Understanding Contracts Seminar Notes

SEMINAR ON UNDERSTANDING CONTRACTS: PRACTICAL & CHALLENGING ASPECTS
Seminar Notes
Arusha International Conference Centre, Arusha Tanzania 3 5 May, 2006
Organized by:
Contractors Registration Board 3rd Floor, Tetex House, Pamba Road, P. O. Box 13374, Dar es Salaam Tel: 255 22 21379623/ 2131169 Fax: 255 22 2137964 E-mail: crbhq@crbtz.org, Website: www.crbtz.org
Presented by Mr Chris Binnington and Ms Gigi Fenster BINNINGTON COPELAND & ASSOCIATES Telephone Codes [2711] (011) Phone 888 6141 Fax 888 1068 E-mail: admin@bca.co.za Website:www.bca.co.za
Seminar on Understanding Contracts; Practical & Challenging Aspects has been Organized by the Contractors Registration Board Tanzania with Support from: BP Tanzania Ltd. CSI Construction (1997) Ltd. Design & Services Ltd. Inter Consult Ltd. China Sichuan Corporation for International Techno-Economic Cooperation Ltd. (SIETCO) MM Intergrated Steel Mill Webb Uronu and Partners Ltd.
UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

BINNINGTON COPELAND & ASSOCIATES
SEMINAR ATTENDANCE CERTIFICATES
IN ORDER TO RECEIVE A SEMINAR ATTENDANCE CERTIFICATE, PLEASE:
MAKE SURE YOU RECEIVE A SEMINAR APPRAISAL FORM FROM THE PRESENTER AFTER THE SEMINAR;
COMPLETE THE SEMINAR APPRAISAL FORM, MAKING SURE THAT YOUR NAME AND COMPANY NAME ARE CORRECT AND CLEARLY LEGIBLE;
TICK THE "YES" BOX IN ANSWER TO THE QUESTION "DO YOU REQUIRE AN ATTENDANCE CERTIFICATE?" ON THE SEMINAR APPRAISAL FORM;
RETURN THE COMPLETED SEMINAR APPRAISAL FORM TO THE PRESENTER!!!
sem\ucm6001r.ucd
-1-
Binnington Copeland & Associates (Pty) Ltd (2006)

DISCLAIMER
The information presented in this seminar and in the accompanying notes is believed to be based upon the best available information. While every effort has been made to ensure the accuracy of all information neither the organisers, presenters nor any of the organisers staff make any representations or warranties in regard to the accuracy of the contents hereof.
All clauses and quotes from FIDIC published with permission. The views expressed herein are the personal views of the presenters and do not necessarily reflect the views of FIDIC or any other organisation.
sem\ucm6001r.ucd
-2-

FORTHCOMING SEMINARS IN -HOUSE SEMINARS Binnington Copeland & Associates (Pty) Ltd ("BCA") have developed a number of training programmes for the construction industry. These are offered on a public basis or on an in-house basis.
M
We will design a seminar around your needs. The manual, study notes, case studies and training material will all be tailor made to meet the needs of your organisation. You may send any number of delegates from your firm and may choose when and where to hold the seminar.
SUGGESTED TOPICS FOR IN -HOUSE SEMINARS Contract Law for the Construction Industry A one or two day seminar which deals with general principles of contract as well as specific principles which apply to the construction industry. This seminar has proved to be very popular at all levels of personnel. Some of the issues dealt with in this seminar are the following:
M
The requirements for a valid contract; Tendering; The Letter of Intent; Liability for defects in the works; Consequences of negligent conduct; Different forms of security; Time barring provisions;
Legal background to construction contracts; Constitutional principles; Common law view of construction contracts; Payment; Insolvency of one of the parties; Contractor's key obligations; Nominated/selected sub-contractors.
Standard Forms of Contract A one day seminar which focuses on any construction contract which you may be working with. This seminar may be combined with a one day contract law seminar. Some of the standard contracts dealt with are the following:
M
JBCC The entire suite of contracts. This new series of contracts comprises numerous documents, all of which may be dealt with. -3-
sem\ucm6001r.ucd

FORTHCOMING SEMINARS
M
NEC/ECC This innovative contract offers many advantages over other standard forms of contract and is rapidly gaining pre-eminence among construction contracts. It is, however, quite different from traditional forms of contract and should not be used without some training.
GCC 1990 and GCC 2004 The South African Engineering Contract based on English forms.
FIDIC A new suite of FIDIC Contracts was published early in 1999. This new form or the old form may form the topic of a seminar.
Any other standard forms of contract.
Project Management This is an in-depth programme. This course may be run over up to ten days and gives delegates a detailed, thorough understanding of project management in the construction industry. Some of the issues dealt with in this series of seminars are the following:
M
Risk evaluation and management; Budgeting; The use of computers; Contract law; Finance for project managers; Asset management; Procurement; Time management; Meeting client expectations; Human resource management; Conflict management and dispute resolution.
As is the case with all BCA seminars, these seminars will be presented by lecturers of the highest standing. The seminars are practical and hands on with the emphasis on practical
sem\ucm6001r.ucd
-4-

FORTHCOMING SEMINARS problems and problem solving. Case studies, practical examples and problems are used and delegates are encouraged to raise questions and discuss problems. A thorough set of notes is provided for each seminar. These notes form the skeleton of the seminar and provide detailed reference material for later reference. The notes include all case studies, slides and documentation. For more information, prices, dates etc., please contact: Sue Rule Telephone: [2711]888-6141 Facsimile: [2711]888-1068 E-mail: sue@bca.co.za Web site: www.bca.co.za
sem\ucm6001r.ucd
-5-

INDEX
Who is BCA? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Seminar Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chris Binnington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Giovanna Fenster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ugo Hiddema . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bill Copeland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jim Garner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 12 12 12 12 12
Note to Delegates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 The Courts' Approach to Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certainty in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Country's Reliability as a Trading Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Protection Against Excessive Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Difficulty in Defining What is Unfair and in Distinguishing Between a Good Bargain, on the One Hand, and an Unfair Contract, on the Other . . . . . . . . . . . . . . . . . . Slide 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unfair Terms and Construction Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 4a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 4b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 4c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 4d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Entering Into the Contract: Agreement (Consensus) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Question 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Happens If There is Never Agreement on the Contract to Be Used? . . . . . . . . . . . Case Study 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Happens If There is No Agreement on Important Terms? . . . . . . . . . . . . . . . . . . . Case Study 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Happens If One Party Thinks That There is Agreement and the Other Denies That Agreement Has Been Reached? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Offer and Acceptance as Evidence of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Requests for Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 7a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 7b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consequences of Rule That Contractor Is Making the Offer . . . . . . . . . . . . . . . . . . . -614 14 15 16 16 16 16 17 18 19 20 21 22 23 24 26 28 30 31 32 32 34 37 37 40 40 42 42 43 44 45
sem\ucm6001r.ucd

INDEX When Things Go Wrong: Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is a Breach of Contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Different Forms of Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Should I (Not) Do If the Other Party is in Breach of Contract? . . . . . . . . . . . . Case Study 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies for Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Before the Breach Occurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation (Where the Innocent Party Chooses to Cancel the Contract) . . . . . . . . Where the Breach is "Fundamental" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Protracted Or Repeated Breaches Plus Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . Anticipatory Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Language of the Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Express Termination Provisions in the Contract . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What should I (not) do if the other party is in breach? . . . . . . . . . . . . . . . . . . . . . . . Slide 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Happens If the Employer Refuses/fails to Pay the Contractor? . . . . . . . . . . . . The Effect of the Certificate on the Employer's Obligation to Pay the Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Late Payment by the Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Withholding Retention Moneys From Payment to the Contractor . . . . . . . . . . . . . . Case Study 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Possible Defences to An Action Based on Breach of Contract . . . . . . . . . . . . . . . . . . . . Slide 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impossibility of Performance (Frustration) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Act of God or Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is the Role of the Employer's Agent Where There is Potential for Breach? . . . . . Slide 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Damages for Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mitigation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidated Damages v Penalty (Damages in Terrorem) . . . . . . . . . . . . . . . . . . . . . . Slide 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use and Possession of the Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . When Can the Employer Start Using the Works? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taking Over and Stages of Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 15a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 15b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
sem\ucm6001r.ucd
46 47 47 47 48 48 50 50 51 52 52 52 53 53 53 54 56 57 58 58 59 61 61 62 64 66 66 67 67 67 68 69 70 71 71 71 73 74 75 77 77 77 78 79
-7-

INDEX Slide 15c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocation of Risk Under the Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How Construction Contracts Amend the Common Law . . . . . . . . . . . . . . . . . . . . . . Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Most Construction Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Possession of the Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of the Works by the Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defining and Interpreting Delay and Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Misconceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Always Bid Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lump Sum Contracting for the Wrong Reasons . . . . . . . . . . . . . . . . . . . . . . . . . . . Fast Track Projects - the Way of the Future for All Projects . . . . . . . . . . . . . . . . . . "Changing The Rules of The Game During The Game" . . . . . . . . . . . . . . . . . . . . . "Allocating Risks to The Wrong Party" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Causes of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delay: Intention v Reality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contract Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delay to Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nature of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer's Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contractor's Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Neutral Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concurrent Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is a Concurrent Delay? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Significance of the Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
sem\ucm6001r.ucd
80 81 81 81 81 83 84 84 86 87 88 89 92 93 96 99
101 101 102 102 103 103 104 104 104 105 106 107 108 108 110 110 111 112 115 115 116 116 116 118 118 119 121 121 123 125
-8-

INDEX When is the Contractor entitled so an Extension of Time? . . . . . . . . . . . . . . . . . . . . . . Conundrum 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conundrum 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conundrum 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presenting a Claim for an Extension of Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tools and Techniques of Construction Programming . . . . . . . . . . . . . . . . . . . . . . . . . . Programme Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Updating of Programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceleration Following an Additional Work Variation Order . . . . . . . . . . . . . . . . Case Study 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceleration Following Excusable Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Types of Acceleration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Costs of Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Constructive Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Article by Mr Chris Binnington "Constructive Acceleration - Why Not in South Africa?" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variations and Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Precise Record Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abrahamson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The BCA Project Recording System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Slide 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is a Claim? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claims Procedure and Time Bars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Question 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Question 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Should the Contractor Do If He Finds Himself Unable to Serve the Required Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Early Warning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Early Warning Under NEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Early Warning Under FIDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preparing the Claim Submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction - Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
sem\ucm6001r.ucd
126 126 127 128 129 131 131 131 132 132 135 136 136 138 139 139 141 141 143 143 144 147 149 149 151 154 154 159 159 167 167 167 172 173 174 174 176 179 179 180 181 181 180
-9-

INDEX Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contractual Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . History of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claim Heads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexed Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 181 181 181 181 181
sem\ucm6001r.ucd
- 10 -

WHO IS BCA?
BCA are frequently asked if seminars are our principal business to which the answer is no. Seminars are only one of the activities of the company. Our principal business is providing advice to all players in the construction industry whether they be employers, members of the professional team, project managers, contractors, sub-contractors or suppliers. Our first prize is to offer advice upfront in order to prevent dispute situations arising but, if a claim or dispute situation arises, we will assist our clients up until the dispute is resolved whether by negotiation, mediation, adjudication, arbitration or litigation. We have experts who are familiar with all aspects of analysing and evaluating both merit and quantum of all construction/contracting claim and dispute situations. We are able to represent our clients at all formal hearings except in the courts and, if our client prefers to use attorney and counsel for final hearings in other tribunals, we are able to assist by being part of the team and frequently appearing as expert witnesses. Created to fulfill the needs of a construction community beset with problems and disputes, BCA has, over the last twenty years, established itself as a highly professional organisation operating in a specialised niche requiring the marriage of technical and contractual skills. Whether representing the employer or the contractor, the firm endeavours to present the client's case in the best possible way whilst recognising that there are always opposing views to every situation. Accordingly, not only is assessment made of the strengths of the client's position but also, and frequently more importantly, the weaknesses are highlighted. BCA are able to draw on a wide variety of in-house technical skills and have specialised in the representation of clients at mediation, arbitration and other forms of dispute resolution procedures. Avoidance of the dispute and the settlement thereof by negotiation is however the preferred route and such settlements are frequently founded upon solid documentation aimed at presenting a balanced view of the client's position. BCA's staff are versatile and have broad experience in working outside their own particular discipline. The objective of the firm is to provide expert knowledge relating to contractual situations and the difficulties arising therefrom. The practice specialises in the preparation, presentation and negotiation of claims in the more difficult areas of acceleration, delay and disruption as well as the usually encountered claims for extensions of time and re-assessment of contract valuation arising out of changes in scope. Binnington Copeland & Associates (Pty) Ltd's ability to provide a totally professional package over a wide variety of engineering and building industry disciplines can, and frequently does, make the difference.
sem\ucm6001r.ucd
- 11 -
BINNINGTON COPELAND & ASSOCIATES (PTY) LTD

E N G IN E E R IN G & C O N S T R U C T IO N C O N T R A C T C O N S U L TA N T S
U SIZO E NGINEERING (P TY ) L TD C OMPARISON OF JBCC, NEC, FIDIC AND GCC
SEMINAR PROFILES
CHRIS BINNINGTON Chris Binnington is the Managing Director of BCA. He is a Mechanical Engineer by training, but is well known for his presentations to the construction industry in the fields of construction law, standard forms of contract, BOT and dispute resolution. He is the current Chairman of the Association of Arbitrators (Southern Africa) and for sixteen years served on the relevant ECSA committee investigating complaints by the public against registered professional engineers and chaired the committee for four years. He is a regular contributor to various construction magazines. GIOVANNA FENSTER Giovanna Fenster has a BA, LLB degree from Wits and an LLM (cum laude) from RAU. She also has a second LLM in advanced contract law with a special focus on construction contracts. She has completed the Association of Arbitrators' specialisation in construction law and the Higher Diploma in Arbitration. She has lectured law for some seven years and has written training courses, manuals and seminar notes for the construction and other industries. She has lectured law both to lay people and law students and has conducted numerous training seminars for the construction industry. She is a regular contributor to SA Builder. Gigi was a founding member of the Construction Industry Development Board. Gigi currently works as a senior policy analyst at the Ministry of Economic Development, New Zealand. She is an admitted advocate. UGO HIDDEMA Ugo Hiddema studied law at the University of Pretoria. He worked for the Department of Water Affairs and Forestry for twenty-five years where he was responsible for all building and construction contracts and claims. He was also a member of the Lesotho Highlands Water Commission and advised on the engineering contracts (FIDIC contracts) and claims on the Lesotho Highlands Water Project. He was a member of the committee that drafted the 1990 General Conditions of Contract for the Construction of Civil Engineering Works (6th Edition). He is a Fellow of the Association of Arbitrators and has completed the Association's Specialisation in Construction Law and the Higher Diploma in Arbitration. He contributed a chapter to Loots Construction Law and Related Issues (1995). BILL COPELAND Bill Copeland is the Chairman of BCA. He is a civil engineer having graduated in 1953 at the University of New South Wales (Sydney). During his forty-seven years of practice in the construction field he has obtained considerable experience which has ranged from professional, main contracting and sub-contracting. He is past president of the Precast Concrete Manufacturers of Australia and the South African Institute of Steel Construction. In the fifteen years with which he has been associated with BCA, it is rarely a contractual problem or dispute situation which has arisen on which he has not had first hand experience on some previous occasion. JIM GARNER Jim Garner is a consultant at BCA. He is a chartered quantity surveyor and a member of the Association of Arbitrators (Southern Africa). His experience includes eleven years with professional quantity surveying practices and thirty years with contracting companies, in positions from chief surveyor to project manager and managing director. He served on industry and government committees for many years, with particular emphasis on contractual, legal and procurement matters. He also has considerable experience in dealing with disputes in the construction industry.
sem\ucm6001r.ucd
- 12 -

NOTE TO DELEGATES
The case studies in this document may not necessarily have a correct answer, which is why we do not give answers in the notes.
The case studies are intended to stimulate discussion and emphasise key principles.
sem\ucm6001r.ucd
- 13 -

THE COURTS' APPROACH TO CONTRACTS THE COURTS' APPROACH TO CONTRACTS SLIDE 1
sem\ucm6001r.ucd
- 14 -

THE COURTS' APPROACH TO CONTRACTS
SLIDE 2
sem\ucm6001r.ucd
- 15 -

THE COURTS' APPROACH TO CONTRACTS Notwithstanding the equity jurisdiction of English Law, there is no common law requirement that contracts must be fair. On the whole English and Tanzanian courts have tended towards upholding the principle of sanctity of contract. This principle suggests that contracts, once entered into freely and voluntarily, should be upheld by a court of law. This principle may, in certain circumstances, appear to be unjust, particularly where a contract, which is one sided or unfair, is upheld on the basis of sanctity. There are, however, sound reasons for insisting that contracts be upheld. Some of these reasons are:
M
CERTAINTY IN BUSINESS There can be little doubt that commercial transactions would be seriously hampered if our courts allowed parties to escape their contractual obligations too readily;
COUNTRY 'S RELIABILITY AS A TRADING PARTNER The degree of contract enforcement is seen by many as a measure of a country's reliability as a trading partner;
PROTECTION AGAINST EXCESSIVE HARDSHIP The law of contract does offer protection against excessive hardship, in certain cases. These are discussed in detail below;
DIFFICULTY IN DEFINING WHAT IS UNFAIR AND IN DISTINGUISHING BETWEEN A GOOD BARGAIN , ON THE ONE HAND , AND AN UNFAIR CONTRACT, ON THE OTHER The courts' approach to unfair contracts is clearly illustrated in these words from Burger v Central South African Railways: "Our law does not recognise the right of a court to release a contracting party form the consequences of an agreement duly entered into by him merely because that agreement appears to be unreasonable.".
sem\ucm6001r.ucd
- 16 -

