Disruption claims in construction contracts

Chapter 1

Introduction

As Williams (2002) has noted,

‘the idea of delay and disruption within projects is well-known and is often the subject

of litigation claims. However, the term is ill-defined, and it is difficult to justify such

claims within a legal process.’

Difficulties exist in defining all parts of a disruption claim, and such claims require

definitional clarity of all parts of the construction contract, from the scope of the

project, to the details of what constitutes disruption and permissible delay. Within any

construction project, a successful conclusion involves not only completion of the

requisite work, but doing so within the time specified, within budget, and to the

required technical standards. As construction projects have become more complex,

and require greater investment, they have taken on added commercial importance.

Time and cost considerations have become paramount, and will be as important as

technical considerations in decisions to award contracts.

The increased commercialization of construction contracts has placed ever greater

pressure on contractors and clients to ensure projects proceed according to plan, and

that all eventualities are adequately provided for in the contract. The importance of

this was noted in the case of Ascon Contracting Ltd v Alfred McAlpine Construction

Isle of Man Ltd (1999) 66 Con LR 119 following which the Construction Industry

Newsletter (February, 2000) stated,

‘the failure of both parties to demonstrate to any real extent their contentions in

respect of delay again reinforces the importance when pursuring claims for delay of

some form of technical delay analysis demonstrating cause and effect.’

Lal (2002) has noted therefore that there is a clear need for methods of quantifying the

cost and time effects of disruption to be developed, and for such quantification

methods to be used in disruption claims by contractors. There is little doubt that

disruption claim are among the most difficult claims to quantify. Disruption occurring

during work days leads to productivity losses. Productivity losses generally lead to

cost and time overruns. If these losses exceed any built in leeway in a project, then

they will lead to claims by the contractor for extra time or extra funds, or both. These

will be requested by way of disruption claims by the contractor. Lal (2002) notes the

quantification difficulty at this point, stating,

‘the accurate quantification of the time and cost effects of such disruption is typically

prevented because the role of labour/resource productivity is not fully recognized, site

labour productivity is not correctly measured (if at all) and, finally, because the

relationship between, in practice, the bill of quantities (BoQ) items (cost) and

programme activities (time) is not direct or transparent.’

A simple illustration of this is the fact that even if the time that workers must remain

off site, and are prevented from working at all due to disruption, is easily measurable,

the reduced productivity of workers after such periods can be missed completely

(Pickavance, 2005).

Employers generally try to deal with the risk of delay by passing it on to contractors,

and in turn, contractors principle method of dealing with the cost associated with

delay by making disruption claims against the employer (Gorse, 2004). Pickavance

(2005) has given examples of a number of high profile construction projects in the

UK in recent years that have suffered from severe cost and time overruns and have

been subject to extensive disputes in relation to disruption claims. These include the

construction of Wembley Stadium, the Millennium Dome, the British Library, the

Scottish Parliament building, Brompton Hospital, the Docklands Light Railway, the

Jubilee Line Tube Extension, and the West Coast Mainline upgrade for Network Rail.

The annual estimate figure for disruption claims in the UK is eight billion pounds

(Pickavance, 2005).

Despite these difficulties of quantification, it is also evident that the size and

complexity of many of today’s construction projects also means that variations in

design, technical specification, and scope are frequent, and in most cases necessary to

allow for the flexibility of dealing with complex and changing circumstances.

Braimah (2008) has noted the challenge that disruption causes to the industry. On the

one hand, contractors suffer higher overhead costs beyond what was budgeted for the

contract, and on the other hand, employers are exposed to financial and economic

risks including interest on finance and lost market opportunities. The assignation of

causation to losses, and the quantification of each item of loss is necessary to satisfy

disruption claims fairly, resolve disputes, and enable planning and insurance

mechanisms that can protect both the contractor and the employer. The quantification

process is often referred to as delay analysis and uses various methodologies and

techniques, often critical path methods (CPM), to assign responsibility and determine

the cause of delay. Methodologies are generally divided between either CPM-based or

non-CPM based methods (Braimah, 2008; Leary & Bramble, 1988; Alkass et al,

1996; Pinnell, 1998; Rubin et al, 1999). Non-CPM methods are relatively simple and

include the Global Method, Net Impact Technique and S-Curve (Braimah, 2008).

CPM based methods are more complex and include As-planned vs As-build, Impacted

As-planned, Collapsed As-built, Window Analysis and Time Impact Analysis.

While disruption claims are routine, Pickavance (2005) and Gorse (2004) have

discussed the difficulties that exist in not only quantifying claims, but also in proving

them. The general formation of a disruption claim follows a logical interpretation of

the events and actions leading up to the claim and the deduction of the losses from

those actions and events. Disruption claims generally are retrospective, and in many

cases, the documentation and records available to the contractor will not be adequate

to substantiate the claim (Pickavance, 2005). Gorse (2004) has also discussed the

difficulty of quantifying productivity losses. In many cases, this will lead to the

contractor being forced to submit a global or total loss claim that lacks specificity or

itemization. This then means that there is little evidence available to the contractor to

back up the claim, and also makes it difficult to determine if the disruption, or what

elements of that disruption, are actually compensable under the contract.

Despite significant amounts of effort being put into developing standard form

contracts, methods of calculating the actual costs of disruption, and greater degrees of

consensus between the contractor and the employer so as to avoid conflict later on

(Pickavance, 2005; Braimah, 2008), there has been a increase in the concern of

contractors for the efficacy and success of their disruption claims. There are steps that

contractors can take to ensure that they are in a strong a position as possible when it

comes to making a disruption claim however, and it is vital that contractors are taking

these steps so that claims will be more effective. These steps will include ensuring

that all relevant losses are covered for in the disruption clause of the contract, and that

contractors keep track of the relevant documentation and data during a project, that

will allow them to substantiate their claims following disruption. By doing so,

contractors will be in a better position to ensure that they can avoid the financial

penalties that will be associated with budget overruns and missed deadlines that are in

reality the fault not of the contractor, at least in part, but by disruption.

Chapter 2

Disruption in Construction Contracts

2.1 Disruption claims

Disruption claims can be defined as the lawful or justifiable request for more

reimbursement or payment to cover the extra cost and or time required to complete a

project as a result of disruption, a change in the terms of the contract, or as a result of

unforeseen conditions and circumstances arising (Gibbs & Hunt, 2009). Chappell,

Powell-Smith and Sims (2005) define disruption claims as the assertion of a right,

usually by the contractor, to an extension of the contract period and or to payment

arising under the express or implied terms of the contract, due to events provided for

under the contract. Chappell, Powell-Smith and Sims (2005) set out four types of

construction claims. These are firstly, contractual claims, which are a request for

reimbursement of direct loss and or the cost occurring under provisions of the contract

conditions. These can be requests for compensation resulting from a breach or a series

of breaches under the contract. Secondly are quantum meruit claims, which are

requests to recover sums in excess of the contractual price on the basis that they

constitute a ‘reasonable value of service’. Third are ex gratia claims, which are

requests for compensation due to unforeseen hardship or difficulty in performing the

contract, or that exceed the scope or ambit of the contract. As Jayalath (2009) point

out, the contractor is entitled to claim disruption compensation on a project where the

overall completion is delayed even for short periods, or even when no delay is

experienced, if the contractor has suffered substantial loss, particularly for labour and

equipment. Abdul-Malak and El-Saadi (2000) and Bramble and Callahan (2000)

discuss the making of a claim, noting that they arise under the terms of the contract as

approved by the project architect or engineer, and will be included in the interim

certificate for payment, and a concurrent right under common law for damages for

breach of contract.

Claims are essentially productivity related (Braimah, 2008). The principle elements

contained in the claim will include an outline of the work affected, the manner in

which it was affected, and the comparator and method of comparison to be used to

ascertain the quantity of loss. While there are many causes of delay in a construction

project, such as strikes, low motivation, work rules, and technical difficulty, only

some of them can be attributed under the contract to the employer, and will give rise

to a claim for compensation for disruption. Even when the employer is responsible for

a delay, the contractor can only claim for certain delays (Jayalath, 2009). For

example, stoppage of work for an unplanned site visit by the employer for a

reasonable period of time would not ordinarily give rise to a disruption claim. The

contract should stipulate the events that will or will not give rise to claims, but

disputes abound in this area and it is impossible for contracts to always account for

every eventuality. Pickavance (2005) sets out the conditions that must be met if a

contractor is to be eligible to make a claim from the employer. Firstly, the work that

has been affected must be clearly identified, and the work activities that were affected

by the disruption must be specified. The extra expense incurred must be explained.

