The Delay and Disruption Protocol Episode 2
In last episode, the SCL’s Delay and Disruption protocol 2nd edition is
introduced to the (people like Thai) reader, (some may never know this before).
From this episode onward, I will bring about the content of the protocol to the
interested person by selecting only those concepts from the document which may
not be familiar in construction industry in the country like Thailand to understand
it easier with simpler language.
Please continue reading .....
If both parties agree to refer to the same concept in
negotiation by verifying relevant evidences, disputed cases will be greatly
reduced. In case the parties cannot reach an agreement, this document sets out
the main guidelines for reference by the Adjudicator, the Dispute Review Board,
the Arbitrators, and the Judges, respectively, who will make decision or
judgment on the cases to find who will take responsibility or joint-responsibility
as the result of delay and disruption in construction projects, with an
understanding of how important the project documents, like works program and project
records, are.
22 Core Principles
The followings are the essence of 22 Core Principles, where
the extent of explanation is put in Part B of the document.
1. Programs and Records
1. Programs and Records
It should be put in any construction contract that
the contractor has to submit programme with supporting documentation required
to demonstrate its sequence of construction work to the Engineer (who SCL calls
as a "Contract Administrator" or CA) for approval before starting work. Once work
commenced, the actual progress, variations, changes of logic/methods and
sequences, delay and mitigation or acceleration measures and the extension of time
granted should be recorded monthly into the program, and keep it up-to-date to
the end of the project.
2. Purpose of EOT
Both the contractor and the employer benefit from the extension of the construction period. With time extension, the contractor does not has to pay for delay damages (or as familiar with the term “liquidated damages” or “LDs”) to the employer on each day of the extended period and are given the opportunity to revise its work plans to complete work within the time extension. The employer also benefits from knowing the new completion date without endless point which known as the term "Time At Large", and the employer has the opportunity to revise its project plan and coordinate the new plan. To adjust the recruitment and training plan of staff for operation is an example. (I believes the latter concept is not familiar for the construction industry in the country like Thailand.)
3. Contractual procedural requirements.
Both the contractor and the employer benefit from the extension of the construction period. With time extension, the contractor does not has to pay for delay damages (or as familiar with the term “liquidated damages” or “LDs”) to the employer on each day of the extended period and are given the opportunity to revise its work plans to complete work within the time extension. The employer also benefits from knowing the new completion date without endless point which known as the term "Time At Large", and the employer has the opportunity to revise its project plan and coordinate the new plan. To adjust the recruitment and training plan of staff for operation is an example. (I believes the latter concept is not familiar for the construction industry in the country like Thailand.)
3. Contractual procedural requirements.
The Parties and the CA (or the Engineer) should follow the contractual
procedures with regards to notices, particular conditions, substantiation, and assessment
of time with losses/damages caused by any delay events.
4. Do not "wait and see" regarding impact of delay events
4. Do not "wait and see" regarding impact of delay events
Request for an extension of time and/or a relevant claim for
additional payment should be made as soon as the delay has occurred, or cause
of the delay has known, in order to reach an agreement as soon as possible. The
contractor should not "wait and see", let the delay go on and then
claim later. The CA should consider in due time for the contractor's request whether
it should or should not be entitled to claim (under the causation the employer
would have to take responsibility under the SCL’s term known as the “Employer
Risk Events” or not).
5. Procedure for granting EOT
Generally, the granting of an extension of time for construction will be based on the condition that the delay occurred or will occur, caused or will cause by Employer Risk Events under the conditions of contract and impacted or will impact critical path resulting to the delay of planned completion date. For EOT granting, it requires a proper methodology of delay analysis.
6. Effect of Delay
On approval of the extension of time for construction, it is not necessary for either the delay by the Employer Risk Events has already occurred and impacted contractor’s work, or it has already ended.
7. Incremental review of EOT.
However, in the event that the CA cannot clearly anticipate the overall impact any of Employer Risk Events on initial consideration, Approvals for extensions will only be made initially for the period of time when the delay caused the events has actually occurred. Then, the incremental effects may continue for review further.
