibid. at ftn 2. 5  Ibid.

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2.  Excusable versus Non-Excusable Delays Whether or not it’s a critical delay, you need to determine if it’s an excusable delay (it was out of the Contractor’s control to prevent the delay from occurring) or if it’s a nonexcusable delay (it was a direct result of the Contractor’s actions, or they could have foreseeably taken action to avoid the delay in the first place). The contract between the Contractor and the Employer will typically specify what delays are excusable and which ones are not – so it is important that you are familiar with the language of the contract.6 Examples of excusable delays include: • Acts of God • Floods/Fire • Employer-Directed Variations and which normally are “captured” as part of a contract based/formal variation procedure • Errors/Omissions such as when the Employer neglected some critical detail which impacted the scope of the project It should be noted and is discussed later in this book that excusable delays may be compensable to the contractor as the Employer may give the Contractor more time to complete the project given the delay, or the Contractor may be given more money to complete the project as delays can extend the time the workers need to be kept on.7 However not all delays are excusable, and some examples of non-excusable delays are as follows: • Late performance of subcontractors impacting project schedule/milestones. • Poor work quality (may result in rework). • Inadequate equipment – it is usually the Contractor’s responsibility to ensure the workers have the right tools and equipment to execute their work activities. Disputes over whether or not a delay is excusable or not can cause major problems on a project, so it is important that the contract language is clear and delays are discussed with the Employer/Engineer as soon as they are encountered on the project. Having a detailed, documented record of every delay and agreement between the Employer and Contractor as to who is responsible is crucial if there is ever a dispute potentially leading to litigation.8 3.  Compensable versus Non-Compensable Delays Non-excusable delays are not compensable, and the Contractor is expected to absorb any penalties related to non-excusable delays, but excusable delays may be compensable, and again this would typically be specified in the contract between the Employer and the Contractor. Some examples of compensable delays include: • Employer-directed change • Errors/omissions

6  Ibid. 7  Ibid. 8  Ibid.

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It should be remembered here that these types of delays are within the Employer’s control,9 so they have the responsibility for the delay occurrence(s). Some examples of non-compensable delays include: • Acts of God • Flood/Fire • Strikes These types of delays are not within the control of the Employer or the Contractor and as such either end up in the dispute resolution procedures set out in the contract or handled as the contract between the parties sets out. 4.  Concurrent Delays As is discussed in detail in other chapters, concurrent delays are when two delays happen at the same time, each independently affecting the project completion date – and the question becomes which delay is responsible for any delay in the project delivery. Employers will often argue that concurrent delays by the Contractor as a reason for awarding a time extension on the project without awarding costs. Contractors will often argue concurrent delays by the Owner as a reason why costs should not be assessed for the delays. Summary diagram Figure 7.1 shows a flow diagram summary of the different delay categories:10 Following along from Figure  7.1, it all ends with having to make an assessment of the delay’s impact, and there are several methods all dealt with also in more detail in later chapters. Foresight (forward-looking) This method looks ahead at the plan for completion before the work is actually done and is often referred to as the Impacted As-Planned Method. Here delays are added into the as-planned/project baseline schedule, and then the forward-looking project completion date is recalculated based on those new items which have been added – these added-in delay activities may focus, for example, only on Employer delays or on contractor delays. The unfortunate things about this method is that it does not take account of the “as-built history of the project” and assumes the as-planned schedule doesn’t change moving forward. Hindsight (backward-looking) The reverse of the Foresight method is this Hindsight method, and this analysis method is often referred to as the Collapsed As-Built Method. Here delays are analysed from the end of the project looking back at what happened. In this method an as-built schedule is built at the end of the project, and delays are assessed against that schedule. A delay is removed from the schedule to produce the collapsed as-built schedule. If the project delivery date   9  Ibid. 10  The author is indebted for the use of the diagram as published in ftn 2.

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Figure 7.1 Delay category flowchart

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of the collapsed schedule is earlier than the actual as-built schedule then it is assessed that the delay was responsible for the schedule variance. Contemporaneous This method is actually a combination of the baseline schedule and schedule updates which are made whilst construction is in progress to construct the project. As a result it is the better method to show the actual status of the work throughout the duration of the project and is usually referred to as the Contemporaneous Period Analysis, or Windows Analysis. Further, as also discussed in other chapters, in this method the as-planned schedule is analysed through a “window” into the schedule – between two periods. Delays are analysed on this “snapshot of the schedule based on the project documents”, and the schedule is calculated based on the delays – the process is then repeated for the next window.11 Here the goal is to evaluate the delay against the current critical path for the project, to determine the impact of that delay on delivery (if any) or if it is accounted for in the float of the ongoing activities at that point in time. In many12 writers’ view, including this one, this particular method tends to give the most accurate analysis of the true impact of delays on a project’s schedule and takes into account the “dynamic nature of the critical path”13 through project execution. Delay log In view of the need to “capture” the delay, one of the best methods is through the use of a “delay log”, which, as previously discussed, captures the important points of every delay recorded. Following on this line then the delay capture method used should tie back in to the delay log so that the assessment and analysis can happen. A typical delay log entry would look like this: No.

Description Cause

001 Waiting for plan revisions

Architect away

Start

End

1 June 2016 1 September 2016

Critical? Responsible Excusable Yes

Employer

No

Where the Problems start The problems have their start in the preparation of the project budget and the initial schedule, and it’s usually caused by first a desire to be the lowest bidder both in terms of money and time needed and thus get the tender, and so the budget and the schedule both start off suffering from an overly optimistic approach as to cost and time with many contractors hoping to make up lost time and/or money in the variations that will eventually come their way. And whilst this is a problem for the small contractor who is doing a garage refurbishment in London, the same problem exists for a multinational construction company doing a mega-billion pound project halfway around the world in a remote part of 11  See e.g. ftn 2. 12  E.g. ibid. at ftn 1. 13  Ibid.

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the globe, and each, the small and the large contractor, all look to the “best-case scenario” and one that they think will get them the project – fanciful thinking many times and divergent from reality – and this is where problems can start. Usually the lower the bid is, the better chance that you will win the bid. That would require in most cases to come to a best case scenario budget. At the same time, schedules are the same way. When developing schedules, people think about how much time is it probably going to take, or how much time should it take. So in the end one has a project tender made up of “best case scenarios” – both budgets and time durations and add to this complexity so that the larger the project, the more extraneous impacts can occur, each one with the potential to exacerbate both the budget and the schedule, and the course for disaster is set. Further, as most international projects are expensive and complicated, if one small impact occurs, not even just a little impact, a medium sized impact or a multitude of impacts occur,14 a lot of money starts to drain out to sort out the problem, and more people become involved as then the other costs add up for materials, labour, etc. Requests for Information But then there are other impacts that may not even seem related, and of those one of the most insidious are RFIs – Requests for Information. These are also referred to as Technical Queries and usually by the terms of most contracts are formal questions asked by one party to a contract on a construction project to the other party. Typically this will be a request from the contractor to the client’s consultant team, but it may be between any of the parties, for example from a subcontractor to a contractor. The basis for such RFIs is to “clarify information” in the contract documents or to provide information that was not complete at the time the contract was entered into. The insidious nature of these comes from the fact that these usually take time, and that can impact the schedule. It may be necessary for the party receiving the RFI to seek further information from parties with whom they themselves have a contractual relationship in order provide a response – e.g. where a subcontractor requests information from the main contractor, who in turn requests information from the client’s consultant team and on and on. This can then lead to more responses and more questions and documents, and this all “creates a matrix of RFI’s that need to be carefully tracked, responded to and distributed appropriately”.15 To prevent the difficulties that often arise, it is important to record the dates that RFIs are despatched, the dates by which responses are required and the dates that responses are received to provide evidence in the event that a dispute arises.16 Usually the contract between the parties requires that RFIs be responded to in order to provide further information as is necessary to enable the other party to complete the contract on time. The parties are then entitled to rely on the information provided as correct. The insidious part also arises from the fact that in addition to the time taken to respond and the attendant delay that can occur, the failure to provide necessary information may qualify as a relevant event for which the contractor may be entitled to an extension of time and to claim loss and expense incurred as a result of any delay.17 Similarly, a response which 14  Ibid. 15  www.designingbuildings.co.uk/wiki/Request_for_information_RFI. 16  Ibid. 17  Ibid.

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constitutes a variation in the nature of the works may qualify as a relevant event for which the contractor may be entitled to an extension of time and to claim loss and expense. Typical Reasons and Costs – The Real World In any construction project you can have the theoretical analysis of what is going to happen and what has happened, and much discussion can ensue, but in reality and on a real project there are three typical costs associated with any project. All of these arise from the simple fact that on any project the budget has been prepared based upon the need for certain materials to be put in place according to a set of drawings and that this is done by people using equipment. This appears simple; however the difficulties start to arise when the project actually starts to progress, and usually it’s the labour contingent that is the most affected, which then turns into productivity problems, and the underlying issue generally on most projects has to do with delay of one sort or another. A small change can escalate into a slightly bigger problem which in turn grows exponentially with the ultimate problem being the initial budget being distorted, and the process spirals out of control from that point onward. When the budget which perhaps had a 10 per cent contingency for cost overruns jumps to 20 per cent then 30 per cent – and on some projects this can keep going higher to even 100 per cent both in terms of costs and time – the crisis is in full operational mode and the need for analysis of why this happened starts, where to place blame is next, and how to recover, if possible, comes thereafter. In a typical project you have the initial phase made up of the design, followed by finances, and thirdly the actual construction management itself. But when doing delay analysis or even more bluntly problem analysis, the first step in actuality is in poor design, which in and of itself can cause a myriad of problems, be the designer an architect or engineer or both – a poorly conceived design, a rushed design, a design-build situation, or however the project came to be put on paper, in the real world, can be one of the first ways projects get into trouble, e.g. incomplete design can cause issues; slow responses to RFIs and/or variations all cause issues which can exponentially increase the costs of a project and also increase its time. So take the example of where there is an incomplete/poor design, and as a result many questions are being asked by the contractor with a resulting slow response rate, and one can see how the problem can escalate. The other cause for initial problems on some projects is that the Employer decides, usually for cost reasons, to make changes which can sometimes be due to poor design or other times to the need to pare down the costs, and thus the variations start and the project stops or is slowed down in the process. One writer18 gives the example of where there were excessive changes, due to errors and omissions in the design, with delayed approvals and permits from the Employer with the Employer heavily involved in the planning process. Another example had to do with a project where the Employer was receiving a schedule update once a month, which was an obligation for the contractor to provide as it was stated in the contract, but the Employer didn’t necessarily like the schedule updates and was not approving them. The Employer/

18  See e.g. Construction Delay Analysis Presentation by Michael Pink, published 18 August 2015 by Construx Solutions Software Applications, www.slideshare.net/MichaelPink/construction-delay-analysis-simplified.

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engineer was reviewing them in very, very, very fine detail, and they were questioning all the changes and the duration modifications. And the logic changes and start and finish dates of certain activities. Asking if changes had been incorporated, the thousands of changes that were placed. As a result the Employer was getting so heavily involved in this planning process that these plans weren’t getting approved for months – the contractor would submit a schedule in March, and it would be approved in June. So they were essentially, because of this, managing without a schedule; there was no published schedule. Here the contractor did try their best to manage, but what ended up really happening was the superintendents and the foremen in the field were managing the job, managing the plan and just putting bodies everywhere. And then in the real world one encounters payment delays, and delayed payment further complicates progress. Construction like many other businesses is reliant on cash flow, and when a contractor does not get paid promptly, it cannot make its other payments, and again things start to spiral out of control with slowing work, less labour and excuses for lack of performance or even blame shifting and excessive RRIs as a way to “buy time” whilst awaiting payments – more delay, but how can fault be allocated? So in the earlier example,19 in addition to the employer being heavily involved in the scheduling process, they were heavily involved in a lot of changes. And they were approving changes. They were asking for changes, and they were taking time to approve these changes, and they were submitting about 60 variation requests per week, which required all the subcontractors to have more people to review these changes. They didn’t have money to provide these people, particularly because it was taking forever to get approval on the owner’s side after they had developed a budget for the variations that the employer had asked for. The situation developed where there was a lot of email communication, but no money was being released. The contractor had the obligation to perform the work as quickly and effectively as possible, but unfortunately the variations and lack of payment for those changes were causing impact to the job in addition to the actual variations themselves. Needless to say lack of funds will eventually lead to a reduction of productivity, which of course would lead to the resources that were needed for productivity, which would in turn be lessened and/or other activities interrupted, and then to do a proper analysis at a later point in time one would have to be able to correlate all of this to the periods of either lack of payment and/or delay in payment. Further, in attempting to analyse all of this, one would have to track the amount of money that was being requested as against the amount of money paid. A further complication in the analysis of the delay would also be any issues related to the construction managers – a sometimes un-thought-of group who with the variation processing, applications for payment, scheduling, etc., can cause some slippage in the schedule of their own account thus leading to further complications, delay and loss of productivity. In the real world this can also lead to their taking the schedule and either not updating it properly or making changes to the updating that don’t actually reflect the project and rather, reflect the storyline that they want to be showing. So an example given20 is the

19  Ibid. 20  Ibid.

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one where at the end of the month, the schedule gets updated and something happens – there was a delay, a two-week delay or a three-week delay, because the critical activity didn’t progress as planned or didn’t even start for whatever reason, but no one wants to show that there’s a delay at the end of the month to their employer that this project’s running two weeks late and then have that happen again . . . so what happens is contractors create an update “that kind of” masks that delay. Perhaps this is done with the best of intentions, but in some situations the ramifications have not been that well thought out, and some schedulers are in “fantasy land” where the schedulers produce schedule updates but have not discussed this with anyone and rather came to the resolution in their own mind that “we’ve got a two-week delay; how are we going overcome that?”21 They take it upon themselves, “maybe have a couple question and answer sessions, but nothing of any value, and decide to make some changes to the schedule that are sometimes unrealistic to mask a delay”.22 Unfortunately this continues again the following month, and then the next month something else can become delayed, and then they do it again. And this happens over and over and over to a point where the schedule is unusable. The project’s been significantly delayed even though no one knew that, and ultimately a situation develops where there’s going to be inevitable delay. With the end result being that the employer does not see it coming, the contractors have all spent a lot more money and all the subcontractors are stacked and the CPM logic’s crashed and the construction labour workforce is spreading everywhere, the result being that the parties are spending a lot more money than planned. Added to this is the situation where there is poor contract management. Obviously if one is not effectively managing the contract, this can cause adverse impacts to the schedule, which would include budgeting, accounting, changes and safety, and any of these issues can result in not utilising the contract.23 Further complications in the real world can include lack of proper coordination with the various subcontractors interfering with each other’s work schedule and the resulting subcontractor’s stopping and starting and throwing both their and the project schedule off, which can cause a domino effect of delay that’s not only consistent but can ultimately amplify those delay issues. Further real world problems arise from the creation of an unachievable schedule; managing with a schedule that’s not feasible will cause delays, and it will also cause budget overruns and other difficulties. Further on this line is poor data management and the specific inability of many contractors to capture data as it relates to productivity, performance, as it relates to cash flow, as it relates to schedule, as it relates to efficiencies, as it relates to throughput. If the contractor, for example, properly analyses data to know where its impacts are and when they’re happening, that will go a long way toward the efficiency needed to prevent delay in the first place. In many cases writers24 have noted that both employers and contractors had no clue that the project was being delayed or impacted, or what the issue was causing these impacts. They just knew that things were getting harder and harder, but being optimistic they just “still hoped for the best” with the result being that everyone 21  Ibid. 22  Ibid. 23  Ibid. 24  Ibid.

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involved spent more money – and everybody involved wants to be paid that money – and nobody wants to actually pay for it. A unique phenomenon occurs in construction which has to do with the fact that delay analysis usually occurs after a project’s significantly delayed or over budget rather than by preventing it in the first place by keeping track of information in real time to ensure that delays, although they’re happening, are being monitored and responded to in real time so that at the end of the day, the project’s not suffering large, large budget overruns and significant delays because people were too lazy to bother early on. And in the real world it just gets worse, so poor data management will cause impacts to the schedule because no one knows exactly what’s going on, and then also similar to coordination issues, there’s mismanagement of resources, both in-house management resources and not having enough people to process the amount of paperwork that needs to get done to successfully manage a project. This, incidentally, can include estimating as well as variations, which also includes accounting, and the need to review applications for payment, etc. ... Yet there is another real-world factor that is many times missed that that has to do with the management of other resources – the people on site – not sufficient supervision for example and/or not effectively managing the resources of the subcontractors.25 This also causes an impact to the schedule and the project where they tender based upon an estimated price which may or may not be achievable, and the unknown factor is that these people, the subcontractors (as well as the contractor itself), may not have ever expected to get or be able to afford the number of people that are required to actually, effectively maintain the durations necessary to get the work done in a timely manner. This, coupled with the reality of poor productivity and performance such that the resources being used are not producing in alignment with the plan, will obviously cause further issues. Worse yet if this is happening all over the project all of the subcontractors end up in trouble, which again is costly. The list of real world problems which cause delay and impact the project negatively goes on with the mismanagement of the contractor’s resources, similar to the construction manager’s, but this has to do with the contractor doing their own paperwork and doing their own construction management of their contract. And then there’s also the management of the resources at site. They have supervision issues, as well, with their foremen, followed by the possibility of labour shortages. If you don’t have enough labourers, the ones who are there may not be producing in alliance with the plan, as, for example, how it relates to how many linear feet of pipe or yards of concrete they’re installing – but per labourer, they may not have enough labourers, which can cause further issues related to delay that are very subtle and can be missed. Unfortunately, the list of real world problems which can lead to delay can seem to be endless, such as ones dealing with quality and default – if materials are not installed correctly and need to be repaired or if they are defective in any way, this can cause significant impacts. And then there’s other issues which are more common such as weather problems changing market conditions, which can affect the delivery of material, strikes labour uprisings, disease, war, etc. which can, of course affect the number of people that are working. It can affect the type of equipment that is being utilised, or the cost of that 25  Ibid.

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equipment, which may be unaffordable at that point. Further one finds other difficulties which can arise including unforeseen conditions. There’s things that are out there that weren’t expected, and cause a lot of issues, even at start of the project. So the unfortunate situation which can and does develop arises from a confluence of some and/or all these factors for the more that these issues occur, the harder it becomes to understand why a project was delayed. Particularly if, for example, a project starts with something which wasn’t necessarily a great design, and the employer did have a lot of changes, and they’re not paying for these changes because there’s a long review process because the architect/ engineer had a slow response time. But the construction manager, at the same time, isn’t coordinating very well and has a bad schedule to work from, which is complicated by the contractors not having brought enough labour resources to this site. But they may not know better because it might be the construction manager’s responsibility to tell them how many people need to be at the site. which is made worse because they may also be bringing the type of labourers that aren’t doing a very good job and aren’t producing in accordance with the plan and/or maybe aren’t even putting in the materials very well. So, if we have that situation, who’s responsible for the delay? And in the end they all blame each other. And this is where effective delay analysis comes into play. In the real world one needs, as a start, a baseline schedule. The baseline schedule is the basis for the plan. If there is no baseline schedule, the project will be delayed because you don’t have a schedule. And you’re not managing it in accordance with getting the work done in a timely fashion. Remember that the baseline schedule can encompass thousands of activities, and it’s impossible to do an analysis at that level – one cannot just review the numerous activities, even with some of the sophisticated scheduling programmes available and discussed later in this book, such as Primavera or Microsoft, because there are minimal abilities to understand interruption, i.e. one cannot tell when there are many delays on a lot of activities what was the actual root cause because it will appear that all the activities were delayed. Further it will be difficult to know what activities were ongoing and when. For all you can see is start dates and finish dates, and one frequently sees start dates for an activity scheduled for five days with finish dates, for the activity duration, that end up being six months on many, many activities. The trouble is that in the real world it is often impossible to tell what the story is behind that, and as some writers,26 including this one, recommend, one needs to first summarise it and make it into something that is actually understandable. Something that someone can look at and really begin to understanding the “flow of the work”. Literally to “feel” the flow from which area to which area, which subcontractor to which subcontractor  – basically breaking up the schedule into areas and within each area breaking out the various activities into the basic component subcontractor or trades. This is step number one and is very critical for the start of any analysis of delay – locating and summarising the baseline schedule, which in turn becomes the basis for the delay analysis. Then also overlay this and gain an understanding of the critical path of that plan – know what the longest path is and get a real world feel for exactly what the critical path means in real time. What this means is that one should figure out what the critical path of the project is in the beginning, and once it has been broken into areas one should then start to look at it and understand

26  Ibid.

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how subcontractor trades flow both within themselves and with others. In this regard a good example27 is the following simple example: Assume a ten-storey building built of concrete, masonry and with windows. It’s to be an apartment block. The first thing that needs to happen is a hole needs to be excavated, the foundation needs to be poured, and then after that, every single floor is going to be poured – the concrete is going to be poured on every single floor, in order. One does not construct such a building by pouring the fifth floor before you pour the fourth floor  – one pours the fourth floor before the fifth because that is how it has to be done, to build effectively, and then you build each of the surrounding areas so each of the areas is broken out by level. And then within each level after one pours the concrete, there are a series of things that need to be done. First, the concrete needs to cure. Then shoring needs to be removed if necessary, at which point, you can start to put in your enclosure with the masonry and windows. Simultaneously, one can be putting in the mechanical, electrical and plumbing. After that, you can start to put in your drywall/plaster. Once the building’s watertight, and once the mechanical, electrical and plumbing are in place, one can start to put in the walls and ceilings and floors and then put in the finishes – that is how subcontractors/trades “flow” in normal projects. One is not putting in windows before the concrete, nor putting in carpeting before the floors, nor putting in floors before you place windows, unless one has water-resistant floors. So what one needs to learn is what is the “trade flow by area”, and then what area comes first, what area comes second, etc. Now once a summary schedule has been determined and once the “trade flow” is understood, the delay analysis can and does become easier because the basic information has been organised in a way that is understandable – one can “gloss” over it and understand the plan, which is not something one can do easily with a 2,000+ activity schedule, but can do with a summarised version of a 2,000+ activity schedule. Following this one can generate an as-built schedule by taking the plan(s) and generating what actually happened. So for example say the plan duration for concrete was 15 March 2015 and supposed to be completed around 5 April 2015. And following this the second pour of concrete starts, and simultaneously there was going to be shoring and curing on the first floor – that was the plan and whilst what actually happened may be different, at least one has a starting point to go from and a basic understanding of the flow, and that’s what one needs to see – the actual start and actual finish dates in the same ordering/level as the plan. Once this is accomplished then one has all the actual starts and finishes of the summarised activities, and from this a comparison can be done, which conveniently is referred to as the “as-planned versus as-built schedule”. This is the first set of things one should do at the start of any delay analysis: take the schedule, the baseline, the one that was approved, the one that everybody agreed was the plan, and break it down and summarise it following which one should then study the critical path and the “trade flows” and then organise it in a way that makes sense to the one doing the analysis as well as to any other person that may need to see and understand what is happening such as the dispute board, an adjudicator, an arbitrator, the court, etc. and then generate the “as-planned/as-built”. With this one then 27  Ibid.

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has the planned durations and the actual durations, the planned start and finish dates and the actual start and finish dates. Once this is accomplished then that is the time to start to study it again, and this time the as-built becomes what actually happened, and the plan becomes what was supposed to happen. Now, one can study what actually happened and start to pinpoint delayed areas or trades or issues that may have impacted the job. One good suggestion some writers28 suggest is to try to find a theme: Concrete, steel, look at those first, if there’s concrete delays, that can impact the entire job. If there’s structural delays of steel or concrete, that can cause an issue. Next thing you want to look at is enclosure. See if there was any issue getting the windows in or curtain wall up or any masonry or wall, exterior walls that would impact the ability to put in the finishes.

Additionally, as an example, whilst being water tight is important, particularly in residential or office type projects, this may not be the issue that one should focus on in a refinery, but one needs to look at it just as looking at the mechanical, electrical and plumbing works are needed to see if there are any common themes there, but keep in mind that the real goal is to try to pinpoint the delay issues, and this actually may be hard, particularly if there are a lot of issues up front. So for instance if the design is causing a problem causing your early on structural work to have delays, what will happen is that ultimately the project will become “compressed”, and unfortunately that is the way that most contractors manage them, and worse, that is the way that Employers would like most contractors to manage is to, regardless of any early on delays, still get it done in time. Unfortunately trade work gets backed up or worse “stacked” on each other, and the result is crashing of the schedule with multiple trades working in multiple areas all at once, on top of each other, causing delays everywhere – and if that situation occurs, the problem becomes that the “theme” is lost, and in effect the “theme” becomes one of “everything’s delayed”, but remember that the goal was to hope that that doesn’t happen, and if it slides into that, the person doing the analysis needs to sort out the actual “root cause” of those delays. When stuck in such a situation, it is good to remember that often the “theme(s)” can also be that just one particular trade is having problems. Which leads to the next example:29 This time the project was a dormitory made up of a series of five buildings at a university, which were significantly delayed due to the structural portion of the job. In fact, the only thing that was delayed was structural, and as soon as that was resolved, all the other trades came on at once trying to get the project done in a timely manner, and they all were going from one area to the next with some areas starting and stopping, and that caused resource issues. But yes, the goal is to pinpoint the issues of a delay.30 The way forward would be to try to find that theme as quickly as possible through this as-planned, as-built analysis – thus once the as-planned, as-built is determined the next thing needed is to determine what the as-built critical path is. This is important because the critical path is really arguably the only thing at a different point in time that was delaying the job, as it was driving the end date of the job – and what a good analysis will do is to focus on what issues were driving the end date of the job out. A perfect example

28  Ibid. 29  Ibid. 30  Ibid.

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of this would be to assume that you have the building going up and simultaneously site work is being done. But the site work has, say, eight months to get done, and it should only take two months to get done. So if the site work’s delayed while the building’s going up, it’s probably not going impact the end date of the job, so it’s not a driving delay. Which would mean that any delays in site work won’t be the reason for the end date to get pushed out. What one needs to do is find out what the end date got pushed out at different points in time. Critical Path It cannot be stressed enough in the study of delay and disruption that the critical path is a dynamic thing. It starts out in the plan as that longest path from the beginning to the end of the job, but as schedules get updated, as impacts occur, as changes occur, as modifications to the plan occur, critical paths shift, and knowing what that critical path is at each point in time throughout the life of the project is needed for any proper delay analysis.31 The historical path, which is done after the “as-planned, as-built”, is put together after a thorough review of all contemporaneous information to determine the “historical critical path” – the as-built critical path. Here as for “contemporaneous information”, the best contemporaneous information can be found in the schedules themselves, and hopefully the schedules, which should be updated monthly or even more often, will help provide the information needed and thus assist in determining what the driving set of activities were toward the end date of the project with the result being that with this knowledge, determined at different intervals, at best weekly, or at worst monthly, one can at least assess what was driving the end date of the project from one period to the next. The big caveat however is whether or not these various schedules were done properly, i.e. that the person managing the schedules was doing it accurately, was doing it correctly, was not masking delay, not creating a worthless or “fairy tale” schedule that’s not very good, nor usable, and which does not accurately reflect the work being done at site. This is where the problems arise; what if you don’t have accurate schedules to work from? It often happens in construction that the schedules are not as accurate as could be, and if they are not, then one needs to find other documents such as meeting minutes, emails, progress reports, etc.: anything which will help in understanding what was “driving” the project, not from the company headquarters but rather what was driving the project from those on site, from those actually working on the project. From this information the goal for the delay analyst is to get a feel for exactly what was happening at the time, to visualise what was happening and to, in effect, pretend like you were there, in the various meetings when the issues involving delay were being discussed and the areas of concern and fault were being discussed, and here is where contemporaneous emails, letters, faxes and the like can be very helpful. Indeed, this is all extremely helpful to the delay analyst for hopefully all of this information at different intervals of time is being discussed and transcribed in these meetings. From here, whether or not good schedules exist, one can piece together what has happened to cause any specific issue of delay, and from this one can effectively determine what methodology to use to highlight and 31  Ibid.

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improve this critical path delay.32 And thus once a determination is made as to what the critical path is, this as-built critical path is/was at different intervals of time and it has been proved using the methodology selected it, is at this point that one can now measure delay. This is the point in time when using the proven critical path one can actually determine what was delayed and why it was longer than scheduled, how much longer it was at that point than it was supposed to be and other key issues. For example,33 we identify from the critical path that the problem was in the building’s enclosure process. So one finds that the mechanical, electrical and plumbing actually progressed on this building, but for some reason the enclosure did not. Maybe there could be issues with the concrete, making them unable to put the framing in. Or maybe there could be poor fabrication of framing. Or maybe there could be a delay to the curtain wall. Or whatever it is, once a determination is made as to what critical path delay area is involved, one can now measure how long was it supposed to take during this period that it remained critical. And how long did it take? And how long was it on a critical path? Because the difference between those two is the delay. Once that is determined then the next step is to determine causation. Thus far a determination has been made of the historical critical path, and this has been determined, and it was proven using any one of the available methodologies discussed in other chapters and then it was measured  – measure the critical path delay. So for example say it took two months when it should have taken one; that’s a one-month critical path delay. This then leads to the ultimate question – why did it happen? This determination then takes one back to the documentation used, and in the example we see that it was supposed to take one month, it took two, and one can figure out why it happened. Maybe there was a delay to the fabrication of the material; maybe there was just poor workmanship; maybe they were waiting on a variation. Either way it is necessary to determine that issue, which is done through another analysis of information whether it be documents or data, and that includes summarising the baseline schedule. Again the baseline schedule summary is necessary because it makes it more simple to digest the plan and much easier to pinpoint delays, and it’s easier to explain later to others like the dispute board should the need arise as once the summary is complete the goal should be that anybody can look at it and understand how the project was supposed to flow. To be clear here, this is not just an organisation of the data, and it does not mean to just organise it using activity codes, etc., but rather the delay analyst has look at it in different ways to find the way that “speaks the best to the person ultimately viewing it”.34 It is also very important for the delay analyst so that he/she can also understand it. And whilst many delay analysts may take umbrage with this comment, no one can understand a thousand terms – so if one is faced with a 2,000 activity schedule, there’s usually 20 activities per page, and that means there’s 100 pages, which is typical, and this is on a relatively small project; take a mega-project with disputes over billions of Pounds or Euros and the number is magnified greatly. And thus the reason for the distillation of the schedule – the summary as it is being referred to here – for even with the smaller project

32  Ibid. 33  Ibid. 34  Ibid.

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with between 50 and 100 sheets of paper organised in a certain manner, this is a lot more complicated to digest as compared to only two or three sheets broken out by a particular area, divided up by subcontractor/trade. The end result is that it is not just easier to understand, it’s also easier to assess and pinpoint delays. And the most important factor is that it is easier to discuss this with the necessary person concerned about the delay analysis – the contractor or anyone else involved in the project. It makes the discussion phase easier and more understandable and can often many times avoid an issue regarding delay from turning into massive litigation. Some writers refer to this as “level one”35 and that is where the delay analyst has completed the analysis just referred to and taken it down to a summary level where it’s on a sheet a paper and can literally be put in a PowerPoint style presentation on a screen, and anyone interested can be taken through the various steps of the delay analysis in an understandable way highlighting what the delay analyst’s critical paths were. This then goes to the next level, which is sometimes referred36 to as “level two”. In some cases, the approved schedule baseline may contain preferential logic and/or non-contractual constraints that favour the contractor, and for the delay analyst the issue becomes one that if it’s an approved baseline schedule, it cannot be necessarily be said that it was “preferential”. The problem arises however from the fact that some contractors have found that the agreed schedule was not thoroughly reviewed by all the parties and that the way it was put together favours the contractor, and that becomes the basis for their plan. Because of this it now has to be analysed that way and has to be analysed as if it was truly all agreed as the plan, and whilst the delay analyst can point this out to those interested, it should be analysed as if that was the plan. Using another hypothetical, take a group of five buildings for a research and development facility which all sit on top of their own parking structure and are interconnected with walkways and bridges. In this case the delay analyst would break each of these into its own area and starting with the excavation of the garages break each one down by subcontractor/ trades so one ends up with excavation, underground utilities, concrete forming walls and floors, then exterior waterproofing, on so on all the way until completion of each separate building, Along the way depending on the size of the contractor and subcontractors, it can further be broken down by the size of the various crews working on the project and where they are working, e.g. all of the excavation is done at the same time, then all of the concrete forming, or it can be done by building; it’s the contractor’s schedule which determines this and one of the first places to look to see if the schedule was laid out in a logical fashion. From here one can highlight, in red, what the critical path was and/or what it should have been – the critical path started in the site work and then it went into the garage because it’s logical one will not construct any of the other structures until the garage(s) is/are in place. This is done simply for sake of understanding the logic and flow of the project and can be done on a few pages, and it will allow the delay analyst to “trace the flow” and give a general idea of what is or should be going on at what different points in time as well as each activity and its start and finish dates and from this verify that the logic appears to work. Following this the schedule can be simplified down to one page or so,

35  Ibid. 36  Ibid.

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and it will have the appearance of an organisational structure. This simplified version is for consumption by the delay analyst but also as a tool to help explain, simply, how the delay was analysed, and it too starts with any demolition, ground work, excavation and then into the foundation – all shown with start and finish dates – and then once that foundation is in for the parking garages, then the structural finishes in each building, but also one can show that at the same time, the foundations for the building pads are starting, then the slab on grade for all these building pads which in and of themselves will take time, and that is shown too on the simple version of the schedule. The story then starts to emerge for the viewer (Dispute Board members, adjudicator…): we are going to get the third building foundation done at which point framing for the concrete walls will start…. But at the same time, a second crew will start doing framing over here on the adjoining building, after which the same crew will move to yet another building, and so on and then after this will come the other subcontractors the electrical, mechanical, plumbing and then the finish crews, etc.

Thus the observer can see, in a simplified fashion, that there will be some subcontractor trades which will overlap, and from this the critical path is shown to develop, and there should only be one path that extends from the beginning of the project all the way to the end of the project. The importance and significance of that is that is the one and only path, the critical path. So following the simplified development of this sort of schedule one can also see that if anything is delayed on that path, it’s going to extend the end date of the project, day for day. Now, the reason that it’s important is because if a delay occurs it depends on whether or not it is on the critical path, so for example if a delay occurs on interior finishes on building number 2 but forming is still underway on building number 4, and the delay to the finishes may be some extended period, say even a year, but it may have no impact on the critical path as there is other work to be done which has no bearing or relationship to the interior finishes in building number 2. So long as the project was progressing in accordance with the plan on everything else, then the end date would not shift. And that is the importance of the critical path for there can only be one path that can be driving the job.37 Of course as described later in this book there can also be “near critical paths”, there are “co-critical paths” and other variations of these, so particularly as it relates to poor scheduling, that’s where critical paths start to get argued; that’s where litigation comes into play, which is something everyone needs to avoid if at all possible, and that is the point for simplifying and summarising the schedule. Thus at this stage the delay analyst has what’s needed and knows what was supposed to happen and what didn’t happen. From here the need to know what actually happened is determined from the “as-planned” versus “as-built”. Once the delay analyst has the simplified plan and the related graphic presentation along with the summary on which to show and perform the analysis, one can add in the actual start and finish dates of each of the activities that were outlined in the summary. So for example the data analyst takes and now summarises the data points exactly as the plan was summarised, e.g. when actually was the start of underground utilities form core slab on grade? And when do they finish it? And so on through each subcontractor, and then these are overlaid next to each other, and 37  Ibid.

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what really happened starts to develop. And to get a complete accurate picture you may need to look at more than just the start and finish dates but also compare them to other available data such as applications for payment photos, progress reports, etc.; one can see exactly (or as close as possible) when things started, when they finished, what day things were worked on. As has been noted by many writers,38 it is a unique phenomenon in construction where the contractor claims that a “long activity” such as concrete took “four months” but in reality it only took five days, etc. So the question becomes exactly what days did it take, and when was it at a point where it was no longer impacting anything to follow? That is then the real point of substantial completion. A classic example is where a little square of carpeting was left out of one room because of a variation regarding plumbing to the floor, so the carpet could not be put in place – that carpeting, for all intents and purposes, is done. It’s not impacting anything else. So that’s what the delay analyst needs to find with substantial completion. Contractors have a tendency to claim that it’s 99 per cent done for the following three months because that little patch of carpet is not in there, but the delay analyst needs to determine what the real substantial completion dates are. It’s important to note that when one creates this schedule summary, as-planned, as-built, then the delay analyst needs to look at each area and start to see what was delayed and for how long. And then after that, look at all the areas together and see if there’s anything. As an example take a ten-storey building. Look at each floor and see how long it takes to put the concrete in, and then what happened after that? How long did it take to put the windows in? When did that start and finish? What about the mechanical, electrical and plumbing phases – when did that start and finish? What about plaster? When did that start and finish? And one starts to analyse these durations, and invariances to these durations, and if there are periods of inactivity, one then knows that these are happening for some reason. The reason may be, for example, lack of resources because they’re in another area, and that’s where one needs to overlap it. Start by trying to find the seam, and this is usually instrumental in coming up with a hypothesis on what the critical path is that is overlapping these areas. And then that’s when one starts to highlight delay issues.39 It’s always an issue of the critical path, and that is the reason one does schedule updates because the project status and the critical path can change, and a good delay analyst knows this and checks to make sure on this point whilst doing any analysis – What is the critical path right now, at various or at different intervals of the project throughout time, what was the critical path? What was the activity that was driving the end date of the job out? And that’s the relevance to that. And it’s also relevant from a planning perspective.40

The delay analyst needs to know what is driving the end date of the project at every given point of the project because that’s really where one needs to focus the most effort on not delaying the project. So if concrete is your critical path, better get that concrete done, or the

38  E.g. ibid. 39  Ibid. 40  Ibid.

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end date’s going to be pushed out, and there’s only two options at that point – either hand the project over late or spend money to accelerate and mitigate. Or one, in theory, can come up with creative approaches to overcome a delay issue in a manner that doesn’t cost anybody money. This of course leads to the issue of whether or not there could be two critical paths. The theory is there’s one and only one critical path, but in reality there are alternate critical paths.41 For example, there could be two buildings that are being built simultaneously, competing. The example that is given42 is the situation where there are two of the exact same buildings with two of the exact same changes to the renovations that are essentially being built in the exact same manner with two different crews. So they both have critical paths, and one could be more delayed than the other, and that takes over the critical path, but the historical critical path is really the most important part of delay analysis. One can look at the as-planned, as-built all one wants, and one can make assumptions, but until proven, with certainty, what that historical critical path was, there will be no true determination as to who was responsible for the delay. For as we know there are many, many reasons a project can be impacted, but the delay analyst needs to really pinpoint what was driving the end date of the job, and that can only be done through this critical path analysis, or identifying that “historical” critical path  – and importantly as it relates to when these analyses are done, this is the point of contention. This is the place where people argue was it really the critical path or was it not. And that’s why the delay analyst has to have a substantial and solid analysis as well as an understandable solid proof. Which is also a major reason why it’s very important from a contractor’s side to be utilising the schedule in a manner that comports with how the contractor is managing the work, rather than presenting a fairy tale of what the contractor wants it to look like to the Employer at the end of the month. Not a fairy tale in the sense of exactly how this project is really progressing and what changes are really being incorporating in on site, not what changes are being made on the schedule right now to basically show the Employer that there is no delay. And that is why it’s very important to have a good sound scheduling processes in place, so that the contractor (and others) really know the critical path at different points in time, and that the contractor is documenting the critical path and that it is accurate at different points in time. Real-World of Delay In the real world, as in the text, there is a difference in types of delay  – excusable compensable, excusable non-compensable, and there’s non-excusable non-compensable. So in doing a delay analysis one has to determine what type of delay is being dealt with, and there can be several. On any project, there can be several different delays throughout the course of the project that have delayed the end date of the project. One has to identify those and then determine who is at fault for them. So once they have been identified from the contractor’s side, a determination needs to be made as to whether this is excusable compensable, excusable non-compensable or non-excusable non-compensable. So excusable compensable is what the contractor wants to identify as this project was delayed; it wasn’t the contractor’s fault in any way. And what they get with a excusable

41  See e.g. ibid. 42  Ibid.

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compensable delay is two things: They get paid all the extra money that this delay caused for being out on the project for an extra month or two, or whatever the period was, and all the equipment, and all the trailers, and all the materials and all the people, etc., etc. Added to this, of course, are any inefficiencies or acceleration costs that resulted from trying to mitigate that delay; they are entitled to that also, and further the contractor is also relieved of liquidated damages. So, hypothetically, if the contractor was supposed to finish on, say, 1 January 2016, but the project was delayed one month, and this particular delay was identified and proven not to be the fault as contractor, the contractor gets paid, and that’s the compensable side. Then due to the excusable portion of this the contractor does not have to pay any liquidated damages on 1 January 2016 as the project will now be extended out a month, and liquidated damages start that much later. That is the contractor way of dealing with critical delay – they prove that they weren’t responsible for it, they prove the amount of time and that’s what they receive. They receive money and time. Excusable non-compensable, this is essentially concurrent. This is the concurrent delay that is discussed in greater detail later in this book, and for our purposes at this point it is when a delay has been identified, or two delays have been identified at the same time that impacted the end date of the job. That’s just where we have co-critical paths, which can exist, and/or two reasons for the delay, or two issues that were occurring simultaneously that would have impacted the end date of the project. The simple example is where there are two different issues that were concurrent critical and the employer was causing one and the contractor was causing one on two different paths that were deemed concurrent critical. It has been proven that both of them are at fault. Or it is when there is one critical path delay, and there’s two reasons simultaneously for that being delayed, then we run into this concurrency issue. So there’s no one side or the other that’s delaying the job. It’s both. That’s where we get concurrent, and this is excusable non-compensable, and the liquidated damages are released. The contractor is given extra time, say a month, for that month long concurrent delay, but the contractor does not get any money. They are not given any money for the people that were out there the extra month nor any money for their equipment that was out there an extra month, nor are they going to get any costs related to that delay, that month long delay; they will not get paid for that. And then there’s non-excusable non-compensable delay  – where there’s been a delay identified and the contractor’s ultimately at fault. Here as an example going back to the month-long delay, the contractor is not excused for any time, and they are going to have to pay liquidated damages for that delay issue for every single day in accordance with their contract, delayed that they are, and the contractor is not going to be given any extra money either for all the people and equipment – that’s the non-excusable non-compensable delay, and it should be noted that there can be multiple delays, and any number of them can be caused by any party throughout time. The result is that each delay needs to be determined as to whether or not it is excusable compensable, excusable noncompensable, or non-excusable non-compensable. What follows then is exactly how does one determine a historical critical path? Most writers,43 including this one, agree that the first and best place is the contemporaneous schedule updates. But the challenge here is proving that they were usable, and also a 43  E.g. ibid.

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general observation is that if the critical path contains any preferential logic and/or noncontractual constraints, it favours the contractor. This may happen anywhere, on the baseline for example, and it’s usually an issue as to updates to the baseline because when changes are made there are usually two reasons for any change – managing the project, which is the correct reason for making the changes as the scheduler should want to have an effectively managed project, and what needs to happen, but the changes are being made to make the schedule look a certain way, mask delay, or manipulate durations just to tell the story that may be impossible. And if that’s the case, if it’s proven that there’s even the slightest doubt as to how the schedule was being managed, this leads to the debate as to whether any of the schedules are even relevant or whether or not they even identify the real critical path as they are not accurate. For the delay analyst when this happens, it is best to just go back and rely on historical data, as mentioned earlier, such as progress minutes, emails and other contemporaneous documents to put together the “historical” critical path and ensure its accuracy. One noted writer44 once put it this way: [When] … you’re looking for that smoking gun that says concrete is delaying us or electrical conduit or getting permanent power is delaying this job. You have to find enough evidence that supports an opinion … [and] … the way that … we test this, this managing versus the manipulation type schedule, [is to] … see if the critical path was clearly delayed over time and if the end date stayed the same, that means they were probably playing around with the schedule a lot. If there’s a lot of logic changes and shortened durations of activity, this probably indicates that they were messing around with the schedule in a way that was probably not supporting best practices in construction management. If you start to see trades getting stacked and if we start to hear from the subcontractors that they were true stacking and there was people working in multiple areas at once and that sort of stuff. And that cost them a lot of money, that’s a sign that the schedule wasn’t being managed effectively.

One effective way to do this is to list all the various schedules in the database and make sure to list the name, list the data date, list the number of activities, list the critical project completion date and then list out the current critical path of that job in a summary. From this one can start to review the entirety and soon determine what does not seem accurate, or was not really useful, or the reverse that the schedules were good and useful and were being used properly to manage the work on the project, and that is when one could do a windows analysis. Whilst this is covered in greater detail later in this book, for now one just looks at the schedule and determines “what’s the critical path today” and then “what’s the critical path on the next update” – did it shift, or was the project delayed, was that delayed? And one can begin to start doing this windows analysis – looking at the project updates for these various “windows of time” and determining what was the way in that window, and what was the extent of the impact on the job? It has been noted45 that in some cases the critical path isn’t necessarily shifting, but rather the contractor is just trying to compress things at the end of the project and unfortunately used several schedule updates throughout, up until a point where the schedule was unusable.

44  Ibid. 45  Ibid.

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In windows analysis basically one looks at measures, delays and different periods, or windows, with the best possible one being from one schedule update to the next. The shorter the window period, the easier and more certain you can be about delay. It allows the user to easily decipher what was deemed critical from one period to the next. And if it’s shifted, you have to figure out when did it shift, but if it didn’t shift, one can say there’s an “enclosure”, and if it’s still in enclosure, one knows that the enclosure was driving the job. If there was a shift however one then has to figure out what that shift was and why it happened. In other words, what was the driving delay from each period to the next, and why did it happen and of course who was responsible? Float Whilst the concept of float is discussed in other chapters of this book, for now if one has the odd plan schedule, if one has the baseline schedule, there’s what’s called float in those schedules. There’s early start, early finish dates; there’s late start, late finish dates. The late start and late finish dates are basically the dates on which activities can start and finish at the latest before impacting end date of the job. Then when one begins to really study that – the real start, real finishes compared to the late start, late finishes – one will start to see variances. The higher the variance the more likely it was critical throughout time. So, this needs to be looked at on each schedule, then summarise it down, then analyse it, and then see, over time, if that string of activities was becoming more and more delayed. In this situation generally whichever one was the most delayed was a critical task. Also it should be noted that generally in this situation the higher the variance the more delay it was, which means these items were more likely pushing out the end date of the job. Summary The goal of this chapter was to start the process of delay analysis and give a slight comparison of what technically is being done with what actually happens in real cases. The items touched upon will now be dealt with in greater detail in the following chapters.

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CHAPTER 8

Forensic Schedule Analysis and Discretionary Logic

Should delay occur this usually leads to litigation of one form or another with the Contractor seeking both additional time and/or money against the Employer. International tribunals have generally and consistently accepted the rule Ei incumbit probatio qui dicit, non qui negat.1 Proof is incumbent upon the party who affirms a fact, not upon the one who denies it. Evidence is decisive to prove one’s case and indeed the most important aspect of construction litigation. In complex NPP construction disputes, where delay claims frequently generate conflict between the parties, the evidence brought by the parties before national courts, arbitral tribunals2 or adjudicators supporting project delays is frequently fact intensive and extremely vast. As such, it is in the parties’ best interest that this type of evidence, in order to be persuasive and effective, be treated and presented in a clear, simple and organised fashion. “Good practice guides” have been published over the last years in order to advise parties as to the best Forensic Schedule Analysis Method of evaluating delay claims and consequently how to organize evidence. The “Delay and Disruption Protocol” (also referred to as the Extension of Time protocol) and the “Recommended Practice on Forensic Schedule Analysis” developed by the Construction Law Society of the United Kingdom and the Association for Advancement of Cost Engineering International (AACE) of the United States of America respectively are the most preeminent contributions on the analysis of delay claims. Among these guides, Forensic Schedule Analysis is commonly defined as the applied use of scientific and mathematical principles, within a context of practical knowledge about engineering, contracting, and construction means and methods, in the study and investigation of events that occurred during the design and construction of various structures, using Critical Path Method (CPM) or other recognized schedule calculation methods.3

1  Paulus, On the Edict, Book LXIX. 2  According to 2015 ICC Dispute Resolution Statistics published by the International Chamber of Commerce, “construction and engineering disputes were the most frequent, accounting for a quarter of all cases received during the year.” In ICC Dispute Resolution Bulletin 2016 No. 1. 3  Hoshino, K., Livengood, J. and Carson, C., 2011, RP 29R-03 Forensic Schedule Analysis, p.  1, AACE International, Morgantown, WV.

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Both “Delay and Disruption Protocol” and the “Recommended Practice on Forensic Schedule Analysis” provide the parties guidance on how to calculate delays and how to identify the party responsible for the contractual breach. Once this exercise is concluded, it will be possible to make a decision as to time and cost compensation. Time of performance In construction projects time of contract performance is of paramount importance as it may affect the profitability of the entire project. As such, construction contracts invariably possess a time of performance clause and an obligation to compensate the disadvantage party in case a delay occurs. When a specific time of performance is not agreed between the parties, which often can happen, Dispute Boards, arbitral tribunals and national courts4 have firmly established that the contract will be required to be performed within a “reasonable time”, and should a delay occur compensation should be made available. However, the absence of jurisprudence in establishing the best method to determine the extent of delays is astonishing. As such, and in the absence of a guidance, parties wishing to pursue successfully time and costs compensation claims should carefully substantiate their claims and thoroughly analyse project delays, by utilizing the most adequate scheduled analysis method in order to scrutinise which events caused the delay(s). As such, [i]n order to properly substantiate a claim for additional time and/or costs, a contractor must establish both legal and technical entitlement. Similarly, in order to defend against an unjustified claim, an owner must demonstrate that the contractor failed to establish either legal or technical entitlement. … when asserting or defending claims for additional time and/or costs, it is critical that the contemporaneous project records support both the legal and technical entitlements to recover time and money or the legal and technical defenses.

Legal entitlement In order to obtain legal entitlement to compensation, claims must be established. If no evidence has already been provided in the statement of case (or prior to the proceedings) to justify the amount of a claim, a claimant ought to be required to produce the primary documents in support of the amounts claimed, cross-referenced to the statement of case, and in a form that will readily enable the respondent to know where the amounts come from and why they were incurred. The respondent will then have no excuse for not stating the reasons why liability does not exist or, if it does, why the amounts claimed are nevertheless not due, e.g. because they were not caused by the events, were not incurred or not reasonably incurred. In each case reasons should be given.5

However, the particular task of establishing claims is extremely challenging as parties have, among others, the duty to establish a causal connection required by the substantive law applicable under the contract. This exercise escalates in difficulty when several causes 4  Hick v Raymond and Reid [1893] AC 22 at 32. 5  Final Report on Construction Industry Arbitrations, published in ICC International Court of Arbitration Bulletin 12(2), 2001.

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might have contributed to the same delay. As explained by Keating on Building Contracts, [c]ontractors often have claims dependent on a number of separate causes each of which has contributed to delay and extra cost. In principle, the loss attributable to each cause should be separately identified and particularised but separation may be difficult.6

This difficulty encourages parties to avoid substantiating the claim and as a result, will end up by fabricating the so-called global claims,7 which frequently do not stand before adjudicators. In John Holland v Kvaerner,8 a global claim was defined as a claim where: the claimant does not seek to attribute any specific loss to a specific breach of contract, but is content to allege a composite loss as a result of all the breaches alleged, or presumably as a result of such breaches as are ultimately proved.

As stated in the 2001 Final Report on Construction Industry Arbitrations: [w]here the claim is for numerous changes or variations and the statement of case and defence do not indicate where all the differences lie, the tribunal should order the claimant to state how each change came about, the extent of the work involved and any delay or disruption caused, why the respondent is liable, and how the amount claimed for each item (and for the consequent delay etc.) is arrived at. The respondent will need to reply to each head in its answer, stating whether it is admitted or not and, if not, why, including any different version of events it may have. Such a schedule is of particular value where a “global” claim is involved, i.e. one [Page 21:] where the claimant claims a period of time of delay or disruption and a sum said to be attributable to the overall effect of a series of events but maintains that a breakdown is impracticable. It is, ultimately, a question of substantive law whether and in what circumstances such a global claim is tenable. Even if the principle of such a claim can be upheld, a schedule may be of some help in determining whether, in the circumstances of the case, global delay or disruption did indeed occur and whether the causes for it can clearly be regarded as the contractual or legal responsibility of one of the parties to the dispute. A claimant should not be permitted to evade its responsibility to identify the causes of the delay or disruption and any likely identifiable effect. Global claims are easy to assert but difficult to examine, test and counter. Moreover, where a breakdown is provided, there will be less reason for a respondent to say that it does not understand the basis of the claim. Respondents sometimes profess ignorance despite knowing as much as claimants.9

In the partial award of ICC case no. 13790,10 the tribunal held that

 6 Keating on Building Contracts, Stephen Furst and Justice Vivian Ramsey eds., 7th ed. 2001, Sweet and Maxwell, London, 546.  7 In the Partial Award of Case 13790 it was held that “Under Swiss Law for example There are two main conditions for the admissibility of [Claimant]’s global claim: 1. It was impossible to keep track of the precise consequences of each and every disruptive/delaying event. 2. There were no other dominant or serious causes for the disruption/delay”.  8 [1996] 82 BLR 83.   9  Final Report on Construction Industry Arbitrations, published in ICC International Court of Arbitration Bulletin 12(2), 2001. 10  Partial award of ICC case no. 13790, published in ICC International Court of Arbitration Bulletin 25(2), 2014.

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[Respondent]’s first reaction to the Statement of Claim which required the Tribunal to reject the claim forthwith because it was presented as a global claim, or to order the Claimant to produce evidence on the details and causes of the costs, i.e. on the quantified causal link. The Tribunal consciously did neither because it was of the opinion that it should at that stage allow the Claimant – as well as the Respondent – to choose how it brought its case, and because the mere fact that the case is a “global” one is no sufficient ground to reject it right away. … the causal link between [Claimant]’s failures and [Respondent]’s damage is not specifically proven, and this global claim of [Respondent] must therefore fail as such. However, the Tribunal is willing to accept that some of the delay, albeit a relatively small share, was probably caused by these (minor3) failures of [Claimant]. The Tribunal has no option other than to make a global assessment in percentage terms of the respective responsibility of the Parties and to fix the amount that can offer, on the balance of probability, the nearest to what it considers to be a fair compensation to the Party whose global claim is admissible, because the other Party’s failures were found to be the preponderant cause of the delay and disruption.

A study commissioned by the ICC Commission on International Arbitration produced by the Construction Arbitration Section of the Commission’s Forum on Arbitration and New Fields suggested the creation of a working document briefly recording the essential elements of each party’s case, established from exchanges between them. This is best exemplified by the schedule used in English practice for typical claims for changes, disputes about the value of work and claims for work done improperly or not at all. Such a schedule can now be created electronically and conveyed by disk or by e-mail, so it need not be cumbersome to handle. In the right hands it is a useful tool. It defines the positions of the parties and ultimately it will or can be used by the tribunal to record its views and decisions. At the pre-hearing stage its main value is that, if properly compiled, it establishes the position of each party where the existing submissions or pleadings do not already do so adequately. Parties do not always present their cases in perfect form and the tribunal must expect to have to analyse the material presented to it. Moreover, the success of such a document depends in part on each party grappling and dealing positively with the principal allegations of the other party. For example, a respondent would be required to state specifically: (a) which of the claimant’s allegations are admitted; (b) which of the claimant’s allegations are denied (and why); (c) which allegations cannot be admitted or denied (together with a brief explanation of the reasons) and which the claimant is required to prove. In addition, a constructive approach must be adopted. If a respondent denies an allegation, the reasons for doing so must be given, and if it asserts a different version of events from that given by the claimant, then its alternative must be stated. Otherwise the claimant and the tribunal will not know the real nature of the respondent’s case.11

Another crucial issue is claims calculation. Quantum assessment is largely based on the submissions of the parties, and most of the time, there is no consensus between the parties as to the amount and assessment method that should be utilised. As such, given the indefinition of this problem, an opportunity arises for the national courts, tribunals and adjudicators to play an active role in determining the amount to be awarded (or not) to the parties.

11  Final Report on Construction Industry Arbitrations, published in ICC International Court of Arbitration Bulletin 12(2), 2001.

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In the final award of ICC Case no.12654,12 the Tribunal set forth basic rules regarding delay claims: If a contractor is delayed in completing the work, its cost of performance increases simply because those elements of its costs that are dependent on time require an extended period of time. For example, the contractor is likely to have field overhead costs for its field office, telephones, and field supervision, costs which are directly time-related and which represent “pure” delay costs. In addition to the purely time-related delay costs, the contractor’s cost of performance may increase because delayed work itself is completed in an unproductive manner or may cause subsequent related work to be done out of sequence or on a piecemeal basis instead of in an uninterrupted sequence as planned. Labour productivity rates may suffer as a result, causing the contractor’s costs to increase. Although these so-called disruption costs may, in the proper circumstances, be compensable elements of delay damages in that they are incurred as the result of delay, they may be caused by factors unrelated to delay. However, in order to recover its additional costs, it is not enough for the contractor to show that work was completed later than planned and that the contractor experienced coincident cost increases. To demonstrate its entitlement to compensation for delay damages, the contractor must demonstrate that under the governing contractual provisions the delay is excusable-that is, the delay was of a type for which the Contractor is not contractually liable-and that the delay is also compensable-that is, the delay was of a type which entitles the contractor to compensation and not just an extension of time to perform the work. Having established its entitlement to compensation, the contractor must then demonstrate the quantum of its resulting damages. Stated simply, excusable delays are those delays from which the contractor is “excused” from liability. As a general rule, a contractor is excused from liability for delays that are the result of causes beyond the contractor’s control and delays which are the result of causes that were not foreseeable. The contractor is entitled to compensation if it can show that it did not concurrently cause the delay and if it can quantify its damages with reasonable certainty. Once the contractor has established that the individual delay for which an extension of time is sought is excusable and, if compensation is sought, compensable as well, it is necessary to determine whether or not the contractor was independently delaying the work. If the contractor would have been delayed in any event by causes within its control, that is, if there was a concurrent non-excusable delay, the general rule is that it would be inequitable to grant the contractor either an extension of time or additional compensation, unless the contractor can segregate the portion of the delay which is excusable and/or compensable from that which is not. The contractor bears the burden of proving the extent of the delays for which it seeks compensation and, in addition, the burden of proving damages incurred as a result of such delays.

Technical entitlement – Delay Analysis Techniques and analysis methods In establishing technical entitlement both contractor and owners have been utilizing over the years certain delay analysis techniques or forensic schedule analysis methods13 in order to demonstrate the effect of the different factors upon delays. According to one group of writers:14

12  ICC Case no.12654, published in ICC International Court of Arbitration Bulletin 23(2), 2012. 13  For the sake of clarity the author will be referring to these techniques as forensic schedule analysis methods (“the methods”). 14  See e.g. Andrew Rhodes, Allen Estes and John Livengood, in “Counting the chickens while they hatch and the double-edged sword of tracking project claims and delays” Document presented at the 2014 Annual Meeting, Beat the Blues: Counseling the Client During the course of the ongoing construction project, April 10–12, 2014.

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technical entitlement corresponds more closely with adherence to recognized technical/ analytical methodologies and the ability to establish the factual basis for such technical elements. Generally these practices are recognized by courts and may actually form the basis of admissibility. … Generally, in instances when a party attempts to establish technical entitlement to recover additional time and/or costs, the party must establish the following: (1) that it was impacted as a result of issues that were beyond its control or reasonable anticipation; (2) that it was delayed and/or forced to work in a manner less efficient than it anticipated; and finally, (3) that it incurred additional, or unanticipated, costs as a result of the alleged impacts. On the other hand, when responding to another party’s attempt to establish technical entitlement, the defense would involve disproving, or demonstrating that the claimant failed to establish, any one (1) or more of the three (3) components listed above. In some instances, the contract defines specific methods that must be performed to substantiate delays and/or particular records that must be provided to support a request for additional costs.

The methods just referred to may be classified as either (1) prospective or retrospective, and (2) dynamic or static. According to David Barry,15 [p]rospective analyses refer to the future, and seek to determine the likely impact of actual progress or a particular event(s) on project completion. Retrospective analyses refer to the historic, and usually seek to determine the actual impact of events upon progress and completion. Dynamic analyses involves schedule calculations, through simulation using computers and scheduling software. Static analyses rely on the components and common sense of the schedule while avoiding significant computer calculations.

As discussed in other chapters the AACE International Recommended Practice 29R03 on “Forensic Schedule Analysis, TCM Framework: 6.4  – Forensic Performance Assessment”16 describes nine methods, which are classified by the following factors: timing of the analysis, CPM calculations, “fragnets” and whether the analysis of the performance is divided into global or periodic steps. These methods can be agglutinated into four major groups: the As-Planned versus As-Built (As-Planned v As-Built/MIP 3.2), the Contemporaneous Period Analysis also designated “Windows” method (CPA/MIP 3.3), the Retrospective Time Impact Analysis (TIA/MIP 3.7), and the Collapsed As-Built (CAB/MIP 3.9). The nine AACE published methods are: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Observational/Static/Gross (MIP 3.1), Observational/Static/Periodic (MIP 3.2), Observational/Dynamic/Contemporaneous As-Is (MIP 3.3), Observational/ Dynamic/Contemporaneous Split (MIP 3.4), Observational/Dynamic/Modified or Recreated (MIP 3.5), Modeled/Additive/Single Base (MIP 3.6), Modeled/Additive/Multiple Base (MIP 3.7), Modeled/Subtractive/Single Simulation (MIP 3.8) and Modeled/Subtractive/Multiple Base (MIP 3.9).

15  David Barry, in “Beware the dark arts! Delay analysis and the problems with reliance on technology” a paper presented to the Society of Construction Law International Conference held in London, 6th–7th October 2008. 16  AACE.

