Understanding Contracts Seminar Notes

SEMINAR ON UNDERSTANDING CONTRACTS: PRACTICAL & CHALLENGING ASPECTS

Seminar Notes

Arusha International Conference Centre, Arusha – Tanzania 3 – 5 May, 2006

Organized by: Presented by Mr Chris Binnington and Ms Gigi Fenster Contractors Registration Board 3rd Floor, Tetex House, Pamba Road, P. O. Box 13374, Dar es Salaam Tel: 255 22 2137962—3/ 2131169 Fax: 255 22 2137964 E-mail: [email protected], Website: www.crbtz.org

BINNINGTON COPELAND

& ASSOCIATES Telephone Codes [2711] (011)

Phone 888 6141 Fax 888 1068

E-mail: [email protected]:www.bca.co.za

mailto:[email protected]

Seminar on Understanding Contracts; Practical & Challenging Aspects has been Organized by the

Contractors Registration Board – Tanzania with Support from:

BP Tanzania Ltd.

CSI Construction (1997) Ltd. Design & Services Ltd.

Inter – Consult Ltd. China Sichuan Corporation for International Techno-Economic

Cooperation Ltd. (SIETCO) MM Intergrated Steel Mill

Webb Uronu and Partners Ltd.

BINNINGTON COPELAND & ASSOCIATES

UNDERSTANDING CONTRACTS:PRACTICAL AND CHALLENGING ASPECTS

SEMINAR ATTENDANCE CERTIFICATES

sem\ucm6001r.ucd - 1 - © Binnington Copeland & Associates (Pty) Ltd (2006)

IN ORDER TO RECEIVE A SEMINAR ATTENDANCE

CERTIFICATE, PLEASE:

MAKE SURE YOU RECEIVE A SEMINAR APPRAISAL

FORM FROM THE PRESENTER AFTER THE SEMINAR;

COMPLETE THE SEMINAR APPRAISAL FORM, MAKING

SURE THAT YOUR NAME AND COMPANY NAME ARE

CORRECT AND CLEARLY LEGIBLE;

TICK THE "YES" BOX IN ANSWER TO THE QUESTION

"DO YOU REQUIRE AN ATTENDANCE CERTIFICATE?"

ON THE SEMINAR APPRAISAL FORM;

RETURN THE COMPLETED SEMINAR APPRAISAL FORM

TO THE PRESENTER!!!



DISCLAIMER


The information presented in this seminar and in the accompanying notes is believed to be based upon the best availableinformation. While every effort has been made to ensure the accuracy of all information neither the organisers, presenters nor anyof the organisers’ staff make any representations or warranties in regard to the accuracy of the contents hereof.

All clauses and quotes from FIDIC published with permission.

The views expressed herein are the personal views of the presenters and do not necessarily reflect the views of FIDIC or any otherorganisation.



FORTHCOMING SEMINARS


IN-HOUSE SEMINARS

Binnington Copeland & Associates (Pty) Ltd ("BCA") have developed a number of trainingprogrammes for the construction industry. These are offered on a public basis or on anin-house basis.

M We will design a seminar around your needs. The manual, study notes, case studies andtraining material will all be tailor made to meet the needs of your organisation.

M You may send any number of delegates from your firm and may choose when and whereto hold the seminar.

SUGGESTED TOPICS FOR IN-HOUSE SEMINARS

Contract Law for the Construction Industry

A one or two day seminar which deals with general principles of contract as well as specificprinciples which apply to the construction industry. This seminar has proved to be verypopular at all levels of personnel. Some of the issues dealt with in this seminar are thefollowing:

M The requirements for a valid contract;

M Tendering;

M The Letter of Intent;

M Liability for defects in the works;

M Consequences of negligent conduct;

M Different forms of security;

M Time barring provisions;

M Legal background to construction contracts;

M Constitutional principles;

M Common law view of construction contracts;

M Payment;

M Insolvency of one of the parties;

M Contractor's key obligations;

M Nominated/selected sub-contractors.

Standard Forms of Contract

A one day seminar which focuses on any construction contract which you may be workingwith. This seminar may be combined with a one day contract law seminar. Some of thestandard contracts dealt with are the following:

M JBCC

The entire suite of contracts. This new series of contracts comprises numerousdocuments, all of which may be dealt with.





M NEC/ECC

This innovative contract offers many advantages over other standard forms of contractand is rapidly gaining pre-eminence among construction contracts. It is, however, quitedifferent from traditional forms of contract and should not be used without some training.

M GCC 1990 and GCC 2004

The South African Engineering Contract based on English forms.

M FIDIC

A new suite of FIDIC Contracts was published early in 1999. This new form or the oldform may form the topic of a seminar.

M Any other standard forms of contract.