Secondly, the contractor must show that the event leading to the disruption and

financial loss was either a breach of contract, or an event provided for in the contract

for which the employer is to be made financially liable to the contractor. Thirdly, it

must be shown that actual work progress has been negatively impacted. It is not

sufficient to show that planned future work has been impacted as such fears may

never materialize. Fourthly, the contractor must quantify the disruption costs using a

selected method of quantification. The principle that applies is that the extra costs

incurred, compared to the costs that would have occurred had the disruption not

occurred, are recoverable by the contractor. This therefore requires fifthly that the

contractor set out what the actual costs would have been had the disruption not

occurred. This provides the comparator to be used in the calculation. Sixthly, the

contractor must show that he has taken all reasonable steps to mitigate his loss, such

as returning hired machinery, working on other parts of the project that were not

affected by the disruption where possible, and redeploying expensive resources where

possible so that they are not unnecessarily sitting idle.

Quantification will rely heavily on expense reports prepared onsite directly at the time

of the disruption. This is because the court will seek to rely on actual figures in

quantifying loss, rather than on projections and tender figures that were prepared

based on accountant estimates (William, Ackermann & Eden, 2002).

2.2 Meaning of Disruption

Disruption in the construction industry can be defined as an interruption to the

planned work sequence of flow of work (Bramble & Callahan, 2005), or as events that

impede the contractor from completing the work as planned (Williams et al, 2008).

Williams et al (2008) go on to state,

‘the idea that small disruptions can cause serious consequences to the life of a major

project, resulting in massive time and cost overruns, is well established. The terms

disruption and delay, or delay and disruption are also often used to describe what has

happened on such projects. However, although justifying the direct impact of

disruptions and delays is relatively easy, there has been considerable difficulty in

justifying and quantifying the claim for the indirect consequences. Our experience

from working on a series of such claims is that some of the difficulty derives from

ambiguity about the nature of disruption and delay.’

Williams et al (2008) point out that a certain amount of disruption will be planned for

at the bidding stage of a project. It will usually be expected on a complex project that

a certain amount of rework will be required at various stages of the construction. Even

when the project is going well, what are regarded as normal errors, made by both the

contractor and the client, will involve a certain amount of rework and additional cost

to rectify. These costs however, are built into the initial bid and will be absorbed

without affecting the time frame or budget (Williams et al, 2005). Despite this

however, it is possible to drastically underestimate the costs of such ‘normal’

mistakes. Williams et al (2008) note that outside of these usual estimates, there are a

number of disruption costs that should be automatically factored into contracts but

that are in most cases overlooked by both the contractor and the employer. They note,

‘our experience suggests that there are other types of disruptions that can be

significant in their impact and are rarely thought about during original estimating.

When these types of disruption do occur, their consequences can be underestimated as

they are often seen by the contractor as aberrations with an expectation that their

consequences can be controlled and managed,’ (Williams et al, 2008).

Ackerman et al (2007) have noted the danger of estimates missing the link between

risk assessment and risk as potential triggers for disruption. It is common for

employers to interfere with the flow of construction. For example, an employer could

easily give back a larger than expected number of comments on design than a

contractor expected, requiring additional drawings to be reworked. These comments,

made by the employer, could just as easily be made by the contractor’s own

engineers. In either case, the extra time taken for the drawings will have to be made

up by taking mitigating action elsewhere on the project, and this will have an impact

on the overall feedback on the project from the employer.

One of the most common causes of disruption is a variation or change order, coming

from the employer, and amending what the contractor is required to do, or what the

project is required to deliver. This can occur even after work has commenced.

Variations can also occur as a result of the contractors themselves however. This

frequently occurs during complex projects because of the excitement that certain

solutions might generate within the contractor’s own staff. For example, when a

complex problem gives rise to a novel or unique solution, not infrequently will a

contractor approve such a solution even though it is more costly than the solution

provided for in the original plans. It is also possible that the contractor and employer

have interpreted the plans differently, and so the requirement changes when the

contractor becomes aware of the discrepancy and changes the plan to meet the

employers interpretation.

2.3 Causes and implications of disruption

The possible causes of disruption can be classified and analysed with the same

patterns normally used to classify project risk. Castri (2003) notes that disruption

occurs when risks become reality. Accordingly, causes of disruption can be broken

down into either external or internal causes. External causes of disruption are

generally not related to the project itself and will often fall into the force majeure

category. They will include government acts such as the passing of new regulations or

laws, changes to the taxation regime, and new development or investment

programmes. Such events will generally involve certain rights of compensation to be

passed on to the contractor. External causes can also result from acts of God, such as

earthquakes, hurricanes, or a very cold winter. Such risks can generally be insured

against, and therefore the uncertainty that they would introduce into a project can be

transformed into a certain insurance cost. The last type of external disruption relates

to social or political events that disrupt normal societal functioning. This can include

the outbreak of war, included non-declared war that nevertheless involves military or

other disruptions to economic activity, rebellions, protests, and general strikes In

many cases, these too will be insurable risks and so the uncertainty they involve can

again be avoided. Castri (2003) also notes the internal causes of disruption, which can

be causally attributed to the project itself, its planning and design, and the manner in

which the works are performed. Internal causes of disruption can be further broken

down into technical causes, including changes id design, design errors and

construction errors; economic causes including difficulties in accessing or sourcing

requisite materials, labour, or skills, and financial causes such as shortfalls in the

project’s ability to pay costs, unplanned resource, material or labour cost increases,

and interest rate rises on borrowing.

Bramble and Callahan (2000) note the implications of disruption, which may include

changes in the project scope, late completion, loss of possibility for early completion,

and may be countered by acceleration of the work. Acceleration and other changes in

response to delay, such as alternation of the sequence of the work, loss in efficiency,

and extra time determined overheads will all cut into the potential profits of the

contractor. Delays will also deprive the employer of use of the completed project and

profits that could be earned from it. Delay will also place stress on the relationships

between the owner, contractor, designer and other parties involved, and disputes will

also result. Jayalath (2009) discuss the loss of expected benefit that a contractor will

suffer from failing to finish at the anticipated time. There are also administrative costs

associated with rescheduling and planning, and labour and equipment may sit idle if

they are not needed at the initially planned time. In many cases, it will be difficult for

a contractor to reorganize projects in a way that does not cause waste of resources. Lal

(2003) also notes the financial impact of trade stacking and idle labour and plant that

can result from unscheduled delays. Rescheduling will almost always lead to the same

work being performed over a longer timeframe, and projects will have to wait on

crucial steps to be performed before other lined up resources can be put to use. Delays

can also lead to further complications such as time scales being pushed back into the

winter, when work during inclement weather will be more difficult, more expensive,

and slower. Gibbs and Hunt (2009) note the cost impact of changing the size or

quantity of labour and plant required when disruption occurs. As Bramble and

Callahan (2000) point out, more labour and equipment, over a longer period of time,

is being utilsed per unit of work as a result of disruption.

One of the methods that contractors will employ to counteract the impact of

disruption is to accelerate the work on the project (Pickavance, 2005). This involves

speeding up those aspects of the project that have potential to be sped up, either

because of the nature of the task or because of the resources or capabilities of the

contractor. In either case, strengths of the contractor in one area are being used to

compensate for weaknesses in another area. Acceleration can be used when there is no

delay, either to counteract possible future delays that might be feared, or in order to

achieve and early completion, but in many cases acceleration will be used to try and

compensate for already experienced delays. Braimah & Ndekugri (2007) have noted

the importance of labour management as a means of achieving acceleration, and in

many cases, it will be the skillful management of available resources that will be the

difference between whether acceleration can be achieved successfully or not. Braimah

(2008) and Bramble and Callahan (2000) have also noted that the impact of delay will

be more severe when the issue causing the disruption lies on the project’s critical

path. Jayalath (2009) also points out that disruption can lead to significant cost

increases for the contractor even when the disruption does not lead to a delay in the

project completion date. This is because it may be due to the extra measures taken by

the contractor, such as acceleration, that allow for the project to be completed on time,

and these extra costs should still be recoverable in many instances.