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The Observational/Static/Gross (MIP 3.1) The MIP 3.1, is also designated as As-planned versus as-built, AP versus AB, Planned versus actual or As-planned versus update. MIP 3.1 is classified into the following categories: 1. Observational method: MIP 3.1 “compares the baseline or other planned schedule to the as-built schedule or a schedule update that reflects progress”. This method does not utilize CPM logic and can be performed by using a simple graphic comparison of the as-planned schedule to the as-built schedule. 2. Static logic method: This method relies on the single set of CPM logic underlying the baseline or other planned schedule. 3. Gross method: This method is performed on the entire project against a single baseline or other planned schedule rather than in periodic segments. The Observational/Static/Periodic (MIP 3.2) The MIP 3.2 also designated as, As-planned versus as-built, AP versus AB, Planned versus actual, As-planned versus update, Window analysis and Windows analysis is an improvement of MIP 3.1 that analyses the project in multiple segments. MIP 3.2 is classified into the following categories: 1. Observational method: MIP 3.2 compares the baseline or other planned schedule to the as-built schedule or a schedule update that reflects progress. 2. Static method: MIP 3.2 primarily relies on the single set of CPM logic underlying the baseline schedule or other planned schedule. 3. Periodic method: MPI 3.2 analysis is performed in periodic segments rather than in one continuous project period. The Observational/Dynamic/Contemporaneous As-Is (MIP 3.3) The MIP 3.3 is also designated contemporaneous period analysis, contemporaneous project analysis, observational CPA, update analysis, month-to-month or window analysis. MIP 3.3 is a retrospective technique that uses the project schedule updates to quantify the loss or gain of time along a logic path that was or became critical and identify the activities responsible for the critical delay or gain. Although this method is a retrospective technique, it relies on the forward-looking calculations made at the time the updates were prepared. That is, it primarily uses the information to the right of the updates data dates.

MIP 3.3 is classified into the following categories: 1. Observational method: This method does not involve the insertion or deletion of delays but instead is based on observing the behavior of the network from update to update and measuring schedule variances based on essentially unaltered, existing schedule logic. 317

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2. Dynamic method: This method uses schedule updates whose logic may have changed from the previous updates as well as from the baseline; it is considered a dynamic logic method. 3. Contemporaneous method: MPI 3.3 updates that it relies on were prepared contemporaneously with the project execution as opposed to reconstructed afterthe-fact as in MIP 3.5. The Observational/Dynamic/Contemporaneous Split (MIP 3.4) The MIP 3.4 is also designated, Contemporaneous period analysis, Contemporaneous project analysis, Contemporaneous schedule analysis, Bifurcated CPA, Half-stepped update analysis, Two-stepped update analysis, Month-to-month, Window analysis and Windows analysis. MIP 3.4 is classified into the following categories: 1. Observational method: MPI 3.4 does not involve the insertion or deletion of delays, but instead is based on observing the behavior of the network from update to update and measuring schedule variances based on essentially unaltered, existing schedule logic. 2. Dynamic method: MPI 3.4 uses schedule updates whose logic may have changed from the previous updates as well as from the baseline. 3. Contemporaneous method: MPI 3.4 updates which they rely on were prepared contemporaneously with the project execution as opposed to reconstructed after the fact as in MIP 3.5. 4. “Split” method: The split label distinguishes this method from MIP 3.3 by the fact that the updates are evaluated after the bifurcation process that splits the pure progress update from the non-progress revisions.

The Observational/Dynamic/Modified or Recreated (MIP 3.5) The MPI 3.5 method is also designated Update analysis, Reconstructed update analysis, Modified update analysis, Month-to-month, Window analysis and Windows analysis. MIP 3.5 is classified into the following categories: 1. Observational method: MPI 3.5 does not involve the insertion or deletion of delays. However, it is not purely observational when seen in the context of the level of data intervention by the analyst. Because of extensive data intervention by the analyst when using MIP 3.5, the observation is made on the behavior of the networks on which the analyst had significant control. 2. Dynamic method: Under MPI 3.5 if there were non-progress revisions to the baseline during the project, the method must recognize those non-progress revisions. Otherwise, the modification or the reconstruction is not complete or proper. 3. Modified or Recreated method: MIP 3.5 can be implemented with or without the half-step process. Unlike the contemporaneous MIPs 3.3 and 3.4, the label “as-is” is an irrelevant distinction from the “split”. This is because the modification or reconstruction is under the control of the analyst. 318

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The Modelled/Additive/Single Base (MIP 3.6) The MIP 3.6 method is also designated as Impacted as-planned (IAP), Impacted baseline (IB), Plan plus delay, Impacted update analysis, Time impact analysis (TIA), Time impact evaluation (TIE), Fragnet insertion and Fragnet analysis. MIP 3.6 is classified into the following categories: 1. Modelled method: MIP 3.6 relies on a simulation of a scenario based on a CPM model. 2. Additive method: MIP 3.6 simulation consists of the insertion or addition of activities representing delays or changes into a network analysis model representing a plan to determine the hypothetical impact of those inserted activities to the network. 3. Single base method: MIP 3.6 is distinguished from MIP 3.7 as a multiple base method. 4. Static method: MIP 3.6 additive simulation is performed on one network analysis model representing the plan. Hence, it is a static logic method as opposed to a dynamic logic method. MIP 3.6 can be used prospectively or retrospectively. The Modelled/Additive/Multiple Base (MIP 3.7) The MIP 3.7 method is also designated as Window analysis, Windows analysis, Impacted update analysis, Time impact analysis (TIA), Time impact evaluation (TIE), Fragnet insertion and Fragnet analysis. MIP 3.7 is classified into the following categories: 1. Modelled method: MIP 3.7 relies on a simulation of a scenario based on a CPM model. 2. Additive method: MIP 3.7 simulation consists of the insertion or addition of activities representing delays or changes into a network analysis model representing a plan to determine the hypothetical impact of those inserted activities to the network. 3. Multiple base method: MIP 3.7 additive simulation is performed on multiple network analysis models representing the plan, typically an update schedule, contemporaneous, modified contemporaneous, or recreated. Each base model creates a period of analysis that confines the quantification of delay impact. 4. Dynamic method: MIP 3.7 updates typically reflect non-progress revisions; it is a logic method as opposed to a static logic method. MIP 3.7 is a retrospective analysis since the existence of the multiple periods means the analyst has the benefit of hindsight. The Modelled/Subtractive/Single Simulation (MIP 3.8) The MIP 3.8 method is also designated as collapsed as-built (CAB), but for analysis, as-built less delay and modified as-built. MIP 3.8 is classified into the following categories: 1. Modelled method: MIP 3.8 relies on a simulation of a scenario based on a CPM model. 2. Subtractive method: The simulation consists of the extraction of entire activities or a portion of the as-built durations representing delays or changes from a network 319

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analysis model representing the as-built condition of the schedule to determine the impact of those extracted activities on the network. 3. Single simulation method: MIP 3.8 subtractive simulation is performed on one network analysis model representing the as-built. 4. Static method: MIP 3.8 uses one network analysis model, and project undergoes non-progress revisions reflecting the as-built conditions in contrast to the original baseline logic. And in view of that, a method that dynamically considers how the original logic changed is thought to be more forensically accurate than that which statically relies solely on the baseline logic. Therefore, in that context, the distinction in the case of MIP 3.8 is irrelevant since it relies on the as-built as the starting point. MIP 3.8 is primarily used retrospectively. The Modelled/Subtractive/Multiple Base (MIP 3.9) The MIP 3.9 method is also designated collapsed as-built (CAB), windows collapsed as-built but for analysis, windows as-built but for, as-built less delay, modified as-built and look-back window. MIP 3.9 is classified into the following categories: 1. Modelled method: MIP 3.9 relies on a simulation of a CPM model scenario. 2. Subtractive method: MIP 3.9 simulation consists of the extraction of entire activities or a portion of the as-built durations representing delays or changes from a network analysis model representing the as-built condition of the schedule to determine the impact of those extracted activities to each network model. 3. Multiple base method: MIP 3.8 subtractive simulation is performed on multiple network analysis models representing the as-built schedule, typically updated schedules, which may include contemporaneous, modified contemporaneous, or recreated schedules. As the project undergoes non-progress revisions in reaction to the as-built conditions, in contrast to the original baseline logic, MIP 3.9 considers those logic changes and, therefore, is thought to be more attuned to the perceived critical path, in addition to the actual critical path that existed during the project, than methods which rely solely on the initial baseline or the final as-built. 4. Dynamic method: MIP 3.9 updates typically include non-progress revisions. The subtractive simulation is performed on periodic network analysis models representing intervals of the as-built schedule. Each model creates a time period of analysis that confines the quantification of delay impact. Forecasted delays beyond an analysis period, however, may also need to be extracted at the time that the forecasted delays are introduced into the schedule. MIP 3.9 is primarily used retrospectively. However, other methods have been developed by different entities and individuals. Some of these methods are similar to the methods developed by AACE but with different designations and regrettably until now there is no commonly agreed term to identify them. However, [r]egardless of the number of different methodologies identified, there are three fundamental elements to any delay methodology that must be present when performing a

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competent technical analysis: a) the As-Planned Schedule; b) the As-Built Schedule; and, c) Measurement Procedure (methodology).17

As-Planned Schedule Virtually all methodologies require some sort of as-planned schedule. This schedule might be developed at the outset of the project, but could be reconstructed from actual data if no contemporaneous as-built schedule exists. The planned schedule provides half of the necessary comparison between what was planned and what happened, with the difference between the two generally considered to be delays. These schedules are typically CPM schedules or could be one of the other types of schedule used in the construction industry today. As-Built Schedule The As-Built schedule can be either the schedule effective at the end of the job or an intermediate schedule with only work completed to date reflected. At its simplest, the as-built schedule could be the final update of the CPM schedule used throughout the project. As such, it needs to accurately reflect the start and finish of the activities listed in the schedule. Measurement Procedure (methodology) Procedures are commonly called schedule delay methodologies, which according to several experts may be divided into four groups: as-planned versus as-built, contemporaneous period analysis, time-impact analysis and collapsed as-built. According to some writers,18 “One of the more important differences between the forensic methods relates to how they treat the project management team’s contemporaneous understanding of the Critical Path work”. John Fondahl, a Stanford CE Professor Emeritus and US Marine Corps Sergeant in Iwo Jima developed the CPM. In 1961, John Fondahl published a paper for the US Navy entitled “Non-Computer Approach to the Critical Path Method for the Construction Industry”.19 This paper elaborated on “The Critical Path Method” or “Critical Path Analysis” applicable to the construction industry. The CPM, a new method of scheduling, was then defined as “a new and improved technique for performing planning, scheduling

17  Andrew Rhodes, Allen Estes and John Livengood, in Counting the Chickens While They Hatch and the Double-Edged Sword of Tracking Project Claims and Delays. Document presented at the 2014 Annual Meeting, Beat the Blues: Counseling the Client During the course of the ongoing construction project, 10–12 April 2014. 18  See e.g. John C. Livengood, Esq. AIA, CCP, PSP, CFCC, Managing Director, Navigant and Patrick M. Kelly, PE, PSP, Director, Navigant in Getting to Zero: Solutions for When Different Schedule Analyses Give Different Answers, 2015. 19  John W Fondahl, A Non-Computer Approach to the Critical Path Method for the Construction Industry. Stanford, California, Department of Civil Engineering, Stanford University, 1962.

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and control of construction projects by construction contractors”. However, according to one writer,20 Today, 50 years after the critical path method (CPM) was invented, there still is no universally accepted definition of the central term, critical-path. … A careful review of current scheduling literature shows that there is virtually no definition to be found for the underlying words “path” or “critical”, as standalone terms of significance in their own right.

A shared understanding between the parties of what exactly is in reality a contemporaneous critical path is essential since claims and methods for proving delays and their impact on the project rely on it. In the final award of ICC case no. 12654 the tribunal ruled that [f]or purposes of determining whether the Project was delayed and for purposes of apportioning delay, only delays on the critical path of the Project figure in the analysis because, by definition, delays not on the critical path will not delay the completion of the Project.

In addition, [s]ome methods rely heavily on the contemporaneous view of criticality, while others determine criticality in a different way (such as the determination or calculation of an “As-Built Critical Path” which may or may not have a relationship to the contemporaneous Critical Path). The authors and many commentators believe FSA methodologies that reflect the contemporaneous understanding of criticality is preferred because it better reflects the understanding and choices made in executing the project.21

Critical path method logic The critical path is defined as the longest logical path through the CPM network and consists of those activities that determine the shortest time for project completion. Activities within this or list form a series (or sequence) of logically connected activities that is called the critical path. A delay to the start or completion of any activity in this critical path results in a delay to project completion, assuming that this path consists of a continuous sequence of activities without an overriding date constraint or multiple calendars.22

The CPM network has in general three types of logic: contractual, mandatory and discretionary. 1. Contractual logic: The logic deriving from the contract or from the agreed scope of work. According to John Livengood, contractual logic is defined as the “[l]ogic required by the contract and/or scope of work that mandates certain of the owner’s sequence and timing requirements”.23 20  Murray Woolf, in When Is the Critical Path Not the Most Critical Path?, AACE International Transactions, 2008. 21  John C. Livengood, Esq. AIA, CCP, PSP, CFCC, Managing Director, Navigant and Patrick M. Kelly, PE, PSP, Director, Navigant in Getting to Zero: Solutions for When Different Schedule Analyses Give Different Answers, 2015. 22  AACE International Recommended Practice No. 49R-06, Identifying the critical path. 23  John C. Livengood Esq., CCP CFCC PSP FAACE, Forensic Schedule Analysis and Discretionary Logic, Cost Engineering, The journal of AACE international, March/April 2016.

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2. Mandatory logic: It is considered the logic imposed by the physics of the project. The “AACE International Recommended Practice No 10S-90, Cost Engineering Terminology” defines mandatory or hard logic as “[a] dependency inherent in the nature of the work being done, such as a physical limitation. Used in hard logic”. 3. Discretionary logic: It is the logic that can be utilized when there is no legal or physical imposition as to the order of the works. This logic is also identified as Preferential or Soft Logic. According to the AACE’s definition it is considered the “Dependency defined by preference, rather than necessity”. The advantage of forensic schedule analysis in the context of the management of arbitration/adjudication procedures Arbitrators and adjudicators have the primary duty to organize and manage the arbitration proceedings in an expeditious and cost effective manner, and to ensure a fair and efficient resolution of disputes. Concomitantly, arbitrators and adjudicators should treat parties with courtesy and respect. A duty of candour to the arbitral tribunal is also expected from Parties and Counsels.24 Under article 4 of the rules of Conduct in Court for Lawyers in the European Union approved by the Council of the Bars and Law Societies of the European Union, • A lawyer who appears, or takes part in a case, before a court or tribunal must comply with the rules of conduct applied before that court or tribunal. • A lawyer must always have due regard for the fair conduct of proceedings. • A lawyer shall while maintaining due respect and courtesy towards the court defend the interests of the client honourably and fearlessly without regard to the lawyer’s own interests or to any consequences to him- or herself or to any other person. • A lawyer shall never knowingly give false or misleading information to the court. • The rules governing a lawyer’s relations with the courts apply also to the lawyer’s relations with arbitrators and any other persons exercising judicial or quasijudicial functions, even on an occasional basis.25 Under principles 2 and 5 of the IBA General Principles for the Legal Profession adopted by the International Bar Association on 20 September 2006,

24

A close look into the relationship between parties and arbitrators shows a shift of power during the arbitral process from the parties to the arbitrators. At the outset of the arbitral process, the parties retain control: they select the tribunal, can agree on the applicable law, decide on the procedure and timetable, and fix the seat and language of the proceedings. After the arbitration is set in motion, the arbitrators’ control over the process grows exponentially. Ultimately, the arbitrators take command by deciding procedural issues that may arise and cannot be agreed, ordering production of documents where appropriate, determining the evidence considered relevant, conducting the hearings, establishing the facts, applying the law and delivering the award. Some might say that is real power.

Julian D. M. Lew, QC The Tribunal’s rights and duties: Why they should be more involved in the Arbitral Process, Dossier of the ICC Institute of World Business Law: Players’ interaction in International Arbitration, 2012. 25 Code of Conduct for Lawyers in the European Union approved by the Council of the Bars and Law Societies of the European Union available at www.ccbe.eu.

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• [a] lawyer shall at all times maintain the highest standards of honesty, integrity and fairness towards the Court, his or her colleagues and all those with whom he or she comes professionally into contact. • A lawyer shall treat the interests of his or her clients as paramount, subject always to his or her duties to the Court and the interests of justice, to observe the law and to maintain ethical standards.26 Nonetheless, counsels often use dilatory and obstructive tactics in order to impair and harm the normal function of the tribunal and its integrity. Given the complexity of the majority of construction law disputes, counsels tend to voluntarily produce irrelevant and unnecessary “evidence” in excess and to raise meritless issues to the detriment of the efficiency of the arbitration procedure. This tendency is particularly evident when it comes to substantiating a claim. In Generation Ukraine, Inc. v Ukraine, ICSID case no. ARB/00/9, Award, at paragraphs 24.2–24.7: [T]he Claimant’s written presentation of its case has also been convoluted, repetitive, and legally incoherent. It has obliged the Respondent and the Tribunal to examine a myriad of factual issues which have ultimately been revealed as irrelevant to any conceivable legal theory of jurisdiction, liability or recovery. Its characterization of evidence has been unacceptably slanted, and has required the Respondent and the Tribunal to verify every allegation with suspicion. … The Claimant’s position has also been notably inconsistent. … Moreover, the Claimant’s presentation of its damages claim has reposed on the flimsiest foundation. … The Claimant’s presentation has lacked the intellectual rigour and discipline one would expect of a party seeking to establish a cause of action before an international tribunal. … Even at the stage of final oral submissions in March  2003, counsel for the Claimant relied on two ICSID awards without mentioning that they had been partially annulled. The Tribunal assumes in counsel’s favour that he was unaware of the annulments; that is bad enough, and does no credit to the Claimant.

In ICC case No. 7453 of 1994:27 The first defendant’s conduct at the hearing was dilatory from the beginning until the end of the proceedings and that conduct was obstructive, and it was calculated to be obstructive, of the tribunal in carrying out its task. Much extra and unnecessary work was caused thereby for everyone concerned. The first defendant must bear and pay the entire costs of this arbitration [...] and also the entire legal costs of the claimant and out-of-pocket expenses of the counsel to the claimant;

and final award in case No. 8486 of 1996,28 In the present case, the defendant loses its counterclaim, but the claimant’s claim is granted only in part .... Nonetheless, the costs of the arbitration shall be borne totally by the defendant. According to the general principles of international arbitration law, the Arbitral Tribunal must take into account for its decision on costs not only the result of the

26  IBA General Principles for the Legal Profession adopted by the International Bar Association on 20 September 2006 available at www.ibanet.org. 27  ICC Arbitral Awards, Vol. IV, pp. 94, 111. 28  ICC Arbitral Awards, Vol. IV, pp. 321, 331.

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proceedings but also the behaviour of the parties during the proceedings. According to good faith, the parties to an international arbitration must in particular facilitate the proceedings and abstain from all delaying tactics. The behaviour of the defendant during the entire proceedings did not comply with these requirements in any way.

When confronted with this type of behaviour the Tribunal should react. In fact, “the arbitral tribunal is not a prisoner of the parties in the evolution of arbitration proceedings, and should intervene, if necessary, to set limits on the occasionally excessively dilatory actions of the parties”.29 Thus, [t]he tribunal should consider informing the parties at the outset of the arbitration (e.g. at the case management conference) that it intends to take into account the manner in which each party has conducted the proceedings and to sanction any unreasonable behaviour by a party when deciding on costs. Unreasonable behaviour could include: excessive document requests, excessive legal argument, excessive cross-examination, dilatory tactics, exaggerated claims, failure to comply with procedural orders, unjustified applications for interim relief, and unjustified failure to comply with the procedural timetable.30

Unreasonable behaviour from the parties during arbitral proceedings may be a consequence of the complexity of construction projects, an indicator that parties are not able to properly assess (or pretend not to be) which event was supposed to give rise to a specific delay that impacted the project completion dates, and a desperate measure of the parties to overcome the difficulty in substantiating claims. In addition to these reasons, the fact that most of the construction contracts do not mention the method of assessing claims may contribute to the aforementioned behaviour. In fact, not even the FIDIC standard forms of contracts31 provide for a specific claim assessment method, nor how delays can be established or which materials should be used in supporting parties’ claims. Given the multiplicity of methods developed over the years, the various “schools of thoughts” and inherent diverse interpretations existing worldwide may stimulate such absence. In addition, a limited number of published arbitration awards deal with this subject matter. Understanding and properly utilising the most adequate method in constructions contracts will ultimately facilitate the establishment of claims in case a dispute is presented before an adjudicator. The Delay and Disruption Protocol recommends the time impact analysis methodology be used wherever the circumstances permit, both for prospective and (where the necessary information is available) retrospective delay analysis. However, according to some, in the world of forensic retrospective analysis, TIAs have the following problems: TIAs appear to be scientific and computer driven; however, they are subject to similar vagaries of expert opinion as APAB. TIAs hide or obscure the ability to manipulate the critical

29  Bernardo Cremades, Powers of the Arbitrators to Decide on the Admissibility of Evidence and to Organize the Production of Evidence, ICC International Court of Arbitration Bulletin 10(1), 1999. 30  ICC commission report decisions on costs in international arbitration, ICC Dispute Resolution Bulletin 2015, Issue 2. 31  FIDIC refers to the Fédération Internationale des Ingénieurs Conseils, which has its Secretariat in Geneva, Switzerland.

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path through the development and use of fragnets and its inclusion, logic connections, and durations. TIAs require a detailed and fully functional baseline schedule and set of updates to work properly  – a requirement that is often impossible. Modifications to the baseline schedule and updates that are needed to permit TIA analysis can be so significant as to make the underlying schedules irrelevant to the plans of the contractor. And, the critical  path generated is always a projection and may not accurately reflect the actual events on the project. The corollaries to these disadvantages are the advantages of APAB,32 including the following. APAB are clearly expert driven, so the trier of fact must consciously evaluate the expert function. The very expert function requires transparency underlying that opinion; they cannot obscure or hide their decisions. The APAB can be performed with less than ideal schedule data, a fully functional baseline is not necessary. The expert analyst can simply use the baseline schedule as it is found, questionable modifications are not required. Most importantly, the APAB focuses more directly on the as-built critical path so the trier of fact can evaluate all the facts and opinions that lead to that path. The focus can remain on what actually happened, as opposed to the modelled events predicting what might happen.33

A study based on an industry-wide questionnaire survey of UK construction organizations found that34 (1) delay claims are often resolved late and not close in time of occurrence of the delay events, creating more difficulties; (2) simplistic delay analysis approaches are widely used in practice and form the basis of successful claim resolutions, although they have major weaknesses; (3) the sophisticated approaches, although more robust, are generally not popular in practice. To promote the use of these reliable approaches and help reduce or avoid disputes amongst claims parties, programming and record keeping practices must be improved as they do not facilitate the use of the approaches. Conclusion Knowing and proving the truth are two different things. Construction arbitration frequently encompasses claims for delay; hence it is crucial to identify from the outset which events caused such delay. Although pursuing a claim is never an easy decision, parties should be prepared and anticipate disputes before a claim is formulated. Having a detailed set of records and a suitable contractual dispositive on how to assess claims may contribute to build effectively the foundation for a claim. As seen earlier, there are several methods that can be utilised to manage and monitor the progress of the construction project and consequently to identify the events causing the delay(s). These methods basically identify the causes and effects of delay and compare what was previously planned by the parties and incorporated in the terms of the agreement and what in reality has been performed. While there is no legal imposition or requisite, at least under the FIDIC standard forms of contracts, as to the incorporation of such methods in the contracts, it is recommended by several institutions: The Construction Law Society (“Delay and Disruption Protocol”)

32  As-planned versus as-built. 33  J. Livengood, Retrospective TIA’s – Time to Lay Them to Rest, AACE International Transactions, 2007. 34  Nuhu Braimah, “Approaches to Delay Claims Assessment Employed in the UK Construction Industry”, Civil Engineering Department, School of Engineering and Design, Brunel University, Uxbridge, Middlesex, 2013.

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and the Association for Advancement of Cost Engineering International (AACE) (“Recommended Practice on Forensic Schedule Analysis”) advocate its inclusion. Nonetheless, once parties decide to incorporate in their agreements the method that best suits the project, if later in the future a dispute arises, parties must be prepared to make available [t]he logic and all other data entered into the CPN software must, of course, be fully disclosed and be open to argument and possible challenge. It quite frequently happens that many of the numerous assumptions that have been made in the construction of such a retrospective network are in the end so controversial that the network cannot be accepted by the tribunal for the purposes for which it was created. Similarly, unless accepted by a respondent, a claimant who based its case on its own programme should be required to justify that its programme would have been achieved, but for the events complained of. The respondent should then be required to explain why the claimant’s analysis is incorrect. In this way the points that truly require investigation will emerge. These are not matters to be left to experts, since they define the agenda and create the terms of reference for experts and for evidence. It is important to exclude irrelevancies as early as possible, in order to avoid spending time, money and energy on matters that are of no consequence and sometimes misleading.35

Empirical evidence shows that by utilizing the methods of assessing claims parties will be able to determine the extent of the delay in a simple, impartial, effective and less costly way than the traditional “legal” way of presenting claims. The next chapters deal with the actual how and why of claims analysis and preparation.

35  Final Report on Construction Industry Arbitrations, published in ICC International Court of Arbitration Bulletin 12(2), 2001.

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CHAPTER 9

Distortion of Delay Analysis

As noted in the previous chapter delay, analysis occupies two worlds: the theoretical and the actual. In theory if two different delay experts analyse a particular schedule in an attempt to determine the cause and responsibility for any particular delay they should, in theory, come up with the same result. This was made evident in the recent case of Walter Lilly & Company Ltd v Mackay & Anor,1 where the court echoed this thought when it wrote:2 So far as the experts are concerned that my views are as follows. As for the delay experts, Mr Robinson and Dr Aldridge, I  preferred Mr Robinson in almost every respect. He, broadly, logically and conventionally, adopted the approach of establishing critical delay by reference to the “logical sequence(s) of events which marked the longest path through the project”; Dr Aldridge accepted that this was generally the way to calculate delay (this being taken from Paragraph 9.1.9 of his January 2012 report). In the difficult circumstances facing both experts by reason of the absence of any usable contemporaneous programme from early 2007 onwards, Mr Robinson adopted a much more objective approach to his expert analysis whilst Dr Aldridge proceeded on a much more subjective approach (which he accepted at least in part). I  amplify on this in the extension of time chapter in this judgment. Dr Aldridge’s report also in some respects almost reads simply as a suggestion to the Court that the Claimant has not proved its case; an example is the opening words: “Walter Lilly’s case does not stack up”; his report is littered with this type of remark that WLC has failed to prove or demonstrate this or that or to make out its case; it is not for an expert to suggest this type of thing. He proceeds on an obvious logical misapprehension that, if works are finished before Practical Completion, they cannot have delayed completion. His suggestion that plastering defects delays could realistically have contributed to the overall delay is simply unsustainable in circumstances in which there was ultimately a limited amount of remedial work actually done and the remedial work was substantially completed by April 2007. His adoption of an approach based on determining the most “significant” matters preventing practical completion led to him adopting in many respects a subjective approach as to what his client thought was significant. This approach was one which Mr Robinson had never seen used. He frequently descended into the arena of disputed facts and liabilities in which he was not the relevant expert; an example was Paragraph 2.2.35 of his January 2012 report when he felt able to criticise “WLC’s unwillingness to accept that the colour variation (and the very poor quality of staining which had made matters worse) was an unacceptable defect requiring rectification”. Some parts of his report were based on conversations and information which were not in evidence and on occasion he had to accept that he was given 1  [2012] EWHC 1773. 2  [2012] EWHC 1773 at paragraphs 97–101.

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information by Mr Mackay and by Navigant which was not contained or referred to in his report. He produced as Appendix D a “Weighted Significance Matrix” which was worthless and self-fulfilling when he on a largely subjective basis awarded weightings to the various possible causes of delay; this was taken through the project in 2007 and 2008 on a monthly basis and, unsurprisingly gave much higher weightings to the subjectively accepted factors (such as plastering defects) selected by him or his client as “significant”. As for the Architect Experts, I preferred the well researched, very open and pragmatic approach of Mr Zombory Moldovan, WLC’s expert. He was clear and positive throughout. Mr  Josey is an experienced expert and was open, as one would expect, with the Court. He has, perhaps somewhat unfairly, been criticised by WLC’s Counsel for having been instrumental prior to the Defence and Counterclaim in drawing up detailed lists of defects; it was said that this was indiscriminate because it did not identify what defects were the fault of WLC. Whilst it is the case that initially very large quantities of defects and amounts were counterclaimed against in respect of defects (many of which were later dropped), I would not criticise Mr Josey for that; it would be up to those advising DMW, DMW and Mr Mackay himself to identify who had a contractual or legal responsibility for the defects. However, he did labour under the disadvantage that he had to accept that a large number of them could no longer be pursued against WLC, including some which he had himself supported. I would not criticise him but I found Mr Zombory Moldovan much more reliable. In relation to the quantum experts, both are experienced quantity surveyors with experience of litigation. I much preferred the approach of Mr Hunter which was pragmatic and down to earth. I was disappointed with Mr Pontin who, although an experienced expert, I felt was trying too hard to reduce the delay and other quantum heads to an insignificant level. Whether he felt, subconsciously, pressurised by Mr Mackay or not I can not say. But his arguments were reduced to scraping the barrel in some respects such as suggesting that WLC had not demonstrated any loss and expense attributable to Plot C alone; this was absurd because it must follow that, if there was as here delay (almost 30 months delay), some time and resources must have been incurred in consequence and that obviously has a cost. He endorsed a totally artificial calculation to demonstrate that WLC had recovered all its preliminaries costs on the three Units.

The court also went on to state:3 In Balfour Beatty Building Ltd v Chestermount Properties Ltd (2003) 62 BLR 1, Mr Justice Colman had to address several issues (under a JCT contract in similar form to the Contract here) one of which was whether in granting an extension of time the Architect should grant as an extension only the number of days delay actually caused by the Relevant Event. The argument was run that, if towards the end of a period of culpable delay a variation order is issued which delays completion, the Contractor was entitled not simply to an extension for the period of delay actually caused by the variation but (by reason of its timing) to a full extension up until the time that the variation was executed. The learned judge said that the “net” method was correct. He said at Page 34: “Fundamental to this exercise is an assessment of whether the relevant event occurring during a period of culpable delay has caused delay to the completion of the Works and, if so, how much delay.” This is consistent with the wording of Clause 25 in this case. In the context of this contractual based approach to extension, one cannot therefore do a purely retrospective exercise. What one can not do is to identify the last of a number of events which delayed completion and then say it was that last event at the end which caused the overall delay to the Works. One needs to consider what critically delayed the Works as they went along. For instance in this case, it would be wrong to say that the problem with the Courtyard Sliding 3  Ibid. at paragraph 364–380.

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Doors delayed the Works until it emerged as a problem in April 2008. Put another way, it did not delay the Works (if at all) until it emerged as a problem which needed to be addressed. There has been a substantial debate between the parties as to how what is called concurrent (or sometimes concurrent and co-effective) causes of delay should be dealt with. This debate is only germane where at least one of the causes of delay is a Relevant Event and the other is not. It relates to where a period of delay is found to have been caused by two factors. Of course, the debate will depend upon the contractual terms in question but most of the debate in cases in this country and elsewhere has revolved around extension of time clauses similar to those contained in Clause 25 where the Architect has to grant an extension which is “fair and reasonable”. The two schools of thought, which currently might be described as the English and the Scottish schools, are the English approach that the Contractor is entitled to a full extension of time for the delay caused by the two or more events (provided that one of them is a Relevant Event) and the Scottish approach which is that the Contractor only gets a reasonably apportioned part of the concurrently caused delay. The Scottish Approach is highlighted in the Inner House case of City Inn Ltd v Shepherd Construction Ltd [2010] BLR 473. In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32, Mr Justice Dyson had to decide primarily whether an arbitrator had jurisdiction to deal with a defence by an employer that events such as variations and late information had not delayed the contractor but that other matters were causes of the delay. At Paragraph 13, he referred to some common ground between the parties: “Second, it is agreed that if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. Thus, to take a simple example, if no work is possible on a site for a week not only because of the exceptionally inclement weather (a relevant event), and if the failure to work during that week is likely to delay the Works beyond the completion date by one week, and then if he considers it fair and reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour.” It could thus be said that the learned judge was simply repeating the common ground between the parties rather than reach a considered decision on the issue. That said, the judge seems to have “run with the ball” in his second and third sentences and appears to have endorsed that common ground. Mr Justice Edwards Stuart said in De Beers v Atos Origin IT Services UK Ltd [2011] BLR 274: “177. The general rule in construction and engineering cases is that where there is concurrent delay to completion caused by matters for which both employer and contractor are responsible, the contractor is entitled to an extension of time but he cannot recover in respect of the loss caused by the delay. In the case of the former, this is because the rule where delay is caused by the employer is that not only must the contractor complete within a reasonable time but also the contractor must have a reasonable time within which to complete. It therefore does not matter if the contractor would have been unable to complete by the contractual completion date if there had been no breaches of contract by the employer (or other events which entitled the contractor to an extension of time), because he is entitled to have the time within which to complete which the contract allows or which the employer’s conduct has made reasonably necessary.” In a shipbuilding contract dispute in Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 Comm, Mr Justice Hamblen quoted as good law what Mr Justice Dyson said at Paragraph 13 in the Henry Boot case (above): “277. It is to be noted that this example involves a relevant event which caused a period of actual delay to the progress of the works – no work could be done for a week due to

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the weather. If that is established then the contractor is entitled to his extension of time even if there is another concurrent cause of that same delay. A useful working definition of concurrent delay in this context is “a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency” – see the article Concurrent Delay by John Marrin QC (2002) 18 Const LJ No. 6 436. In any event, I am clearly of the view that, where there is an extension of time clause such as that agreed upon in this case and where delay is caused by two or more effective causes, one of which entitles the Contractor to an extension of time as being a Relevant Event, the Contractor is entitled to a full extension of time. Part of the logic of this is that many of the Relevant Events would otherwise amount to acts of prevention and that it would be wrong in principle to construe Clause 25 on the basis that the Contractor should be denied a full extension of time in those circumstances. More importantly however, there is a straight contractual interpretation of Clause 25 which points very strongly in favour of the view that, provided that the Relevant Events can be shown to have delayed the Works, the Contractor is entitled to an extension of time for the whole period of delay caused by the Relevant Events in question. There is nothing in the wording of Clause 25 which expressly suggests that there is any sort of proviso to the effect that an extension should be reduced if the causation criterion is established. The fact that the Architect has to award a “fair and reasonable” extension does not imply that there should be some apportionment in the case of concurrent delays. The test is primarily a causation one. It therefore follows that, although of persuasive weight, the City Inn case is inapplicable within this jurisdiction. The delay experts did not agree about very much. What they did agree in their Joint Statement of 13 December 2011 was as follows: “4. It is necessary to analyse events primarily in the period after 16 February 2007 in order to assess the parties’ respective contentions…as to the causes of delay during that period. However, in so far as events prior to 16 February 2007 also need to be examined in order to set the parties’ contentions in their proper factual context then those matters will also be considered relevant. 5. It is important to have regard to the actual context in the period after February 2007, as opposed to examining events in isolation. 6. Very few programmes were formally issued by WLC after 16 February 2007. In particular there is no programme of all the works outstanding at that date which could sensibly be used as a baseline in a retrospective programme analysis. It is therefore not possible to carry out a “traditional” delay analysis which uses the Claimant’s programmes to identify the critical path during the period after 16 February 2007 in the way one might normally expect. It will instead be necessary for the experts to form a view as to what were the critical (or driving) delays in the period after 16 February 2007 without the assistance which would normally be available from contemporaneously produced programmes. 7. Despite the lack of programmes in the post 16 February  2007 period, it ought nevertheless to be possible to form conclusions on criticality during this period, based on an objective view of the available evidence.” A note to Paragraph 6 refers to the fact that in May 2007 WLC produced a programme (revised from time to time thereafter) entitled “Target Programme for Recently Instructed Works” which did not identify other works going on or outstanding at the time. The experts considered that this programme did not provide sufficient foundation for a “traditional” programme-based delay analysis but Mr Robinson considered that it was nevertheless of some evidential value. There was some disagreement between the experts as to what “Practical Completion” meant. In reality it means completion for all practical purposes and what that completion entails must depend upon the nature, scope and contractual definitions of the Works, as they may have developed by way of variation or Architect’s instructions. Clause 17.1 of the Contract Conditions simply requires the Architect to certify when he or she considers that Practical Completion has been achieved. There is common ground between the experts, and rightly so, that de minimis snagging should not be a bar to Practical Completion unless

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there is so much of it that the building in question cannot be used for its intended purposes. Dr Aldridge however goes further and suggests that Practical Completion requirements can be relaxed in effect by agreement between the parties; he is correct to this extent. In this particular case, DMW through its Architect was entitled to omit items of work and it must follow that once an item of work is omitted it is no longer part of the Works and the fact that it has not been done or completed thereafter should not hold up Practical Completion. Both experts say that they have adopted an objective approach but Dr Aldridge accepted that there were subjective elements at least to some of the exercises which he did. For reasons summarised earlier in the judgement, I found Mr Robinson to be at least in this case the much better expert. He adopted a much more objective approach than Dr  Aldridge and was much more careful in accepting what his client had told him. Dr Aldridge’s approach was, as he put it, to consider this question: “what were the most significant matters which, at any given time, were preventing practical completion from being achieved?” This on its face appears to be not an unreasonable question to pose but, in seeking to answer that, he proceeded in what was in many respects a subjective way. Thus, he suggested that the defective plasterwork (which was substantially addressed by WLC within a few weeks and well before numerous other items of work which were always bound to be completed months later) caused substantial delay on no basis other on analysis than it needed to be dealt with before Practical Completion could be certified. Again, he selected the problems with the Lift in 2007 as a major cause of delay in that year but this approach was wholly flawed for the following reasons: (a) He tried to assert that the Lift problems were “significant” because by about March  2007 there was a possibility (and no more) that a 6 to 9 month operation of replacement might be required; this was clearly dependent on at the very least the lift shaft being materially out of vertical, which it never was and replacement was never done. (b) He based his view in part on “significance” in effect on the strength of his clients’ views at the time about how serious a problem it was. The reality is that WLC actually did a significant amount of remedial work and the eventual re-cladding work was in the overall context of the job minor work. The clients’ views, leaving aside the fact that I have found them to be coloured (at least in the case of Mr Mackay), were found by the adjudicator at the time (whose view has not really been departed from in this case) to be grossly exaggerated and there had been a wrongful but substantial retention of money against this item. (c) His view was also based in part on the physical impact on the upper floors of the work being done particularly in October and November  2007 on the re-cladding. He asserted, without any real factual basis, that this work would effectively have prevented completion of work on the upper floors. This was undermined by the facts that there was little work to be done in those upper floors by WLC at or after that time (the bulk remaining to be completed in the basement) and that directly employed contractors and some workmen were able to and did get access whilst the re-cladding work was being done. Indeed, meeting minutes indicate that those attending the Client Site Walk Around meetings were able with reasonable impunity to get access to all floors throughout September, October and November. Another serious flaw in the approach adopted by Dr Aldridge was his willingness to proceed on the basis that one could ignore a number of the possible causes of delay in so far as they affected work which might have been (but which was not) omitted by DMW or its Architect. By doing this, he felt able to seek to undermine various possible causes of delay as being causative because he could say that, if a particular item of work could or might be omitted, it could not be causing a delay. This was wholly illogical. If both parties were aware that the client was considering omitting an item of work (and as a result the Contractor did nothing on the item of work) and then it was omitted, then that may or may not cause delay depending on whether other items of work were dependent upon the omitted item of work being done. If only the client was aware that it might omit the item, whether it was eventually omitted or not, delay could still be caused if the Contractor’s

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progress was delayed. If the item is never omitted and the Contractor has to carry it out, the Contractor may still be delayed not only by the need to execute such work but also by the delayed decision as to whether the work should go ahead or not. The reality check should generally be to consider whether or not the actual item of work which is said to cause delay was actually omitted or not. The Court should be very cautious about taking into account, in the exercise of determining what delays were caused by what events, theoretical possibilities as to what one party or the other might have done (but did in fact not do). Thus, Dr Aldridge seemed to suggest that various items of work such as the Leather in the Library could be discounted in whole or in part as a cause of delay because it was possible that DMW might have omitted it altogether from the Works. In that example, of course, the Leather was not omitted. This possibility is and would be completely irrelevant to the exercise considering whether the Leather in the Library delayed the Works; it is not as if WLC was ordered to suspend work on the Leather in the Library. Whilst ultimately it must be for the Court to decide as a matter of fact what delayed the Works and for how long, I was impressed by the way Mr Robinson approached the exercise and unimpressed by Dr Aldridge’s approach in this case. What Mr Robinson did was to analyse on a month by month basis (broadly) from February 2007 onwards what was in reality impacting upon progress. What he sought to do was to identify as far as possible WLC’s actual progress with the Works on a monthly basis and its planned intentions for executing the remainder of the Works. Mr Robinson had regard to the likely longest sequence of the outstanding work on a monthly basis as being the primary pointer to what was delaying the work at any one time. This was a wholly logical approach and, indeed is the approach used by most delay experts when there is a usable baseline programme from which to work. The logic is simply that if there are, say, two outstanding items of work, A and B, and A is always going to take 20 weeks to complete but B is only going to take 10 weeks, it is A which is delaying the work because B is going to finish earlier; overall completion is therefore dictated by the length of time needed for A. Put another way, it does not matter if B takes 19 weeks, it will be the completion of A which has prevented completion. Thus, if one is seeking to ascertain what is delaying a contractor at any one time, one should generally have regard to the item of work with the longest sequence. There was some sterile debate about whether Mr Robinson was adopting a purely “prospective” approach when he made it clear that “as a reality check” he had regard to what actually happened. There is in my view nothing wrong with such a “reality check”. An example might be that, say in February 2007 WLC was saying albeit in good faith that an item of work would take 25 weeks from then onwards. If in reality it only took two weeks, one would need to have regard to the efficacy of the earlier statement that it would take longer. Therefore it is necessary to have regard to how long individual items actually took to perform and not just have regard to what one party or the other at the time was saying it would take. In the assessment of what events caused what overall or critical delay, one needs also to bear in mind that it is not necessarily the last item or area of work which is finished last which causes delay. Thus, often on building projects, the last item of work is the final clean up of the site. That may only take two people one day to do but it is (almost always) the job which must be done on the last day of the job. It is what delays that final operation which in itself takes no longer than it was always going to take which must be assessed. This is of some importance in this case because it is argued that snagging (or an excessive amount of it) itself delayed the project. It is, rightly, common ground that snagging always has to be done because, with the best will in the world, there will be minor deficiencies, blemishes or incomplete items of work which will be required to be completed before hand over. Obviously, if there is an excessive amount of snagging and therefore more time than would otherwise have been reasonably necessary to perform the de-snagging exercise has to be expended, it can potentially be a cause of delay in itself. The debate about the “prospective” or “retrospective” approach to delay analysis was also sterile because both delay experts accepted that, if each approach was done

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correctly, they should produce the same result. An underlying problem, accepted as such by both experts, was the absence of a contemporaneous critical path programme from February 2007 onwards. If there had been one and its logic was sound, then both experts would in all probability have done the prospective exercise, albeit in the light of the events which happened. When that exercise can be done, the experts take what are called time slices (usually every month) to review against the programming logic the actual progress achieved and likely to be achieved in the future. That may produce, for instance, a delay in Month 1 of three weeks caused by Factor X, which might be adjusted downwards (or indeed upwards) in Month 3, to take into account actual progress in relation to Factor X. That could not readily be done here because there was no such programme. In my judgement, WLC cannot in practice be criticised throughout 2007 for this because completion was perceived by all parties to be not very far away and there were numerous individual items of work which needed to be done, many of which were variations.”

It is the comment that “the debate about the ‘prospective’ or ‘retrospective’ approach to delay analysis was also sterile because both delay experts accepted that, if each approach was done correctly, they should produce the same result” that causes the most problems in delay analysis for “in theory” if two delay experts review the same programme they should come up with the same result, but this does not happen in the real world or to put it in another way rarely happens if at all. One view of why this occurs is that schedules can and do become distorted4 sometimes due to errors on the part of the analyst and sometimes for other less clear reasons. As already mentioned schedule analysis when done for forensic purposes, e.g. adjudication, trial, arbitration, is done retrospectively and after the events have already occurred, sometimes even many years afterwards with the purpose being to identify the delays that have occurred on a project and, more crucially, identify the responsibility for those delays and identify cause and effect. In theory forensic schedule analysis is about finding the truth; however in practise it sometimes is used to put forward less than meritorious claims or in a litigation setting to rebut valid claims. A good starting point of course is when there is an accepted program on project because if this does not exist, this adds another unknown element of risk to any analysis. In general any schedule should record the true historic position of a project and realistically forecast the outstanding works in a reliable and logical way, but that is not always the case. One main reason is human error. Most schedules have thousands of activities with many more logical relationships between them. When you have such a huge amount of data to process, it’s actually quite reasonable to expect that errors will be made. Another has to do with the real world issues which arise in planning. For example, you might have an activity within your program for some element of design, and that design is completed and marked as 100 per cent complete in your schedule. Six months later, that design has to be revisited, and the scheduler looks at his schedule, and there has been a significant amount of subsequent works carried out already, so he says to himself, “Why do I really need to go back and revisit that original design element to say, ‘Oh, it’s now not a hundred percent completed; it’s now something less?’ ”5

4  The author is indebted to a talk given by Ewen Maclean, principal with the Berkeley Research Group (15 October 2015 London), for the views expressed. 5  Ibid.

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Yet, when you look at these things forensically, you would perhaps get one party trying to look at the design dates or the dates that design documents were passed off from documentation, compare these to those dates within the schedule and say that they’re different. then imply a picture that the schedule is totally unreliable. Sometimes the practicalities of planning mean that the schedule is not updated ideally. Another reason why schedules become distorted is the quality of the activity records – as an example let’s take a foundations activity, the progress of which can be measured by the number of foundations poured or by the volume of concrete poured, e.g. the cubic metres of concrete that are actually poured. That site management method of measurement needs to also reflect what the schedule is measuring progress by as well. Otherwise, you can get distortions within your program. Yet one more way distortion arises has to do with the skill of the planner – which can vary greatly. Take for example a six-week steel work activity – where a variation issue arises which requires two weeks’ more additional work. A good planner will insert a new activity for those two weeks’ worth of additional work, but unfortunately in the real world this situation isn’t inserted, and progress is still monitored against the original steel work activity. Then that six-week steel work activity finishes two weeks later for a total of eight weeks. Forensically, we can come in and we can explain that two weeks by the additional work from the variation, but equally when there’s someone else on the other side arguing the case against you, they may confuse matters by saying, “You mister contractor had a load of culpable delays, so we’re not going to perhaps grant you an EOT if that was due”.6 Other schedules that might become distorted are the settings and transmitting schedules used by different parties. For example if a Primavera P6 schedule was exported by the constructor and the project manager under a NEC contract imported that same schedule but didn’t use the same settings with the calendars so the line can update those settings, problems can arise quickly. In this example the two parties – contractor and project manager – thought they were looking at the same schedule, but actually they were different, and they were significantly different because plan completion was nearly two weeks different. Unfortunately there is the worst case scenario where the schedules become distorted through wilful manipulation, and one must be vigilant to differentiate between distortion which arises due to the complexity in the planning and scheduling process which are accidental and ones which arise for unscrupulous reasons. Where to start As previously discussed the first document to consider is the baseline schedule or the as-planned program, and the analyst should first determine if that baseline if fully detailed, that the logic is valid and that the durations of activities are in fact sensible – remembering that the baseline schedule is the benchmark by which accuracy in the measurement of delay can be judged. If your baseline schedule is wrong or is distorted, then any comparison with it is going to produce meaningless results; it’s very important to make sure the baseline is correct.

6  Ibid.

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The second critical document is the as-built schedule. It’s based upon factual data of what actually happened, not a guess of what would have or should have happened. The baseline schedule is about forecasting, and things may not materialise as one party intends, so you can always argue about it, but you can’t really argue with the as-built schedule. You can verify the days in your as-built schedule by reference to documents and occasion sheets like diaries, etc. Because of the usual accuracy of as-built schedules, the parties generally agree on the historic position of what’s actually happened and any delay is recorded, and thus the issue becomes who is responsible for the delay or for determining the proportionality of the delay. Added to the as-built are any schedule updates, the interim progress updates between the baseline and the as-built schedule, and the historical data in the progress updates which can be checked in the same way as an as-built schedule and the forecast data, and from the progress date forwards can be analysed in the same way that perhaps the baseline schedule would be. The crucial thing with schedule updates, looking at those, is monitoring all the variables that are input into a program between updates, because that is probably the easiest way to insert a deceptive feature.7 Delay analysts note that the first three sources all relate to the schedule, but they generally approach it from a different perspective  – they start by looking at the documentation and taking a view about the delay events themselves, then they compare it to what the schedule shows. The best accuracy that the forensic schedule analyst can really hope for is an objective reflection of the facts as represented by the documents.8 Figure 9.1 shows a baseline schedule. It’s a very simple program, but it basically relates to two buildings, building 1 and building 2, with exactly the same sequence of works. It starts on the 20th of September 2013 and starts with excavations followed by foundations, substructure, superstructure, and many cladding, and the fit out works in a fairly standard sequence, one starting after the other. Then exactly the same sequence is shown in building 2. There is a shared excavation resource, so the excavation A1010 in building one completes on 17 October and then continues in building 2 as item A1070. When both sequences and work have been finished, there’s a commissioning period, and plan competition occurs on the 17th of April. That’s the baseline program, and as will now be shown through the use of different scenarios the situation gets manipulated and the programme distorted. Scenario 1 This scenario deals with the difference between “progress override” and “retained logic” and its interaction due to the programme settings in most scheduling software. The difference in this example is that the baseline from the previous example has been now updated as of four weeks later, i.e. 18 October. Note that the black vertical line in Figure 9.2 indicates to the left what has already occurred and is now considered as “as-built historical

7  Ibid. 8  Ibid.

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338 Foundations

Substructure

December 2013

Excavation

Foundations

November 2013

Excavation

October 2013

Figure 9.1  Baseline schedule

r 2013

Substructure

March 2014

Fitout

Cladding

Commissioning

April 2014

Mechanical and Electrical

Fitout

Planned Completion

Superstructure

Cladding

Mechanical and Electrical

February 2014

Superstructure

January 2014

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Figure 9.2  Updated baseline schedule

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data”, and events to the right of the black line are a forecast (guess) as to the timing of future work on the project. The short vertical lines represent the planned sequence of work in the original baseline as shown in the previous example. A  quick look at this new updated chart shows that what initially was thought to be the time period needed for excavation was not quite right and that the excavation in Building 1 has fallen behind the initial planned progress – i.e. what should have been completed by 18 October has not been completed, and work is still ongoing and is now shown by the red bar as completing on 31 October (rather than 17 October). Whose fault it is is not the issue  – yet. For sake of discussion note that as to Building 2, the contractor brought an additional excavation resource to site and has been able to progress some of the works in Building 2, as shown by the black bar ahead of the planned short vertical lines works. And accordingly the program has now been rescheduled. “Rescheduling is a mathematical calculation allowing for critical path analysis to complete the outstanding works within the logical constraints of the program in the minimum amount of time”.9 It is rescheduled, the works on this schedule according to the logic in the original baseline program, and the completion date still stays at 17 April but the float in Building 1 is now 10 days instead of its original planned 20 days. The progress that is achieved does not alter the plan completion date, but the float in Building 1’s general sequence of works has been reduced to ten days – which has occurred by the use of the “logic” from the underlying baseline programme, i.e. it has “retained that logic”. What should be noted here is that by bringing in additional excavation equipment, that “logic” has been violated by achieving out-of-sequence progress for per the schedule the activity “Excavation” on Building 2 could actually be completed earlier. In practise whomever is operating the scheduling programme can ignore the “retained logic” and actually override the progress shown by changing the setting in the software, which causes this activity to return as shown in Figure 9.3. Note that in Figure 9.3 progress overrides, then it comes back, and as a result Building 1 has become critical as well and that there isn’t any float in the program at all now – so we have gone from 20 days float to 10 days to zero. The plan completion date has actually come back to 3 April. One may think, “Not so bad, because no EOT is due, no liquidated damages are applicable”,10 but the reality of the situation is that this update might become the baseline used comparing with the next progress updates to see whether any delays have occurred. The lesson learned here is that it is very important that whomever is preparing the schedule understand that any “progress override” and/or “retained logic” must be used in the right way with a view towards the future of the project even if it does bring the completion date back. Calendars The next scenario to be considered relates to calendars, certainly, perhaps a simpler one to progress override and retain logic. The starting point is the update on the 18th of October

  9  Ibid. 10  Ibid.

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Figure 9.3  Override to schedule

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with as-built progress to the left, forecast work to the right, and excavation works in building 2 being allowed to commence from that day going forward, as shown in Figure 9.4. But now as October has started, winter will be next and will result in reduced working hours being available for excavation. So in building 1 it was calculated on eight hours per day, which has been reduced to seven hours per day on the calendar but that is left out for the excavation activity for building 2 with the net result being that the forensic schedule analysis manages how the program performs, and because there aren’t as many hours in the day available in which this excavation activity is to be carried out, it takes a little bit longer, pushes the sequence of work out; it becomes critical and the result is that now there is a day’s worth of float with the excavation to building 1 – thus distorting the process as shown in Figure 9.5. Yet another distortion arises in the logical relationships. In Figure 9.5 it should now be noted that the completion date has now moved up to 7 April. Then in Figure 9.6, whilst showing the same programme with the same completion on 7 April, an adjustment is done in the logic between the cladding and fit out activities in building 1. There is a finish-tostart relationship – the fit out can’t start until cladding is finished. This can be seen as it’s denoted by the line from the end of the cladding activity in Figure 9.6. As shown here there has been a change in that relationship – a start-to-start relationship, so the line will come from the start of the cladding to the fit out and apply an eight-day lead. Now by manipulating the programme schedule, it has the effect of placing the critical path back to building 2. We can see here that the logical relationship is showing differently. It does show correctly the start-to-start relationship, and now there is a little bit of an overlap between the cladding and the fit out. This is a simple example, but keep in mind that this is a very simple programme, and if you were in a large complex infrastructure project involving literally thousands of activities spread over several years it would not be that easy to pick out this “little matter”, and that is where the problem (and solution) lies in forensic analysis. Indeed, sometimes you get submissions, enter in submissions of progress updates that concentrate just on the works that are being carried out at the time now around the day-to-day. It can be very hard to pick those up without carrying out significant amount of data analysis.11 It can be made even more difficult in the next example by regrouping and re-sorting the program. Diagram Grouping and Sorting The information in the schedule in Figure  9.7 is exactly the same as in the previous example. The only difference is that the activities have been rearranged, i.e. the general sequence of the work per building has been matched up: Earthworks activities together for building 1 and building 2, the foundations activities together for building 1 and building 2, and so on, and as a result we have a completely different looking schedule. So for example if you check the areas of the schedule dealing with cladding and the fit out, one may be able to detect that there is a slight overlap between this fit out activity here and the cladding there. And it should be noted that in this example the network has not been

11  Ibid.

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Figure 9.4  Schedule updated

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343

Figure 9.5  Distorted schedule

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344

Figure 9.6  Distortion of logical relationships

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Figure 9.7  Rearranged schedule

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shown but rather only the logical relationships. And here is why forensic analysis can be very interesting for should the other side attempt to be less than honest in its presentation, tactics such as this may be used to fool or attempt to fool the other side, the dispute board, the arbitrator or even the judge. We can take foundations, buildings 1 and 2, the 25th of November 2013. That’s exactly the same. Moving on we should also consider constraints and negative total float. Constraints and Negative Total Float Here in Figure 9.8 the foundations activity has a finish on or before the constraint imposed on it of 21 November. So for example if we say that this foundations activity in building 1, although it’s showing at the moment to complete on the 25th of November, we can for sake of argument put a constraint on that activity; however it must finish on or before the 21st of November. But when you do that, what happens is that the activity goes critical. Note that it has not altered the subsequent works thereafter, but it allows one to say that there’s been a compensation event that has occurred against the foundation in building 1, which then allows one to achieve the nefarious objective of saying it’s critical when it perhaps wasn’t – see Figure 9.9. In programmes such as Primavera such a chart would still show the foundations activity with a finish date on the 25th of November, even though the operator set it up as a must finish by the 21st of November. It should be noted that to pick up this constraint in programmes like Primavera P6 (and others as discussed later in this book), you can pick up that there’s a constraint there as there’s a little asterisk there. A good forensic analysist knows that there are all sorts of data that could be available to visualise if more columns of the left-hand side of the schedule were shown, and in testing a programme and validating it the examiner must be able to find and review all the information which directly tells if an activity has a constraint on it. More interesting information can be seen in the preceding example, and that is the appearance of negative total float. These two activities, excavation and foundation, now have total floats minus two days. This highlights a great difference between the planner or scheduler and the forensic schedule analyst. A planner might say to herself, “there are two days of negative total float. I will address that by applying some more resources. I might address that by re-sequencing my work to recover a delay”.12 This type of situation should be rather disturbing for another reason for if there is negative total float, the schedule cannot be achieved as it was set out, and if that is critical, there is no entitlement to an EOT or a revision to the completion date because the contractor cannot achieve what the schedule states that it can. One word of caution about using constraints and that is that they be used with caution and sparingly as it is always best to try and use logical relationships instead. But if constraints are necessary (absolutely necessary) they should “soft constraints” not “hard constraints”.13 For sake of clarity, soft constraints start on or after a point in time.

12  Ibid. 13  Ibid.

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Figure 9.8  Negative float

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348

Figure 9.9  Critical or not?

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349

Figure 9.10  Labour resources truth test

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It’s saying an activity must start on this date, but it is allowed to move out afterwards. If you say an activity must start on this day and no other date, there’s no room in there for manoeuvrability, and the program cannot behave dynamically.14 And this can distort the programme and as it builds up it can actually hide the actual critical path as it is not necessarily the sequence of works for the largest negative total float that’s critical, and it might just be the largest negative total float because it’s going to a particular constraint in the program. Labour Resources In doing forensic analysis to find the real truth, one must also look to any increase in labour resources. In Figure 9.10 it is the same programme, and underneath is shown the resources that are applicable to the schedule, with it being filtered just for the excavation activities. Note what is shown in the histogram as the resources required by the short vertical-lined columns; the dark cross-hatching columns represent the actual labour that’s been used, and the light grey gradient columns represent the forecast labour that’s required. One can see to the right of the dark black vertical line, the data line, the forecast labour is actually quite a lot more than what was originally planned, in vertical hatch lines, and more than what’s actually been achieved to date in dark cross hatching. Now, it might be perfectly feasible that you can get those resources to site, but there might be limits on the resources available, and that might not therefore be possible.15 Without reviewing the resources available one is just reviewing the sequence of works, and this is both limiting and dangerous for one does not know what is really achievable until a review is made of “whether or not it will be possible to get the necessary resources to site”.16 It is a fact of construction that the benefit of bringing additional resources to site diminishes as work phases become less available or there is “trade stacking” or congestion of resources on site, such that if you double your resources, you don’t necessarily double the productivity (or worse, lengthen its actual time), which can be assisted by looking at the need for and the possibility of increased labour resources. Other Areas for Deception When reviewing a programme for either errors or worse, deception, there are certain items in which it is worth doing a more extensive forensic review. A list is as follows: • Calendars • Incorrect/missing logic • Types of relationships • Lead/lag time • Hard vs soft constraints • Progress 14  Ibid. 15  Ibid. 16  Ibid.

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• Durations • Float – extensive or negative • Hammocks • Resources • Dates • Missing Activities • Reorganising activities • Lack of detail • Time risk allowance • Progress override/retained logic • Longest path or critical path Needless to say the list can be more extensive, but it is a basic review of areas in which problems can hide or be hidden, and the careful analysist will at least take the time to look and review and ensure accuracy. One area of particular interest is that of “hammocks”, which can represent a group or sequence of activities. A hammock activity (also hammock task or what is now called Level of Effort in some programmes) is a schedule or project planning term for a grouping of tasks that “hang” between two end dates to which it is tied. A hammock activity can group tasks which are not related in the hierarchical sense of a Work Breakdown Structure, or are not related in a logical sense of a task dependency where one task must wait for another. In this regard the use can include grouping dissimilar activities that lead to an overall capability, such as preparations under a summary label, e.g. “vacation preparation”; the grouping of unrelated items for the purpose of a summary such as a calendar-based reporting period, e.g. “first quarter plans”; or the grouping or ongoing or overhead activities that run the length of an effort, e.g. “project management”. The duration of the hammock activity (the size of the hammock) may also be set by the subtasks within it, so that the abstract grouping has a start date of the earliest of any of the subtasks, and the finish date is the latest of any of the contents. A hammock activity is regarded as a form of “Summary activity” that is similar to but different from a Level of Effort (LOE) activity. The problem lies in the fact that one can perform a critical path analysis which shows that one of those activities in the hammocks is critical, but the software being used then turns the whole hammock over with the hammock bar representing that sequence of activities that shows that it’s critical. Someone with experience may catch that; however if the person who is reviewing the document is not experienced, they may not realise that there’s only one activity within the hammock that’s critical.17 It’s important to realise or carefully check if it is suggested a whole hammock and everything within it are critical when in reality only one activity is critical. When investigating schedules for errors/deceptions there are basically four key areas which include the baseline schedule, the progress updates, the as-built schedule and the documents – and each of these needs to be validated for accuracy. However, even these sources of information, to be relied upon, will need to be validated.