8. Float as it relates to time
On approval of an extension of time for construction, it needs to consider that the delay caused by the employer, (Employer Delay) can be analyzed the effect on critical paths or the consumption of float existed in other paths to be less than zero.
9. Identification of Float
Float identifying in a programme with proper periodically updated on it, would be very useful to analyze the effect of any delay causation to decide whether or not the extension of time should be approved or partially approved.
10. Concurrent delay - effect on entitlement to EOT
Concurrent delay means delay caused by both the employer side, from the Employer Risk Event, and the contractor side, from the Contractor Risk Event, and simultaneously impact the critical path to delay the completion date. In case this happens, it is understood that SCL provides the principle that the extension of time (EOT) for construction as a result from the Employer Risk Event, which is longer than those from the Contractor Risk Event, will not be deducted by said Contractor’s shorter concurrent delay. (This concept may not be familiar with by our construction industry. And on this principle, SCL talks about the effects of concurrent delay for an extension of time only. We can find a consequence of concurrent delay on the losses/damages compensation in principle no.14.)
11. Analysis time-distant from the delay event
When the contractor claims for an extension of time after the completion of the construction or after the Employer Risk Event has passed for a long time, in this case, the Principle no.4 will no longer apply because the analysis will be need to carry out retrospectively.
12. Link between EOT and compensation
The entitlement to an extension of time for construction does not automatically tied with the entitlement to receive compensation on losses/damages from delay. The contractor usually thinks that if it has been granted for an extension of time (EOT), it must be entitled to a compensation of prolongation cost incurred during the EOT period.
The idea that this two things always tie up is wrong due to some reasons. For example, in case of adverse weather condition (which are understood to be very common in many severe weather countries), even though it is an Employer Risk Event that makes the delay excusable, but the delay is non-compensable where the employer does not pay compensation. There will also be many other factors required to be taken into consideration for a good reason that, in addition to EOT granted, the employer will also have to compensate prolongation cost incurred by the contractor.
13. Early completion as it relates to compensation
In case the contractor decides to complete the work earlier than the contract completion date with reasonable and feasible ways from the start of the contract signing with the employer, if later, the Employer Risk Event causes delays so that the contractor is unable to complete the work faster than the plan as decided but the new expected completion has not gone beyond the contract completion date, the contractor will not be entitled to the extension of time. But the contractor, in this case, is entitled to be compensated for the additional costs incurred by said Employer Risk Event. (I thinks this is a very rare case in the country like Thailand because the owner would take the earlier date the contractor ascertains to complete the work, to put or revise as a contractual completion date into the agreement or the supplementary before signing or resigning).
14. Concurrent Delay - effect on entitlement to compensation for prolongation
In case of concurrent delay, the contractor will be entitled to additional compensation due to the employer delay, but it is necessary to separate or deduct the costs incurred by its own contractor delay.
15. Mitigation of delay and mitigation of loss
The contractor is obliged to mitigate any delay caused by the Employer Risk Events, but it does not mean that the contractor must bear the additional costs incurred by adding machine or overtime working for acceleration to overcome delay. However, the contractor is obliged to limit the additional costs for work acceleration to a minimum without unreasonable cost increase.
16. Acceleration
In case of work acceleration, the employer and the contractor should agree on the payment of additional expenses and the method of recording results of the expedition before starting acceleration. But in case the contractor accelerates the work, upon disapproval of its extension of time claim, to avoid the risk on paying the employer for liquidated damages of delay, this is known with SCL’s term as “Constructive Acceleration” and to be considered under the dispute resolution process as agreed in the contract.
17. Global Claims
SCL does not encourage the contractor to claim without detailed substantiation with relevant analysis on causes and effects to support its claim. Such vague claim is known with SCL’s term as “Global claims”.
18. Disruption Claims
Disruption claims are claims made by the contractor seeking compensation for losses/damages from loss of productivity as a result from disruption under the employer’s responsibility.