SLIDE 3
sem\ucm6001r.ucd
- 17 -

THE COURTS' APPROACH TO CONTRACTS UNFAIR TERMS AND CONSTRUCTION CONTRACTS In the construction industry much of the contracting is done by way of standard contracts that have been drafted by bodies representative of various construction players. Ideally these bodies should produce contracts that fairly balance the rights of the various players such that no single player is prejudiced due to an inequality of bargaining power or for any other reason. Unfortunately, the goal of fair balancing of rights and obligations is often not attained for various reasons, some of which are the following:
M
Parties often amend the standard contracts, by way of special conditions or direct amendment; The drafting bodies are not always representative of all role players or all role players are not equally represented. This can result in unfair terms creeping into a standard contract; There is nothing obliging the parties to a contract to adhere to a standard agreement. Parties are always free to negotiate their own terms of contract.
Employers who consider that they are well served by Standard Conditions of Contract which, are tilted substantially in their favour, should remember that, while such a contract is valid in terms of the law, it may not actually serve their interests. The inclusion of unfair terms adds to the contractor's risk and the probability is that he will factor this risk into his price so that the employer will actually pay the cost of such onerous proportions. If the contractor does not factor the risk into the price then the consequences for both contractor and employer could be very serious. A well balanced contract, where the risk is reasonably apportioned between the parties and which gives the contractor a chance to recover any additional costs, ultimately serves the interests of both contractor and employer.
sem\ucm6001r.ucd
- 18 -

THE COURTS' APPROACH TO CONTRACTS SLIDE 4A
sem\ucm6001r.ucd
- 19 -

THE COURTS' APPROACH TO CONTRACTS SLIDE 4B
sem\ucm6001r.ucd
- 20 -

SLIDE 4C
sem\ucm6001r.ucd
- 21 -

SLIDE 4D
sem\ucm6001r.ucd
- 22 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) Agreement is the basis of every contract and the most important requirement for validity for without agreement there can be no talk of a valid contract. There must be consensus and the minds of the parties must be ad idem (at one).
sem\ucm6001r.ucd
- 23 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS)
SLIDE 5
sem\ucm6001r.ucd
- 24 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) English and Tanzanian common law distinguish between two forms of contract, namely the contract entered into under seal and the simple contract.
M
The simple contract is one entered into by way of simple agreement. The parties conduct themselves or use words (whether written or oral) to show that they intend being bound. This contract is not recognised unless both parties perform in some way. There must be consideration flowing from both parties. There must be a quid pro quo between the parties. Where a contract has not been formally entered into it is therefore necessary to ask whether both parties have agreed to offer some form of consideration. The contract under seal is valid because it is formally entered into. There is no requirement for consideration when the contract documentation is formally signed under seal. Where there is consideration the contract will be valid even if it is not formally concluded but is rather entered into orally or by conduct or in some other manner. Where there is no consideration it is necessary to ensure that the contract is entered into under seal.
This topic is discussed again under the heading of formalities below.
sem\ucm6001r.ucd
- 25 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) CASE STUDY 1 The employer invites tenders for certain work to be done. Contractor, C, submits a tender on 1 February 2006. In his tender he states that he will keep his tender open for a period of three months. On 1 March 2006 the employer sends C a letter of intent stating that he will contract with him. C goes back and looks at his figures and discovers that he has made a mistake in his tender. Where he intended to quote $x per metre for the laying of tiles he quoted %x per m2. This mistake will result in such loss that he does not believe that it is in his interests to undertake the work. On 15 March 2006 C sends a letter to the agent stating that he is withdrawing his tender. The agent argues that he is not entitled to do so as a contract has already been entered into. Has a contract been entered into? Is C entitled to withdraw his tender?
sem\ucm6001r.ucd
- 26 -

sem\ucm6001r.ucd
- 27 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) CASE STUDY 2 E invites tenders for certain construction works. Contractor, C, submits a tender. One week after the tender is submitted C receives a letter from the client's agent which reads as follows: "Letter of Intent Duly instructed by our client, Employer, and acting on their behalf, we are pleased to inform you that we intend accepting your tender dated 15 February 2006. We hereby instruct you to purchase the following (long lead) items ...". On receiving this letter C immediately purchases the items at some cost. He also takes on extra casual staff to fulfil his obligations in terms of the tender. After two weeks C has heard nothing from either the agent or the client. He phones the agent who tells him that they have decided not to go ahead with the works. When C complains the agent says that he does not know what C is complaining about, since the parties never signed a contract and there can therefore be no agreement. Will it make any difference if the invitation for tenders stated that the contract would be regulated by a particular set of contract documents?
sem\ucm6001r.ucd
- 28 -

sem\ucm6001r.ucd
- 29 -

SLIDE 6
sem\ucm6001r.ucd
- 30 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) QUESTION 1 Can you have a valid contract if the contract documents have not been signed?
sem\ucm6001r.ucd
- 31 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) WHAT HAPPENS IF THERE IS NEVER AGREEMENT ON THE CONTRACT TO BE USED ? CASE STUDY 3 The employer, E, phones contractor, C, and tells him he has been referred to him by a friend and that he is looking for someone to do renovation work at his house. C is very interested in this work and he agrees to look at the house and to provide a quote. The work is fairly extensive, involving additional rooms, plumbing and electrical work. C does look at the house and he provides a quote. E is happy with the quote and they agree that C will do the work. C starts work. C advises E that he thinks the work will take around six months to complete. E says that he is quite happy with this. They discuss the materials to be used. C starts working at the house and all is progressing well. At the end of the second week C phones E and tells him that he will need money to purchase materials. He also says that he will need money to pay his workers and as an interim payment to assist him with his cash flow. E responds that C's cash flow is not his problem. He says that it is up to C to ensure that he has enough money to pay his workers and that, if C wanted interim payments, he should have said so upfront. C responds that everyone knows that the contractor cannot be expected to finance the whole project and that it is accepted practice that he should be paid for work already done. Is C entitled to interim payment? If so, how will the amount that he is entitled to be calculated?
sem\ucm6001r.ucd
- 32 -

sem\ucm6001r.ucd
- 33 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) CASE STUDY 4 Employer, E, phones contractor, C, and tells him that he has been referred to him as someone who is good at building work. E is the headmaster of a school and is looking for a contractor to add a few classrooms and a kitchen to the school. E tells C that he was referred to him by the headmaster of another school (a certain Mr B). Mr B used C's services for extension work on his school and told E that he was very happy with the work done by C. C provides a quote, at the bottom of which the following words appear: "All contracts to be completed under the contractor's standard terms of contract. A copy of these may be read at the Contractors office, or purchased from the contractor.". E phones the C and tells him that he is happy with the quote and is prepared to go ahead with the work. He tells C that there is just one matter that he is not happy with - the terms of contract. E has been advised by a friend that the work should rather be done under an internationally recognized contract, such as the FIDIC Short Form. C says that he is not familiar with the FIDIC Short Form but is prepared to consider it. E says that he will get a copy for them to look at. In the meantime, work commences. At the end of the second week C phones E and tells him that he needs money to pay his workers and as an interim payment to assist him with his cash flow. E responds that C's cash flow is not his problem. He says that it is up to C to ensure that he has enough money to pay his workers and that, if C wanted interim payments, he should have said so upfront. C says that, actually, he did make it clear that he would require interim payments because this is clearly stated in his conditions of contract. He says that, had E bothered to check C's conditions of contract he would have seen that the contract makes it clear that interim payments can be claimed. E argues that C's conditions of contract are of absolutely no relevance since they were never accepted. He says that, if any contract applies, it is the FIDIC Short Form. He says that he has ordered a copy and, for as long as they are waiting for it to arrive, C should just go on working and should not expect interim payment. Does C's standard contract apply? The FIDIC Short Form?
sem\ucm6001r.ucd
- 34 -

Neither? Both? If neither applies, is C entitled to any interim payment? How will this be calculated?
sem\ucm6001r.ucd
- 35 -

sem\ucm6001r.ucd
- 36 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) WHAT HAPPENS IF THERE IS NO AGREEMENT ON IMPORTANT TERMS? CASE STUDY 5 Employer, E, is the owner of a small guest lodge just outside a major game reserve. The lodge consists of six small huts set around a small lake. Business is booming as many tourists come to the area to see the annual animal migration. E decides to add a further four huts to the lodge and, to this end, enters into negotiations with Contractor, C. From the outset E makes it clear that there is some urgency as the huts must be completed before the next annual migration to take place in about nine months time. C says that he can comfortably complete in time as long as he starts work immediately. C and E both sign a document which reads: "C and E hereby agree that C will construct four additional huts on E's guest lodge. It is agreed that C will start work immediately upon signature of this document and that negotiations will continue between the parties.". C starts work. Two days later E phones C and says that he has been called urgently to another lodge which he owns as there has been flooding in the area and the lodge has been badly damaged. C says: "Not to worry. I will keep going. Give me a call when you return.". A month later E has not returned. C struggles to get hold of him but finally manages to get hold of his wife. E's wife tells C that the problems at the other lodge were more serious than expected, that telephone lines are still down in the area and that E is only expected back in another month. She says that she is expecting a call from E some time during the week and that she will tell him that C is trying to get hold of him. C continues work. Three weeks later E's wife phones C and tells him that she has spoken to her husband and that he is due back in two weeks time. She says that E has said that C should just continue working. E finally returns four months after he first set off. By this time C has laid the foundations for all four huts, has all the required material on site, has started electrical and plumbing work and has progressed quite far with building work. E and C now restart discussion on the contract terms. Negotiations go badly. They cannot agree on the amount that C will be paid or on the date for completion or on the quality of the work to be done or materials to be included. C is getting fed up and he starts shifting his workers onto another project. The
sem\ucm6001r.ucd
- 37 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) relationship between them breaks down. C argues that he is entitled to: Payment for the work already done; Payment for the materials purchased; Payment for his workers; Profit of 50%, which is his standard profit; A surcharge of 10% because he was required to accelerate to complete in time for the rainy season; A surcharge of 10% for all the hassle encountered in trying to get hold of C, collapsed negotiations and so on. E argues that C is not entitled to anything because he has left the site with all the huts half finished. He says that the place is such a mess that he cannot have any guest there for at least a year while it is cleaned up and the huts completed. Which, if any, of the amounts claimed by C is he entitled to be paid? Note: We are not, at this stage, interested in whether E would have a claim against C for breach of contract. We will consider that matter later.
sem\ucm6001r.ucd
- 38 -

sem\ucm6001r.ucd
- 39 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) WHAT HAPPENS IF ONE PARTY THINKS THAT THERE IS AGREEMENT AND THE OTHER DENIES THAT AGREEMENT HAS BEEN REACHED ? CASE STUDY 6 A contractor, C, needs bricks and therefore phones his supplier S to place an order. S and C have a long standing relationship and have entered into many contracts for bricks in the past. In view of their long standing relationship, C simply requests that S send him an agreed number of bricks and the parties agree on a price. The next day C receives a fax from S. The fax has the heading "Quotation". It confirms the price and the number of bags agreed upon telephonically. At the bottom of the fax, in small print, the words: "Our terms and conditions apply. These may be requested by phoning Y. On request we will gladly furnish you with a copy.". C sends the quotation to his buying department where it is processed according to the usual procedure. One week later the bricks are delivered to the site. Accompanying the bricks is a document headed "Delivery Note". At the bottom of the note are listed certain "terms and conditions". One of these provides that, in the event of any defect in the bricks, the supplier will not be liable for any damages whatsoever that arise from such defect. The "Delivery Note" is signed by C's storeman who also inspects the bricks and decides that all seems to be in order. The bricks are fitted into the works and, after being plastered over, begin to show certain defects with the result that the walls begin to crumble. The bricks are tested and it transpires that they were defective in that they contain high quantities of magnesium sulphate. All the walls containing these bricks have to be demolished. As a result of these defective bricks C suffers considerable losses. He incurs penalties, the costs of rebuilding the walls, payment to sub-contractors etc. When C attempts to recover these costs from S, S refers him to the terms and conditions referred to in the "Quotation" and printed on the "Delivery Note". S offers to replace the defective bricks but denies liability for any other loss sustained by C. Can C recover any of his losses from S?
O
sem\ucm6001r.ucd
- 40 -

sem\ucm6001r.ucd
- 41 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) OFFER AND ACCEPTANCE AS EVIDENCE OF AGREEMENT In order to determine whether the minds of the parties were at one we ask whether one party made an offer which the other accepted. Once it is found that there has been offer and acceptance there will be consensus. The rules of offer and acceptance help us to determine whether there was agreement and also when and where agreement was reached. There will be agreement when one party (the offeror) has made an offer to another to enter into a contract on specified terms which the other party (the offeree) has accepted. Requests for Tenders When dealing with requests for tenders the question of who is making the offer and who is accepting may once again raise problems. In deciding this issue, the Tanzanian courts will follow the English principle that the contractor, and not the employer, is making the offer. The employer is therefore not obliged to accept the lowest bid or, indeed, any bid at all. This principle is clearly illustrated in the English case of Spencer & Others v Harding & Others (1870) LR 5 CP 561. Willes J: "The question which arises here is whether there is any offer to contract or whether the circular is no more than an invitation to receive offers. In tenders for builders it is not usual to say that the tender will be given to the lowest bidder and the contract is not always made with the lowest bidder. In the absence of words to the effect that the highest bidder will be the purchaser the circular cannot be said to constitute an offer.". Note: The court concluded that the circular inviting tenders was no more than an invitation for offers despite the fact that the words "offer ... for sale" appeared on the circular. The court found that, unless there was an express, unequivocal undertaking to contract with the highest bidder, the seller was not obliged to do so. This means that, in the construction context, the employer is under no obligation to contract with the lowest bidder unless he actually states unequivocally that he intends doing so. It is fairly common for invitations to tender to state that the employer is under no obligation to contract with the lowest bidder or with any bidder at all. While these words make the situation quite explicit and do introduce a measure of clarity they are, on the Spencer case, not necessary. The employer is the offeree and he is therefore free to accept or reject any offer. He is not obliged to accept the lowest tender, or any tender at all, unless words to the effect that he will do so expressly appear on the invitation to tender. Tanzania has, in recent years, devoted attention to reforming its procurement policies and legislation. Procurement under public-financed projects is carried out in accordance with policies and procedures laid down in the Public Procurement Act No. 3 of 2001 and the Procurement of Goods and Works Regulations, 2001- Government Notice No. 138 of 13 July 2001 (generally referred to as "Procurement Regulations"). The standard tendering procedures are divided into a number of sections. See the slides on the following pages.
sem\ucm6001r.ucd
- 42 -

SLIDE 7A
sem\ucm6001r.ucd
- 43 -

SLIDE 7B
sem\ucm6001r.ucd
- 44 -

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS) Consequences of Rule That Contractor Is Making the Offer The common law rule that the contractor is making the offer has a number of important consequences some of which are the following:
M
Since the contractor is making the offer, the employer is not obliged to accept the lowest bid or to accept any bid at all. This common law principle is reiterated in standard construction contracts where the contractor will often affirm that he understands that the employer is not obliged to accept the lowest or, indeed, any offer. Even in the absence of such an affirmation the common law rule will apply; The employer has, at common law, absolute discretion as to whether to award the contract at all and, if so, to whom. At common law he is not bound by any rules, principles or policies in deciding who should get the tender; The cost of preparing the tender is borne entirely by the contractor who cannot recover should the contract not be awarded. There has been a suggestion that the contractor could recover the cost of preparing the tender if the employer never had the intention of entering into a contract with anyone and was requesting tenders for some purpose which was not bona fide; The contractor is free to revoke his offer at any time before acceptance. This common law rule is often amended by the parties who may (and in construction usually do) agree that the contractor will keep his offer open for a stipulated period. If the contractor has so agreed to keep his offer open any revocation will constitute a breach of contract and will expose him to a claim for damages.
sem\ucm6001r.ucd
- 45 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT WHEN THINGS GO WRONG: BREACH OF CONTRACT
sem\ucm6001r.ucd
- 46 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT BREACH OF CONTRACT What is a Breach of Contract? A breach of contract is simply where one party does not do what he promised to do under the contract. In other words, if a party does not fulfil his contractual obligations, he does not comply with the terms of the contract. Different Forms of Breach of Contract A breach of contract can take various forms. We are not concerned here with all the different forms but, it should be remembered that some breaches are more serious than others and that, depending on the seriousness of the breach, the remedies available to the innocent party may differ.
sem\ucm6001r.ucd
- 47 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT What Should I (Not) Do If the Other Party is in Breach of Contract? CASE STUDY 7 Contractor, C, and employer, E, enter into an agreement in terms of which C will build twenty dwellings as part of a township development which E is developing. E has sold units in the township and has promised purchasers that they will have access to their properties by 1 July 2006. He is therefore very concerned to ensure that the houses are completed on time. E advises C of this urgency and the parties agreed that E will complete the houses by 15 June 2006 and will pay C liquidated damages of $500.00 per house per week that he is late. C starts work but it soon becomes clear that he is falling behind the programme. E sends a letter to C saying: "I notice that you are falling behind on the programme. I remind you that it is of the utmost importance that these units are completed on time and that liquidated damages may be claimed.". On receipt of this letter C brings additional workers on to the site and work speeds up. He catches up to where he should be on the programme and then tells the extra workers they can go. Once again work slows down and slips below the programme. Once again E writes to C and once again extra workers are brought on site. In each case it takes C about three weeks to catch up to the programme. This goes on until 1 May 2006. At this stage the work is about four weeks behind programme and E is very worried. E decides that he cannot risk C being late and he decides to cancel the contract and to bring another contractor in to complete the work. E writes to C as follows: "Due to your persistent and ongoing failure to comply with the programme you must acknowledge that you are in breach of contract. I hereby cancel the contract as a result of the breach.". C responds with a letter to E as follows: "Dear E, I accept your repudiation of the contract. Please note that I intend claiming damages for breach of contract.".
sem\ucm6001r.ucd
- 48 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT
Is C in breach of contract for his failure to stick to the programme? Assuming this is a breach, does C's delay entitle E to cancel the contract?
sem\ucm6001r.ucd
- 49 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT REMEDIES FOR BREACH OF CONTRACT Before the Breach Occurs Where one person fears a breach or suspects that a breach may occur, he can apply to court for an interdict. Under certain circumstances is may also be appropriate to apply for a declaration of rights.
sem\ucm6001r.ucd
- 50 -