17  Ibid.

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The approach to validating the sources of information is to maximise the reliability of the source later, not necessarily to assure that the underlying data is valid, e.g. “that the schedule needs to reflect the piling records saying that there was a piling stored on the fifth of October or other date”. If this does not occur, then whomever is doing the forensic schedule is prevented from going that extra step, especially if someone has entered the data on the contemporary record for installing that hypothetical pile on the 5th of October incorrectly. Perhaps by error or intentionally it was misrepresented as the 5th of September, and here lies the problem as any analysis of a schedule will not go that far as it can only validate the data that is used within the schedule as reflecting what is in the contemporaneous records. Starting with the baseline, a good quality baseline will capture all the activities in the project and will establish the durations and thus identify a critical path. It will identify the float that’s available, etc. But to fully validate all, one first needs to make sure the full scope is represented – no missing activities within the program. You need to make sure your work breakdown structure is in sufficient detail. Thus, for example, any activity should have at least one predecessor or one successor, with the exception of the start milestone and the completion milestone. And most importantly ascertain to what these activities relate. If for example they relate to a car park, take note of the fact that such activities are insignificant compared to the major works that have been carried out with the building, and then it’s not necessarily the end of the world if there is float on those activities. Additionally one should ensure that the calendars are truly represented, and an example of the problem here is that if hypothetically the earthworks contractor takes the view that it can only achieve 80 per cent productivity in the winter and as a result comes to the (wrong) conclusion that that equates to a four-day working week thus causing the problem that if a delay event happens on a Friday when the contractor is not working (or maybe it doesn’t work on a Friday, but either way it is not accurate in terms of the actual events happening. One should always try and make sure calendars are truly representative, show the number of working hours per day across the five days and just reduce the number of hours. Always check to make sure that it is clear as to the basis of constraints, replace them if necessary, and make sure of the correct start date. Longest Path or Critical Path? Indeed, making sure of the correct start day is essential, and if this is not done then obviously any programme based on that which is to complete in the shortest amount of time will also be off. For this and other reasons it is always good to also have at least one continuous critical path using the longest path, i.e. the longest path to the critical path, which of course starts with the first activity and has a continuous chain of activities straight through to completion. Unfortunately, if ones uses the critical path setting in software, that can be affected by constraints, and if ones uses the longest path, those “constraints” need to be known. When starting with the longest path, the next step is to verify everything via the critical path settings thereafter. It is important to check the contract provisions and see if any programme is provided for and if there is any start date and/or finish date set out in the contract. 353

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This then leads to the as-built schedule, but a common error arises from the simple fact that in any submission using any as-built schedule, all activities to the left of the as-built day end should be historical only and would by definition have exact start and finish dates whilst those to the right should note as this is “in the future”, and this should be checked by anyone reviewing such a schedule. Of course when checking any such schedule one should use actual contemporary records, such as job diaries, photographs and other information (emails for example) to confirm as-built dates in the schedule. Also in a litigation setting cross-examination of site staff can be helpful as well as evidence obtained from schedulers who worked on the project. And in doing so one should also make sure to check activity descriptions to ensure that they have not changed in the process – e.g. what might have been a certain activity, such as the A1000s in the baseline schedule, might “miraculously have had its activity description changed by the end”. Also of importance to make sure that everything is correct is to see if the scope of the activities for the as-built reflects that scope. So for example if the item is “concrete”, the question which should come to mind is whether or not that includes both the “formwork” and the removal of the forms and curing, etc. And all of these come under the critical path too, so it becomes essential for accuracy. Also one should verify significant milestones and that contract dates are accurate, and if possible ask that any delay events are shown separately. Then as to the real problem, the actual delay events and their accuracy, if one is reviewing this in a submission setting, i.e. judge, arbitrator, adjudicator, it is a good idea to ask for the actual documentation regarding the delay events, or if you are preparing a submission these should be provided in the form of appendices to whomever is reviewing the submission, as is shown in a later chapter which deals with an actual EOT claim submission. One way to verify this is to go to the schedule and list all the variances and then justify those variances by reference to actual documentation and run a “tabulation” which may compare, for example, a site diary that is at odds with some filing records or the clerical works records. Then go on to identify the actual start and finish dates for each delay and correlate those with the schedule, taking into account any EOTs that may have occurred. Other problems can arise but be hidden such as under some projects a compensation event may take, for example, three months to be implemented, by which time further progress schedules may have been submitted and the contract date completion date shifted retrospectively18 – all matters that need to be noted and checked. In summary, forensic schedule analysis is a retrospective investigation with the benefit of hindsight of the progress of a project on site, what delays have occurred, and who is responsible for those, demonstrating cause and effect. Remember schedules can be “distorted for various reasons, which can be accidental, not necessarily wilfully,”19 and one needs to validate the baseline progress updates, the as-built, and correlate that with contemporaneous data, facts and oral evidence to make sure which is in play. Unfortunately, variables create the opportunity for inaccuracy or deception. Whenever new data is required for the schedule and program, then there’s an opportunity there for some things to go wrong. To prevent this one needs to review all changes throughout each

18  Ibid. 19  Ibid.

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schedule. Ideally, if the comparison is an as-planned with an as-built, how the delay has manifested itself during the currency of the works may be missed.20 So be aware that if one party is alleging that something is critical because it was in his baseline or it is in his as-built, at the time the delay events occurred, it may not even have been critical because there were preceding delays. As has been suggested by others,21 there is a very useful check which is to go back in time to a point where delay is alleged and just see what activities are due to be carried out in the following two weeks, because you’ll often find that the activity alleged as critical isn’t even due to be carried out in two or three months because of preceding delays. Ensure all the information is provided to get all the information electronically, including the float, the constraints, resources, etc. This leads to the situation where when reviewing the programme, one finds that the baseline project’s logic is flawed, and as a result one perhaps can’t use that programme any further – resulting in the need for a collapsed as-built analysis – a subject discussed in further detail in other chapters.

20  Ibid. 21  Ibid.

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C H A P T E R 10

Unforeseen Ground Conditions

Whilst delay claims are the ones most likely to be found, in any NPP project an underlying cause for delay falls within the ambit of the ground conditions encountered at the site itself and who is responsible when the Contractor encounters sub-surface conditions that it did not anticipate which then have an impact on the time for completion and the costs to rectify. Thus, this author has found that of all the possible causes for delay, the one area which causes the most number of claims has to do with unforeseen ground conditions. In 1991 a statement issued by the Institution of Civil Engineers stated: The ground is the place where things are most likely to go wrong during a construction project, and the worse the ground, the greater the risk.

And that is why most form contracts strive to allocate how such “unforeseen” ground conditions can be allocated between the employer and the contractor, and whilst this has been discussed in other chapters, the thrust here is to look beyond the traditional UK case law and present a more international view on how these situations are handled. Generally any contractor is exposed to considerable risks during the execution of the work by encountering unforeseen physical and site conditions or obstructions leading to delay of the works and extra costs – sandy soil turns into pure granite, areas of rock and sand appear to liquefy for no apparent reason, the list is endless and such risks frequently occur, although not always with severe effects, for example high ground water, underground rocks, underground pipes and crossings, unexploded munitions, etc. These risks become more real due to the fact that the employers/owners often do not undertake a full site investigation before announcing tenders. Furthermore, in an attempt to deprive the contractor of the right to claim compensation for costs and time resulting from such risks, conditions of tenders often place an obligation upon tenderers to make site and soil investigations and fully inform themselves before the submission of their tenders.1 Internationally the main contract that is used is the FIDIC (1999 Version) Red book contract, which specifically states:

1  See e.g. Risks Analysis Under Construction and Engineering Contracts, a speech delivered by Saleh Majid, during the Second German-Arab Economic Forum held on 25th June 1999 in Berlin. www.iraqilawconsultant. com/downloads/RisksAnalysis070811.pdf.

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4.12  Unforeseeable Physical Conditions In this Sub-Clause, “physical conditions” means natural physical conditions and manmade and other physical obstructions and pollutants, which the Contractor encounters at the Site when executing the Works, including sub-surface and hydrological conditions but excluding climatic conditions. If the Contractor encounters adverse physical conditions which he considers to have been Unforeseeable, the Contractor shall give notice to the Engineer as soon as practicable. This notice shall describe the physical conditions, so that they can be inspected by the Engineer, and shall set out the reasons why the Contractor considers them to be Unforeseeable. The Contractor shall continue executing the Works, using such proper and reasonable measures as are appropriate for the physical conditions, and shall comply with any instructions which the Engineer may give. If an instruction constitutes a Variation, Clause 13 [Variations and Adjustments] shall apply. If and to the extent that the Contractor encounters physical conditions which are Unforeseeable, gives such a notice, and suffers delay and/or incurs Cost due to these conditions, the Contractor shall be entitled subject to Sub-Clause  20.1 [Contractor’s Claims] to: (a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and (b) payment of any such Cost, which shall be included in the Contract Price. After receiving such notice and inspecting and/or investigating these physical conditions, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent these physical conditions were Unforeseeable, and (ii) the matters described in sub-paragraphs (a) and (b) above related to this extent. However, before additional Cost is finally agreed or determined under sub-paragraph (ii), the Engineer may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Engineer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates. However, the net effect of all adjustments under sub-paragraph (b) and all these reductions, for all the physical conditions encountered in similar parts of the Works, shall not result in a net reduction in the Contract Price. The Engineer may take account of any evidence of the physical conditions foreseen by the Contractor when submitting the Tender, which may be made available by the Contractor, but shall not be bound by any such evidence.

But other forms of contract in the UK word this situation slightly differently, so one finds that in the ICE Design and construct Contract Clause 12 states: Adverse physical conditions and artificial obstructions (1) If during the carrying out of the Works and Contractor encounters physical conditions (other than weather conditions or conditions due to weather conditions) or artificial obstructions which conditions or obstructions could not in his opinion reasonably have been foreseen by an experienced contractor the Contractor shall as early as practicable give written notice therefore to the Employer’s Representative.

The NEC3 has its own wording, which is contained in Clause 60.1(12) and it reads: 358

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The Contractor encounters physical conditions which • are within the Site, • are not weather conditions and • an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for them only the difference between the physical conditions encountered and those for which it would have been reasonable to have allowed is taken into account in assessing a compensation event.

And then Clause 60.2 goes on to state: In judging the physical conditions for the purpose of assessing a compensation event, the Contractor is assumed to have taken into account • • • •

the Site Information publically available information referred to in the Site Information, information obtainable from a visual inspection of the Site and other information which an experienced contractor could reasonably be expected to have or to obtain.

Followed by Clause 60.3: If there is an ambiguity or inconsistency within the Site Information (including the information referred to in it), the Contractor is assumed to have taken into account the physical conditions more favourable to doing the work.

The other standard form used in the UK is the JCT form of Contract, and as an example in its “CE” version Clauses 5.3 and 5.4 state: 5.3 Risk Allocation Schedule Completion and effect of Risk Allocation Schedule 1. The forms of Risk Allocation Schedule referred to in Part 5 of the Contract Particulars set out: 1. 2. 3. 2.

The allocation (as between the Purchaser and the Supplier) of any cost and time consequences of risks referred to in the Risk Allocation schedule; and The amount (if any) for risks for which the Supplier shall be responsible which is also included in the Target Cost or Contract Sum to deal with the occurrence of risks and the allocation of any costs in excess of this amount; and The period of time (if any) resulting from the occurrence of risks that the Supplier has accepted as being his responsibility and the allocation of responsibility for any time consequences in excess of this period. The Purchaser’s liability to contribute to the cost consequences of, or grant any extension of time in respect of, risks shown in the Risk Allocation Schedule shall only apply: 1. as to cost, after the relevant amount (if any) shown in the column 2 of Risk Allocation Schedule as having been included in the Target Cost or Contract Sum has been spent in full; 2. as to time, after any relevant time period shown in column 3 of the Risk Allocation Schedule as being the Supplier’s responsibility has expired and the Purchaser shall not be required to consider any extension of time

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to the Date or Dates for Completion in respect of risks shown in the Risk Allocation Schedule until such expiry. Subject to these conditions, the cost and time consequences of the occurrence of risks in excess of the amount or time period that are the responsibility of the Supplier will be apportioned in accordance with the allocation set out in the Risk Allocation Schedule.

Clause 5.4 Notification of occurrence of risks identified in the Risk Allocation Schedule If a risk identified in the Risk Allocation Schedule occurs, whichever of the Purchaser or the Supplier becomes aware of the occurrence of the relevant risk shall immediately notify the other and both shall cooperate to agree the best means of dealing with any adverse consequences of the occurrence of the risk and to mitigate its effects, whether or not the occurrence or the risk also constitutes a Relief Event.

It is interesting to note that the JCT contracts are generally silent on ground conditions except for its Major Project Construction Contract, and thus that leaves the contractor in the position of accepting the “implied warranty” that it can construct the works in accordance with the design given to it. And even the Major Project Construction Contract views “unexpected ground conditions” as a variation or change but only in very narrow circumstances, specifically where they necessitate the amendment proposed by the contractor to the employer’s requirements or the contractor’s proposals or where the employer agrees to the contractor’s proposed amendment and an entry is made in the contract particulars specifically making this provision applicable. The FIDIC form of contract allows the contractor an extension of time and its costs due to unforeseen ground conditions, and both NEC3 and the ICE Form of Contract entitle the contractor time spent regarding the unexpected “physical” conditions (which includes ground conditions) regardless of whether any of the contract documents have to be changed in consequence and to costs. But when it comes to the diversion of existing services or dealing with other “man-made” or “artificial” ground conditions, these are covered in the FIDIC and ICE form contract and the Major Project Construction Contract but not the NEC. And these form of contract all require that the unexpected ground conditions (or artificial obstructions) could not reasonably have been foreseen by an experienced and competent contractor with the NEC 3, for example, and the Major Project Construction Contracts stating that the contractor could not have ascertained the actual nature of the ground conditions from: • an examination of the site; • any site information provided by the employer; or • any other publicly available information the contractor had or ought reasonably to have had.

Indeed, most of the standard UK and international contracts (FIDIC) attempt to allocate risk on this subject as evenly as possible between the employer and the contractor and to apply the “objective” test of what the reasonable contractor would do, e.g. Clause 4.12

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of the FIDIC Red and Yellow Books and Clause 60.1(12) of NEC third edition. Each is by reference to what an “experienced contractor” could reasonably have anticipated, but there are differences so the NEC unlike FIDIC does not deal with the assessment of risk on the basis of whether a physical condition was or should have been foreseeable, but rather, the assessment of risk under the NEC is “more nuanced”, factoring in chance and probability. Recently in the UK there have been two different cases which have dealt with exactly what an “experienced contractor” could be expected to do and, whilst discussed in other chapters, they are both worth mentioning again here. They are Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar,2 which dealt with the expression in the context of the FIDIC Red Book Sub-Clause 4.12, and Van Oord UK Ltd & Anor v Allseas UK Ltd,3 dealing with a claim arising under a bespoke form of contract, but which included a provision similar to that in FIDIC Sub-Clause 4.12. In Obrascon the contractor appealed against a finding that the level of contamination encountered in the ground on a tunnelling project in Gibraltar should have been foreseeable to an experienced contractor, and it argued that the ground conditions in question were unforeseeable because the environmental statement supplied by the employer at tender stage contained an estimate of contaminated material which was much lower than the levels of contaminated material actually encountered on site. The contractor took the position that only after it had commenced the works had it found this not accurate. Further the contractor argued that the environmental statement had been commissioned by the employer in order to discharge certain planning requirements and that the author of the environmental statement was therefore under a duty to make a proper assessment of the amount of contamination present and its likely impact. The contractor placed its hope for success in the appeal on the basis that under such circumstances, not only was it obliged to take this estimate into account when preparing its tender, it was also reasonable to rely upon it. Unfortunately for the contractor the Court of Appeal rejected this position and accepted the trial judge’s finding that an experienced contractor at tender stage would not have limited itself simply to a study of the environmental statement, which was primarily directed towards planning matters. Rather, an experienced contractor should have asked “itself why the contamination identified in the environmental statement was there in the first place”. The information provided to the contractor at tender stage indicated that the site was at the end of a runway and near a fuel farm, on what had for many years been an extensive rifle range. The contractor should therefore have anticipated the risk that there could be extensive lead and hydrocarbon residues from these activities in the made ground on the site. The Court of Appeal also noted that whilst the contractor was bound to take the estimate provided in the environmental statement into account, that estimate was only “one person’s interpretation” of the ground information data taken from the site. Under Sub-Clauses 1.1 and 4.12 of the FIDIC conditions, the contractor was also required at tender stage to:

2  [2015] EWCA Civ 712. 3  [2015] EWHC 3074 (TCC).

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1. Draw upon its own expertise and experience of previous civil engineering projects; and 2. Make its own independent assessment of the available information regarding physical conditions. What the contractor could not do was “simply accept someone else’s interpretation of the data and say that is all that was foreseeable”. Then in the Van Oord case the contractor made three disruption and prolongation claims against the employer, all arising from an onshore gas pipeline- laying contract, and one of the claims arose out of what the contractor alleged were unforeseen ground conditions. Here it appeared that the contractor originally intended to carry out the pipe laying work by constructing a stone road 8 metres wide, then digging a trench into the untreated ground immediately to the side of the road into which it would then lay the pipeline. Unfortunately, the contractor encountered peat over a section of the works at a greater depth than it claimed it could reasonably have foreseen, and as a result of the unstable ground conditions, it was obliged to build a 13.5-metre-wide stone embankment instead, and lay the pipe within that embankment. The contractor claimed the additional costs of building the stone embankment, as opposed to the 8 metre stone road. The court took the view that the contractor’s claim was inconsistent with the facts and rejected it and held that it was not sufficient for the contractor to show that there were pockets of peat deeper than those shown in the probe survey provided to the contractor at tender stage. The court would need to decide objectively whether or not an experienced contractor could reasonably have been expected to have foreseen (and provided for) areas of deeper peat. As the court wrote: Every experienced contractor knows that ground investigations can only be 100% accurate in the precise locations in which they are carried out. It is for an experienced contractor to fill in the gaps and take an informed decision as to what the likely conditions would be overall.

Accordingly, the court held that an experienced contractor would reasonably have been expected to foresee many pockets of deep peat along the pipeline; what did not help was the fact that one of the contractor’s own witnesses confirmed, in cross-examination, that that was precisely his expectation. This all then leads to views in other parts of the world, where generally the concept of unforeseen ground conditions follows the standard route where the contractor is compensated with an extension of time and payment of costs (and occasionally profit) for unforeseen physical conditions which cause delay or cost, and as usual the issue will come down to whether or not an experienced contractor would or would not have foreseen the situation, but as everywhere the real problem is that the concept of foreseeability is only done after the problem has occurred. In a real-world setting and on most construction projects, the items which will be tested as to whether or not any particular ground condition was foreseeable will revolve around whether or not the needed information was readily available either in the public domain or otherwise. It was information that the employer should or could have supplied, but didn’t, e.g. geotechnical data especially where the employer is the government and it is a public works type of project; how much actual investigation the contractor performed or didn’t, e.g. as in the Van Oord case discussed 362

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earlier, and of course what would the hypothetical “experienced contractor” have done in similar circumstances. The problem however lies in related matters such as the employer’s reluctance and concern about what information it supplies to the contractor, its liability for any defective information it provides, the costs in providing geotechnical information or similar and the fear of being held liable for any claimed “misrepresentations” at a later stage when the contractor is claiming a delay due to unforeseen ground conditions. This particular problem is also not helped by the fact that the contractor has no real incentive to carry out extensive additional testing as it is costly; with the lure of being able to make a claim later for “unforeseen conditions” leading to an extension of time, costs and in some cases profit the clear incentive is lacking. Nor is this obviated by contract clauses that the contractor is to satisfy itself as to all conditions at site; thus this area of the law remains a quagmire. Periodically one comes across such clauses which typically read as follows: The Employer warrants and represents that prior to the submission of the Contractor’s tender the Employer has provided and/or made available to the Contractor all information of which it is aware, which has been obtained by or on behalf of the Employer or Engineer for the purposes of the contract, on the nature of the physical conditions relevant to the Contract Works. The Employer makes no warranty or representation as to the sufficiency or accuracy of any such information and the parties agree that the Contractor shall be fully responsible for the interpretation of all such information for the purposes of the Contract Works.

Unfortunately, these types of clauses do little good in resolving the problem of liability on the part of the employer and/or the contractor, and the courts, arbitrators and dispute boards will still resort to a determination of foreseeability and a balancing the equities between the contractor and the employer. The USA Needless to say the USA takes a different view on these matters as is shown in MorrisonKnudsen Co v State of Alaska.4 Here the State of Alaska appointed the firm of MorrisonKnudsen to carry out runway extensions at the Sitka Airport, and prior to award, the State had carried out site investigations, including as to whether or not seabed material taken from “borrow pits” would be appropriate. The investigations came to the conclusion that the material was “apparently dredgable”, and they were made available to all bidders, and although some site investigation information about the borrow pits were provided to bidder, the Employer disclaimed anything given. The bidders were told to carry out their own site investigations, and the contractor was to select its dredging equipment and could chose an alternative source of material. Thereafter Morrison-Knudsen’s bid manager reviewed the documents and viewed the site from the shore, but did not go over the borrow pits in a boat or take any samples or make any detailed survey. Based on his inspection and the material provided by the State, Morrison-Knudsen bid on the basis of hydraulic dredging of the material, whilst cheaper

4  519 P.2d 834 (1974).

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with that came the problem that it was rather sensitive and required a relatively uniform material to dredge, little if any wind and a calm sea state. Other bidders carried out more extensive investigations, examined via boat the presence and size of boulders and generally assessed the suitability of the material and concluded that hydraulic dredging would not be appropriate, with one bidder declining to bid based on the lack of certainty of cost effective fill material. The state of Alaska was made aware of all of this and of the further fact that all of the bids were beyond the budgeted allowable amount. Morrison-Knudsen, however, was the lowest bidder and tried to negotiate a contract. The evidence presented at trial showed that during those negotiations, a State representative asked Morrison-Knudsen if they would claim if the borrow pits were not as represented; further discussion ensued with the final outcome being that the contract was awarded to Morrison-Knudsen, with the State not having shared the views of the other bidders that the statements in the site investigations, that material was suitable for dredging, were wrong. Thus the State proceeded to contract with Morrison-Knudsen, knowing that their methodology for recovering the fill material may have been inappropriate, and in reliance on that Morrison-Knudsen had relied on the disclaimers of the investigation information. Needless to say the classic situation then developed, and the proposed hydraulic recovery from the borrow pits failed with Morrison-Knudsen having to then source their materials from a considerable distance away. They then sought recovery from the State of Alaska for the additional cost of acquiring the material. In court Morrison-Knudsen took the position that the State led it to believe that hydraulic dredging was feasible when it had information proving that it was not. Further, the state did not dissuade Morrison-Knudsen when it became apparent that they would use hydraulic dredging. The State of Alaska denied making any such representations, and urged the court in the view that alternatively that Morrison-Knudsen did not rely on the representations. Unfortunately for Morrison-Knudsen whilst the majority of the Supreme Court of Alaska considered the extent to which the State had a duty to disclose and agreed that it did then stated: It is well settled … that where the Government possesses special knowledge, not shared by the contractor, which is vital to the performance of the contract, the Government has an affirmative duty to disclose such knowledge.

But the same majority found that whilst this may be the case, in this particular situation the State did not possess such special knowledge. In the court’s view, the State did not hold the information from a favoured position – all it knew was that two other bidders had discovered the situation, which Morrison-Knudsen could have discovered, if it had exercised more diligence in its pre-tender investigations. Indeed, in the USA, rather than “unforeseen … conditions” the phrase “differing site conditions” is used, and it is one of the oldest clauses used in construction contracts, having been created by the US federal government in 1926. Its purpose is the same as those similar clauses found in international contracts such as FIDIC, i.e. to transfer the risks attendant to unknown/unforeseeable ground conditions from the contractor back to the employer. Interestingly one of the situations which can develop and which is covered 364

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by FIDIC in Sub-Clause 4.12 also has to do with what happens when the “differing” site conditions are beneficial to the Contractor – does the contractor get to keep the benefit (more money/profit) due to the unexpected? That portion of FIDIC Sub-Clause 4.12 states: However, before additional Cost is finally agreed or determined under sub-paragraph (ii), the Engineer may also review whether other physical conditions in similar parts of the Works (if any) were more favourable than could reasonably have been foreseen when the Contractor submitted the Tender. If and to the extent that these more favourable conditions were encountered, the Engineer may proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine the reductions in Cost which were due to these conditions, which may be included (as deductions) in the Contract Price and Payment Certificates.

In the USA the comparable provision is contained in US Federal Differing Site Conditions clause wherein it states: The contracting officer shall promptly investigate the conditions, and if he finds that such conditions do materially so differ and cause an increase or decrease in the contractor’s cost of, or the time required for, performance of any part of the work under this contract, whether or not changed as a result of such conditions, an equitable adjustment shall be made and the contract modified in writing accordingly.5

An example of this can be seen in the US Veterans Administration Contract Appeals Board case of AFGO Engineering Corporation,6 where the issue arose due to the fact that the contractor found itself in the situation where it had to remove 62 per cent less rock than was anticipated in the original bidding documents.7 This was also seen in the case of Perini Corporation v United States,8 where the court determined that the US government had “grossly overstated” estimated quantities and thus denied the government’s claim. Contractor’s Duty? But what duty does the contractor have in the USA concerning differing site conditions? The best place to start is with the initial documentation provided and with the contractor’s duty to review the information “made available” for inspection by the employer. In The Appeal of Bean Stuyvesant LLC,9 which involved a contractor whose contact required it to dredge soil from a confined disposal area then transport the soil via a pipeline and ultimately place the material on a beach as part of the restoration of a sea turtle habitat in North Carolina, the contractor encountered conditions they believed were materially different than anticipated and filed a differing site condition claim. The claim was denied

5  FAR 52.236–2 Differing Site Conditions. 6  VACAB No. 1236, 79–2 BCA ¶ 13,900. 7  See e.g. John Cibinic, Ralph C. Nash, James F. Nagle, Administration of Government Contracts, CCH International 2006. 8  180 Ct. Cl. 768, 381 F.2d 403 (1967). 9  ASBCA No. 53882, 2006–2 B.C.A. (CCH) P33, 420.

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by the contracting officer and appealed to the Armed Services Board of Contract Appeals. The court noted that the bidding documents contained the following notice: Drilling logs of other borings in the vicinity ... of the project not provided in Appendix A are available upon request. All requests shall be directed to Ed Dunlop of the Wilmington District Office at (910) 251–4492. The government will not be responsible for any interpretation of or conclusion drawn from the data or information by the contractor. Bidders are expected to examine the site of the work and after examination decide for themselves the character of material.

Here it was also found that the other two bidders requested and received the information from the “other borings” referenced in the contract and did attend the site visit. Bean Stuyvesant did neither. The Board ruled against Bean Stuyvesant and wrote: Appellant also has not shown that the conditions were reasonably based upon all the information available at the time of bidding. A contractor has the duty to review information that is made available for inspection. ... Appellant has not shown that the government disclaimed the accuracy of any of the relevant drilling data. We believe that the data included within the contract and the data made available upon request were part of the universe of relevant information made available to the bidders, which appellant should have considered in order to prepare its bid. Having failed to do so, appellant cannot prove that it reasonably relied upon all contract and contract related data, as required by the Differing Site Conditions clause.

This rule is also enunciated in Hunt & Willett, Inc. v United States,10 where the court stated: the contractor cannot “rest content with the materials furnished to him or her; he or she must also refer to other materials which are available and about which he or she is told by the contract documents”.

Nor is the contractor’s duty to investigate relieved by the employer including all “subsurface” information in the bidding documents and not “disclaiming” responsibility for the information provided, under these circumstances. For example, the court in Foster Construction C.A. and Williams Brothers Company, A Joint Venture v The United States11 decided that: “The contractor is unable to rely on contract indications of the subsurface only where relatively simple inquiries might have revealed contrary conditions”. As an example if a highway project where the subsurface investigation report contains 30 borings to a depth of 15 metres (and the deepest cut on the drawings is approximately 8 metres) all of which show no groundwater, bidders may not be able to rely on the lack of indication of groundwater. If the contractor could have, for example, reviewed and determined from the local Soil Conservation Service office that groundwater records show that at certain times of the year groundwater levels rose to within 3 metres of the surface, then bidders cannot rely upon the bidding information when preparing their bids. Similarly,

10  351 F.2d 980, 985 (1964). 11  1936 Ct. Cl. 587, 435 F.2d 873, 1970 U.S. Ct. Cl. LEXIS 74.

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if a prebid site walk would have revealed the condition, even though it was not shown in the geotechnical report, then the contactor cannot rely exclusively on the bidding information.12 And going one step further, if the bidding information contains no specific representation at all regarding materially different conditions, that is still not any help to the contractor in avoiding liability and the risk. As an example Metcalf Construction Co., Inc. v United States13 involved a Navy contract to construct military housing on a base on Hawaii. During the course of construction Metcalf encountered expansive soils and filed a differing site condition claim which was denied. Metcalf took this claim, along with several others, to the US Court of Federal Claims, claiming that the Navy failed to perform a timely investigation subsequent to the notice of differing site conditions and unreasonably rejected the geotechnical reports submitted by Metcalf in support of their claim. The Contracting Officer’s denial of the claim stated: As far as the information provided in our soils report is concern[ed], the fact that it differs significantly from the soils report generated by the contractor in itself does not warrant as equitable adjustment. ... If the contractor decided to base the cost of the work relying upon the government provided data, that’s the risk they took and any consequences resulting therefrom is their responsibility.

Here the court also noted that the government-issued geotechnical report only dealt with “site preparation, foundation support, footing, slab and reinforcement requirements ..., ” and noted the fact that the request for proposal instructed the contractor to employ their own geotechnical consultant subsequent to contract award to perform an independent investigation for the design of the project. Accordingly, the court held: In other words, Metcalf could rely on (the government issued report) for bidding purposes, but the Navy advised all potential contractors they could not rely on (the government issued report) in performing the ... project … because the contract made no specific representation as to the type of soil to be encountered, it cannot be said that [the contractor] encountered conditions materially differing from those specifically indicated in the specifications.

It is interesting here to note that whilst Metcalf I was vacated and remanded (by the US Court of Appeals for the Federal Circuit), in Metcalf II 14 the Appellate Court stated the following in regards to the argument raised in Metcalf I: The government made clear that its pre-request soil report was not to be the last word on soil conditions for purposes of the project. A revised request for proposals stated that the requirements in the “soil reconnaissance report” were “for preliminary information only”. The resulting contract required that the contractor conduct its own independent soil investigation. ... Even before potential bidders had submitted proposals in response to the request, the government had clarified ... that the contract would be amended if the contractor’s post award independent investigation turned up soil conditions significantly different than those described in the government’s report.

12  See e.g. Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation  – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 13  100.102 Fed. Cl. 334; 2011 U.S. Claims LEXIS 2329. 14  742 F.3d 984; 2014 U.S. App. LEXIS 2Sl5, February 11, 2014.

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Further in Stuyvesant Dredging Company v United States,15 another dredging case, the Army Corps of Engineers (Corps) included information in the bidding documents concerning the character of the materials to be dredged and the in-situ densities. The Corps made available the records of previous dredging which it had performed in past years at their district office. Stuyvesant had bid on two previous Corps dredging projects and had, in each case, reviewed the information in the district office related to those two projects. Stuyvesant elected not to visit the site for this particular project, nor take material samples or echo soundings. Instead, Stuyvesant relied on the fact that the technical provisions of this contract were “very similar, almost identical” to the technical provisions of the previous two projects. They concluded that it was “not warranted to go to the expense of or necessary to do any particular further investigation”. Unfortunately for Stuyvesant it was different, and it filed notice of differing site conditions and a claim during the performance of the work due to the increased density of the materials encountered, which impacted their productivity and increased their cost. The Corps denied the claims, and Stuyvesant appealed this adverse decision, and ultimately it ended up in the US Court of Appeals for the Federal Circuit. The appellate court examined the case and the lower court’s ruling and concluded that the Claims Court correctly stated: “the six average density readings were identified to be guides only ... did not reach the level of estimates and [were] clearly not facts upon which plaintiff could rely”. The appellate court also noted that, “Government estimates are not warranties”. The Stuyvesant Court also dealt with the issue of Stuyvesant having not reviewed the Corps information from previous projects, available in their district office. The appellate court upheld the claims court, ruling that [Plaintiff] cannot prove a differing site condition based upon the information in the files of the Corps because it never reviewed that information until the contract was nearly completed, but more importantly the Corps’ records accurately reflected the character of the materials encountered by other dredges.

The appellate court noted that “where a contractor ‘has the opportunity to learn the facts [but fails to do so] he is unable to prove ... that he was misled by the contract’ ”. Employer’s Duty? But what if the information needed is “reasonably” available to all; does the Employer still have any duty to disclose? This point was taken up in the case of North Pacific Erectors, Inc. v State of Alaska, Department of Administration,16 where the contractor was renovating and removing asbestos in a state office building. Here, a claim arose for more money due to a differing site condition in that the asbestos removal was much more labour intensive “than it had expected”. The claim was denied, and ultimately the contractor appealed to the State Supreme Court, asserting that its claim was a “valid differing site condition claim and that the state breached its duty to disclose information about the project”. The court decision noted that North Pacific and their asbestos removal 15  834 F.2d 1576; 34 Cont. Cas. Fed. (CCH) 75,414 (1987). 16  2013 Alas. LEXIS 118 (2013).

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subcontractor neither participated in the pre-bid conference nor made a site visit but that despite this said: “Contractors would not have been able to see the pan deck surface at a site visit, however, because fireproofing was still covering the pan deck at the site”. However, the court then went on to rule that: Although the department had more control over the information here ... the department did not have absolute control over the relevant information. Rather, North Pacific could have reasonably acquired the information without resort to the department. North Pacific could have requested photos or an inspection of an exposed pan deck, spoken to other contracting companies that had previously performed asbestos abatement for the department in Juneau, or researched conditions of similar buildings in the area. ... We conclude that North Pacific could have conducted research on its own and was not dependent on the department as the only reasonable avenue for acquiring information on the surface of the pan deck. Accordingly, we hold that the state had no duty to disclose information regarding the pan deck surface.

Is Silence a Basis for a Claim? But what happens if the contract does not discuss “subsurface conditions” at all, i.e. it is silent on the subject? In Neal & Co v United States,17 the court gave its view that as to the “Differing Site Conditions” clause: “where the contract is silent, a claim cannot arise”. This was also the view of the court in United Contractors v The United States18 which ruled that the Differing Site Conditions clause “cannot be invoked if the plans and specifications do not ‘show’ or ‘indicate’ anything about the alleged unforeseen condition, i.e., if they say ‘nothing one way or the other about subsurface [conditions]’ ”. The list of possible permutations between the duty of the contractor and that of the employer can indeed seem endless with the various court decisions intervening along the way in the United States. It is helpful to review the history of differing site conditions which gives an overview of the situation and a good comparison to similar clauses found internationally. History The underlying theory comes from attempting to balance risk between the employer and the contractor, with some writers19 taking the view that: If contractor were required to assume the full risk of increased costs of unfavorable and unforeseeable physical site conditions, they would have to choose between (1) undertaking a costly pre-bid analysis of subsurface site conditions; or, (2) including sizable contingencies in their bids. Either alternative would prove unnecessarily costly to the owner and the contractor in the long run.

17  36 Fed. Cl. 600, 617 (1996), aff’d, 121 F.3d 983 (Fed. Cir. 1997). See also Ragonese v. United States 128 Ct. Cl. 156, 159, 120 F. Supp. 768, 769 (1954). 18  368 F.2d 585 (1966). 19  See e.g. Irv Richter and Roy S. Mitchell (1982), Handbook of Construction Law and Claims, Reston Publishing Company, Inc. A Prentice Hall Company, Reston, VA.

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The US Department of Transportation, Federal Highway Administration, summarised the history of the Differing Site Conditions clause in US federal contracts,20 noting that in 1926, the Federal Board of Contracts and Adjustments (the Board) started requiring a Differing Site Conditions clause in all federal construction contracts, with the board requiring this provision specifically “to eliminate the contingency factor for subsurface conditions and to limit the latent cost incurred by contractors for pre-bid subsurface explorations”. It should be noted that the original Differing Site Conditions clause only dealt with conditions that differed materially from indicated conditions. This was later modified in 1935 to include “situations where the contract is silent regarding subsurface conditions but the contractor encounters unforeseen, unusual conditions which differ materially from conditions ordinarily encountered”.21 In 1963 the US Federal Differing Site Conditions clause was modified from “Changed Conditions” to “Differing Site Conditions” and has remained basically the same ever since. Type 1 and Type 2 conditions Originally the “Differing Site Conditions” clause defined specifically differing site conditions as: “conditions materially different from those indicated”. The 1935 version of the clause included a second type of differing site condition, “[where] the contractor encounters unforeseen, unusual conditions which differ materially from conditions ordinarily encountered”.22 These two conditions thus came to be referred to as either Type 1 or Type 2 differing site conditions. Recently one begins to note that Differing Site Conditions clauses have added a Type 3 differing site condition dealing with “hazardous and/or toxic waste not reported to be or identified in any site conditions report provided during the bidding period”.23 In the USA the various standard form contracts, be they the one by the American Institute of Architects, the Construction Management Association of America, the Engineers Joint Contract Documents Committee, etc., all contain clauses dealing with differing site conditions, and contained within these one can find these different “types” with Type 1 differing site conditions being used where the contractor may find ground conditions (i.e. physical conditions) which are either substantially or materially different than those described or made known to the contractor by the employer and its bid documents. Type 1 The description of a Type 1 differing site condition is rather uniform in those standard contract documents; the Federal Acquisition Regulation, the American Institute of

20  Geotechnical Engineering Notebook, Geotechnical Guideline No. 15, Geotechnical “Differing Site Conditions” Office of Engineering, GT Guideline No. 15, April 30, 1996. 21  See also Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation  – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 22  Office of Engineering, GT Guideline No. 15, April 30, 1996. 23  Ibid. at ftn 21.

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Architects and “ConsensusDocs”24 all use the following language: “subsurface or latent physical conditions at the site which differ materially from those indicated In this contract”.25 The other group standard document published by the Construction Management Association of America describes Type 1 differing site conditions as “Any physical condition uncovered or revealed at the site differs materially from that indicated or referred to in the contract documents,”26 and the form used by the Design Build Institute of America states: “Concealed or latent physical conditions or subsurface conditions at the site that (i) materially differ from the conditions indicated in the contract documents,”27 and finally the Engineers Joint Contract Documents Committee defines a Type 1 differing site condition as “any subsurface or physical condition that is uncovered or revealed either ... differs materially from that shown or indicated In the contract documents.”28 Type 2 Type 2 Differing Site Conditions are used in situations where one can find “unknown physical conditions at the site of an unusual and unpredictable nature”.29 The US Federal Highway Administration describes Type 2 differing site conditions in their Geotechnical Engineering Notebook as “situations where the contract is silent regarding subsurface conditions but the contractor encounters unforeseen, unusual conditions which differ materially from conditions ordinarily encountered”.30 Here again the actual wording of the clause is also uniform from standard form to standard form with the various ones stating:31 • “unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided in the contract”;32 or

24 ConsensusDocs publishes a comprehensive catalog of 100+ documents which are the only standard contracts developed by a diverse coalition of 40 leading associations with members from all stakeholders in the design and the construction industry. 25 Federal Acquisition Regulation, § 52.236–2, Differing Site Conditions (APR 1984) (48 FR 42478, Sept. 19, 1983, as amended at 60 FR 34761, July 3, 1995). American Institute of Architects Document A201–2007, General Conditions of the Contract for Construction. § 3.7.4, Concealed or Unknown Conditions. ConsensusDocs 200, Standard Agreement and General Conditions Between Owner and Constructor, § 3.16.2, Concealed or Unknown Site Conditions, 2011, Revised July, 2012. 26 Construction Management Association of America, Inc., § 4.19.4.1.2, Physical Conditions and Facilities Affecting the Work: Existing Facilities, 2004. 27 Design Build of America Document No. 535, Standard Form of General Conditions of Contract Between Owner and Design-Builder, § 4.2.1, Differing Site Conditions, 1993. 28 Engineers Joint Contract Documents Committee C-700, Standard General Conditions of the Construction Contract, § 4.03, Differing Subsurface or Physical Conditions, 2007. See also Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 29 Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 30 Office of Engineering, GT Guideline No. 15, April 30, 1996. 31 See also Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 32 Federal Acquisition Regulation, § 52.236–2, Differing Site Conditions (APR 1984). (48 FR 42478, Sept. 19, 1983, as amended at 60 FR 34761, July 3, 1995).

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• “unknown physical conditions of an unusual nature that differ materially from those ordinarily recognized as inherent in construction activities of the character provided In the contract documents”;33 or • “unusual and unknown physical conditions materially different from conditions ordinarily encountered and generally recognized as inherent in work provided for in the contract documents”;34 or • “an underground facility ... not shown or indicated in the contract documents and was not a facility of which a contractor could reasonably have been expected to have been aware and the underground facility is uncovered or revealed at or contiguous to the site”;35 or • “are of an unusual nature differing materially from the conditions ordinarily encountered and generally recognized as inherent in work”;36 or • “is of an unusual nature, and differs materially from conditions ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract documents”.37 Type 3 Type 3 Differing Site Conditions arose due to situations previously unidentified; “hazardous waste” materials as a type of differing site condition is different than the classic Type 1 and Type 2 differing site conditions.38 As with Type 1 and Type 2 conditions clauses, a contract that incorporates a Type 3 differing site condition clause assigns the risk of encounters with unanticipated hazardous waste to the owner, unless the hazardous material is material brought on site by the contractor or one of their subcontractors. Since Type 3 differing site conditions language is relatively new, it is not nearly as standardized as the language of Type 1 and Type 2 language.

Some examples of Type 3 contract clauses language would be: • “Unidentified substances that design builder believes may be hazardous materials that are required to be removed to a Class I, Class II, or Class III disposal site in accordance with governmental rules. Hazardous materials that are included in the work, as identified in the contract for design builder to handle, mitigate, and remediate, shall not be construed in any way to be a Type 3 condition”;39

33 American Institute of Architects Document A201–2007, General Conditions of the Contract for Construction, § 3.7.4, Concealed or Unknown Conditions. 34 ConsensusDocs 200, Standard Agreement and General Conditions Between Owner and Constructor, § 3.16.2, Concealed or Unknown Site Conditions, 2011, Revised July, 2012. 35 Construction Management Association of America, Inc., 2004, § 4.19.3, Physical Conditions and Facilities Affecting the Work: Existing Facilities. 36 Design Build of America Document No. 535, Standard Form of General Conditions of Contract Between Owner and Design-Builder, § 4.2.1, Differing Site Conditions, 1993. 37 Engineers Joint Contract Documents Committee C-700, Standard General Conditions of the Construction Contract, § 4.03, Differing Subsurface or Physical Conditions, 2007. 38 Ibid. at ftn 31. 39 Design Build Contract Between Los Angeles County Metropolitan Transportation Authority and Kiewit Pacific Company – 1–405 Sepulveda Pass Widening Project, April 23, 2009, Section 6.7, Differing Site

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• “Materials differing from that represented in the contract documents which the contractor believes may be hazardous waste, as defined in Section 25117 of the Health and Safety Code, that is required to be removed to a Class I, Class II, or Class III disposal site in accordance with the provisions of existing law”;40 • “a hazardous material or substance not addressed in the contract documents and if reasonable precautions will be inadequate to prevent foreseeable bodily injury or death to persons resulting from a material or substance, including but not limited to asbestos or polychlorinated biphenyl”;41 • “A hazardous material is any substance or material identified now or in the future as hazardous under laws, or other substance or material that may be considered hazardous or otherwise subject to statutory or regulatory requirement governing handling, disposal, or cleanup. The contractor shall not be obligated to commence or continue work until any hazardous material discovered at the worksite has been removed, rendered, or determined to be harmless by the owner”;42 • “Unless otherwise expressly provided in the contract documents to be part of the work, design builder is not responsible for any hazardous conditions encountered at the site”;43 • “The contractor shall not be responsible for any hazardous environmental condition uncovered or revealed at the site which was not shown or indicated in drawings or specifications or identified in the contract documents to be within the scope of the work”.44 All of these various organisations and the differing site condition clauses they generate basically have a commonality to them dealing with the need to effectively deal with unforeseen, hidden or latent physical conditions at the work site, not indicated in or materially different from the information available at bid.45 Many writers46 would agree that there are three “key elements” that must be satisfied and these are: • Unforeseeability – The contractor must be able to demonstrate that the condition encountered was unforeseeable based on all information available at the time of bidding. The unforeseeability test extends to site investigations also. That is,

Conditions; as found in Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 40 The “Greenbook” – Standard Specifications for Public Works. 2012 Edition, §3–4(c), Changed Conditions, BNi Building News, Vista, CA; as found in Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 41 American Institute of Architects Document A201–2007, General Conditions of the Contract for Construction, § 10.3.1, Hazardous Materials. 42 ConsensusDocs 200, Standard Agreement and General Conditions Between Owner and Constructor, § 3.13, Hazardous Materials, 2011, Revised July, 2012. 43 Design Build of America Document No. 535, Standard Form of General Conditions of Contract Between Owner and Design-Builder, § 4.1, Hazardous Conditions, 1993. 44 Documents Committee C-700, Standard General Conditions of the Construction Contract, § 4.03, Differing Subsurface or Physical Conditions, 2007. 45 Steven A. Collins and James G. Zack, Changing Trend in Risk Allocation – Differing Site Conditions, Cost Engineering Journal, Jan/Feb 2016. 46 See e.g. ibid.

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provided the employer offered a site investigation prior to bidding, the contractor making this sort of claim will also have to demonstrate that the condition encountered was unforeseeable even during the pre-bid site walk.47 It has also been noted by others48 that “[i]n interpreting site investigation clauses, the term ‘site’ is often interpreted to mean, essentially, ‘sight’, and to not extend to requiring an independent subsurface investigation”. Thus whatever unforeseen condition is found must “not have been anticipated by the contractor from a study of the contract, inspection of the site, and their general experience”.49 • Physical Condition – The condition encountered must be a “physical condition”.50 The condition may be either a natural condition (e.g. change in soil characteristics, encountering rock, etc.) or a manmade condition (e.g. unidentified utilities, buried structures, etc.). In any event, as noted by the court in Hallman v United States,51 the condition complained of cannot be an economic, political, governmental or business condition (e.g. shortage of qualified craft labour, inability to get equipment or materials to the site, increased material costs or ordinances that restrict performance of the work, etc.). • At the Site – And of course the condition complained of must be at the project site.52 Typically, the “site” is the location where the project is being constructed. However, as noted in Tobin Quarries, Inc. v United States53 and other such cases, if the owner provides a remote lay down area or if the owner designates a borrow pit several miles from the site, then the “Differing Site Conditions” clause will cover differing site conditions at these remote locations because the owner’s actions incorporated these locations into the term “site” for the purposes of the clause. Materiality In addition to the aforementioned need for unforeseeability, physical condition, and “at the site”, the other key element is “materiality”, and without this no claim for delay or other costs due to some unforeseen condition or “differing site condition” will be successful. As such, some writers54 have noted that in order to determine if a “material difference” has been encountered for the purposes of the Differing Site Conditions clause requires a situation specific analysis. It Is entirely dependent upon the facts of each such encounter. Each Individual claim of material difference must be examined

47 Ibid. 48 See e.g. Neal J. Sweeney, Thomas J. Kelleher, Jr., Philip E. Beck and Randall F. Hafer (1997), Smith Currie & Hancock’s Common Sense Construction Law, John Wiley & Sons, Inc., New York. 49 Robert F. Cushman and David R. Tortorello (1992), Differing Site Condition (Claims, Wiley Law Publications, John Wiley & Sons, Inc., New York. 50 Ibid. at ftn 45. 51 68 F. Supp. 204 (Ct. Cl. 1946); Robert E. McKee Gen. Constr., Inc., ASBCA No. 521, 60–1 B.C.A. (CCH) 1)2, 526 (1960). 52 Ibid. at ftn 45. 53 114 Ct. Cl. 286 (1949); Baltimore Contractors, Inc., GSBCA 4808R, 80–2 B.C.A. 1)14,676; Blaze Constr. Co., IBCA No. 2863, 91–3 B.C.A. (CCH) 1)24,071 at 120,506 (1991). 54 See e.g. ibid. at ftn 45.

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from the perspective of whether the condition encountered had, or will have, a substantial impact on the contractor’s work as well as the time and cost of the work.

Indeed, one writer55 noted in citing the case Murray’s Iron Works, Inc. v Boyce56 that when discussing what constitutes a material difference: Materiality usually turns upon the unique facts existing on the particular job. Facts that often bear on the question of materiality are: (a) differences in the quality of substances encountered; (b) differences in the quantity of work required as a result of the condition; (c) changes in the construction techniques required in order to deal with the condition. Regardless of whether the word “material” appears in the differing site conditions clause, the difference must be material to Invoke the clause or for denial of the claim to amount to a breach of contract.

Based on the preceding it appears to many writers,57 including this one, that that the boards and courts have been very reluctant to define the term “material difference”, preferring instead to perform a case by case analysis, and thus many decisions simply declare whether or not the claimed condition is materially different or not without giving any reason, and it would appear that the contractor’s task of showing a material difference is easier if the claim is based on a Type 1 differing site condition. This is because under this Type, the contractor can compare actual conditions with those indicated in the bidding documents – both expressed and implied. |However if the claim is a Type 2 differing site condition, the burden of proving the material difference is substantially greater,58 and to achieve success the contractor will “first have to prove what conditions they anticipated at the time of bidding and why this was a reasonable expectation, as Type 2 claims are typically filed in the absence of any owner provided information”. Next, the contractor will then “have to document the conditions actually encountered and finally, the contractor will have to be able to articulate and demonstrate the material difference between the two conditions”.59 Thus it would appear that internationally, the practical differences between “unforeseen ground conditions” and “differing site conditions” and the proof needed for success before a court, an arbitrator or a dispute board is slight and still developing as can be seen from the recent introduction of Type 3 claims.

55 56 57 58 59

Bernard Kamine, Differing Site Conditions. Kamine Law PC, 2014. [2008] 158 CA 1279, 1298. See e.g. ibid. at ftn 45. Ibid. Ibid.

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C H A P T E R 11

Claims for Extensions of Time

In the last chapter the concept of unforeseen ground conditions was discussed, and what generally follows from this are claims for extensions of time (EOT) but unlike claims for money these must be handled in a specific way to ensure that the contractor properly documents the claim, follows the requirements of the particular contract being used, and most importantly, achieves the goal – additional time. Other chapters deal with the law behind EOTs and the various form contracts. A brief summary includes the underlying principles of notification and documentation. So for example in some contract forms, like the NEC3, there is a requirement of “pre-notification” while in others, like the FIDIC forms, there is no “pre-notification” requirement but rather the need to inform once the “event” leading to the need for an EOT has occurred. Most all forms have the further process of requiring that the “notice” be timely, and if not it precludes the contractor from any recovery at all. The NEC3 was developed in an attempt to simplify existing form contracts and was developed out of the ICE (Institution of Civil Engineers) with the goals being to “achieve a higher degree of clarity when compared to other existing contracts”; “produce core conditions and exclude contract-specific data to avoid the need to change the core terms”; “precisely and clearly set out key duties and responsibilities”; and “aim for clarity above fairness”. Basically, the goal became “flexibility, simplicity and clarity, and a stimulus for good management”.1 From this view developed the “core” claims for the NEC form of contracts, and these core clauses were then used as the basis for six main options (each with varying risk allocation and reflecting modern procurement practice):2 • Option A (priced contract with activity schedule); • Option B (priced contract with bill of quantities) provides that the contractor will be paid at tender prices. Basically, a lump sum contract approach; • Option C (target contract with activity schedule); • Option D (target contract with bill of quantities) provides that the financial risks are shared between the contractor and the employer in agreed proportions; • Option E (cost reimbursable contract); and • Option F (management contract) is a cost reimbursable contract, where the risk is, therefore, largely taken by the employer. The contractor is paid for his properly incurred expended costs together with a margin. 1 NEC3: Early Warning and Compensation Events. Paper produced by Nicholas Gould of Fenwick Elliott Solicitors, January 2007. 2 Ibid.

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Of importance in an EOT setting is the need for the previously mentioned “early warning” procedures which are contained in Clause 16 and provide that the contractor has to give the project manager “warning of relevant matters” (note that “relevant matters” are not necessarily ones that will lead to delay), and the contract then further defines a relevant matter as anything that could increase the total cost or delay the completion date or impair the performance of the finished works. Following this “warning” the contractor and project manager are then required to attend an “early warning meeting” if either party requests it, with the express purpose of such meeting being to discuss the potential problem that is looming on the horizon with the goal being to see what can be done to prevent this from becoming a real problem that either increases the costs or extends the time. Decisions made at this meeting tend to focus on what can be done to reduce or remove the “problem” and who is to take the agreed action. Some writers refer to this as a “partnering-based approach” to the resolution of issues before they form into disputes. Cooperation between the parties at an early stage of any issue identified by the contractor or project manager provides an opportunity for the parties to discuss and resolve the matter in the most efficient manner.3 Contrast this with the FIDIC method of giving specific notices within specific time frames, which when denied lead straight to a dispute and qualify it for the dispute resolution procedures set out in the contract, e.g. dispute board, arbitration and court. So the difference is simple for under the NEC the contractor may receive compensation for addressing issues raised by way of the early warning system – but – should the contractor not give an early warning of an event which subsequently arises, and that it was aware of, then the contractor is assessed as if he had given an early warning. Thus, one can see the goals of the original drafters as a timely early warning would have provided an opportunity to identify a more efficient manner of resolving the issues; then the contractor will only be paid for that economic method of dealing with the event. Following on this one finds that core Clause 60 of the NEC concerns compensation events. If a compensation event occurs, which is one entitling the contractor to more time/ money for example, then these are handled on an individual basis. If the compensation event arises from a request of the project manager/supervisor, then the contractor is asked to provide a quotation, which should also include any revisions to the programme. The project manager can request the contractor to revise the price or programme, but only after he has explained his reasons for the request.4 While this may seem more liberal than similar provisions in other contracts such as FIDIC, in effect, the NEC35 is actually stricter, and as an example core Clause 61.3 deals with this as follows: • The Contractor notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event if • the Contractor believes that the event is a compensation event and • the Project Manager has not notified the event to the Contractor.

3 Ibid. 4 Ibid. 5 The NEC3 is used here for ease of illustration.

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If the Contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless the Project Manager should have notified the event to the Contractor but did not. Thus, it would appear that Clause 61.3 is effectively a bar to any claim by the contractor if the contractor fails to notify the project manager within eight weeks of becoming aware of the event in question. This eight-week period, unfortunately, has very serious consequences for the contractor as it must be read in light of Clause 60.1(18), which states that a compensation event includes: A breach of contract by the Employer which is not one of the other compensation events in this contract.

Thus, it should be clear that Clause 61.3 operates as a bar to the contractor in respect of any time and financial consequences of any breach of contract if the contractor fails to notify. And as discussed in other chapters in this book, courts in the past were often hostile to such clauses;6 however, this has faded away and, lately, these type of clauses have found acceptance by the courts under the view that such provisions, as between business people in a commercial setting, may have well negotiated such provisions. Thus, in Photo Production Limited v Securicor Limited,7 a case dealing with the interpretation of “fundamental breach”, Lord Diplock wrote that the clause’s effectiveness was a question of construction of the contract and that it did cover the damage (very clear construction). He noted “the reports are full of cases in which what would appear to be very strained constructions have been placed upon exclusion clauses” though the need should have gone since the passage of the Unfair Contract Terms Act of 1977. Under freedom of contract, parties can determine their obligations to one another as long as they are explicit in those obligations. Thus, the explicitness of such “notice” provisions are upheld and valid. Despite this, however, is the issue of whether or not the “awareness” of the event actually occurred as the contractor must be “aware of the event” in order to notify the project manager under Clause 61.3. So the matter ultimately hinges on whether and when the contractor was, or should have been, aware of the event, and this, like the similar clauses in FIDIC and other form contracts, leaves open for debate the exact point in time that “awareness” should have set-in. Many writers,8 including this one, like to use the example of unforeseen ground conditions as an example of the problem. Thus, when what may be unforeseen ground conditions are encountered, the contractor has a problem and is faced with a decision: Continue to work in the hope that it will overcome the difficulties without any delay or additional costs or give notice of the event (either under FIDIC if that is the form contract or under the NEC3). Rather than cause problems, if the contractor is confident that it is only a temporary difficulty that can be worked around, the contractor

6 Ibid. 7 [1980] AC 827. 8 See e.g. ibid. at ftn 1.

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continues. However, as the work progresses the contractor’s experience of dealing with the actual ground conditions does not improve but rather get worse, and eventually a point of no return is reached where the project manager/engineer is put on notice. The issue then becomes exactly when was the contractor aware or when should he have been aware of the problem. Wait too long and no recovery, too early and no problem yet … what to do? Should the contractor have notified the project manager/engineer at the date of the initial discovery, rather than at the date when the contractor believes that the ground conditions are unsuitable. One time-honoured rule is “better safe than sorry”, which dictates that notices are given at any time it appears that a problem may be encountered for giving such notices causes no harm (other than perhaps a bruised ego should the notice not be needed). The other view9 is that the contractor should give notice when it encounters ground conditions which an experienced contractor would have considered at the Contract Date to have had only a minimal chance of occurring and so it would have been unreasonable to have allowed for them in the contract price having regard to all of the information that the contractor is to have taken into account in accordance with NEC3 clause 60.2.(2).

Additionally, the other issue is per Clause 61.3: who precisely needs to be “aware”? Is it the person on site working for the contractor, the contractor’s agents or employees, or is it the senior management within the limited company organization of the contractor? The courts are of the view that it would be “the senior management” of the company and not merely servants and agents.10 Of note here, and covered in much greater detail in other chapters, is the issue of the “prevention principle” for if the contractor does not make a claim, then the project manager cannot extend the Completion Date under NEC3, and so an employer will be entitled to liquidated damages. However, those liquidated damages could be in respect of a period where the employer had caused delay. The employer can only recover losses for delay in completion for which the employer is not liable.11 However, one would think that the actual cause of loss in such circumstances would have been the contractor’s failure to give notice as is required, but the courts are divided on this, and in Gaymark Investments Pty Limited v Walter Construction Group,12 the court of the Northern Territory of Australia followed the English case of Peak v McKinney holding that liquidated damages were irrecoverable as the completion date could not be identified as time had become “at large”. One other point arises from the “defense” of the contractor that it did not give notice “because” the employer “already knew” about the situation, etc.; in other words the contractor relies on equitable principles of waiver and/or estoppel. It may be that the contractor does

9 Ibid. 10 See e.g. HL Bolton Engineering Co. Limited v TG Graham & Sons Limited [1956] 3 ALL ER 624, in particular the judgment of Denning LJ. 11 Ibid. at ftn 1. 12 (2000) 16 BCL 449.

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not serve a formal notice because, by words or conduct, the employer or indeed the project manager represents that they will not rely upon the strict eight-week notice period. “The contractor would also need to show that it relied upon that representation and that it would now be inequitable to allow the employer to act inconsistently with the representation made by the employer or project manager”. In addition, this approach could be further supported by core Clause 10.1, which requires the parties to act “in a spirit of mutual trust and co-operation”.13 Time at large is a very important concept and often missed by the contractors despite the fact that it could help them to avoid the application of liquidated damages or penalties in case of the approval delay by the engineer/employer for EOT claims, which allows the contractor to complete the work within reasonable time.14 The term “time at large” is a concept that describes the situation where there is no identified date for completion, either by absence from the contract terms or arising from events and the operation of law. Time is said to be at large because the time or date for completion is not fixed before carrying out the work but determined after the work has been completed. If it is time at large then it is argued liquidated damages cannot be applied, because there is no date fixed from which the liquidated damages can be calculated. In some situations, the date for completion may be relevant to termination and the issue whether or not there has been breach of contract by failure to complete.15 As is discussed in detail in other chapters, the concept of time at large is applicable only in the common law countries where there is no civil law or written law to be followed. In many, civil laws may not allow for time at large concept as described in the common law as the liquidated damages cannot be waived. Time at large could be applied partially in the countries under civil law by allowing the contractor to complete the remaining works in a reasonable time but the liquidated damages to be applied after this reasonable time. In other words, under the civil law, the liquidated damages cannot be waived completely but to be applied after the reasonable time allowed for by the concept of time at large.16

The Risk Register in the Notice process The definition of risk is that it is “an uncertain event that, if it occurs, has a positive or negative effect on a project’s objectives or outcome. A risk is defined by having both an impact and a probability, and should not be confused with uncertainty”.17 Risk management is the process by which project managers address risk, determining any particular event’s probability and impact and allocating importance to it and, thus, setting priorities and resources to prevent loss. While there are many tools that project managers

13 Ibid. at ftn 1. 14 Ibid. 15 Ibid. 16 Ibid. 17 Risk Register for Building Design and Construction – Buro Happold. 26 May 2014. www.designingbuildings. co.uk/wiki/Risk_register_for_building_design_and_construction.

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can use to do this, the risk register (also referred to as a risk log) is most commonly used. The steps to properly develop a risk register include the following: Risk identification The first step in developing a risk register is to identify all possible project risks utilising such diverse elements as reports and project documents and, most importantly, by bringing the project team together at a “risk workshop”,18 which is usually considered to be the best approach. Risk workshops are held to identify all the risks associated with a project that could have an impact on cost, time or performance of the project. In addition, where possible, information from the team should be obtained on the impact of the risk and the probability of its occurrence, as this will be required later. It should be noted that risks, both in terms of impact and probability, can change over the life of the project. Finally, it is worth considering whether there is any correlation between risks, which allows the first element in the risk register, a description of the risk, to be prepared.19 Risk analysis Once the risks have been identified, they then need to be analysed for their probability and impact on the project (e.g. cost, time and resource). When analysing risk the approach used can be one of two basic types: “qualitative” or “quantitative” risk analysis. In a qualitative analysis, descriptive terms are used such as “low impact” and “high probability” as compared to the quantitative analysis, where risks will have values attributed to them, such as “an impact of £10m” or “a probability of 65%”.20 The individual doing the risk analysis can use a combination of both techniques, and the approach adopted will be influenced by the information available and the complexity of the risk involved after which the analysis of probability and impact are combined into a single “risk score”. Again, this risk score can be presented quantitatively or qualitatively, with quantitative methods often using colours (green, amber and red) as well as words. Once again, this analysis is then entered into the risk register. Risks are often listed from a highest to lowest score so as to more clearly highlight the priority risks.21 Warnings and Risk resolutions Once the risk is entered into the risk register, a sorting of the risks needs to take place giving the warning signs for each risk and prioritising the risks accordingly, after which a plan of action can be determined to resolve the impending situation

18 19 20 21

Ibid. Ibid. Ibid. Ibid.