2.4 Contract, collateral warranties, and propensity to dispute

Disruption claims are made under the contract, and must be seen in the context of the

wider developments in the field of contract law in relation to construction contracts.

Deeley (2005) has discussed the background and context of construction industry

disputes and their relation to disruption. In looking at the literature surrounding the

context of disruption claims, it is also useful to discuss the literature in relation to

construction contract claims more generally. The first point to note is the relationship

between disruption and contract. Construction contract disputes raise various specific

challenges to contract law, not only with regard to the difficulty of quantifying

damages, but also because of the large number of parties who are not necessarily part

of the primary contract between the contractor and the employer. While the employer

will certainly have a contractual relationship with the contractor, he will not

necessarily have a contract with subcontractors and other persons involved in the

construction of the project and who have been called in not by the employer but by

the lead contractor. This is an area that has been extremely important in the context of

construction contract claims, and one that is affected by the Contracts (Rights of Third

Parties) Act 1999, provisions of the Joint Contracts Tribunal (JCT) and British

Property Federation (BPF) contractual documents, and a complex body of case law.

This area is crucial in the context of disruption claims due to the fact that in many

cases, the disruption will affect not only the head contractor, but also any

subcontractors working on the project. If they do not have a direct contract with the

employer, then they will find it difficult to be able to make a claim against the

employer at all. This highlights the importance of collateral warranties not only for

protecting the employer, but also for protecting subcontractors in cases where they are

making disruption claims against the employer. While in many cases a subcontractor

will be able to recover any contractual losses from the head contractor, there will

always be cases in which this will not be possible, for example, in cases where the

head contractor has become insolvent or bankrupt.

Literature on the subject includes Whittaker (1996) who has examined the different

approaches adopted by various different courts in a number of jurisdictions

internationally. He notes the traditional approach that has been adopted by the courts

and the difficulties that have arisen as a result of those approaches. He notes the

remedies that exist in both contract law and tort law that allow employers to seek

redress in construction contracts against third parties and does not recommend that

any new sui generis legal reform be initiated in the area. Brown (2006) has looked at

the difficulties that arise through the use of collateral warranties, and the attempts in

the JCT 2005 to avoid the need for including such collateral warranties in

construction contracts. It should be noted that collateral warranties are warranties

offered by subcontractors to the employer and are used to create a contractual nexus

directly between the subcontractor and the employer. If the subcontractor breaches the

contract or fails to perform his obligations adequately, then the employer can pursue a

remedy for breach of contract directly from the subcontractor, rather than being

forced to go through the lead contractor. Brown notes that the JCT 2005 relies heavily

on the terms of the Contracts (Rights of Third Parties) Act 1999, which permits

certain third parties, such as the employer in a construction contract, to avoid a strict

application of the doctrine of privity of contract and therefore benefit from protection

under that contract. Brown notes that the use of such terms however will not

completely remove the need for collateral warranties and as such, collateral warranties

will remain an important part of large construction contracts. Gosnell (2000) looks at

the steps that have been taken in both England and Canada to avoid the strictest

interpretations of the doctrine of privity. This has generally been achieved through

development by the courts of the tort of negligence. However, it is the rule against

recovery of pure economic loss under tort that makes this an uncertain development

and not one that is likely to solve the need to use collateral warranties. Building on

this, van Boom (2004) has examined comparatively, the approach of a number of

jurisdictions in Europe to the question of whether or not pure economic loss is

recoverable under tort. He goes on to examine the impact that these differing

approaches have on construction contracts and the terms that are inserted.

Deeley has also discussed the objective of the court when making any award for

contractual damages, that it is the task of the court to place the injured party in the

financial position he would be in had the breach of contract not occurred. This makes

it necessary in all contractual claims that the injured party suffer a financial loss, and

that loss be quantifiable. The basis of calculating the quantity of the loss must be fair

and reasonable, must be substantiated by the party claiming them, and should not put

the injured party in a more advantageous position than he or she would have been in

had the other party performed their duties under the contract adequately. The precise

losses that a contractor can recover for disruption have been hotly contested by both

contractors and employers over the years, and one of the illustrations of this ongoing

contest is the recoverability by the contractor for the costs of running its

administration at its head office when a project is delayed through the fault of the

employer. From the point of view of the contractor, when its operational capabilities

are tied up and wasting time due to the fault of the employer, then the employer

should compensate the contractor not just for the costs of operational equipment and

staff, but also for the associated overheads of the contractor’s administrative offices.

From the point of view of the employer, the contractor will have to maintain offices

regardless of whether an individual project is delayed or not, and therefore the cost of

the offices is not directly caused by the disruption of the employer. As explained by

Deeley,

‘it can be difficult to prove that an actual loss was suffered… home office overheads

by their very nature are fixed in the short run and not directly related to specific

contracts. Since the contractor would have usually incurred these costs regardless, the

question then arises as to how the contractor could be out of pocket.’

If it is accepted that overhead costs are to be recoverable, then the court is again faced

with the challenge of quantifying the proportion of such overheads as are to be

attributed to the delay in the relevant project (Cushman et al, 1996). Because of the

nature and competitiveness of the construction industry, relationships are generally

seen as competitive rather than cooperative, and this is related to the way in which

contracts are tendered and awarded, the organization of workforces into unions, and

the demands of employers and in cases tenants on contractors. Because of this

competitive and pressurized atmosphere, with so many competing interests at stake,

and such large sums being expended, the construction industry has shown itself to

have a higher propensity for legal and contractual dispute than most other contract

forms. There are a number of factors specific to the construction industry that make

disputes so frequent. As Hohns (1979) has noted, even the most well run and best

organized projects can end up in dispute due to unforeseen circumstances arising.

Even in the best construction projects, a contract will be concluded in the face of

numerous uncertainties. Neither party can be sure how the construction is going to go,

what the weather, political and economic conditions will be like during the project,

how well the design and the site will work and will facilitate or hinder a speedy

completion, and what the attitude of the other party will be when unexpected

difficulties arise. In most cases, a contract will be awarded after a competitive bidding

process, whereby the contractor awarded the job will be the one who gave the lowest

bid for the work. This will generally be the result of extremely optimistic calculations

that have been made by the contractor, calculations that have allowed that contractor

to arrive at a price for the job that is lower than more moderate or conservative

calculations made by the unsuccessful bidders. Any contractor who factors in all of

the risks and makes contingencies for some of the uncertainties facing the project, will

rarely come in at the lowest bid. In fact, it is reasonable to conclude that in the case of

lowest bid winning a contract, it is not the contractor that is best placed to perform the

task on time and on budget who will be awarded the contract, but rather, it will be the

contractor most desperate for the work, and therefore most willing to make the

unrealistic promise without planning for difficulties that could arise.

Within construction contracts, there will usually be allowance for what are termed

excusable delays, and these will be differentiated from non-excusable delays.

Excusable delay includes items regarded as outside the control of the parties, such as

labour strikes, inclement weather, and acts of God. Mismanagement and fault of the

contractor however will not fall within the category of excusable delay. It will always

that the contract defines precisely what is to be regarded as excusable and what is not

to be regarded as excusable delay under the contract. When delays are caused by an

excusable reason, then they will push back the completion date for the project without

penalty to the contractor. In many contracts, excusable delays will be further broken

down, into those that are compensable, and those that are not. Bramble and Callahan

(2005) note that compensable delays will result in the employer compensating the

contractor for extra work or loss incurred as a result of an excusable delay, so that for

example, if the employer delayed the start date and as a result, the contractor would

have to work through bad winter conditions, this would be compensable. However, if

the employer delayed the start date without any impact on the weather that occur, this

would be excusable, and would push back the start date, but would not be

compensable and so the employer would not be required to pay the contractor for the

extra cost associated with performing the work later than had been originally agreed.

Chapter 3

Legal steps taken by contractors in making disruption claims

3.1 Introduction

It is almost inconceivable in today’s commercial construction industry to imagine a

construction project that does not have a specified commencement date and

completion date. Virtually all financial aspects of the project, from the cost of

construction, prices of materials, exposure to financing costs and financial risks, and

the commencement of revenue from the project, will depend heavily on the dates that

construction commences, and the date construction is completed (Ndekugri, 2007).