SLIDE 8
sem\ucm6001r.ucd
- 51 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT Note:

M
The innocent party will not always be entitled to terminate the contract. The circumstances under which termination is allowed are discussed below; We have not included here a power to suspend work (or to go slow) where the employer pays late or otherwise breaches the contract. The right to suspend is not recognised at common law and any effort to suspend the work must be included in the contract. If there is no express right to suspend in the contract the law will not recognise such a right. Similarly, the employer is not entitled to suspend payment where the contractor is in breach, unless the contract expressly gives the employer a right to do so.
Cancellation (Where the Innocent Party Chooses to Cancel the Contract) Note: The mere fact that one party is in breach does not mean that the other is entitled to cancel. While it is all very well to allow the innocent party to a breach to claim damages while upholding the contract, there are clearly circumstances where it would be inappropriate to require the parties to uphold the contract. This is particularly so where the breach is a serious, material one, where the breach is a protracted one or where one party clearly indicates that he does not intend performing. While these circumstances where it would be untenable to expect the innocent party to uphold the contract do exist, it should be remembered that the law does not favour cancellation under all circumstances. There are some instances where the courts will not allow a party to cancel too readily. The circumstances where a right to terminate will arise, in addition to damages, are the following1:
M
Where the Breach is "Fundamental" "Where there is a breach of a term of the contract which is so serious in itself that it would be unreasonable to expect the other party to continue with the contract. It is sometimes said of such terms that they are "fundamental", and that the breach of them evinces an intention not to be bound by the contract, but this is at best a legal fiction, and the breach may well be involuntary and the guilty party may in fact be doing his best to perform, although simply unable to do so for whatever reason, such as financial stringency, lack of competence or outside events for which he is contractually responsible.";
Protracted Or Repeated Breaches Plus Notice "Where there is a breach of a term which, while not by itself sufficiently serious, may be so protracted or repeated, despite protest or notice by the innocent party, that it either evinces a subjective intention not to be bound by the contract, as in the case of deliberate and continued breaches (however
1
These circumstances and the quotes are taken from Hudson's Building and Engineering Contracts at 612-3.
sem\ucm6001r.ucd
- 52 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT minor), or simply an objective involuntary inability to perform the contract properly.". Where this form of breach is relied on to justify a termination, it is wisest to serve notices on the breaching party calling on him to remedy the breach. This will not only facilitate proof of his breach but will also help to rebut any allegation that the innocent party condoned the ongoing breach;
M
Anticipatory Breaches This form of breach arises where one party actually informs the other that he intends not to perform the contract as a whole, or any part of it, either presently or in the future, or where he acts in such a way as to render his own future performance impossible. These are usually called "anticipatory breaches";
Language of the Contract Sometimes the language used in the contract will indicate that a single breach of a particular obligation will entitle the other party to cancel. Where, for example, the contract indicate that "time is of the essence" the parties have effectively agreed that the works are of no use to the employer if not completed on time and that the employer will therefore be entitled to cancel when the works are not completed on time;
Express Termination Provisions in the Contract Construction contracts will often list specific circumstances under which the innocent party is entitled to terminate. Here the innocent party is pinning his termination on a right contained in the contract and he will therefore only be entitled to terminate if the conduct of the guilty party fits squarely into the provisions of the clause relied on and if any procedures outlined in the contract are complied with. In FIDIC you will find this in Clause 16.2 which lists the grounds upon which the contractor may terminate and Clause 15.2 which regulates termination by the employer. Thus, the FIDIC contract, like many others, stipulates which breaches are regarded as being material so that the non-breaching party may cancel.
sem\ucm6001r.ucd
- 53 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT CASE STUDY 8 Contractor, C, and employer, E, agree that C will demolish some houses for E within forty-two days. The contract provided that C was to pay liquidated damages of $600.00 for every day that he was late. By Day 43 C had not completed. The employer asked C how long he expected to complete and C said that he "could not say". When asked whether it would take one, two or three months, C that he "could not say". Throughout this process C was on site, working every day (albeit slowly). On Day 60 C came onto site to find that E had taken occupation and refused to let him on to site. When asked by C what was going on E said: "I cannot stand it any more. I am terminating the contract due to your abandonment of the works.". Is E entitled to terminate under these conditions or is this an abandonment by E?
sem\ucm6001r.ucd
- 54 -

sem\ucm6001r.ucd
- 55 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT What should I (not) do if the other party is in breach?
M
Do not walk off site without consulting someone with legal/contractual knowledge. It could even be dangerous to threaten to leave the site; Check your contract - what does it say about a breach? Consult with your legal team or an independent lawyer; Try to discuss the issue with the other party.
You should, by now, have gathered that termination is a tricky business. If correct procedures are not followed you may find that you are in breach even though you are the innocent, cancelling party. The dangers and risks inherent in termination should not be underestimated. YOU SHOULD NOT TERMINATE A CONTRACT WITHOUT CONSULTING YOUR LEGAL DIVISION!
sem\ucm6001r.ucd
- 56 -

SLIDE 9
sem\ucm6001r.ucd
- 57 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT What Happens If the Employer Refuses/fails to Pay the Contractor? The Effect of the Certificate on the Employer's Obligation to Pay the Contractor
M
The certificate constitutes a liquid document in which the employer acknowledges liability as against the contractor. The contractor can use this document to get provisional sentence against the employer. While it is not impossible to get provisional sentence using a copy of the document, it is easier to do so when one has the original document. For this reason many standard construction contracts require that the agent give the contractor the original certificate while a copy is given to the employer. Where the employer makes payment on the certificate he is not making payment for work already done. He is rather giving the contractor an advance on the final amount owing. This principle applies notwithstanding that the amount owing by the employer may have been calculated on the basis of the value of the work done. Where the employer's agent signs the certificate, the employer is bound as if he himself had signed the certificate. The employer cannot escape his agents certificate unless he can show fraud on the part of the contractor or collusion between the contractor and the agent. The employer may not escape the certificate by arguing that his agent negligently over certified the works. In this case the employer will be obliged to pay in terms of his agent's certificate and will then have to bring an action against the agent to recover the excess, should he be unable to recover from the contractor. The certification of the works for the purposes of payment will not relieve the contractor of the obligation to complete the works in accordance with the contract. If the works that have been certified prove to be defective the employer will still be able to bring his usual remedies and it will be no defence for the contractor to argue that, in certifying the works the employer gave up remedies. This certificate is not evidence of the quality of the work done and is not conclusive that the works are free of defects.
sem\ucm6001r.ucd
- 58 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT CASE STUDY 9 E and C enter into an agreement in terms of which C is to complete certain building works for E. The agreement states that C will be paid on interim certificates and that payment will be made within ten working days of certification. After work has progressed for some time C is declared insolvent. The liquidators decide not to proceed with the contract but they nonetheless claim payment on the interim certificates. Is C entitled to payment on the certificate?
sem\ucm6001r.ucd
- 59 -

sem\ucm6001r.ucd
- 60 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT Late Payment by the Employer Once the works have been certified for payment the employer is obliged to pay within the time stipulated in the agreement or, in the absence of agreement, within a reasonable time. If the employer fails to pay timeously the contractor will be entitled to interest for late payment. Withholding Retention Moneys From Payment to the Contractor There is nothing in the common law providing for the withholding of retention money and the employer is therefore entitled to do so only if the contract provides for it. It is unfortunately fairly common for employers to withhold retention even though the contract is silent on this point. This practice is in contravention of the principle that the employer is obliged to pay the amount owing, in accordance with the contract. Retention should not be withheld unless the agreement expressly provides therefor. There is no hard and fast rule for how much retention should be withheld. All depends on the terms of the agreement between the parties. The agreement will stipulate whether retention is to be withheld, how much retention is to be withheld and how and when retention is to be repaid to the contractor.
sem\ucm6001r.ucd
- 61 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT CASE STUDY 10 E and C enter into an agreement in terms of which C is to construct certain works for E and E is to pay C. The agreement provides for interim payments and stipulates that retention is to be withheld at a rate of 5% from each payment certificate. After the works reach practical completion but before final completion is reached or final payment made, E goes insolvent. At the time of the insolvency some $20 000.00 has been withheld as retention. C now wishes to recover the money. The executors of E's insolvent estate refuse to hand over the money, arguing that it belongs to the estate. Is C entitled to recover the money or does it belong to E's estate?
sem\ucm6001r.ucd
- 62 -

sem\ucm6001r.ucd
- 63 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT CASE STUDY 11 Employer, E, and contractor, C, agree that C will design and construct a small stadium to go around a football field. C completes the design and starts work on the construction phase. It soon becomes clear that E is experiencing financial difficulties - he pays the third certificate late and does not pay the fourth certificate at all. When the fifth certificate is issued the engineer (E's agent) says to C: "I do not know why I am bothering to issue this certificate. We all know that E is absolutely broke.". C is now very worried. He is even more worried when E fails to honour the fifth certificate. By this stage C is in financial difficulty himself. He decides that he has no choice but to take his materials off the site and to look for other work. He does this. The next day C receives a letter from E's lawyers. It reads as follows: "We hereby notify you that you are in breach of contract for your failure to maintain a presence at the site. By removing yourself from the site you have repudiated the contract. My client will be pursuing his remedies for breach of contract.". Was C entitled to walk off site? What would you have done if you found yourself in C's position?
sem\ucm6001r.ucd
- 64 -

sem\ucm6001r.ucd
- 65 -

WHEN THINGS GO WRONG: BREACH OF CONTRACT POSSIBLE DEFENCES TO AN ACTION BASED ON BREACH OF CONTRACT SLIDE 10
sem\ucm6001r.ucd
- 66 -


Impossibility of Performance (Frustration) Sometimes the circumstances that the parties find themselves in are such that it has become impossible to perform and therefore no longer binding. In these circumstances a party against whom a breach is alleged will be entitled to argue that he has not breached the contract but rather that performance has, through no fault of his own, become impossible. Impossibility is discussed under the heading of requirements for a valid contract, above. In that section we considered both impossibility that exists when the contract is entered into and impossibility that arises at a later stage, and would provide a defence for breach. Act of God or Force Majeure The terms Act of God and force majeure are often misunderstood, misused terms. This is largely because these terms do not have any precise legal meaning or any automatic legal consequences. In each case you will need to look at the terms of your contract to determine what constitutes an Act of God or force majeure and also what the consequences of such characterisation are. Most authorities argue that the term "Act of God" refers to events which cannot be foreseen or events which can be foreseen but cannot be guarded against. The term "force majeure" is often defined quite widely in contracts so as to include acts of man such as war, civil unrest or strikes. It may well be that a breaching party can raise the defence of an Act of God or force majeure but each case will depend on the definition in the contract as well as the consequences outlined in the contract. W HAT IS THE R OLE OF THE E MPLOYER'S A GENT W HERE T HERE IS P OTENTIAL FOR B REACH? The employer's agent should be aware of the circumstances on site and should, ideally be in a position to pre-empt any breach of contract before it occurs. Ideally the agent should ensure that there is:
M
Early warning of a possible breach - there should be open communication between the agent and the contractor such that the contractor feels free to advise the agent of a possible breach, and the agent feels free to advise the contractor of circumstances from his side which could contribute to a breach; If there is early warning the parties will be able to sit down and discuss the matter and try to find a way of dealing with the (potential) breach in a way that mitigates the damage; The agent should ensure that the employer is kept informed of the circumstances and the potential for breach. Sometimes agents feel afraid to advise the employer of a (potential) breach for fear that this may reflect badly on them. The agent should, however, remember that he probably owes the employer a duty of care and that a failure to advise the employer of a possible breach could expose him to liability as against the employer.
sem\ucm6001r.ucd
- 67 -

SLIDE 11
sem\ucm6001r.ucd
- 68 -

DAMAGES FOR BREACH OF CONTRACT DAMAGES FOR BREACH OF CONTRACT Irrespective of what other remedies may be available to the innocent party in a breach situation, the remedy of damages is one which always remains available. The classical description of damages in English law is that formulated by Parke B. in 1845 as: "The rule of common law is, that where a party sustains a loss by reason of a breach of contract, he is so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.".1
As per Hudson at 1030.
sem\ucm6001r.ucd
- 69 -

DAMAGES FOR BREACH OF CONTRACT
SLIDE 12
sem\ucm6001r.ucd
- 70 -

DAMAGES FOR BREACH OF CONTRACT Therefore, when measuring damages to be awarded for breach of contract we need to do the following:
M
Work out how much money the innocent party would have had if there had been no breach. In other words, how much money would the innocent party have had if the guilty party had done what he had promised to do? Work out how much money the innocent party has got now, when there is a breach. The innocent party is now entitled to the difference between what he has got, after the breach, and what he would have had, if there had been no breach.
In assessing the damages, in order to put the plaintiff in the position he would have occupied had the contract been performed, the courts are concerned exclusively with his financial position and take no account of his injured feelings. The innocent party cannot claim for injury to his feelings or to his dignity or any other non financial loss. When claiming for breach of contract the innocent party can only claim for financial loss. The onus to prove that damages have been suffered lies with the plaintiff, the innocent party, and if he is unable to prove any damages, none will be awarded. MITIGATION OF DAMAGES The mere fact that one party is in breach does not entitle the other to sit back and watch his damages grow. The innocent party is obliged to mitigate his damages. He must do that which the reasonable person would have done to keep his damages low. LIQUIDATED DAMAGES It is often difficult to work out how much actual loss the innocent party has suffered. The innocent party may not wish to go to court and prove his actual damages. Rather than having to prove the actual loss suffered, the parties may agree that the contractor will pay the employer a sum agreed up front as the loss which the employer will suffer if the contractor breaches the contract. Construction contracts usually apply liquidated damages where the contractor does not complete by the contractually agreed completion date. There is, however, nothing preventing the parties from agreeing on liquidated damages for a failure to reach certain performance measures or any other breach of contract. Liquidated Damages v Penalty (Damages in Terrorem) Many countries, including Tanzania follow the English Law on liquidated damages. According to this system, liquidated damages are not enforceable unless there is a genuine attempt to pre-estimate the loss which the employer expects to suffer. In other words, the liquidated damages should not be used as a threat to the contractor or as some sort of - 71 -
sem\ucm6001r.ucd

DAMAGES FOR BREACH OF CONTRACT punishment for completing late. Rather, they should be used to compensate the employer for the loss which he expects to suffer. Therefore:
M
There must be a genuine effort to estimate the loss which the employer expects to suffer; If there is no genuine effort to estimate the loss, and the liquidated damages are higher than the loss which the employer expects to suffer, then the liquidated damages are really a penalty and are unenforceable; If the liquidated damages provision is found to be an unenforceable penalty the employer will still be entitled to claim damages for breach of contract. He will, however, have to prove the extent of his loss.
sem\ucm6001r.ucd
- 72 -