19. Valuation of variations
At every time when there are any change or variation order, the employer, the contractor and the CA should agree in due time on the value of such change or variation. The valuation has to include addition and/or omission of measured works effecting the contractor’s direct costs, i.e. costs for material, equipment, and labour. The valuation should also include disruption costs and time-related costs effecting the contractor’s indirect costs as well as the agreed revised programme and the extension of time.
On any variation or change order, If there is a claim for prolongation and disruption compensation in addition to measured work items in the BOQ, SCL recommends that the claim on each variation or change order should be agreed by examining each detailed substantiation as soon as possible without waiting until the end of the project to collect together the claims when the detailed documents or evidences required to support each case often lost or cannot be easily found. The claims that put together to the end may end up as a “Global Claim” which is not a good Practice for reliable claim.
20. Basis of calculation of compensation for prolongation
Unless otherwise agreed in the contract, the calculation for claim on compensation for prolongation has to be based on the actual time-related cost incurred during the delayed period due to the Employer Risk Event. (It is understood that the contractor must disclose actual time-related costs in its ledger during the prolonged period to claim for only the cost incurred without mark-up profit. It could be agreed otherwise, as I once found in a large project that the parties agreed a mark-up % to be marked up on each variation as an agreed “Preliminary value” on the Direct sum.)
The contractor will be entitled to compensation for prolongation when the delay was caused by only Employer Risk Event, (not the Contractor Risk Event), and the contractor can proof that it suffered from actual loss and / or expense incurred.
To avoid arguments on proofing of actual cost in contractor’s ledger, it is agreed, in some projects, the fixed rate of daily prolongation compensation under the employer's liability, which is on the contrary to the fixed rate of liquidated damages of delay under the contractor's liability.
21. Relevance of tender allowances
Allowances in tender has limited relevance to calculation of compensation for prolongation and disruption. (It is understood that SCL should mean the word tender allowance, which later became construction contract price, as both the Preliminary sum with many items that are time-related values and are comparable with prolongation costs, and the Direct sum with measured work items that are Direct values and are comparable with disruption Costs. Although they are similar, but the tender allowance is value or selling price, which should not be mixed up with the actual cost incurred and recorded in the accounting system.)
SCL describes a misunderstanding in the construction industry on this matter. It is understood that SCL explains If the contractor allow too low rates for site Overheads (or Preliminary items) in its tender (which become contract rates), then contractor has good opportunity to claim for additional preliminary rates upon the prolongation from Employer delay events. SCL argues that this is a wrong idea because the right to be compensated by the employer is due to the losses/damage that the employer is responsible for and actually incurred or likely to incur with contractor. The losses/damages suffered can be site overheads and head office overheads (which SCL provides formula for Head Office overhead calculation in Appendix A of the protocol) or even a loss of opportunity by the head office of the contractor, if provable, by not being able to engage in other project work due to the fact that the contractor still has to maintain machinery, labour, employees, etc. on the employer's project longer than it should be.
The calculation of the claim for losses/damages compensation from the delay and disruption to be responsible by the employer is , therefore, has limited concerned with the tender allowance as the claim is not an adding of selling price but only a remedy of losses/damages suffered. Excepted when it is agreed in the contract that rates in the tender allowance may be used to calculate the compensation case.
22. Period for evaluation of compensation
When it is agreed that the contractor is entitled to the compensation from the prolongation, it is understood that SCL stipulates the calculation of the compensation amount has to base on the actual cost during the period that the effect of the Employer Risk Event was felt, which is when the time-based costs are usually high, rather than the actual cost during the period extended from the original contract completion date, which is when the time-based costs are usually lower.
All above mentioned are 22 Core Principles which are key concepts of SCL. Readers can download to study in more detail from the link in below reference. The next episode will bring about some other interesting articles in this SCL’s protocol that we may not be familiar with. If interested ... please follow ......
5. Procedure for granting EOT
Generally, the granting of an extension of time for construction will be based on the condition that the delay occurred or will occur, caused or will cause by Employer Risk Events under the conditions of contract and impacted or will impact critical path resulting to the delay of planned completion date. For EOT granting, it requires a proper methodology of delay analysis.