Between commencement and completion however, there are a number of important

deadlines for concluding specified parts of the project, and these are termed ‘sectional

completion dates.’ Arditi et al (1985), Ogunlana et al (1996), Chan et al (1997) and

Aibinu (2002) have all looked at the proneness of projects to delay. Studies generally

concentrate on the financial responsibility for delay, and look for both immediate and

root causes of delay. The immediate cause of delay will be the specific action or event

that started the chain or events resulting in delay, while the root cause approach looks

for the most important or influential factors behind the delay and ascribes causation to

these factors (Ndekugri, 2007).

Because of the high financial implications of delay, Ndekugri (2007) has noted,

‘whoever is ultimately determined to be responsible for the event that caused the

delay must bear the financial consequences.’

This is a difficult task however, and legal measures must be taken by both parties

prior to the commencement of any project to protect their position and provide

certainty as to who will be deemed responsible for certain events and occurrences

(Society of Construction Law, 2002; Pickavance, 2005). As Ndekugri (2007) notes,

‘considering the wide range and mutually interactive nature of events that may impact

negatively on progress, identification of the event or events that caused the delay and,

where they impact concurrently or sequentially, delineating individual causative

impacts have been matters of the greatest controversy.’

This chapter looks at the legal measures that must be adopted by both parties in order

to give the greatest certainty to the contract, ascertain responsibility, apportion

compensation, and contribute to speedy dispute resolution. It also looks at a number

of technical legal issues that cause difficulty for parties seeking to interpret contracts

and resolve legal disputes. It is suggested here that contractors have an enormous

financial stake in preparing sound contractual protections to deal with disruption.

Making successful disruption claims is closely related to the provisions of the

underlying contract and the degree to which that contract protects the contractor.

Therefore, there will be focus in this chapter on the legal issues that should be tackled

prior when drafting the contract, and prior to disputes arising, as these will strongly

influence the success of later claims under the contract.

3.2 Contractual aspects of contractor’s claims

Issues that require to be examined include the terminology used in the contractual

terms relating to delay and disruption, the degree to which the contractor specifies the

programme of work to the employer, whether the programme of work will be

contractually binding, contractual specification of disruption by the employer, the

optimism with which the programme was drafted, provisions relating to acceleration,

the interaction between delay caused by one party after the other party is already in

breach of the contract, and the issue of concurrent delay.

Looking at contractual terminology, it is vital that the contract sets out who is

responsible for each delay. The way contracts usually allocate this responsibility is

through the use of such distinctions as excusable and non-excusable, culpable and

non-culpable, or compensable and non-compensable delay (Ndekugri, 2007). While

the general principle will be that the party most in control of the set of circumstances

that could cause or prevent a delay will be responsible for it, it is possible to alter this

assumption in the contract.

Delays caused by the contractor will not be recoverable. In many cases, the contractor

will be liable for delays caused by a wide range of other subcontractors. This type of

delay is termed culpable delay, and while not directly caused by the head contractor,

such delay will be the contractor’s responsibility, and will also not give rise to claims

for extension, recovery of loss, or recovery of additional expenses.

Other delays will be caused by factors outside the control of both parties. This are

termed neutral events and will include for example, extremely bad weather

conditions. Because these events are not the fault of the contractor, they will usually

give rise to a claim for time extension, to make up for the delay caused by the event.

However, because the event is not the fault of the employer either, they will not give

rise to a claim for financial compensation for the extra cost incurred by the event.

These types of delay are termed excusable, because the contractor is excused from

liability for liquidated damages for missing deadlines.

The third type of delay that should be set out in the contract will be delays caused by

the employer. This will include delays caused by parties for which the employer is

responsible, and will usually under the contract entitle the contractor to both time

extensions and recovery of the financial cost of the delay. This type of delay is termed

compensable delay.

Concurrent delay arises when there are a number of different events occurring, any

one of which would individually have been sufficient to delay the project. Frequently,

a mix of compensable, excusable and culpable events can arise at the same time, and

it may become a source of dispute as to which should be regarded as the cause of the

delay. For example, if the employer failed to pass on information necessary for the

project to progress, and there was also bad weather, the contractor might seek

compensation for the failure of the employer, while the employer would wish the

delay to be excusable but not compensable.

A good disruption claim will be based on a contract that not only clearly delineates

between the different categories of delay, but also sets out how concurrent delays are

to be treated, reducing the scope for disputes to arise (Ndekugri, 2007).

3.3 Programme of work

Another aspect that will weigh heavily on claims is the degree to which the

contractor’s programme provides for contractually binding guidance on responsibility

for delay. As Ndekugri (2007) notes,

‘a major function of a contract is to provide for risks with such comprehensiveness

and clarity as to minimize justifiable disagreement as to how the consequences of the

occurrence of any risk is allocated between the parties. The fact that there has been

very high incidence of disputes on delay and disruption points towards possible

deficiencies in contractual provisions on time management, including requirements on

contractor’s programmes.’

While the contractor’s programme places contractual obligations on the contractor,

they are vital to the sound and successful arrangement of disruption claims, as they

provide certainty and clarity on the progress of the project, and therefore protect the

contractor in cases of disruption claim. While the JCT2005 requires the programme to

be provided by the contractor to the employer ‘as soon as possible’ after the contract

is concluded, the Institution of Civil Engineers (1999) and the FIDIC provide specific

time limits by which the programme is to be past on to the employer.

The contract will state the form and information to be contained in the programme

and should be as detailed as possible as according to Ndekugri (2007) ‘virtually none

of them goes far enough if the programme is to be the powerful management tool that

it should be.’ Because of the complex interplay between different project activities,

the more detail contained in the programme, the less scope for uncertainty that there

will be when a disruption claim is made. As the cases of Royal Brompton Hospital

National Health Service Trust v Hammond (no. 9) [2002] EWHC 2037 and Moody v

Ellis (1983) 26 BLR 39 demonstrate, there is potential for a detailed programme to

reduce the evidentiary requirements of a disruption claim later on.

3.4 Employer Prevention

The basis of any disruption claim is ultimately that the employer is contractually

responsible for the delay (Bell, 2006). The first thing to note from the case law is that

if the contractor is prevented from meeting the contractual completion date as a result

of being prevented from doing so by the employer, then the contractor is not bound by

that deadline and will not be liable for liquidated damages for late completion. This

has been shown in numerous cases including Holme v Guppy (1838) 3 M & W 387,

Dodd v Churton [1897] 1 QB 562, Wells v Army & Navy Cooperative Society Ltd

(1902) 86 LT 764, Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd

(1970) 1 BLR 111, and Rapid Building Group Ltd v Ealing Family Housing

Association Ltd (1984) 29 BLR 5. In some cases, the contract will provide the basis

for the completion date to be extended, and if it does not do so, then at common law,

the time of completion is legally termed ‘at large’ and means that because of being

prevented from completing on time by the employer, the contractor is given the less

onerous duty of completing ‘within a reasonable time.’ This is known as the

‘prevention principle’ and is the first important legal aspect of many disruption claims

(Baker et al, 2005).

When a completion date is nullified due to the employer’s prevention, then any

liquidated damages clause for late completion is nullified, and the employer must rely

on a claim of general damages if he feels that the contractor has failed to complete the

project within a reasonable time following the prevention (Smith, 2002). General

damages are far more difficult to substantiate and the employer would have to show

that the time taken to complete had become unreasonable, that a financial loss had

directly resulted from this, and that the loss is not too remote to recover (Smith,

2002). In most cases therefore, an extension of time clause will be of benefit to the

employer as it will allow him to keep the liquidated damages clause operable (Lal,

2002).

Prevention by the employer can take a number of forms, and can include direct and

willful prevention such as denying the contractor access to the site or failing to

provide necessary approvals or plans (Wallace, 1995; Fletcher, 1998). Or prevention

can arise from actions expressly provided for under the contract such as such as

variations (Baker et al, 2005), or actions by third parties for which the employer is

liable (Pickavance, 2006). Pickavance (2005) has noted that it is extremely common

for a contractor’s claim to involve resort to the prevention principle.