SLIDE 13
sem\ucm6001r.ucd
- 73 -

SLIDE 14
sem\ucm6001r.ucd
- 74 -

DAMAGES FOR BREACH OF CONTRACT CASE STUDY 12 Employer, E, and contractor, C, agree that the contractor will complete certain work for the employer and that the contractor will be liable for liquidated damages of $500.00 per day that he is late. C sub-contracts different parts of the work to Sub-contractors S1, S2 and S3. These three sub-contractors are working on different parts of the works simultaneously. A delay by either one could delay the works. Their work is completely separate and a delay by one does not impact on the other. C is concerned that either one could delay the completion of the works and therefore inserts into his contract with S1, S2 and S3 a liquidated damages provision in terms of which each one will pay $500.00 per day that they are late. Is this a valid liquidated damages or is it an invalid penalty? If both S1 and S2 are late can the liquidated damages be levied against either/both/neither of them? If you were the contractor in this situation, how much would you require each sub-contractor to pay if he delays completion?
sem\ucm6001r.ucd
- 75 -

sem\ucm6001r.ucd
- 76 -

USE AND POSSESSION OF THE WORKS USE AND POSSESSION OF THE WORKS WHEN CAN THE EMPLOYER START USING THE WORKS? Taking Over and Stages of Completion At common law the construction contract is an entire contract. Thus, at common law, the contractor is left to complete the works in their entirety, at which point the employer pays him for the completed work and takes over the completed works.
sem\ucm6001r.ucd
- 77 -

USE AND POSSESSION OF THE WORKS
SLIDE 15A
sem\ucm6001r.ucd
- 78 -

USE AND POSSESSION OF THE WORKS SLIDE 15B
sem\ucm6001r.ucd
- 79 -

SLIDE 15C
sem\ucm6001r.ucd
- 80 -

USE AND POSSESSION OF THE WORKS Allocation of Risk Under the Common Law The construction contract is a contract of locatio conductio operis. This type of contract is one in which an independent contractor (not an employee) undertakes to deliver certain completed works by an agreed date. At the end of the agreed period the contractor is to hand over the completed works at which stage he is entitled to complete performance. The classification of the construction contract as one of locatio conductio operis has a number of consequences, some of which are the following:
M
At common law the contractor is not entitled to interim payments and any interim payment which is to be paid must be provided for in the contract; The contractor has agreed to hand over the completed works by the agreed date. He must therefore ensure that he is in a position to do so and he bears the risk for any damage to the works. He must take care of the works, remedy any defects in the works and ensure that he is in a position to hand over the completed works at the end of the construction period. Thus, any claim for remedial work must be provided for in the contract (and is usually provided in the "Employer's Risk" clause which is discussed in greater detail below); The contractor has agreed to complete by a certain date and must therefore do so. Any failure to complete by the agreed date would amount to a breach by the contractor. The contractor would only be entitled to claim additional time where performance had, for a period, become absolutely impossible; At common law the employer has no general right to change the work through the issuing of instructions. The parties agree up front on what is to be done, by which date and at what price. Thus, if the employer changes his mind on the work to be done the common law would require an amendment to the terms of the contract which, of course, the contractor would need to agree to.
How Construction Contracts Amend the Common Law The common law rules discussed above are usually unpalatable for both the contractor and the client. It is therefore most common for construction contracts to introduce entitlement to money, time, instructions etc. by way of agreements. Some of the amendments that we will consider during the course of this session are the following: Common Law Contractor gets all his money at the end of the construction period, when the completed works are handed over. Most Construction Contracts Contractor entitled to claim interim payment, valued according to the method of valuation agreed in the contract.
sem\ucm6001r.ucd
- 81 -

Common Law Contractor not entitled to additional money where the works are damaged before hand over. If the damage is attributable to an act of the client (or his employees/agents) then the contractor would have a direct action to recover the cost. No general entitlement to claim additional time. If employer causes delay then agreed date for completion lapses and time becomes "at large". Employer not entitled to instruct changes to the agreed work.
Most Construction Contracts Allow the contractor to claim additional money where the works are damaged through acts of God, act of the employer and various other circumstances. Entitlement to claim and the amount that the contractor can claim is determined by the terms of the contract. Allow the contractor to claim additional time under certain circumstances. Circumstances when contractor can claim and extent of claim determined by terms of contract. Allow employer (through agent) to instruct changes. Amount of compensation determined by terms of contract. Stages of completion are provided for. These are usually practical completion/taking over, final completion. Sometimes other stages are agreed as well.
There are no stages of completion. Only final completion, when the work is in accordance with the contract is recognised.
sem\ucm6001r.ucd
- 82 -

SLIDE 16
sem\ucm6001r.ucd
- 83 -

USE AND POSSESSION OF THE WORKS Possession of the Site CASE STUDY 13 Employer, E, and contractor, C, agree that C will build five houses on E's land. E intends renting these houses out. The work includes the construction of a boundary wall to go around the site. On 15 May 2006 C starts work. He moves his workmen and machinery onto the site and starts working. The first thing that C does is to construct the wall, which includes a gate as required by the contract. On 30 June 2006 E comes to the site with his brother who he wants to show around. They find the gate closed. E calls the C on his cell phone and asks to be let onto the site so that he can see how work is progressing. C says: "I am terribly sorry but we are very busy here and I do not have time to take you on a guided tour. There is a safety risk if I allow you on site at this time. Please e-mail me next week to arrange another time when you can come onto the site. I cannot promise that we will be able to arrange something but if you give me enough warning I will see what I can do.". E is enraged. He has been embarrassed in front of this brother and cannot see why he should not be allowed on to the site. All the title deeds and lease papers for the site show that it belongs to E. Is C obliged to allow E on to the site?
sem\ucm6001r.ucd
- 84 -

sem\ucm6001r.ucd
- 85 -

USE AND POSSESSION OF THE WORKS Use of the Works by the Employer Most construction contracts provide for a stage in the works where the works are not complete but can be used for the purpose intended. This stage is often referred to as practical completion or taking over. Where a contract allows for practical completion/taking over it will stipulate what the consequences of taking over/practical completion are. These are generally that:
M
Liquidated damages cease; Retention moneys or other security reduces; The employer is entitled to start using the works.
sem\ucm6001r.ucd
- 86 -

SLIDE 17
sem\ucm6001r.ucd
- 87 -

USE AND POSSESSION OF THE WORKS REMEMBER This is contract specific. In each case you need to check the terms of your contract to work out whether there is practical completion, and what the consequences are. The employer should not start using the works until all the contractual provisions entitling him to do so have been complied with.
sem\ucm6001r.ucd
- 88 -

USE AND POSSESSION OF THE WORKS CASE STUDY 14 Employer, E, and contractor, C, enter into a contract in terms of which C is to design and build a school. The work includes the design and construction of six classrooms as well as a school hall and library. The contract provides as follows: Clause 9: "If the contractor fails to achieve Practical Completion by 20 January 2006 he shall be liable for liquidated damages in the sum of $300.00 per day."; Clause 10: "When, in the opinion of the contractor, the works are suitable for use as a school, the contractor may request an inspection by the employer's agent."; Clause 11: "If the agent is of the opinion that the works are suitable for use as a school he shall issue a certificate of Practical Completion."; Clause 12: "Once the certificate of practical completion is issued the following consequences flow: 12.1 12.2 12.3 Clause 13: "Following the issuing of the certificate of practical completion the contractor shall, diligently and expeditiously, work to bring the works to final completion.". The contractor's liability for liquidated damages ceases; Three quarters of the retention is paid back to the contractor; The employer may start using the works.";
sem\ucm6001r.ucd
- 89 -

USE AND POSSESSION OF THE WORKS On 12 January 2006 C advises the agent that he believes the works to be practically complete. The agent makes an inspection of the works and agrees that they are practically complete. He issues a certificate to that effect and the employer pays back three quarters of the retention. At this stage the classrooms and hall are completed but there is still work to be done on the library. E immediately starts moving desks and seats into the classrooms. On 20 January 2006 the school year commences and students start attending the new school. On 24 January 2006 three students wonder into the library at break, intending to sneak a cigarette. None of C's workers are on site as most of them moved to another site when practical completion was achieved. The few that were left behind to complete the library are on lunch break when the students sneak in. One of the students falls over the scaffolding, causing a major collapse of scaffolding. This injures the student and damages the works. Is C liable for the injury to the student? Is C responsible to make good the works? Can C claim anything from E for having to redo part of the work?
sem\ucm6001r.ucd
- 90 -

sem\ucm6001r.ucd
- 91 -

USE AND POSSESSION OF THE WORKS SLIDE 18
sem\ucm6001r.ucd
- 92 -

USE AND POSSESSION OF THE WORKS CASE STUDY 15 Employer, E, and contractor, C, enter into a contract in terms of which C is to design and build a school. The work includes the design and construction of six classrooms as well as a school hall and library. The contract provides as follows: Clause 9: "If the Contractor fails to achieve Practical Completion by 20 January 2006 he shall be liable for liquidated damages in the sum of $300.00 per day."; Clause 10: "When, in the opinion of the contractor, the works are suitable for use as a school, the Contractor may request an inspection by the Employer's agent."; Clause 11: "If the agent is of the opinion that the works are suitable for use as a school he shall issue a certificate of practical completion."; Clause 12: "Once the certificate of practical completion is issued the following consequences flow: 12.1 12.2 12.3 Clause 13: "Following the issuing of the certificate of practical completion the contractor shall, diligently and expeditiously, work to bring the works to final completion.". The Contractor's liability for liquidated damages ceases; Three quarters of the retention is paid back to the Contractor; The Employer may start using the works.";
sem\ucm6001r.ucd
- 93 -

USE AND POSSESSION OF THE WORKS On 12 January 2006 C advises the agent that he believes the works to be practically complete. The agent makes an inspection of the works. At the end of the inspection the agent tells C that he does not believe the works to be practically complete. He gives C a list of outstanding work to be completed before practical completion will be certified. C starts working on the items on the agent's list. On 15 January 2006 delivery vehicles arrive at the site with desks and chairs. C stops the delivery vehicles and asks what is going on. The driver says: "I know nothing about your deal with E. I have furniture to deliver and I will deliver it.". Chairs and desks are delivered to the classrooms. That evening C phones the agent to ask what is going on. The agent says: "You should know that the school year starts on 20 January. What did you expect to happen? If I were you I would stop moaning and start working. Do not forget that liquidated damages run from 20 January.". On 20 January 2006 the school year commences and students start attending the new school. On 24 January 2006 three students wonder into the library at break, intending to sneak a cigarette. None of C's workers are on site as most of them moved to another site when practical completion was achieved. The few that were left behind to complete the library are on lunch break when the students sneak in. One of the students falls over the scaffolding, causing a major collapse of scaffolding. This injures the student and damages the works. Is C liable for the injury to the student? Is C responsible to make good the works? Can C claim anything from the Employer for having to redo part of the work? Is this situation different from the one in the previous case study? How so? What if E's agent keeps on finding problems with the works and refuses to certify completion?
sem\ucm6001r.ucd
- 94 -

sem\ucm6001r.ucd
- 95 -

USE AND POSSESSION OF THE WORKS CASE STUDY 16 E and C enter into a contract in terms of which C is to design and build a school. The work includes the design and construction of six classrooms as well as a school hall and library. The contract provides as follows: Clause 9: "If the Contractor fails to achieve Practical Completion by 20 January 2006 he shall be liable for liquidated damages in the sum of $300.00 per day."; Clause 10: "When, in the opinion of the Contractor, the works are suitable for use as a school, the Contractor may request an inspection by the Employer's agent."; Clause 11: "If the agent is of the opinion that the works are suitable for use as a school he shall issue a certificate of practical completion."; Clause 12: "Once the certificate of practical completion is issued the following consequences flow: 12.1 12.2 12.3 Clause 13: "Following the issuing of the certificate of practical completion the Contractor shall, diligently and expeditiously, work to bring the works to final completion.". The Contractor's liability for liquidated damages ceases; Three quarters of the retention is paid back to the Contractor; The Employer may start using the works.";
sem\ucm6001r.ucd
- 96 -

USE AND POSSESSION OF THE WORKS On 12 January 2006 C advises the agent that he believes the works to be practically complete. The agent makes an inspection of the works. At the end of the inspection the agent tells C that he does not believe the works to be practically complete. He gives C a list of outstanding work to be completed before practical completion will be certified. The items listed by the agent are: Handles on the cupboards in the library; Painting the shelves in the library; Putting up blackboards in the classrooms; Painting the outside walls of the hall (all inside walls have been painted); Paving in the corridor outside the library is lifting. Refit it. C is of the view that none of these items interfere with the school being used as a school. He says he can easily complete those jobs while the school is being used. The agent argues that these interfere with the use of the school and that the certificate cannot possibly be given until all the items on the list are completed. Is the agent entitled to withhold the certificate in these circumstances?
sem\ucm6001r.ucd
- 97 -

sem\ucm6001r.ucd
- 98 -

USE AND POSSESSION OF THE WORKS CASE STUDY 17 The facts in this case study are identical to those above. Assume that C gets the list from the agent and decides that, rather than fighting, he will just complete all the tasks on the list. He finishes them all and then calls for another inspection. The agent does another inspection. At the end of the inspection he says: "You are wasting my time. These works are nowhere near complete.". He issues another list which contains: "Painting the roof of the library.". C is furious. He argues that the painting of the roof should in no way interfere with the granting of the Certificate of Practical Completion. He also says that the agent is not entitled to add new items to the list after it is issued the first time. Is the agent entitled to add new items to the list in this way?
sem\ucm6001r.ucd
- 99 -

sem\ucm6001r.ucd
- 100 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION DEFINING AND INTERPRETING DELAY AND DISRUPTION RISK Keith Pickavance defines risk as: "The Possibility of activity or inactivity by others or of natural phenomenon causing delay and/or economic loss.".1 All endeavours in life have risks attached to them, and it is up to each party to decide how much risk they are willing to accept. The main purpose in drafting construction contracts is to define the allocation of risk between the parties, ie. who takes the risk for what? The purpose of the construction contract is to set out and define the rights, duties and liabilities of each party, in sufficient detail to allow the allocated risk to be properly managed. The challenge is in identifying the risk retained and recognising that risk which is transferred under some circumstances may be retained under others. Risk must be accurately and properly defined as any ambiguity or omission will lead to disputes which arise out of misinterpretation and consequent failures by a party to make adequate provision for such risk. The allocation of risk between the contracting parties is a matter of commercial negotiation, however, over the years through the development of standard forms of contract, the definition and allocation of risk and been developed and defined to what is currently accepted as an industry norm. Note: Any risk not defined in the contract as employer's risk is the contractor's risk.
Page 10 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP Limited, 1997.
sem\ucm6001r.ucd
- 101 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION MISCONCEPTIONS SLIDE 19
sem\ucm6001r.ucd
- 102 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Among the more common misconceptions are the following (based on Presentation on "Business Relations Between the Operators and the Service Industry: Who Assumes the Financial Risk of a Project?" 2004 Daniel Valot, Chairman and CEO of Technic):
M
Always Bid Low There is an unfortunate tendency in the industry to underbid on contracts, in an effort to secure work. Often, a contractor will underbid in the hope that he can make some gains as the works progress. Employers often seize upon the lowest price on the assumption that this will give them value for money. The irony here is that "the lowest" price is found (painfully) not in fact to be the lowest price at the end of the day. Projects or contracts based on awards to lowest tenderers irrespective of capabilities, expertise, experience etc. often end in:
M
Poor project execution; Delays; Cost overruns; Claims and counterclaims.
An account of a tendering process which took place during the industrial revolution is given in Coleman in "The Railway Navvies": "Firbank used to tell the story of one Mr Whythes (probably George Whythes who undertook, among other lines, that from Dorchester to Maiden Newton) who was thinking of submitting an offer for a contract. He first thought 18 000 would be reasonable, but then consulted his wife and agreed it should be 20 000. Thinking it over he decided not to take any risk, so made it 40 000. They slept on it and the next morning his wife said she thought he had better make it 80 000. He did; it turned out to be the lowest tender notwithstanding, and he founded a fortune on it."2;
M
Lump Sum Contracting for the Wrong Reasons When used correctly, in appropriate circumstances, lump sum contracting can carry benefits for both the employer and the contractor. In particular, the employer may get greater certainty as to price. Lump sum contracting is not, however, always appropriate and should not be used for the wrong reasons. Wrong reasons would include:
M
The intention that a Lump Sum award be a quick and easy allocation of the
As quoted in Thomas: Construction Contract Claims.
sem\ucm6001r.ucd
- 103 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION majority of risk on to the contractor;
M
Full extent or scope not likely to be defined in time for award; The risks on the project are too difficult or remote to evaluate; To try and test the validity of your contingency amount;
Fast Track Projects - the Way of the Future for All Projects
M
Plagued by ever tightening deadlines one often jests about there only being two kinds of projects at present, namely fast track versus super fast track projects; The nature of the works (level of complexity, degree of experience with type of work) and the level at which the scope is defined will/should determine whether to pursue this option;
"Changing The Rules of The Game During The Game" The primary purpose of entering into a contract is to establish the rules by which the work will be completed, so that all parties have certainty as to the terms by which they are to work. Unfortunately, some parties do not stick to the agreed terms but attempt, rather to change the rules after they have been agreed. This can lead to great difficulties for all players, eg.:
M
"Organizing bidding, then rebidding, and even re-rebidding"; "Utilizing mysterious criteria to weight the offers from competitors during the bidding process"; "During the contract execution, change the scope of work first and negotiate variation orders second.";
"Allocating Risks to The Wrong Party"