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with the least amount of loss of time and/or money. Thus, those risks with a high risk score value will need action plans that respond with utmost urgency while those with a low risk score can simply be monitored without having a detailed action plan identified.22 Risk resolution can be achieved in a number of ways: • Risk mitigation seeks to reduce the probability of occurrence or impact of a risk to below an acceptable threshold through a proactive parallel management action taken in advance of a negative impact arising. • Risk transfer seeks to shift the impact of a threat to a third party, together with ownership of the response. However, care must be taken with this approach to ensure that there are no residual unaddressed risks left within the project from a retained correlated risk. • Risk avoidance is achieved by making changes to the actual project, to either eliminate the risk or protect the project objectives from its impact. Generally, risk avoidance involves relaxing the time, cost, scope or quality objectives. • Risk acceptance means there is no change to the project to deal with a risk and is often a reflection that it has not been possible to identify an appropriate risk resolution strategy.23 When this is accomplished the results are also recorded in the risk register. The Final Step – Allocating responsibility The final step in putting together a risk register is giving “ownership” for each risk to an individual who is then in charge of monitoring and resolving the risk – thus allowing one individual to be responsible from that point onward. While it is essential that all the preceding information is recorded in the risk register at the start of the project, many writers,24 including this one, feel that it is equally important that the risk register is treated as a living document, being reviewed and updated on a regular basis. A key25 to maintaining the risk register is the need for “early warning”, and the NEC3 form of contract, as an example, maintains this process as all these contracts require the supplier and the contract administrator (contractor and project manager in the ECC,26 consultant and employer under the PSC,27 contractor and service manager under the TSC)28 to formally notify each other of an early warning of certain types of event. In the case of the ECC those events are events that could, if they happen:

22 Ibid. 23 Ibid. 24 Ibid. 25 See e.g. Making the Most of Your Early Warnings. Paper by Richard Patterson and Barry Trebes, 18 June 2015, https://necstorageprod.blob.core.windows.net/mediacontainer/nec/media/nec/my%20nec%20downloads/ articles/early-warnings-article.pdf. 26 NEC3 Engineering and Construction Contract (ECC). 27 NEC3 Professional Services Contract (PSC). 28 NEC3 Term Services Contract (TSC).

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• increase the Prices (to do so the event would have to be “compensation event” under the contract) or • delay Completion (which could be caused by events which may or may not be a compensation event) • delay meeting a Key Date or • impair the performance of the works in use.29 The theory behind early warnings is that the early warning allows those that might help avoid the event or mitigate any negative effects of the event to get together to work out how to do so, and it is generally felt that the early warning notification does not need any more information than the nature of the matter.30 Note should be taken that the purpose of the “early warning” notice is just that – to give “early” warning so that everyone is “up to speed” and can possibly do something about the situation before it exacerbates into something worse. An early warning does not have to be given if the event has already happened, and in particular, an early warning is expressly not required if the event has happened and been notified as a compensation event.31 The real goal of the NEC3 is to give the contractor (the supplier) a commercial incentive to supply these early warnings – it helps the employer and, ultimately, the contractor as it also prevents strife on a project and is intended to keep things moving along and at the planned pace for completion. The obverse, however, is that if the contractor does not give early warning, it risks having a later compensation event assessed as if he had given the early warning32 (in which case the contract administrator would have had a chance to act) and in the case of cost based contracts, having disallowed those costs incurred as a result of not giving the early warning.33

As one writer put it on the other side – the contractor, however, has no direct remedy in the contract for the project manager not giving an early warning. “But the person paying the bills, the Employer, may not appreciate the lost opportunities to manage such risks”.34 No Reply Needed It should be noted that the contract administrator does not have to “reply” to an early warning and only has to add each early warning to the “risk register”. The risk register is started on the Contract Date (when the contract comes into existence) and includes any items for discussion submitted before award in the Contract Data by either the employer or supplier. After each early warning either the supplier or contract administrator may call a “risk reduction meeting” to discuss the issue.35

29 30 31 32 33 34 35

Ibid. at ftn 21. Ibid. See e.g. the ECC, Clause 16.1. See e.g. the ECC, this is in Clause 63.5. See e.g. the ECC, this is in Clause 11.2(25). Ibid. at ftn 21. See e.g. Clause 16.2 and 16.3 in ECC.

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Generally, these risk reduction meetings are held on a regular basis and depending on the size of the project can take place monthly for smaller projects to weekly on larger ones, but there is no set requirement for when they are to take place – but when they do, the risk register itself becomes just one of the items to be discussed at the risk reduction meeting and for each identified risk would typically include “a description of the risk and a description of the actions to be taken to avoid or reduce the risk”.36 While nothing further is required by the contract, some writers,37 including this one, feel that the contract administrator may usefully include in the risk register the following columns: • • • • • • • • • • •

Notification Ref (CD1, CD2 or EW) Date notified Notified by (PM or C) Description of matter Date action last updated (risk reduction meeting) Actions to be taken to avoid or reduce the risk Action by (organization) Action by (individual) By when? Live (Y/N) Indicative impact (H/M/L)

It should also be understood that the NEC3 Risk Register is not the same as other (nonNEC contract) project risk registers, which may or may or may not exist, and of most importance here is the understanding that the NEC3 Risk Register does not affect the risk allocation under the contract. The risk reduction meeting Many risk registers may also include columns to allow the contract administrator to select and re-order the risks. By doing so, the contract administrator can use the risk register directly as the agenda for each risk reduction meeting. He or she can then project the risk register onto the wall in the meeting room and update the actions there and then in the meeting. Good meeting facilitation makes sure that all present understand the risk before they co-operate in making and considering proposals for how the effect of the registered risks can be avoided or reduced, seeking solutions that will bring advantage to all those who will be affected, deciding on the actions which will be taken and who, in accordance with [this] the contract, will take them and deciding which risks have now been avoided or have passed and can be removed from the Risk Register.38

Difference between Early warnings, RFIs and TQs It is also important to differentiate between “Requests for Information” (RFIs) and/ or “Technical Queries” (TQs) for under the NEC3 these are not recognised and have 36 See e.g. Clause 11.2(14) in the ECC. 37 Ibid. at ftn 21. 38 Ibid. at ftn 21 and also see e.g. Clause 16.3 in the ECC.

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absolutely no formal status under the contract – even if they have been required by the ECC Works Information (or PSC Scope or TSC Service Information).39 However, generally, it is the contactor who sends a RFI or a TQ to the engineer or project manager especially if there is some ambiguity in the contract, in which case such requests should be sent to the project manager under the contract.40 Despite this situation where RFIs and TQs are not in the contract, they can and do often relate to the need for early warnings as TQs, RFIs and early warnings are managed separately. When the supplier considers the lack of a response to the TQ or RFI to have a real chance of causing a delay to Completion they notify an early warning. Another way is that instead of an early warning it is notified via TQs and/or RFIs as RFIs and TQs are considered a “special” type of early warning. One illustration41 of the options on this is as follows:

Figure 11.1 Early warnings, TQs and RFIs

As to Option 1 the advantages are that it is clear, simple and separate, but the disadvantage is that the contractor (supplier) is not giving the early warning “as soon as” it becomes aware of the matter. Option 2 is also clear and simple, but the disadvantage is that “more important and urgent early warnings may be lost in a plethora of RFIs and TQs which are really aimed at the Employer’s designer”. Option 3 has the advantage that there is no need to “reissue” RFIs or TQs as early warnings. While included within the early warnings, RFIs and TQs are still “separate” and so can be managed separately and given the attention of the right people. The only disadvantage is that the lists of RFIs and TQs do have to be integrated with the list of other early warnings.42

39 See e.g. ibid. 40 Under the ECC this is in Clause 17. 41 The author is grateful to the authors of Making the Most of Your Early Warnings. Paper by Richard Patterson and Barry Trebes, 18 June 2015, https://necstorageprod.blob.core.windows.net/mediacontainer/nec/ media/nec/my%20nec%20downloads/articles/early-warnings-article.pdf. 42 Ibid.

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Preparing and Proving an EOT claim One would think that preparing and proving an EOT claim would be a simple and straightforward task; it may be in small projects, but in large complex mega-projects the answer is not so straightforward or so simple. Delay analysis is discussed in detail in other chapters, but for now it is important to concentrate on exactly what goes into the preparation of a claim and how it is proved – not an easy task in large projects where any given schedule can contain thousands of tasks, all interrelated with varying degrees of complexity. At the base of all of this is the need for a contractor to adequately show the causation and with whom the liability rests along with being able to show how the time-related damages which were created were as a direct result of the various delaying events which are being used as the basis for the claim. How to adequately record the various delays, disruption and prolongation events which occur on a project is a difficult process and needs to be done on a continuing basis – from the start of the project to its conclusion – for without this underlying basis, it is very difficult if not impossible to provide the necessary information for either the engineer to approve the EOT claim or for the adjudicator be it the DAB or onwards, an arbitrator or, ultimately, a judge to make the determination sought. Creating a Systematic Approach to EOT Claims Documentation43 One very good approach to use consists of (1) preparing the baseline programme (planning stage), (2) proper programme updates, (3) accurate programme revisions, (4) defining and introducing the delays to the programme updates, (5) identifying the concurrent delays and splitting between the contractor and employer delays, (6) defining the contractual basis for the entitlement and, finally, (7) preparing the evidences of delay.44 The Baseline Programme Planning An excellent place to start in this process and one which provides the necessary structure to establishing any claim for EOT rests in first assembling the details which consist of: • A well-defined scope of work; • Skilled staff who have the level of experience necessary; • A reasonable and well thought out programme and budget, one grounded in reality rather than in fantasy;45 • Proper contingencies established both for known and unknown risks and future events – both known and unknown;

43 The author is grateful to P.J. Keane, A.F. Caletca, Delay Analysis in Construction Contracts, WileyBlackwell, 2008; Ali Haidar, Peter Barnes, Delay and Disruption Claims in Construction – A Practical Approach, Thomas Telford Limited, Institution of Civil Engineers, 2011; Khaled A.A. Alnaas, PhD Thesis, A Systematic Approach To Prove Disruption and Delay in Mega Projects, Ain Shams University, 2014; and Khaled Ahmed Ali Alnaas, Ayman Hussein Hosny Khalil, Gamal Eldin Nassar article Guideline for preparing comprehensive extension of time (EOT) Claim, published in the Housing and Building National Research Center HBRC Journal, 7 January 2014, for their work in this area which is referred to in this chapter. 44 Ibid. 45 Hoping that quantities, prices and labour will be a certain price/available is not the same as actually knowing and having real-world costs at hand at the start.

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• A manageable works breakdown for the project with subcontractor contingencies established; • A system in place to handle any changes, variations and other issues as they arise; • A proper project management structure and order of precedence of who reports to whom that is understood by all; and • Clear completion criteria. Pre-planning tasks at the start Once the full project management structure has been determined, there are several necessary activities that should take place to ensure that the proper “foundation” for the working of the project by that team can take place and that all members of that team are agreed on the following: • Definition of the project scope and contractual milestones or sectional completion dates if any; • Defining the project objectives; • Preparing a project specific risk register defining all risk that could occur during the project life cycle; • Assigning a project team that can achieve the defined objectives and definition of key roles and responsibilities for each team member; • Defining all project stakeholders and defining the required strategies to deal with each stakeholder in accordance with their interest, influence and power; • Establishing the project budget; • Development of the project management plan; • Development of the project risk management plan; • Development of the project execution plan; • Defining the logistic plan; and • Preparation of the project procurement plan with a clear definition for any long lead items.46 The purpose for all of this is so that the contractor can have to hand a document(s) which will show the Dispute Board or others exactly what was initially planned and, thus, gives something definitive to measure against – also it was prepared before any potential problems arose and can be further evidence of what was anticipated as compared to what actually took place. So, for example, before any excavation takes place, the contractor allocates three weeks for excavation, and the rest of the schedule/programme is based upon this assumption only to later find that unforeseen ground conditions arose, and the soil condition was solid granite with interspersed clay and then unforeseen water conditions and quicksand. This sort of programme is further useful because it sets out the contractor’s planned approach to the contract, the planned productivity rates and the contractor’s approach to executing the contract scope prior to the project commencement

46 Ibid. at ftn 39.

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date showing the planned productivity rates for all types of work, which is considered also the non-impacted benchmark for any future claim.47 Normally, preparation of the baseline programme starts with the identification of the activities required to execute the work in accordance with the project work breakdown structure and contract plan and specification. Once all activities have been defined, the interrelationships between the activities should be determined in accordance with the sequence of work and construction logic in order to finish the work by the contract completion date. The number of activities and interrelationships depends on the level of detail required by the contract documents and increases based on the complexity of the project. Once the baseline programme is established the person preparing it should allocate durations of time necessary to complete each activity shown as well as the need to consider quantities, contractor’s norms, availability and quality of manpower, machinery resources, weather conditions and site conditions along with any other constraints. Generally, the individual doing this early determination will ensure that all resources would be loaded and allocated to their relevant activities in terms of man-hours, machine-hours and costs in order to produce the overall manpower and machinery histograms that show the total planned number required to perform the contract scope over the contract period. This first step in doing the baseline programme also helps to establish the “nonimpacted” benchmark which can and will be used to compare with future claims; this is a good way forward as it will be a “non-impacted benchmark” which can then later be used to compare with what actually took place and, thus, help analyse any future claims for delay, acceleration or disruption. After time estimation and loading the resources, the mathematical calculation using the Critical Path Method (CPM) will be conducted to determine the chain of interrelated activities through the network from the project start to its completion date, and as this is discussed in detail later in this book it is not necessary to be delved into deeply at this point. Additionally helpful is the fact that both the early dates and the critical path will be defined during forward calculation while the late dates and floats will be calculated during the backward calculation.48 It should be remembered here that the planning team normally conducts this process many times because the completion date derived from the first run may not meet the contract completion date; thus, the planning team is tasked with additionally recalculating the durations of the critical path activities and, accordingly, the related resources in order to obtain the required date. Who Owns the Float? Float, as discussed previously, is an additional period allowed for in a contractor’s programme beyond that needed for any activity before the next critical activity. The Society of Construction Law Delay Protocol defines float as “the time available for an activity in addition to its planned duration”.49 The reason why ownership of the “float” is important is because if the contractor owns the float, it may use it to absorb the delaying effects of 47 Ibid. 48 Ibid. 49 Ibid.

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another event that does not entitle it to an extension of time under the contract. But if the employer owns the float, the contract administrator may use it to reduce the extension of time that would otherwise have been due to the contractor. Finally if the project owns the float, the contractor or the employer may use it to absorb the delaying effects of an event on a “first come, first served basis”. And that is why the arguments break out in EOT claims during the extension of time claims review process – “which party owns the float?” The contractor will, of course, argue that it owns the float because the contractor is the producer of the programme, and this reflects how the contractor will carry out the work with a sequence that allows the contractor to maximize the utilization of resources. The contractor always gives itself flexibility in the event that the contractor is not able to perform the work as planned assuming a certain degree of risk.50 Float also allows the contractor re-sequencing of the network to mitigate any delays and also the level of its resources. In the case of any delay to the contractor’s progress for reasons attributable to the employer, the contractor may argue that it is entitled to an EOT even if the delay will not delay the contract completion date on the basis that the float has been consumed due to the employer’s risk events. Unfortunately for the contractor when this situation develops, the contractor’s point will be denied due to the fact that no EOT will be considered unless the project completion date has been delayed.51 But just as usually it is the employer who claims to own the float, the employer may argue that as “they” own the project, it also must own the float, and, therefore, the contractor is not entitled to any EOT unless the employer risk events delayed the contract completion date; on the basis of that, the employer or the project owns the float. If the contract is “silent” (not specifically identified within the clauses) on the float ownership and does not state clearly that the contractor owns the float, then the contractor has no case for EOT if the floats were utilised due the employer risk events.52 Logic, however, seems to dictate that in the absence of contractual provisions as to who owns the float, if the contract is silent on the float ownership, the float should be owned by the project to be shared by the employer and the contractor. This concept is a good one, and fairness leads to the conclusion that whomever (employer or contactor) needs it most should be able to use it to offset any delay. It should also be noted that the Society of Construction Law deals with this issue and states that if the employer uses part of the float first and the contractor suffered financially due to non-availability of the float when required, then the contractor may seek compensation – the float, in effect, is similar to currency. Therefore, it is crucial to the contractor that the contract states clearly who owns the float to avoid such argument. Who Owns the Float – Standard Form Contracts JCT contracts As discussed earlier under the JCT contracts an extension of time is granted for events causing delay to the contractual completion date. In Royal Brompton Hospital v Hammond,53 50 51 52 53

Ibid. Ibid. at ftn 39. Ibid. [2002] EWHC 2037.

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the court took the view that the project owns the float, when it held that contract wording meant that the contract administrator was bound to take any unused float into account, and stated that this is because of an extension of potential unfairness that this would cause to the contractor, in the event of an employer-caused delay taking place before a contractorcaused delay, and that in such circumstances the contract administrator should inform the contractor that if a contractor-caused delay subsequently occurs, it will be granted an extension of time not exceeding the period of the float. NEC3 contracts The NEC354 provides that the contractor is required to show on his programme the contractual date as being earlier than the contractual completion date, thus including terminal float. A delay to the completion date 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”. Thus, and the NEC Guidance Notes agree, this method of assessment means that any terminal float resulting from an early planned completion date will be preserved and, thus, it appears that the contractor owns the float under the NEC3. ICE contracts Here, the engineer is required to grant an interim extension if he considers that “the delay suffered fairly entitles the contractor to an extension of time for the substantial completion of the works” and to determine the overall extension “to which he considers the contractor is entitled in respect of the works”. Unfortunately, under this form of contract it is not possible to determine who owns the float. The best solution to any of these potential problem areas is for the parties to any contract to state clearly who owns the float and/or what happens to any float that accumulates. Baseline Programme Checklist When putting together its baseline programme, it is advisable for the contractor to develop a checklist to ensure that all has been covered and that the baseline programme “works” will be in a form acceptable to the employer. There are various checklists but one55 that is favoured by this author is as follows: 1. Confirm that all activities have at least one predecessor and one successor activity, i.e. there are no open ends. In addition, the programme should have only one start and one finish. Using a “start to start” relation only should be restricted and “finish to finish” relation should be used in parallel with “start to start” to close the loop; 2. Confirm there is at least one critical path which has a continuous chain of activities from start to completion;

54 The NEC3 is used here for ease of reference rather than the NEC4. 55 See e.g. ibid. at ftn 39.

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3. Confirm logic along the critical path, and near critical paths, is reasonable and feasible (based on information available at tender stage); 4. Confirm durations for all activities along critical and near-critical paths are reasonable; 5. Confirm floats are reasonable and there are no negative floats; 6. Confirm not using of the mandatory constraints because they are not flexible and their total floats are always zero; 7. Calculate the planned resources required to carry out the defined scope of work. In this process, the planned productivity rates will be used to calculate the planned man-hours required for each activity and accordingly calculate the number of resources in accordance with the following equations: (Based on current project) Man-hours required = Budget Quantity • Productivity Rate (MH/UOM) No. of resources per month = Man-hours required/260 While 260 are the total planned man-hours per month for each worker 260 = 26 working days per month – 10 working hours per day. 8. Confirm that all activities are loaded with planned resources to finish the activities within their allocated durations. The contractor should look at the crew resource table/profile and make sure that all required resources are available or could be secured on time. If the required resources are allocated to the programme without taking into account the availability of the resources, then this programme is not workable and reflects a plan of failure; 9. Confirm 100% of the contract scope is represented in the programme without additions or omissions; 10. Confirm that there are no delays, changes or intermediate milestones imposed by the employer incorporated to the baseline schedule that would not have been known at tender stage/contract documents; 11. Confirm all contractual milestones, constraints and sectional completion milestones are represented accurately in the programme; 12. Confirm appropriate working calendars have been assigned; 13. Confirm appropriate regional/national holidays are allowed for in the programme calendar; 14. Confirm all third party interfaces are well represented, with appropriate notification for statutory services, easements and rights of way; 15. Confirm employer’s review times are adequate and are compliant with the contract. Before any submission of the baseline programme to the employer, the contractor should also make sure that it is preceded by an explanatory introduction which covers how the baseline programme came to fruition and how it was put together plus a listing of key dates (intermediate milestones and/or sectional completion dates), productivity norms, work breakdown structure, assumptions used, major quantity histograms, manpower and machinery resource histograms, S-curves, etc.56 It is interesting to note that while the purpose of establishing a comprehensive baseline programme is to help prevent delay later in the project, actually getting approval from 56 Ibid.

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the engineer and/or employer can get delayed on its own, and the approval process itself can take up to several months to complete – hardly a speedy operation. If it’s an FIDIC contract that is being used it should be remembered that Sub-Clause 8.3 clearly states: Unless the Engineer, within 21 days after receiving a programme, gives notice to the contractor stating the extent to which it does not comply with the Contract, the contractor shall proceed in accordance with the programme, subject to his other obligations under the Contract. The Employer’s Personnel shall be entitled to rely upon the programme when planning their activities.

But caution is advised in just moving forward and “proceeding” without any actual approval. Should this situation exist, the contractor should be cautioned that its file should have copies of emails, requests, etc., showing that it had tried to obtain approval but to no avail before proceeding. At least this way there is a paper trail showing that the contractor tried to obtain approval but that it was the employer/engineer who “refused” to give it or was tardy in doing so – either of which was justification for proceeding and placing the employer in the situation of being estopped from denying the baseline programme. Also any initial delays that occur during this approval process are, at best, debatable and difficult to measure, and that is a second good reason to properly document any “inaction” on the part of the engineer/employer in approving the baseline programme. Programme updates In addition to the earlier section of FIDIC (1999 Edition) Sub-Clause 8.3 listed previously, it is good to remember that the full Sub-Clause 8.3 goes into quite a lot of detail as to what is required and when in terms of updating the programme; for example, under the Red Book, it states (in full): 8.3 Programme The Contractor shall submit a detailed time programme to the Engineer within 28 days after receiving the notice under Sub-Clause 8.1 [Commencement of Works]. The Contractor shall also submit a revised programme whenever the previous programme is inconsistent with actual progress or with the Contractor’s obligations. Each programme shall include: (a)

the order in which the Contractor intends to carry out the Works, including the anticipated timing of each stage of design (if any), Contractor’s Documents, procurement, manufacture of Plant, delivery to Site, construction, erection and testing, (b) each of these stages for work by each nominated Subcontractor (as defined in Clause 5 [Nominated Subcontractors]), (c) the sequence and timing of inspections and tests specified in the Contract, and (d) a supporting report which includes: (i)

a general description of the methods which the Contractor intends to adopt, and of the major stages, in the execution of the Works, and (ii) details showing the Contractor’s reasonable estimate of the number of each class of Contractor’s Personnel and of each type of Contractor’s Equipment, required on the Site for each major stage.

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Unless the Engineer, within 21 days after receiving a programme, gives notice to the Contractor stating the extent to which it does not comply with the Contract, the Contractor shall proceed in accordance with the programme, subject to his other obligations under the Contract. The Employer’s Personnel shall be entitled to rely upon the programme when planning their activities. The Contractor shall promptly give notice to the Engineer of specific probable future events or circumstances which may adversely affect the work, increase the Contract Price or delay the execution of the Works. The Engineer may require the Contractor to submit an estimate of the anticipated effect of the future event or circumstances, and/or a proposal under Sub-Clause 13.3 [Variation Procedure]. If, at any time, the Engineer gives notice to the Contractor that a programme fails (to the extent stated) to comply with the Contract or to be consistent with actual progress and the Contractor’s stated intentions, the Contractor shall submit a revised programme to the Engineer in accordance with this Sub-Clause.

It should be clear that under FIDIC, the project programme needs to be updated on a regular basis, and, of course, this only ultimately helps the contractor if and when any delay claim is brought for an EOT, and, of course, any failure by the contractor to provide proper programme updates can result in any delay/disruption claim being declined by the employer – and with good reason. This updating can be either done to a schedule or revised whenever required, in accordance with the frequency stated in the contract documents, to reflect the changing site conditions, etc. Delays to the engineering and procurement deliverables including any changes and their impacts on the critical and near-critical paths of the project must be included; otherwise the project programme will be outdated and misleading to all stakeholders.57 The reasons and purposes of programme updates are varied, but one list favoured by this author includes the following:58 1. To determine the actual physical progress achieved compared to planned; 2. Provide a complete and accurate report to the actual progress compared with the original plan; 3. It is often a contract requirement and may be required for payment purposes (in case of lump sum price contracts); 4. It identifies the changes to the critical path and identifies out-of-sequence activities, which may require an adjustment to the plan for completing the remaining work; and 5. Predict a more accurate completion date as of the date the project status is measured. The benefits of doing all this are simple and necessary – to keep a record of all the parties in the project (e.g. the engineer, employer, the contractor, subcontractors and all the others working on the project) and to monitor their ability to perform per the contract. It is this provision of an ongoing record recorded at or near the time the event occurred that is invaluable for any future claims and can also be used by the contractor as a defense to any claims brought against it. In addition, is the fact that the programme updates should consider the impact of any disruption event which affects the efficiency of the resources 57 Ibid. 58 Ibid.

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required to complete the work and, thus, increases the duration of the affected activity or group of activities due to such disruption.59 A reliable programme update will give the project management the opportunity to assess the impact of changes or unforeseen events and implement timely remedial measures if required in order to mitigate/avoid the impact of such changes or unforeseen events. When documenting a project’s history, a delay analysis could be easily performed to identify the causes of delays, measure the contribution of each party to such delay, and, accordingly, the impacts can be calculated. When updated properly, the final updated schedules can be relied upon as an As-built schedule and as noted by many writers:60 If the anticipated completion date becomes shifted beyond the contract completion date after completing the programme update due to the contractor’s risk events, then the contractor is responsible to take all necessary actions to bring back the completion date to the contract completion date. In case of contractor’s failure to mitigate its delays, such delay is not compensable and the contractor will be subjected to penalties or liquidated damages unless the contractor’s delays occur concurrently with the employer’s delay.

In all cases, the contractor is obligated to mitigate the impact of any risk event regardless of the owner of the risk events and show what actions have been taken to mitigate such delays.61 Changes to the Baseline Programme – Revisions With any construction and in particular with NPP or similar mega-projects, the course of construction may span 10+ years and, of course, during this time numerous changes, revisions, variations and such will occur, and it is of utmost importance that the original baseline programme is kept current incorporating all such revisions as well as mitigation measures. There is no set interval for making revisions to the baseline programme, but it is good practice to establish at the start an ongoing schedule, whether or not any revisions are necessary. Thus, if a revision schedule of, say, every 30 days is established, and in any given period there are no revisions then noted – at a minimum it sets the record keeping routine and allows third parties, such as the Dispute Board, adjudicator or court, to look back and understand the nature and scope of any revisions and when they occurred (i.e. within any given 30-day period of time). It must be remembered that changes to the baseline programme do not automatically mean that the time for completion changes, and in many cases, due to mitigation, it will remain the same. Indeed, if the date for completion remains the same, the revised baseline programme will normally be approved by the engineer/employer and in the process will benchmark the revisions/changes and other elements at a new specific point in time – most useful should there be any intervening claims for an EOT – and will, of course, assist in proving progress schedules and related construction project time/materials/progress accounting.

59 Ibid. 60 E.g. see ftn 39. 61 Ibid.

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The problem arises, however, when the date for completion in a revised baseline programme goes beyond the original agreed date for completion. As is generally noted:62 if the project completion date extends beyond the contractual completion date, the revised programme will not be approved by the engineer/employer until the related extension of time claim is approved. The engineer could give conditional approval only for progress monitoring purpose or sometimes delay the approval requesting additional information and substantiations. In general, the approval of extension of time claim by the employer is a very time consuming process and normally takes four to six months and sometimes the extension of time will be granted only at the time of expiry of the original contractual completion date. During this time, there is no approved revised program to monitor the delays although the revised program is being updated only to monitor the progress. Hence any analysis of delays in the extension of time submittals becomes debatable…. The contractor will face problems in obtaining the extension of time in this process.

One way to avoid difficulty and to “un-confuse” the actual measuring of any real delay during this period of waiting for approval is to “update the baseline programs simultaneously” in the case that revised programs are approved for progress monitoring purposes only. Many writers,63 including this one, agree that the contractor should submit the baseline and revised program updates to the employer or his representative to see exactly how the delays are affecting the project execution. Although it is difficult to measure the delays on the baseline program updates (when there is revised program in force with current logic and sequence of work), this will help the contractor to ease out some of the problems until the revised programs are approved.64

Identifying and Quantifying the delays to the programme updates The use of Time Impact Analysis, discussed in other chapters, helps the contractor to determine the impact of any change to the programme and is done through the use of “fragnets”, which are defined as “a sequence of new activity or activities that are proposed to be added to the existing programme to demonstrate the influence of delay and also the method for incorporating delay and any impacts into the schedule”.65 Fragnets are generally used to determine the impact of each risk event on the overall project schedule and, as a result, to be able to calculate the “time relationships” which are associated with each risk event in view of any current and/or previous delay, and they play a major role in assisting the contractor in proving its case should the need arise and in particular being able to link causation with liability and, ultimately, with actual damages incurred. The time impact analysis usually includes the current updated schedule, excusable delays for which time extensions may still be pending, job conditions encountered, the progress achieved up to the point in time when the present delay occurs and the mitigation action taken by the contractor. The analysis should also include the pertinent facts associated with

62 Ibid. 63 Ibid. 64 Ibid. 65 See e.g. Robert F. Cushman, John D. Carter, Paul J. Gorman and Douglas F. Coppi (2001), Proving and Pricing Construction Claims 3rd Edition, Wolters Kluwer Law & Business Publishers.

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the proof required to support the delay issue;66 various writers have proposed checklists, and the preferred one67 is as follows: 1. Study the scope of the change/risk event and the extent of the delay encountered. 2. Issue a notice of delay to the employer once the contractor comes to know about the change/risk event. Submittal of such notice(s) should be within the allowed period stipulated in the contract clauses. 3. Review all reference materials, such as appropriate contract clauses, construction drawings, sketches, specifications, vendor data, regulatory and administrative codes, field directives, correspondence and cost estimates. 4. Prepare an accurate description of the changed condition or the delay encountered. 5. Identify the contracting parties who are responsible for such change/risk event. 6. Identify all contracting parties who are affected by the direct or indirect delay and request any participation or documentation assistance that may be necessary. 7. All verbal instructions or instructions received via emails should be recorded and confirmed by the employer in writing. 8. Determine which activity or activities on the project programme is/are potentially impacted by the added, delayed, changed work or any other risk event. 9. Review the programme and determine the scheduled start and finish dates for all affected activities. 10. Establish the record-keeping systems and form contacts with key project staff and identify and document the facts associated with the change and/or delay issue. 11. Update the project programme as of the date just before the change or the risk event. In case of any delay exercised due to the contractor’s risk event(s), the contractor is obliged to recover such delay totally or partially if possible. The contractor should describe in detail the action taken to mitigate or recover its delays. 12. Prepare a fragnet analysis illustrating the sequence of delay and define its relationship to the current adjusted schedule. The fragnet should identify the first notice involved and the sequence of activities necessary to mobilise the required work, and it should clearly demonstrate the effect or lack of effect of the expected delay on the existing programme and the remaining activities required to be performed. 13. Prepare a written narrative of the overall programme analysis and derive a time impact position to be taken for each delay. Factual references to contract clauses, programme information, drawings, specifications, sketches, industry standards, minutes of meetings, technical queries and any written or oral communications should be properly identified to support positions and ultimate conclusions. Weekends, holidays and any recovery periods involved in the calculations should be noted. 14. Monitor three categories of activities: critical path (because those are the activities that will directly cause delay), near-critical path (because those are the activities that will be critical and will be delayed in the next period) and noncritical path (because those are the activities that will stack up at the end of the job

66 Ibid. 67 Ibid.

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and will negatively impact the costs and quality at the same time). Therefore, the impact of the change on the use or absorption of available float for the non-critical activities should be analysed and reported with each programme update. This will give an early notice that another path is near-critical and another delay is expected. 15. Make sure that any extension of time for excusable delay is the direct result of the change or delay and not for any non-excusable cause. 16. Formal documentation of each situation is encouraged. This can be accomplished by preparing a written time impact analysis to support each change order proposal and time extension request. Categorisation of Delay As mentioned in other chapters, “delay” can be categorised as “excusable, non-excusable, compensable and non-compensable”, with excusable and compensable delays being those that are the result of risk events which are attributable to the employer and beyond the contractor’s control. If a delay event cannot be shown to be excusable, it will be deemed non-excusable, and if a delay event cannot be shown to be compensable, it will be deemed non-compensable by default.68 The burden of proof of any of these flows to the contractor for proving that the excusable and compensable delays occurred, and this is done through use of the critical path analysis. In order for the delay to be excusable and compensable, the contractor has to prove the following:69 1. Delay is not attributable to events within its control and is fully attributable to the employer risk events. 2. None of its own delay was ongoing concurrently with the delay events being relied upon. If the contractor proved that the exercised delay was due the employer risk event but there was concurrent delay due to the contractor’s risk event, then the delay will be excusable but non-compensable, and the contractor is entitled to an extension of time without compensation. If the contractor can segregate the portion of the excusable delay from that which is not, then the contractor is entitled to an extension of time with partial compensation for the portion of the excusable delay only – this concept is covered in further detail in other chapters. Risk Events versus Delay Risk events can be classified into two categories – contractor risk events and employer risk events. Generally, risk events remain just that until it is determined to whom the allocation belongs, and one needs to review the underlying contract to determine the actual definition of the risk event and its ultimate allocation – remembering that until such time as any risk event actually causes delay or will cause delay, it remains just that – a risk event.

68 Ibid. at ftn 59. 69 Ibid.

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An example that is often cited is that a lump sum price and EPC contracts have the highest risks to the contractor and the lowest risks to the employer while remeasured contracts have the lowest risks to the contractor and the highest risks to the employer.70 Generally, it is agreed that the contractor’s risk events are limited to the following:71 1. 2. 3. 4. 5. 6. 7. 8. 9.

Wrong assumptions Poor planning Unrealistic activity duration or interrelationships Low productivity of resources Lack of manpower and machinery resources Poor quality of work (extensive remedies) Commitment to HSE requirement Financial issues Late delivery of the required materials

All of the preceding qualify as contractor risk events, the delay caused by which are non-excusable and also non-compensable; further, the delay caused by any of these results in the contractor being responsible to the employer in damages (liquidated or other) as specified in the contract. Further on this, the employer’s risk events in general are the following:72 1. Delay in handing over the job site; 2. Use or occupation by the employer of any part of the permanent works, except as may be specified in the contract; 3. Different physical conditions from those provided during the tender stage; 4. Changes to the original contract scope; 5. Late engineering deliverable; 6. Late procurement deliverables; 7. Frequent revisions for engineering deliverable; 8. Delay in approval above the contractual allowance; 9. Delay in payment; 10. Out of sequence for engineering and procurement deliverables; 11. Suspension of the work; 12. Adverse weather conditions; 13. Changes to project specifications; 14. Force majeure (war, hostilities, invasion, act of foreign enemies’ revolution, terrorism, sabotage by persons other than the contractor’s personnel, civil war within the country, etc.); and 15. Existing underground utilities, which are not shown in the As-built drawing received by the contractor during the tender stage. From the contractor’s standpoint the preceding causes of delay, being the responsibility of the employer, are both excusable and compensable delays – if possible, the contractor

70 Ibid. 71 Ibid. 72 Ibid.

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would need to attempt to mitigate or actually mitigate any resulting impact to the schedule/ programme caused by such employer risk events. Documenting delays It should not be forgotten that it is incumbent on the contractor to fully document both the cause of any delay and also the details, and that this is done at or near the time of the occurrence. As one writer73 has noted: On any complex/mega scale project, there are frequent multiple potential causes of delay to be investigated which can number in the hundreds and occasionally thousands. For each potential delay event a “delay notice” should be prepared and submitted to the employer within the time stipulated in the contract documents. The delay notice should provide all relevant information related to each delay event, which are: 1. 2. 3. 4. 5. 6. 7.

Employer request for change if any; Detailed description of the change and the quantities related to such change; Related drawings and specification; All correspondence (letters, transmittals, technical queries); Relevant contract clauses; and Time impact analysis performed to quantify the impact of such delay. Estimated cost impact if any.

Each project should also maintain a “delay register” which covers all delays as incurred and no matter the size but, most importantly, ones that may have contributed to the causation of the critical delay which took place – again, fully documented and copied to the employer as a means of ensuring that proper notification has gone out, which lessens later complications and arguments of “not knowing” or “not saying” that something was critical to the schedule. An adjunct to this is maintaining an ongoing register of “early warning notices”, which have been discussed earlier. Concurrent Delay Concurrent delay is covered in detail in other chapters, but for purposes of discussing EOT situations here, it should be remembered that whether such delays are excusable and compensable depends on the terms of the contract, the cause of the delay, the timing and duration of the delay, the party or parties responsible for the delays and the availability of float (contingency time in critical path analysis that allows the noncritical activity or activities to be delayed beyond their planned date without impacting the project completion date).74 The situations in which concurrent delay can occur are as follows: • Simultaneous Delay – where two separate delays, one by the employer and the other by the contractor, simultaneously delay an activity on the critical path and, as a result, impact the project;

73 Ibid. 74 Ibid.

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• Two-Step Delay – where one party is being delayed by another party in two separate situations (different paths or activities) at the same time, and both delays affect the overall completion of the project;75 • Interface Delay – where in projects involving multiple prime contractors with three+ different parties, the “interface contractors” cause delays that occur at the same time, and each delay has some impact on the overall project completion date. As discussed in other chapters, in all cases of concurrent delay, the contractor is entitled to an EOT, but any additional compensation will be denied unless the contractor can segregate the portion of its delays from those that are attributable to the employer risk events. Records Maintaining good, accurate and timely records, both electronic and hard copies, is the real foundation of any delay claim. The types of such records include but are not limited to: the contractor estimate, details of the contractor costing system and cost reports, internal reports to management, ad hoc studies and reports on profit and loss, time sheets, bonus records, progress records and reports, programme updates, payment applications and any other records which provide details of labor hours expended and/or progress achieved.76 Needless to say, such record keeping is essential not only to the contractor but also to the employer, as many disputes can be prevented by each side having the ability to review all of the proper documentation regarding a claim and sort out any issues preventing resolution. Further, as discussed previously, the contractor is always required, under the contract clauses, to notify the employer of its intention to make a claim for time and/or money within a certain period defined in the contract. Failure by the contractor to abide by the contract requirements for notification results in the entitlement to the claim being declined. Also, the contractor has to submit all documents and records that support its claim for time and/or money.77 The documents and records required to develop a properly substantiated claim are shown in Table 11. The Approval Process The ultimate question becomes whether or not the contractor has a claim for both EOT and related prolongation costs. Some are of the view that both should be submitted at the same time and processed concurrently. Other writers, including this one, feel that it is best to separate the two into separate claims which allows the employer/engineer to deal with each separately from a time standpoint. Thus, the employer/engineer can make a determination on the time issue in relatively short order but then spend its time sorting out the attendant costs – which in reality is exactly what happens, so rather than having to wait (for what seems like forever) on a combined EOT and Prolongation Costs claim, splitting the two at least allows the contractor to move forward with the schedule knowing one way 75 Ibid. 76 Ibid. 77 Ibid.

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Table 11.1 List of required records to establish a properly substantiated claim Record Description

Frequency

1.

Baseline Schedule

Once in the project life cycle. Should be submitted within a certain period from the project effective date.

2.

Method of construction identifies the works that are intended to be executed by subcontractors.

To be submitted with the baseline schedule. Also, should be updated and submitted with any new schedule revision.

3.

Planned manpower and machinery resources

To be submitted with the Baseline schedule and its revisions.

4.

Programme updates

Could be weekly or monthly based on the contract requirements. (*)

5.

Notices for delay

Once the contractor knows about the event and within a certain period as stipulated in the contract documents. Should be prepared for each event.

6.

Programme revisions indicating changes and their required resources and the impact on the contract completion date

In case of major changes or the current programme becomes outdated or misleading.

7.

Delay analysis

With each programme update. It is recommended to be done weekly.

8.

Time impact analysis showing the potential impact of the changes prior to carrying out the changes

Once the contractor knows about the event. Should be done for each delay event.

9.

Cause and effect analysis for each delay/disruption event

Once the contractor knows about the event. Should be done for each delay event.

10.

Productivity analysis reports

Weekly

11.

Minutes of the daily and weekly meetings

Upon request

12.

Minutes of any special meeting

Upon request

13.

Change of work notices

Within certain period, as defined in the contract, from the date that contractor came to know about the change.

14.

Daily progress reports

Daily

15.

Weekly progress reports

Weekly

16.

Monthly progress reports

Monthly

17.

Claim register

Monthly

18.

Delay events log

Monthly

(*) It is recommended for the contractor to perform the schedule updates on a weekly basis even when the contract requires monthly updates. This will allow the contractor to keep a highly accurate history that would enable the contractor to prepare a well-supported claim.

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or the other where it stands regarding completion and the EOT. If the delay on sorting out costs becomes interminable, the contractor can always resort to the Dispute Board, assuming that the contract provides for same to get satisfaction. One suggested approach78 is for the contractor to submit the extension of time claim first with a notification that the related prolongation cost claim will be submitted once the EOT claim is approved. The critical issue for the contractor is the prevention of damages or penalties.

78 Ibid.

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C H A P T E R 12

Constructive Acceleration

In addition to the delay claims previously discussed, the doctrine of “constructive acceleration” in simple terms states that if an employer causes delay but refuses to grant an extension of time for it, and the contractor accelerates to win back the lost time, the refusal of the employer (or its agent, i.e. the contract administrator, etc.) is treated as a constructive instruction to accelerate, for which the contractor is entitled to compensation under the contract. This “doctrine” is in use in the United States (mainly) and has been applied in Canada1 also. “Constructive” refers to something that is inferred or implied and in construction projects it is usually inferred from an implied instruction by the Employer or its representative. Thus if the contract administrator does not recognise or agree to an Extension of Time but yet requires the contractor to accelerate to meet the schedule to offset any delay this could be considered as constructive acceleration.

Indeed, in the UK the Society of Construction Law defines it as: Acceleration following failure by the Employer to recognise that the Contractor has encountered Employer Delay for which it is entitled to an EOT and which failure required the Contractor to accelerate its progress in order to complete the works by the prevailing contract completion date. This situation may be brought about by the Employer’s denial of a valid request for an EOT or by the Employer’s late granting of an EOT.

Thus, the need for an instruction either actual or implied by the circumstances from the Employer or its representative for this doctrine to actually work, and it is usually found in any of the following situations:2 • The Employer3 feels that the Contractor is behind schedule and issues a written or oral direction(s) to complete the work earlier than would be required if an appropriate EOT was issued; or • The Contractor is entitled to an EOT, but the Employer denies same and threatens the imposition of liquidated and ascertained damages (LADs) and/or termination because the Employer claims that the Contractor is behind schedule; or 1 See e.g. Morrison Knudsen v V British Columbia Hydro (No 2) (1978) 85 DLR (3d) 186 (BC Ct App). 2 See e.g. Derek Nelson, What Is Constructive about Acceleration Copyright 2013, Hill International, April 2013, www.hillintl.com/PDFs/What%20is%20Constructive%20about%20Acceleration%20(DN).pdf. 3 Employer includes its representative e.g. the Contract Administrator.

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• The Contractor requests and is entitled to an EOT, yet the Employer denies or fails to grant the extension in a timely manner. The Requirements For such acceleration claims to be successful, two basic legal requirements must be met: there must be a fixed period within which the work must be completed, i.e. the contract must have a specific finish date for without this specific date it will be impossible to show exactly what amount of acceleration was being accomplished, and then it must allow for an EOT for if there is no EOT allowed under the contract, then it was incumbent on the contractor to have included any claimed acceleration in its tender. Normally the obligation to accelerate often arises from an express power bestowed upon the developer by provisions in the contract. However, absent contractor’s culpable delay, this provision does not allow directed acceleration in circumstances where the developer simply wishes to use the project prior to the contract completion date. Whilst there may be “value engineering” provisions which accommodate proposals for expedited completion (as referred to earlier), commonly, these provisions grant the contractor a right, not an obligation, to do so.4 This situation is further compounded by the fact that commonly, construction contracts mandate that the contractor shall accelerate if and when directed by the employer (see for example, Sub-Clause 8.6 of the FIDIC 1999 Red Book). Accordingly if the contractor is delayed in completion due to its fault, then the Employer can with justification and the backing of the contract request acceleration with the result being that the contractor will not be entitled to any recovery of its costs in getting back on schedule. The exception is if the contractor is not then given a reasonable opportunity to perform to an accelerated schedule, such as where permission to work outside certain working hours is unreasonably withheld or delayed.5 Then as to what is known as “directed acceleration”, some contracts contain general “default curing” provisions, which empower the Employer to direct acceleration where the contractor is in culpable delay. Under such provisions, the contractor who is directed (in accordance with the relevant power) to accelerate is legally obligated to do so? however without this “express power”, the contractor has no duty at all to accelerate and may refuse any request by the Employer to accelerate.6 Generally, a limitation of the time within which the contractor is to do the work means not only that he is to do it within that time, but it means also that he is to have that time within which to do it. Indeed, in some circumstances, an order to accelerate may be a breach of contract. So, without a clause permitting directed acceleration, before the contractor becomes obligated to accelerate, the [Employer] must negotiate a new agreement satisfactory to the contractor which provides for payment to the contractor for the additional performance costs caused by the acceleration.7

Of interest is the fact that this 4 See e.g. Nicholas Brown, Contractor’s Legal Guidance Note Autumn 2009 Edition, © Pinsent Masons, 2009, www.pinsentmasons.com/PDF/CLGNSpring10Eng.pdf. 5 Ibid. 6 Ibid. 7 Ibid.

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new agreement need not be negotiated comprehensively or formally perfected in order for it to establish the contractor’s right to payment if the essential elements of a contract (including the authority of the person making the request on behalf of the [Employer]) are otherwise present in the request to accelerate and the contractor’s response to that request.8

Constructive Acceleration In addition to the power of the Employer to direct acceleration, there is the other side which arises when the Employer is asked for an EOT by the Contractor and the Employer refuses. It is in this failure to grant an EOT that the concept of constructive acceleration occurs, especially when the contractor makes the decision to accelerate rather than wait for litigation to arise over any claim of delay on the contractor’s part in the completion of the works. Constructive acceleration generally can be found in construction projects where the contractor is affected in its progress by “excusable” delay, i.e. delay not caused by the contractor, and this is generally given to mean design changes, added scope, unusually severe weather, differing site conditions, acts of God or employer-caused delays. As a result the contractor is entitled to an EOT equivalent to the time of excusable delay as evidenced by an analysis of the impact on the critical path of the CPM schedule, and when this EOT is not granted, the contractor is constructively accelerated. After this occurs it falls on the contractor to determine if it does nothing or if instead it accelerates its performance to meet the contractually required completion date. If the contractor accelerates its performance, it may be entitled to recover damages based on a theory of constructive acceleration. One must be careful to differentiate constructive acceleration from “voluntary acceleration”, which occurs when a contractor unilaterally decides to accelerate its own work, and in this situation, unlike directed acceleration or constructive acceleration, a contractor is not entitled to damages as a result. A contractor may voluntarily accelerate its work out of necessity,9 i.e. to make up lost time for the contractor’s own delays or to complete its own work, but the costs of doing so do not fall to the detriment of the Employer. To be safe the contractor should make sure that the Employer’s (or its representative’s) directions actually are express directions to accelerate, and a written confirmation can be very helpful ultimately when trying to prove that the acceleration was directed rather than voluntary. And as part of the process, such claims by the contractor must establish a factual basis showing that acceleration was either directed or constructively required under the circumstances. As has been noted: “A mere request by the [Employer] or construction manager for additional information on a requested time extension or for an updated CPM schedule is not an order to accelerate”.10 However in proving the case for the contractor, one should look for “key words that are associated with acceleration [which] include overtime, extra shift, longer work day/week, schedule change, early completion, denial of time extension, insufficient time extension, excusable delay, work efficiency, slow down order, and speed up”.11 8 Ibid. 9 See e.g. Accelerating Claims on Engineering and Construction Projects by Richard J. Long, P.E. Copyright © 2016 Long International, https://www.long-intl.com/wp-content/uploads/2020/07/Long_Intl_Acceleration_ Claims_on_Eng_and_Constr_Projects.pdf. 10 Ibid. 11 Ibid.

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There is another situation which is the reverse of acceleration, and that is “deceleration”, which can also occur, and this is where the contractor is directed in writing or constructively to slow its job progress. Many of the same considerations that apply to acceleration are also applicable to deceleration. If overall project delay results from deceleration, the contractor’s extended overhead costs may be recoverable.12 As mentioned earlier the concept of constructive acceleration is mainly used in the USA and on occasion in Canada. In other parts of the Common Law world, such concepts are not as widespread, and in the UK contracts typically contain clauses whereby the contractor is entitled to compensation under the contract for disruption that might or might not delay the contract completion. These clauses will typically allow the contractor to recover acceleration costs under the contract where it has accelerated to overcome an employer-caused delay, and accordingly there is thus no need for the concept of constructive acceleration. In the other Common Law country of Australia, their standard form AS4000 does not contain a disruption clause. The contractor is entitled to delay damages under Clause 34.9 only for “every day the subject of an EOT for a compensable cause”. So, prima facie, no delay, no damages under the contract. However, Clause 20 of AS4000 obliges the employer (Principal) to ensure that the certifier (Supervisor) fulfils all aspects of its role and functions reasonably and in good faith. Further, Pacific v Baxter13 does not hold the same sway in Australia as it might in England. The position is clearly set out in Multiplex Constructions Pty Ltd v SOR Pty Ltd and Woodhead International Pty Ltd [2000] SASC 414 by Duggan J: Mr Dal Cin submitted that the principal in a construction contract would not be liable for the negligence of a superintendent acting in his capacity as a certifier. He referred to Hudson’s Building and Engineering Contracts…. The learned author of Hudson relies on Pacific Associates v Baxter for this proposition. In my view this is stating the matter too broadly. In P & E Phontos Pty Ltd v McConnell Smith & Johnson Pty Ltd (1993) 9 BCL 259 Cole J expressed the view that the decision in Pacific Associates turned on the particular circumstances of that case and that the court should approach each case in which negligence is alleged by considering the particular circumstances said to establish a duty of care. Cole J was of the view that in the imprecise area of the law of negligence the burden upon an applicant seeking to strike out a summons is greater because of the developing nature of the concept of duty of care…. Nor do I agree with Mr Dal Cin’s argument that the contractual relationship necessarily excludes the existence of a duty of care. In my view the pleadings disclose arguable cause of action against SOR based on a breach of duty of care.

And accordingly, there may be a parallel liability in tort, and thus if the certifier (Superintendent) unreasonably or negligently fails to grant an extension of time, the 12 Ibid. 13 Historically, commentators widely believed that a contract administrator did owe a duty of care to a contractor. However, the Court of Appeal rejected that proposition in Pacific Associates v Baxter [1988] 44 BLR 33, where it held that an engineer did not owe a contractor a duty of care in negligence when certifying payment. While this case is controversial, it is the leading authority on this area of the law. The decision in Pacific Associates has been criticised by some commentators, who suggest that it was based on its own facts and would not be followed today. The Court of Appeal itself acknowledged this, saying that each case turned on its own facts and the role of the contract administrator in a particular project. This may open the door for Pacific Associates to be distinguished in future cases. Despite this, the courts have followed Pacific Associates. For example, in Leon Engineering & Construction Co Ltd v KA DUK Investment Co Ltd (1989) 47 BLR 139, the court dismissed a contractor’s application to make the contract administrator a second defendant to proceedings.

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employer may be liable for damages if there a sufficient causative link between the breach (delay/failure in certification) and the loss (the cost of acceleration).14 The more entertaining rule which applies in such situations and in particular in Australia is the rule of mitigation, which one particularly clever writer15 stated as: A plumber fails to seal a pipe, which starts to leak. The owner sees the leak. He knows or ought to know that if he does nothing to catch the drips, the leaked water will bring his ceiling down. The three rules apply as follows: Rule 1: The owner must put a bucket under the leak. Rule 2: If he does so, such that the ceiling is not damaged, he cannot recover the cost of repairing the ceiling that would have arisen but for placement of the bucket. Rule 3: If he had to go out and buy a bucket from the corner shop, he can recover the cost of the bucket. Under this head, he can recover the cost of a reasonable attempt to mitigate, regardless of whether the attempt proves successful; or not. It is under this third rule – that the innocent party can recover the cost of reasonable attempts to mitigate (whether they are successful or not) – that a contractor can probably claim the cost of the acceleration.

The Courts in the UK and the USA In the USA the Courts, in trying to determine if acceleration has occurred either due to a directed order from the Employer or due to constructive acceleration (or voluntary acceleration), examine five key elements16 to determine if a contractor’s work has been accelerated: 1. Excusable Delay: The contractor has encountered delays determined to be unforeseeable and beyond its control for which it is entitled to a time extension. 2. Request for Time Extension: The contractor specifically requested a time extension from the owner or construction manager according to the contract provisions and in a timely manner. 3. Denial of Time Extension: The owner or construction manager issued an order denying the contractor’s request. 4. Acceleration Order: The owner’s or construction manager’s expressed or implied actions directed the contractor to overcome the delay and complete the work within the original performance period. 5. Incurred Costs: The contractor must demonstrate that it attempted to accelerate performance and, in doing so, incurred increased costs or damages due to the accelerated performance effort. If these elements are proven, the contractor may be entitled to recover the costs that it incurred in accelerating its performance if it can demonstrate its costs.17

14 The Law of Mitigation and Constructive Acceleration © 2016 Fenwick Elliott Grace http://feg.com.au/ construction-law/legal-notes/the-law-of-mitigation-and-constructive-acceleration/. 15 Ibid. 16 Ibid. at ftn 9. 17 See e.g. M.S.I. Corp., GSBCA 2429, 68–2 BCA ¶ 7377. Also see Norair Eng’g Corp. v United States, 666 F.2d 546 (Ct. C1. 1981), where the court held that for an acceleration claim to be successful the contractor must

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As one writer put it 18

if the contractor wants to hold the owner or construction manager liable for the cost of the acceleration, the contractor should never accelerate without first requesting a time extension. If the contractor accelerates without first requesting a time extension, the [Employer] or construction manager may reply to the contractor’s request for payment of acceleration costs by saying that the contractor did not have to accelerate because the owner would have granted a time extension if the contractor had only asked. The [employer] or construction manager may refuse to pay the acceleration costs on the basis that the acceleration was unnecessary. After requesting a time extension but before accelerating, a contractor should notify the owner or construction manager that it will accelerate its work to attempt to overcome the owner’s or construction manager’s delays. This notice is extra insurance to prevent the [employer] or construction manager from later arguing that the acceleration was not necessary because it would have granted a time extension or that the owner thought the contractor was accelerating to compensate for its own delays. The [employer] or construction manager can respond to the request for time extension either by denying it or by ignoring it. If the [employer] or construction manager denies the time extension request, the contractor can accelerate to attempt to meet the un-extended completion date and claim acceleration costs against the owner or construction manager. If the [employer] or construction manager ignores the time extension request, the owner’s or construction manager’s silence is the equivalent of a denial because an [employer] or construction manager that does not extend the completion date is telling the contractor that the project must be completed by the un-extended date.

Further as has been noted by the courts regarding orders to accelerate, employers or construction managers should avoid statements or actions that may be considered an implied order to accelerate, since they incur the same legal consequences as a directed order to accelerate.19 Contractors must notify owners or construction managers in writing of their efforts to accelerate and demand a response. Compulsion to complete performance is a necessary component of acceleration. Acceleration performed absent an employer or construction manager directive may be deemed “volunteer” work, which is not compensable.20 Then as to the “fifth key element”, the key word is “attempted”.The current state of the law in the US is that the costs to be reimbursed are not related to the achievement of the original or, indeed, to any earlier-than-entitled completion date. The contractor only has to demonstrate that it attempted to accelerate and incurred increased costs as a result of its reasonable attempt.21 Thus, if a contractor fails to meet the original contract completion date but completes construction before a valid, adjusted contract completion date, it may still have a valid claim for constructive acceleration.22

establish three elements: (1) that an excusable delay had occurred; (2) the contractor was ordered to accelerate; and (3) the contractor had actually accelerated and incurred costs. 18 Ibid. at ftn 9. 19 See e.g. William Lagnion, ENGBCA 3778, 78–2 BCA ¶ 13,260. 20 See e.g. Superior Asphalt and Concrete Co., AGBCA No. 75–142, 77–2 BCA ¶ 12,851. 21 See e.g. Natkin & Co. v George A. Fuller Co., 347 F. Supp. 17 (W.D. Mo. 1972), reconsidered, 626 F. 2d 324 (8th Cir. 1980). 22 See e.g. Mobile Chem. Co. v Blount Bros. Corp., 809 F.2d 1175 (5th Cir. 1987).

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This concept is explained as follows: At the outset, it should be stated that the central purpose of the equitable adjustment for acceleration is no different than for any other change – to place the contractor in the same position he would have been in, had it not been for the acceleration order. There is no need to actually make up the time as long as the contractor uses reasonable judgment in incurring the costs. Hence, the inquiry is aimed at what costs were incurred rather than what was the result of the effort.23

In the UK whilst acceleration claims do exist, they are dealt with differently and are based upon issues of breach of contract with damages flowing from that breach, or as an alternative any increased costs are dealt with as issues of whether a variation should ensue or not. As described by one writer, constructive acceleration is a development of what, in any event, is a largely jurisdictional and fictitious doctrine of “constructive change orders” … developed by the Boards of Contract Appeals, and is not founded on any consensual or quasi-contractual basis which would be acceptable in English or Commonwealth Courts.24

This UK view is best shown in the Society of Construction Law’s approach, which is taken from its 2002 edition, which defined it as: Acceleration Where the contract provides for acceleration, payment for the acceleration should be based on the terms of the contract. Where the contract does not provide for acceleration but the Contractor and the Employer agree that accelerative measures should be undertaken, the basis of payment should be agreed before the acceleration is commenced. It is not recommended that a claim for so-called constructive acceleration be made. Instead, prior to any acceleration measures, steps should be taken by either party to have the dispute or difference about entitlement to EOT resolved in accordance with the dispute resolution procedures applicable to the contract. (see Guidance Section 1.18)25

And the new proposed Consultation Draft changes it slightly and provides: Where the contract provides for acceleration, payment for the acceleration should be based on the terms of the contract. Where the contract does not provide for acceleration but the Contractor and the Employer agree that accelerative measures should be undertaken, the basis of payment should be agreed before the acceleration is commenced. Where the Contractor is considering implementing acceleration measures to avoid the risk of liquidated damages as a result of not receiving an EOT that it considers is due, the Contractor should first take steps to have the dispute or difference about entitlement to an EOT resolved in accordance with the contract dispute resolution provisions (see Guidance Section 3.12).26

23 24 25 26

Nash, Ralph C. Jr., Government Contract Changes, ¶ 18–15, Federal Publications Inc., 1989. See e.g. Hudson’s Building and Engineering Contracts. Delay and Disruption Protocol, Society of Construction Law, Oxford, October 2002. Delay and Disruption Protocol, Consultation “Draft”, Society of Construction Law, Oxford, July 2016.

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Note that in the new consultation draft, the one sentence “It is not recommended that a claim for so-called constructive acceleration be made” has been removed. But both the original version and the new proposed consultation draft state: Where acceleration is instructed and/or agreed, the Contractor is not entitled to claim prolongation compensation for the period of Employer Delay avoided by the acceleration measures.

In dealing with the concept of constructive acceleration, the SCL (2002 version and the 2016 draft Consultation) defines it as: Acceleration following failure by the Employer to recognize that the Contractor has encountered Employer Delay for which it is entitled to an EOT and which failure required the Contractor to accelerate its progress in order to complete the works by the prevailing contract completion date. This situation may be brought about by the Employer’s denial of a valid request for an EOT or by the Employer’s late granting of an EOT.

With the added note at the end that “This is rarely recognised under English law”. In Motherwell Bridge Construction Limited v Micafil Vakuumtechnik,27 Micafil refused to grant a time extension to the contractor, Motherwell, who had incurred excusable delays. The contractor then accelerated by employing extra labour and working night shifts and claimed its acceleration costs. The court held that Micafil had refused to grant a time extension that Motherwell was entitled to receive, and thus Motherwell had accelerated. Motherwell proved that the works would have finished late but for the acceleration measures it employed. The court was satisfied that Motherwell notified Micafil of the actual and projected extra acceleration costs either prior to or at the time of taking the necessary measures, and accordingly the court held that Motherwell was entitled to its acceleration costs. And in Ascon Contracting Ltd. v Alfred McAlpine Construction Isle of Man Ltd.,28 McAlpine was the main contractor for building the new Villiers Building at the seafront in Douglas, Isle of Man, and Ascon was McAlpine’s reinforced concrete sub-contractor on the project. Under the sub-contract Ascon’s date for possession was 28 August 1996, and the completion date was 5 March 1997. According to Ascon, practical completion was achieved on 9 May 1997. According to McAlpine, it was achieved on 16 May 1997. No extension of time was granted by McAlpine. Ascon therefore brought claims for extensions amounting to 39 days for delays caused by water percolating into the foundations of the building prior to tanking and unavailability of the lift pit for working. Ascon also claimed for extra payment in relation to both causes of delay and acceleration costs to overcome the delay. McAlpine denied Ascon’s claims, arguing that the delays were Ascon’s responsibility, caused by Ascon’s failure to work in accordance with the detail of the main contract programme. McAlpine also counterclaimed for, inter alia, liquidated damages imposed on McAlpine by the Employer under the main contract. Ascon denied that it was obliged to follow in detail the main contract programme or that it was liable for liquidated damages imposed on McAlpine. 27 (2002) 81 Con LR 44; (220) CILL 1913. 28 (1999) 66 Con LR 119.