3.5 Obligations on the contractor when making a claim

When preparing a claim, it is vital that the contractor ensures that the event founding

the claim is compensable or at least, non-culpable (Pinnell, 1998). As noted above,

the more precisely an event is provided for in the contract, and the more detail

surrounding the requirements and obligations of the contractor set out in the

programme, the better placed the contractor will be to substantiate the claim (Lal,

2003). Carnell (2005) note that issues such as whether the event was on the critical

path, whether notice was required and given, whether the delay or the event could

have been avoided by the contractor or the employer, was the event foreseen at the

time of contract formation, and whether the contract was misinterpreted by either

party will be vital aspects to consider when preparing the claim (Carnell, 2005;

Abdul-Malak et al, 2000). Grose (2004) notes the common misconception among

contractors that all disruptions and delays automatically give rise to a claim for

compensation.

It will fall on the contractor to identify the clause of the contract under which to bring

a claim (Pinnell, 1998). The greater the contractor’s input has been in drafting the

contract defensively, to protect him in cases of disruption claims, the easier it will be

to identify the clause to claim under. The greater certainty with which the contractor

can claim under the contract, the less opportunity there will be for a dispute to arise

with the employer.

The burden of demonstrating a causal link between the disruption and the contract

term being claimed under also will fall on the contractor (Gorse, 2004). The claim

will be successful if it can be established that the cause claimed against was the

principle cause of the delay. The breach of contract by the employer, and the

disruption caused, must be actual and not speculative (Carnell, 2005). It is vital

therefore that the contractor maintains detailed documentary evidence of project and

the actions of both contractor and employer. The greater the detail of the

documentation supporting the claim, the greater the chance for success.

Another aspect of the claim that the contractor must perform is to comply with the

notification requirements set out in the contract. The contract will provide that the

contractor must notify the employer of disruption is quickly as is practicable, and in

certain cases will impose time limits on notification. Notification will specify the

nature of the disruption and the clause under the contract that is being invoked. The

provision of prompt notice will enable the employer to react and possibly avoid the

delay, or at least asses the situation and possibly provide a solution that will mitigate

its effects (Pinnell, 1998). The contractor might lose his right to recovery if he does

not make prompt notification. When the contract is being drafted, the contractor

should make sure that the notification requirements are not overly onerous, especially

given the complexity of a busy site when the project is under full operation, and the

difficulty of ascertaining the nature and implications of different events immediately.

Once notification has been made, the contractor must also take all practicable steps

the mitigate the effect of the disruption. This would include returning hired equipment

that would otherwise sit idle, direct resources towards other aspects of the project that

can proceed, and redeploying labour if possible. Lal (2003) has noted that if

disruption relates only to one section of the project, then if possible, work should

continue, and even be accelerated, on other sections. This obligation can also become

a source of dispute as the contractor and employer will have different expectations of

what is a reasonable adjustment for the contractor to make in attempting to mitigate

the impact of a disruption.

Chapter 4

Research Methodology

4.1 Introduction

A number of research methodologies have been employed in the preparation of this

paper. Chapters two and three have been based on a critical review of the available

literature relating to disruption claims, with chapter two looking at the background

and context of disruption claims, and chapter three looking at the specific steps that

should be taken by contractors when preparing for disruption claims. This includes

the defensive steps to be taken when drafting and agreeing on the contract, the

notification and evidentiary requirements of the contractor, and the task of identifying

the cause of the disruption, the type of disruption that is at issue, and the relevant

contractual terms under which the claim can be made. At all of these steps, the greater

the detail of the contract and the programme of work, and the greater the quantity and

quality of the data and evidence that the contractor can get a hold of during the project

and the framing of a claim, the better will be the chance of success of the claim. The

methods of legal research that were adopted during these two chapters are described

by Holborn (2001), Jeffries and Miskin (1993) and McKie (1993).

As Kothari (2005) have noted, the development of the methodology to be applied to a

research project is a fundamental task of the project and sets out the principles and

methods by which the data under review will be discussed. It also sets out the rules

and postulates that will be applied to the research study. Rather than just being seen as

a set of methods that will be applied to a study however, the research methodology

goes farther, stating the rationale and underlying philosophical assumptions behind

the study also. This chapter presents the research methodology underlying this paper

and sets out the rationale behind topic selection, research strategy, research design,

and the approach adopted to gather and analyze the information presented. This will

be used to meet the objectives and intentions of the study.

4.2 Topic selection

The initial step of the research methodology in the present work was a comprehensive

review of the literature surrounding project disruption and disruption claims, with the

intention of providing a clear conceptual and academic background to the issues at

stake, and a comprehensive framework within which to ground the present research.

Kothari (2005) emphasizes the value of carrying out an initial literature review, noting

that it provides not only an insight into whether the research proposed is worthwhile,

but also assists in defining the topic and scope of the research, and supports the

development of the approach to be adopted in pursuing that research.

As Pickavance (2005) and Pinnell (1998) have reported, and was noted above, for

several years now there has been an increasing awareness and academic interest in the

subject of disruption claims. Despite the attention paid to the issue, the resolution of

disputes regarding disruption continues to to pose a great challenge to both employers

and contractors. This has played a key role in defining the current research topic,

which looks at the ways in which contractors can improve disruption claims in

construction contracts, and the steps that they can take both during but importantly,

before a contract has been concluded, to improve their position and reduce the scope

for dispute and legal uncertainty. Given the severe financial implications of disruption

for a contractor, the framing of sound and robust disruption claims is vital to the

success of the company and the profitability of the project as a whole. The purpose of

this research is to identify the different methods that are used by contractors to frame

their disruption claims, the steps that they take to improve the likelihood of success,

and to analyze the strengths and weaknesses of these approaches. This will be

achieved by reference to actual and previous projects and disruption claims, and

methods will be proposed for improving the structure and basis of such claims.

4.3 Description of the research strategy

The philosophical assumption underlying this research is that an objective and

descriptive approach will provide insights into what an ideal claim structure and

contractual basis will look like. This will inform issues of agreeing the contract,

selecting the contractual basis for a claim, framing the claim, complying with

necessary claim procedures, and recovering an adequate sum, or receiving a time

extension, to compensate for the loss. The research is both objective and descriptive,

concentrating on actual disruption claims, the practices that are current in the industry,

and the past successes or failures of such claims (Naoum, 2007).

Descriptive research seeks to assess what the current state of affairs is (Yin, 2002).

Based on the current objectives, the current research will seek to determine: what the

different methods used in large construction projects currently are to frame disruption

claims; an assessment of the strengths and weaknesses of these claims in terms of the

claimant’s success or failure in substantiating their claims; and identifying proposals

that can be put forward to diminish the weakness and improve the potency of

disruption claims in general.

Descriptive research and a case study approach are said to provoke ‘why?’ questions

regarding the subject matter, and through such questions, lead to fresh insights and

new ideas regarding current practices and states of affairs (Kothari, 2005). Descriptive

research should accurately describe factual scenarios, systematic findings, and

different contexts in order to provide fresh insights into an issue. The current research

does so by looking at a number of interesting case studies, which have been

specifically selected because they raise important issues with regard to the framing of

successful disruption claims and offer insights into the reasons for the relative success

and failure of such claims.

4.4 Qualitative research design

The importance of research design is that it provides guidelines on the direction that

the research will take, and provides a framework within which the research can take

on a standardized and familiar research structure. Naoum (2007) has pointed out that

n the majority of cases, the nature of the research theme, the research aims and

objectives, and the availability of research data and resources are the most important

factors influencing research design. Kothari (2005) has noted that such factors will

largely determine the design of any given piece of research and the format of the

contribution that it will make to the existing body of work on a subject. Myers (2009)

has noted that the research design should inform the entire process of the research,

from the initial framing of the research objectives and question, to the analyzing of

the issues and the reporting of data (Alavi & Carlson, 1992; Cash & Lawrence, 1989;

Gable, 1994). While the decision of which research design to use will be strongly

determined by the purpose of the study and the type and availability of the

information that is required, the researcher is not limited to the use of a single method

or strategy (Naoum, 2007).