M
"In addition to their job (contractor), E&C companies are often expected to act as:M M
A commercial bank (neg. cash flows on projects) An insurance company (providing insurance coverage for clients' risks) A Forex gambler (contract in $, costs in various currencies).".
The different standard forms of contract apportion risk differently in respect to different aspects of the contract and are specially designed for certain types of work. In the majority of - 104 -
sem\ucm6001r.ucd

DEFINING AND INTERPRETING DELAY AND DISRUPTION instances the risk of design is that of the employer whereas in turnkey contracts the design risk is that of the contractor. DEFINITION OF DELAY The identification of delay and disruption is specific to each contract and is defined in the terms of contract. Many disputes emanate from the fact that the word "delay" is not used with any precision and contracts can present conflicting meanings of the word. It is often of no surprise that the parties have difficulty in identifying their rights and liabilities. Note: What may be a delay in terms of one contract may not be in another and, similarly, the same type of delay under different contracts may entitle a contractor to different or no compensation at all. In each case one needs to read the contract to determine:
M
What constitutes a delay; Whether there will be any compensation for the delay.
sem\ucm6001r.ucd
- 105 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION
SLIDE 20
sem\ucm6001r.ucd
- 106 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CAUSES OF DELAY Keith Pickavance sets out three primary sources from which the risk of delay to completion arise:3
M
Delay by those who have contractual obligations eg. contractors, sub-contractors, suppliers etc.; Delays which arise from circumstances outside of the control of the contracting parties, eg. unforeseen physical and climatic conditions, political changes, etc.; Delays arising out of compliance with statutory obligations, eg. planning authorities, health and safety etc.
Page 12 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP Limited, 1997 .
sem\ucm6001r.ucd
- 107 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Delay: Intention v Reality SLIDE 21
sem\ucm6001r.ucd
- 108 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION At the time of tender, or the commencement of the contract, the contractor provides a programme for the execution of the works. This is a theoretical assumption, based on experience and the quality of the information contained in the tender documents, as to nature and extent of the works. The value of the programme is therefore directly proportional to the degree of thought that has gone into its production and the logical analysis of the information given to the contractor upon which it is based.4 The Contractors programme is no more than a statement of his intention, what he hopes to achieve using his best endeavours. In order to be most effective and be acceptable proof the as-planned-programme must be up to date at the time the particular delaying event occurs.5 Delay is therefore the difference between theoretical planning, and the hypothesis behind it, and what occurs in reality.
Page 113 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP Limited, 1997. US Court decisions: Gulf Contracting Inc., ASBCA No. 30,195, 89-2 BCA (CCH) para. 22,812, affirmed 90-1 BCA (CCH) para. 22,293 (1989) and Ealahan Electic Co., DOTBCA No. 1,959, 90-3 BCA (CCH) para. 23,177 (1990).
sem\ucm6001r.ucd
- 109 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Contract Provisions SLIDE 22
sem\ucm6001r.ucd
- 110 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Contract provisions for excusable circumstances which entitle the contractor to an extension to the contract period fall generally three categories:6
M
Contracts where no provision is made; Contracts which provided a brief list of excusable delays which is further divided into compensable and non compensable events; and Contracts which provide single clauses which by reference and cross-reference give circumstances which will give rise to changes in the parties rights.
Where no provision is made for the employer to grant extension of time and the contractor was delayed by supervening circumstances, through no fault of his own, there being no mechanism to extend the date for completion the contractor would be relieved of his obligations to complete the works by the agreed date and would only be obliged to complete within a reasonable time and time would said to be at large.7 The terms of contract generally define the excusable and/or compensable delays which entitle the contractor to request an extension of the construction period as is generally found in engineering contracts. Delay to Completion Delay to completion, as previously mentioned, can be defined as a delay which causes the works to continue beyond the contractual completion date, or contractually extended completion date. The essential cause of the delay is a delay or extension of the duration of one or more critical activities.8 It is only delay to completion that qualifies for an extension of time and by definition, depending on the particular terms of contract, are excusable and/or compensable.9 Logically it follows that if a delay to progress occurs which does not affect the contractor completing within the contracted period, it does not have to be excused. A delay to progress may however entitle the contractor to compensation despite the fact that no extension of time is granted.
Page 62 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP Limited, 1997. Group Five Building Ltd v Minister of Community Development 1993 (3) SA 629 (A). Page 60 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP Limited, 1997. Page 89 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP Limited, 1997.
sem\ucm6001r.ucd
- 111 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CASE STUDY 18 A transport company owning a fleet of tipping trucks won a contract for the haulage of sand for the making of concrete for a new air force aerodrome being constructed in a remote location. There was a large amount of concrete at the aerodrome and the sand source was located approximately 55km from the aerodrome in a mountainous area. The contract was a direct contract between the constructing authority (the employer) and the haulage contractor, as the sand was required by several separate construction companies all of whom had direct contracts with the employer. The contract was let in terms of the FIDIC 1987 Conditions for Civil Engineering Works. In order meet the production rate of concrete it was necessary for the haulage contractor to resource the job with approximately forty trucks. The haulage road between the sand source and the aerodrome for the majority of its length was not sealed, and crossed low-level bridges over two rivers. As the road was only used infrequently by the public, the contract provided that the haulage contractor was responsible for the maintenance of the road during the term of the contract. An express term in the Special Conditions of Contract stated that the haulage contractor was entitled to an extension of time for days on which the rainfall exceeded 10mm, and also for one day following two or more successive days of such rainfall. Whilst the aerodrome was located in a flat topographical area, the road passed through a mountainous area of a different climatic area with high rainfall. The rain gauge for the contract was located at the aerodrome, and the contract did not define the site as other than the "site of the works" (being the aerodrome). Rainfall statistics stated in the special conditions were for a meteorological station in the vicinity of the aerodrome. In addition to the rainfall provision, applicable terms of the contract were: "Clause 12.1 Sufficiency of Tender The contractor shall be deemed to have satisfied himself as to the correctness and sufficiency of the Tender and of the rates and prices stated in the Bill of Quantities, all of which shall, except insofar as it is otherwise provided in the contract, cover all his obligations under the contract, including those in respect of the supply of goods, materials, plant or services or of contingencies for which there is a provisional sum, and all matters and things necessary for the proper execution and completion of the works and the remedying of any defects therein. Clause 12.2 Not Foreseeable Physical Obstructions or Conditions If, however, during the execution of the Works the contractor encounters
sem\ucm6001r.ucd
- 112 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION physical obstructions or physical conditions, other than climatic conditions on the site, which obstructions or conditions were, in his opinion, not foreseeable by an experienced contractor, the contractor shall forthwith give notice thereof to the engineer, with a copy to the employer. On receipt of such notice, the engineer shall, if in his opinion such obstructions or conditions could not have been reasonably foreseen by an experienced contractor, after due consultation with the employer and the contractor, determine: (a) any extension of time to which the contractor is entitled under clause 44, and ...".
During a wet season, very heavy rainfall fell in the mountainous region of the road, causing major damage to the road, in addition the two rivers flooded, and the low level bridges were impassable for a total of four weeks. No rainfall exceeding 10mm fell on one day at the site of aerodrome. The haulage contractor submitted a claim for an extension of time for four weeks putting forward the argument that the condition was unforeseeable, as the rainfall did not fall on the site as defined in the contract, it was entitled to claim under Clause 12.2 of FIDIC. Is the haulage contractor entitled to an extension of time?
sem\ucm6001r.ucd
- 113 -

sem\ucm6001r.ucd
- 114 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION NATURE OF DELAY Slide 23
sem\ucm6001r.ucd
- 115 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Employer's Delays

M
Variations; Contract instructions; Late contract instructions; Not ready for contracting; Ill prepared sub-contracts; Access problems; Co-contracting; Late free issue materials; Inconsistent instructions; Incorrect design; Delay on approvals.
Contractor's Delays
M
Slow mobilisation; Procurement problems; Incorrect construction; Inadequate staffing; Poor supervision.
Neutral Delays
M
Weather; Ground conditions;
sem\ucm6001r.ucd
- 116 -


M
Unforeseen conditions; Force majeure; Inability to obtain materials; Late supply of prime cost items; Making good physical loss or damage to the works.
sem\ucm6001r.ucd
- 117 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CONCURRENT DELAYS SLIDE 24
sem\ucm6001r.ucd
- 118 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION It is relatively simple to deal with a single delaying matter, ie. if there is only one delay occurring during any period of time. Even if several delaying matters are occurring at the same time, if there is a single dominant delay which affects the progress of the works, it may be relatively easy to analyse the situation and grant, or refuse to grant, as the case may be, an extension of time. Unfortunately, construction contracts are delayed by numerous matters, some at the same time, some overlapping with other delays, some critical, some not critical, some qualifying for extensions of time and others entirely at the risk of the contractor. For this reason, a sensible and detailed analysis of the delays and of the contractor's programme, either manually or using computer techniques, is essential in order to arrive at a reasonable conclusion. Further, it is essential that the programme is updated to take account of previous delays, ie. current delays should be compared with the latest updated "programme of the day". Contractors will usually seek to show that delays for which they would be entitled to an extension of time (preferably delays which may give rise to a financial entitlement), caused, or were likely to cause, delay to completion of the works. It is not in the contractor's interest to consider concurrent delays which would not qualify for an extension of time, and it is not usually required to do so (under the terms of the contract). From the employer's point of view, it is essential to consider concurrent delays. Notwithstanding the fact that extensions of time and extra costs, or loss and expense, are quite separate issues (an extension of time is not a condition precedent to a financial claim), the employer can minimise its exposure to financial claims, if a proper analysis of concurrent delays is carried out as and when delays occur. This is essential in order to establish the contractor's financial entitlements. For this reason, it is perhaps at least as important (if not more important), that the principal agent employs planning and programming techniques, whether they are manual or computer applications, to monitor progress and analyse delay. Apart from looking after the employer's interests, it is evident from recent developments in the courts, that the employer's professional advisers are increasingly open to claims for negligence, if they fail to properly administer the contract. More disputes and arbitrations arise out of poor contracts administration, than perhaps any other single cause. The unrecovered costs of dealing with such disputes and subsequent proceedings, may be avoided or minimised, by care and attention to contracts administration at all times during the period of the contract. Concurrency is the most challenging aspect of retrospective delay analysis and the most contentious. What is a Concurrent Delay?
M
A true concurrent delay is the occurrence of two or more delay events at the same time, one employer risk event, the other a contractor risk event, the effects of which are felt at the same time; "Concurrent effect" is a term used to describe the situation where two or more delay events arise at different times, but the effects of which of them are felt at the same time, in whole or part. - 119 -
sem\ucm6001r.ucd

DEFINING AND INTERPRETING DELAY AND DISRUPTION Concurrency causes many difficulties because more than one event or circumstance may occur simultaneously, for example:
M
More than one activity in float; Activities on more than one float path; Activities on a critical path; Activities on more than one critical path; and Through lapse of time, an effect on float can be turned into an effect on the critical path and vice versa.
sem\ucm6001r.ucd
- 120 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION The Significance of the Programme CASE STUDY 19 E and C agree that C will execute certain earth works. E appoints an engineer to act as his agent on site. In accordance with the principal agreement C submits a programme. The programme is approved of by the engineer. The programme shows an earlier date for completion to that shown in the contract. The engineer fails to deliver certain drawings as and when required by the contract. C follows all the notice requirements of the contract and informs the engineer of a delay resulting from his failure. Notwithstanding the delays C completes the works before the date given for completion in the contract. His completion is, however, later than the date given in the programme and C therefore claims an extension of time with associated P&Gs. Is C entitled to the extension and the additional costs?
sem\ucm6001r.ucd
- 121 -

sem\ucm6001r.ucd
- 122 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CASE STUDY 20 The contract provides for a completion period of one year. The contractor submits a programme in accordance with the contract, in which he indicates a completion period of eleven months. Work progresses according to programme for ten months at which point nation wide strikes delay the progress of the works. The strikes are entirely outside of the control of the contractor. The strikes affect the running of trains, trucking and the transport of supplies. The result is that the contractor cannot get supplies for three weeks. The contractor takes all possible steps to mitigate the delay but is nonetheless delayed by two weeks. The contractor claims an extension of time of two weeks. The engineer argues that the contractor is not entitled to any extension since he will still complete the works within the completion period of one year. Is the contractor entitled to an extension of time?
sem\ucm6001r.ucd
- 123 -

sem\ucm6001r.ucd
- 124 -

SLIDE 25
sem\ucm6001r.ucd
- 125 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION WHEN IS THE CONTRACTOR ENTITLED SO AN EXTENSION OF TIME? CONUNDRUM 1 The contractor applies for an extension of time. The claim is based upon a variation order. This order included additional work and omitted certain work. The agent considers the application and decides that in fact the variation has reduced the time needed to complete the work. The agent therefore decides to reduce the period for completion and to bring the completion date forward. Is the agent entitled to bring forward the completion date?
sem\ucm6001r.ucd
- 126 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CONUNDRUM 2 The contractual date for practical completion is the 30 September 2006. The contractor looks set to meet the date when he has a plant breakdown on 25 September 2006. The effect of the plant breakdown is to delay him for two weeks. On 2 October 2006 the architect issues a variation order which amounts to one week's work for the contractor. The contractor now applies for an extension of time, based on the variation order. The architect's response is that the contractor is not entitled to any extension since he himself was in culpable delay at the time of the variation. The architect proceeds to deduct penalties from 30 September 2006. The architect argues that even if he wanted to grant an extension he is not entitled to since the date for completion has passed. The contractor's response to this is to argue that time must be at large and the architect is not entitled to deduct liquidated damages. Is the contractor entitled to an extension? If so, from what date will the extension be granted? Has time become "at large"? Is the architect entitled to deduct liquidated damages?
sem\ucm6001r.ucd
- 127 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CONUNDRUM 3 The agreement between contractor and employer provides that the architect is to make a decision regarding any claim for an extension of time within thirty days of receiving particulars from the contractor. The contractual date for practical completion is 30 September 2006. During the month of August there are unusual weather patterns with an inordinate amount of rain falling. This unexpected rainfall delays the contractor who duly applies for an extension. The contractor requests a fourteen day extension and serves all the required notices on the architect. The full particulars are served on the architect on 21 August 2006. By 1 October 2006 the architect has not made his decision on the application for an extension. He does, however, begin levying liquidated damages against the contractor. Is the architect entitled to deduct liquidated damages?
sem\ucm6001r.ucd
- 128 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION PRESENTING A CLAIM FOR AN EXTENSION OF TIME Reg Thomas1 lists the following "major obstacles to prompt settlement of claims for extensions of time":
M
The erroneous assumption that an extension of time is automatically linked to additional payment; Late, insufficient or total lack of notice on the part of the contractor; Failure to recognise delays at the appropriate time and maintain contemporary records; Failure to regularly update the programme so that the effects of delay can be monitored against a meaningful "programme of the day"; Poor presentation of the claim to show how the progress of the work has been delayed; Insistence, on the part of the employer's professional advisers, that unreasonably detailed critical path programmes are essential in order to assess the effects of the delay; The probability that the cause of the delay will reflect on the performance (or lack of it) on the part of the employer's professional advisers; Pressure, on the part of the employer, to complete on time, irrespective of delays which occur.
The same author lists the following items which should be included in an extension of time claim:
M
A description of the cause of delay and the contractual provision which is being relied upon for the extension; The date when the delay commenced and the period of delay (giving details of intermittent effects if appropriate); The date of notice of delay, specifying the reference of the relevant document; A summary of records and particular relied upon (with copies included in the appendix); A narrative of events and effects on progress;
Construction Contract Claims.
sem\ucm6001r.ucd
- 129 -


M
A diagrammatical illustration showing the status of the programme, progress and current completion date prior to the commencement of the delay; A diagrammatic illustration showing the effects of the delay on the progress and completion date (including subsequent delays which may have reduced the float in the programme); A statement requesting an extension of time for the delay to completion for the period shown on the submitted illustration.
sem\ucm6001r.ucd
- 130 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION TOOLS AND TECHNIQUES OF CONSTRUCTION PROGRAMMING Programme Requirements SLIDE 26
sem\ucm6001r.ucd
- 131 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Updating of Programmes SLIDE 27
sem\ucm6001r.ucd
- 132 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION The frequent updating of construction programmes is highly desirable for three principal reasons:
M
For the realistic monitoring of progress; For the contractor to be able to plan its future work and resource allocations; For the assessment of the contractor's owns entitlement to extension of time.
It is again stressed that the original contractual programme, and any programme updates are a stated intention of the manner in which the contractor intends to complete the remaining work. They are not contractual documents and therefore have no contractual status. A revision of the programme is not a claim by the contractor for an extension of time, and the approval of such programme is not the granting of an extension of time by the principal agent. All too often programme updates are not submitted by the contractor because it is not possible for it to programme the remaining works to be completed by the completion date, and therefore the contractor prepares what is commonly called a "working programme". Such programmes have no place in good contract administration, as the contractor should be at liberty to prepare, and the principal agent should be willing to accept, a programme update which extends beyond the contract completion date. In a paper entitled "Extensions of Time - an Arbitrators Perspective" published in the International Construction Law Review July 2003, Keith Pickavance says: "Most contractors start off with a programme of some sort that is said to encapsulate their intention for the future conduct of the works. But when the programme is based upon incomplete design information, without discussion in any great detail with most of the subcontractors, or the utilities, and has been produced by a planner who had not priced the work, but who produced it several weeks before the tender was ever submitted, it is unlikely to have a great deal of meaning as to the contractor's intention for the future conduct of the works for very long. So, if the contractor's intention is to be identified by reference to the programme, the contract programme must be reviewed and updated to reflect the contractor's intentions from time to time. If the programme is not reviewed and updated regularly then, generally, there is unlikely to be much to identify what is the contractor's intention and , if the contractor's intention cannot be identified, it is extremely difficult to identify a delay to that intention.". Updates of the programme should be made on the occasion of significant events which would cause change to the forward planning and/or quantities of the remaining work, or otherwise at regular intervals to be agreed between the principal agent and the contractor. The significant events would include, but not be limited to:
M
Variations and instructions;
sem\ucm6001r.ucd
- 133 -