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The court then, in dealing with Ascon’s acceleration claim, stated that Ascon was not entitled to claim for both extensions of time and related loss and expense on the one hand and damages for expenses incurred in mitigating the effects of the delays. The court indicated that if it had been alleged and established that Ascon had taken measures to mitigate delays which were reasonable but ineffective, then these might have formed the subject of a claim for damages and then stated as a matter of principle that: It is difficult to see how there can 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 by extension of time and reimbursement of loss and expense.

More importantly in terms of acceleration as a mitigation factor, the court was quite clear that when delay arises, some employers and their consultants think that contractors are under a duty to mitigate delays, whether excusable or not. This case shows that where the delay in question is excusable, there can be no such duty.

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Notice Requirements

In any NPP project if the issue of delay, disruption and/or prolongation involving an extension of time or other circumstance arises or threatens to arise, the first issue is one of giving proper notice and doing so promptly. In addition to a fully bespoke contract for the project, all the standard form contracts deal with such circumstances such as the NEC, the ICE, JCT, AIA, AGC and others and of course the one used most frequently, FIDIC. The underlying point is that the contractor must give notice to the employer in a timely fashion, not just to avoid “late” claims, i.e. claims which are overlooked and only brought up later in the project and end up as a surprise to the employer. Accordingly, the need for prompt notice has evolved into a form of condition precedent to even bring any claim and have taken the name “time-bar” clauses. The most widely used one is FIDIC Sub-Clause 20.1, which is contained in most forms of the FIDIC suite of contracts – the Red Book, etc. Sub-Clause 20.1 of FIDIC (1999 Suite) contains nine unnumbered paragraphs of which the fifth paragraph has three numbered sub-paragraphs. Notice is the first requirement and it states: If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.

Note the use of “shall” … “the contractor shall” give notice to the Engineer and what is needed in that notice and the time in which it is to be done. The further sub-issue always becomes at what actual point in time the contractor actually became aware. When Exactly does the 28-Day Notice Period Commence?1 The Technology and Construction Court (TCC) in London dealt with this issue and held that the 28-day period for notifying a claim for EOT only begins following the onset of any actual delay which flows from the event or circumstance which caused it. The case is Obrascon Huarte Lain SA v Attorney General for Gibraltar [2014] EWHC 1028. Further 1 See Chern on Dispute Boards 4th Edition Informa Publishing 2019.

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by analogy, this decision supports the similar argument where the contractor’s claim is not for EOT but for additional payment. This case does not do away with time-barred claims, however, as the court is quite clear that a contractor’s claim cannot be pursued if it has not been notified within the relevant period. This case dealt with a dispute arising out of a £30 million contract for design and construction work to Gibraltar Airport. The contract incorporated the FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant, and for Building and Engineering Works, designed by the Contractor, First Edition 1999, commonly known as the Yellow Book. The facts were that the road to the Spanish border traversed the airport runway so that it had to be closed when the runway was in use. The works included the construction of a new dual carriageway and tunnel under the eastern end of the airport runway so as to relieve the congestion caused by its frequent closure. The contract was entered into in November 2008, and works commenced the following month. After more than two and a half years and with only 25 per cent of the work done, the contract was terminated by the employer, the government of Gibraltar. The Spanish contractor Obrascon Huarte Lain (OHL) commenced proceedings for extension of time and costs. Despite the fact that Gibraltar is famous for its rock and despite the airport site’s historic military use, OHL argued that it had encountered more rock and contaminated material than would have been reasonably foreseeable by an experienced contractor at the time of tender. The contractor took the view that it was also necessary to suspend the excavation works and re-design the tunnel because airborne contamination (determined from a report commissioned by OHL) had posed a health and safety risk. This case arose out of a contract by which OHL agreed to undertake the design and construction of a road and tunnel under the runway of Gibraltar Airport. The contract was based on the Plant & Design Build (Yellow Book) version of the FIDIC Conditions. The main issue in the case had to do with the termination of the contract, and as part of all that the court also dealt with questions relating to the contractor’s claims for extensions of time in respect of various matters which delayed the completion of the Works. The Court disagreed with the OHL’s arguments and found inter alia that the contractor had failed to proceed with the design and execution of the works with due expedition and without delay. The court found that the contractor’s claims were largely unsuccessful because the causes of delay were mostly matters for which the contractor was responsible. However, subject to whether the requirements of Sub-Clause 20.1 had been met, the court accepted that the contractor was entitled to an extension of one day on account of unforeseeable physical conditions (rock in areas to be excavated), plus an extension of six days on account of exceptionally high rainfall. The court was especially critical of the report heavily relied upon by the contractor to support its suspension of the works and redesign of the tunnel, which it described as “palpably and obviously inept, was clearly worked on by OHL and cannot have been considered by OHL to be independent or competent”. The court then dealt with the requirements under FIDIC Sub-Clause 20.1, and the judge, Akenhead J, brought up the following: • Firstly, that it was clear (as accepted by the contractor’s legal counsel) that SubClause 20.1 imposes a condition precedent. • Secondly, he could see no reason why the clause should be construed strictly against the contractor, but “can see reason why it should be construed reasonably 416

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broadly, given its serious effect on what could otherwise be good claims for instance for breach of contract by the Employer”. The court took a broad view of this Sub-Clause and applied a broad construction. The judge held that notice of a claim for EOT does not have to be given for the purposes of Sub-Clause 20.1 until there actually is delay, although the contractor can give notice when it reasonably believes that it will be delayed. The judge then considered that, at least in the context of extension of time, regard must be had to Sub-Clause 8.4, which identifies when and in what circumstances extension will be granted and noted that under Sub-Clause 8.4, the entitlement to extension arises if and to the extent that the completion “is or will be delayed by” the various listed events, such as variations or “unforeseeable” conditions. This then suggested that the extension of time can be claimed either when it is clear that there will be delay (a prospective delay) or when the delay has at least started to be incurred (a retrospective delay). The judge noted that the “event or circumstance” described in the first paragraph of SubClause 20.1, in the appropriate context, can mean either the incident (variation, exceptional weather or one of the other specified grounds for extension) or the delay which results or will inevitably result from the incident in question. Also, it was relevant that the wording in Sub-Clause 8.4 is “is or will be delayed by”, not “is or will be delayed, whichever is the earliest”. Accordingly, applying a broad construction, the contractor could validly give the notice after the onset of the delay within 28 days after it became aware (or should have become aware) of it. Then as to the requirement as to the form of notice, the court pointed out that SubClause 20.1 does not specify any particular form of notice, and accordingly one should construe it as permitting any claim provided that it is made by notice in writing to the engineer, that the notice describes the event or circumstance relied on and that the notice is intended to notify a claim for extension (or for additional payment or both) under the contract or in connection with it – the only requirement being that it must be recognisable as a “claim”. One critical new factor is that the court pointed out that in such situations, the onus of proof is on the employer to establish that the notice was not given timely, i.e. it was too late. In this case and in particular as to the rock claim, the court noted that the contractor relied on a letter to the engineer dated 14 July 2010, which related to rock encountered on 18 May 2010, which stated: “In our opinion the excavation of all rock will entitle us to an extension of time”. In relation to this, the court considered that the letter was a “claim” as such, even though rather broad in scope, and stated that it did not have to determine whether it was too late for any rock that had previously been encountered. However, it follows from his ruling on the meaning of Sub-Clause 20.1 that the claim was too late in respect of the occurrence on 18 May 2010 if the rock encountered on that day caused immediate delay; however, the letter had been sent before the occurrence of the later problems with rock for which the judge had found that there was critical delay, and he held that the letter therefore satisfied the requirements of Sub-Clause 20.1 in respect of that later delay. There was also a delay issue relating to weather, and in this regards reliance was placed on the contractor’s progress reports for November and December 2010 and a letter to the engineer in January 2011. The November 2010 report related to a period before the exceptionally adverse weather occurred, in December; while the December report only 417

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and blandly stated: “The adverse weather condition (rain) have [sic] affected the works”, which the judge found was clearly nowhere near a notice under Sub-Clause 20.1. Then there was a January letter to the engineer, which referred to rainfall in December, which it said had flooded the site and thus “come into contact with the contaminated ground … and we are unable to discharge this rainfall from site…. In our opinion the foregoing will entitle us to an extension of time.” The court considered that this was not a notice of claim about being delayed by weather actually whilst working in December 2010 (i.e. by the rain actually falling), which is what the six days allowed related to; rather, it related to future delay caused by the effect and impact of weather on the contaminated material on site. The court then commented that the January letter would have been a good notice for any critical delay caused or to be caused by the contaminated ponded water, but there was in fact no critical delay caused by ponding, and the contractor was actually delayed in critical work in late November and early December 2010 by the unusual weather and accordingly had failed to give notice of this within 28 days of becoming aware, or of when it should have become aware, of it. It followed from the preceding that the contractor was only entitled to one day’s extension of time, on account of the rock delay, because the six days of critical delay caused by the impact of the rainfall in December on progress at that time was not the subject matter of any timely notice under Sub-Clause 20.1. It would appear that whilst the OHL case did not deal with claims by the contractor for additional payment, the reasoning that was applied by the court to the contractor’s claim for EOT would appear to result in a similar conclusion in respect of any contractor’s claim for additional payment. The court specifically found that Sub-Clause 20.1 should be given a reasonably broad construction. This must apply just as much to claims for additional payment as it does to claims for EOT. Accordingly, it is reasonable to assume that other provisions of FIDIC which identify when and in what circumstances additional payment may be claimed would also entitle a Contractor to claim additional payment under these other provisions. Under Sub-Clause 2.1, the contractor is entitled to make such a claim if the right of access to, and possession of, the site is not given within the time stated in the Particular Conditions. Thus, as the DAB adopts the ruling in the OHL case, the “event or circumstance” described in the first paragraph of Sub-Clause 20.1 in respect of a claim for additional payment can mean either: 1. The incident (e.g. late access to the site or one of the other specified grounds entitling additional payment); or 2. The cost which results from the incident in question. Accordingly using the “broad construction of the provision” as set out by the court, the contractor would not be required to give the notice until after incurring the cost within 28 days after it became aware (or should have become aware) of it. The Dispute Adjudication Board (DAB) in construction projects (and elsewhere for that matter) will deal with claims by one party against the other, and one should keep in mind that not all claims give rise to conflict and disputes. Claims are most often initiated by contractors against employers due to a multitude of employer actions or inactions. Some 418

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of the most often encountered contractor claims deal with employer actions or inactions (causes) that can create cost and schedule impacts; a few examples are as follows: • • • • • • • • •

Late Engineering and Design Information Numerous and Late Design Changes Impact from Other Contractors employed by the Employer Late Approval of Contractor Submittals Unreasonable objections during work inspections by Employers or their Agents (Engineers) Untimely Approval of Valid Contractor’s requests for Changes Late Possession of Site Defective Employer-Furnished Equipment Late Response to Contractor Requests for Information (RFls)

Whilst the list is endless as to possible areas for claims to develop, the claim which DAB members see the most often has to do with either claims for additional payment or EOT, but the employer may also have claims in respect of delayed completion or defective work. For those DAB members who become involved in claims issues, it is worth noting that the FIDIC Conditions are very different in the way that they treat claims by the contractor and claims by the employer. As to employer’s claims, Sub-Clause 2.5 only requires that notice of the claim be given to the contractor “as soon as practicable after the employer became aware of the event or circumstance giving rise to the claim”. However, as we have seen under Sub-Clause 20.1, the requirements for notice have a more onerous burden on the contractor (or did until OHL) as the requirement to give notice is triggered not only upon the contractor becoming aware of the relevant event or circumstance, but also when the contractor should have become aware of it, and as we have discussed the “drop-dead” date or deadline is a mere 28 days from that point by which the notice must be given. Of additional importance is the fact that the giving of notice before that deadline is a condition precedent to the contractor’s entitlement to pursue the claim. If the employer has not waived the notice requirement and the time periods imposed by the contract, the contractor’s claim is barred and vaporises. This is not the same for the employer as per Sub-Clause 2.5 where the employer can, at its leisure, give notice to the contractor as soon as practicable for the employer after it learned of the event or circumstance giving rise to the claim. Hardly an equal footing. It should be noted that the contractor’s position is somewhat improved under the DBO (Gold Book) version of the FIDIC Conditions. That version, realising the hardships that the time-bar provision can create, allows the DAB to make the final determination in the event of late submission of a notice, and the DAB may overrule the 28-day limit if it considers that it is fair and reasonable in all the circumstances to accept the late submission. Until there is a “consensus” on when the claim actually matures and the clock begins for notice, this area of FIDIC and related contracts will continue to occupy DABs, the arbitrations that follow and indeed the courts as it has in the OHL case. The underlying argument still will be when does an “incident” give rise to an actual claim, i.e. when does the “incident” actually effect the time needed by the contractor to perform such that it qualifies as one requiring notice? As an example, on a project in the Sahara it starts to rain on day 30; an unusual event, but is it one that requires a notice? How about on 10 days of 419

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continuous rain? Day 30? At some point there may be a claim due to this “incident”, but the secondary question and the defence which is most often heard in a DAB setting is that on day 1 the contractor did not give notice as it felt it could make up the time and thus had no “claim” for either time or money as it had not suffered a loss “yet”. Then on day 21 it gives notice, and that is because it claims that only on that date did it calculate that it would be unable to make up the time and would lose money, and so that is the date for the notice. This is rejected by the employer, who claims that it should have been on day 3. It thus becomes a subjective issue for the contractor who can determine when and if a loss has been sustained which leads to a claim rather than just giving notices for notice sake. Until this basic issue is finally resolved by the courts, this author recommends sending notice as soon and as often as possible to, if nothing else, preserve the rights of the contractor until a full determination can be made. At a minimum it prevents the issue of time-barred claims from being raised by the employer. Using the terminology in the OHL case, the requirement to give notice within 28 days from (actual or deemed) awareness of “the event or circumstance giving rise to the claim” has generally been interpreted as meaning 28 days from awareness of “the incident” rather than 28 days from awareness of the actual occurrence of the time or money consequences of the incident as found in the OHL case. Thus as of the OHL case, the contractor will generally be allowed a longer period within which to give the required notice. But is there any time bar for employer claims? From the earlier discussion as to SubClause 2.5, it would appear not for the employer need only submit notice when practicable and thus, as a totally subjective standard, the employer would appear to be able to give notice at any time. It should also be remembered that the time-bar provisions in 20.1 are intended to be a condition precedent to the contractor’s claim for an extension of time and additional money. It is the view of various writers2 that having the contractor supply such notice first before any liability to the employer occurs is prevalent, and such provisions can be effective under English law as can be seen in Bremer Handelsgesellschaft mbH v Vanden Avenne Izegem PVBA3 and in City Inn Limited v Shepherd Construction Limited.4 However, in Tenloc v Errill Properties,5 the court took the view that timescales in construction contracts are not mandatory but directory only unless the contract clearly states that the party will lose its rights and sets out a specific timescale within which the notice must be served. The court’s view stems from the fact that to have such a draconian result of a totally lost claim, the contractor must, with precision, be able to identify precisely “the trigger point” for the notice period and then, secondly, for the clause to have clearly set out “the right that has been lost” once the time period has expired.

2 See e.g. Contractors Claim Under the FIDIC Contracts for Major Works which was a paper given by Christopher Seppala at the International Construction Contracts and Dispute Resolution Conference, Cairo, April 2005. 3 [1978] 2 Lloyd’s Rep 109, HL. 4 (2002) SLT 781. 5 (1987) 39 BLR 30, CA.

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Who Exactly at the Contractor is Supposed to Acquire Knowledge of the Event or Circumstance? In most large infrastructure projects, the contractor is a multinational company and/or a consortium of multinational and local companies all working together to perform the contract. In these circumstance who and how does “the contractor” acquire “the knowledge of the event or circumstance”? Under FIDIC the contractor is defined in Sub-Clause 1.1.2.3 as “the person named as contractor in the Letter of Tender accepted by the Employer and the legal successors in title to this person(s)”. Thus it would appear that the “contracting entity” is readily known to the parties from the start. But normally the contractor, as mentioned, is not an individual but a company or other legal entity such as a joint venture made up of companies, corporations, etc. In most all jurisdictions the actual legal entity such as a corporation exists separately from the persons working for it. Most importantly companies cannot act on their own but only through their authorised agents acting on their behalf. Taking this to the next level, who and how does one ascertain exactly who these people are, e.g. the members of the board of directors, the managing partner, the managing director, the chair of each joint venture partner? So exactly how and through whom does the contractor get its knowledge of the event or circumstance which triggers the start of the time-bar clock? As we know Sub-Clause 20.1 places the burden on the contractor to provide this notice within 28 days of it becoming aware of the event or circumstances. However, Sub-Clause 4.3 obliges the contractor to appoint a representative and “shall give him all authority necessary to act on the Contractor’s behalf under the Contract”. And this is the crux of the issue and one which many DABs face when dealing with time-bar issues for does it mean that once the event or circumstance giving rise to a potential claim comes to the attention of the contractor’s representative that the contractor has become aware and that the 28-day time period starts? Again 20.1 is clear that the information must come to the knowledge of the contractor but does that include the contractor’s representative in these circumstances? This question ties in with the question we posed earlier that although the contractor is obliged to disclose “events” which may cause delay to the employer, the unanswered question still remains exactly who within the contractor’s company must be “aware” for the purposes of Sub-Clause 20.1? By law and agreement directors and the company secretary have authority to bind the company. Additionally, as to the formation of a contract, courts have held that if a person represents that it has authority which it does not possess but in any event induces another to enter into a contract that is void for want of authority, then that person will be able to commence proceedings for breach of warranty of authority. When dealing with the performance of the contract and in particular the identification of exactly whom within the company needs to have the knowledge required in order to make a decision whether a notice should be served – this becomes the issue. Thus identifying the “directing mind” within a company is the basis for making a determination as to whom within a company has the necessary quality to be “aware”, as explained by Denning LJ in HL Bolton (Engineering) Co Ltd v TG Graham & Sons Ltd [1957] 1 WLR 454: Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors

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and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company.

So in terms of deciding exactly who has the knowledge upon which to give notice of the event or circumstance, it is clear that it is the intention of the company derived from the directors and the managers, rather than those who might be carrying out the work. The company’s intention will, therefore, depend upon: 1. The nature of the matter that is being considered; 2. The position of the director or manager; and 3. Other relevant facts of the particular case. This principle has been affirmed in subsequent cases, in particular by Lord Reid in Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1: Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation, he can act as the company. It may not always be easy to draw the line but there are cases in which the line must be drawn.

Whilst Lord Reid confirms the approach of Denning LJ, he notes however that it may be possible for the directors or senior managers to delegate, in this instance, fundamental decision-making processes required during the course of the running of a construction contract. In the absence of such delegation, it is arguable that those who must be “aware” are the directors and managers who constitute the “directing mind” of the company. Unfortunately, the time-bar provisions of Sub-Clause 20.1 are not the only stumbling block for the contractor, which ends with the following: If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply. The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance. The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. Without admitting the Employer’s liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer. Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be

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proposed by the Contractor and approved by the Engineer, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect: (a) this fully detailed claim shall be considered as interim; (b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and (c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer. Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time. Each Payment Certificate shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate. The Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of Time for Completion], and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract. The requirements of this Sub-Clause are in addition to those of any other Sub-Clause which may apply to a claim. If the Contractor fails to comply with this or another SubClause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause.

So if the contractor has complied with the time provisions for notice, then the second part of 20.1 comes into play, and that has to do with substantiating its actual claim. Whilst it may be fine for notice purposes to give a general notice, it now becomes imperative to back that up with facts. Here it is necessary and good practise that the contractor keeps contemporary records sufficient to substantiate any claim, either on the Site or at another location acceptable to the Engineer. DAB members will encounter arguments over this provision along the lines that the records submitted, while apparently fine for the contractor, are claimed to be insufficient for the engineer who keeps on asking for more and better documentation of the claim. When these are submitted the engineer still claims that these are not sufficient and wants more, and so on until the contractor either gives up or brings the matter to the DAB, claiming that the engineer is delaying the claim intentionally and that no amount of documentation will be sufficient. Many DAB members, when faced with this situation, will take the view that the contractor is required to submit contemporary and detailed records but that there comes a point in time when if the engineer wants more detail, it can come to the contractor’s offices and satisfy itself that the documentation is sufficient. Thus the burden of proof in effect shifts to the engineer to show that the documentation given 423

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to it is insufficient. Needless to say these sorts of arguments ultimately end up with the DAB for determination as to sufficiency. Thereafter the next hurdle for the contractor in terms of timing is that it has 42 days after it became aware (or should have become aware) of the event or circumstance giving rise to the claim (or within such other period as may be proposed by the Contractor and approved by the Engineer) to submit its fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. It will be interesting to see if the OHL decision will impact this particular requirement. Again the timing of this commences at the same time the 28-day original notice commenced and of course is subject to all the same arguments as to when the claim as such actually arose and became known as a claim to the contractor. Here however there is a distinction, and that is that there is no time-bar element. There is no provision in 20.1 for what exactly happens to the contractor if they do not provide the necessary information within the 42 days. It would appear that whilst it may be a breach of the contract, it would only be a minor breach, and the employer would have to show how it was damaged by the contractor’s failure to provide the required information exactly when needed. It should be noted that this provision allows for additional time specifically as to other periods of time (other than 42 days) as may be proposed by the engineer and approved by the contractor. But consider the following scenario: The contractor as in the previous discussion has continued to supply documentation as requested by the engineer, who continues to claim it is not sufficient and refuses to give a determination. Here Sub-Clause 20.1 is clear that within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the contractor, the engineer shall respond with approval, or with disapproval and detailed comments, and that the engineer may also request any necessary further particulars, but shall nevertheless give its response on the principles of the claim within such time. Thus there is no excuse for the engineer but, within the 42 days unless any additional time is agreed between the parties, to give a response – good or bad and if bad then with “detailed comments”. Unfortunately, in many circumstances the contractor is afraid to take on the engineer and puts up with delay or disregard by the engineer. In many situations the engineer simply ignores the claim, and this continues on as the contractor does not want to “upset” the employer by bringing a claim before the DAB, or worse yet there is no DAB in place as was required by the contract as the parties did not feel one was necessary or that it would be cheaper to hold off having a DAB till “later” (all subjects discussed in detail later). As previously mentioned the engineer cannot hide behind the veil of “not having sufficient information” for under this Sub-Clause the engineer must respond. Claim denied and it is off to the DAB, or claim approved and it will be paid. And further if the claim is denied, the engineer must give detailed comments not just that the submission was not specific enough but actual detail as to why the claim was denied. Failure to do so triggers the DAB. It should be noted that the notice required under 20.1 is not the only notice the contractor may have to give, and 20.1 further states: The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance.

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Type of Records and Claim Sub-Clause 20.1 is quite clear on this in that it requires that the Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. Without admitting the Employer’s liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer.

And again note the “shall” provisions in this Sub-Clause. Then as to the type of claim to be submitted, the Sub-Clause goes on to state: Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Engineer, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect: (i) this fully detailed claim shall be considered as interim; (ii) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and (iii) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer.

After this occurs then it is the turn of the Engineer who Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time.

The Engineer has only to give his response whether or not he has the “necessary further particulars”, and this is missed many times in the back-and-forth between the Engineer asking for more and more particulars as the Contractor is entitled to a response – it might not be the response the Contractor desires but the Contractor is entitled to a response – yes or no or? And then, as to those claims which have been “reasonably” substantiated, each Payment Certificate shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate.

Remembering that we are dealing with claims for delay and/or money, once a claim is made the Engineer must 425

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proceed in accordance with Sub-Clause 3.5 [Determination] to agree or determine (i) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of Time for Completion], and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract.

Note that any such payments and the requirements of this Sub-Clause are in addition to those of any other Sub-Clause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Subclause.

FIDIC, as noted earlier, takes the view that matters should progress to completion now rather than wait until the end of the project, and so the Contractor has placed before it several hurdles to overcome and to do these in a timely fashion, or any claim it may have will not be enforceable. The Need for Proper Records as Part of the Claim Submission FIDIC uses the phrase “contemporary records”, and the general view is that such records are those which substantiate the contractor’s claim. In this regard in Attorney General for the Falklands Islands v Gordon Forbes Construction (Falklands) Limited,6 the court stated that contemporary records were “original or primary documents, or copies thereof, produced or prepared at or about the time giving rise to a claim, whether by or for the contractor or the employer”. Which would normally mean that they arose when the claim did, i.e. at or near that time of the occurrence and/or contemporaneously with the claim, rather than being created at a later date to substantiate the claim, i.e. witness statements, and it is clear that the court felt that whilst witness statements may record the “recollections” of those who were involved at the time, they are not a substitute for proper record keeping of contemporary records at the time the claim arose. Following on this is the need for a detailed claim submission itself, and that is covered in further detail later in this book. Suffice it to say at this juncture however that whilst the contractor is required to submit a “fully detailed claim” for either time and/or money, this requirement is not nor should it be new to the contractor for Sub-Clause 20.1 also requires the contractor to submit these fully detailed claims at monthly intervals. Thus as the contractor must give notice not later than 28 days after the “event or circumstance”, then as some authors7 point out, if the event or circumstance continues, the contractor will need to continue to submit notices each month – a somewhat unusual requirement in a construction standard form, but one that may have far-reaching ramifications, especially if the contractor submits some notices but not others.8 It should also not be forgotten that just providing the

6 (2003) 6 BLR 280. 7 See e.g. Making Claims for Time and Money – Nicholas Gould article 17 October 2008 Fenwick Elliot newsletter. 8 Ibid.

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“details” of the claim may not be sufficient as the contractor must also provide such further particulars “as the Engineer may reasonably require”, and then after the delay is over (and/or the monetary portion determined), the contractor must then, within 28 days, provide a final claim to which, of course, the engineer may require further reasonable particulars. Thereafter when considering any interim/final claims, the time for response from the engineer is 42 days after receipt of the claim, or from the further particulars which have been requested by the engineer. Note that this period may be extended, but only with the approval of the contractor, and as noted earlier the engineer must respond, and the engineer may approve the claim or disapprove it (and if disapproving the claim, the engineer must then provide detailed comments). In practice one sees continued requests for further and better information or just further information, which is in violation of the contract as the limit for either approval or disapproval with detail comments remains at 42 days (or any longer agreed period of time), and in addition to this specific time period, FIDIC Sub-Clause 1.3 adds the dimension that the engineer is not to unreasonably delay the determination of claims. Has the Dispute Crystallised and can it be Enforced? The issue arises that once the engineer approves the claim, there is no problem, and no dispute over the claim arises. But what if the engineer disapproves the claim or delays in giving any response as required. Does this “crystallise” the dispute? Is There a Dispute to Enforce? The enforcement of dispute adjudication board decisions normally follows the rules and procedures under which the initial DAB was originally formulated. Thus, for example, for DABs flowing from FIDIC contracts, Sub-Clause 20 sets out the relevant steps necessary towards first obtaining the decision and then towards its enforcement. In the first instance a dispute has to arise, and as previously mentioned this can be one of the most argued subjects in any DAB setting with the ultimate question being – Is There a Dispute?9 Critical to any claim before a DAB is the key issue of whether, in fact, there actually is any “dispute” for under most rules and procedures, such as FIDIC, there can be no decision unless a “dispute” has arisen under the contract, and any claim can be challenged on this basis. FIDIC “Red Book” Sub-Clause 20.4 specifically requires that “If a dispute (of any kind whatsoever) arises between the Parties … either Party may refer the dispute in writing to the DAB for its decision”. Further as this issue goes to the jurisdiction of the DAB, it is frequently brought up, and as such any enforcement of the “decision” will be met with this issue, i.e. that without a dispute, the DAB has no jurisdiction and cannot give any binding decision. Thus the question becomes when does a dispute actually occur? The courts have taken two (or more) views on this subject, the first being what is referred to as the “narrow definition”, which is based on the proposition that for a dispute to arise, not only must a claim be made but also the recipient of the claim should have been given reasonable 9 See e.g. Cyril Chern (2010), The Law of Construction Disputes, Informa Publishing.

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opportunity to consider and respond to it. In R G Carter Ltd v Edmund Nuttall Ltd,10 which dealt with an adjudication, the issue was the dispute which formed the subject matter of the adjudication as set out in the subcontractor’s payment application. This was the same dispute set out in the previously sent solicitor’s letter, which had been sent on behalf of the subcontractor several months earlier and which was now claimed to be the subcontractor’s notice of referral to adjudication. The court was faced with the question of whether he had jurisdiction to make his decision as he had perhaps decided something which had not been referred to him. Here the court held that the “dispute” referred to in the subcontractor’s solicitor’s letter was the subcontractor’s original payment application and rejected the subcontractor’s contention that its payment application was no longer the subject of any “dispute” on the grounds that it was clear that the application was not proceeding at that time. The court felt that whoever wrote the subcontractor’s report, which had accompanied the formal notice of referral, may have been formulating it for such a period of time as to have the subcontractor decide to proceed on the basis of the report rather than the earlier payment application. Finally the payment application did not comprehend any of the fruits of its reconsideration as set out in the report and whilst those fruits could potentially have ripened into a new “dispute” once the contractor had had an opportunity to consider the new facts and arguments in the report, they were not part of the “dispute” which existed at the time of the notice of referral to adjudication.

The other main category is the “wide definition” that consists of the cases in which the court in question has applied the proposition that there is a dispute once a claim is made, unless and until the defendant admits that the claimant is entitled to what has been claimed. Following upon these two approaches is “the flexible approach”, which arose out of AMEC Civil Engineering Ltd v The Secretary of State for Transport.11 Here the court wrote: The word “dispute” which occurs in many arbitration clauses and also in s. 108 of the Housing Grants Act should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers. ... The mere fact that one party (whom I shall call “the Claimant”) notifies the other party (whom I shall call “the Respondent”) of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The Respondent may prevaricate, thus giving rise to the inference that he does not admit

10 [2002] TCC. 11 [2004] EWHC 2339.

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the claim. The Respondent may simply remain silent for a period of time, thus giving rise to the same inference. The period of time for which a Respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the Respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute. If the Claimant imposes upon the Respondent a deadline for responding to the claim, that deadline does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding. On the other hand, a stated deadline and the reasons for its imposition may be relevant factors when the court comes to consider what is a reasonable time for responding. If the claim as presented by the Claimant is so nebulous and ill defined that the Respondent cannot sensibly respond to it, neither silence by the Respondent nor even an express nonadmission is likely to give rise to a dispute for the purposes of arbitration or adjudication.

In Fastrack Contractors Ltd v Morrison Construction Ltd,12 a case that pre-dates AMEC, Fastrack sought to enforce an adjudicator’s decision against Morrison. The dispute had been referred to arbitration by Fastrack after the sum claimed in the notice of adjudication was substantially higher than that claimed in the last interim application. Morrison contested the adjudicator’s jurisdiction, claiming that they had not previously notified or rejected the claim and that at the date the notice was issued there was no “dispute”. They also took the view that if a dispute concerned a precise basis of claim and amount, the notice of adjudication and the adjudication itself had to be concerned solely with those matters. Accordingly only the dispute in existence at the time that the notice of adjudication was served could be within the jurisdiction of the adjudicator and if that was superseded by a new claim which had not had time to develop into a dispute, then the adjudicator appointed to resolve the dispute was appointed without jurisdiction.

The court agreed with Fastrack and held that an adjudicator derived its jurisdiction from its appointment, which in this case was governed by the Housing, Grants, Construction and Regeneration Act 1996. The Act required there to be a dispute that had already arisen between parties to a construction contract and that what was in “dispute” within the meaning of the Act was a question of fact. The “dispute” was all or part of whatever claims, issues or causes of action the referring party chose to refer to adjudication. The court went on to state that a “dispute” could only arise once the subject matter had been brought to the attention of the opposing party, and that party had had the opportunity to admit or reject the claim and that here the adjudicator had jurisdiction because all the issues in the notice of adjudication had been referred to Morrison, which had rejected them, and they were therefore disputes by the time that the notice was served.

12 [2000] B.L.R. 168.

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Two things should be noted. First that just making a claim does not make a “dispute”; however, if not admitted (objectively within a reasonable time under the circumstances), then a “dispute” can be considered to exist. The goal is that disputes should be readily resolved through a DAB by adjudication; however, it should be obvious that a dispute does not exist if the matter has already been submitted to and decided by a DAB and/ or an adjudicator. Second, there is no necessity for the parties to engage in any form of ADR such as mediation before referring the “dispute” to adjudication even if the contract contains language requiring mediation as a precursor to adjudication; these would conflict with the absolute right under section 108.1 of the Act allowing the parties to “refer a difference or dispute to adjudication at any time”. Following then along the path set out in FIDIC, once a dispute has arisen, it is then next referred to the DAB in writing for its decision, under Sub-Clause 20.4. Further the various standard form agreements other than FIDIC have developed in a similar way as to time-bar situations. The Standard Forms Historically the various “standard form” construction contracts did not include any condition precedent to claim or time-bar provisions but only had a requirement of notice within a particular period of time. So as an example the old version of the Red book (FIDIC 3rd edition) under Clause 67 stated that a decision of the engineer would become “final and binding” unless “no claim to arbitration” had been “communicated” or either party had within 90 days of the decision required “the dispute to be referred to arbitration”. This was about as close as any form came to setting out something of a time limitation within the contract, and it caused confusion for it could not be determined if what this meant was that a “formal referral” of the dispute had to be made to the ICC within 90 days or that a notice of an intention to refer to arbitration would suffice – this later view it should be noted is the one that was supported by the courts in the UK. And whilst the pre-1999 FIDIC forms did not include a time-bar, the former JCT form contract only required a notice to be given within a “reasonable time”. This court in London Borough of Merton v Hugh Leach13 reviewed this requirement and wrote: [The contractor] must make his application within a reasonable time: It must not be made so late that, for instance, the architect can no longer form a competent opinion or satisfy himself that the contractor has suffered the loss or expense claimed. But in considering whether the contractor has acted reasonably and with reasonable expedition it must be borne in mind that the architect is not a stranger to the work and may in some cases have a very detailed knowledge of the progress of the work and the contractor’s planning.

This concept of fairness is one which underlies the views of the courts not just in the UK but elsewhere and is based upon the universal feeling that a meritorious claim should not be lost on a technicality because a notice time period was not adhered to or missing, and

13 (1985) 32 BLR 51.

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as discussed earlier the other underlying issue is in actuality determining exactly when a claim “matures”, which can be a daunting task in and of itself. As to the history of the JCT, subsequent versions such as the JCT 2005 do require a notice to be given “forthwith”.14 Additionally the old NEC2 formulation of a two-week period for notification has been changed, and the NEC3 has changed the time for notice needed as to a contractor’s rights to any Compensation Events. Thus Clause 61.3 states: The Contractor notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event if • The Contractor believes that the event is a compensation event and • The Project Manager has not notified the event to the Contractor. If the Contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Price, the Completion Date or a Key Date unless the Project Manager should have notified the event to the Contractor but did not.

This acts in a draconian way and as can be seen Clause 61.3 can end up effectively barring any claim from proceeding if, within 8 weeks of becoming aware of the event, the contractor fails to notify the project manager. But again the question arises exactly “when” did the “event” arise? Further pitfalls arise from the fact that this clause runs in conjunction with Clause 60.1(18), which states that a Compensation Event includes “A breach of contract by the Employer which is not one of the other Compensation Events in this contract”. Many writers15 feel, include this one, that the troubling issue here is that Clause 61.3, therefore, effectively appears to operate as a bar to the contractor in respect of any time and financial consequences of any breach of contract if the contractor fails to notify. Whilst the view towards time-bar strict construction is being modified by FIDIC and the newest FIDIC Gold Book, the Design, Build, and Operate form has modified Sub-Clause 20.1 to take account of the harshness of the old version, and it now states: 20.1(a) However, if the Contractor considers there are circumstances which justify the late submission, he may submit the details to the DAB for a ruling. If the DAB considers the circumstances are such that the late submission was acceptable, the DAB shall have the authority under this Sub-Clause to override the given 28-day limit and advise both the parties accordingly.

This “softening” of the old draconian ways regarding notice are the way forward and are the result of proper analysis of reality. It has been fostered by decisions such as the one in City Inn Ltd v Shepherd Construction Ltd,16 where the Court of Session considered the requirement on the contractor to comply with a time-bar clause in an amended JCT80 Private with Quantities contract where the contractor had been awarded (by the architect

14 See e.g. Clause 2.24.1 of JCT Design and Build Contract 2005. 15 See e.g. ibid. at ftn 7. 16 2002 SLT 781, [2001] SCLR 961, Outer Hse, Ct of Sess; then appealed to the Inner Hse (successful on the point that failure to use the procedures of clause 13.8 was not itself a breach of contract, so the clause could not be treated as imposing a penalty), [2003] BLR 468.

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and an adjudicator) a nine-week extension of time. The employer took the position that no extension should have been granted and that liquidated damages should be payable, since the contractor had failed to comply with the time-bar provisions of the contract which was contained in Clause 13.8.5 and stated that: If the Contractor fails to comply with one or more of the provisions of Clause 13.8.1, where the Architect has not dispensed with such compliance under 13.8.4, the Contractor shall not be entitled to any extension of time under Clause 25.3.

Clause 13.8.1 provided: Where, in the opinion of the Contractor, any instruction, or other item, which, in the opinion of the Contractor, constitutes an instruction issued by the Architect will require an adjustment to the Contract Sum and/or delay the Completion Date the Contractor shall not execute such instruction (subject to clause 13.8.4) unless he shall have first submitted to the Architect, in writing, within 10 working days (or within such other period as may be agreed between the Contractor and the Architect) of receipt of the instruction details of [its initial estimate, requirements in respect of additional resources and the length of any extension of time].

In the Inner House, the Lord Justice Clerk applied the time-bar as it stood and wrote: if he [the contractor] wishes an extension of time, he must comply with the condition precedent that clause 13.8 provides for these specific circumstances. But if the contractor fails to take the specified steps in clause 13.8.1, then, unless the architect waives the requirements of the clause under 13.8.4, the contractor will not be entitled to an extension of time on account of that particular instruction.

It should be noted that here the Inner House interpreted the time-bar clause as giving an option, not imposing any obligation on the contractor, which also disposed of the contractor’s argument (successful in the Outer House) that the time-bar was a penalty, thus unenforceable. As many writers17 have noted, one of the important distinctions between the drafting of the provision in City Inn and FIDIC is that the contractor in City Inn did not have to carry out an instruction unless he had submitted certain details to the architect. However FIDIC mandates a condition precedent, i.e. a “bar to the bringing of a claim”, simply for failure to notify the engineer in time about an event or circumstance that might impact on the Time for Completion or lead to additional payments – a specific instruction might not have been given, and the contractor might not be prompted to respond in the absence of this.18 Prevention Another element here is the concept of what is known as the “prevention principle”, which may impact any claim by the employer for liquidated damages. If the contractor does not make a claim, then the engineer cannot extend the Time for Completion under FIDIC, and 17 Ibid. at ftn 7. 18 Ibid.

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so an employer will be entitled to liquidated damages. However, those liquidated damages could be in respect of a period where the employer had caused delay. The employer can only recover losses for delay in completion for which the employer is not itself liable. The Court in Multiplex v Honeywell described the “prevention principle” as: the essence of the prevention principle is that the promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing. In the field of construction law, one consequence of the prevention principle is that the employer cannot hold the contractor to a specified completion date, if the employer has by act or omission prevented the contractor from completing by that date. Instead, time becomes at large and the obligation to complete by the specified date is replaced by an implied obligation to complete within a reasonable time. The same principle applies as between main contractor and sub-contractor. It is in order to avoid the operation of the prevention principle that many construction contracts and sub-contracts include provisions for extensions of time. Thus, it can be seen that extension of time clauses exist for the protection of both parties to a construction contract or sub-contract.

Basically this principle, which is particularly relevant to liquidated damages clauses in construction contracts, protects the contractor from the consequences of delay caused by the employer unless the contract provides, expressly or impliedly, that time for completion will be extended in such circumstances. Indeed, in the UK there is a long line of decisions commencing with Holme v Guppy (1838) which hold that the employer is precluded from claiming any liquidated damages whatsoever where its conduct has in fact delayed the completion of the contract works. Thus the court held in Wells v Army & Navy19 that: In the contract one finds the time limited within which [C] is to do his work. This means, not only that he is to do it within that time but it means also that he is to have that time within which to do it.

The general principle is that stated in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1971), where the court held that: if the employer wishes to recover liquidated damages for failure by the contractors to complete on time in spite of the fact that some of the delay is due to the employer’s own breach of contract, then the extension of time clause should provide, expressly or by necessary inference, for an extension of time on account of such a fault or breach on the part of the employer.

Further, in a related “construction” type matter, in this case repair of a ship called The Cape Hatteras,20 the repair contract provided for liquidated damages in the event of delay in redelivery of the vessel beyond a specified date. The completion of the works was in part held up by the shipowners’ decision not to permit the repairer to deliver the vessel’s crankshaft to a subcontractor for grinding and polishing. The court held that the repairers were in these circumstances wholly discharged from any liability in liquidated damages

19 (1903) Construction Law Year Book Vol. 4, 65 CA at 69–70. 20 [1982] 1 Lloyd’s Rep 518.

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for delay. It was unnecessary to undertake any investigation of the delay to establish how far this had been caused by the shipowners’ conduct because: the principle established by the authorities, that no liquidated damages for delay can be claimed if completion was in part delayed by conduct of the employer, is applicable in the present case. Had the parties wished to avoid that result, they could and should have inserted in the contract a term that the agreed date for completion should be extended in the event of delay caused by [the shipowners].

Again, simply put, an Employer will lose the right to claim liquidated damages if some of the delay is due to its own, employees’, or agents’ defaults unless: (1) the extension of time clause, strictly construed, allows for extensions to be granted for delays caused by acts, or defaults of the owner; and (2) an extension has been validly granted thereunder. This will be the case even if [the employer’s] delays form only part of the total delay – the court will not seek to apportion delay, at least when considered the enforceability of the liquidated damages clause.21

Thus where no such provision for an extension is included in the contract and the works are delayed by the purchaser, the contractor is only required to complete the construction of the vessel within a reasonable time. If it fails to do so, the employer is entitled to claim damages for breach of such obligation but will be obliged to prove his loss in the normal manner. He will not, however, be limited in such circumstances by the provisions of the liquidated damages clause.22 It should also be noted that breach of contract by the employer is not an element of prevention,23 and the principle will equally come into play where the employer exercises a right to order extra works without permitting further time for the completion of the contract. Thus if the contract requires completion by a stated date but the contractor is prevented from completing by that date as a consequence of an event for which the employer is responsible, the contractor is released from the obligation to pay any liquidated damages unless the contract provides for an extension of time to take into account the relevant delay. The key point which emerges from the authorities is whether the relevant construction contract provides for an extension of time to take into account the relevant delay caused by the employer.24 It may be that some will argue that time has thus been set “at large”. If an employer is unable to give an extension of time (on the basis that the contractor did not give a Clause 20.1 notice) that would otherwise be due, then the contractor may argue that it is relieved of the obligation to complete the works by the specified date. Arguably, where a

21 D. Jones, Can Prevention Be Cured by Time Bars? (2009), Society of Construction Law. 22 See e.g. Elizabeth Blackburn QC and Rachel Toney, The Prevention Principle, Liquidated Damages and Concurrent Delay in Shipbuilding Contracts, https://www.scribd.com/document/234626538/PreventionPrinciple-Liquidated-Damages-and-Concurrent-Delay-in-Shipbuilding-Contracts-Elb-Rt-April-2013. 23 As Jackson J said in Multiplex v Honeywell at p. 56 “actions by [D] which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions cause delay beyond the contractual completion date”. 24 Ibid. at ftn 22.

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delaying event has been caused by the employer and there is ordinarily an obligation on the employer to give an extension of time so as to alleviate the contractor from liquidated damages, but the employer is unable to do so, then time will become at large. It must be remembered that the purpose of the extension of time provisions is quite simply to allow the employer the benefit of the liquidated damages provisions where the contractor is in delay, but only where the employer has not caused any of that delay. It should be noted that the new FIDIC Gold Book is slightly different than the other FIDIC forms. Under the Gold Book Sub-Clause 20.1 notice must still be given as to any event or circumstance giving rise to a claim “not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance”25 but modifying this is Clause 8.4, which requires that both Employer and Contractor should “endeavour to” advise the other of any circumstances of which they are aware which may adversely affect the project, such as potential delay or increases in costs. Further in Sub-Clause 20.1(a), the Contractor may submit to the dispute board the details of any circumstances which may justify the late submission of a claim. The clause provides that if the dispute board considers that the circumstances are such that the late submission was “acceptable”, the dispute board may override the condition precedent, thus giving the Contractor a bit of leeway in its claims notification. As to being “aware” of the “events”, when should that be? Under FIDIC the notification of claims period starts when the contractor is aware, or should have been aware, of a potential claim. Is this subjective or objective? There is a view under the NEC3 that the time period within which notice should be given is from the time that an “experienced contractor” should have become aware of the event that will start the eight-week period,26 and the basis for this view is that by adopting such a standard (which is in line with the object reasonable man test in negligence), it will remove the subjective view of the contractor to that of an established contractor experienced in that type of construction as the standard to be applied by adjudicators as well as project managers. Under the NEC there is also a requirement that the project manager is to give notice to the contractor of a compensation event at the time of giving an instruction to the contractor or changing an earlier decision, and Clause 61.1 states: For compensation events which arise from the Project Manager or the Supervisor giving an instruction or changing an earlier decision, the project manager notifies the contractor of the compensation event at the time of giving the instruction or changing the earlier decision.

Based on this clause, two things are clear, the first being that the provision is specifically limited to compensation events arising from a project manager’s instruction and not from other types of events, and second, that if the project manager does not give this notification when required, then the contractor has a defence, and if its claim is not timely made, it will not fail for not having been given as required.

25 It should be noted however that where the Employer has a claim, it must give notice “as soon as practicable” after it becomes aware of the event or circumstance giving rise to that claim. 26 See NEC Users’ Group newsletter issue No. 37, Dec 2006, pp. 4–5.

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The importance of time-bar clauses is that if they are held to be ineffective then in the absence of any extension of time award, the time for completion will be “at large,”27 such that the employer will lose the “automatic” right to liquidated damages. In Bilton v Greater London Council,28 the court wrote: 1. The general rule is that the main contractor is bound to complete the work by the date for completion stated in the contract. If he fails to do so, he will be liable for liquidated damages to the employer. 2. That is subject to the exception that the employer is not entitled to liquidated damages if by his acts or omissions he has prevented the main contractor from completing his work by the completion date – see for example Holme v Guppy (1838) 2 M&LJ 387, and Wells v Army and Navy Co-Operative Society (1902) 86 LT 764. [See also McAlpine Humberoak v McDermott International [1992] 58 BLR 1 where Lloyd LJ at pp. 21–22 stated: The principle enunciated in Wells v Army & Navy Cooperative Society was not new. It is as old as Holme v Guppy (1831) 3 M & LJ 387, where Baron Parke first used the phrase, often since repeated, of the contractor being “left at large”. In recent times the principle has been applied in such cases as Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 114, The Cape Hatteras [1982] 1 Lloyd’s Rep 518 and SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391. In all these cases the employer was claiming liquidated damages. In all of them it was held that the claim for liquidated damages must fail since the employer could not rely on the original date of completion, or on a power to extend the date of completion. In the absence of such a power, there could be no fixed date from which the liquidated damages could run.

In the view of some writers29 the NEC3 Clause 61.3 and FIDIC Clause 20.1 “time-bar” clauses in effect “displace the prevention principle” which is also contended to be a rule of construction rather than a rule of law and as such should be enforced so that the contractor’s failure to comply can be a complete defence for the employer. Such an approach not only supports the contract administration ideas that the respective drafting panels intended but

27 The phrase “time at large” describes the situation where there is no date for completion, or where the date for completion has become invalid. When this occurs the contractor does not have to complete the works by any certain date. In many contracts if delay in completion is due to the contractor, the contract will generally include a provision for them to pay liquidated damages to the employer. If the works are delayed due to events for which the employer is responsible or by events such as force majeure, there will be a provision for an extension of time which then changes the date for completion. If contracts did not allow the construction period to be extended under such circumstances, then time would be at large. The employer would then not be able to claim liquidated damages from the contractor as there would be no date against which they could be calculated, and the contractor would then only have to complete the works in a “reasonable” time. The employer would only be entitled to damages if they could have established that the contract was not completed within a reasonable time. NEC contracts refer to “compensation events” rather than “relevant events”. Both parties must give early warning of anything that may delay the works or increase costs. They should then hold an early warning meeting to discuss how to avoid or mitigate impacts on the project. In the case of a compensation event, if the contractor fails to give early warning of a possible delay to the works, or increase in costs, they will only be compensated for effects that would have remained even if they had given early warning. 28 [1982] 20 BLR 1. 29 See e.g. Hamish Lal, The Rise And Rise Of “Time-Bar” Clauses: The “Real Issue” For Construction Arbitrators. Proceedings of the Institution of Civil Engineers, Management, Procurement and Law 160, February 2007, Issue MP1.

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could also resolve such “time-bar” issues as preliminary issues – swiftly and at less cost to the parties30 and thus avoiding time at large issues from developing. Whilst time-bar clauses and their explicit notice requirements may be effective in most of the world, the courts in the United States have taken a different view, which can be seen in Ace Constructors, Inc. v United States.31 Here the court held that the contractor was entitled to an equitable adjustment for the additional costs incurred due to a differing site condition resulting from an inaccurate topographical survey included in the government’s original solicitation.32 The court also ruled in favour of the contractor on the adequacy of notice with respect to its differing site conditions claim. The basis for the dispute arose from a contract with the US Army Corps of Engineers awarded to Ace under which Ace agreed to construct an ammunition facility to store and transfer ammunition to cargo aircraft. The project required the construction of a concrete-loading apron of approximately 9.5 acres and a 1,500-foot taxiway. The government’s solicitation included plans that superimposed the elevations required for the finished project over an aerial topographical survey of the site. In preparing its tender, Ace estimated from the government’s plans that the amount of fill needed for the project was approximately equivalent to the amount of fill to be excavated on the project site which meant that no off-site importation of soil was needed. However, after Ace entered into the contract, it retained a subcontractor to perform a topological survey of the project site. The topological survey indicated that the government’s plans were inaccurate in that the elevations depicted on the plans were lower than the actual elevations on the site. Accordingly, rather than there being a balanced site as shown on the government’s plans, the project would require the importation of fill from off-site. After examining the topological survey, Ace orally notified the contracting officer of the necessity of obtaining additional fill and submitted a Request for Information, which estimated that 125,000 cubic yards of additional fill would be required to construct the project. As directed by the government, Ace obtained the additional fill by increasing the size of retention ponds on the project and by importing fill from off-site. Overall, Ace was required to obtain approximately 129,000 cubic yards of additional fill as a result of the government’s erroneous plans. Upon completion of the project, Ace filed several claims with the government under the Contract Disputes Act seeking recovery of additional costs incurred on the project. Ace included a claim for differing site conditions that Ace maintained had resulted from the inaccurate site elevations included in the government’s solicitation. Specifically, Ace asserted that because the plans included in the government’s solicitation provided erroneous elevations, the lower site elevations actually encountered constituted a Type 1 differing site condition. As the court noted on appeal from the contracting officer’s denial of Ace’s claims, in order to demonstrate entitlement on a Type 1 differing site condition claim, a contractor must establish by the preponderance of the evidence that: [1]

the conditions indicated in the contract differ materially from those actually encountered during performance;

30 Ibid. 31 [2006] 70 Fed. Cl. 253. 32 See, Alexander N. Lamme, The Court of Federal Claims ‘Aces’ the Government, WTHF Article, Summer 2006.

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[2] [3] [4]

the conditions actually encountered were reasonably unforeseeable based on all information available at the time of bidding; the contractor reasonably relied upon its interpretation of the contract and contract-related documents; and the contractor was damaged as a result of the material variation between expected and encountered conditions.

The court determined that Ace had satisfied its burden of establishing a Type 1 differing site condition. In that regard, the Court held that Ace incurred substantial damages because the site conditions actually encountered by Ace were unexpected and differed materially from the conditions indicated in the government’s plans. Additionally, the Court found that the actual conditions encountered were reasonably unforeseeable to Ace at the time of bidding. On the issue of adequate notice, the Court rejected the government’s argument that Ace had failed to provide adequate and timely notice of the differing site condition. The government argued that Ace had failed to give prompt, written notice of the differing site condition as required by the contract’s differing site condition clause. In rejecting the government’s notice argument, the court held that notice was adequately conveyed by Ace through its verbal conversations with government representatives and by its submission of the Request for Information, which indicated that an additional 125,000 cubic yards of fill were required. Despite the contract’s stated requirement that written notice be provided, the Court indicated that “notice need not follow any specific format, but must merely make the Contracting Officer aware of the differing site condition”. Additionally, the Court noted that even where a contractor fails to provide adequate notice, a claim will not be barred unless the government can affirmatively demonstrate that it was prejudiced as a result of the lack of notice. In rejecting the government’s notice defense, the Court held that the government had failed to demonstrate any prejudice resulting from its claimed lack of notice. Based upon its determination that Ace had established a Type 1 differing site condition, the Court awarded Ace its additional labour and equipment costs (including a percentage markup for home office, field office and profit) resulting from the differing site condition. The Court also held that Ace had established a claim of constructive acceleration by demonstrating that the government’s refusal to grant Ace a time extension, combined with the government’s threat to assess liquidated damages, forced Ace to work expanded overtime. The Court awarded Ace its lost productivity costs associated with the constructive acceleration. Whilst this may strike one as minimalist notice, it is important to note that under most “time-barred” notice requirements, all that is necessary is to give what can be termed as bare notice33 “a one or two sentence letter from the contractor may do. There is no need for the Contractor to provide particulars within 28 days”. In reviewing any time-bar clause it is necessary to review the underlying intentions, and specifically that means whether or not the time-bar clause was drafted as a

33 See e.g. Seppala C., Contractors Claims Under FIDIC contracts (2005), 21 Const. Law Journal, 2005.

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condition precedent. In the House of Lords case of Bremer Handelgesellschaft Schaft MBH v Vanden Avenne Izegem PVBA,34 it was held that if a notice requirement clause (such as a time-bar provision) is to be a condition precedent, the clause must state the precise time for service and make it plain by express language that unless the notice is served within that time, the party required to give notice will lose its rights under that clause.35 Thus under that ruling both the FIDIC and NEC3 clauses would qualify because if the time limit is not met then all rights to the underlying claim are lost.36 As has been discussed earlier, there are cases from both Australia and Scotland which delve into the perpetual “prevention principle” versus “time-bar clause” issues. The cases which support “time-bar” clauses include the Australian cases of Turner Corporation Ltd v Co-ordinated Industries Pty37 and Décor Ceiling Pty Ltd v Cox Constructions Pty Ltd (No 2)38 as well as the previously cited Scottish case of City Inns Ltd v Shepherd Construction Ltd.39 It should be noted that in Turner, the court reviewed the direct conflict between the prevention principle and the condition precedent clause and wrote: If the Builder having a right to claim an extension of time fails to do so, it cannot claim that the act of prevention which would have entitled it to an extension … resulted in its inability to complete by that time. A party to a contract cannot rely upon preventing conduct of the other party where it failed to exercise a contractual right which it would have negated the effect of that preventing conduct.

And then in Décor the Supreme Court of South Australia reviewed the situation dealing with whether the subcontractor’s claims failed because a notice of claim required by a clause in the contract was not served by Décor. This clause stated: The Main Contractor shall not be liable upon any claim by the Subcontractor in respect of or arising out of a breach of the Subcontract unless within 28 days after the first day upon which the Subcontractor could reasonably have been aware of the breach, the Subcontractor has given to the Main Contractor’s Representative the prescribed notice. The Main Contractor shall not be liable upon any other claim by the Subcontractor for any extra cost or expense in respect of or arising out of any direction or approval by the Main Contractor’s Representative unless within 42 days of the entitlement to make the claim, the Subcontractor has given to the Main Contractor’s Representative the prescribed notice. 34 [1978] 2 Lloyd’s Law Reports 109. 35 See also Hamish Lal, The Rise And Rise Of “Time-Bar” Clauses: The “Real Issue For Construction Arbitrators. Proceedings of the Institution of Civil Engineers, Management, Procurement and Law 160, February 2007 Issue, MP1. 36 However one should compare the court’s ruling in Koch Hightex GmbH v New Millennium Experience Company Ltd (1999) CILL 1595, where it was held that the following express clause was not a condition precedent: “The provision of a guarantee and performance bond is a condition precedent to any liability or obligation of the New Millennium Company under the contract”. Here the court was not convinced that the employer and the contractor intended that the effect of their agreement should be that the contractor should be entitled to carry on works without being paid for some indefinite period until it chose to provide the guarantee and performance bond. 37 [1997] 13 BCL 378. 38 [2006] CILL March 2006. 39 [2003] ScotCS 146 (Inner House, Court of Session).

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Décor had argued that this clause was a condition precedent and therefore did not need to be pleaded, and the court agreed and took the view that compliance with this clause “is properly described as a condition precedent”. Then in City Inn the court dealt with a contractor’s obligation to comply with an express “time-bar” clause. Here, as mentioned earlier, the contractor had been awarded (by the architect and an adjudicator) a total nine-week extension of time. However, the employer argued that liquidated damages should be payable since the contractor had failed to comply with the express “time-bar” clause. The important part of the clause in question stated: If the Contractor fails to comply with one or more of the provisions of Clause 13.8.1, where the Architect has not dispensed with such compliance under 13.8.4, the Contractor shall not be entitled to any extension of time under Clause 25.3.

The court after reviewing this clause found for the employer and wrote: if he [the Contractor] wishes an extension of time, he must comply with the condition precedent that clause 13.8 provides for these specific circumstances…. But if the contractor fails to take the specified steps in clause 13.8.1, then, unless the architect waives the requirements of the clause under 13.8.4, the contractor will not be entitled to an extension of time on account of that particular instruction.

Taking the other position in favour of the prevention principle are the two cases of Gaymark Investments Pty Ltd v Walter Construction Group Ltd40 and Peninsula Balmain Pty Ltd v Abigroup Contractors Corp Pty Ltd.41 In Gaymark the contract dealt with extensions of time using the following provision: The Contractor shall only be entitled to an extension of time … where the Contractor . . . . . . has complied strictly with the provisions of Sub-Clause SC19.1 and in particular, has given the notices required by Sub-Clause SC19.1 strictly in the manner and within the times stipulated by that Sub-Clause.

Here, whilst it was agreed that the contractor had not complied with this provision and had not given notice as required, the court took the view that it was not a condition precedent to recovery.42 Then in Peninsula the New South Wales Court of Appeal was faced with a “time-bar” clause, which stated: The Principal shall not be liable upon any claim by the Contractor in respect of or arising out of a breach of the Contract unless within 28 days after the first day upon which the

40 [1999] 18 BCL 449. 41 [2002] NSWCA 211. 42 It should be noted that the court may have been concerned that the contractual term allowing the contract administrator an overriding discretion to grant extensions of time had been deleted by the parties. In the judge’s view the deletion of this term created an ambiguity since it failed to provide for actual delays caused by the employer.

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Contractor could reasonably have been aware of the breach, the Contractor has given to the Superintendent the prescribed notice.

Here again the contractor did not give proper notice, and the court held that the failure to give proper notice did not deprive the contractor of his right to an extension of time but “merely delayed it”, taking the position that the “prevention principle” was of greater importance than the “time-bar” clause and that in that case the superintendent should have exercised its unilateral power to grant an extension of time to cover the employer delay. Unfortunately the decision in Gaymark leaves much to be desired, and when added to the decision in Peninsula Balmain, it was felt that43 in the light of [these decisions] …, the condition precedent to an extension of time in SubClause 20.1 of the new suite of FIDIC forms …, if governed by Australian law, could result in the employer being prohibited from recovering liquidated damages in circumstances where the employer delays the contractor and the contractor fails to comply with SubClause 20.1.

Further to this it is interesting to also note that the Gaymark case was dealt a rather unpleasant review by the court in the UK case of Multiplex Construction v Honeywell Control Systems44 that was discussed earlier, in which the court stated that: Whatever may be the law of the Northern Territory of Australia, I have considerable doubt that Gaymark represents the law of England. ... If Gaymark is good law, then a contractor could disregard with impunity any provision making proper notice a condition precedent. At his option the contractor could set time at large.

The way forward is best resolved if “prevention principle” is considered as a “rule of construction” and not one of law, thus allowing drafters to allow express terms such as FIDIC 20.1 and the NEC3 61.3 to remove its operation from the contract, or as put forth by some writers,45 the “prevention principle” should not apply because the “proximate cause” for “the contractor’s loss is not one by the employer but the contractor’s failure to operate the contractual machinery such that there is no act of prevention by the employer”. But When Does the Delay Impact the Critical Path? The other issue as discussed earlier is that notice is only required in most cases from the contractor when an event or circumstances arise which may entitle it to any 43 See Smith G. The “Prevention Principle” and conditions precedent: relevant Australian developments’ International Construction Law Review, 2002, 397. See also I. N. Duncan Wallace, Liquidated Damages Down Under: Prevention by Whom? [2002] Construction and Engineering Law, (7)2, 23, where he states that Gaymark represents “a misunderstanding of the basis of the prevention theory” and “a mistaken understanding of the inherently consensual and interpretative basis of the prevention principle”. 44 [2007] EWHC 447 (TCC). 45 See also Hamish Lal, The Rise and Rise of “Time-Bar” Clauses: The “Real Issue” For Construction Arbitrators. Proceedings of the Institution of Civil Engineers, Management, Procurement and Law 160, February 2007 Issue, MP1.