The current research is of a qualitative nature for a number of reasons. Firstly, the

study is intended to gather in depth information looking behind the bare facts and

outcomes of cases, so that it can gain an understanding of the strengths and

weaknesses of different disruption claims structures and methods, and inform the

future development of such claims. Qualitative research methods are extremely well

suited to helping gain an understanding of the issues under review, and gain an in

depth insight into such issues (Kaplan & Maxwell, 1994). Secondly, while this study

intends to get an impression of the general trends existing in claims structure practice,

it is more focused on identifying specific strengths and weaknesses, and developing

recommendations based on these specific issues. Kothari (2005) has pointed out that

because of the synthetic nature of qualitative research, it can embrace a multitude of

variables. It is suggested here that the success or failure of disruption claims is

currently, to a large extent, undetermined, and that any one of hundreds of factors

could be important in any given case. It is too early therefore to break down causes

and factors into a limited number of groupings and conduct quantitative analysis

methods on these limited factors. Rather, the less narrowly focused and broader

outlook of a qualitative review will currently allow for any factor deemed important

to be identified and examined. Third, the resources that are available for the current

research are for the most part limited to previously published books and articles, and

give interpretive information rather than empirical data (Myers, 2009). A quantitative

analysis would depend on far more empirical and numerical data than is readily

available for this research, and to an extent, the availability of qualitative rather than

quantitative data has determined the decision to use a qualitative approach here also.

Fourth, because this study is intended to use previous claims records as examples and

case studies, a qualitative approach is better suited to identifying factors relevant to

the outcomes of such case studies (Kothari, 2005). Fifth, a qualitative approach will

allow for all three of Myers’ (2009) epistemological categories, positivist, interpretive

and critical, to be accommodated.

For these reasons, it was determined that a qualitative approach could be satisfactorily

accomplished, and would be better suited to the current research objectives, and

because of a lack of quantitative data, and the lack of specificity of the factors that are

to be identified, a quantitative approach would be less suitable.

4.5 A case study research approach

The materials and working method of this research is a deskwork research approach

based on previously prepared, secondary materials. The data interpretation methods

that are best suited to this type of research include the case study (Naoum, 2007) and

this is an approach that will be adopted in the current work. This methodological

choice has been extremely important in framing the way the current research is

conducted. The case study approach is well suited to the current research because it

allows for the review of a relatively small number of disruption claims, which reflects

the resource availability and constraints of the current research, while at the same time

allowing for an in depth analysis of a number of different disruption claims. As Yin

(2002) notes, a case study approach can refer to a specific unit of analysis, such as a

specific firm (Yin, 2002).

The advantage of selecting a case study methodology is that firstly, this methodology

permits the analysis of real, existing phenomena (Yin, 2002), and in the context of the

present research, will allow for an analysis of actual contractor practice in the framing

and preparation of disruption claims. Sharp and Howard (1998) have noted the

importance of being able to define the margins between cases and the different issues

that each case gives rise to, when adopting a case study approach. The analysis of

cases in this research will show that there are certain factors which can be identified

in the context of individual disruption claims. Each case study will have to be

conducted based on documentary evidenced and published materials, often court

records, of the details of the claim. The strengths and weaknesses will be assessed

based not only on the outcome of the case, but on a qualitative assessment of the facts

of each individual case, regardless of whether the claim as a whole was successful.

Obviously, it is possible for a poorly framed disruption claim to be successful, and a

well framed claim to be unsuccessful. Courts do not award contractors based on their

skill in preparing claims, or at least they should not, but rather on the merits of the

case. However, because this research is concerned with the framing of claims rather

than the merits of contractor disruption claims, the case studies will focus on the

claims, more than on the outcomes of the cases and the reasons for the courts

decisions, where it is appropriate to do so.

This research therefore will focus on developing an understanding of single events,

the claim in each case, and assessing that claim for strengths and weakness as to form

and structure, rather than on the basis of the underlying factual dispute between the

employer and the contractor. A case study methodology is perfect for this as it is

designed for analysis of single instances (Sharp and Howard, 1998).

4.6 Case study selection

This research is comprised of a number of individual case studies, each of which

demonstrates some or all of the following characteristics: they are from existing or

past large scale construction projects; each case involves the submission of a

disruption claim by the contractor; the claim may have been successful, unsuccessful

or still pending; and there is enough public information regarding the claim to make

an assessment of its structure, content and legal basis possible. It is expected that the

information necessary to conduct the case studies will be available in both primary

and secondary formats. Primary information will include case reports and published

court records, and information from the companies involved in reports to

shareholders, annual reports, and public statements. Secondary information will also

be available in the form of academic and professional commentary on the cases in

books and academic journals, and in specialized industry media.

Chapter 5

Case studies

5.1 Introduction

This chapter comprises of six specific disruption claims that have been analysed to

come up with general rules that can be followed by contractors when they are

preparing disruption claims.

5.2 Case 1: John Doyle Construction Ltd v Lain Management (Scotland) Ltd [2004]

BLR 295

This was an extremely important claim as it had far reaching legal implications on the

effectiveness of global claims for loss and expense. The case was brought before the

Court of Session, the highest civil court in Scotland, and demonstrates the importance

of developing in a disruption claim, a causal link between the causes of delay, and the

associated costs created by such delays. In this case study, Laing were the head

contractors on the project, and they employed Doyle as their subcontractor,

responsible for erecting the superstructure of the new corporate headquarters of

Scottish Widows. Doyle was not able to meet the timeframe agreed contractually, and

requested from Laing a twenty-two week extension and compensation for £4.8 million

in losses and expenses.

The claim provided a number of schedules that set out a list of causes for delay and

disruption. Each item was accompanied by narrative accounts explaining the item and

its nature. However, Doyle was not able to place a calculation next to each item of the

schedule, setting out the cost of each delay, or the portion of the delay for which that

item was responsible. Rather, they simply stated,

‘despite best efforts, it is not possible to identify positive links between each such

cause of delay and disruption and the cost consequences thereof.’

Laing argued that without any link being made in the claim between each causal

event, and the claimed impacts of such events, in terms of time and money, that

the claim should be struck out summarily. It will be noted that in chapters two and

three of this paper, an extensive review was made of the literature outlining the

importance of identifying causes and apportioning effects between these causes. This

is because some causes will be the fault of the contractor and some will be the fault of

the employer, while still others will be fault neutral. Each is generally treated

differently, although this will depend on the precise wording of the contract.

However, for the most part: disruption caused by the employer is compensable,

meaning extensions should be granted to the contractor, and financial compensation

should be paid for extra costs, and other financial losses; disruption caused by neutral

events such as bad weather will generally allow for a time extension only; and

disruption caused by the contractor will give rise neither to financial compensation or

a time extension. The present claim failed completely to make such differentiations

because, even though it was theoretically possible to determine who was responsible

for each event listed in the schedule, on the basis of the accompanying narrative, it

was impossible to say how much of the delay and cost could be apportioned to that

cause.

It is generally accepted that when all of the causes of disruption listed in a schedule

are completely the responsibility of the employer, then it is not necessary to apportion

the costs of each delay, as in any event, the employer is liable for them. In such cases,

a claim like the present claim, which is known as a global claim, will be permitted. In

the present instance however, Laing only accepted responsibility for some of the

causes, and argued that Doyle was responsible for others. This meant there was a need

to apportion the cost of each delay between the parties, to allocate responsibility for

the financial cost of the delay. Laing also argued that because of the way in which the

claim had been framed, that is, a global claim, such apportionment was impossible.

The court stated that it would adopt a common sense approach. It noted that while it

was risky to submit a global claim without any attempt to apportion responsibility for

each event, the court would nevertheless look at all of the evidence that was placed in

front of it, and come up with a reasonable allocation of each party’s responsibility for

the complicated mix of concurrent delays that were being argued. In his judgment,

Lord Drummond Young stated,

‘it is… clear that if a global claim is to succeed, whether it is a total cost claim or not,

the contractor must eliminate from the causes of his loss and expense all matters that

are not the responsibility of the employer.’

This requirement is mitigated by three considerations. Firstly, the contractor might be

able to draw causal links between particular events for which the employer is liable,

and the loss that was suffered. In some cases, groups of events might be linked to

groups of losses, where there is no other significant cause for that group of losses. The

dominant cause approach will be helpful in determining what is a significant cause for

the losses. This would allow parts of the claim to be extracted from the global claim,

so that the global claim can be made smaller, or less global, and thus easier to tackle.

Secondly, if it is possible to identify a dominant cause of a loss, and if the employer is

responsible for that dominant cause, then concurrent secondary causes that are the

responsibility of either party or both parties can be disregarded as the employer will

be liable. Thirdly, when items are left over that are still impossible to determine

responsibility for, it may be possible to apportion a precise degree of responsibility to

some of the causes, causes for which the employer is known to be liable, again

reducing the size of what is left as un-apportioned loss.