M
Late information; Lack of access; Significant changes in estimates of final quantities (affecting remaining work); Major slippage of critical or near critical activities.
A procedure which could be followed as at the date of update:

M
The percentage completion and/or remaining duration of each item should be assessed based on the previous estimate of quantities; The "to-day" (update) date vertical line should be inserted in the programme; Utilising the software facilities, split each activity on which work has commenced but is incomplete and behind schedule, such that all remaining work is moved to the right hand side of the "today" line, to ensure all remaining work is programmed to be completed in the future. It is unfortunately not uncommon for contractors to leave work to be carried out on a date in the past, on the belief that it will be able to catch up!; The remaining duration for each activity to be reassessed, based on updated estimates of quantities and revised production rates if applicable. For extension of time purposes the cause for any revision in the revised production rate should be assessed to determine whether it is at contractor or employer's risk. Where final estimated quantities are changed for existing activities, this will change the previously estimated percentage complete and/or remaining duration, and as such it is possible that the percentage complete could reduce from one programme update to the next, despite the fact that no work was completed on that activity in the interim. There are facilities within most software to accommodate negative changes in the percentage complete of activities. New work resulting from variations and/or instructions should be inserted together with required information dates; The programme logic and sequence of work should be re-assessed as necessary to:
M
Maintain the previous and/or desired logic if possible; Ensure the works are programmed to be completed at the earliest possible reasonable completion date; Resources usage is optimised utilising the resource histograms and using current or otherwise agreed resource levels;
sem\ucm6001r.ucd
- 134 -


M
In the event of over allocation of resources, the resource levelling facilities within the software should preferably be utilised;
At the time of finalising the programme update, new information schedules should be extracted or otherwise prepared.
Acceleration Acceleration occurs when a contractor must accomplish a greater amount of work during the same time period or accomplish the originally anticipated work during a reduced time period. Acceleration may be accomplished by increasing crew sizes, overtime, or multiple shifts. Acceleration is a concept which is often misused in the construction industry. In particular, the employer's agents and contractors alike often believe that there is an automatic right to instruct an acceleration or to claim for accelerating. Neither is the case. In each instance one needs to look to the provisions of the contract to determine whether the engineer is entitled to instruct an acceleration and whether there will be financial compensation for acceleration. A typical acceleration provision may read as follows: "In any circumstances where the Engineer determines that the Contractor is entitled to an extension of the Time for Completion ... the Engineer may, subject to the agreement of the Employer, direct that the Contractor accelerate the Works by applying additional resources if necessary or working longer hours or in whatever manner is appropriate, at a fair cost to be determined by agreement between the Contractor and the Employer.". Under the example above the engineer is entitled to instruct an acceleration where there is a claim for an extension of time. If agreement as to payment for the acceleration cannot be reached, the matter is to be dealt with through the dispute resolution process.
sem\ucm6001r.ucd
- 135 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Acceleration Following an Additional Work Variation Order CASE STUDY 21 Contractor, C, and employer, E, agree that C will complete certain works. Their contract provides that C may claim additional time in certain listed circumstances, one of which is extremely adverse weather conditions. A claims procedure is included in the contract. The claims procedure gives E's agent one calendar month within which to determine any claim. Three months into the contract (and two months before the contractual completion date) C is delayed due to rain. On Day 1 C serves the notices required to claim additional time. In accordance with the contract, E's agent now has one calendar month within which to determine whether C is entitled to additional time. C is now concerned. He is worried that, if his claim is unsuccessful, he will run overtime. He is, however, fairly confident that the weather conditions were extremely adverse. C consults you. He says that he can bring additional workers in to complete on time but he is unsure whether he will be compensated for this. He does not want to risk liquidated damages if he finishes late but also does not want the additional cost of bringing extra workers on site. Advise C.
sem\ucm6001r.ucd
- 136 -

sem\ucm6001r.ucd
- 137 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION When an employer orders a contract variation for additional work it is inevitable that the planning of the remaining work will vary, and in all probability the additional work will require additional resources if the original completion date is to be maintained. The contractor has two alternatives:
M
It can immediately apply for an extension of time; or It can accelerate the remaining works.
Immediately following an instruction which involves additional work, the contractor must in the first instance give notice of its intention to apply for an extension of time. However, the claim will take the contractor time to prepare, and the principal agent will take time to deliberate upon the claim. The contractor faces a dilemma of whether to constructively accelerate or not in the meantime until a decision is reached. If he does so, there is a distinct possibility that he will not be able to recover the additional costs of acceleration he incurs until a decision is reached by the principal agent and/or employer. Acceleration Following Excusable Delay Following an excusable delay, the contractor is theoretically entitled to an extension of time. As in the case above, time will be lost whilst the contractor prepares its submission for an extension of time, and for the principal agent to consider the application and to make the necessary award. Until such time as the award of extension of time is made, the contractor has the obligation to complete the work by the contract completion date. Depending upon the magnitude of the excusable delay, once again the contractor is faced with the dilemma of whether to accelerate in the meantime or not.
sem\ucm6001r.ucd
- 138 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Types of Acceleration Agreement
SLIDE 28
sem\ucm6001r.ucd
- 139 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION At the time a variation order is issued which increases the quantity of remaining work, or where the contractor suffers a significant excusable delay, a responsible employer and/or principal agent should be aware of the necessity to make a fast decision on whether to accelerate or not. There is no standard form of an acceleration agreement, as each particular application has its own idiosyncrasies. Acceleration agreements fall into two major categories, namely:
M
Effort based; or Result based,
or a combination of the two, and any form of acceleration agreement will almost inevitably address the question of bonuses if the target is achieved, a neutral time zone between adjusted planned completion date and actual completion date before liquidated damages are applied, and the application of liquidated damages. As the name suggests, an effort based acceleration agreement is where the contractor is reimbursed its additional cost of accelerating, and would normally cover a wide range of additional costs which are addressed below. A result based acceleration agreement is one in which the contractor is not reimbursed the additional cost of accelerating as the accelerated work takes place, but rather receives a prearranged additional payment if it achieves the target, which may or may not be the contract completion date, but rather some intermediate target. Bonuses can take many different forms, and maybe ratcheted to different amounts for reaching different completion dates. It is essential for the parties to realise that, unless the contract expressly provides for acceleration, an acceleration agreement is an amendment to the contract agreement, and must be treated as such. Once the event which causes acceleration has taken place, it is highly desirable that the acceleration agreement be put in place as quickly as possible, as the longer it takes to make the agreement, so the need for increased acceleration occurs. It is also essential that contractors are ever mindful of the fact that they should not commence the acceleration process until the acceleration agreement is in place.
sem\ucm6001r.ucd
- 140 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Additional Costs of Acceleration SLIDE 29
sem\ucm6001r.ucd
- 141 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION If a contractor's progress schedule to complete the remaining work is altered so that more activities must be accomplished concurrently, lost productivity costs caused by crowding can result. Crowding occurs when more workers are placed in a given area than can function effectively. Crowding may result in lowered productivity. The increased crew sizes which may be required by acceleration can also cause lost productivity. Optimum crew size represents a balance between an acceptable rate of progress and the maximum return from the labour cost invested. Increasing crew size above optimum can usually produce a higher rate of progress but at a higher unit cost. As more workers are added to the optimum crew, each new worker increases crew productivity less than the previously added worker. Carried to the extreme, adding more workers contributes nothing to overall crew productivity. Acceleration can also cause extensive overtime. In discussing sustained overtime, the Business Roundtable in its "Summary Report of the Construction Industry Cost effectiveness Project" stated: "To put the construction of immense industrial facilities on a long, sustained schedule overtime basis ... in terms of inefficiency ... is enormously counterproductive. It is also a frightful waste of the owner's money. And from the standpoint of the industry as a whole ... usually amounts to irresponsible behaviour.". The most easily recognised costs of accelerating work are the premiums paid to labourers for overtime and shift work and the need for additional plant resources. Most wage agreements call for overtime and most contractors record these costs separately. Acceleration often also requires a concomitant speedup in delivery of material. Higher prices paid for faster material delivery methods are properly included in the acceleration cost calculation. Similarly, acceleration may require additional materials. For instance, additional form work for concrete may be required. At times, a contractor must also use extra or different equipment to accelerate.
sem\ucm6001r.ucd
- 142 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION Constructive Acceleration SLIDE 30
sem\ucm6001r.ucd
- 143 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION CASE STUDY 22 A contract was let in terms of FIDIC 1987 for the construction of 50km of concrete lined irrigation canal in a remote country. The contractor designed a very elaborate slip form mould which was mounted on rails on the embankment on either side of the canal. The mobilisation period took approximately five months from the date of contract until such time as the slip form mould was completed and ready for concreting. The rate of progress of the slip form was such that it required approximately 90% productivity on a twenty-four hour per day, seven day per week, basis. After a learning curve the contractor was able to achieve its estimated productivity. During the first year of construction the contractor was delayed by: Exceptionally adverse climatic conditions (twenty days); Unforeseen physical conditions to the extent that the soil conditions were different to those reflected in the borehole samples and required the importation of large quantities of borrow material, for which additional payment was authorised (fifty-two days); Holds placed on construction of a 2km section due to a realignment of the canal due to property acquisition problems, causing three unscheduled establishments of the mould (twenty-one days). The contractor complied with the contractual requirements and applied separately for extensions of time for each of the above delays, the total of which amounted to approximately 30% of the remaining construction time. The principal agent, whilst appearing sympathetic to the claim, did not grant the extensions of time offering the excuse that the contract provided for the employer to agree the extensions of time with the principal agent before they were granted to the contractor and the employer had failed to respond. After many months discussion it became obvious that the contractor could not finish the contract within the non extended construction period. Clause 46.1 of FIDIC states: "If for any reason, which does not entitle the Contractor to an extension of time, the rate of progress of the Works or any Section is at any time, in the opinion of the Engineer, too slow to comply with the Time for Completion, the Engineer shall so notify the Contractor who shall thereupon take such steps as are necessary, subject to the consent of the Engineer, to expedite progress so
sem\ucm6001r.ucd
- 144 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION as to comply with the Time for Completion. The Contractor shall not be entitled to any additional payment for taking such steps ...". The principal agent gave notice to the contractor in terms of Clause 46.1 to take those steps to complete the contract by the contract completion date. The only course available to the contractor was to duplicate the slip form mould at very high cost. The contractor complained to the principal agent, stating that the refusal to grant the extensions of time was unwarranted and in view of the notice given the contractor had no alternative but to duplicate the mould, and had given notice before doing so that it intended to claim the amount of additional payment which it duly did. The claim was refused by the principal agent and the contractor declared a dispute and took the necessary steps to have it resolved by arbitration. There was no provision in the contract for acceleration and the action by the contractor was regarded as constructive acceleration. The contractor completed the construction by the contractual completion date. If you were the arbitrator would you uphold the contractor's claim for the additional payment for the loss and expense incurred by the contractor for the additional mould and the extra over costs for the additional supervision and labour associated with the operation of the second set?
sem\ucm6001r.ucd
- 145 -

sem\ucm6001r.ucd
- 146 -

DEFINING AND INTERPRETING DELAY AND DISRUPTION ARTICLE BY MR CHRIS BINNINGTON ""CONSTRUCTIVE ACCELERATION - WHY NOT IN SOUTH AFRICA?" In America, contractors have had success in relying upon what has been referred to as "Constructive Acceleration" to found a claim for the costs of accelerating the work in the absence of an instruction or agreement to accelerate. In the UK and in South Africa, the more conservative approach of these jurisdictions has resulted in the approach being less successful than in the USA. Indeed in South Africa we do not have a reported case on Constructive Acceleration. Author Chris Binnington is of the opinion that in the appropriate circumstances a claim based on constructive acceleration may well succeed albeit it will not be an easy case to win. Constructive acceleration occurs when the employer/principal agent requires the contractor to complete construction as originally scheduled rather than within the extended time the contractor was entitled to as a result of excusable delays. Seven elements are often required:
M
The contractor encounters one or more excusable delays (including additional varied work), which would entitle it to an extension of time; Timely notice by the contractor of such delay; The contractor timeously requests an extension of time; The principal agent fails or refuses to grant a time extension; The employer/principal agent indicates lie requires the contractor to complete within the original contract period either expressly or impliedly by the employers actions; The contractor after giving notice to this effect reasonably attempts to accelerate its rate of performance; and The contractor incurs additional costs as a result of the acceleration.
The theory of recovery of additional costs due to constructive acceleration is based on the premise that when a contractor is excusably delayed, the contractor is entitled to a time extension. If the employer/principal agent fails to recognise excusable delay and demands performance in accordance with the original schedule, an acceleration of the work pace takes place, since the contractor is expected to do in less time that which should be given more time. Don't forget to inform During acceleration, the contractor may be forced to hire additional workers, work overtime, accelerate material delivery schedules, utilise additional supervision, and use additional - 147 -
sem\ucm6001r.ucd

DEFINING AND INTERPRETING DELAY AND DISRUPTION equipment. Any of these actions may cause an increase in the cost of performance which the contractor should be entitled to recover. The contractor may be entitled to recover these additional costs even though it did not achieve the requested completion date, hut it is a fundamental requirement that the contractor gives notice of its intention to constructively accelerate and provide reasons before it incurs the additional expense. The most difficult issue in constructive acceleration is determining what type of statement or action constitutes a requirement to accelerate. It is clear that a direct order to accelerate by the owner/principal agent or designer to complete by the contract completion time despite the existence of excusable delays constitutes a requirement to accelerate sufficient to permit the contractor to recover additional costs. It is much more difficult to determine whether an acceleration has been required when no direct order by the owner/principal agent or its representative has been made. A request to accelerate may be equal to an order to accelerate. Threats to terminate a contract for default, when a known excusable delay is present, may constitute acceleration. An order to accelerate may also be found in a statement of the urgency of completion on the original contract completion date, coupled with the owner/principal agent threatening to issue an unsatisfactory performance report regardless of the circumstances or threatening to apply penalties. Courts have found these actions by an employer/principal agent put precisely the kind of pressure on the contractor that the contractor may reasonably infer as an order to speed up. Cost recovery even without an instruction Another determination to be made is whether the contractor must actually request a time extension. Generally, the delayed contractor or sub-contractor must seek a time extension as required by the contract. However the failure to grant an extension of time when requested does not imply an order to accelerate. Under some circumstances, the contractor may not be required to ask for a specific time extension. For example, a formal request may not be necessary when the employer has specific knowledge of excusable delays and unequivocally orders the contractor to complete on the contract completion date without regard to excusable delays. However, the prudent contractor will always request an extension of time rather than assume that the employer/principal agent is on actual notice of the excusable delay. It should be recognised that the answers to these and the questions in the acceleration area turn on the facts of a particular situation rather than rules or formulas. Even when the employer does not implicitly or expressly order acceleration, the contractor may be entitled to recover its constructive acceleration costs. For example, in one case, owner-caused delay was likely to force the contract performance into the rainy season and the completion was likely to be delayed another three months. The contractor ordered overtime and completed the work before the commencement of heavy rains. As a result, the contractor was allowed to recover these costs under a theory of the voluntary mitigation of - 148 -
sem\ucm6001r.ucd

VARIATIONS AND CHANGE damages rather than an acceleration theory. Sri Lankan precedent Of particular interest is the report of a hallmark case in Sri Lanka involving the construction of irrigation canals. In that case the contractor was forced to spend a large sum on duplicating his temporary equipment due to the failure of the principal agent to award an extension of time timeously. The ICC Arbitration awarded the contractor some US$56million being approximately 95% of its proven costs of constructive acceleration. What makes this case of particular interest is that the law of the contract was Sri Lankan law and Sri Lanka is one of the few countries outside South Africa having a Roman-Dutch legal foundation.". VARIATIONS AND CHANGE One of the key characteristics of the construction process is that it is almost inevitable that there will be some change during the progress of the works. One of the key challenges of construction contracts is to determine how best to deal with change. Some of the changes commonly provided for in construction contracts include:
M
Changes to the works - under most construction contracts the employer (or his agent) has the authority to instruct variations to the work; Changes in the circumstances - the conditions under which the contract is being completed may change. There may, for example, be changes in weather patterns, in political climate or other factors external to the parties.
VARIATIONS One of the factors which makes construction complex is that they need to accommodate variations to the works. When considering contractual provisions which allow for variation orders one should always ask:
M
What procedure is to be followed in issuing variations, ie. must they be:

M
Issued in writing? Confirmed in writing?
Who can issue variation orders? Can the engineer's representative issue variation orders? Is there any limit to the extent of variation orders, eg. no variation order may increase the value of the contract by more than 10%?
Note: This should not be confused with provisions allowing for different valuation of - 149 -
sem\ucm6001r.ucd

VARIATIONS AND CHANGE payment for variation orders.