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extension of time for completion and/or additional payment. So as to any extensions of time, how is the contractor to know if an “event” which occurs on day one will cause a delay later in the project or interfere with its critical path? The argument was that until “much later” I was not able to tell whether the “event” would or would not impact my completion as I may have been able to make up time and thus avoid any claim but I only found out later (183 days for example) after the “event” that I was going to incur delay and gave notice then.

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NPP projects and the resulting claims and disputes that arise from their construction can and do occur in a wide variety of jurisdictions, and whilst the prime focus of this book is the underlying legal principles inherent to the English Common Law system, it needs to be emphasised that this body of law is but a portion of the laws and legal systems applicable to the resolution of NPP claims, including those for delay and disruption. Those who process such claims, be they lawyers, engineers, quantity surveyors, architects, contractors or employers, need to have some understanding of the three main forms of legal systems in the world today and how they differ. These three are common law, civil law and Sharia law. The Common Law1 The law relating to “construction disputes”, more commonly known in England and Wales as “construction law”, arises from the fact that this particular field of endeavour tends to generate a large volume of disputes arising from the actual Works themselves, e.g. delay, disruption, prolongation and the like, as well as the performance of the professionals prior to the Works (e.g. architects, engineers, surveyors and then the Contractor) and its interactions with both these professionals and the Employer. The underlying basis for this is that all construction works are created by contract, some verbal, some written and some implied. In turn these contracts are grounded in the law of the country in which the contract is executed (or the country agreed upon by the parties), which ultimately governs its execution. For example, the FIDIC2 contracts state specifically that “The Contract shall be governed by the law of the country (or other jurisdiction) stated in the Appendix to Tender”. Common law refers to law derived from the courts and is to be differentiated from statutory law or regulatory law. In most common law countries there are “statutes” which are enacted by the legislature and/or “regulations” which are enacted by the executive branch through various departments or agencies, which are invested with power from a legislature. The common law, however, comes from actual court decisions over hundreds of years or from quasi-judicial tribunals. It is these court decisions, without the benefit of any express statutory authority, which form the basis for the contract law upon which the enforcement of construction disputes rely. 1 Adapted from Cyril Chern (2019), The Law of Construction Disputes, 3rd Edition, Informa Publishing London. 2 The International Federation of Consulting Engineers.

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In England and Wales, in Commonwealth countries and in most of the United States, the basic law of contracts does not exist in statute, but only in common law that is modifiable by statute, e.g. the Uniform Commercial Code in the United States. In almost all areas of the law, statutes can state the general principles, but any distinctions or definitions exist only in the common law. The “actual” law on a subject is thus the result of what is known as stare decisis (stare decisis et non quieta movere), which literally means “stand by decisions and do not move that which is quiet”, and under the common law one is bound by precedential decisions on the topic. History3 Prior to the existence of the common law concept in England, i.e. before William the Conqueror, society both in England and throughout much of Europe and in particular the Germanic peoples were subject to varied local customs that generally were unwritten, were not uniform and were enforced arbitrarily. In 1154, during the reign of Henry II, the common law system in England was institutionalised into “a unified system of law” which was “common” to the country through incorporating and elevating local custom to the national level, which ended local control, eliminated arbitrary remedies and reinstated a system which resolved claims by evaluating common local knowledge. Judges would be sent from the King’s central court to hear the various disputes throughout the country. These judges would then resolve disputes on an ad hoc basis according to what they interpreted the local customs to be. They would then return to London and would discuss their cases and the decisions they made with the other judges before recording their decisions. Over time the rule mentioned earlier of stare decisis developed, where a judge would be bound to follow the decision of an earlier judge and would be required to adopt the earlier judge’s interpretation of the law and apply the same principles promulgated by that earlier judge, if the two cases had similar facts. By this system of precedent, decisions became useable, and with that the pre-Norman system of disparate local customs was replaced by a consistent system of laws that was common throughout the whole country, hence the name “common law”. Stare Decisis The rule of stare decisis has two components. The first component is that a decision made by a superior court is binding on a lower court. This is known as “binding precedent” or “binding authority”. Under the English system precedent is usually created by the decision of a higher court, such as the House of Lords, which has now become the Supreme Court of the United Kingdom after taking over the judicial functions of the House of Lords in 2009. This differs from civil law and pluralist systems, such as Scots law, where precedent is not binding, but instead case law will be taken into account by the courts in rendering their decisions. The second component is that a court should not overturn its own precedents

3 See Dr Cyril Chern (2019), Chern on Dispute Boards: Practice and Procedure 4th Edition, Informa Publishing, London.

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unless there is a strong reason to do so and should be guided by principles from lateral and lower courts as required under the circumstances. This also leads to what is known as “persuasive precedent”, which, while not binding on the particular court, is “advisory” in nature and something that can be ignored if necessary. In the common law system, there are various levels of courts usually commencing with the trial courts, whose decisions can be reviewed by the intermediate appellate courts and thereafter by a supreme court, such as in the UK. The inferior courts, i.e. the trial courts, are where the matters commence, and they are bound to obey precedents established by the appellate court for their jurisdiction and all Supreme Court precedent. It is interesting to note where arbitrations and adjudications fit into this picture. In most international adjudications, e.g. FIDIC contact related, there is recourse to arbitration for an “appeal”type process and from there to the “trial” court level and upwards from that point. As will be seen in later chapters, arbitrators may or may not be required to follow the law, but for purposes of this chapter the “chain” of stare decisis would be from the Supreme Court down to the appellate court to the trial court to arbitration and then to adjudication. One succinct explanation of this principle was set out in a North American case where the Supreme Court of California4 wrote: [u]nder the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction. Otherwise, the doctrine of stare decisis makes no sense. The decisions of this court are binding upon and must be followed by all the state courts of California. Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. Courts exercising inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a higher court.

While discussing this principle it is interesting to note that there are slight modifications in the various jurisdictions; however, generally this method of “filtering down” decisions from the Supreme Court is referred to as “vertical stare decisis”.5 This concept of vertical stare decisis, based upon the idea that a judge, for reasons of commercial and social stability, should be bound by judges of higher courts, has another facet, and that is that a judge should also respect the decisions of earlier judges of similar or of a coordinate level. This is known as “horizontal stare decisis”.6

4 Auto Equity Sales, Inc v Superior Court, 57 Cal. 2d 450 (1962). 5 It is interesting to note that in the United States there are effectively two separate common law legal systems – the State system and the Federal system. However, in the Federal system the division between federal and local law can cause interesting problems to develop regarding stare decisis as state courts in the United States are not considered inferior to federal courts but rather constitute a parallel court system. There, state courts must follow decisions of the United States Supreme Court on issues of federal law, and Federal Courts must follow decisions of the highest courts of each State on issues of that State’s law. However, decisions of the intermediate Federal Appellate Courts (i.e. the Federal Circuit Courts) are not binding on any state courts, and vice versa. In practice, however, judges in one system will usually choose to follow relevant case law in the other system to prevent divergent results. Also it should be noted that while the United States follows the English common law, one state, Louisiana, follows the Civil Law having derived its original system from the Napoleonic Code. 6 Again with reference to the English common law as practised in the United States, there the Federal Court system and the intermediate appellate courts are divided into “circuits”. Each panel of judges on the Court of

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In the UK, the House of Lords was the court of last appeal before it evolved into the Supreme Court of the UK, and until London Street Tramways v London County Council,7 it was not strictly bound to always follow its own decisions. In that case the Earl of Halsbury LC wrote: it has now been admitted that there is upon this very question a decision of this House…. My Lords, for my own part I am prepared to say that I adhere in terms to what has been said by Lord Campbell and assented to by Lord Wensleydale, Lord Cranworth, Lord Chelmsford and others, that a decision of this House once given upon a point of law is conclusive upon this House afterwards, and that it is impossible to raise that question again as if it was res integra and could be reargued, and so the House be asked to reverse its own decision. That is a principle which has been, I believe, without any real decision to the contrary, established now for some centuries, and I am therefore of opinion that in this case it is not competent for us to rehear and for counsel to reargue a question which has been recently decided.

After this case, once the Lords had given a ruling on a point of law, the matter was closed unless and until Parliament made a change by statute. This rather strict view was modified after the Practice Statement of 1966, which allowed the House of Lords to adapt English law to meet changing social conditions. Although the House of Lords would treat its decisions as normally binding, it would depart from these when it appeared right to do so. It should be noted, however, that despite this, the Practice Statement has been seldom applied by the House of Lords and then usually only as a last resort. This is one of the major differences between the stare decisis principle in the UK and in the USA. In the United States the Supreme Court can, and does, overrule itself. There, for example, the court wrote in Burnet v Coronado Oil & Gas Co:8 Stare decisis is usually the wise policy, because in most matters it is more important that the applicable rule of law be settled than that it be settled right. … But in cases involving the Federal Constitution, where correction through legislative action is practically impossible, this Court has often overruled its earlier decisions. … This is strikingly true of cases under the due process clause.

The United States Supreme Court further wrote in Smith v Allwright:9 [W]hen convinced of former error, this Court has never felt constrained to follow precedent. In constitutional questions, where correction depends upon amendment, and not upon legislative action, this Court throughout its history has freely exercised its power to re-examine the basis of its constitutional decisions.

It is interesting to note that while in the UK the House of Lords rarely reverses itself, the United States Supreme Court in the period 1946–1992 alone reversed itself in about 130 cases. Appeals for a circuit is bound to obey the prior appellate decisions of the same circuit. Precedents of a United States court of appeals may be overruled only by the court en banc, i.e. a session of all the active appellate judges of the circuit, or by the US Supreme Court. 7 [1898] AC 375. 8 285 US 393. 9 321 US 649.

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Further, with the advent of the EU under section 3(1) of the European Communities Act 1972, decisions of the European Court of Justice are binding in matters of community law on all English courts despite the fact that it is not bound by its own previous decisions. Accordingly, the new order of stare decisis (post Brexit) in the UK is as follows: (1) European Court of Justice10 (2) The Supreme Court of the United Kingdom (formerly the House of Lords) (3) Court of Appeal: Here the Court of Appeal is bound by decisions of the Supreme Court of the United Kingdom even if it considers them to be wrong. In Young v Bristol Aeroplane Co Ltd, the Court of Appeal held that it was bound by its own previous decisions subject to the following three exceptions: (i) Where there are two conflicting decisions the Court of Appeal must decide which to follow and which to reject; (ii) Where a decision of its own has been impliedly overruled by the House of Lords; (iii) Where the previous decision was given by carelessness or mistake. (4) Divisional Courts: A Divisional Court is bound by the House of Lords and the Court of Appeal and normally follows a previous decision of another Divisional Court. (5) High Court: The High Court is bound by the Court of Appeal and the House of Lords but is not bound by other High Court decisions. However, other High Court decisions are of strong persuasive authority in the High Court and are usually followed. Decisions of individual High Court judges are binding on the county courts. (6) Crown Courts: Decisions made on points of law by judges sitting at the Crown Court are not binding, though they are of persuasive authority. (7) County Courts and Magistrates’ Courts: Decisions of these courts are not binding.

10 It should be noted that with the UK’s withdrawal from the EU the United Kingdom ceased to be a member state of the European Union and the UK ceased to have rights or obligations arising out of the EU. These fundamental legal changes will necessarily affect the relationship between the UK and the European Court of Justice (ECJ): the UK will lose its right to appoint judges to the ECJ or to be a party to cases before it; UK courts will have no power or duty to refer points of EU law to the ECJ for a preliminary ruling; and the EU Commission will have no power to bring proceedings against the UK for non-compliance with its obligations under the EU treaties. However, the status of the ECJ as the supreme court of the EU will not be changed: it will still uphold the rule of law within the EU, and give final rulings on the validity and interpretation of EU law. It will remain the final court of appeal against decisions by the EU institutions. That was its role before the UK joined the European Communities and it will remain its role after.

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It should also be noted the effect of the European Court of Human Rights pursuant to the Human Rights Act 1998, where courts in the UK must now have regard to decisions of the European Court of Human Rights. Further, as to the principle of stare decisis, it should be noted that only the actual statements of law are binding, and these are the reasons for the decision or “ratio decidendi”. All other reasoning within a judgment is known as “obiter dictum”. If a statutory provision or precedent had not been brought to the previous court’s attention before its decision, the precedent would not be binding. Also, if a court finds a material difference between cases, then it can choose not to be bound by the precedent. Persuasive precedents are those that have been set by lower courts and, as already mentioned, while they may be persuasive, they are not binding. Most importantly, precedents can be overruled by a subsequent decision by a superior court or by an Act of Parliament. Common Law Countries The common law constitutes the basis of most former English-speaking and/or British Commonwealth countries including: • • • • •

England & Wales Australia Canada (except Quebec) Sri Lanka Singapore

• • • • •

Northern Ireland New Zealand South Africa Malaysia Hong Kong

• • • • •

The Republic of Ireland USA (except Louisiana) India Pakistan Malta

Stare decisis, therefore, is not usually a doctrine used in civil law systems because, as will be seen in the next section, it violates the principle that only the legislature may make law. However, the civil law system does have jurisprudence constante, which is similar to stare decisis and dictates that the courts’ decisions move in the direction of maintaining a predictable result for the benefit of society and commerce. Thus, theoretically inferior courts are generally not bound to precedents established by superior courts. However, in practice, the need for predictability dictates that inferior courts generally defer to precedents by superior courts. In a sense, the most superior courts in civil law jurisdictions, such as the Cour de Cassation and the Conseil d’État in France, are recognised as being bodies of a quasi-legislative nature. The doctrine of jurisprudence constante also influences how court decisions are structured. In general, court decisions of common law jurisdictions are extremely detailed with lengthy speeches by the court providing reasoning behind the decision and how it was reached. This occurs to justify a court decision on the basis of previous case law as well as to make it easier to use the decision as a precedent for future cases. By contrast, court decisions in some civil law jurisdictions, such as France, tend to be extremely brief, mentioning only the relevant legislation and not going into great detail about how a decision was reached. This is the result of the theoretical view that the court is only interpreting the view of the legislature and that detailed exposition is unnecessary. As a consequence, much more of the exposition of the law is done by academic jurists who provide the explanations, whereas in common law nations this would be provided by the judges themselves. 448

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Court opinions in other civil law jurisdictions, e.g. Germany, tend to be much longer than those in France, and courts will frequently cite previous cases and academic writing. However, some of these courts place less emphasis on the particular facts of the case than common law courts, instead emphasising the discussion of various doctrinal arguments and finding what the correct interpretation of the law should be. Civil Law11 Civil law is the predominant legal system in the world today. The original difference between the common law and civil law was that the common law developed through custom and practice, beginning before there were any written laws and continuing to be applied by courts after there were written laws, whereas civil law developed out of the Roman law of Justinian’s Corpus Juris Civilis. The civil law, over time, became codified as droit coutumier or customary law, which was in effect “statutory-like” local compilations of legal principles recognised as normative. In the eighteenth century, during the age of enlightenment, attempts to codify private law began as an expression of both natural law and the ideals that began in the Enlightenment. Those ideals required the creation of certainty of law through the recording of law and through its uniformity. Gradually, the old Roman law, and its interaction with the customary and local laws, began to disappear, followed by the Codex Maximilianeus Bavaricus Civilis in Bavaria in 1756, the Allgemeines Landrecht in Prussia in 1794 and the West Galician Code in Galicia, which was then part of Austria, in 1797. It was not until after the French Revolution that “civil codes” with any lasting import began. These started with the Napoleonic Code and continued in other jurisdictions during the nineteenth century as the recording of the law that would eventually become applicable to the various nation states such as Austria’s Allgemeines Bürgerliches Gesetzbuch (ABGB), Spain’s Código Civil and the Netherlands and Germany with their Bürgerliches Gesetzbuch (or BGB). The Napoleonic Code The Napoleonic Code, known originally as the Code Civil des Français, is the French Civil Code, established under Napoléon I in 1804 and originally drafted by four jurists. For its time, it was striking in that it forbade privileges based on birth, allowed freedom of religion and specified that government jobs go to the most qualified. While it was not the first legal code to be established in a European country with a civil legal system, it was, with its stress on clearly written and accessible law, a major step in establishing the rule of law. Historically, the Napoleonic Code was not based on earlier French laws but instead developed out of the various customs of France, notably the Coutume de Paris, and this process of re-codification was inspired by Justinian’s Corpus Juris Civilis in dividing civil law into: 1. The law of persons 2. The law of property 3. Acquisition of property 11 Ibid. at ftn 1.

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Before the code, France did not have a single set of laws but instead depended on local customs and often on exemptions, privileges and special charters granted by the kings or other feudal lords, which were removed during the French Revolution. Specifically, the many different legal systems used in different parts of France were to be replaced by a single legal code, the drafting of which was led by Jean Jacques Régis de Cambacérès, then the Second Consul under Napoleon. In ancien régime France, law courts, which were then known as the “Parlements”, often took a somewhat legislative role where the judge would either protest a royal decision, i.e. protest excesses of royal power or, on some occasions, defend the privileges of the social classes to which the judges belonged. The latter was especially true in the final years before the French Revolution, and as a result, the French Revolutionaries took a negative view of judges making law. This was reflected in the Napoleonic Code provisions, which prohibited judges from passing judgments exceeding the matter that is to be judged, because general rules were within the domain of the legislative not the judiciary power. As mentioned in the previous section, in theory, there is no case law in France. Despite this the French courts had to fill the gaps in the laws and regulations. This resulted in a large body of jurisprudence being developed, and although there is no actual stare decisis the decisions by important courts have become more or less equivalent to case law. Key to all of this is that the code established certain important provisions regarding the rule of law. Laws could be applied only if they had been duly promulgated and only if they had been published officially, which meant that no secret laws were authorised. Additionally, ex post facto laws were also prohibited, and importantly the code also prohibited judges from refusing justice on grounds of insufficiency of the law thus encouraging the courts to interpret the law and to give “case specific” decisions rather than handing down general judgments, which had functioned in the past as a substitute for the legislature. In 1808, the Code d’instruction criminelle was published and is the basis of the modern “inquisitorial system” of criminal courts used in France and in many civil law jurisdictions. Interestingly, in light of the current trend in the EU as to the European Court of Human Rights, the French Revolution’s Declaration of the Rights of Man and of the Citizen almost 200 years earlier had taken up the banner of protecting the weaker in society from the perils of a strong regime. Indeed, Napoleon remarked that care should be taken to preserve personal freedoms, especially when the case was before the Imperial Court, as “these courts would have a great strength, they should be prohibited from abusing this situation against weak citizen without connections”. It should also be noted that while it was not until 1836 in England that prisoners charged with a major crime were allowed to have counsel, article 294 of the Code d’instruction criminelle allowed the defendant to have a lawyer before the Court of Assizes and mandated the court to appoint the defendant a lawyer if the defendant did not have one. Failure to do so would render the proceedings null and void. Even though the Napoleonic Code was not the first civil code and did not represent the whole of his empire, it was one of the most influential. It was adopted in many countries occupied by the French during the Napoleonic Wars and, thus, formed the basis of the private law systems in countries including Italy, the Netherlands, Belgium, Spain, Portugal 450

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and their former colonies. In the German regions on the left bank of the Rhine (Rhenish Palatinate and Prussian Rhine Province), the former Duchy of Berg and the Grand Duchy of Baden, the Napoleonic Code was in use until the introduction of the Bürgerliches Gesetzbuch in 1900 as the first common civil code for the entire German Empire. Indeed, the Napoleonic Code was in force in central Poland from 1808 to 1946 and was also adopted in 1864 in Romania (with some modifications) and which is still in force. Further, it was also adopted in Egypt as part of the system of mixed courts introduced in Egypt after the fall of Khedive Ismail.12 Other codes with some influence in their own right on the codification of the civil law were the Swiss, German and Austrian codes, but even there, some influence of the French code can be felt, as the Napoleonic Code is considered the first successful codification. Thus, the Napoleonic Code has to different degrees influenced the civil law systems of the countries of modern continental Europe, with the exception of Russia and the Scandinavian countries. Additionally, in the United States, the State of Louisiana’s civil code has kept its Roman roots, and some of its aspects feature influences of the Napoleonic Code, with the inclusion of both Roman and Spanish civil traditions. The term “Napoleonic Code” is also used to refer to legal codes of other jurisdictions that are influenced by the French Code Napoleon, especially the civil code of Quebec, which was derived from the Coutume de Paris, which the British continued to use in Canada following the Treaty of Paris in 1763. Most of the laws in Latin American countries are also based in the Napoleonic Code, such as the Chilean Civil Code and the Puerto Rican Civil Code. Differences Between Common and Civil Law Codification is not the only difference between civil and the common law. The important distinction between codes and statutes is the methodological approach taken by the courts. In civil law countries, legislation is seen as the primary source of law, and the courts base their judgments on the provisions of codes and statutes from which solutions in particular cases are to be derived. Thus, courts have to reason extensively on the basis of general rules and principles of the code, often drawing analogies from statutory provisions to fill any gaps in the understanding of the statute and to achieve coherence. In the common law, cases are the primary source of law while statutes are only seen as incursions into the common law and, thus, interpreted narrowly. Another difference between the common and civil law countries lies in the methods used by the judiciary. In the United States, judges are seen as balancing the power of the other branches of government. In civil law in France, however, the concept of separation of powers is accomplished by assigning different roles to the legislature and to the judges, with the judge as la bouche de la loi: “the mouth of the law”. That is why under the civil law the concept of binding precedent does not exist to the same extent that it does under the common law, and certain civil law systems are based upon the inquisitorial system (similar to dispute boards) rather than the adversarial system of the common law countries.

12 Having been translated into Arabic from the French by Youssef Wahba Pasha between 1881 and 1883.

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Civil law Countries Civil or civilian law is a legal tradition which is the base of the law in the majority of countries of the world, including: • France (and former colonies) • Germany • Greece • Japan • Denmark • Finland • Quebec (Canada) • China (a mix of civil and socialist law)

• Italy (and former colonies) • Austria • Portugal • South Korea • Norway • Iceland • Puerto Rico (USA) • Russia (a mix of civil and socialist law)

• Spain (and former colonies) • Switzerland • Turkey • Republic of China (Taiwan) • Sweden • Louisiana (USA) • Latin America

Sharia – Islamic Law13 While most countries utilise either the common law or civil law, there is a third body of law which is applicable to construction dispute resolution via arbitration and/or adjudication, is used either directly or as an adjunct to the civil law and is prevalent in countries such as Saudi Arabia, Egypt and Iran.14 History Historically, Sharia, or Shari’ah, is the body of Islamic law and the legal framework in Muslim legal systems that deals with aspects of both business law and contract law. Some Islamic scholars accept as the body of precedent and legal theory established before the nineteenth century while other scholars view Sharia as a changing body and include Islamic legal theory from the contemporary period. Before Islam, the Arabs resolved their disputes without the use of any formal court system. This was done either through arbitration or through conciliation and was administered through tribal chiefs or other respected tribal elders. The resolution of disputes during this period relied on the parties’ first coming to an agreement as to the extent to which any resolution of their dispute would be binding upon them. The coming of Islam brought with it the development of a legal system known as Sharia, which in effect recognised and upheld the earlier dispute resolution procedures. The ability to settle disputes amicably is seen in Sharia. Dispute resolution techniques, notably arbitration, are seen in all four sources of Sharia. This totality of Sharia is based upon the Quran (Koran): Sunna (the acts and sayings of the Prophet Mohammad (pbuh)); Idjma’ (the consensus of opinion – which is similar to the concept of “common law”) and Qiyas (which is reasoning by analogy). Whether dispute resolution is binding or not is, of course, still dependent upon 13 Ibid. at ftn 1. 14 The author would like to thank Mariam El-Awa for assistance with this section.

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the intent of the parties, and this can be determined best if the parties at the inception have an agreement as to whether any dispute resolution decision is final and binding upon them. Thus agreements for such dispute resolution methods as arbitration could be made binding, or even dispute board decisions. Conciliation, similar to mediation, is permitted under Islamic law in civil, commercial, family and other matters, as long as it does not permit acts against God’s commands or the matter settled by conciliation falls in the ambit of rights of God, i.e. crimes and their sanctions. Again, this method of dispute resolution is also dependent upon the agreement of the parties to its being held as binding. Sharia does not give detailed rules on any form of dispute resolution. The Quran sets out general principles, which govern individuals and, like in the common law countries, it is the jurists who are responsible for expanding and clarifying various aspects as necessary. The interpretation of the Quran, known as the “Ijtihad”, is where the Islamic jurists give their elaborations and deductions as needed by society, and it is this area of Sharia that governs in matters such as dispute resolution. It is important to note that there are four major doctrinal schools of Islamic Sharia, each with a slightly different view on dispute resolution, in particular dealing with arbitration and conciliation. Both of these principles are also part of the adjudication processes such as dispute boards and as such become part of this discussion. Hanafi Islamic Sharia Hanafi Islamic Sharia places a great deal of emphasis on the agreement of the parties in the settlement of disputes, i.e. through arbitration, and finds that arbitration is similar to conciliation and that an arbitrator acts as the agent of the parties who have appointed him. Under this school of thought, any award of an arbitrator is not the same as a court judgment but rather similar to conciliation between the parties. However, the scholars who developed this school of Sharia law feel that the parties must accept the award made in an arbitration, if the parties have agreed in writing to be bound by the award. Shafi Islamic Sharia Under the principles of Shafi Islamic Sharia dispute resolution methods, such as arbitration, are a legal practice, whether or not there is a judge in place where the dispute has arisen.15 The difference here is that arbitrators are held to be at a level below that of judges because an arbitrator can be removed at any time prior to his issuing any award. Hanbali Islamic Sharia Hanbali Islamic Sharia is of the position that awards have the same stature and are as binding as a court’s judgment. Here the one making an award must have the same qualifications as a judge, and as such any awards made by an arbitrator are binding.16

15 Samir Saleh (1984), Commercial Arbitration in the Arab Middle East: A Study in Sharia and Statute Law, Graham & Tortman, London, 22. 16 Abdul Hamid El-Ahdab, supra note 10, at 19.

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Maliki Islamic Sharia Maliki Islamic Sharia accepts that one of the parties can be chosen as an arbitrator by the other disputing party. This is explained by the fact that one relies upon the conscience of the other party.17 The Maliki also feel that whoever is acting as the dispute resolver, such as an arbitrator, cannot be revoked after the commencement of the arbitration proceedings. All of these Schools of Islamic Sharia Law base their rules on the use of an agreement that confers the powers upon the dispute resolver to make a binding decision18 as well as the full consent of all of the parties. Interestingly, whether or not any such agreement is to be written or oral is not decided by any school in Sharia. In the leading case between the Caliph “Ali Ben Abi Taleb” and “Muawya Bin Abi Sofian”, the two parties agreed to appoint two arbitrators in a written deed which stated the names of the arbitrators, the time limit for making the award, the applicable law and the place of issue of the award.19 In this dispute the parties used arbitration to settle the dispute, but the arbitration clause was not effective.20 Here, the issue arose as to whether under Sharia a “future” dispute could be referred to arbitration or only disputes that had come into being. All four schools of thought only dealt with disputes that were already in existence and not with disputes that had not yet occurred. While this matter has been the subject of much debate, the underlying Sharia principle is that parties to a contract are allowed to contract for whatever they decide so long as whatever they decide is not against any of God’s specific commands such as adding contract provisions allowing interest. Dispute resolution clauses, such as ones dealing with arbitration, which are beneficial in allowing quick and reasonable solutions to complex commercial matters and which do not contravene any of God’s commands are considered valid. The older view that such dispute provisions are not truly binding and that such agreements are revocable options rather than contractual undertakings21 led some classical jurists in Islamic countries to argue as to whether such agreements are binding,22 either at the start of the agreement or through to final completion. This was later incorporated in Al-Majala, which was later codified in the laws of the Ottoman Empire.23 Modern thinkers now take the view that the older concept of non-binding agreements to sort disputes is “obsolete, superficial and ill-founded”.24 The current view under Sharia law is that any such dispute agreements (such as arbitration) are binding upon all of the parties once the agreement has been entered into and that the parties are also bound by any decision which flows from that agreement, e.g. the arbitrator’s award. Islamic scholars have taken the position that the binding nature of dispute resolution agreements flows

17 See Samir Saleh, supra note 15, at 21; Abdul Hamid El-Ahdab, supra note 1, at 21. 18 MI Abul-Enein, supra note 10, at 5. 19 Walied, El-Malik, Mineral Investment Under the Sharia Law, Graham & Tortman, London, 1993 at 127. 20 Although the two arbitrators in this case came to different conclusions and held different views, this arbitration was a very important instance, in history, of Islamic law and arbitration. See S. Mahamassani (1967), International in the Light of Islamic Doctrine, Acadé mie de Droit International, Recueil des cours, 272. 21 Abdul Hamid El-Ahdab, supra note 7, at 24. 22 The Hanafi, Shafi and Hanbali schools give each party the right to withdraw his consent for arbitration at any time. See Al-Mawardi, Abu Al- Hassan, Adab al-Qadi (Cairo: Saadah Publication 1327H) at 383. 23 Article 1848. 24 Abdul Razak Al-Sanhury, Masader Al-Haq, Vol 1, Dar Al-Nahza Al-Arbia, Cairo, 1968 at 80.

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from the Quran, where it states “and fulfil every agreement, for every engagement”.25 This meaning was stressed by the Prophet Mohamed (pbuh), who said, “Believers should honour their engagements”. It is now widely held that once entered into, such dispute resolution agreements, so long as freely made, will be upheld, but as the Quran does not mention rules and procedures, how dispute resolvers are to be selected and/or other matters, the parties themselves or the State are able to make these determinations. For example, the parties are free to agree on the manner and method of selection of arbitrators or any other dispute resolver(s). While the parties are free to agree on a method to pick individuals or to define the dispute resolvers by the position they are to occupy, none of the four schools of thought talk about having anyone other than the parties to a dispute choose the person(s) who will act to resolve the matter. There is no mention of any third person making any selection or any entity. But despite no mention being made of how this would work, there is also nothing under Sharia law that prohibits the appointment of any dispute resolver by others than those involved with the dispute, i.e. some appointing body such as the ICC. Additionally, none of the four schools of thought place any restriction on the number of dispute resolvers that may be used or appointed. It is left entirely to the parties to decide whether they want one or three or more acting as dispute resolvers or arbitrators, and additionally, the number need not be an even number. However, a divergence of views occurs as to whether, once arbitration has started, the arbitrator can be removed unilaterally by either of the parties. Both Shafi and Hanafi allow the unilateral removal of an arbitrator at any time prior to his giving his award. The Maliki, however, do not allow any unilateral removal once the procedure has commenced. Of course, under any of the schools of thought, any dispute resolver can be removed if all of the parties agree. It should also be noted that if one of the parties to the dispute is not Muslim and a nonIslamic legal system/procedure is utilised, this will be recognised by Maliki, Shafi and Hanbali Islamic Sharia. Also, as several Muslim countries are signatories to the New York Convention, they have, as a result, approved of these Muslim/Non-Muslim methods of dispute resolution so long as the underlying rules do not violate the express rules of either the Quran or Sunna.26 The four schools of Islamic Sharia agree that the only matters which are not subject to dispute resolution by individuals such as arbitrators, etc., are matters relating to the “Rights of God”:27 in other words, areas of the law including family matters, criminal matters and areas of public policy must be referred to the Islamic Courts. Other than areas that are specifically prohibited, dispute resolution using arbitration, mediation, dispute boards, adjudication or similar processes can be used. The Maliki, Hanbali, Hanafi and the majority of Shafi28 Sharia schools hold that an arbitral award is as enforceable as a court judgment once a judge has reviewed the decision/ 25 Under Maliki Sharia once the parties have consented to arbitrate (at the time of the initial agreement), they are bound by their agreement and are not be permitted to negate the underlying agreement. 26 Prophet Mohammad (pbuh) in the case known as “Banu Quraydah” accepted the application of customary and Mosaic law in lieu of Islamic law. 27 Samir Saleh, supra note 15, at 47. 28 The minority of Shafi Sharia are of the position that the arbitral award cannot be binding and enforceable unless all parties accept it as part of the agreement to arbitrate.

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award of the arbitrator and has ruled that it is enforceable. The Maliki, Hanafi, Hanbali and the Shafi majority also hold that if absent an obvious error on the face of the award or if it is “unjust” the judge is required to enforce an arbitral award and must do so even if that judge does not agree with the opinion contained in the award, and further, the judge is not allowed to delve into the merits of the award itself or the actual reasoning by the arbitrator. Indeed, one of the only reasons to set an award aside is if the award is in violation of public policy or Sharia Law.29 Sharia does not have a strictly codified uniform set of laws. In a way it is more similar to common law as it is a system of devising laws, based on the Quran, Hadith, and centuries of debate, interpretation and precedent. Additionally, there are no specific rules of procedure in Sharia Law. Every country chooses its own procedural law as it wishes. So, for example, the procedures in Saudi Arabia and Iran are very much similar to those in civil law countries, like Egypt and France. In fact, the Saudi laws that have been enacted in the last 60 years are based on Egyptian laws. When it comes to court procedure, the procedure in Saudi Arabia and Iran is much less complicated than the procedure in Egypt, which is taken directly from the French Civil Law. Due to this lack of specific procedure, any arbitration undertaken without resort to an appointing body or, for example, an adjudication, which is part of an ad hoc programme, needs to have as its contractual system as much detail as possible. This is necessary to avoid any ambiguity or procedural gaps that may lead to legal disputes before the courts and any potential resulting judicial intervention in interpreting the adjudication agreement. As always, a detailed contract is the best choice to prevent any judicial “over”-interpretation. This principle, that the contract is the “law of the parties”, is a Sharia principle as much as it is a worldwide-accepted concept. ADR Procedure There are some procedural steps that should be set out in detail in any Alternative Dispute Resolution (ADR) contract that may have to later rely on Sharia Law. These are: Enforcement Provisions As far as enforcement is concerned, ADR decisions would be enforced via the courts in both Saudi Arabia and Iran according to the arbitration law of each country. The Saudi Arbitration Law (SAL) would take this decision to the Board of Mazalim jurisdiction “Diwan Al-Mazalim”.30 The Commercial Circuit (CC) in the Diwan will revise the decision and decide whether it is enforceable in Saudi Arabia or not. The Commercial Circuit in Diwan Al-Mazalim 29 “Public policy” under Sharia refers to the overall intent and spirit of the law and its roots in the Koran and Sunna unless, as it is said, “they forbid what is authorized and authorize what is forbidden”. 30 Mazalim is an Arabic word literally meaning complaints. This jurisdiction is very similar on one hand to administrative jurisdiction in civil law countries, and on the other hand it contains commercial and other circuits. Diwan Al-Mazalim was established in Saudi Arabia to avoid naming courts other than the Sharia court. Although some of the judges of the Diwan are only qualified in Sharia, most of them are qualified in law as well.

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could also revise any arbitration award or ADR decision sought to be enforced by the court’s coercive powers in Saudi Arabia – according to the substantive rules of Sharia as expressed in the Hanbali School of Law.31 This revising power finds its base in article (39) of the implementation rules, which binds the tribunal to issue its award in accordance with Sharia Law. The same also applies to dispute boards. In Iran, the competent court, according to the Iranian Arbitration Law (IAL) will play the same role. The main difference is that the Iranian Arbitration Law is based on the UNCITRAL Model Law while the Saudi Arbitration Law is not. The competent Iranian court will decide the enforceability of the award in Iran according to the requirements of article 33(1) of the Iranian Arbitration Law. Enforcement of Adjudication Decisions versus arbitration awards The contract between the parties should make clear whether the ADR decision is an arbitration award or advisory or binding adjudicatory decision, and if combined the distinction should be clear. Because, if any of these are not amicably enforced, they would be subject to substantive review in Saudi Arabia by the Commercial Circuit of Diwan Al-Mazalim. Additionally, the newest forms of ADR using dispute boards bring with them enforcement issues caused by the differences between recommendations and decisions. These are as follows: Dispute Review Board Decisions • An ADR proceeding such as a Dispute Review Board could, for example, issue a recommendation, which is open to acceptance. In the recommendation situation if neither of the parties sends a notice of dissatisfaction to the other party,32 this recommendation is considered a final and binding resolution to the issue in question. The parties are required to enforce it and it would not be subject to any further recourse. • The party seeking to enforce the Dispute Review Board’s decision should refer the other party’s failure to agree to a binding form of ADR. If an arbitration award were issued in favour of the claimant, the claimant could seek enforcement in Diwan Al-Mazalim. The Diwan will revise the award. The dispute referred to arbitration will not be seen as the mere failure to comply with the Dispute Review Board’s decision, but the supervisory power of the Diwan will extend to include a substantive review of the Dispute Review Board’s decision. The same will happen if the failure to comply with the dispute board’s decision is by itself referred to Al-Diwan.

31 Two main sects exist in Islam: Sunni sect in which there are four different schools of law, Hanbali, Hanafi, Shafeay and Maliki schools; and the Shiite sect in which there are two schools of law, Zidi and Jafari schools. There are two other schools of law in Muslim jurisprudence, which are the Zahiri and the Ibadi schools. The school followed in Saudi Arabia is the Hanbali School of Law. Its rules represent the main source of the Saudi legal system. 32 According to the agreed procedure and time limits.

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Dispute Adjudication Board Decisions • A Dispute Adjudication Board will issue a decision, which will be accepted by both parties and, thus, enforced amicably. Or the other party will serve a notice of dissatisfaction on one party. Consequently, the Dispute Adjudication Board’s decision will be temporarily binding pending final resolution if either party so desires. • A temporarily binding decision is not likely to be capable of enforcement in Saudi Arabia. A notice of dissatisfaction would have an effect of an accepted application for leave to appeal in the court’s system – in suspending enforcement of the Dispute Adjudication Board’s decision. The Form of the Dispute Board Decision No binding rule on the form of dispute board decisions is available in Sharia law. It should follow the form agreed upon by the parties. In the case of no agreement, it will take the form the board members deem proper. However, the dispute board decision must always be in writing, and good practice dictates that if the form of the decision is not stated either the parties should agree on a format, or the dispute board members should set one out for the agreement of the parties as part of their board procedure. Particulars as to the Kingdom of Saudi Arabia As mentioned earlier, the enforcement of a dispute board decision is likely to end up in the form of an arbitration award. Hence, the constraints relevant to Sharia law in the Saudi Arbitration Law (SAL) are relevant to arbitration as they are to dispute board decisions. Also, some public order Sharia substantive principles will be of significant relevance. Most important in this regard is that no interest should apply to any amount of money to be paid. The right to be heard on all issues, natural law or due process and a fair hearing for both parties and their representatives should be clearly shown by the decision in order to prove that a fair trial has taken place. On 8 June 2012, Saudi Arabia published its new Arbitration Regulation (Royal Decree No. M/34) (the New Arbitration Regulation, NAR), replacing the Arbitration Regulation of 1983 (Royal Decree No. M/46) and the Rules for the Implementation of the Arbitration Regulation of 1985 (Ministerial Resolution No. 7/2021/M) (the former law) – all of which affect the enforcement of dispute board decisions through arbitration. The NAR (which became effective on 7 July 2012) institutes a variety of reforms to Saudi Arabia’s arbitration system. Prior to this new law all arbitrations in Saudi Arabia were subject to judicial oversight by the Saudi courts and under the former law were to be conducted in Arabic, and awards could be modified, reformed and/or rejected at the discretion of the court. Additionally, under the former law the court was responsible for appointing arbitrators if the parties did not do this and also approving the parties’ agreement to arbitrate, and as there were no written requirements for arbitration agreements, any decision as to whether to approve arbitration was at the court’s discretion. It should be noted that under the former law, the court also supervised and gave rulings on procedure and requests for injunctive and interim relief. 458

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Most importantly, under the former law the courts had sole responsibility for the enforcement of arbitral awards (both foreign and Saudi) and were free to review the award specifically to make certain that the award was Sharia compliant – the broad right to reverse, rewrite or vacate any award and then to award new damages as it deemed necessary. The NAR now follows from the 1985 UNCITRAL Model Law on International Commercial Arbitration, as amended in 2006, and as a result aligns Saudi law with international arbitration norms, allows more control to the parties and provides greater clarity on several issues, which include: • New written guidelines for determining whether an agreement to arbitrate may be enforced. • Clear and detailed procedures for the appointment and/or recusal of arbitrators. • Languages other than Arabic may be used if ordered by the arbitration panel or the parties agree (although awards must be translated to Arabic prior to enforcement). • Government bodies are prohibited from entering into arbitration agreements, unless approved by the Prime Minister. • The parties are now free to choose which law will apply. However, the new arbitration law affirms that Sharia is paramount and that arbitration awards may be enforced only if they are Sharia compliant. • It should be noted that while the New Law provides increased flexibility with respect to many matters, it is all still subject to the Saudi courts’ oversight and mandate to ensure Shari’ah compliance. It is still up for discussion whether under Saudi law women can now act as arbitrators.33 If any dispute or any stage of a dispute board’s decision is referred for enforcement, defence of nullity may face the party in whose favour the decision was. If the dispute board decision is used as evidence, this defence may not be raised, however. Additionally, the chairman of the board shall have sufficient knowledge of the Sharia principles.34 To avoid the possibility of annulment of dispute board decisions, it may be advisable to use women and/or non-Muslims as experts and not as members of dispute boards, keeping the membership of the dispute boards to Muslim men. Further, if oral evidence is admitted, the testimony of two women will be considered equal to that of one man. Hence, on every issue on which oral evidence is given, the testimony of two men or one man and two women is required for this oral evidence to be admissible and effective.35 This is subject to article 31 of the implementation rules, which requires that witness statements shall be given pursuant to Sharia principles. 33 Although it is not expressly stated in the SAL that women cannot act as arbitrators in domestic arbitrations, it is an agreed opinion in the Hanbali School of Law which is followed in Saudi Arabia. The opinion held by the Hanbali School is that women cannot act as arbitrators. See Fatimah M El-Awa, Arbitration Agreement in Sharia and Law – A Study for Muslim Jurisprudence Codification and the Effect of the Mejella, Al-Maktab Al-Islamy, Beirut, 2002, 240–242. “Enforcement of Foreign Arbitration and Court Awards in Muslim Jurisprudence and its Conditions”, Prof Wahba Azuhali, paper presented to “Arbitration in Sharia Law” conference held in Dubai, 2001, and Arbitrator’s Capacity in Muslim Jurisprudence, Mahmmud Al-Khaledi, paper presented to the same conference. 34 See ftn 9. 35 The Holy Quran, Al-Baqarah Surat, verse 282: “When ye deal with each other … get two witnesses, out of your own men, and if there are not two men, then a man and two women, such as ye choose, for witnesses, so that if one of them errs, the other can remind her”.

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As for Gharar, it is more likely to appear in cases of bespoke contracts and not in standard forms with which Saudi Arabia courts are now quite familiar. This review of Sharia-related issues in the Saudi Arbitration Law is necessary because arbitration, unlike the concept of dispute boards, has gained considerable recognition, understanding and familiarity in Saudi Arabia. Yet the issues raised are still obstacles in the way of the dispute board-friendly environment in Saudi Arabia. 36

Particulars as to the Islamic Republic of Iran The Iranian Arbitration Law is based on the UNCITRAL Model Law. No Sharia-related provisions are found in it, and hence any legal issues related to dispute boards would be secular provisions and not Sharia-based ones. In principle, dispute boards are an acceptable means of dispute resolution under Sharia law, given that the parties are treated on an equal footing and that the general principles of adjudication are taken into consideration. The agreement to refer any dispute or difference to a dispute board, whether a dispute review board or dispute adjudication board, is a contractual agreement that shall be respected and to which the parties are bound as far as their contracts allow. Dispute Boards Under Common, Civil or Sharia Law Since dispute boards are governed by the law of the country in which the underlying contract is also governed, the basis of its decisions and rulings should follow those of the “host” country. Generally, this is governed by the underlying law of contract. To the extent that dispute board members are in need of assistance in this regard, most standard dispute board provisions should provide for the member’s right to seek legal guidance as needed. Additionally, as to the dispute board decision, most contracts provide that if the decision is not accepted then the matter may go to arbitration, usually before a pre-agreed arbitration panel or to be determined by an internationally recognised arbitration group, such as the ICC. In this regard the arbitration decision will be based upon the rule of law of that particular jurisdiction. Dispute Resolution in Delay and Construction Matters37 The subject of Alternate Dispute Resolution (ADR), dispute boards, mediation and such techniques are discussed in detail in earlier chapters, but there is an interesting point to note, and that has to do with the development of arbitration and its role in construction dispute resolution as well as the development of other methods for resolving such things as Extensions of Time, delay claims and the like with the architect/engineer acting in that capacity – as well as how these various methods (dispute boards, arbitration, etc., are treated under the different legal systems).

36 Gharar is an Arabic word which means that a transaction contains elements of cheating, danger and unwariness. 37 Ibid. at ftn 1.

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The resolution of construction disputes either relies on the courts of the country named in the contract or, more likely, on some form of ADR such as arbitration, mediation or adjudication by itself or through the use of a dispute board. Traditionally, construction dispute resolution lies in the history of arbitration and the role of the arbitrator. In England the first “official” mention of arbitration, or “Arbitrament” as it was then known, was in William Sheppard’s “A Grand Abridgment of the Common and Statute Law of England,” published in 1675. This was 23 years before the first arbitration legislation in the common law and three centuries before the UNCITRAL rules. The statement of the law, as it then stood, was therefore a pure statement of the “common” law, as Sheppard understood it. He recorded, in the volume dealing with Arbitrament and Arbitrators, that: Arbitrament is an Award or Judgment made by one or more at the Request of some parties for the ending of some difference between them. An Arbitrator is he, or one of them so chosen, said to be an extraordinary Judge in matter of difference between party and party by their mutual consent, and their authority is given to them by the parties litigant to hear and determine the matter in difference between them to whose judgment they bind themselves to stand: It is called an Arbitrament, either because these judges may determine it ex bon viri Arbitrato, not being bound to the strict Rules of Law, or because they have submitted to them, not by compulsory means but ex libero Arbitrio. Terms ley, West Symb. 2 part. sect 21. Arbitrament, some say, is General, but when it is an Award of all Actions, demands and differences between the parties upon such a Reference thereof unto them: or Special, where the Reference and Award upon it is only one or more matters of difference mentioned between them, but whichever it is it is called a Judgment. The Award also may be made and rendered, either in writing or by word of mouth. An Umpire is the same in effect with an Arbitrator, for he is one chosen by the Arbitrators finally to order, and determine the matter in difference between them, if the Arbitrators cannot, or do not order by the day agreed upon between them. For this take these things in general: (1) That there are five things incident to an Arbitrament; (1) Matter of Controversy: (2) Submission to the award of the persons chosen: (3) Parties to the Submission: (4) Arbitrators: (5) The making of an award by word or writing. Co.10.137. Dyer and 217.” (2) That the Submission is the agreement by both parties to abide and submit to the order made by the Arbitrators: this is sometimes made between the parties reciprocally, and sometimes to the arbitrator. It is made between the parties sometimes by Bond, sometimes by Covenant, sometimes by Promise, and it may be good, either way. And so it may be without any of these by a bare Submission and agreement only to refer it to them: and an Obligation or Assumpsit to stand to the award of I.S. and I.D. hath in an Implicit Submission it to the Award. This is also sometimes absolute without reference to any time: and sometimes Conditional, as a Submission to their Award it if it be made by such a day. Co.10131.5.78 20 H6.18 Trin 18 Jac. Cyprian Salters Case. (3) That if the award is Repugnant, insensible, incertain, against Law, not definitive, or on the one side only, it may be void. Yelverton 98. for it shall not have a favorable construction as a Deed or Will shall have to bring it to the intent of parties, for it is in nature of a Judgment and must be plain and complete. Yelverton 98. Croo.I.3, 4. Co.5.77. (4) That if it do not pursue, and be made according to the power given to them by the Submission, it will not be good. Bendloes 38. It may in not be larger nor narrower then the authority given thereby. Jenk. Cent.3 case 6. (5) Arbitrators may not refer their Arbitrament to others, or to an Umpire, unless the Submission be so made to them, nor may they make their Arbitrament in

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their own Names, and the Name of a third person to whom no Submission was made; nor may they alter their Award once being made. Jenk Cent 3. case 6.

It should be noted that the dispute resolution process Sheppard describes and labels as Arbitrament could actually describe a number of processes. It is described as an Award or Judgment made by one or more at the Request of some parties for the ending of some difference between them.

While the concept that private parties under their agreements are bound to whatever dispute resolution agreements they enter into goes back to Roman times,38 the underlying rules, as written by Sheppard, of how an Arbitrament should operate, and the rules an arbitrator is bound by, remain fundamental to modern concepts of arbitration. Other Dispute Resolution Methods Over the past three hundred years dispute resolution methods to resolve and/or prevent construction disputes have developed further. In both the common law and civil law jurisdictions, the characteristics of arbitration have been solidified. Internationally, the recognition of the rights of private parties (as opposed to the rights of states)39 has been a recent development. It may well be that this “categorisation” of arbitration led to the need to identify and regulate other dispute settlement devices that looked like, but did not exactly replicate, arbitration. Thus, civil and the common law jurisdictions also listed the characteristics of experts, and the process they embarked upon, with investigative/ valuation processes in different industries being noted and categorised.40 Lord Mustill has questioned the desirability of the process of separating and labelling dispute resolution methods.41

38 See e.g. Reinhard Zimmermann (1996), The Law of Obligations – Roman Foundations of the Civilian Tradition, Oxford University Press, 511 and 526 et seq. See also Derek Roebuck and Bruno de Loynes de Fumichon (2004), Roman Arbitration, HOLO Books, The Arbitration Press, Oxford. The adjudicator/arbitrator Bonus Vir was the oldest form of known Roman (peaceful) dispute resolution (op cit page 46). Mr Roebuck points out that the ancients were not too concerned with how modern legal scholars would classify the decision of the third party (Supra pp 11–21). 39 See Geneva Protocol On Arbitration Clauses, 1923: Protocol on Arbitration Clauses Signed at a Meeting of the Assembly of the League of Nations Held on the Twenty-Fourth Day of September, Nineteen Hundred and Twenty-Three The undersigned, being duly authorized, declare that they accept, on behalf of the countries which they represent, the following provisions: 1. Each of the Contracting States recognises the validity of an agreement whether relating to existing or future differences between parties, subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration, whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject. 40 Robert Knutson 2004 Paper given at DRBF conference Dubai, UAE. 41 Talk given at SJ Berwin international arbitration group launch party, 4 November 2004 at the Wellington Arch, London.

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The Engineer/Arbitrator as Judge After the Industrial Revolution in England, the courts became faced with the problem of how to deal with various dispute resolution clauses in contracts. The first of these decisions was in 1850 and dealt with the famous engineer Brunel. In M’Intosh v The Great Western Railway Company,42 it was alleged that the Engineer, IK Brunel, whose duty it was to measure and certify the value of certain works, had hidden the fact that he had a large shareholding in the railway and had consistently under certified the value of the Works or failed to certify. Fraud was alleged. The issuance of a certificate was argued to be a precondition to the contractual obligation of the company to pay. The Defendants contended that Brunel was an agent while the Plaintiffs contended that he was an arbitrator or judge. The Lord Chancellor did not refer to the allegation that Brunel was an arbitrator, but said that “this is clearly a case in which the Plaintiff cannot obtain what he is entitled to at law (under the contract); and that his inability to do so has arisen from the acts of the Defendants, or their agent”.43 An additional view was taken in Ranger v Great Western Railway.44 There, the contract provided that the decisions of the principal engineer (again, the shareholding Mr Brunel), on the whole range of issues, from extensions of time to payment for additional works and certificates, would be final and without appeal during the progress and until completion of the Works. If any difference of opinion existed thereafter, such dispute would be referred to and finally settled and concluded by arbitration of the principal engineer and one appointed by Ranger. If they could not agree, a third person was to be named with his decision being “final and binding on both parties”. This was the same sort of two-tier dispute resolution clause, with the first tier being the engineer’s decision and the second being arbitration, as found in M’Intosh. In Ranger, while executing the Works, the contractor encountered much harder rock than he had been told lay on the route, and the railway company eventually gave the required notices and took possession of the Works. In giving judgment, the Lord Chancellor referred to the fact that a judge ought to be, and is supposed to be, indifferent between the parties but then decided: The Company’s engineer was not intended to be an impartial judge, but the organ of one of the contracting parties. The Respondents stipulated that their engineer for the time being, whoever he might be, should be the person to decide disputes pending the progress of the works, and the Appellant, by assenting to that stipulation, put it out of his power to object on the ground of what has been called the indifferency of the person by whose decision he agreed to be bound.

Lord Brougham admitted very considerable doubts, but in the end agreed and said: We have here the case not of a judge, nor indeed anything like a judge; the utmost he can be said to be is a kind of referee to whom certain matters were, by the agreement of the parties, to be referred, I will not say for his arbitration but rather for his report and decision. In some instances it is even found that he and the company are referred to in the alternative. However, looking at him in those matters in which he may, to some extent, be said to decide

42 19 Law J Rep (ns) Chanc 374. 43 Cases in Chancery 74 at 96. 44 (1854) HL Case 72.

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judicially, I consider that there he was the known officer of the Company, and his decision as such was accepted. He was not named personally as Mr Brunel, but as the “principal engineer for the time being”; . . . I think, therefore, that there is no ground for considering that the position in which he was placed was a quasi-judicial position.

It is evident from these passages both the methodology and the logic were employed as well as the potential fabrication. First, you should characterise the function – is it judicial? If it is, the “judge” must be impartial. This arises from one of the oldest and most fundamental European-wide doctrines, nemo sua judex in sua causa. The potential for the “fabrication” comes from a combination of the arguments that the contractor freely, and with foreknowledge, agreed to be bound by the decisions of an agent who might be expected to be biased, and in this case, as a judicial appointment is personal, the fact that the decision could be made by any principal engineer appointed from time to time meant that this could not have been intended to be a “quasi-judicial” appointment. Thus, if you undermine yourself with prior knowledge – pacta sunt servanda: promises must be kept.45 The architect was the deciding party in Pashby v The Mayor, etc., of Birmingham,46 where the agreement provided: If any dispute or difference of opinion should arise with the contractor or contractors in any way relating to the contract and these conditions, connected with or relating to the proposed buildings and works, or if any question should arise between any of the several contractors relating to the proposed buildings and works, such dispute difference or question shall be settled by the architect, whose decision thereon shall be absolute and final.

Here, after letters from the contractor complaining of late payment, the architect, at the request of the City, settled the amount he thought was due to the contractor without informing him he was doing it and without discussing the calculation with the contractor. The court held that: As to the second question, there was no dispute between the parties: it is clear there could be no res judicata where there was no lis.

Compare this, however, to the decision in Scott v The Corporation of Liverpool,47 where the Lord Chancellor, influenced by Scott v Avery48 decided only two years earlier, held that where the contract provides that there will be a determination of a contractor’s claims by the judgment of a particular person, until that chosen person has spoken, no dispute exists, and, thus, no right arises in law or at equity, which might be enforced by the courts. The Engineer as Quasi-Arbitrator49 The development of the doctrine that in certain circumstances engineers exercising their decision-making powers under a contract must act impartially was championed by the 45 46 47 48 49

Robert Knutson, Paper given at DRBF conference Dubai, UAE, 2004. (1856) 18 CB 3. (1858) 28 Chanc Cas (ns) 230. (1856) 5 HL Cas 811. Robert Knutson, supra.

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1861 case of Pawley v Turnbull, concerning a rogue architect, who had also been made arbitrator under the contract and whose decision was to be final and binding. Without citing any particular authorities, the Vice-Chancellor noted, “[t]he position of the architect, in order to be just to both parties, required the exercise of great discretion and great fairness”.50 He went on to hold that without imputing fraud to the defendants, it was proved that the conduct of the defendant architect, Hey, was “not of that discreet, impartial and fair description which it ought to have been,”51 and so the Vice-Chancellor ignored the lack of a certificate from Hey to award the reasonable value of the builder’s work to him. In the 1873 Equity Appeal case of Sharpe v Sao Paulo Railway Co,52 Sir MW James confirmed that the courts of equity would not entertain suits (one might still have been available at common law for damages) where the engineer’s certificate was to be final, if the engineer acted in good faith – “I myself should be very loathe to interfere with any such stipulation upon any ground except default or breach of duty on the part of the engineer”.53 This contract said that the certificates of the engineer would be final, and that all matters, except such questions as were to be determined by the company’s engineer, were to be referred to arbitration. In a separate concurring judgment, the court stated:54 Wherever, according to the true construction of the contract, the party only agrees to pay what is certified by an engineer, or what is to be found due by an arbitrator, and there is no agreement to pay otherwise – that is to say in every case where the certificate of the engineer or arbitrator is made a condition precedent to the right to recover, there the Court has no right to dispense with what the parties have made a condition precedent, unless, of course, there has been some conduct on the part of the engineer or the company which may make it inequitable that the condition precedent should be relied on.

In the nineteenth century the scope of the services to be provided, and the quality of the decisions to be made by the engineer, were not as broad or as well defined as they may seem today. In fact, for quite some time, biased decisions of the engineer were difficult to overturn in the absence of fraud or bad faith. This was during a period when the standard forms in use provided for final and conclusive certificates of the engineer on measurement of final payment and termination for failure to proceed with due diligence. In appropriate cases the courts prevented injustice by not allowing engineers vested with the powers to decide all disputes under the contract to act as arbitrator proceeding with the reference. The court would refuse a stay of arbitration and decide the dispute itself55 or decide that the engineer’s certificate was not within the scope of the relevant submission to his jurisdiction.56 Nonetheless, the possibility of unfair decisions on the part of engineers in the employ of the owners was clear, and the next generation of judges began the reform of the law. 50 Page 82. 51 Page 84. 52 (1873) 8 Ch App 597. 53 Sir MW James at page 609. 54 Page 612. 55 Blackwell and Co Ltd v Derby, Hudson’s Building Contract 4th edition, 1914 Volume II, page 401; see also Nuttall v Manchester 4 HBC II 203. 56 Lawson v Wallasey Local Board (1889) 11 QBD 229.

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In Re An Arbitration between Hohenzollern Actien Gesellschaft and the City of London etc.,57 there were no real legally relevant factual differences with the Sharpe case, but the result was substantially different. The engineer refused to certify, and the arbitrator said that money was due. If this case were Clemence v Clarke, the contractor would have lost, but Lord Esher MR, who had a wonderful career of talking negatively about the jurisdiction of arbitrators and then expanding their province, held that as the arbitrator had decided (rightly or wrongly) that the money was due (in the absence of a certificate, against well-received wisdom of the time), as long as the arbitrator acted within his jurisdiction, there was no appeal or redress. The fact that the contractor, a locomotive builder, was compensated for work actually done was no doubt peripheral to this determination.58 It is somewhat interesting that the Law Times headnote summarises the ratio decidendi as “a dispute had arisen within the arbitration clause, and that, whether the arbitrator was right or wrong, as he had not exceeded his jurisdiction the court would enforce the award”. The editor of Hudson’s Building Contracts, 4th edition, 1914, Sweet & Maxwell, who was a well-regarded construction barrister, stated in his headnote that the court held “that the absence of a certificate was not conclusive against the contractor’s right to payment, and that a dispute as to the certificate was a dispute within the arbitration clause, and that the award made was valid.” In Nuttall v Manchester,59 the Court of Appeal refused to stay a building dispute to arbitration because the city surveyor, who had had several disputes with Mr Nuttall, was the designated arbitrator and as such was thought to be too much of a judge in his own cause. This case was cited to the House of Lords in Jackson v Barry Railway Company, where at first instance the contractor had succeeded in obtaining an injunction against the engineer proceeding with a reference. The engineer had written a letter on the same day as the formal reference of the dispute to him repeating his former views. The court held that this was not sufficient evidence that he would be unable to keep an open mind in the reference. As an aside, it is interesting that the disputes clause, which simply said that all disputes would be referred to the engineer, whose decision was conclusive and binding, was held without demur to be a reference to arbitration.60 In 1901, the Court of Appeal decided Chambers v Goldthorpe,61 which stood as good law for 73 years for the proposition that, in ascertaining the amount due to the contractor, the architect was an arbitrator and, therefore, was not liable in negligence. This decision was eventually overturned in Sutcliffe v Thackrah,62 but the juridical basis for it, that in exercising his skill and knowledge he was acting as a quasi-arbitrator, has remained largely untouched. There is one very old and notable case, which puts the status of the engineer’s decisions (particularly on the subject of ordering or failing to order variations) pending arbitration

57 (1886) 54 LT (NS) 596. 58 Knutson, supra. 59 Nuttall v Mayor and Corporation of Manchester 4 HBC II 203. 60 Compare In Re Carus-Wilson and Greene, (1886) 18 QBD 7 where a person valuing timber was held to be a mere valuer, so no application to set aside could be entertained. 61 [1901] 1 QB 624. 62 [1974] AC 727.