The court did also note however that when the contractor is concurrently responsible

for a delay, then again on a basis of dominance, it may be appropriate to completely

deny recoverability for that loss.

The court in this case indicated that it would be willing to adopt an apportionment

approach to claims that were difficult to ascertain responsibility for, but the

apportionment would be ‘rough and ready’ and would hack off areas of the claim that

were completely lacking in certain apportionment to the responsibility of the

employer. What this case shows is that it is not strictly necessary, in every single case,

for the contractor to perfectly frame a disruption claim. When the circumstances of

the case make it very difficult to set out precisely the elements of the disruption and

the impact that each element had, the court will give the contractor a little slack, and

will endeavor to apportion responsibility as best it can, so that the contractor’s claim

does not completely fail. While this approach has been criticized as prejudicial to

employers, it does reduce the pressure placed on contractors to ensure that every

disruption claim is perfect. This suggests that while the literature above on how best

to frame a disruption claim might represent best practice, it is in practice possible to

fall short of the standards called for academically, and still submit a successful claim.

5.3 Case 2: ICI plc v Bovis Construction Ltd (1992) 32 Con LR 90

This case demonstrates a contrast with the previous case, and shows the severe

detriment that can be suffered by the contractor if he fails to adequately apportion

responsibility for each item of delay and cost when making a disruption claim.

In this case, ICI was refurbishing and reconstructing its corporate headquarters, and

the costs spiraled out of control as a result of a series of delays and mistakes, jumping

from £30 million to £53 million. In this case, it was the employer who claimed against

the contractor, and the case study therefore also shows the reciprocal nature of the

issues at stake, and the fact that the definitions and contractual provisions with regard

to each aspect of disruption and delay are for the protection of both parties and the

increased certainty that they offer is beneficial to both parties. The claim was actually

brought not only against the lead contractor, but also the consulting engineers and the

architects. While the claim was multifaceted, the part that we are concerned with is a

specific global claim for £840,211 that was claimed to be caused by hundreds of listed

items. ICI claimed that it was impossible to apportion the cost of each individual

claim, but that all items were the responsibility of the contractor and that their total

cost could be calculated.

In this case, the court offered clear guidance on what the best practice would have

been in framing the claim, stating that the claimant, ICI, could prepare what it called a

Scott Schedule, that would identify each specific complaint, the defendant against

which that complaint was being made, what clause of the contract had been breached

by that specific complaint, and a factual narrative including the financial cost of each

breach.

ICI did submit a Scott Schedule, but again the details were not specific, and the

company claimed that it was impossible for it to prove the exact quantity of the

financial cost of each individual item on the list. It simply lacked the detail in

financial records necessary to do so. However, it went on to claim that even though it

could not apportion responsibility between each individual cause, that any single

cause on its own would also be sufficient to justify the claim being made. The

company also noted that it was not seeking to recover more than actual loss suffered.

However, unsurprisingly, the defendants in the action argued heavily that the claim

should be struck out on the ground that it was not adequately framed.

This case study demonstrates the opposite of the first one. In this case, the court took

a very different view on the way in which the company had framed its claim, and after

a review of a large number of older authorities, the court observed that the purpose of

the claim being made, and the details in it, and in the present case, the particulars of

the Scott Schedule, was always to ensure that when the claim was being made, the

defendant was being given adequate and fair notice of what was being complained of

so that they could frame their defense and make a case. The court noted that while the

Scott Schedule was inadequate, there was no evidence or suggestion that ICI was

being intentionally vexatiuous or difficult, and the fact was simply that sufficient

documentary evidence was unavailable to substantiate what were likely well founded

claims. The court noted firstly,

‘on the basis of the decision in Merton it is permissible in certain circumstances to

plead that a large number of matters contributed to prolongation and therefore

additional expense.’

However, this did not allow a claim to be so unspecified as simply stating that any

delay or mishap whatsoever, could just be plugged into a claim to substantiate a claim

for sums far in excess of what that delay could be responsible for. In essence, the

court found it unacceptable for the claimant simply to claim that a large number of

events were responsible for a large expense, and then reverse the onus of proof so that

the defense had to prove the contrary.

The court held that while the claim did not have to perfectly set out exactly what

delay and cost was associated with each delay, revision, and mistake, it had to give

some indication of what was important to the claim so that the other side had a fair

chance to respond. In the event, ICI’s claim was reduced to just two items that were

adequately substantiated and these were, ‘circuits need changing’ and ‘fire bell

repositioning’. Therefore, it was the financial consequences that followed from these

items that could be used to substantiate the whole of the £840,000 claim. The court

did not accept that these items were sufficient and therefore the claim failed.

This case study therefore demonstrates a very different aspect that is necessary in

claims. While John Doyle Construction Ltd v Lain Management showed that the

courts are willing to overlook some of the difficulties involved in perfectly framing a

disruption claim, the ICI claim showed that when a group of causes are being claimed

as causing a global cost, this will be accepted, but only those causes that can be

adequately substantiated and supported, and which the other side has a fair chance of

defending themselves against, will be taken into account. In the ICI case, it was only

two relatively minor items in the Scott Schedule that were accepted as substantiating

the claim. And given the size of the claim, and the large financial sum that was being

claimed, the numbers simply did not add up and the claim was unsuccessful.

The conclusion to be drawn is again that it is far safer if a claim has a full Schedule

outlining the details of the claim, setting out the cause, the party responsible, the type

of disruption caused, the contractual term breached, and the quantification of the

financial loss sustained.

5.4 Case 3: Attorney General for the Falkland Islands v Gordon Forbes (Falklands)

Construction Ltd (2003) 19 Const LJ T1 49

This case study is intended to demonstrate the importance of keeping precise

supporting evidence and records that can support the claim. As seen above in case

study 2, when a global claim is being made, it will only be the substantiated items on

a list of grouped events that will be held as capable or incapable of supporting the

financial claim being made. Similarly, in case study 1 it was shown that even though

that claim was largely successful, the court will usually pluck from a global claim,

any part of it which is adequately substantiated, and use these parts to justify

awarding that element of the claim. The elements of the claim for which nothing has

been provided by the contractor by way of evidence however will fall to be

unsuccessful. While the court in case study 1 was willing to work with what it had to

minimize the parts of the claim that would fall to be unsuccessful, not all courts will

be as willing and the contractor should not assume it will have such an

accommodating court, that will be willing to take measures to make up for

shortcomings in the evidence supporting the claim.

In this case study, the importance of backup evidence is again highlighted. As

Chappel, Powell-Smith and Sims (2005) note,

‘the nature of the back-up evidence will obviously depend on the type of claim, but in

almost every case detailed cost records and comparative programme/progress

schedules will be necessary, together with references to correspondence, records of

site meetings, site diaries and the like.’

These types of records, that can be used by the contractor to support the financial

claims being made are often referred to as ‘contemporary records’ and in the Falkland

Islands case, the court had to examine the meaning of this phrase as it was contained

in the contract, which was based on the FIDIC Conditions of Contract 4th Edition,

clause 53, which referred to the necessity of keeping ‘contemporary records’ to

support a claim. The meaning given to the phrase was that it referred to original or

primary documents, or copies of such documents, and reference to generalizations,

averages, percentages of productivity, and similar figures were not acceptable. The

court held that documents relating to actual figures of the actual case, prepared at the

time of the disruption in question, and in response to it, and not later evidence brought

forward for the purposes of the trial, such as witness statements, were what was

necessary, particularly when the wording of the contract explicitly stated this.

While it may be that the contractor will wish to paraphrase and provide summaries of

original correspondence, meeting notes, and other documents, and this can be done to

highlight the point that the contractor is trying to make, it is vital that the actual

documents are also available and that the other side to the dispute has the opportunity

to examine and refer to the documents themselves and frame their own argument to

defend their case. This case study also highlights the importance of paraphrasing such

documentation accurately as any party falsely paraphrasing such evidence is likely to

be harshly penalized in the final view of the court.