M
When can variation orders be issued? Is there a cut off time (eg. once the works have been taken over)? How are variations to be valued?
sem\ucm6001r.ucd
- 150 -

VARIATIONS AND CHANGE CASE STUDY 23 The works to be completed is a road 100km long with two bridges and one tunnel to join to small towns. The engineer issues a variation order which changes the route of the road so that it will be 130km long and will have three bridges and two tunnels. The new tunnel is to be almost 1km long while the initial tunnel was to be only 100m long. The new tunnel will involve special lighting, drainage and bracing which was not required in the smaller tunnel. The contractor lacks the resources to complete the works. He argues that the change is so great as to fall outside of the scope of the contract and that the engineer cannot issue such a variation. The engineer argues that he is fully entitled to issue the variation order. Is the engineer entitled to issue this variation order? Note: We are not concerned here with the compensation to be paid to the contractor for fulfilling the variation order. The issue is rather whether the contractor is obliged to comply.
sem\ucm6001r.ucd
- 151 -

VARIATIONS AND CHANGE
sem\ucm6001r.ucd
- 152 -

VARIATIONS AND CHANGE The following article is taken from the website of Longworth Consulting http://www.longworthconsulting.co.uk/. "When Does a Variation in Construction Become a Separate Contract? Variations Clause Most standard forms of contract include a clause under which the employer or his representative is able to issue an instruction to the contractor to vary the works which are described in the contract. A change in shape of the scheme, the introduction of different materials, revised timing and sequence are all usually provided for by the variations clause. It will also usually include a mechanism for evaluating the financial effect of the variation and there is normally provision for adjusting the completion date. In the absence of such a clause the employer could be in a difficulty should a variation to the works be required. The contractor could either refuse to carry out the work or undertake the work and insist upon payment on a quantum meruit or fair valuation basis. Calculation of the price for the extra work applying this method could involve payment well in excess of the contract rates. Separate Contract Even where a contract includes the usual variations clause there may be circumstances which could lead to additions or changes introduced by the employer which falls outside the variations clause. Contractors who find themselves with unattractive contract prices would find it to their advantage to be able to argue that a change introduced by the employer fell outside the variations clause thus leaving the way open to argue that payment for the change should be on a quantum meruit or fair valuation basis. This situation arose in the UK case of Blue Circle Industries v Holland Dredging Co (1987). The works involve dredging in Larne Lough in Ireland to enable larger vessels to dock. The tender referred to the dredged material being deposited in areas approved by the public authorities, the intention being to discharge the material excavated in suitable areas in the lough. Resistance to the plan came from several quarters including the Larne Harbour Board and as a result an alternative plan was agreed to use the excavated material to form an artificial bird island. It was argued by the contractor that this was not a variation to the works within the confines of the contract but a separate contract in its own right. The decision in Thorn v Mayor and Commonalty of London a case heard way back in 1876 influenced the court. In this case it was held that if the additional or varied work were so peculiar, so unexpected and so different from what any person reckoned or calculated upon to such an extent that it is not contemplated by the contract then it would constitute a separate contract. The judge in the case considered that the construction of the bird island was wholly outside the scope of the original dredging contract and therefore constituted a separated contract.
sem\ucm6001r.ucd
- 153 -

VARIATIONS AND CHANGE Experience In The USA The position in the USA is similar but more developed. It addresses a situation where a large number of changes are instructed which individually fall within the ambit of the variations clause but collectively have the effect of completely changing the scope of the works. This situation is referred to as either abandonment or cardinal change and deals with the situation where the employer makes excessive changes to a project beyond what the parties reasonably could have anticipated at the time the contract is entered into. Courts will look at a number of factors in helping to decide whether the changes have been excessive. The starting points are the size, complexity and expected duration of the contract. Other factors to be considered are the number of changes, how many changes were anticipate when the project started, the magnitude of the work involved in the changes and the length of time in which such changes were made. There is no required intention on the part of the employer to abandon the contract by introducing excessive changes; this will often be implied as a result of constant interference or change. If the parties ignore the procedural provisions of the contract with regard to variations this could help influence the court into accepting that abandonment has occurred. Conclusion It is difficult to be hard and fast as to when additional or changed work will constitute a separate contract or convert the contract the parties entered into a different one. Courts in the USA seem to be more sympathetic to the contractor's case for abandonment or critical change than in most other countries. Courts and arbitrators in the UK and like jurisdictions find themselves in the long grass when trying to decide what is due if payment is to be on a quantum meruit or fair valuation basis. They feel more comfortable in dealing with additions or changes priced at contract rates and are inclined to play it safe in holding that the facts as presented have not resulted in a separate contract. Employers who are perhaps starting to feel uneasy about the prospect of the USA attitudes creeping into the thinking of judges or arbitrators could give consideration to rewording the variations clause to give a wider definition of additions and change. Longworth Consulting http://www.longworthconsulting.co.uk/". Precise Record Keeping ABRAHAMSON "A party to a dispute, particularly if there is arbitration, will learn three lessons (often too late): the importance of records, the importance of records, and the importance of records."1. Whether a claim is to be adjudicated by the principal agent, the employer, an adjudicator,
Engineering Law and the ICE Contracts, 4 th Edition.
sem\ucm6001r.ucd
- 154 -

VARIATIONS AND CHANGE mediator, conciliator, arbitrator or judge of a court, it will almost be doomed to failure unless supported by good records. The better the records the greater the chance of success for the claim. The nature of the records should be directly applicable to the event being claimed, and be agreed with the principal agent from the outset. Clause 53.2 of FIDIC 1987 for Works of a Civil Engineering Nature contains a very wise provision: "Upon the happening of the event referred to in subclause 53.1, the contractor shall keep such contemporary records as may be reasonably necessary to support any claim he may subsequently wish to make. Without necessarily admitting the employer's liability, the engineer shall, on receipt of notice on the subclause 53.1, inspect such contemporary records and may instruct the contractor to keep any further contemporary records as are reasonable and may be material to the claim of which notice has been given. The contractor shall permit the engineer to inspect all records kept pursuant to this subclause and shall supply him with copies thereof as and when the engineer so instructs.". When the claim is presented, not only should the records themselves be included, but they should be summarised in such a manner that they are easy to understand and such summaries related to the claims with explanation in easy to follow logic. There often is a huge reluctance of contractor's to keep records specifically pertaining to claims. There never appears to be a problem in the keeping of records of, eg. plant operating and breakdown hours, but there appears to be a problem in keeping records of where and on what tasks the plant was working, and the cause of why the plant may have been idle or operating at below budgeted efficiency. A method of keeping such records is included in these notes, below. The Protocol addresses model clauses relating to records for the inclusion into contracts of differing values. Most general and/or sets of special conditions of contract would contain most of the clauses included, but the document is a good check list for items which may have been left out from initial drafts of contracts. The main points it schedules for good record keeping are:
M
Identification of the contractor/sub-contractor working areas and their areas of responsibility. This item is of particular importance especially when there are many contractors working on the same site. The principal agent should identify the exact working areas for each of the contractors and the work space which is available adjacent to each construction item being worked upon; Operating plant/equipment without work hours, idle or down for repair. This is of particular report and importance in a delay, disruption or acceleration situation, and the BCA method of keeping records described at the end of this section suggests that this be broken down under further headings correctly record the delay in disruption time; - 155 -
sem\ucm6001r.ucd


M
Work performed to date giving the location, description and by whom and reference to the contract programme. The importance of this cannot be stretched to greatly and it should be recorded on a daily basis. The importance to both billed quantities and programme activities is very important, and frequently overlooked on most contracting organisations; Test results and references to specification requirement has stopped his deficiencies identified together with the corrective action. The recording of these items is mostly a contract condition, and quality assurance procedures mostly prescribed by the contract ensures that these items are mostly well recorded; Material received with statement as to its acceptability and storage. On smaller projects this item is probably of less significance than on larger multi-disciplined projects, where material control is extremely important. For larger projects the special conditions of contract and/or specifications should set out the procedure for the receipt of material on site, quality inspection on arrival to ensure conformance with specifications, and for the establishment of a well controlled and disciplined method of ministerial storage on-site especially where large lay down areas are required. The procedures should also cover the recording and recovery of all materials from the lay down areas. This control is all the more necessary when the various contractors are eligible for the payment of materials received on site prior to installation; Information or drawings received with reference to the contract specifications, by whom and action taken. Separate schedules should be kept for the receipt of information, drawing transmittals, site instructions, confirmation of oral instructions, information requests by the contractor and the like. Experience has shown that it is the interest of both parties if both hard and electronic copies of such schedules are kept and interchanged frequently to prevent disagreement of facts. Procedures should be established at the kickoff meeting of the exact procedures to be followed if they are not set out in special conditions or specifications; Job safety evaluations. The requirements should be laid out in the special conditions or specifications; Progress photographs. It frequently occurs that whilst there are many photographs taken, when the need arises to examine them years later for a dispute, there is poor record of date taken, location, direction, time of day and the particular item of interest. Such record can be invaluable and the effort taken to record the information at the time is only relatively minor. With the advent of digital cameras, there is a tendency for the photographs to stay in electronic format, on personal computers without notation, and the value of the record becomes diminished accordingly; A list of instructions given and received and any conflicts in plans and/or specifications. Site instructions have been referred to previously. Especially in remeasurable contracts or other contracts where the full set of "construction drawings" are not available at the outset, practically every drawing issued contains new - 156 -
sem\ucm6001r.ucd

VARIATIONS AND CHANGE information, which is in fact a site instruction. The importance of scrutinising each new drawing issued by the principal agent, and reporting discrepancies back is frequently overlooked, and places the contractor in a weaker position than it ought to be, especially if there is a time barring provision in the contract for claims which may result from instructions on drawings indicating construction which was not contemplated at the date of contracting. Arbitrators have ruled that it was the date on which drawings were issued to the contractor, when the contractor ought to have become aware of the variation, rather than the date on which the contractor first looked at the plans shortly before carrying out the varied construction ordered on a new drawing;
M
Weather conditions encountered. As the contract requirements for extensions of time for rainfall vary tremendously from contract to contract, daily rainfall should be recorded, and if the site is relatively large, it should be recorded in several places. For example in a large gold mining site in tropical Africa where there were significant hills, rainfall on particular days varied in magnitude over a very wide range. In northern Africa a road approximately 150km could pass through a number of distinct climatic zones, each with vastly differing rainfall characteristics. In addition to rainfall, sky conditions, maximum and minimum temperatures should be recorded, especially if significant concreting is taking place. The condition of the surface soil should also be recorded especially in earthworks contracts where the ground conditions may be unsuitable for working many days after rain, or alternatively movement on site becomes not possible. All the above records may contribute to a claim by the contractor for abnormal climatic conditions, and whilst all claims may not be successful, there is a much higher possibility of success, if the claim can be supported by crisp well-planned summaries of adequately recorded criteria resulting from weather conditions;
The number of persons working on site by trade activity and location. Most contracts require that the contractor record the number of persons on site by trade. The BCA method of recording at the end of this section will deal in greater detail with the manner in which the activity and location can be simply recorded; Information required from and by the employer and/or the principal agent; Any delays encountered.
Further matters included in the model record clauses of the Protocol include:
M
Weekly reports delivered to the principal agent at the end of each working week (or as otherwise agreed). The principal agent is to sign each daily record (it is assumed that this is acknowledgement of receipt only and not necessarily agreement with the content);
sem\ucm6001r.ucd
- 157 -


M
Any deficiencies identified, and as they are corrected such correction shall be acknowledged in the daily reports; The principal agent shall notify the contractor of any non-compliance with reporting requirements, and these, together with oral instructions shall be included in the daily reports; Weekly and monetary reports shall be produced by the contractor within a specified number of days from the end of each week and/or month as the case may be: the report is show include:
M
Summary of the work performed in the period; Summary of the works performed as referenced on the agreed updated programme; Summary of the listed deficiencies; Summary of delays encountered.
sem\ucm6001r.ucd
- 158 -

VARIATIONS AND CHANGE THE BCA PROJECT RECORDING SYSTEM SLIDE 31
sem\ucm6001r.ucd
- 159 -


M
The method is simple and evolves around recording the make up of the resources and the activities of a working team rather than of individuals. It is not intended to replace the time clock or individual recording of hours worked by labour for payment purposes or the detailed plant records for individual items of plant. On most projects, labour works in teams and has plant resources allocated to it for part of, if not the whole of a day. Foremen and principal agents generally keep their own notebooks of events of the day, but they are not known as the best formal recorders of that information. Their job is to supervise and organise construction, and they do not want to be sitting behind a desk for too long each day. The BCA system does require a project clerk, which may be regarded as an unnecessary expense, but the benefits are huge when it comes to a claim situation, and even of a greater benefit if the claims require formal resolution in adjudication, mediation, arbitration or the courts. Experience has shown that many foremen and/or principal agents are highly unco-operative when it comes to handing down information to recording clerks, who are frequently told to go away. For any recording system which relies on obtaining information from foremen/principal agents, it is highly desirable to employ a "people person" with whom even the burliest and roughest person will enjoy communicating. The clerk needs to have some computer skills, but in today's environment it is more unusual to find a person without computer skills, than with them. The system simply relies on the inter-relationships which are available on a simple computer spreadsheet, to be able to combine data from the data bases of labour and plant resources into the make up of the teams to enable the hourly or daily team cost to be calculated. If the data can be imported from the contractor's "normal" control databases, so much the better. Today many of contractor's unique systems allow the exporting of data without the requirement of highly sophisticated computer operator skills. The information sought daily from the foreman/principal agent by the record clerk is the hours for the previous day for:
M
Productive work; Varied work; Plant breakdown (contractor's risk); - 160 -
sem\ucm6001r.ucd


M
Standing time awaiting instruction from principal agent (with detail); Relocation to overcome employer delay (with details).
Other categories can be added to suit particular applications, but not too many and not too complex, as the whole principal of the system is to keep it simple (the KISS principal).
M
The total daily or hourly team cost is then dissected into the various disruption categories. The principal agent is requested to acknowledge receipt of the daily summaries at no more than weekly intervals. They are rarely in agreement with the information so contained, and generally reluctant to even sign an acknowledgement of receipt, but nevertheless the record does form part of the contemporary record, and provided the daily dissection of disruption is recorded in a responsible manner, it is very good evidence when an independent third party is adjudicating a disputed claim. The evidence is far better than the majority of evidence put forward in a more globular type of claim. Experience has shown that delay and disruption claims put forward on this basis have a much greater chance of success than any other form of recording known to BCA.
sem\ucm6001r.ucd
- 161 -

sem\ucm6001r.ucd
- 162 -

sem\ucm6001r.ucd
- 163 -

sem\ucm6001r.ucd
- 164 -

sem\ucm6001r.ucd
- 165 -

sem\ucm6001r.ucd
- 166 -

CLAIMS CLAIMS WHAT IS A CLAIM ? It is a misconception to believe that claims are a substitute for a well prepared tender and will compensate a contractor for the deficiencies on his bid. Neither will a claims approach put a contractor back into a position of positive cashflow where he has deliberately pitched his price at a sub-economic level in order to keep his resources occupied. All too frequently contractors see claims as being methods of compensation for situations where it is the contractor who has placed himself in a position of uneconomic contracting. A claim is most definitely not the difference between what you thought the job would cost and what it actually cost. Many experienced contractors still seem to believe in this definition. Neither should employers expect to finish the contract for the price of the contractor's bid, more particularly where the conditions of contract provide a mechanism for variations to be instructed by the principal agent and for extensions of time to be granted for a variety of different circumstances. If employers want the lump sum price without the possibility of changes affecting the contract price then far more care needs to be taken in the period leading up to tender, and the extent to which the design is complete will have a fundamental bearing on the ultimate price outcome. It is not unusual for the employer's professional team to spend months preparing the documentation for tender and then giving the bidders unreasonable time periods within which to respond. Alternatively, significant areas of the work are unspecified at the time of tender and a provisional sum or, worse still, no allowance at all is made and the employer is ultimately taken by surprise when the final price significantly exceeds the tender sum. Contracting is not, and never will be, a claims free environment. Claims must be seen to be what they are - fair compensation within the terms of the contract for a situation which is contemplated within the contract alternatively, where not contemplated and where the risk lies other than with the contractor, compensation as the law provides. CLAIMS PROCEDURE AND TIME BARS There is nothing in the common law regulating extension of time claims, time bars and the like. In each case the grounds for claiming an extension of time, as well as the procedures to be followed, must be found in the contract. These matters are always contract specific. Consider the following clauses:
M
FIDIC Conditions of Contract for Construction (from the "New" FIDIC Suite) Clause 20.1: Contractor's Claims: "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 - 167 -
sem\ucm6001r.ucd