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beyond reasonable doubt. In Brodie v Cardiff,63 the majority of the House of Lords made it clear that an arbitrator’s overturning of an engineer’s decision (in this case a biased but not fraudulent refusal to admit certain works as extras under the variations clause) had retrospective effect, and the engineer’s decision stood until that overthrow. Incidentally, a refusal of the engineer to certify the variations at the time, when it was a precondition that all variations be in writing, had no effect. The eventual judicial determination that third-party engineers were “quasi-arbitrators” resulted over time in the adoption, within England, of the view that in rendering certain types of decisions, where he is not acting as an agent for the employer, engineers had to act “impartially”. This was as a result of the actions of English judges rather than any demonstration of even-handedness on the part of the contracts’ draughtsmen.64 So we see in the early English cases some of the elements required for modern adjudication and other forms of ADR such as dispute boards – a multi-tier dispute resolution system, a high regard for the sanctity of contract and concern to ensure that decisions given were given fairly if required by the contract. Non-Statutory Adjudication In addition to the classical method of dispute resolution through arbitration, there have been other methods utilised, most notably the use of adjudication or expert determination or valuation. Lord Esher MR, who is cited here as understood by Longmore LJ in the Wilson case, stated: Since it is just a matter of construction, not much assistance can be gained from authority, but the question whether an agreement is an agreement to arbitrate or merely to value as an expert has occasionally had to be decided, and Mr Bowdery has referred us to one such case Re Carus-Wilson and Green (1886) 18 QBD 7. There a contract for the sale of land provided that the timber was to be paid for at a valuation made by two valuers appointed by the parties, who were to appoint an umpire to decide if the valuers did not agree. The valuers did not agree, so the umpire decided. The aggrieved party applied to set that valuation aside on the basis that it was an arbitration award and, thus, according to the legislation then in force, could be set aside on certain grounds. The Court of Appeal refused to entertain the application. The passage to which Mr Bowdery referred us is at page 9, where Lord Esher MR said this: “The question here is whether the umpire was merely a valuer substituted for the valuers originally appointed by the parties in a certain event, or arbitrator. If it appears from the terms of the agreement by which a matter is submitted to a person’s decision, that the intention of the parties was that he should hold an enquiry in the nature of a judicial enquiry, and hear the respective cases of the parties, and decide upon evidence laid before him, then the case is one of an arbitration. The intention in such cases is that there shall be a judicial enquiry worked out in a judicial manner. On the other hand, there are cases in which a person is appointed to ascertain some matter for the purpose of preventing differences from arising, not of settling them when they have arisen, and where the case is not one of arbitration but of a mere valuation. There may be cases of an intermediate kind, where, though a person is appointed to settle disputes that have arisen, still it is

63 [1919] AC 337 at 351, 352 and 360, 361. 64 Knutson, supra.

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not intended that he shall be bound to hear evidence or arguments. In such cases it may be often difficult to say whether he is intended to be an arbitrator or to exercise some function other than that of an arbitrator. Such cases must be determined each according to its particular circumstances.”

In 1990, confusion arose as to what powers, if any, the courts were willing to give a body not operating under the Arbitration Act. The Court of Appeal decision in Cameron v Mowlem65 decided that an adjudicator sitting in judgment of a set-off claim under an English standard form of contract could not decide in total what sums were due under the contract (as he had purported to do) inferentially because the contract did not expressly give him the right to substitute his decision for that of the certifier. This confusing situation was clarified in Drake & Scull Engineering Ltd v McLaughlin & Harvey plc,66 in which His Honour Judge Bowsher QC, on the same form of contract, issued a mandatory injunction to enforce the adjudicator’s decision that money should be paid into a stakeholder account. The learned judge wrote: Accordingly, it seems to me to be plain that the defendants are under a contractual duty to comply with the orders of the adjudicator, and to do it before the arbitrator makes his decision.

One of the most recent English cases to consider these issues is the Court of Appeal judgment in David Wilson Homes Ltd v Survey Services Ltd (in liquidation) and Anor.67 In that case the Court of Appeal had to consider whether or not a bare reference to a decision of a QC was arbitration or some more “ephemeral” sort of ADR. Longmore LJ wrote in part: For my part, I prefer the arguments of Mr Phillips. There is no need for a clause, which deals with reference of disputes to say in terms that the disputes are to be referred to an “arbitrator” or to “arbitration”. The necessary attributes of an arbitration agreement are set out in the second edition of Mustill & Boyd, Commercial Arbitration at page 41. But, for present purposes, the important thing is that there should be an agreement to refer disputes to a person other than the court who is to resolve the dispute in a manner binding on the parties to the agreement. That is what this clause in my opinion does, and it is therefore an arbitration agreement within the meaning of section 6 of the Arbitration Act 1996.

Unfortunately, the judgment of Simon Brown LJ was of no assistance. He wrote in part: As to the suggestion that this was some sort of non-binding ADR clause, that seems to me nothing short of absurd. The condition goes to the lengths of providing, if necessary, for the Chairman of the Bar Council to appoint a Queen’s Counsel to deal with the reference. That, to my mind, is quite inconsistent with any suggestion that the process required by the clause is simply an optional extra in the contract. Rather it makes business sense only if it provides for a final and binding determination of whatever dispute or difference is referred – if, in short, it is an arbitration agreement. … In the result, the appeal succeeds. 65 (1991) 52 BLR 24. 66 (1993) 60 BLR 107. 67 [2001] EWCA Civ 34, [2001] 1 BLR 269.

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In equating a final and binding determination (only) to arbitration, Lord Justice Simon Brown was mischaracterising the history of private dispute resolution. The editors of the Building Law Reports commented: The claimant was somewhat unlucky. Nowadays it is well established that there is available a variety of dispute resolution processes ranging from adjudication (both binding and nonbinding), expert decision (both binding and non-binding), mediation, conciliation and arbitration. At the very least, arguably, the clause in question was ambiguous as to the basis upon which the QC was to operate; given that it was an insurance policy and that the wording probably emanated from the insurance company in the first place, it might have been thought at the very least that the construction should have been against the resolution involving a binding result. That having been said, the court clearly were of the view that it was pointless referring such disputes and differences to an obviously impartial QC unless the decision was to be final and binding. Although this decision is binding when the same or comparable wording is used, it may be that it will not take much to convince other courts otherwise when the relevant wording is only slightly different.

In effect, the court was (incorrectly) saying that arbitration could be the only form of a final determination intended by the parties. Further to Wilson in Wilky Property Holdings Plc v London & Surrey Investments Ltd,68 the court held that the ADR clause was an agreement to refer a limited number of issues for expert determination and was not an arbitration clause for the purposes of the Arbitration Act and went on to state that David Wilson Homes and Re CarusWilson were not authority for the general proposition that a clause providing for binding determination of a dispute already arisen was necessarily an arbitration rather than an expert determination and wrote at 44: In short, I do not think that either member of the Court of Appeal [in David Wilson Homes] was intending to establish any prescriptive rule of general application as to the distinction between arbitrations and expert determinations, and the case contains no ratio decidendi to that effect. In particular, I do not think that the members of the Court of Appeal can be taken to have established a general proposition that clause providing for the binding resolution of a pre-existing dispute in necessarily an arbitration clause.

Further, there was discussion in terms of allocation of costs to the effect that if the clause was intended to be an arbitration clause there would be no need to refer to the allocation of costs as the Arbitration Act deals with costs. If anything, the allocation of costs points to the clause being an expert determination, rather than an arbitration, clause. The Advent of Dispute Boards in England The first case in England to, in effect, legitimise dispute boards was The Channel Tunnel Group Ltd and another v Balfour Beatty Construction Ltd and others,69 when the House of Lords held that the contractual dispute resolution mechanisms chosen by competent commercial parties should not be interfered with. The Channel Tunnel contract (a modified

68 [2011] EWHC 2226 (Ch); Official Transcript; Ch D; 17 August 2011. 69 (1993) 61 BLR 1.

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version of FIDIC Red Book 3rd edition) used a version of the contemporary “Panel”. This Panel was governed by contractual language, which was very similar to current Dispute Adjudication Boards under FIDIC contracts. These “Channel Tunnel disputes” utilised procedures which went on to be adopted by FIDIC for the first FIDIC procedures of this type. The description “Panel” was changed to “Dispute Adjudication Board” where the phrase that parties should “give effect” to the decision of the Panel until it was “revised by arbitration” was used. In that decision, Lord Mustill said: I would endorse the powerful warnings against encroachment on the parties’ agreement to have their commercial differences decided by their chosen tribunals, and on the international policy exemplified in the English legislation that this consent should be honoured by the courts.

During the argument of this case there was much discussion between their Lordships and Counsel about the nature of this clause and whether it was entirely an arbitration clause or a two-stage clause in which the second part only was arbitration. What became clear from the discussion (and is recorded in the judgment) was that there was no doubt that their Lordships took the view that the whole clause was binding on the parties “unless it broke down”. Additionally, Lord Mustill indicated that a mandatory injunction for specific performance (in this case continuance of contract works in disputed areas) by the Panel would have had to be complied with. This is a much more radical measure than the order for payment asked for in most cases.70 This decision of the House of Lords was on contract wording that is, for these purposes, identical to the wording of Clause 20 in the 1999 FIDIC suite of contracts. The case indicates very directly that Dispute Adjudication Board decisions should be given effect until revised in arbitration and that the courts should be loathe to involve themselves in the dispute board process. Extension to International Cases The entire field of dispute boards is so relatively new to the dispute resolution scene that very little case law exists which can be cited as precedent. However, the concept stated 300 years ago by Sheppard that “an Award or Judgment made by one or more at the Request of some parties for the ending of some difference between them” should be upheld. In most English-speaking, common law countries this should not be any problem. There are exceptions, however. In the 2003 South African case of Welihockyj and Others v Advtech Limited and Others,71 the court was faced with a contractual provision stating that disputes would be resolved by “an independent person acting as expert and not as arbitrator”. The South African court held that whether arbitration or expert investigation is contemplated depends not only on the wording of the reference, but also on the manner in which the presiding officer arrives at a decision, the nature of the dispute and the extent of the dispute. 70 Knutson, supra. 71 [2003] (6) SA 737 (W).

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Here, there were references to fraud, and a complicated, but apparently flawed, investigation was undertaken. The judge noted that there was nothing in the agreement that was counter-indicative, including the references to an “expert”, and held that the contract clause in question was actually an arbitration clause. The problem was that the parties’ agreement created the third-party dispute resolver and gave him his powers. If he or she was qualified as an arbitrator, he or she may have had statutory powers as well. A reference of a matter to a person acting as expert and not arbitrator has been understood to be a reference to an expert for many years. The legislation72 in South Africa defines arbitration as “a written agreement providing for the reference to arbitration of any existing dispute or any future dispute relating to a matter specified in the agreement whether an arbitrator is named or designated therein or not”. This broad definition is very similar to those in other Commonwealth countries. The judge in this case defined arbitration as reference to a dispute for final determination to someone other than the courts. This negative definition tends to prejudge the issue but is similar to the approach that succeeded in the English case of David Wilson Homes Ltd v Survey Services Ltd (in liquidation) and Anor73 discussed earlier. The Welihockyj case is probably best understood as an example of “hard cases making bad law”. The expert had undertaken an extensive but (so far as the court was concerned) inadequate investigation into certain allegations, including allegations of fraud, and apparently made the wrong decision.74 Interestingly, in making its decision the court made reference to a host of English authorities, including Mustill and Boyd, Commercial Arbitration, 2nd edition and LexisNexis Butterworths 1989 and certain cases, including a 1985 English case about whether surveyors75 were arbitrators where the English judge held they were not and therefore were not immune from a lawsuit for negligence.76 It is, no doubt, also important on the facts of this case that the “expert” chose to describe himself, and was addressed as, the “arbitrator”. This may be taken, if it was consensual, as a variation to the dispute agreement,77 because if not there would be no excuse for overriding such a specific contractual provision. The reference to an expert is intended to do exactly this. It may have been the wrong decision, but the language about acting as an independent expert and not an arbitrator was intended to avoid having the dispute treated as arbitration. The South African court should not have gone against the expressed intentions of the parties but, given the state of the precedents, it is not too surprising.78 So, it is relatively easy to understand how this confusion can come about. The characterisation approach is historically based and has been used by courts to import Arbitration Act-based solutions to particular disputes for years and occasionally

72 73 74 75 76 77 78

Arbitration Act 1965 s 1. [2001] 1 All ER (Comm) 449. Knutson, supra. Professional land valuers. Palacath v Flanagan [1985] 2 All ER 161. 2003 (6) SA 737 at 746. Knutson, supra.

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determines that non-arbitrators could be sued for their negligence. While this involved a certain amount of desirable flexibility, the time has no doubt come for the parties’ agreements to always be respected. The problem with the “characterisation” approach is obvious. It can, and did, create a lottery, as the recent English case of David Wilson Homes Ltd v Survey Services Ltd (in liquidation) and Anor79 also shows: By not putting their minds to it, or avoiding the issue, the parties may end up with all the baggage of an arbitration without actually intending this to be the result. The form of dispute resolution should not depend on the procedure used or the claim made; it should depend on the form of agreement.

Other Commonwealth countries have been keen to assist the establishment of ADR. Before the Channel Tunnel case, in the Australian case of Hooper Bailie Associated Limited v Natcon Group Pty Ltd,80 the Supreme Court of New South Wales held that the court will give effect to an agreement to conciliate or mediate in the Scott v Avery81 form by staying an arbitration commenced in breach of the agreement. To be enforceable, however, the court held that the agreement must provide sufficient certainty in the conduct required of the parties who are to participate in the ADR process. These are the thoughts found in the Cable and Wireless case in England a full ten years later. The position in Australia was not achieved without some retrenchment.82 The case of Aiton Australia Pty Ltd v Transfield Pty Ltd83 dealt with a construction contract where the parties argued about whether or not the contractual mediation procedures had to be carried out prior to applications to the courts.84 It was argued that the mediation clause85 lacked sufficient certainty to be given legal effect as: (1) there were no provisions dealing with the remuneration to be paid to the mediator if agreed or appointed; (2) what was to happen if one or both of the parties did not agree with

79 [2001] 1 All ER (Comm) 449. 80 (1992) NSWLR 194. 81 Scott v Avery form is a provision making the conciliation process a condition precedent of the right to go to arbitration or litigation. 82 Knutson, supra. 83 (1999) 153 FLR 236. 84 Ian D. Nosworthy BALLB FIAMA FCIArb AIPM Barrister Arbitrator Mediator in his paper for The Law Society of South Australia country update seminar: Choosing the right ADR, October 2004. 85 The clause provided: 28.3 Expert Where the Parties agree to submit a dispute or difference to the Expert Resolution Process, such dispute or difference shall be resolved in the following manner: (a)

(b)

An Expert will be appointed by the Parties, or in default of Contract upon such appointment, either Party may refer the appointment to, in the case of financial matters, the President for the time being of the Institute of Chartered Accountants in Australia, in the case of technical matters, the President for the time being of the Institution of Engineers in Australia and, in the case of any other matters (including a dispute as to the interpretation of this Contract) the President for the time being of the Institute of Arbitrators in Australia. In all events, the Expert must have reasonable qualifications and commercial and practical experience in the area of Dispute and have no interest or duty which conflicts or may conflict with his function as an Expert. The Expert will be instructed to: (i) promptly fix a reasonable time and place for receiving submissions or information from the Parties or from any other Persons as the Expert may think fit;

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the fees proposed by any such mediator; and (3) what was to happen if the nominated or agreed mediator declined appointment for any reason. Here, the court held that: ADR clauses as a precondition to litigation generally (original heading in Judgment) . . . (42) There is no legislative basis for enforcing dispute resolution clauses otherwise than those, which provide for arbitration: Commercial Arbitration Act 1984 (NSW). However, it is clear that if parties have entered into an agreement to conciliate or mediate their dispute, the Court may, in principle, make orders achieving the enforcement of that agreement as a precondition to commencement of proceedings in relation to the dispute: Hooper Bailie. (43) To achieve enforcement of such an agreement it is essential that the agreement is in the Scott v Avery form – that is, expressed as a condition precedent. Such a clause was seen not to offend the general tenet of law that it is not possible to oust the jurisdiction of the court as it acted, in effect, as a postponement of a party’s right to commence legal proceedings until the arbitration was concluded, not as a prohibition against a party having such recourse: Scott v Avery (1856) 10 ER 1121. Further, as mentioned previously, the agreement is enforced, not by ordering the parties to comply with the dispute resolution procedures, but by forbidding them from using other procedures from which they have agreed to abstain until the end of the dispute resolution process. (44) The Court will not adjourn or stay proceedings pending alternative dispute resolution procedures being followed, if the procedures are not sufficiently detailed to be meaningfully enforced: Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709.

The judge paid very close attention to the obligation of good faith in this agreement and noted its importance in establishing whether or not there was a sufficiently certain agreement to negotiate.86 (ii)

accept oral or written submissions from the Parties as to the subject matter of the Dispute within 10 Business Days of being appointed; (iii) not be bound by the rules of evidence, and (iv) make a determination in writing with appropriate reasons for that determination within 20 Business Days of the date referred to in Subsection 28.3 (b)(ii). (c) The Expert will be required to undertake to keep confidential matters coming to the Expert’s knowledge by reason of being appointed and the performance of his duties. … (d) The Expert will have the following powers: (i) to inform himself independently as to facts and if necessary technical and/or financial matters to which the dispute relates; (ii) to receive written submissions sworn and unsworn written statements and photocopy documents and to act upon the same; (iii) to consult with such other professionally qualified persons as the Expert in his absolute discretion thinks fit; and (iv) to take such measures as he thinks fit to expedite the completion of the resolution of the dispute. (e) Any person appointed as an Expert will be deemed not to be an arbitrator but an expert and the law relating to arbitration including the Commercial Arbitration Act (SA) and the NSW equivalent, as amended, will not apply to the Expert or the Expert’s determination or the procedures by which he may reach his determination. (f) The Dispute resolution will be held in Sydney, New South Wales unless the Parties otherwise agree. (g) In the absence of manifest error, the decision of the Expert will be valid, final and binding upon the Parties. (h) The costs of the Expert and any advisers appointed pursuant to Subsection 28.3 (c)(iii) will be borne by Purchaser or Supplier or both as determined in the discretion of the Expert taking into account the Expert’s decision in the dispute. (i) The Parties will give the Expert all information and assistance that the Expert may reasonably require. The Parties will be entitled to be legally represented in respect of any representations that they may wish to make to the Expert, whether orally or in writing. 86 Knutson, supra.

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Specific Regional Differences and Methods Germany The German courts87 have, in effect, already ruled that dispute board–type procedures are enforceable. This is a very important development, not least because several of the world’s major trading nations have laws inspired by the German model. These countries include Turkey, Greece and Russia. Additionally, conciliation is common in Germany. A recent development in most of the Federal Lander (States) is that conciliation proceedings are mandatory under certain circumstances. A claim made before the State courts would be inadmissible if these mandatory conciliation proceedings had not concluded first. The Federal Supreme Court in Germany (Bundesgerichtshof) has ruled repeatedly that a claim brought before the court prior to a conciliation attempt that has been stipulated is inadmissible. In a judgment in 1998, the Federal Court held that if an “M&A contract” for the takeover of a tax consultancy stipulates that in the event of a dispute, a conciliation attempt before the competent Tax Consultant Board (a professional body for people in that profession like the Law Society or Bar Council) must first be made, a claim brought before the court prior to such a conciliation attempt is inadmissible. In this particular case, this did not apply, however, because the conciliation proceedings commenced by the claimant could not be conducted because the defendant refused to pay his share of the costs of the Board. The Federal Supreme Court ruled in this case that the defendant is consequentially barred from relying on the conciliation clause as it would be “unzulässige Rechtsausübung”, i.e. an inadmissible exercise of rights.88 As to dispute boards, the Federal Court states that the dispute board clause has the same spirit and purpose, as well as the procedural effect, as an arbitration clause. The difference is that the arbitration clause permanently excludes the reference to the State Court. The Federal Court held that the inadmissibility of rights argument, which is part of the good faith objection, should be assessed as in cases regarding arbitration clauses. As early as November 1987, the Federal Court had ruled that the arbitration agreement obliges both parties to cooperate in the process of arbitration, in particular to share pro rata the advances usually required by the arbitration courts.89 The same applied in this case where the parties concluded not an arbitration agreement, but a conciliation agreement. This judgment is important on two issues. First, it reaffirms the Federal Supreme Court’s earlier judgments that as long as the conciliation attempt has not been carried out, any claims brought before the State Courts in breach of the agreement are inadmissible. Second, by giving the conciliation clause the same procedural effect as an arbitration agreement, the Federal Supreme Court emphasises the importance of dispute resolution agreements generally and reduces the uncertainly that such clauses might engender. This judgment overruled a prior judicial authority from the Higher Regional Court of Frankfurt/Main, which had ruled that it is a “natural impulse” of a party not to pay any advance

87 Knutson, supra and infra. 88 BGH, VII ZR 344/97, 18 November 1998; BGH, VII ZR 197/82, 23 November 1983, NJW 1984, 669. 89 BGHZ 102, 199, 12 November 1987.

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if this party is the subject against whom the procedure is commenced.90 Thus, the Federal Supreme Court’s intention obviously was to set policy on the effect of conciliation agreements. France The approach of the South African and Australian courts can be usefully compared with recent decisions of the French courts. In the Cour d’Appel de Paris 1ere Chambre, section C, on 29 April 2003, a decision was rendered with respect to an ICC Pre-arbitral Referee decision, which completely and unequivocally supports the freedom of contract of parties with respect to their dispute resolution procedures. There, the National Petroleum Company of the Congo/Republic of the Congo made an agreement about the sale of petrol with the Total Fina Elf E&P Congo Company that included an ICC Pre-arbitral Referee clause. In pursuance of the Pre-arbitral Referee procedure, the ICC appointed OM Pierre Tercier, and he decided that the execution of the agreement could not be stopped unilaterally as long as an arbitral tribunal had not given its award. This effectively forbade the party wishing to terminate the contract from doing so until the arbitral tribunal had judged the matter.91 The claimant asked the Cour d’Appel to annul the decision of Maitre Tercier for nonrespect of the scope of his mission (article 1502–3 NCPC) and added that the decision he gave was equivalent to an arbitral award.92 The court held the “Pré-référé Arbitral” decision was valid as the system of the “Préréféré Arbitral” had been agreed between the parties, and article 6.6 of the ICC Rules on “Pré-référé Arbitral” provides that the parties are bound to execute without delay the “Pré-référé Arbitral” decision. Therefore, the Republic of Congo and the SNCP’s claim was inadmissible. The Court of Appeal rejected the argument that the decision of the third party acting as referee was to be assimilated to an arbitral award and noted that the ICC had carefully avoided the characterisation of the Pre-arbitral Referee as arbitrator. It noted that the parties had agreed in the rules to execute without delay the order of the Referee and that the Order of M Tercier had the agreed authority given to it by the parties. The court, therefore, declared the application to be ill founded. Similarly, the binding effect of a conciliation agreement was confirmed in the French courts by the Cour de Cassation (Chambre Mixte) Decision of 14 February 2003, in the case of Poiré v Tripier. In this case, a peremptory calling of a bank guarantee was ruled to be void as the contract called for conciliation before any call was exercised. M Poiré had assigned to M Tripier

90 OLG Frankfurt a.M, 24 U 248/95, 7 November 1997. Note that under German law the defendant which has not reacted to a statement of case in the State Court, because he might – to use the Frankfurt Higher Court’s language – have a “natural impulse” not to participate in a case in which he feels not to be the right defendant, will be confronted with a judgment by default. Pursuant to s 797 a) of the German Code of Civil Procedure, decisions resulting from conciliation proceedings are enforceable. 91 “Leur interdit de faire obstacle a l’exécution du contract de vente de pétrole conclu par les parties, et donc suspendre ou interrompre unilatéralement l’exécution, tant que les griefs de font ne seront pas juges par le tribunal arbitral compétent pour en connaître” (extract from the Decision of the Court of Appeal). 92 Third Ground – failure by the arbitral tribunal to comply with the terms of the mandate conferred on it (articles 1484–3° and 1502–3 NCPC).

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his shares in the capital of a company. The contract of assignment provided a guarantee in favour of the assignee, and another clause provided that all disputes regarding the contract would be first submitted to two conciliators before any legal action. M Poiré (the claimant) called on M Tripier (the defendant) under the guarantee. The defendant argued that the claimant had not respected the preliminary conciliation clause and brought an action for a peremptory declaration of inadmissibility. The Cour de Cassation held the conciliation clause was enforceable and the calling of the guarantee was not admissible.93 In a note94 on this and another decision95 with similar force handed down in the same period, Professor Charles Jarrosson mentions that the claim (of the claimant) is a decision “en l’etat”, i.e. as long as the conciliation still has not taken place, the claim is inadmissible, but once it has been carried out, the judges will receive the claim. Professor Jarrosson adds that this decision is important for arbitration cases where mandatory conciliation is a precondition to the effect of the arbitration clause. With the solution for this case, the arbitral tribunal will be able to decide that a claim is inadmissible “en l’état” and that its mission is suspended until the cause of inadmissibility has disappeared, i.e. until it is shown that the conciliation process provided for in the contract has taken place and failed. The arbitrator is not acting without jurisdiction (“dessaisi”) by a decision of inadmissibility “en l’état”. Professor Jarrosson notes that this case is similar to the English High Court case of Cable & Wireless Plc v IBM UK Ltd96 of 11 October 2002, in which Mr Justice Colman adjourned court proceedings for declaratory relief and required the parties to complete the contractual requirements for ADR before continuing with their court actions.97 Indeed, this solution is in effect similar to that which should be obtained in many common law jurisdictions. Professor Jarrosson notes also that there is a limit to this principle as seen in the decision of the Cour d’Appel de Paris in SCM Port-Royal v Pebay et Samper of 23 May 2001,98 where it was held that the claimant would not be limited by the preliminary conciliation clause and could make a claim before the Juge de referes in emergency cases. 93 New Code of Civil Procedure (NCPC). CHAPTER III PEREMPTORY DECLARATION OF INADMISSIBILITY Article 122 – Shall constitute a plea seeking a peremptory declaration of inadmissibility one which, without an examination on the merits of the case, shall cause to render the opponent’s claim inadmissible on the grounds that it does not disclose a right of action, a locus standi or an interest, or it is precluded by virtue of prescription, a determined time-limit or by the operation of res judicata. 94 Revue de l’arbitrage 2003 2 page 403 at 406. 95 Cour d’Appel de Paris in SCM Port-Royal v Pebay et Samper, 23 May 2001. 96 [2002] EWHC 2059 (Comm). 97 The ADR clause provided in part: The Parties shall attempt in good faith to resolve any dispute or claim arising out of or relating to this Agreement or any Local Services Agreement promptly through negotiations between the respective senior executives of the Parties who have authority to settle the same pursuant to Clause 40. If the matter is not resolved through negotiation, the Parties shall attempt in good faith to resolve the dispute or claim through an Alternative Dispute Resolution (ADR) procedure as recommended to the Parties by the Centre for Dispute Resolution. However, an ADR procedure which is being followed shall not prevent any Party or Local Party from issuing proceedings. 98 Revue de l’arbitrage 2003 2 p. 405.

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It is also said that the French courts confirmed in 2003 that this approach, in favour of contractual dispute resolution procedures, applies also to mediation in the Negre case.99 In this case the parties had signed a contract where M Negre would be the “adviser” (“conseiller”) for Vivendi to access the Chinese market. The dispute clause in the contract provided that all conflicts in relation to the contract would be “definitively decided in Paris, following the ICC Rules on Conciliation and Arbitration (or the French Commercial Tribunal) by one or more arbitrators named in accordance with these Rules and with the application of French law”. The parties also agreed without reservations to (judicial) mediation. M Negre wanted the Tribunal de Commerce to decide that the arbitration was not possible as the contract was not international (it was between two French citizens), that the clause was not clear, and it would be too expensive for him. The Cour de Cassation rejected all of these arguments and indicated the arbitration clause was still effective. The agreement to mediation would not be considered to be a renunciation of the agreement to arbitrate without an unequivocal demonstration that this was intended.

99 Cour de Cassation (1ere Chambre Civile) 28 January 2003 (M Negre v Societe Vivendi).

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Preventing disputes in any project is always beneficial and is of particular concern in any NPP project due to the complexity and potential for litigation costs and expenses. Claims for Delay, Disruption, Prolongation arising out of Extensions of Time and/or monetary loss all go through the same process which ultimately leads to either resolution of the dispute or litigation. The exploration of that process is essential to anyone involved in delay claim work as the various nuances between arbitration, dispute boards, litigation and mediation are all subtle and can have differing results based upon how a claim is presented and processed. The first step is gaining an understanding of the fundamental differences between litigation and alternates to litigation, which will help differentiate the various ways forward. This development, which is rather universal in common law countries, started in the USA where, as has been noted by others,1 historically, the three main dispute resolution methods used in the United States have been violence, avoidance, and litigation. In the early 1900s, labor management disputes began to be resolved through mediation and arbitration, and a few decades later many states enacted statutes requiring teachers, police and other public service personnel to mediate and arbitrate their conflicts. Today, there are a variety of additional processes that can be used to foster the resolution of disputes. Many of these processes began gaining popularity in the early 1970s as a result of frustration with the various human and financial costs associated with litigation. These processes were described as alternatives to litigation – hence the term Alternative Dispute Resolution or ADR.

In this regard it is good for one to understand the various differences between the existing methods of dispute resolution as these are shown in Figure 15.1.2 In addition to those methods listed previously and before actual litigation intervenes comes another form of ADR, and that is the use of dispute boards. Starting with the newest concept first involves a discussion of dispute boards.

1 Johnson, Marvin E. and Stephen K. Erickson, ADR Techniques and Procedures Flowing Through Porous Boundaries: Flooding the ADR Landscape and Confusing the Public, Practical Dispute Resolution 5.1 (2010). 2 Adopted from Join the Resolution, The Maryland ADR Commission’s Practical Action Plan, December 1999.

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TERM

DEFINITION

DESCRIPTION

Alternative Dispute Resolution (ADR)

A process or collection of processes for resolving disputes without going through a trial or committing violence.

Generally refers to a broad category of “ADR processes” that include settlement conferences, arbitration, mediation and consensus building, which are defined here, as well as other alternative disputes without using violence or having a court decide.

Problem Solving3

A process in which people work cooperatively to identify the problem and its causes and then propose potential solutions from which a solution is selected.

The parties work together to reframe their differences into a joint problem that they attempt to solve in a way that maximizes the outcome for all parties.

Negotiation4

A process in which people communicate with one another in an attempt to resolve their differences in a manner most favorable to their particular perspective.

Negotiation is something everyone does every day. It consists of unassisted communication of information between parties for the purpose of reaching an agreement influenced by the information exchange.

Mediation

A process in which a trained neutral person, a “mediator”, helps people in a dispute to communicate with one another, understand each other, and, if possible, reach agreements that satisfy the participants’ needs.

A mediator does not provide legal advice or recommend the terms of any agreements. Instead, the mediator helps people reach their own agreements, rebuild their relationships, and if possible, find lasting solutions to their disputes. Mediation is a process that lets people speak for themselves and make their own decisions.

Arbitration

A process in which people in a dispute present their views to a knowledgeable neutral person, an “arbitrator,” who decides how the dispute will be resolved.

Arbitrators review evidence and arguments from people in the dispute and make a decision or “arbitration award”. Arbitration is generally “binding”, which means that the participants must abide by the arbitrator’s decision.

Settlement Conference

A process in which people in a dispute in court present their views to a knowledgeable neutral person who evaluates the case and suggests ways to settle the dispute without a trial.

The settlement conference facilitator is usually a judge or experienced lawyer who can give informed opinions about how the court might decide the case, discuss how similar cases have been settled, provide advice, and suggest agreements.

Figure 15.1 Alternative Dispute Resolution Processes – Definitions and Descriptions

3 Excerpted from the Center for Alternative Dispute Resolution’s training manual (2009). 4 Ibid.

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The Dispute Board Concept5 The concept of a dispute board and its benefits can be best shown by the following situation and the various methods of resolution: During the construction of a bridge over a large river in a developing part of the country, a dispute breaks out over an unforeseen ground condition which is causing delay to the project. The contractor claims that the situation was not foreseeable, and as a result it has incurred an additional £500,000, and it has lost 75 days in time. It wants to be compensated and wants an extension of time to its contract for completion. The employer denies all of this and claims that the ground conditions were well known to the contractor and that it failed to review the site conditions properly before commencing work and never notified the employer as was its responsibility within 28 days of starting under the terms of their contract. Before the advent of dispute boards, the parties had three basic choices: mediation, arbitration or litigation (with litigation being the most prevalent in the courts of the developing nations). The results of the three would be as follows: Mediation The contractor requested that the employer agree to a mediator, but since the best-case scenario for the employer would be to pay money and give additional time, it refused to go to mediation and threatened the contractor with a claim for breach of contract and its termination if the contractor did not proceed and complete the project on time and on budget. Thus there was no beneficial result for the contractor on its claim or any resolution of the underlying dispute. Arbitration The contractor next informed the employer that it demanded arbitration of the dispute. If the contract had an arbitration provision then the contractor could pursue that course of action but if it did not, the employer again had no reason to go to arbitration as it had a 100 per cent chance of not paying any money or giving any more time if it did nothing, so it just gave the contractor the same response as it did to the request for mediation. If the contract had an arbitration clause that was not specific, it would have ended up in arbitration in the country where the project was located, and that may or may not have a viable arbitration establishment. Even assuming that the contract provided for arbitration before the International Court of Arbitration of the International Chamber of Commerce (ICC) in Paris, as the appointing body the cost for that arbitration would be USD $124,130,6 and then added to this would be the cost of counsel for both the contractor and the employer,

5 See Dr Cyril Chern (2015), Chern on Dispute Boards, 3rd Edition Informa Publishing London from which this section has been taken. 6 Based upon the ICC Arbitration Cost calculator – £500,000 at the current exchange rate equals $825,000 equalling a total fee of USD $124,130 – see www.iccwbo.org/products-and-services/arbitration-and-adr/ arbitration/cost-and-payment/cost-calculator/.

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which would conservatively be an additional £100,000 each and the time to arbitration of about two to three years whilst the project is stalled – does not yield a very pretty picture. Litigation The worst option remaining would be litigation by the contractor in the developing country under its legal system where the contractor was not local, and the court system is clogged resulting in an approximate eight- to ten-year delay till some sort of resolution plus the costs involved – a highly unpleasant experience, and again the project is stalled until litigation is completed, which does neither the employer nor the contractor any good. Before dispute boards (DBs) these were basically the only ways in which disputes could get resolved, and usually the project was stalled or stopped, the contractor would not get paid but would have to spend a lot of money seeking recovery, the employer would have a half-finished project and neither side would win. To best understand how dispute boards are a better solution, compare the result of that scenario in a DB setting: Dispute Board Here the parties had a dispute board written into their contract, and it was operational from the start of the project. By the time that this dispute arose, the DB had visited the site on several occasions, had seen the soil conditions, knew the parties and had discussed the situation all along the way till the claim was made for the additional money and the extension of time. Here, too, the DB was a Dispute Adjudication Board (DAB) which had the right to give binding decisions on any claims/disputes that came before it. This dispute arose and was given to the DAB by the contractor. Under the terms of the DAB agreement, the DAB had to investigate the dispute and the claim and give its decision within 84 days. The DAB was on a daily rate basis of £3,000 per day and was composed of one sole DAB member. It investigated the claim, it already had knowledge of the underlying situation and it gave its decision on day 75 (nine days before the deadline) awarding the contractor £424,000 and an additional 35 days, which is all the DAB felt was warranted. This particular DAB clause provided that the decision was final and binding and that was it. The parties continued with construction during the investigation by the DAB, no stoppage occurred, the contractor was paid accordingly at the next payment interval and the contract was extended by the 35 days. The parties continued on, and the cost to the project of the DAB for the claim amounted to five days of investigation and two days of writing the decision for a total of seven days at a cost to the project (the parties split the cost of the DAB) of £21,000. Because no lawyers were involved in any hearings, the costs were kept to a minimum. Compare this result to that of the other traditional methods, and its speed and economy help explain why the use of dispute boards is increasing on a daily basis worldwide. This increase is also because statistically the construction industries have a high rate of disputes and delay, and until recently these have not been easily resolved without recourse to lengthy arbitrations or worse yet to the courts. In 1986, Lord Donaldson, one of England’s great judges, put it best when he said: It may be that as a judge I have a distorted view of some aspects of life, but I cannot imagine a civil engineering contract particularly one of any size, which does not give rise to some

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disputes. This is not to the discredit of either party to the contract. It is simply the nature of the beast. What is to their discredit is that they fail to resolve those disputes as quickly, economically and sensibly as possible.

The “nature of the beast” is changing, however, thanks in great measure to the use of dispute boards. As an example, some early dispute boards such as the Ertan Hydroelectric Dam in China valued at USD $2 billion7 had 40 disputes referred to its dispute review board (DRB) for decision, and no decision of this dispute board went on to arbitration or litigation of any kind. The Hong Kong International Airport valued at USD $15 billion had six disputes referred to its dispute board, and of those only one went on to arbitration, at which time the decision of the dispute review board was upheld, and the Katse Dam in South Africa valued at USD $2.5 billion had 12 disputes referred to its dispute board and of these only one went on to arbitration where, again, the decision of the dispute review board was upheld. In each instance, the dispute board did resolve those disputes as quickly, economically and sensibly as possible. Dispute boards work, and sometimes their mere presence and the ability of the dispute board members to give informal opinions before any dispute even arises can be of immense assistance. A good example of this in the United Kingdom is the Docklands Light Railway valued at USD $500 million, where no disputes ever fully arose or were submitted to the dispute board, or the Saltend Private Gas Turbine Power Plant in the north of England valued at USD $200 million, where both the number of disputes referred to the dispute board and the number that went to arbitration were zero. Needless to say such statistics were unheard of in the construction industry before dispute boards. What is a dispute board? Of the various methods of dispute resolution the most familiar are either arbitration or litigation, i.e. a court trial. In both you have a “judge”, be it an actual judge or an arbitrator chosen by the parties, and in each the “judge” is presented with evidence of an event or set of events that have happened in the past which have caused a dispute and which now the parties hope to resolve. A similar method is adjudication where the title “judge” is substituted with the title “adjudicator”. Here the adjudicator again reviews events from the past to come to a decision in the same way that a “judge” or arbitrator does but usually on a shorter time schedule. Following along this line we come to dispute boards. A dispute board is different in a number of ways. For starters it is specific to the “job site”, and as a dispute adjudication process it typically comprises three independent and impartial persons (adjudicators) selected by the contracting parties. The significant difference between dispute boards and most other alternative dispute resolution techniques (and possibly the reason why dispute boards have had such success in recent years) is that the dispute board is appointed at the commencement of a project before any disputes arise and before any events have occurred which would lead to any dispute, and by undertaking regular visits to the site it is actively involved throughout the project (and possibly any agreed period thereafter).

7 Note that worldwide, dispute board valuations are computed in US dollars.

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A dispute board becomes a part of the project administration and thereby can influence, during the contract period, the performance of the contracting parties. In contrast to other methods of dispute resolution in the construction industry, a dispute board acts in “real time” as compared to dealing with events now which occurred in the far distant past such as in court proceedings and arbitrations. The idea behind a standing dispute board is that it may be called upon early in the evolution of any dispute which cannot be resolved by the parties and asked to give decisions or recommendations on how the matters at issue should be resolved. It is usual (but not compulsory) that an opportunity remains for the matter to be referred to arbitration or to the courts if the dispute board’s decision does not find acceptance by the parties. Thus a dispute board may be likened to the UK’s adjudication process, either under statutory-compliant contracts or under the regime established by statute itself.8 What a dispute board does that UK statutory adjudication does not do is to provide a regular and continuing forum for discussion of difficult or contentious matters, to identify ways forward by acting in an informal capacity and to create valuable opportunities for the parties to avoid disputes by keeping proactive communication alive. Another aspect, which is less often discussed, is that by establishing a dispute board from the inception of the project, the dispute board members become part of the project team and are thought of in a different fashion, and because of their “hands-on” approach, they can be trusted to be fair and impartial, and their advice is respected and taken more readily than would be the case with a third party or stranger to the project, e.g. a judge or arbitrator. It is this two-way communication between the dispute board and the parties that keeps the dispute board conversant with what is happening on a project and which many times can help prevent a minor issue from turning into a major dispute with the attendant animosity that is created in such situations. The term “dispute board” is a generic term that includes (1) the dispute review board, which is a device that originated in the USA (and continues to be used most often there) and which provides non-binding recommendations; (2) the dispute adjudication board, which emerged from the earlier USA model and which provides a decision that has interimbinding force and which is used most everywhere else in the world except the USA; and (3) the combined dispute board (CDB), which is a hybrid of dispute review boards and dispute adjudication boards and was created by the International Chamber of Commerce (ICC) in 2004. Various other terms have been used, such as dispute settlement panel, dispute mediation board, dispute avoidance panel, dispute resolution board and dispute conciliation panel. Fundamentally these different varieties of dispute review devices are the same, each providing early adjudication based on the contractual bargain between the parties. A dispute board is a creature of contract; the parties establish and empower a dispute board with certain jurisdiction and to investigate in an inquisitorial fashion the basis for the dispute/claim involved and to hear and either advise on the resolution of disputes or to make decisions on the disputes presented – hence the difference between a dispute review board and a dispute adjudication board. Within the UK it is entirely possible for the contracting parties to establish a dispute adjudication board to adjudicate construction

8 Housing Grants, Construction and Regeneration Act 1996.

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contract disputes within the statutory requirement for adjudication.9 As yet, there are no statutory requirements for dispute review boards to be established to adjudicate disputes under construction contracts. While the origins of dispute boards are found in the construction industry, their ambit is far wider than construction, and dispute boards are now found in the financial services industry, the maritime industry, long-term concession projects and operational and maintenance contracts. The scope for dispute boards is substantial. The emergence of the ICC as an active supporter of dispute boards,10 as well as the Dispute Board Federation (DBF) and the Dispute Resolution Board Foundation (DRBF), makes it highly probable that dispute boards will be established in a range of industries that, until now, have not used adjudication to any great extent. What makes a dispute board unique? What can be achieved by using a dispute board? The construction industry has a reputation for disputes and conflict. Anecdotal evidence from Australia, as just one example, indicates that 50 per cent of all legal costs associated with construction are expended in connection with disputes. In almost 10 per cent of projects, between 8 and 10 per cent of the total project cost was legal cost. Not surprisingly, these projects have a high incidence of disputes. This expenditure, which globally represents an enormous sum each year, does not begin to take into account the hidden costs of disputes: the damage to reputations and commercial relationships, the cost of time spent by executive personnel and the cost of lost opportunities. The situation is aggravated by the increased use of joint ventures, both in consulting and in contracting. Such organisations are less autonomous and perhaps less able to negotiate settlements of their contractual problems. Every construction project is unique, and perhaps this is why there is a general absence of “corporate memory” in the construction industry. Regrettably, similar-type disputes arise on many construction projects, and it is naive to think we can eradicate disputes by clever contract drafting alone. Differences will occur, many of which will involve sizeable sums of money and thus provide fertile ground for disputes to arise. What parties want is a disputesolving device that is considered fair, is economic and will cause the least damage to the full performance of the contract. This is especially true for large projects where contract periods are lengthy and good interparty relationships are important to satisfactory performance. Indeed in some of the contemporary “mega-projects” (those whose value is in excess of USD $5 billion) where the project can run for 10 to 15 years or longer, an efficient “projectsaving” method for dispute resolution is both needed and practical. Contracts do not always provide the necessary mechanisms to determine entitlements with certainty. Many disputes concern “non-absolute” matters, and, in such cases, the dispute board can devise solutions which avoid “win–lose” situations whilst keeping within the contractual boundaries. Dispute boards can also give opinions on issues when

  9  See the Institution of Civil Engineers (ICE) Dispute Board Procedure published in 2004. 10  The ICC Dispute Board Procedure launched in the UK on 13 October 2004.

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asked even before a dispute “crystalizes”, many times preventing a dispute from occurring, and thus working relationships are less injured and site-level partnering can continue. Recommendations versus Binding Decisions When dispute boards first came into play about 25 years ago they were created to ease the construction of projects which had both employers and contractors from different jurisdictions, different legal systems and differing standards of practise. Disputes arose, but rather than having a ruling on who was right or wrong it was felt better to have experienced individuals – experienced in construction and construction contracts – review the situation and offer their opinion of what the difficulty was and perhaps a way forward to resolve the problems between the Employer and the Contractor. Thus the “recommendation” form of a dispute board was born. Neither party had anything to fear from the dispute board for all that would come from it was a recommendation. This quickly developed a step farther, and the recommendations given would become binding after a certain period of time unless objected to. This method also allowed the parties time to reflect on the comments made by the dispute board and to determine if their “suggestions” were viable. If so they became the rule, i.e. a decision was made that would become binding. This then naturally led to the current model, in which a decision is given in each instance, a decision that is both binding and actionable immediately. The key differences now follow. Non-binding recommendations There is much trans-Atlantic debate over the benefits and shortcomings of non-binding recommendations and interim-binding decisions – thus the divide between USA-style dispute “review” boards (DRBs) and the international use of dispute “adjudication” boards (DABs). Even if the dispute review board recommendation is contractually “nonbinding” (as many still are, particularly in the USA), this does not appear to impair the efficacy of the decision. It is suggested that there are two main reasons for this: first, that if the dispute review board recommendation is admissible in later proceedings (as it often is), the parties know that an arbitrator or judge will be greatly influenced by a decision (on the facts) given by a panel of experienced, impartial construction experts who were familiar with the project during its construction and saw the evidence as it was being created rather than looking back at evidence of events from the past. Thus the parties are likely to accept the recommendation. Secondly, it is unlikely that over the course of a large project, the dispute board will always find in favour of the same party. It is probable that each party will be pleased with certain decisions, and if they expect the other party to honour the favourable decisions, they are obliged to accept those that are less than favourable.11 In many of the early dispute review boards, parties were found to give notice of dissatisfaction (which would lead to a review in arbitration of the recommendation/ decision) with every unfavourable dispute review board recommendation (thereby keeping the matter live), only to drop the proposed arbitration or litigation when the

11 Peter H. J. Chapman, the then president, Dispute Resolution Board Foundation, speaking at the Fifth Annual Conference, Dubai, United Arab Emirates, 2005.

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contract was concluded and when close-out negotiations resulted in the dispute review board’s previous decisions being adopted in their entirety by both parties and without demur.12 The arguments in favour of non-binding recommendations from dispute review boards include: 1. They often help parties in resolving a dispute by virtue of the advice the recommendation gives, so long as the parties have respect for the standing and competence of the members of the board. 2. Cultural backgrounds may be of influence; for example in China the tradition of conciliation will often lead to the adoption of the recommendation by the parties to avoid further conflict. 3. It is a non-threatening process. 4. The preparation for any hearing is less than in other procedures. 5. Hearings are shorter. 6. Hearings are simpler. 7. Hearing costs are reduced. 8. Experienced parties are very often able to resolve matters based on a recommendation alone. 9. In the USA the non-binding recommendation, which normally extends only as far as matters of entitlement and not quantum, generally finds acceptance because neither side is usually eager to pursue the matter through arbitration or the courts. The arguments against non-binding recommendations from dispute review boards include: 1. They enable the losing party to postpone the day of reckoning merely by giving the required notice of arbitration. 2. The effect of the recommendation may be nil. Interim-binding decisions By contrast, the interim-binding decision of a dispute adjudication board has meaning in that the dispute adjudication board’s decision is contractually to be implemented immediately and remains that way until such time as it becomes “final and binding” as is discussed later. This occurs even if one or the other party is unhappy. Thus the “losing” party will be in breach of contract if it does not pay money/grant time in accordance with the dispute adjudication board decision. The arguments in favour of binding decisions from dispute adjudication boards include: 1. If necessary, they may be enforced by legal processes (these may not be without difficulty depending on jurisdiction. 2. The binding nature of the decision will focus the minds of the parties during the dispute process and can thus lead to early settlement.

12 For example, the Ertan Hydroelectric Project in China, where all 27 of the dispute review board’s decisions were adopted by the parties during the final settlement negotiations, resulting in final account agreement of a mega project constructed over a nine-year period to be settled in less than six months of contractual completion.

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3. The binding nature of the decision is unlikely to be ignored, even by an unwilling or an impecunious party (breach of contract). 4. In a joint venture, consensus may be difficult insofar as adopting a recommendation is concerned – not so with a decision. 5. Different situations arise around the world where there is corruption, and suspicion arises if any public employee authorises payments that are not compulsory. Indeed, in some areas payment cannot be made without an actual decision on the merits of the dispute. The arguments against binding decisions from dispute adjudication boards include: 1. Matters are often harder fought, as there is more at stake. 2. Hearing preparation costs and hearing time and costs are likely to be higher, as generally more documentation is put before the board. 3. There is more chance of legal representation. 4. The final decision is taken away from the parties. 5. Some matters are very complex, and the time limits imposed can be a problem when so much can turn on the decision. In general, there is no right or wrong answer as to whether the output from a dispute board should be a non-binding recommendation or an interim-binding decision. Much will depend on circumstances, jurisdiction, the skills and identity of the board members and the needs of the parties as well as cultural considerations. However studies from the Dispute Board Federation have shown that where a dispute adjudication board is in place and where its decision is immediately final and binding, there is a substantially increased chance that the number of actual full-fledged disputes that arise is much lower and in many cases nil on construction projects with the parties preferring to ask for an opinion from the DAB and then act on that rather than seek a full-blown hearing on the dispute. Differences between dispute boards and arbitration, mediation, adjudication and alternative dispute resolution (ADR) Judicial historians are in disagreement as to which arose first, arbitration or mediation. In antiquity it would seem that mediation was the first, and if it did not resolve the dispute, other more severe methods were available. But arbitration was a close second in the development of numerous judicial systems, where, once the parties chose the arbitrator, the arbitrator had the powers of a judge and could issue awards, which were binding on the parties. The apparently inexorable growth of litigation-generating disputes in building and construction, and the complexity of such disputes, have inevitably increased the expense and delay of both litigation and arbitration of such matters. There is increasing interest in various other ways in which these conflicts could be resolved. Such possible avenues are known collectively as alternative dispute resolution (ADR). Impulse for a change to ADR appears to have originated in the USA, where a number of factors contributed to this development, in particular: 1. The constitutionally guaranteed right to jury trial for “suits at common law”. 2. The absence of any general system of “fee shifting” in civil litigation, so that each party must bear its own costs regardless of the outcome. 488

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3. The absence of any national system of judicature. 4. The poor quality of some judges and/or lack of specific expertise in complex engineering matters, due to low pay and/or erratic selection procedure (including their election to office). 5. Congestion of the court system. However, most countries with well-developed legal systems have experienced a growth in interest in ADR. It appears to be a common experience around the world that as legal systems become better developed and more sophisticated, so problems of delay and expense increase. There are a wide variety of different techniques for dispute review that can come under the umbrella of ADR. These include: • Judicial appraisal: the parties make written submissions to a judge who then gives an appraisal of the likely outcome should the matter go to trial. It is for the parties to agree whether or not the appraisal is to be binding. • High-low arbitration: prior to the arbitration the parties agree on the parameters of the settlement. If the award is within the parameters, it is binding. If it is outside the parameters, the higher or lower limit set by the parties applies, whichever is the nearer. • Expert determination: expert determination can be used to resolve a discrete matter. Usually the expert will investigate and report on the matter. Reliance on submissions made by the parties is therefore not essential. The decision is usually binding. Where the parties have agreed that the expert’s determination will be final and binding, then, in the absence of an agreement as to specific grounds upon which the determination may be challenged, the courts will only interfere with the determination in limited circumstances, such as fraud or a failure on the part of the expert to follow his instructions.13 The extent to which an error of law made by the expert is open to review by the courts is uncertain. • Mediation: mediation involves the introduction of a neutral third party, the mediator, whose purpose is to assist the parties in reaching a negotiated settlement of their dispute. There are several forms of mediation, but the two main forms of mediation are facilitative and evaluative. In facilitative mediation, the mediator remains neutral throughout and helps guide the parties to their own resolution of the dispute without taking sides or giving any opinion on the merits of the matter. In evaluative mediation, the mediator may express a view or make a recommendation where this will assist the parties with their negotiations.14 • Mediation–arbitration: the parties use mediation to attempt to reach a negotiated settlement, but should that not prove possible, a decision is imposed on them in respect of any unresolved issues. The parties decide whether one person is to act as both mediator and arbitrator or whether the roles are to be split.

13 Dixons Group plc v Jan Andrew Murray-Oboynski (1997) 86 BLR 161, Judge Bowsher QC; Jones v Sherwood Computer Services plc [1992] 2 All ER 170; [1992] 1 WLR 277, CA. 14 For a greater discussion of mediation in these settings see Cyril Chern (2008), International Commercial Mediation, Informa Publishing London; Cyril Chern (2014), The Commercial Mediator’s Handbook, Informa Legal London.

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• Conciliation: the terms “mediation” and “conciliation” are often used interchangeably. However, in the UK conciliation is usually regarded as a more evaluative than facilitative approach. For example, under the Institution of Civil Engineers (ICE) Conditions, parties may refer their dispute to conciliation, and, in the event of a conciliated settlement not being reached, the conciliator has the power to make a “recommendation” for the settlement of the dispute.15 • Executive tribunal: this process involves a mediator sitting as a panel with an executive from each party who has not been personally involved in the dispute. The panel hears submissions from each party. Thereafter the executives retire with the mediator to negotiate a settlement. • Neutral fact-finder: this is similar to expert determination. It is usually restricted to specific issues within an overall dispute and is not binding in that the factfinder does not usually make an award. • Adjudication: this is akin to judicial appraisal or expert determination, but the submissions are made to a neutral third party (the adjudicator) rather than a judge. The third party is usually chosen on the basis of expertise in the matter in dispute. Adjudication can encompass oral submissions or site visits. The decision is usually binding but not necessarily final. Adjudication has also become increasingly common in the UK construction industry as a result of the statutory right to adjudicate under the Housing Grants, Construction and Regeneration Act 1996. Part II of the Act, which came into force on 1 May 1998, provides that construction contracts (as defined) must contain an adjudication procedure that complies with section 108 of the Act. If the contract contains no adjudication provisions or those provisions fall short of those required by the Act, then the statutory Scheme for Construction Contracts applies. It is from this combination of alternative dispute resolution methods available that the modern dispute board was formed. To better understand how this newest form of ADR came into being, it is necessary to look at the oldest form of dispute resolution, which is mediation. Mediation16 Historical Background Mediation predates written history, and legal scholars disagree as to when the first known example of mediation actually occurred. Each culture however shows evidence that mediation was used at some point in its development. As an example ancient Chinese literature tells the story of one Emperor who ruled over 4000 years ago. At that time the main city in China was under the reign of Emperor Shuen. His people had disputes and quarrelled with each other, and their disputes became increasingly difficult to resolve other than through actual fighting. Those who lived in the mountains argued and fought over

15 See e.g. ICE Conditions 7th Edition, Clause 66, and ICE Design and Construct Conditions of Contract 1992, Clause 66. 16 See Dr Cyril Chern (2008), International Commercial Mediation, Informa publishing London, from which this section has been taken.

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the borders of their land, the lake people argued and fought about the title to their homes, and those who lived along the riverbanks used the abundant clay to make pottery which unfortunately was defective so when sold caused even more problems and disputes. The Emperor just couldn’t come up with an easy solution to resolve all of the various disputes, nor was he able to come up with an effective method for the prompt resolution of disputes when they arose. He decided that the best way would be to go out among his people, to live with them, to observe what it is that they did and to help them fashion some method of resolving their problems without the need for physical aggression. Ultimately he went to each of these areas to get to know the people better – he observed the farmers and farmed with them to see how their culture worked and to help determine why land disputes broke out, he fished with the fishermen to observe their practises and to see how and why problems arose, and he went to the people along the riverbanks to watch as they made pottery and to see if he could find a solution to why they were having their problems. He observed the people in each region and saw what they were doing, and more importantly he observed exactly how the fights and arguments erupted. Based upon what he saw and his newly acquired knowledge of their customs and practises, he was able to counsel the people and help them resolve their various disputes. He then started to instruct the regional people in methods to prevent the continuation of disputes, and after about a year of this instruction, “the mountain dwellers started offering their lands to each other; the lakeside residents started conceding their houses to each other; and those living along the rivers started making and selling pottery of a very good quality”.17 In essence he brought mediation to the people. This is one of the earliest stories in which the concept of mediation, i.e. counselling people so that they could come up with a way to peacefully settle their own disputes, first arose.18 Ancient Cultures What is commonly known as mediation has beginnings in every ancient culture. Historians have found early cases in both Phoenician (1200 BC to 900 BC) and Babylonian commerce (2300 BC). Mediation also developed in Ancient Greece, then in Roman law where Justinian’s Digest (530–533 BC) recognized mediation. Indeed some of the early cultures regarded the mediator as a sacred figure, worthy of particular respect, with the role partly overlapping that of the traditional wise man or chief. Roman literature used a variety of names, including internuncius, medium, intercessor, philantropus, interpolator, conciliator, interlocutor, interpres and finally mediator to describe both the role and the concept of mediation, and over time various cultures developed scholarly literature on the subject of mediation.

17 See Si Maqian: “Wudibenji [Biography of the Five Early Emperors]” on Shiji [the Historical Records]. Shiji is the first classic comprehensive historic book authored by Si Maqian (145 BC – unk), considered the greatest Chinese historian. 18 I am grateful to Cao Pei for her work on this subject, as seen in the article The Origins of Mediation in Traditional China, Dispute Resolution Journal, May 1999.

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In Europe, scholarly mediation literature existed as early as 1680, when Johann Wolfgang Textor described essential international mediation standards.19 In the United States, Native Americans adopted their own dispute resolution procedures long before the American settlement. Indeed, recently, the Navajo have begun using the ancient ADR practise of Hozhooji Naat’aanii, which was practised until the then still new US government first imposed its own legal system on the Navajo in 1829.20 Early China Going back to Chinese history one finds detailed accounts of mediations and mediators as we now know them going back at least 2700 years. Early examples include that of Wu You, a county officer from the Western Han dynasty (206 BC–AD 24), of whom it was recorded that whenever he had lawsuits to judge, always began by closing his door to reflect on his own negligence, for he believed that if he had instructed his people well in ethics, they would never quarrel with each other. He then stated the reasons clearly to his people, and often went into the streets and homes personally, to persuade his people to become reconciled

or Lu Jiouyuan, a local Confucian officer in the Northern Song dynasty21 (960–1127), who always tried to bring together parties who were in a dispute and counselled them to “make peace among themselves in accordance with Confucian morality”. History records that sometimes people were so moved by him that they tore up their complaints and reconciled with each other. These early forms of mediation, based upon ethical trade and relations, became popular as a way to settle disputes and was upheld by the then governors because they felt that harmony and “no litigation” was the ideal social order. The avoidance of litigation was in fact a goal supported by the religious and philosophical leaders of the time. Confucius wrote: “Although I listen to the cases as other judges do, I must make my best effort to instruct people to live without litigation”. According to him “no litigation” meant that all the people were guided ethically by the instruction of morality and that this should be the duty and ultimate aim of their governors. At that time one of the main goals for the local governors was to have no lawsuits in their region, as this was a way to show that they had good ethical relations in their community. Conversely if lawsuits started in their region, it would damage their reputation and position and caused them to be branded as vulgar and immoral. Needless to say this did not predispose any governor to promote litigation, and this ultimately led to parties mediating their disputes rather than going to the governors or to litigation. Individual families who had disputes also, as a result, chose to mediate disputes by themselves rather than allow the dispute to be sent to the government. This concept of

19 See Douglas Lind, On the Theory and Practice of Mediation: The Contribution of Seventeenth-Century Jurisprudence, 10 Mediation Quarterly 119 (1992) (describing Johann Wolfgang Textor, Synopsis of the Law of Nations (1680). 20 See Philmer Bluehouse & James W. Zion, Hozhooji Naat’aanii: The Navajo Justice and Harmony Ceremony, 10 Mediation Quarterly 327 (1993) (distinguishing between Native American peacemaking practices). 21 See “Lu Jiuyuan Zhuan [Biography of Lu Jiuyuan]” in Songshi – The History of the Song Dynasty.

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preventing litigation to maintain one’s reputation either individually or as a governor led to the traditional practise of many big families who developed their own family rules instructing their descendants not to be involved in litigation in order to keep the family’s reputation.22 In the Ming dynasty, the tradition of mediation among family clans and local communities was written in the official code: “Each village should build up the ‘shenming’ pavilion” (“shenming” in Chinese means “making reasons clearly”).23 It was here in the “making reasons clearly” pavilion that the respected local elders and intellectuals would listen to the grievances and act as mediators/judges and assist the parties in reaching a peaceful solution. Qing Dynasty – Three Steps of Mediation After 3600 of mediation history, the “Three Steps of Mediation in the Qing Dynasty”24 (1644–1911) developed. The First Step The first step was the “private settlement” before litigation. The traditional method of resolving disputes was to seek the counsel of either the head of the family clan or the head of the local village rather than resort to litigation. Indeed many times it was the community that compelled the arguing parties to do this rather than their doing so voluntarily. Even if one of the parties had started litigation by sending their complaint to the county government, they were still required to accept the decision made by the local intercessor as the local government officers encouraged this sort of mediation towards settlement rather than judge the cases themselves.25 There are many written reports during this era as to the mediator/intercessor’s role in settling disputes. An early example can be found in the following story, which appeared in a report by the intervenors in a file of the legal branch of the Baodi County government during the Qing dynasty.26 A widow living in Huang Chun sued the local county officer stating that her dead husband’s cousin had taken her land. When her six relatives learned that these members of their family clan were in a dispute, they “could not be at ease as bystanders”, so they “intervened between the parties voluntarily”. They began their own investigation to sort out the real facts and found the land deed. This deed showed that the widow’s dead husband had mortgaged the disputed land to

22 In traditional China local government officials, such as a county governor, were in charge of listening to cases since there were no professional court and judge until after 1911. See Wu You Zhuan Biography of Vu You in Hoithan Shee The History of the Later Han Dynasty. Wu You was a local bureaucrat in Han dynasty. 23 See The Great Ming Code, Chapter 26, Criminal Law 9, “Miscellaneous Offenses”. “Collected files of the Legal Branch of Baodi county government of the Qing dynasty in the First Historic Archives of China, Beijing. 24 Ibid. 25 See ibid. – Cao Pei The Origins of Mediation in Traditional China. 26 Xu Naipu (Jihong) (comp): Huanhai Zhinan Wuzhong (The Guild of Official Works). This book collected administrative experiences written by several bureaucrats in the Qing dynasty and compiled by Xu Naipu who was the minister of the Official Ministry in Qing Dynasty. This book was first printed in 1859 and reprinted in 1886.