6. Effect of Delay
On approval of the extension of time for construction, it is not necessary for either the delay by the Employer Risk Events has already occurred and impacted contractor’s work, or it has already ended.
7. Incremental review of EOT.
However, in the event that the CA cannot clearly anticipate the overall impact any of Employer Risk Events on initial consideration, Approvals for extensions will only be made initially for the period of time when the delay caused the events has actually occurred. Then, the incremental effects may continue for review further.
8. Float as it relates to time
On approval of an extension of time for construction, it needs to consider that the delay caused by the employer, (Employer Delay) can be analyzed the effect on critical paths or the consumption of float existed in other paths to be less than zero.
9. Identification of Float
Float identifying in a programme with proper periodically updated on it, would be very useful to analyze the effect of any delay causation to decide whether or not the extension of time should be approved or partially approved.
10. Concurrent delay - effect on entitlement to EOT
Concurrent delay means delay caused by both the employer side, from the Employer Risk Event, and the contractor side, from the Contractor Risk Event, and simultaneously impact the critical path to delay the completion date. In case this happens, it is understood that SCL provides the principle that the extension of time (EOT) for construction as a result from the Employer Risk Event, which is longer than those from the Contractor Risk Event, will not be deducted by said Contractor’s shorter concurrent delay. (This concept may not be familiar with by our construction industry. And on this principle, SCL talks about the effects of concurrent delay for an extension of time only. We can find a consequence of concurrent delay on the losses/damages compensation in principle no.14.)
11. Analysis time-distant from the delay event
When the contractor claims for an extension of time after the completion of the construction or after the Employer Risk Event has passed for a long time, in this case, the Principle no.4 will no longer apply because the analysis will be need to carry out retrospectively.
12. Link between EOT and compensation
The entitlement to an extension of time for construction does not automatically tied with the entitlement to receive compensation on losses/damages from delay. The contractor usually thinks that if it has been granted for an extension of time (EOT), it must be entitled to a compensation of prolongation cost incurred during the EOT period.
The idea that this two things always tie up is wrong due to some reasons. For example, in case of adverse weather condition (which are understood to be very common in many severe weather countries), even though it is an Employer Risk Event that makes the delay excusable, but the delay is non-compensable where the employer does not pay compensation. There will also be many other factors required to be taken into consideration for a good reason that, in addition to EOT granted, the employer will also have to compensate prolongation cost incurred by the contractor.
13. Early completion as it relates to compensation
In case the contractor decides to complete the work earlier than the contract completion date with reasonable and feasible ways from the start of the contract signing with the employer, if later, the Employer Risk Event causes delays so that the contractor is unable to complete the work faster than the plan as decided but the new expected completion has not gone beyond the contract completion date, the contractor will not be entitled to the extension of time. But the contractor, in this case, is entitled to be compensated for the additional costs incurred by said Employer Risk Event. (I thinks this is a very rare case in the country like Thailand because the owner would take the earlier date the contractor ascertains to complete the work, to put or revise as a contractual completion date into the agreement or the supplementary before signing or resigning).
14. Concurrent Delay - effect on entitlement to compensation for prolongation
In case of concurrent delay, the contractor will be entitled to additional compensation due to the employer delay, but it is necessary to separate or deduct the costs incurred by its own contractor delay.
15. Mitigation of delay and mitigation of loss
The contractor is obliged to mitigate any delay caused by the Employer Risk Events, but it does not mean that the contractor must bear the additional costs incurred by adding machine or overtime working for acceleration to overcome delay. However, the contractor is obliged to limit the additional costs for work acceleration to a minimum without unreasonable cost increase.
16. Acceleration
In case of work acceleration, the employer and the contractor should agree on the payment of additional expenses and the method of recording results of the expedition before starting acceleration. But in case the contractor accelerates the work, upon disapproval of its extension of time claim, to avoid the risk on paying the employer for liquidated damages of delay, this is known with SCL’s term as “Constructive Acceleration” and to be considered under the dispute resolution process as agreed in the contract.
17. Global Claims
SCL does not encourage the contractor to claim without detailed substantiation with relevant analysis on causes and effects to support its claim. Such vague claim is known with SCL’s term as “Global claims”.