CLAIMS 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. ...";
M
FIDIC Conditions of Contract for Works of Civil Engineering Construction (The "Old Red Book"):
M
Clause 53.1: Notice of Claims: "Notwithstanding any other provision of the Contract, if the Contractor intends to claim any additional payment pursuant to any clause of these Conditions or otherwise, he shall give notice of his intention to the Engineer, with a copy to the Employer, within 28 days after the event giving rise to the claim has first arisen.";
Clause 53.4: Failure to Comply: "If the Contractor fails to comply with any of the provisions of this Clause in respect of any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as the Engineer or any arbitrator. ... Assessing the claim considers to be verified by contemporary records (whether or not such records were brought to the Engineer's notice as required under Sub-Clauses 53.2 and 53.3).";
National Construction Contract: "26.0 VARIATION OF TIME FOR COMPLETION 26.1 Upon it becoming reasonably apparent that the progress of the Works is likely to be delayed beyond Completion Date or beyond any time previously fixed under this clause due to the following event(s): (a) by Employer's risk defined under sub-clause 21.1 (c) of these conditions, by reason of any exceptionally inclement weather, or by reason of Architects instructions issued under clause 3, - 168 -
(b) (c)
sem\ucm6001r.ucd

CLAIMS sub-clauses 13.1, 24.2 or 39.2 of these conditions, (d) by reason of the Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect for which he specifically applied in writing on a date which having regard to the Completion Date or to any extension of time fixed under this clause was neither unreasonably distant from nor unreasonably close to the date on which it was necessary for him to receive the same, or by delay on the part of artists, tradesmen or others engaged by the Employer in executing work not forming part of this Contract, or by reason of the opening up for inspection of any work covered up or of the testing of any of the work materials or goods in accordance with sub-clause 8.3 of these Conditions (including making good in consequence of such opening up or testing), unless the inspection or test showed that the work, materials or goods were not in accordance with this Contract, or by the Contractor's inability for reasons beyond his control and which he could not reasonably have foreseen at the date of this Contract to obtain delivery upon the Works such goods or materials which are essential to the proper carrying out of the Works, or by delay caused in compliance to sub-clause 6.1 of these Conditions, or by delay caused by the Employer in failing to hand over the whole of Site on the Date for Possession of Site named in the Appendix of these Conditions, or by delay caused by Employer in failing to pay the Contractor's certificate in a stipulated time,
(e)
(f)
(g)
(h)
(I)
(j)
then within 30 days after such event(s) has first arisen the Contractor shall give a written notice to the Architect. Provided always that the Contractor shall use constantly his best endeavour to prevent delays and shall do all that may reasonably be required to the satisfaction of the Architect to proceed with the Works. 26.2 The Architect shall within 30 days of his receipt of detailed particulars of the claim for extension of time subject to sub-clause 26.3 of this clause determine in writing a fair and reasonable extension of time for - 169 -
sem\ucm6001r.ucd

CLAIMS completion of the Works. Provided that if the Architect shall fail to give a decision on the Contractor's application of extension of time within the stipulated 30 days then the time applied by the Contractor shall be deemed to have been accepted by the Architect as being fair extension of time for completion of the Works. 26.3 The Architect is not bound to make any determination pursuant to sub-clause 26.2 of this clause unless the Contractor shall, within 30 days after his notice under sub-clause 26.1 of this clause has been given, submit to the Architect detailed particulars of any extension of time to which he considers himself entitled in order that such submission may be investigated at the time. Provided also that when an event has a continuing effect such that it is not practicable for the Contractor to submit detailed particulars within the period of 30 days referred to in sub-clause 26.3 of this clause, he shall nevertheless be entitled to an extension of time provided that he has submitted to the Architect interim particulars at intervals of not more than 30 days and final particulars within 30 days of the end of the effects resulting from the event. On receipt of such interim particulars, the Architect shall determine an interim extension of time and, on receipt of the final particulars, the Architect shall review all the circumstances and shall determine an overall extension of time in regard to the event. No final review shall result in a decrease of any extension of time already determined by the Architect. Provided also that the time stipulations for the Architects action and the consequences thereof under sub-clause 26.1 of this clause shall be observed. If for the reason of Architect's instruction issued under sub-clause 13.2 or 24.2 of these Conditions the scope of the Works has been reduced and to the opinion of the Architect the time for which the completion of the Works stated in Appendix or fixed under sub-clause 26.1 of these Conditions is likely to be or has been affected then the Architect shall forthwith make in writing a fair and reasonable reduction of time for completion of the Works. LOSS AND EXPENSE CAUSED BY DISTURBANCE OF REGULAR PROGRESS OF THE WORKS In the event that the Contractor has been involved in direct loss and/or expense for which he would not be reimbursed by a payment made under any other clause in this Contract by reason of the regular progress of the Works or of any part thereof having been materially affected by:
26.4
26.5
27.0
27.1
sem\ucm6001r.ucd
- 170 -

CLAIMS (a) the Contractor not having received in due time necessary instructions, drawings, details, or levels from the Architect which he specifically applied in writing on a date which having regard to Completion Date stated in the Appendix to these Conditions was neither unreasonably distant from nor unreasonably close to the date on which it was necessary for him to receive the same, or the opening up for inspection of any work covered up or the testing of any of the work, materials or goods in accordance with sub-clause 8.3 of these Conditions (including making good in consequence of such opening up or testing) unless the inspection or test showed that the work, materials, or goods were not in accordance with this Contract, or any discrepancy in or divergence between the Contract Documents, or delay on the part of artists, tradesmen or others engaged by the Employer in executing work not forming part of this Contract, or Architect's instruction issued in regard to the postponement or any work to be executed under the provisions of the Contract, or delay caused by the Employer in failing to handover the whole or part of the Site on the Date of Possession of Site named in the Appendix of these Conditions, the supply by the Employer of materials and goods which the Employer has agreed to provide for the Works or the failure so to supply, or by reason of increase or decrease of scope of Works certified by the Architect under sub-clause 13.1 of these Conditions,
(b)
(c)
(d)
(f)
(g)
(h)
(I)
then he shall give the Architect a notice of his intention to make such a claim within 30 days after the event giving rise to the claim has first arisen. 27.2 Within 30 days, or such other reasonable time as may be agreed by the Architect, giving notice under sub-clause 27.1 of this clause the Contractor shall send to the Architect an account giving detailed particulars of the claim and the grounds upon which the claim is based. Where the event giving rise to the claim has a continuing effect, - 171 -
sem\ucm6001r.ucd

CLAIMS such account shall be considered to be an interim account and the Contractor shall at such intervals as the Architect may reasonably require, send further interim accounts giving the accumulated amount of the claim and any further grounds upon which it is based. In case where interim accounts are sent to the Architect, the Contractor shall send a final account within 30 days of the end of the effects resulting from the event. The Contractor shall if required by the Architect so to do, copy to the Employer all accounts sent to the Architect pursuant to this sub-clause. 27.3 If the Contractor fails to comply with any of the provisions of this clause in respect of any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as the Architect or any Arbitrator(s) appointed pursuant to clause 40 of these Conditions assessing the claim considers to be verified by contemporary records. Any amount from time to time so ascertained shall be added to the Contract Sum, and if an interim certificate is issued after the date of ascertainment any such amounts shall be added to the amount which would be otherwise stated as due in such certificate.". QUESTION 2 How do these contracts approach the issue of time barring?
27.4
sem\ucm6001r.ucd
- 172 -

CLAIMS As discussed above, the issue of time barring is always contract specific. The contract will provide whether a failure to serve notices timeously constitutes a bar to a claim or whether the contractor still has a claim (albeit reduced), notwithstanding his failure to serve the proper notices in the proper time. QUESTION 3 What if the contract is silent on the consequences of a failure to serve notices timeously?
sem\ucm6001r.ucd
- 173 -

CLAIMS WHAT SHOULD THE CONTRACTOR DO IF HE FINDS HIMSELF UNABLE TO SERVE THE REQUIRED NOTICES CASE STUDY 24 The contract requires that the contractor provide the following notices when he wishes to claim for additional time or money: Notice that a circumstance has arisen to be provided within seven days of the circumstance; Details of the amount of time or money claimed within fourteen days of the circumstance arising. Both of these notices constitute full time bars in that the contract states: "... failing which no claim shall be entertained.". The contractor is delayed by rain. He serves the first notice within the seven days. At the end of the thirteen days, however, he finds himself unable to quantify the extent of his claim. He therefore serves the following notice on the agent: "I find myself unable to calculate a precise quantification of my claim at this stage. I therefore reserve my right to do so at a later stage and will send you such quantification as soon as I am able to provide same.". Is the contractor still entitled to claim or has he lost the right to do so? Note: Assume, for the purposes of this case study, that this is not an ongoing delay but is rather an isolated event.
sem\ucm6001r.ucd
- 174 -

CLAIMS
sem\ucm6001r.ucd
- 175 -

CLAIMS CASE STUDY 25 The contract requires that the contractor provide the following notices when he wishes to claim for additional time or money: Notice that a circumstance has arisen to be provided within seven days of the circumstance; Details of the amount of time or money claimed within fourteen days of the circumstance arising. Both of these notices constitute full time bars in that the contract states: "... failing which no claim shall be entertained.". The agent has attended a training programme on project management where he was advised of the dangers of unexpected surprises and the importance of proper planning. He therefore puts up, at the beginning of each site meeting, a slide on the overhead projector. This slide stays up for the entire meeting. It reads: "Any delays? Any circumstances which could cause a delay? Anything we need to know about?". At these meetings various matters are discussed. At the third meeting the parties discuss numerous issues. The contractor states that he is concerned that he will fall behind if he does not receive drawings from the agent soon. The agent replies: "No problem. I'll see to it.". At the fourth site meeting a copy of the minutes from the third meeting is distributed. All of those attending the meeting glance over the minutes and sign them. Included in these minutes are the following words: "The contractor pointed out his concerns regarding delays in the issue of drawings. He stated that he could fall behind if he did not receive the drawings soon. Action - Agent". At the fifth site meeting the contractor raises the issue of a claim for late delivery of drawings. The agent argues that the contractor has failed to provide notice in terms of the contract and that he is therefore barred from claiming. The contractor argues that notice was given and he points to the minutes of the meeting as notice.
sem\ucm6001r.ucd
- 176 -

CLAIMS
Has proper notice been given?
sem\ucm6001r.ucd
- 177 -

CLAIMS
sem\ucm6001r.ucd
- 178 -

CLAIMS EARLY WARNING The concept of early warning was first introduced in the NEC contract and has subsequently been imported into a number of other forms of contract, including the new FIDIC Short Form. An important aspect of the NEC philosophy is that this contract is more than a list of shalls and shall nots. It aims at providing more than a statement of the rights and obligations of the parties and providing, instead, a project management tool that facilitates streamlined management of the project by all parties. One of the mechanisms used to encourage sound project management is the early warning procedure. Early Warning Under NEC The NEC contract provides a mechanism for either the contractor or the project manager to give an early warning of time, cost or works performance problems (this last being particularly applicable where design is being undertaken by the contractor). This innovative provision allows either the project manager or the contractor to actually instruct the other party to attend an early warning meeting for the purpose of discussing the problem. Either the project manager or the contractor may also instruct other people to attend subject to the agreement of the other party. The early warning meeting is intended to allow open discussion and to advance proposals and seek solutions, as well as to determine what actions would subsequently be taken arising out of the discussion. The responsibility for recording any proposals and decisions given remain those of the project manager, who is obliged to give a copy of his record to the contractor. The concept of early warning is an integral part of the NEC approach to contracting and illustrates the emphasis on sound project management. Matters should not be allowed to escalate but should rather be handled promptly, in a spirit of co-operation and at the lowest possible cost.
M
Clause 16 places a positive duty on both the contractor and the project manager to give early warning as soon as either becomes aware of a matter which could:
M
Increase the total of the prices; Delay completion; or Impair the performance of the works.
Either the contractor or the project manager may call an "early warning meeting" and may call on others to attend. At the early warning meeting the parties are obliged to co-operate in finding solutions to the potential delay/increase in cost/impaired performance. Any decisions taken or solutions found are recorded by the project manager who then - 179 -
sem\ucm6001r.ucd

CLAIMS gives a copy to the contractor. If the contractor fails to give early warning of an event, the payment due to him for the compensation event is reduced. Clause 63, which regulates the assessment of compensation events, provides that, where the contractor has failed to give an early warning, his compensation will be assessed as what he would have received had timeous warning been given. Thus, if the effect of a compensation event could have been mitigated by timeous warning, the contractor will be paid the reduced sum. If the project manager fails to give early warning of an event, he will have breached the contract and failed to maximise the employer's interests. Early Warning Under FIDIC The new FIDIC Short Form of Contract has introduced the concept of early warning in Clause 10.3 which provides as follows: "A Party shall notify the other as soon as he is aware of any circumstance which may delay or disrupt the Works, or which may give rise to a claim for additional payment. The Contractor shall take all reasonable steps to minimise these effects. The Contractor's entitlement to extension to the Time for Completion or additional payment shall be limited to the time and payment which would have been due if he had given prompt notice and had taken all reasonable steps.". PREPARING THE CLAIM SUBMISSION There is no point whatsoever in dumping on the principal agent's desk a box of papers with a covering letter stating the amount of compensation which the contractor requires. Irrespective of the size of the claim, if it is worth making then it is worth submitting in proper format. Good claims have received short shrift on many occasions because the submission of the claim has been shoddy. Equally some dubious claims have succeeded where they have been professionally set out and well presented. The format for a claim submission is suggested as being as follows:
M
Introduction This will state the basic details of the contract and the reasons behind the claim submission. It will, if there are a number of claim heads, constitute an executive summary and should state what is being claimed in general terms (ie. the sum of R4m together with an extension of time of six weeks);
sem\ucm6001r.ucd
- 180 -

CLAIMS
M
Introduction - Executive Summary

M
Index The documentation will fall into several sections and should be indexed and paginated appropriately;
Contractual Summary The contract details (contract data) will be set out and the essential clauses referred to;
History of Events A synopsis of the key events giving rise to the claim, set out in chronological order, cross-referencing key documents which documents will be annexed to the submission;
Claim Heads Each of the heads of claim should be set out individually. It would be expected that Section 3 would already have set out the generalities giving rise to the overall claim situation, but the heads under the situation will amplify Section 4 and will include the quantification and supporting documentation, either separately annexed and cross-referenced or included under the individual head of claim;
Annexed Documents These should form part of the general pagination but might be sub-divided into, for example, correspondence, minutes, programmes etc.;
General Comments The claim should be written as if it was being addressed to a person with no knowledge of the contract. Similarly, even where documentation is obviously in the hands of the people to whom the claim is addressed, it should be included in the claim for ease of reference. Emotive language should be avoided. Irrespective of the situation which developed on the site, a claim will have a far better chance of success if it is seen to be presented from a balanced point of view. Do not include claims which have no basis in contract or law with the intention of using them as throwaway items during a negotiation. The inclusion of claims having no substance will impact upon the credibility of
sem\ucm6001r.ucd
- 181 -

CLAIMS those claims of substance. Similarly, do not over quantify claims in order to have a negotiating margin. Whilst some margin is acceptable, the inclusion of significant sums will again impact on the credibility of the substantive claim. Finally, remember that if the negotiations fail and the claims have to move forward into dispute resolution procedures, whether formal or ADR, the claim submission will have been made with prejudice and will be available to the tribunal, even if it has been superseded by another document. The same comments apply regarding claim credibility. Thus, if the submission to dispute differs radically from that to the agent, a full explanation must be included to avoid the suspicion that the claims are being manufactured.
sem\ucm6001r.ucd
- 182 -

Understanding Contracts Seminar Notes

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Understanding Contracts Seminar Notes

Transféré par

Droits d'auteur :

Formats disponibles

SEMINAR ON UNDERSTANDING CONTRACTS: PRACTICAL & CHALLENGING ASPECTS

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

SEMINAR ATTENDANCE CERTIFICATES

IN ORDER TO RECEIVE A SEMINAR ATTENDANCE CERTIFICATE, PLEASE:

RETURN THE COMPLETED SEMINAR APPRAISAL FORM TO THE PRESENTER!!!

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Any other standard forms of contract.

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

BINNINGTON COPELAND & ASSOCIATES (PTY) LTD

U SIZO E NGINEERING (P TY ) L TD C OMPARISON OF JBCC, NEC, FIDIC AND GCC

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS THE COURTS' APPROACH TO CONTRACTS SLIDE 1

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS SLIDE 4A

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS SLIDE 4B

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

THE COURTS' APPROACH TO CONTRACTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS)

Binnington Copeland & Associates (Pty) Ltd (2006)

UNDERSTANDING CONTRACTS: PRACTICAL AND CHALLENGING ASPECTS

This topic is discussed again under the heading of formalities below.