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a cousin, and, as it turned out, the widow was too poor to redeem the property. In what appears to be a group mediation, they persuaded their cousin, “to take into account the feelings of relatives and help the widow and the orphan as much as possible”. In the end, after the “mediation” the cousin who had been holding the mortgage voluntarily offered to convey back the land to the widow “out of respect for the feeling of the family clan and of consanguinity”. Then, as witnessed by the relatives, the two parties “saluted each other” (meaning that they resumed good relations), transferred the land back by deed and made a written agreement which stated: “From today the two parties should keep each property, never to argue, and should both maintain the harmony of the family clan”. When these six relatives reported with all of their names to the local government asking for withdrawal of the lawsuit, the head of the county government remarked on their report: “As this case has been mediated by the relatives, I approve of your withdrawal of the lawsuit in order to encourage keeping your sense of kinship arising from a common family origin”. The Second Step The second step of mediation in the Qing Dynasty occurred after the local bureaucrat received and read the complaint sent by people from a village. Once read, the local bureaucrat returned the complaint to the head of the village to conduct the mediation. This process was used for small disputes or offences among relatives and neighbours. More serious cases had to be dealt with by the official himself. When the local bureaucrat returned the complaint, he would write instructions on the complaint as follows: “Since the cause is slight”, or “As the dispute concerns family clan matters”, “I nominate the relative (or chief of the family clan, or head of village) to mediate in order to discourage unnecessary litigation” and returned the complaint to the village. The bureaucrats only judged cases that could not be settled at the village27 level. The Third Step The third step was a formal mediation process conducted by the chief governmental officers. An example written by Kuai Zifan, a local chief officer of in the Qing dynasty,28 tells about a peasant who sued his aunt for beating him after he had refused to lend her money. After checking the plaintiff’s very minor wound, Zifan said to him: As you are so poor and your aunt still needs to borrow from you, she must be poorer than you. If both of you were involved in the lawsuit, you would have to pay a lot of money, to wait for a long time in the town, and miss your farming season. Why is it necessary to destroy both of your daily lives just for such a short burst of anger?

Then he gave the plaintiff some of his own money for his wound and advised him to go home. Emotionally overcome, the peasant withdrew his lawsuit and left. Whilst I doubt

27 See ibid. – Cao Pei The Origins of Mediation in Traditional China. 28 Kuai Zifan Collected Deliverance in Wuzhong, printed in Qing Dynasty. Kuai was a local bureaucrat in Qing Dynasty; and ibid.

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there would be mediators today who would give either of the parties any of their own money, the concept of mediation as an effective remedy and alternative to litigation has a rich history, and what Kuai Zifan said then is still good today, i.e. “If both of you were involved in the lawsuit, you would have to pay a lot of money, to wait for a long time in the town, and miss your farming season”. USA Early American settlers also developed dispute resolution.29 In fact the early history of mediation in the United States has two famous anecdotal examples, the earliest being George Washington’s addition of a dispute resolution clause in his will to resolve disputes among his heirs and later Abraham Lincoln’s resolution through ADR of a boundary dispute between two farmers while he was still a fledgling lawyer. However, aside from lay mediators in the United States, full time professional mediators were probably first seen as direct appointees of the Secretary of Labor to fill the position of “Commissioners of Conciliation” in 1913.30 On a larger scale, mass employment of mediators came with the creation of the Federal Mediation and Conciliation Service (FMCS) in 1946. The primary focus of the FMCS was to resolve labour disputes.31 Cases such as Youngstown Sheet & Tube Co. v Sawyer32 show the importance of providing trained neutral parties to resolve heated labour conflicts.33 The FMCS exists today with a much broader mission that includes aiding federal agencies in developing their own mediation programs.34 Change of Direction In the 1970s, the development of mediation broke off in two distinct directions.35 One direction viewed mediation as merely an extension of the legal system, and as such many felt that mediation would be effective in reducing the number of issues seen in court litigation. The other view was that mediation was not a part of the legal system and offered a process that could deliver better results than the adversarial system only because it was separate from the legal bureaucracy. Ironically, these two divergent

29 See, Evan R. Seamone, Bringing a Smile to Mediation’s Two Faces: How Aspiring mediators May JumpStart Careers Immediately Following Law School, University of Iowa College of Law (2000). 30 See Murray, et al., (1996), Mediation And Other Non-Binding ADR Processes (describing early activities of the Labor Department). 31 343 U.S. 579 (1952). 32 In this case, President Truman attempted to federalise the owners of steel mills in order to compel striking steelworkers to continue their employment. The specific reason for this nationalisation was the “failure” of the FMCS to achieve resolution. Id. at 582. 33 See About FMCS, available at https://www.fmcs.gov/wp-content/uploads/2019/03/Interest-BasedBargaining.pdf (describing the variety or roles currently facilitated by the organisation). 34 While it is true that the Ford Foundation began to explore the concept of mediation in the late 1960s, these pilot programs, which were enacted through the American Arbitration Association, are not recognized as catalysts for a national movement. See Kovach, supra note 23, at 28 (describing the Ford Foundation’s activities); Murray, et al., supra note 14, at 77 (noting programs that developed in the 1960s “under the impetus of federal grants under the poverty and other Great Society programs”). 35 Ibid. at 13.

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mediation approaches emanated from the same historical origin, i.e. the Roscoe Pound Conference of 1976.36 Roscoe Pound had been an influential force in critiquing the legal system early in American history.37 In 1976, legal scholars met at this conference to sort out different ways of improving the American legal justice system. The urgent need for alternatives to litigation materialised in the concept of the “Multi-door Courthouse”, as well as the contrary notion of Neighbourhood Justice Centres. The Multi-door Courthouse concept, originated by Professor Frank Sander, was where an aggrieved party could simply go to a kiosk at the entrance of a courthouse, and a facilitative attendant would then direct him or her to one of many doors. Each door would provide a different alternative for resolving the problem.38 Under this view, the legal system would achieve the most satisfactory result by placing responsibility for alternative processes like mediation in the hands of the judicial system.39 However, the aim of neighbourhood mediation centres in the 1970s was in reality a way to “get away from lawyers, judges, courthouses and all other parts and pieces of a justice system that too often seems to be a kind of giant, ponderous, costly, friction-generating tar baby”.40 Both of these views resulted in enabling legislation, such as the initial amendment to Rule 16 of the US Federal Rules of Civil Procedure, which altered conceptions of legal justice by recognising mediation as a valuable practice.41 United Kingdom Mediation in terms of the overall ADR process began to take shape in the mid 1980s. The term is most frequently taken to mean “alternative dispute resolution”, although some suggested it should mean “appropriate dispute resolution” (in selecting the most sensible course of action) or “amicable dispute resolution” (insofar as it relates to the parties reaching settlement by way of “round table talks”).42 Indeed the concept of “ADR” generally means a voluntary, consensual dispute resolution process with mediation being the most commonly used. Originally in the UK, mediation was initially taken seriously in the resolution of family disputes but has since expanded into all commercial areas.

36 Ibid. 37 See Roscoe Pound, The Causes of Popular Dissatisfaction with the Administration of Justice (1906), reprinted in 20 Journal of American Judicial Society 178 (1936) (describing the need for alternatives to the traditional adversarial legal approach). 38 See Frank E. A. Sander, Varieties of Dispute Processing, 70 F.R.D. 111 (1976) (describing the concept of a multi-door courthouse). 39 This result has caused much debate in legal circles regarding who should ultimately regulate mediation qualifications. See Kimberlee K. Kovach, What Is Real Mediation, and Who Should Decide? 3 Dispute Resolution Magazine 5, 6 (1996) (discussing how many view mediation as an extension of the legal system because judges are responsible for recommending it). 40 See Peter S. Adler, Lawyer and Non-Lawyer Mediation: Speculations on Brewing Controversy, 33 National Institute of Dispute Resolution F. at 47. 41 See Fed. R. Civ. P. 16 (b) (7) (providing new alternatives for reaching settlements in pending cases). 42 Nicholas Gould, The Use of Mediation to Settle Construction Dispute, paper given to supplement an Einstein Network television programme, December 2003.

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Following the success of family dispute resolution, the next stage in the development of mediation was its use in commercial and construction disputes, and by the end of the 1990s there was a greater use of mediation in general. The new Civil Procedure Rules, which govern litigation in the courts, embrace ADR principles, and this has assisted the increased use of mediation in practice. Indeed, the courts have gone further and have dictated the consequences of refusing to mediate. In Halsey v Milton Keynes NHS Trust,43 the claimant proposed mediation on a number of occasions both before and after the issuance of any claim, and the defendant refused these offers primarily because they believed they did not have a claim to answer. After trial, where the defendant won, the court considered whether the defendant should be denied all or part of their costs because of the refusal to participate in mediation. The Court of Appeal refused to penalise the successful parties who had declined to mediate but made it clear that it had the power to do so, giving some guidance as to how courts should approach such issues. The Court noted that, the value and importance of ADR have been established within a remarkably short time. All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR.

While it was felt that courts couldn’t positively order mediation against the wishes of an intransigently opposite party, it can make ADR “Orders” of the kind long since used in the Commercial Court (the form used in Kinstreet v Balmargo44 and Shirayama v Danovo,45 both involving reluctant parties). Thus where any party refuses to mediate after judicial recommendation, this itself may be enough to justify sanctions. The Court affirmed the views expressed in Dunnett v Railtrack,46 modified the observations of Lightman J in Hurst v Leeming47 and provided additional comments about mediation. The important comment was that all members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR and that the Court could not compel mediation although it could make orders encouraging parties to mediate. Where an order of this kind has been made, then the test for declining mediation will be higher. As part of this “test” the Court provided six factors, which may be relevant to the question of whether a party has unreasonably refused ADR. Those factors include (but are not limited to): 1. 2. 3. 4.

43 44 45 46 47

The nature of the dispute; The merits of the case; The extent to which other settlement methods have been attempted; Whether the costs of the ADR would be disproportionately high;

[2004] EWCA (Civ) 576. CH 1994 G 2999. [2003] EWHC 3006. [2002] EWCA Civ 302. [2002] EWHC 1051.

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5. Whether any delay in setting up and attending the ADR would have been prejudicial; and 6. Whether the ADR had a reasonable prospect of success. The UK continues to develop methodologies for the advancement of mediation, particularly in the area of commercial and construction law, and recently appointing bodies such as the Chartered Institute of Arbitrators have instituted programmes to increase the use of mediation throughout the country. Islamic Tradition Before Islam any disputes that arose between tribal members were usually settled by referring the disputes to the leader of the tribe, who generally used amicable means to sort out the parties and this included mediation.48 The leader’s goal was to seek a favourable solution between the parties so that tribal solidarity was maintained and his position a leader was not eroded.49 This was then closely followed by the need amongst Arab tribes to facilitate a method of settling disputes, which arose from their commercial relationships. As a result the tribal leaders found it both necessary and worthwhile to promote the easy settlement of disputes in a flexible manner. As a result we find that even prior to the coming of Islam, the early tribes used mediation to resolve their internal and external disputes. As Islam came to the region it worked to bring peace and order to the people, and as a result the need to settle disputes in an amicable fashion was part of the solution. As a result Islamic law includes express provisions relating to amicable settlement of disputes. Accordingly, the use of mediation in the settlement of disputes has a deep history in the region both in Arab customs and traditions and especially in the area of commercial disputes.50 It should be noted that in Islamic jurisprudence, mediation and arbitration are considered preferable to litigation, and arbitration is an alternative very near to mediation, in that the arbitrator also assumes the responsibilities of a mediator. Additionally, in Islamic countries mediation is held to differ clearly from arbitration by the fact that it does not have any jurisdictional nature – its “success is basically dependent on the good will of the parties”.51 There is some disagreement however as to the difference between conciliation and mediation. It is generally accepted that conciliation is a process by which a third party, the conciliator, makes recommendations to the parties in order to settle their difference, and the mediator will arrange for the parties to discuss their issues but will abstain from giving them any recommendations. 48 The author is indebted to Fathi Kemicha, The Approach to Mediation in the Arab World, given at the WIPO Conference on Mediation, Geneva Switzerland, March 29. 1996. 49 Salah Al-Hejailan, Mediation as a Means for Amicable Settlement of Disputes in Arab Countries, presented at the Conference on Mediation of the World Intellectual Property Organization, March 29, 1996, Geneva, Switzerland. 50 Ibid. 51 Motulsky quoted by B. Oppetit in “Arbitrage, médiation, conciliation,” Revue de l’arbitrage 1984 p. 308.

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The Islamic approach to mediation forms part of Arab tradition, and this continues to be seen today as certain tribes in various regions continue to settle the differences that arise between their members by means of mediation/conciliation52 instead of submitting to the local court system. Similar to the Chinese tradition of maintaining family reputation, disputes in the Arab community are kept confidential, particularly those disputes relating to family matters or family companies as any lack of confidentiality is apt to prejudice the reputation of the family and the traditions of the Arab community. One way that this is accomplished is to use family members as mediators and in particular to use the family elders to assist as mediators. This concern for mediation has its source and its bases in the Koran. The Ottoman Code, known as the Majalla, was the first attempt at codifying the Sharia, which in turn had regulated conciliation contracts “Aqd Al Solh” (Articles 1530 to 1560 of the Majalla) and had proposed an original institution “Arbitration by Conciliation” (Article 1580 of the Majalla). In Arabic legal terminology, the concepts of mediation and conciliation have differing names. Mediation (Al Wasata) is characterized by the fact that one or more persons intervene in a dispute either of their own initiative or at the request of one of the parties.53 Conciliation (or Solh) is defined for its part as “a convention that terminates a dispute with the consent of the parties”. It requires that each of the parties renounce some of their rights. It is therefore a compromise. The attraction of mediation in the Arab world comes from both tradition and the religious concepts of peace and harmony. For example, when the head of a clan, the elder of the family or even the Kadhi (judge) succeeded, through his authority and wisdom, in persuading the parties to make reciprocal concessions enabling an amicable settlement to be found to the dispute.54 Today it is not unusual, for example, when a difference occurs between two Arab States, that there is a call for mediation by a third Arab State or by the Secretary General of the Arab League in those cases where the latter had not already opposed their good offices. Additionally the Arab Chambers of Commerce regularly carry out a kind of mediation (related to amicable settlement) to resolve the differences that arise between their members or between their members and foreign partners. It is also significant that the Euro-Arab Chambers of Commerce provide companies in Europe and the Arab world the possibility of settling their differences not only by means of arbitration, but also by means of conciliation.55 Additionally, it should be noted that Arab practice in arbitration is dominated by the approach of an arbitration procedure without a compulsory finding, which in effect is along the lines of conciliation. In particular, Saudi Arabia applies Islamic law, and its judicial systems are in line with other judicial systems. Under Saudi Arabian law the amicable settlement of disputes takes priority over other means. For example when a claim is filed with the emirate or

52 Sami A. Aldeeb Abu-Salih, La conciliation dans les pays arabes in La Médiation: un mode alternatif de résolution des conflicts. 53 Hassan Mahassni, “Les principes généraux de la sharia islamique concernant l’arbitrage commercial international” in L’Arbitrage p. 29. CCI Vol. 3 Mai 92. 54 Ibid. at 32. 55 See Articles 12 to 18 of the Conciliation, Arbitration and Expertise Rules of the Euro-Arab Chambers of Commerce.

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governorate, whether by a Saudi national or a foreigner, its advisory council endeavours to find an amicable solution through mediation, failing which the matter will be referred to a competent court. Before considering any claim, judges in the Sharia courts or the commercially-oriented Board of Grievances always ask the conflicting parties to try achieve an amicable settlement, as such settlement is the ultimate object to be achieved through Islamic tribunals.56 Under Sharia there is a call for amicable settlement except where such a settlement invalidates a matter which was originally valid. Additionally, the Chambers of Commerce and Industry in the Saudi Kingdom play an important role in solving commercial disputes through conciliation and arbitration. These disputes include commercial paper disputes before filing the protest and also bankruptcy disputes (although there are recently promulgated regulations relating to court organized preventative settlement in bankruptcy matters). Additionally other commercial minded groups such as the Committee for Settlement of Banking Disputes as well as the committees in charge of labour disputes and the committee for consideration of trademark disputes tend to urge the parties to reach an amicable solution before proceeding with any such dispute. Global Reach Mediation and mediation related concepts like conciliation have been in use for thousands of years, by social groups from all parts of the globe. These cover early disputes dealing with simple property rights to the current use in major international commercial matters. In the development of each country’s machinery for the amicable settlement of dispute, the concept of mediation is almost identical to that used before recorded history to today as the benefits of confidential amicable settlements far outweigh any alternative. The Development of Commercial Construction Mediation in the United Kingdom Commercial construction mediation in the United Kingdom developed slowly because people were hesitant to enter into settlement discussions where the result was non-binding and where the mediator could not impose a binding decision on the parties. The fact that any of the parties to a dispute can simply “walk away” at any time and go to court caused a natural reluctance in people to attempt mediation. “Why waste the time?” was the usual comment, and more importantly those who did initially become involved in mediation found that the “other side” used the process solely as an alternative way to obtain disclosure of information rather than attempting to settle any dispute. Additionally, some people saw early mediation as a good way in which to drag matters out for an even longer time than was the norm in court. This was particularly true for those parties who would have been the ones having to “pay” at the end of the day. They saw it as a natural way to further prolong their need to pay and to add just one more impediment in the path towards resolution. Needless to say mediation did not get off to a good start.

56 Salah Al-Hejailan, Mediation as a Means for Amicable Settlement of Disputes in Arab Countries, presented at the Conference on Mediation of the World Intellectual Property Organization, March 29, 1996, Geneva, Switzerland.

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Tony Bingham,57 a Barrister and expert in construction disputes, tells the story of how mediation has “rather got in the way of the British way of negotiating a settlement”. He goes on to recall in the 1980’s representing a trade association. When a complainant pointed at a member’s poor performance I would move towards that complainant for face-to-face dialogue, establish his concerns, look for a remedy. Then I would go to the trade association member and discuss those complaints and ideas. Often the parties would solve the problem by getting to meet. It needed shuttle diplomacy. My appointment and fee was paid by the member. I was not appointed by both. Nor did we give the process any special name. But that process worked most often. It avoided litigation, avoided entrenchment. Preserved and repaired relationships.

This “traditional” sort of process has changed – perhaps for the better. Many international and domestic agreements are providing for mediation of disputes either before any attempted litigation or after a determination. In the area of international construction contracts such as the FIDIC58 contracts, there have been many developments in construction dispute resolution. The Woolf Reforms of civil procedure and the introduction of adjudication in construction contracts are just two examples. However the biggest change that has increased the use of mediation has been that of attitude and a realisation that the old methods of dispute resolution could be changed. Woolf Reforms Following a lengthy review of the existing civil justice system, the Lord Chancellor concluded that litigation as it stood was costly, unequal and disproportionate. Cases took too long to reach court, and the system generally was too adversarial with little promotion of amicable negotiations like mediation to resolve outstanding claims. Changes were inevitable. In this regard Lord Justice Woolf introduced his sweeping reforms on 26 April 1999, which required that all claims and subsequent civil litigation must be dealt with strictly in accordance with the reforms. The Woolf Reforms recognised that litigation was totally unsatisfactory and that its expense and delay compounded the other inherent disadvantages of litigating (such as loss of control and uncertainty). Additionally, these reforms realised that something should and could be done. Equally, adjudication under the Housing Grants, Construction and Regeneration Act 1996 represented the culmination of a good deal of soul-searching in the construction industry and an attempt to reduce the incidence of the catastrophic consequences of conflict.59 Both the Civil Procedure Rules implementing the Woolf Reforms and adjudication were identified as sound principles for improving things.

57 See Tony Bingham 3 Paper Buildings Temple London website www.tonybingham.co.uk/adr.htm. 58 Fédération Internationale des Ingénieurs-Conseils. 59 Patrick Green, Contracted Mediation a New Form of Dispute Resolution, Tooleys Construction Newsletter, January 2001, pp 3–4.

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CPR Rules The new Civil Procedure Rules that embraced ADR principles assisted these changes. These Rules and their principles are now embodied at the heart of the Civil Procedure Rules (CPR). These Rules govern litigation in the courts. The overriding objectives of the CPR are set out at CPR part 1: Rule 1.1 The overriding objective 1. 2.

These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly. Dealing with a case justly includes, so far as is practicable – (a) ensuring that the parties are on an equal footing; (b) saving expense; (c) dealing with the case in ways which are proportionate – (i) to the amount of money involved; (ii) to the importance of the case; (iii) to the complexity of the issues; and (iv) to the financial position of each party; (d) ensuring that it is dealt with expeditiously and fairly; and (e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.

Rule 1.2 Application by the court of the overriding objective The court must seek to give effect to the overriding objective when it – (a) exercises any power given to it by the Rules; or (b) interprets any rule. Rule 1.3 Duty of the parties The parties are required to help the court to further the overriding objective.

Essentially, the courts are to deal with cases justly, ensuring that cases are dealt with expeditiously and fairly. However, this is not to be done at any cost, and the courts are expected to “save expense” if reasonably possible. In order to achieve this goal, the courts are to proactively manage cases and encourage parties to use mediation. All parties to litigation have an obligation to assist the court to further the overriding objective (CPR 1.3). Assistance includes clearly setting out the issues in dispute, identifying key documents and, in particular, attempting to avoid litigation by settling the dispute. This assistance is expected from the parties even before proceedings are commenced in the court by the requirement for the parties to follow pre-action protocols. Building and Construction Disputes For building and engineering disputes, the applicable protocol is the Pre-action Protocol for Construction and Engineering Disputes. This Pre-action Protocol applies to all disputes dealing with construction and engineering disputes, including professional negligence claims against architects, engineers and quantity surveyors. A claimant is required to comply with the protocol before commencing proceedings in the court, subject to some exceptions. In dealing with the required compliance with this protocol, Paragraph 1.4 states that “The court will look at the effect of non-compliance on the other party when deciding whether to impose sanctions”. 502

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The failure of either of the parties to comply with this particular protocol was dealt with in Paul Thomas Construction Limited v Hyland & Anor.60 In that case, the defendants had employed the claimant as a building contractor. A dispute arose over the quantification of the final account. The defendants offered to submit to a form of adjudication, but the claimant refused unless the defendants paid the entire costs of that process. The claimant then issued proceedings in the High Court and made unsuccessful applications under CPR Part 24 (summary judgment) and Part 25 (interim payments). His Honour Judge Wilcox considered whether the claimant was justified in issuing proceedings. He came to the conclusion that it was not and that it had conducted itself in an unreasonable manner and in breach of the pre-action protocol. The appropriate sanction was for the claimant to pay the defendants’ costs of the action on an indemnity basis. The Judge stated that the conduct of the claimant had been exceedingly heavy-handed, and he went on to add that: Culpability here means wholly unreasonable behaviour. That must be measured against the reasonable conduct of reasonable solicitors at the time and must be informed by the current rules and, in particular, paragraph 4 of the pre-action protocol. I take the view that it was wholly unnecessary to commence this litigation. It was wholly unreasonable. It is clear that there could have been and should have been explored alternative dispute resolution. That may include sensible discussions between the parties not necessarily involving a third party. In my judgment, there is in those terms some culpability in this case. In my judgment, indemnity costs are warranted.

It can be seen that the failure to comply with the pre-action protocol can lead to cost sanctions. Unreasonable heavy-handedness of a claimant and failure to comply with the pre-action protocol will mean paying the defendant’s costs on an indemnity basis. For parties that follow the pre-action protocol procedure, s 5 requires the parties to attend a pre-action protocol meeting. At that meeting, the parties are expected to consider whether some form of alternative dispute resolution procedure would be more suitable than litigation. If so, the parties should endeavour to agree which form of alternative dispute resolution to adopt. In this respect, the pre-action protocol is simply emphasising and extending the requirement for the parties to consider alternative dispute resolution in line with the requirements of the Civil Procedure Rules considered earlier: 1.6. Halsey The issue of who pays costs has also been impacted by this new trend. In Halsey v Milton Keynes General NHS Trust,61 the question of whether or not the court should compel parties to mediate was discussed, and the court held that any compulsion of ADR would be regarded as an unacceptable constraint on the right of access to the courts and, therefore, a violation of article 6 of the European Convention on Human Rights and that the court can decide to deprive successful parties of some or all of their costs on the grounds that they have refused to agree to ADR. However, such an order is an exception to the general rule that costs should follow the event.

60 [2002] 18 Conts. L.J. 345. 61 [2004] EWCA (Civ) 576.

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The burden to justify a departure from the general rule is on the unsuccessful party to show that the successful party acted unreasonably in refusing to agree to ADR. The guidance in Halsey then goes on to discuss the use of ADR/mediation and begins by offering general encouragement of the use of ADR, which is generally understood to mean “some form of mediation by a third party”. The guidance states that: • Courts do have a duty to encourage the parties to use ADR where it is considered appropriate; • Courts should proceed on the basis that there are many disputes which are suitable for mediation, an approach that is underpinned by the Woolf Reforms. • Mediation has a number of advantages over the court process, including the fact that it is generally cheaper and has a wider range of solutions than litigation; • All members of the legal profession who conduct litigation should now routinely consider with their clients whether disputes are suitable for ADR; • Mediation and ADR processes have disadvantages as well as advantages, and are not suitable for every case, so there should not therefore be a presumption in favour of mediation. The guidance makes a distinction between the duty of the court to encourage parties to use mediation and the power to force parties to use mediation against their will. Lord Justice Dyson said: It seems to us that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court.

He quoted article 6 of the European Convention on Human Rights in support of this, and distinguished between a voluntary agreement to waive access to a court (such as an arbitration clause) and compulsion by the court itself: The Hallmark of ADR procedures, and perhaps the key to their effectiveness in individual cases, is that they are processes voluntarily entered into by the parties in dispute with outcomes, if the parties so wish, which are non-binding. Consequently the court cannot direct that such methods be used but may merely encourage and facilitate.

The guidance suggests that to compel parties to attempt mediation risks simply adding to the total costs, delaying the date of the hearing and bringing ADR into disrepute. Judges may well wish to explore with the parties the reason for an initial refusal to mediate, but “it would be wrong for the court to compel them to embrace it”. In Halsey v Milton Keynes NHS Trust 62 the claimant there proposed mediation on a number of occasions both before and after the issuance of any claim, and the defendant refused these offers primarily because they believed they did not have a claim to answer. After trial, where the Defendant won, the court considered whether the defendant should be denied all or part of their costs because of the refusal to participate in mediation. The Court of Appeal refused to penalise the successful parties in each case, who had declined

62 [2004] EWCA (Civ) 576.

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to mediate, but made it clear that it had the power to do so, giving some guidance as to how courts should approach such issues. Additionally, there have been several highly significant decisions regarding costs orders against successful litigants on the basis that those litigants failed to seriously consider mediation. The first of these was Susan Dunnett v Railtrack Plc.63 Susan Dunnett’s three horses had been killed when the gate to her paddock, which had been replaced by Railtrack, had been left open, allowing the horses onto the line. The gate was not padlocked, nor was there any mechanism for automatically closing the gate, despite the fact that Susan Dunnett had warned Railtrack that people left the gate open. There was an appeal and cross-appeal from the first instance decision, and in granting permission to appeal the Lord Justice stated that mediation or a similar process would be highly desirable in this particular case because of its inherent flexibility. Regardless of the court’s suggestion, Railtrack refused to engage in mediation. Railtrack effectively won the appeal, but the Court of Appeal found that as Railtrack had refused to mediate, a costs order should not be made against the unsuccessful claimant and stated in paragraph 14 of the costs judgment: My Lord, when asked by the court why his clients were not willing to contemplate alternative dispute resolution, said that this would necessarily involve the payment of money, which his clients were not willing to contemplate, over and above what they had already offered. This appears to be a misunderstanding of the purpose of alternative dispute resolution. Skilled mediators are now able to achieve results satisfactory to both parties in many cases, which are quite beyond the power of lawyers and the courts to achieve. This court has knowledge of cases where intense feelings have arisen, for instance in relation to clinical negligence claims. But when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences, it may very well be that the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions, which go beyond the powers of the court to provide.

The point was then made that a party who dismissed the opportunity for mediation without proper thought would suffer the consequences. The Court of Appeal was in effect following the view of Lord Woolf in Frank Cowl v Plymouth City Council.64 In that case, Lord Woolf emphasised the need for parties in dispute with public bodies to consider ADR. Lord Woolf said, “Today sufficient should be known about ADR to make the failure to adopt it, in particular where public money is involved, indefensible”. In that case, the defendant offered to submit the dispute to a complaints procedure chaired by an independent chairman. The claimant refused, and that refusal led to an adverse costs order against the claimant. Given that the CPR requires the parties to consider ADR, and that obligation is extended into the pre-action protocols, there is now clear obligation on the parties to seriously consider some form of mediation or other ADR process. It seems that the obligation will, if ignored, lead to cost consequences, even if the party concerned is successful.

63 [2002] EWCA Civ 302. 64 [2002] 1 WLR 803.

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Failure to Mediate Justified However, there may be some circumstances when a failure to mediate is justified. The court in Hurst v Leeming65 gave guidance as to when a refusal to mediate might be justified. The case concerned the dismissal of an action against a barrister, Leeming. The claimant argued that despite the dismissal of the action he should still receive his costs as Leeming had refused to mediate. Leeming raised five reasons as to why he had refused to mediate: 1. 2. 3. 4. 5.

The legal costs already incurred were high; The seriousness of the allegation, as it related to professional negligence; The total lack of substance of the claimant’s claims; The lack of any prospects of successful mediation; and The obsessive character and attitude of Hurst, and his history of litigation.

Lightman, J in the Chancery Division considered each of these grounds and decided that the first three were insufficient. Therefore, the matter of legal costs already incurred, the seriousness of the allegation and the fact that there is no substance to the claim does not give a valid reason for refusing to mediate. However, lack of any prospects of a successful mediation, given the obsessive character and attitude of the claimant and his repeated history of litigation, which demonstrated that it was highly unlikely that the claimant would make any serious attempts to settle during mediation, was sufficient. Therefore, Leeming was not deprived of his full entitlement to costs. The Court of Appeal has also held that there are circumstances within which it is reasonable to refuse to mediate. In the case of Alan Valentine v (1) Kevin Allen (2) Simon John Nash (3) Alison Nash66 the respondents had put before the court considerable correspondence which made it clear that real efforts to settle the dispute had been made and that the offers were reasonable and generous. The respondents had also tried to arrange a “round the table” meeting. Those offers were refused by Valentine, who sought the payment of a large sum of money in settlement. The Court of Appeal therefore distinguished this case from the case of Dunnett v Railtrack Plc even though the respondents had refused Valentine’s offer of mediation. The Court of Appeal held that their refusal to mediate was reasonable, and so Valentine would pay the respondents’ costs in resisting the appeal. Limited Circumstances Hurst v Leeming is clear on the issue that the court might not penalise a refusal to meditate, but only in very limited circumstances. The courts have now considered further instances and also whether mediation is the only option. Park J held in Societe Internationale De Telecommunications Aeronautiques SC v Wyatt Co (UK) Limited and others v Maxwell Batley (A Firm)67 that if a party was successful in litigation, it should not be deprived of its costs because it reasonably refused to mediate. In Societe, the claim against Maxwell Batley failed completely. The judge considered that Watson 65 [2002] EWHC 1051. 66 [2002] EWCA Civ 915. 67 [2002] All E.R. (D) 189.

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Wyatt Sarl’s motive for claiming against and seeking to mediate with Maxwell Batley was to pressure them to make a large contribution that could then be used to settle the main action. The case was distinguished from Dunnett. In the Court of Appeal case of Leicester Circuits Limited v Coates Brothers Plc,68 the parties agreed (after delivery of the first instance decision) on 4 January 2002 to mediate. A mediator was appointed and position statements exchanged. Coates withdrew from the mediation. Coates then won the appeal and asked for its costs. Leicester was ordered to pay Coates costs to 1 January 2002, with no order as to costs thereafter. Leicester was also to pay costs of the appeal. Similarly, before the Court of Appeal in Dearling v Foregate Developments (Chester) Limited69 the claimant, Mr Dearling, alleged that the house which the defendant had contracted to build for him had not been constructed in accordance with their contract. An initial application to court was settled on the basis that an expert be appointed to determine the dispute (the ADR proceedings). The expert allowed some, but not all, of the claimant’s claims and decided that the cost of the ADR proceedings should be split 50/50 between the parties. The claimant subsequently issued further proceedings claiming damages for breach of contract, but when the matter came to trial, the Judge again encouraged the parties to attempt to settle the matter. The parties duly settled but left the matter of costs to the Judge, who ordered that the defendant should pay all the claimant’s costs apart from its half share of the costs of the ADR proceedings. The defendant appealed on the basis that the Judge should not have allowed the claimant its costs after the last date on which the defendant’s final Part 36 offer could have been accepted. They cross-appealed on the basis that the Judge should have awarded him his costs of the ADR proceedings. The Court of Appeal allowed the appeal and dismissed the cross-appeal. The court affirmed previous authorities to the effect that in the absence of a good reason to make any other order, the fall back was to make no order as to costs. The parties had reached a commercial settlement, which did not reflect the merits of the case, and the judge had not looked into this. The costs of the ADR proceedings awarded by the expert reflected the defendant’s success in reducing an initially exaggerated claim and were upheld. Under the Civil Procedure Rules, the court has the power to make an award of costs where parties have settled without a trial. In two previous cases considered and approved by the Court of Appeal, Brawley v Marczynski70 and Boxall v Waltham Forest LDC,71 costs orders were made because the Judge concluded that it was obvious which side would have won had the substantive issues been brought to trial. These cases therefore offer no encouragement to litigants to defend a hopeless case up to the door of the court in the expectation of no order being made as to costs by the court if a commercial settlement is reached then. The amounts at issue in Dearling were small, and the conduct of the parties reasonable in attempting ADR and making Part 36 offers, so the Judge had been justified in not looking into the substantive issues. In different circumstances, it would have been proper for him to do so, and then

68 69 70 71

[2003] EWCA Civ 290 / [2003] EWCA Civ 333. [2003] EWCA Civ 913. [2003] 1 WLR 813. (2001) 4 CCL Rep. 258.

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an award of costs could have been made. As there had been an award of costs in the ADR proceedings and not an agreement between the parties to split them or bear their own costs, the court had the discretion to review the award, but in upholding the expert’s award of costs, the court bore in mind the principle of proportionality and penalised the claimant as the expert had done for bringing an exaggerated claim. Enforcing Mediation The movement toward enforcing mediation and other ADR procedures was upheld in Cable & Wireless Plc v IBM United Kingdom Limited,72 where the Court of Appeal held that a contractual agreement to refer disputes to a dispute escalation ADR procedure was binding and enforceable. There Clause 40 of the contract between the parties read: Any question or difference which may arise concerning the construction, meaning effect or operation of the agreement, any local services agreement or any matter arising out of or in connection with this Agreement or any Local Services Agreement shall in the first instance be referred to the C&W Project Executive and the IBM Project Executive … for discussion and resolution at or by the next review meeting. If the matter is not resolved at such meeting, the matter shall be referred to the next level of C&W’s and IBM’s management who must meet within five working days or such other period as the parties may agree to attempt to resolve the matter. If the matter is not resolved at that meeting, the escalation shall continue with the same maximum time interval through one more level of management. If the unresolved matter is having a serious effect on the services, the parties shall use every reasonable endeavour to reduce the elapsed time in completing the process. Neither party nor any local party may initiate any legal action until the process has been completed, unless such party of local party has reasonable cause to do so to avoid damage to its business or to protect or preserve any right of action it may have. The levels of escalation referred to in Clause 40.1 above are: IBM First level – regional executive Second level – executive sponsor C&W First level – global executive Second level – executive sponsor If any of the above are unable to attend a meeting, a substitute may attend provided that such substitute has at least the same seniority or reasonably comparable managerial or directional responsibility and is authorised to settle the unresolved matter. If the dispute is not resolved by escalation in accordance with Clause 40.1 the parties shall seek to resolve disputes between them pursuant to Clause 41.2.

Thus this Clause 40 is effectively a dispute escalation clause. Any differences between the parties are referred to management in an attempt to discuss and settle the matter. Unresolved matters are then referred up to senior management. The parties are not to commence any legal action until this process has been completed. Clause 41 then provides: The parties shall attempt in good faith to resolve any dispute or claim arising out of or relating to this agreement or any local services agreement promptly through negotiations between the respective senior executives of the parties who have authority to settle the same pursuant to Clause 40. If the matter is not resolved through negotiations, the parties shall attempt in good faith to resolve the dispute or claim through an alternative dispute

72 [2002] 2 All E.R. (Comm.) 1041.

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resolution (ADR) procedure as recommended to the parties by the Centre for Dispute Resolution. However, an ADR procedure, which is being followed, shall not prevent any party or local party from issuing proceedings.

The dispute resolution procedure set out in Clause 41 provides that the parties must attend good faith negotiations in accordance with Clause 41, before then attempting to resolve the dispute through some form of ADR. The application to stay the legal proceedings was based upon Clause 41. The Honourable Mr Justice Coleman in the Commercial court held that the contractual agreement to mediate was enforceable. He also held that the dispute escalation clause was clear and operable such that that would also be enforced. The Continuum of Dispute resolution In an ideal world any issue arising over delay and/or disruption would be first analysed by the contractor and then discussed with the engineer/employer and a resolution reached, and the dispute would end. Whilst this does happen there are certain employers who have little incentive to do so because they usually will be the ones having to pay or grant more time, and the trade-off is to delay and/or wait as long as possible. For employers like this there is not much that can be done other than go to litigation and hope for a speedy trial in short order. Unfortunately for many contractors the delay in getting to actual court can be a long, long long time, and in many countries it can be years. This author’s experience is that it averages about one to two years in the UK and four to five years in the USA, and there is anecdotal evidence of it taking up to ten years in India and other countries. Arbitration is a bit better, with arbitrations in the ICC dealing with complex construction cases taking one to two years. Thus the push for dispute boards where a dispute can be resolved in as little as 30 days – 84 days under some dispute board rules. This author is of the view that the best way forward is the following continuum of dispute resolution: First the dispute is defined and quantified; next negotiations between the parties, if no favourable result then some form of quick mediation (perhaps with a pre-chosen mediator whose name is written into the contract of construction and with whom the parties agree to meet within 30 days of a dispute not being negotiated to resolution). If the mediation is not successful then a claim is filed with the dispute board, e.g. using FIDIC Clause 20; once this has happened a resolution will occur via a dispute board decision within, say, 84 days. The unhappy party can then file a notice of dissatisfaction and go to arbitration, hopefully a “fast-track” arbitration where the parties present their points and arguments as to why the dispute board decision was either fine and should be upheld or not, and then either way the result is a final Award on the matter. If the party starting the claim is successful, then the matter can be enforced in the local courts as an arbitration award, and the matter is ended as it will then be turned into a judgment which can be enforced directly against the losing party. Despite the need for swiftness this entire process can take many years, even with the best of intentions. Then in those situations where the intentions of the party who will be paying are not so good, the matter can drag on for years, but at least the part before the court enforcement of the arbitration award will be lessened by several years. Until some other approach is invented, this, for now, is the best way to sort out construction delay claims, and thus the reason for proper and precise claims presented by experienced practitioners before mediators, dispute board members, arbitrators and judges is necessary. 509

INDEX

Acts of God 208 – 209 additional obligations and issues 66 adjudication 490; NEC3 60 adjudicator’s contract (AC) 41 adjustments for changes in legislation 84 adverse ground or physical obstructions or conditions on site 43 adverse physical conditions 358 – 359 adverse physical conditions or obstructions 24 AGR 6; advantages and disadvantages 7 alternative dispute resolution: building and construction disputes 502 – 503; CPR rules 502; Halsey 503 – 505 applicable law 188 approval process 401 arbitration 26, 481 – 482; history in England 460 – 464 artificial obstructions 358 – 359 as-planned versus as-built 228, 272, 276 – 277, 300, 305, 316, 317, 321 BWR: advantages and disadvantages 7 CANDU 6 chain reaction 2 – 3 civil law 448 – 451; codification 448 – 449; common law distinguished 451; countries 451 claim: meaning 232 collapsed as built 229 commencement of works 76 common law 443 – 448; civil law distinguished 451; countries 447 – 448; history 444; meaning 443 communications: meaning 70 – 71 compensation events 220 – 221 completion: complying with programme 205; costs of remedying defects 202; de minimus exception 201; definition 199 – 201; delay, and 199 – 201; due date 203 – 204; due diligence progression to 204 – 205; staged 202 – 203; substantial 199 – 200

conciliation 490 concurrent delay issues 221 concurrent delays 241 conflicts 25 construction delay analysis 287 – 309; as built schedule 299; as planned versus as built schedule 300; baseline schedule, and 298; capturing delay 288; cash flow 295; category flowchart 291; causation 302 – 303; compensable versus non-compensable delays 289 – 290; concurrent delays 290; confluence of factors 298; contemporaneous 292; contemporaneous schedule updates 308; critical path 299, 303 – 306; critical versus non-critical delays 288; delay log 292; excessive changes 295; excusable versus non-excusable delays 289; float 309; foresight 290; hindsight 290 – 292; level one 303; listing of schedules 308; long activity 305; managers, issues related to 296; problems impacting project schedule 287; real world 294 – 303; real-world types of delay 306 – 309; requests for information 293 – 294; schedule summary 305; theme 300 – 303; two critical paths 306; typical reasons and costs 294 – 303; unachievable schedule 296 – 297; where problems start 292 – 293 construction law 443 construction management 31 – 32 constructive acceleration 405 – 413; Australia 408 – 409; common law world, and 408; courts in UK and USA 409 – 413; excusable delay 407; meaning 405; requirements 406 – 407; written confirmation 407 contract law 443 – 444 contractor design of project 63 contractor incentives 64 contractor’s claims 86 – 88 contractor’s entitlement to suspend work 84 – 85 contractual operational and payment formats 54

511

INDEX

cost: definition 70; plus fee contract 55; plus fixed fee 29; plus fluctuating fee 29; plus percentage fee 28 – 29; risk of 23 cost reimbursement: based on target cost 29; contracts 28, 55 critical path 229 – 230, 303 – 306; construction delay analysis, and 303 – 306 damage and injury to persons and property 25 damages 68 – 70; claims by contractor 69; claims by employer 68 – 69; delay 78 – 81 defective materials or workmanship of contractor 24 defective work, payment for: NEC3 61 – 62 delay 24, 44 – 45, 199 – 230; analysis tools 231 – 285; assessment 88 – 89, 91 – 93, 94; authorities, caused by 78; avoidance 89; baseline programme problems 263 – 267; categorisation 398; completion, and 199 – 201; complexity 234 – 236; computers, and 256 – 259; concurrent 400 – 401; concurrent issues 221; consequences 234; critical path method 255 – 256, 258; current synopsis 241 – 247; damages 78 – 81; deficiencies in contractors’ programmes 262; deficiencies in planning and programming process 267 – 271; disruption, and 230; disruption distinguished 271; documenting 400; dominant cause approach 244; events 88, 91, 93 – 94; evidence, and 311; examples 231; fault, and 206; first cause defines liability 243 – 244; flowchart 242; impacted as-planned analysis 255; impacting critical path 441 – 442; information, and 259 – 262; Malmaison test 245 – 247; net effect method 252 – 253; notices 88, 91, 94; notification of claim 253 – 255; reluctance to provide proper programme 262 – 263; risk events versus 398 – 400; specific contract provisions 232; types 242; typical force majeure clause excusing 212; USA 245; variations, and 221 – 223 delay analysis 228 – 230; as-planned versus as-built 228; collapsed as built 229; critical path 229 – 230; distortion 329 – 355; guidelines 228; impacted as planned 229; methods 228 – 230; time impact analysis 229; types 228 – 230 delay analysis methodologies 239, 272 – 280; as-planned versus as-built 276 – 277; additive simulation 275; best 278 – 279; collapsed as-built 277; direct analysis 274; fragnets 278; global impact technique 276; impacted as-planned 277; net impact technique 276; S

curve 275 – 276; subtractive simulation 275; time impact analysis 278; window analysis 277 – 278 delay analysis tools 231 – 285 delay and disruption: lack of uniform approach 236 – 237; methodologies 236, 237; rules 71 delay and disruption claims 232 – 234; amicable resolution 234; damages 233; design phase, and 235; equitable risk allocation 235; main causes of problems 237; practical considerations 237 – 239; processes 232 – 233; quick resolution 236; solutions/ recommendations to deal with problems 238 delay categories 239 – 241; compensable 239 – 241; excusable 239 – 241; nonexcusable 239 – 241 delay classification 241 design 18 – 19 Design and Build Contract 36 design and build procurement 29 – 30 design and construct version 58 design liability: NEC3 61 design, manage, construct and maintain 32 determinations 73 direction and supervision by employer or engineer 24 – 25 discretionary logic 311 – 327 dispute: meaning 427 – 430 dispute board 482 – 490; adjudication distinguished 488 – 490; ADR distinguished 488 – 490; advent in England 469 – 470; arbitration distinguished 488 – 490; common, civil or Sharia law 460; extension to international cases 470 – 473; France 471 – 477; Germany 473 – 474; interimbinding decisions 487 – 488; meaning 483 – 485; mediation distinguished 488; non-binding recommendations 486 – 487; recommendations versus binding decisions 486; uniqueness 485 – 486; what can be achieved by using 485 – 486 dispute board concept 481 dispute resolution 460 – 477; continuum of 509 dispute resolution methods 479 – 509; processes 480; USA 479 disruption 24, 44 – 45; delay, and 230; delay distinguished 271; proof of 279 disruption analysis methodologies 279 – 285; EVM 284 – 285; industry studies and guidelines 281 – 282; measured mile technique 280 – 281; modified total cost approach 283; system dynamics modelling approach 284; time and motion studies 284; total cost method 282 – 283

512

INDEX

distortion of delay analysis 329 – 355; baseline schedule 336 – 337, 338; calendars 340 – 342; constraints 347; deception, areas for 351; diagram grouping and sorting 342; distorted schedule 344; distortion of logical relationships 345; expert analysis 329 – 335; hammock activity 352; labour resources 351; labour resources truth test 350; longest path or critical path 353 – 355; negative total float 347, 348; override to schedule 341; progress override and retained logic distinguished 337; quality of activity records 336; rearranged schedule 346; schedule updated 343; settings and schedules used by different parties 336; skill of planner, and 336; unknown element of risk 335; updated baseline schedule 339 DSAM 239 due diligence: progression to completion 204 – 205 ECC 39 – 40 ECS 40 ECSC 40 ECSS 40 engineer: instructions of 72; role of 63 – 64 engineer/arbitrator as judge 463 – 464 engineer as quasi-arbitrator 464 – 467 EPC contracts 47 – 49; initial schedule 48; pricing model 49; pricing, type of 49; project delivery system 49; realistic budget 48; resolution of disputes 49; risk allocation 48; risk analysis and avoidance 47 – 48 equitable risk allocation 235 executive tribunal 490 expert determination 489 extension of time 219 – 220, 377 – 403; approval process 401; baseline programme checklist 391 – 393; baseline programme planning 387 – 388; categorisation of delay 398; changes to baseline programme-revisions 395 – 396; claims for 377 – 403; clause 219 – 220; concurrent delay 400 – 401; documenting delays 400; early warnings 385; for completion 77 – 78; identifying and quantifying delays to programme updates 396 – 398; NEC3 378 – 379; “notice” provisions 379 – 380; pre-planning tasks at start 388 – 389; preparing and proving claim 387; prevention principle 380; programme update 393 – 395; records 401, 402; RFIs 385 – 386; risk events versus delay 398 – 400; risk register 381; systematic approach to claims documentation 387; time at large 381; TQs 385 – 386; who owns float 389 – 391

FC 41 FIDIC: forms of contract 62 – 88; risk distribution 26 – 27 FIDIC forms 62 – 88; additional obligations and issues 66; adjustments for changes in legislation 84; commencement of works 76; communications 70 – 71; consequences of employer’s risks 85; contractor design of project 63; contractor incentives 64; contractor’s claims 86 – 88; contractor’s entitlement to suspend work 84 – 85; contractor’s rights and obligations 65; cost 70; damages 68 – 70; delay damages 78 – 81; delayed drawings or instructions 71; delays caused by authorities 78; determinations 73; employer design of contract 62; engineer, role of 63 – 64; extension of time for completion 77 – 78; force majeure 67, 85 – 86; fossils 75; impossibility of performance 67; instructions of engineer 72; interference with tests on completion 82 – 83; programme 77; right of access to site 71 – 72; right to vary 83; selling out 73; taking over works and sections 81 – 82; termination for convenience 66; termination issues 66 – 67; testing 75 – 76; time for completion 76; unforeseeable physical conditions 74; unforeseen conditions 67 – 68; variation procedure 83 – 84; variations 64, 70 float 247 – 250, 309; contractor owns 248 – 249; contractor’s right to finish early 251 – 252; ICE contracts 391; JCT contracts 390 – 391; meaning 247; NEC3 contracts 391; project owns 249 – 250; significance of 247 – 248; who owns 389 – 391 float of non-critical works 230 for management procurement 30 force majeure 67, 206 – 207; Acts of God, and 209 – 210; agreement as to consequences 213; allocation of risk 208; commencement 213; common law jurisdictions 211; consequences 85 – 86; definition 67, 85 – 86, 207 – 208, 210 – 211; duration of condition 213 – 214; effect of 215; necessary requirements 212 – 213; notice of event 214 – 215; purpose of clauses 210 – 211; recovery of costs 67; termination of contract 208 – 209; typical clause excusing delay 212; war, and 211 forensic schedule analysis 311 – 327; advantage of 323 – 326; as-built schedule 321; as-planned schedule 321; basic rules for delay claims 315; claims calculation 314; critical path method logic 322 – 323; definition 311; establishing claims 312 – 313;

513

INDEX

global claim 313 – 314; legal entitlement 312 – 315; management of arbitration/ adjudication procedures 323 – 326; measurement procedure 321 – 322; MIP 3.1 317; MIP 3.2 317; MIP 3.3 317 – 318; MIP 3.4 318; MIP 3.5 318; MIP 3.6 319; MIP 3.7 319; MIP 3.8 319 – 320; MIP 3.9 320 – 321; modelled/additive multiple base 319; modelled/additive/single base 319; modelled/subtractive/multiple base 320 – 321; modelled/subtractive/single simulation 319 – 320; observational/ dynamic contemporaneous as–is 317 – 318; observational/dynamic/ contemporaneous split 318; observational/dynamic/modified or recreated 318; observational/static/gross 317; observational/static/periodic 316; schedule 313, 314; technical entitlement 315 – 316; time of performance 312 fossils 75 fragnets 278 frustration 215 – 219; implied term theory 218; injunction, and 218; landslip 217; nature of 215 – 216; radical change in obligation 219; supervening party 216; terms of contract, and 217; unforeseen natural disaster 218 Fukushima 11 – 15 future developments 7 GC Works 37 – 38 GCR: advantages and disadvantages 7 Gold Book 32, 47, 50, 62, 63, 69, 419, 431, 435 government policy 25 guaranteed maximum price contract 54 – 55 guidance notes and flowcharts 41 – 43 hammock activity 352 Hanafi Islamic sharia 452 – 453 Hanbali Islamic sharia 453 heat generation 3 high-low arbitration 489 IAEA: members 15 – 17 ICE: conditions of contract 56; delay assessments 94; delay events 93 – 94; delay notices 94; design and construct contract 56; measurement version 7th edition 56; minor works contract 56; physical conditions 42 impacted as-planned 232, 274, 277; additive simulation 275; analysis 255, 257; collapsed as-built 229; CPM based techniques 272; foresight 290; MIP 3.6 319 impossibility of performance 67 indirect and uninsured risks 20 inflation 26

initial steps 18 – 20 interference with tests on completion 82 – 83 Japan: earthquake 11 – 15; tsunami 11 – 15 JCT: format and structure of contracts 35; forms 32; main contracts 34, 37; main features of contracts 34 – 35; main forms 33; main provisions 35 – 36; smaller project contracts 34; suite of Standard Forms 33 JCT form contract 88 – 89; assessment of delay 88 – 89; delay avoidance 89; delay events 88; delay notices 88 judicial appraisal 489 key dates: NEC3 61 labour demands 25 labour unrest 25 legal systems 443 – 477 legislation: adjustments for changes in 84; change of 25 LGR: advantages and disadvantages 7 litigation 482 lump sum contracts 27 – 28 lump sum or fixed price contract 54 Magnox 6 Major Project Construction 37 Maliki Islamic sharia 453 Malmaison test 245 – 247 management contracts 30 – 31 measurement contracts 28 measurement version 57; certification 57; changes to contract 57; delay 57; payments 57; time and cost issues 57 mediation 481, 489, 490 – 501; ancient cultures 491 – 492; change of direction 495 – 496; development in United Kingdom 500 – 501; early China 492 – 493; enforcing 508 – 509; failure justified 506 – 508; global reach 500; historical background 490 – 491; Islamic tradition 498 – 500; Qing dynasty – three steps of mediation 493 – 495; United Kingdom 496 – 498; USA 495; Woolf reforms 501 mediation-arbitration 489 methods of construction contracting 52 – 54; construction manager 53; design-build 52 – 53; management contracting 53; traditional 52 minor works contract 58 MIP 3.1 317 MIP 3.2 317 MIP 3.3 317 – 318 MIP 3.4 318

514

INDEX

MIP 3.5 318 MIP 3.6 319 MIP 3.7 319 MIP 3.8 319 – 320 MIP 3.9 320 – 321 Napoleonic Code 449 – 451 NEC: physical conditions 42 NEC3 38 – 39, 58 – 62; adjudication 60; capping contractor liability 60; clarifications 59; core clauses 39, 43, 59; defective work, payment for 61 – 62; delay assessment 91 – 93; delay events 91; delay notices 91; design liability 61; key dates 61; plain English 58; Prevention Clause 19 61; risk register 60; terminology 90 – 91 NEC4 38 – 39 neutral fact-finder 490 non-statutory adjudication 467 – 469 notice requirements 415 – 442; commencement of 28-day notice period 415 – 420; delay impacting critical path 441 – 442; dispute to enforce, whether 427 – 430; dispute crystallised 427; employer causes creating cost and schedule impacts 419; enforcement of dispute 427; “event or circumstance” 417, 418; need for proper records as part of claim submission 422 – 427; onus of proof 417; prevention principle 432 – 441; standard forms 430 – 432; time-bar provisions, and 420; type of records and claim 425 – 426; who is supposed to acquire knowledge of event or circumstance 421 – 424 nuclear energy and reactors 1 – 9 nuclear fission 1 – 4 nuclear power 1 – 4 nuclear power plant agreement: acts 104 – 105; addresses 193; amendments 197; applicable law 188; arbitration 191; assignment of work 124 – 125; authority approvals and inspections 146, 148; availability guarantees 172 – 173; basis for plant contract 104 – 109; cap on liquidated damages for performance 169; changes 131 – 134; codes 106 – 107; commission 149 – 157; confidentiality 121 – 123; consequences of delays 159 – 165; construction site rules 194 – 195; construction time 159; contract performance bond 178; contractual price 176; contractual price adjustment 176; decrees 104 – 105; definitions 99 – 103; delay of provisional takeover 109; delays due to force majeure 160; delays due to owner 160 – 161; delays due to supplier 161; demonstration run 149 – 157; design, engineering, materials

515

and workmanship guarantee 165 – 166; DIS 113 – 116; dispute resolution 188 – 193; documents 112 – 121; entire agreement 197; execution of payments 180 – 181; extended guarantee period bond 179; final documents 119; final takeover 174 – 176; force majeure 182 – 183; general conditions 121 – 134; general liability 137 – 138; general requirements regarding documentation 120; guarantee period bond 179; guarantee test 167 – 168; guarantees 109; information and documentation for plant operation and maintenance 117 – 119; information and services 112; insurances 140 – 144; intellectual property rights 174; interrelated documents 116 – 117; joint and several liability 195; jurisdiction 188 – 193; laws 104 – 105; licensability 144 – 147; licenses 145 – 146, 147; licensing 144 – 147; licensing documents 117; liens 139 – 140; liquidated damages 109; liquidated damages for delay to achieve provisional takeover 164 – 165; liquidated damages for failure to meet performance 168 – 169; local conditions and data 193 – 194; maximum liability 138 – 139; mean heat rate value 166 – 167; mistakes in information 134; modifications and communications 193; net rated output 166; non-nuclear insurances taken out by owner 142; non-nuclear insurances taken out by supplier 141; non-nuclear liability 135 – 136; non-waiver 197; notices 193; notifications of delays 161 – 162; nuclear insurances taken out by owner 141; nuclear liability 136 – 137; nuclear licensability 144 – 145; nuclear licensing procedure 146 – 147; owner’s acceptance 174 – 176; owner’s representation 193; parties 95 – 96; performance testing 149 – 157; permits 145 – 146, 147; plant contract documents 105 – 106; plant contract schedules 157 – 165; plant contract works insurance 142 – 143; plant design manual 121; plant identification system 121; plant performance guarantees 166 – 170; postponement of contractual date of provisional takeover 160 – 164; pre-operational testing 149 – 157; price revisions for contractual price 177; project documents 117; project target dates 159; prolonged suspension 163; proprietary information 121 – 124; provisional takeover 111, 149 – 157; quality assurance 125 – 127; quality control 125 – 127; recitals 96 – 98;

INDEX

rectification of defects and failures 170 – 172; rectification of deficiencies in guaranteed performance and damages 168 – 170; referral to DAB 189 – 191; regulations 104 – 105; rejection 109; rejection of plant 183 – 184; relationship between fuel contract and plant contract 107 – 109; relationship of parties 197; representation 193 – 195; resolutions 104 – 105; revision of contractual price 177; rights of inspection 129 – 131; risk of loss or damage 135; scope of plant contract 109 – 112; scope of supply of owner 112; setting aside 140; severability 197; shipment 193; spare parts, availability of 195 – 196; standards 106 – 107; subcontracting 124 – 125; supplier’s representation 193; supplier’s scope of supply 109 – 111; survival of obligations 197; suspension 109; suspension of works 159 – 165; tax and custom documents 119; technical guarantees 165 – 172; termination 109; termination of plant contract 185 – 188; terms of payment 178 – 180; third party liability insurance 141; time schedule 157 – 159; training of plant personnel 149; transfer 198; transfer of title 139 – 140; transportation 193; works to continue 191 – 193 nuclear power reactors under construction 8 – 9 nuclear reactor systems 6 phases of nuclear power plants 17 PHWR: advantages and disadvantages 7 physical conditions: ICE 42; NEC 42; unforeseeable 44, 74; unforeseen 358 power generation: history 1 programme 77 programme coordination 18 programming 205 – 206; standard form contract, and 206 prevention principle 432 – 441; Gold Bank 435; nature of 433; rule of construction, as 441 PSC 40 PSSC 40 – 41 PWR: advantages and disadvantages 7 radioactive waste 3 – 4; HLW 4; ILW 3 – 4; LLW 3 reactor types and designs 4 – 5 Red Book 26, 43, 47, 50, 52, 62 – 65, 70, 79, 212, 357, 361, 393, 406, 415, 427, 430, 469 relevant events 220 – 221 remeasurement type of contract 55 RFIs 385 – 386 right of access to site 71 – 72 right to vary 83

risk acceptance 383 risk allocation 21 – 22 risk allocation schedule 359 – 360; notification of occurrence of risks 360 – 363 risk analysis 382 risk avoidance 383 risk description 21 – 22 risk distribution: form contracts 26 – 27 risk identification 382 risk management 19, 22 – 26 risk measurement 20 – 21 risk mitigation 383 risk, ownership of 21 – 22 risk reduction meeting 385 risk register 381; allocating responsibility 383 – 384; NEC3 60; no reply needed 384 – 385 risk resolutions: warnings, and 382 – 383 risk transfer 383 risks: attempted shift to employers 23 – 24; borne by contractor 23; classification 23 – 26; employer’s, consequences of 85; measurement by contractor 23 – 24; specific risks 43 – 45 SC/SSC 41 setting out 73 Shafi Islamic sharia 453 sharia – Islamic law 451 – 460; ADR procedure 456; dispute adjudication board decisions 457; dispute review board decisions 457; enforcement of adjudication decisions versus arbitration awards 456 – 460; enforcement provisions 456; form of dispute board decision 457; history 452; Islamic Republic of Iran 460; non-binding agreements 454; procedural law 456; Rights of God 455; Saudi Arabia 458 – 460 shortage of resources 25 Silver Book 47, 50, 62 – 68, 70; interpretation of data 68 specific risks 43 – 45 staged completion 202 – 203 Standard Building Contract 36 – 37 standard form contracts 50 – 54; ACA 50 – 51; conditions 51; FIDIC 50; ICE 50; JCT 50; provisions 51; use of 51 stare decisis 444 – 446; components 444 – 445; levels of courts 445 – 447; order in UK 447; vertical 445 – 446 strong underlying policies 18 substantial completion 199 – 200 taking over works and sections 81 – 82 target cost contracts 55 – 56

516

INDEX

testing 75 – 76 time at large 381 time for completion 76 time impact analysis 229 time is of the essence 223 – 228; condition 226; effect of clause 225; express language 225 – 226; intention of parties 223; internal remedies 224; JCT 227 – 228; NEC3 227 – 228; number of time references 224; reasonable notice 227; unjust enrichment, and 224 – 225; warranty 226 time-bar clauses: importance of 436 – 441 TQs 385 – 386 TSC 41 unforeseeable physical conditions 44 unforeseen conditions 67 – 68 unforeseen ground conditions 357 – 375; at the site 374; contractor’s duty 365 – 368; employer’s duty 368 – 369; experienced contractor, and 361 – 362; extension of time 360; implied warranty 360; materiality

374 – 375; misrepresentations 363; MorrisonKnudsen 363 – 364; physical condition 374; silence as basis for claim 369; subsurface information 366 – 368; Type 1 370 – 371; Type 1 and Type 2 conditions 370 – 372; Type 2 371 – 372; Type 3 372 – 373; underlying theory 369 – 370; unforeseeability 373 – 374; USA 363 – 368 unforeseen physical conditions 358 unjust enrichment: time is of the essence, and 224 – 225 variation: delay, and 221 – 223; meaning 70 variation procedure 83 – 84 war 25; force majeure, and 211 warnings: risk resolution, and 382 – 383 Woolf reforms 501 Yellow Book 47 – 48, 50, 62 – 64, 66 – 67, 69 – 70, 79 – 80, 361, 416

517