18. Disruption Claims
Disruption claims are claims made by the contractor seeking compensation for losses/damages from loss of productivity as a result from disruption under the employer’s responsibility.
19. Valuation of variations
At every time when there are any change or variation order, the employer, the contractor and the CA should agree in due time on the value of such change or variation. The valuation has to include addition and/or omission of measured works effecting the contractor’s direct costs, i.e. costs for material, equipment, and labour. The valuation should also include disruption costs and time-related costs effecting the contractor’s indirect costs as well as the agreed revised programme and the extension of time.
On any variation or change order, If there is a claim for prolongation and disruption compensation in addition to measured work items in the BOQ, SCL recommends that the claim on each variation or change order should be agreed by examining each detailed substantiation as soon as possible without waiting until the end of the project to collect together the claims when the detailed documents or evidences required to support each case often lost or cannot be easily found. The claims that put together to the end may end up as a “Global Claim” which is not a good Practice for reliable claim.
20. Basis of calculation of compensation for prolongation
Unless otherwise agreed in the contract, the calculation for claim on compensation for prolongation has to be based on the actual time-related cost incurred during the delayed period due to the Employer Risk Event. (It is understood that the contractor must disclose actual time-related costs in its ledger during the prolonged period to claim for only the cost incurred without mark-up profit. It could be agreed otherwise, as I once found in a large project that the parties agreed a mark-up % to be marked up on each variation as an agreed “Preliminary value” on the Direct sum.)
The contractor will be entitled to compensation for prolongation when the delay was caused by only Employer Risk Event, (not the Contractor Risk Event), and the contractor can proof that it suffered from actual loss and / or expense incurred.
To avoid arguments on proofing of actual cost in contractor’s ledger, it is agreed, in some projects, the fixed rate of daily prolongation compensation under the employer's liability, which is on the contrary to the fixed rate of liquidated damages of delay under the contractor's liability.
21. Relevance of tender allowances
Allowances in tender has limited relevance to calculation of compensation for prolongation and disruption. (It is understood that SCL should mean the word tender allowance, which later became construction contract price, as both the Preliminary sum with many items that are time-related values and are comparable with prolongation costs, and the Direct sum with measured work items that are Direct values and are comparable with disruption Costs. Although they are similar, but the tender allowance is value or selling price, which should not be mixed up with the actual cost incurred and recorded in the accounting system.)
SCL describes a misunderstanding in the construction industry on this matter. It is understood that SCL explains If the contractor allow too low rates for site Overheads (or Preliminary items) in its tender (which become contract rates), then contractor has good opportunity to claim for additional preliminary rates upon the prolongation from Employer delay events. SCL argues that this is a wrong idea because the right to be compensated by the employer is due to the losses/damage that the employer is responsible for and actually incurred or likely to incur with contractor. The losses/damages suffered can be site overheads and head office overheads (which SCL provides formula for Head Office overhead calculation in Appendix A of the protocol) or even a loss of opportunity by the head office of the contractor, if provable, by not being able to engage in other project work due to the fact that the contractor still has to maintain machinery, labour, employees, etc. on the employer's project longer than it should be.
The calculation of the claim for losses/damages compensation from the delay and disruption to be responsible by the employer is , therefore, has limited concerned with the tender allowance as the claim is not an adding of selling price but only a remedy of losses/damages suffered. Excepted when it is agreed in the contract that rates in the tender allowance may be used to calculate the compensation case.
22. Period for evaluation of compensation
When it is agreed that the contractor is entitled to the compensation from the prolongation, it is understood that SCL stipulates the calculation of the compensation amount has to base on the actual cost during the period that the effect of the Employer Risk Event was felt, which is when the time-based costs are usually high, rather than the actual cost during the period extended from the original contract completion date, which is when the time-based costs are usually lower.
All above mentioned are 22 Core Principles which are key concepts of SCL. Readers can download to study in more detail from the link in below reference. The next episode will bring about some other interesting articles in this SCL’s protocol that we may not be familiar with. If interested ... please follow ......
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