5.5 Case 4: Wharf Properties Ltd v Eric Cumine Associates (1991) 52 BLR 1

This is another important case study for showing the importance of detailing and

supporting the aspects of a claim, and presenting it properly. This was a case brought

by the architecture firm and again, the issue was whether or not the claim, as it was

framed, was sufficiently framed so as to establish the essential link between the

breaches of contract that they were claiming had been made by the defendants, and

the damages that they were claiming for. The defendants argued that no cause of

action at all was being asserted, or alternatively that the claim was an embarrassment

to the claimants and the court and should be struck out as an abuse of process. The

Privy Council of the House of Lords stated that the claim being made involved

‘extraordinary evidential difficulties’ and although capable of supporting a reasonable

cause of action, must ultimately be seen as an abuse of process. Lord Oliver noted,

‘the pleading is hopelessly embarrassing as it stands… in cases where the full extent

of extra costs incurred through delay depend upon a complex interaction between the

consequences of various events, so that it may be difficult to make an accurate

apportionment of the total extra costs, it may be proper for an arbitrator to make

individual financial awards in respect of claims which can conveniently be dealt with

in isolation and a supplementary award in respect of the financial consequences of the

remainder as a composite whole. This has, however, no bearing upon the obligation of

a plaintiff to plead his case with such particularity as is sufficient to alert the opposite

party to the case which is going to be made against him at the trial.

In this case, it was held that in previous cases where the court had adopted a generous

view on contractor’s obligation to substantiate claims, this had been adopted in

relation to the quantification of the precise financial amount to be apportioned to each

cause. However, in such cases, such as the one seen in case study 1, it had clearly

been shown that the conduct complained of had causally been linked to the loss. In

this case however, the claimant had not even managed to show how the breaches of

contract that were claimed were causally linked to the financial losses claimed for.

5.6 Case 5: Mid Glamorgan Count Council v J Devonald Williams & Partner (1993)

8 Const LJ 61

The case studied above in number 4 was actually followed and supported by this case,

which involved a similar set of facts, namely the establishment of a causal link

between the breach of contract and the loss suffered. This is vital as even before a

party can go on to begin attempting to quantify the financial impact of each breach of

contract stated in the claim, they must be able to show that the breaches of contract

claimed against, actually were the cause of the financial loss being claimed. In this

case, clear guidelines on what is necessary were set out by the court. The first

requirement was that a clear cause of action be pleaded by the claimant. After this, the

court held that where specific events were being relied upon as giving rise to a claim

for compensation under the contract, then any other requirements of the contract term

that were set out in the contract would also have to be complied with. This was noted

above in relation to notice requirements and other similar requirements that might be

elements of the contractual provisions being claimed under. The next step that is

required was said to be a nexus which relates the event relied upon to a specific

quantum of damages. The final point noted by the court however, and important in the

context of the case studies that have gone before, was that,

‘where, however, a claim is made for extra costs incurred through delays as s result of

various events whose consequences have a complex interaction that renders specific

relation between event and time/money consequence impossible and impracticable, it

is permissible to maintain a composite claim.’

This case study also gives guidance on the reasons by which the court has justified the

permissibility of a composite claim, given the fact that they are generally regarded as

prejudicial to the other party.

This case also shows the court’s justification for accepting ‘total cost’ claims, noting

three steps in the logical process. Firstly, the contractor will reasonably expect to be

able to perform the contractual work for the contractual price. Secondly, the employer

will have breached the contract. And thirdly, the actual reasonable cost for completing

the work will have increased, and will exceed the contractually agreed sum, as a result

of the employer’s breach of contract. However, such logic only permits a court to

make a finding in favour of a contractor to the extent that the claim proves each one

of these steps. The other factor that is highlighted in this case study is the importance

that was placed on the employer’s actions being the only causal factor in generating

the loss.

5.7 Case 6: How Engineering Services Ltd v Lindner Ceilings Partitions PLC 17 May

1995, unreported

The final case study to be examined here gives exceptionally clear guidance on the

way ideal claims should be framed, even though as an authority the case has not been

regarded as particularly important. The important aspects of the decision in this case,

and the guidance that it gives in relation to the framing of claims can be broken down

into a number of factors. Firstly, this case set out that when making a disruption

claim, it is for the contractor to set out clearly and intelligibly the loss he has suffered,

the reasons that loss occurred, and why the other party has a legal obligation to be

responsible for that loss. Secondly, the contractor should set out clearly which parts of

the contract have been breached, the details of those terms, and the type of disruption

that they involve. After this has been done, the contractor should next set up his

demonstration of cause and effect. He has to show that the breaches of contract that he

is complaining of, directly and certainly led to the losses that are being claimed. The

next part of the claim process is to note that the contractor is not obliged to break

down the total loss, so that each individual breach of contract, is stated to have led to

a specific part of the loss suffered. However, when a group of breaches are being

joined together to support a global claim, the court will only take into account those

breaches that are adequately supported by documentary evidence. If any of the

breaches are not adequately proven, they will be disregarded, and the risk is that the

remaining causes will not be adequate to support the total sum being claimed, in

which event the claim will fail. If this is the case, the contractor might still be able to

recover the part of the loss that he has substantiated. However, to do so there will

have to be a method of calculation in place that is capable of dividing the loss among

the remaining breaches. As noted by Chappell et al (2005)

‘the means by which the loss is to be calculated if some of the causative events

alleged have been eliminated. In other words, what formula or device is put forward

to enable an appropriate scaling down of the claim to be made?

Or alternatively (Chappell et al, 2005)

‘the means of scaling down the claim to take account of other irrevocable factors such

as defects, inefficiencies, or events at a contractor’s risk.’

These then conclude the findings that can be drawn from the six cases that have been

studied in greater detail in this chapter.

Chapter 6

Conclusion

This paper has made a number of important findings that can be taken on by

contractors when they are preparing disruption claims. These findings will assist in

increasing the likely success of the disruption claims. As noted from the literature,

and despite the findings of the first case study, the vast majority of disruption claims

will benefit significantly from having adequate documentary evidence supporting

each element of a claim. The law requires that a claimant satisfies the burden of proof,

and not only offers evidence to support claims for compensation, but does so in a

manner that permits the other side to develop their own case in defense of the claim.

Therefore, from the outset, the more detail that a claim can include, and the more

documentary evidence that can be provided to support the claim, the greater will be

that claim’s chance of success.

To do so, a claim should clearly set out what factual events have led to a delay or a

financial loss and make a statement as to why the employer is responsible for these

events. The next step is to show that each of these events is covered by the contract,

and that any stipulations for making the claim that are contained in the contract have

been complied with, such as time limits for making a claim. The next step is to show a

strong causal link between the events complained of and the delay or financial loss. If

there are a number of events leading to loss, then ideally, each event will be

apportioned its share of the loss that it has caused, and this will be backed up by

contemporary documentary evidence. However, if this is not possible, then groups of

events can be claimed to have caused larger loss amounts. The risk of this is that any

single events that are not adequately substantiated will be thrown out, and the claim

will only succeed if the remaining events, for which there is adequate evidence

adduced, are sufficient to justify the entire sum being claimed. As the first case study

showed however, the courts are willing to take a proactive approach to finding out

what parts of a claim have been adequately substantiated.

As the first case study noted, it is generally accepted that when all of the causes of

disruption listed in a schedule are completely the responsibility of the employer, then

it is not necessary to apportion the costs of each delay, as in any event, the employer

is liable for them. In such cases, a claim like the one set out in the first case study,

which was a global claim, will be permitted. In that instance however, Laing only

accepted responsibility for some of the causes, and argued that Doyle was responsible

for others. This meant there was a need to apportion the cost of each delay between

the parties, to allocate responsibility for the financial cost of the delay. Laing also

argued that because of the way in which the claim had been framed, that is, a global

claim, such apportionment was impossible.

The court stated that it would adopt a common sense approach. It noted that while it

was risky to submit a global claim without any attempt to apportion responsibility for

each event, the court would nevertheless look at all of the evidence that was placed in

front of it, and come up with a reasonable allocation of each party’s responsibility for

the complicated mix of concurrent delays that were being argued. In his judgment,

Lord Drummond Young stated,

‘it is… clear that if a global claim is to succeed, whether it is a total cost claim or not,

the contractor must eliminate from the causes of his loss and expense all matters that

are not the responsibility of the employer.’

In short therefore, the best advice is that the contractor needs to have

contemporaneous documentary evidence supporting all aspects of his claim. The

greater the detail of the evidence, the ability of each breach to be causally linked to

the loss, and the ability to apportion each part of the loss to each individual breach of

contract by the employer, the better the claim will be received by the courts and the

more likely the claim is to be successful.

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