Project Management

This is an in-depth programme. This course may be run over up to ten days and givesdelegates a detailed, thorough understanding of project management in the constructionindustry. Some of the issues dealt with in this series of seminars are the following:

M Risk evaluation and management;

M Budgeting;

M The use of computers;

M Contract law;

M Finance for project managers;

M Asset management;

M Procurement;

M Time management;

M Meeting client expectations;

M Human resource management;

M Conflict management and dispute resolution.

As is the case with all BCA seminars, these seminars will be presented by lecturers of thehighest standing. The seminars are practical and hands on with the emphasis on practical





problems and problem solving. Case studies, practical examples and problems are used anddelegates are encouraged to raise questions and discuss problems.

A thorough set of notes is provided for each seminar. These notes form the skeleton of theseminar and provide detailed reference material for later reference. The notes include all casestudies, slides and documentation.

For more information, prices, dates etc., please contact:

Sue RuleTelephone: [2711]888-6141Facsimile: [2711]888-1068

E-mail: [email protected] site: www.bca.co.za



INDEX


Who is BCA? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Seminar Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Chris Binnington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Giovanna Fenster . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Ugo Hiddema . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Bill Copeland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Jim Garner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Note to Delegates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

The Courts' Approach to Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Slide 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Slide 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Certainty in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Country's Reliability as a Trading Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Protection Against Excessive Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Difficulty in Defining What is Unfair and in Distinguishing Between a Good Bargain, on the One Hand, and an Unfair Contract, on the Other . . . . . . . . . . . . . . . . . . 16Slide 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Unfair Terms and Construction Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Slide 4a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Slide 4b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Slide 4c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Slide 4d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Entering Into the Contract: Agreement (Consensus) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Slide 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Case Study 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Case Study 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Slide 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Question 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31What Happens If There is Never Agreement on the Contract to Be Used? . . . . . . . . . . . 32Case Study 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Case Study 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34What Happens If There is No Agreement on Important Terms? . . . . . . . . . . . . . . . . . . . 37Case Study 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37What Happens If One Party Thinks That There is Agreement and the Other Denies That Agreement Has Been Reached? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Case Study 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Offer and Acceptance as Evidence of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Requests for Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Slide 7a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Slide 7b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Consequences of Rule That Contractor Is Making the Offer . . . . . . . . . . . . . . . . . . . 45



INDEX


When Things Go Wrong: Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

What is a Breach of Contract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Different Forms of Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47What Should I (Not) Do If the Other Party is in Breach of Contract? . . . . . . . . . . . . 48

Case Study 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Remedies for Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Before the Breach Occurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Slide 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Cancellation (Where the Innocent Party Chooses to Cancel the Contract) . . . . . . . . 52Where the Breach is "Fundamental" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Protracted Or Repeated Breaches Plus Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Anticipatory Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Language of the Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Express Termination Provisions in the Contract . . . . . . . . . . . . . . . . . . . . . . . . . 53

Case Study 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54What should I (not) do if the other party is in breach? . . . . . . . . . . . . . . . . . . . . . . . 56

Slide 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57What Happens If the Employer Refuses/fails to Pay the Contractor? . . . . . . . . . . . . 58

The Effect of the Certificate on the Employer's Obligation to Pay the Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Case Study 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Late Payment by the Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Withholding Retention Moneys From Payment to the Contractor . . . . . . . . . . . . . . 61

Case Study 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Case Study 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64Possible Defences to An Action Based on Breach of Contract . . . . . . . . . . . . . . . . . . . . 66Slide 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Impossibility of Performance (Frustration) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Act of God or Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

What is the Role of the Employer's Agent Where There is Potential for Breach? . . . . . 67Slide 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Damages for Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Slide 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70Mitigation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Liquidated Damages v Penalty (Damages in Terrorem) . . . . . . . . . . . . . . . . . . . . . . 71Slide 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73Slide 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74Case Study 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Use and Possession of the Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77When Can the Employer Start Using the Works? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Taking Over and Stages of Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77Slide 15a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Slide 15b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79



INDEX


Slide 15c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Allocation of Risk Under the Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81How Construction Contracts Amend the Common Law . . . . . . . . . . . . . . . . . . . . . . 81

Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Most Construction Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Slide 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Possession of the Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Case Study 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84Use of the Works by the Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Slide 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88Case Study 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Slide 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92Case Study 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Case Study 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96Case Study 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Defining and Interpreting Delay and Disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Misconceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102Slide 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Always Bid Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Lump Sum Contracting for the Wrong Reasons . . . . . . . . . . . . . . . . . . . . . . . . . . . 103Fast Track Projects - the Way of the Future for All Projects . . . . . . . . . . . . . . . . . . 104"Changing The Rules of The Game During The Game" . . . . . . . . . . . . . . . . . . . . . 104"Allocating Risks to The Wrong Party" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

Definition of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105Slide 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106Causes of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Delay: Intention v Reality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Slide 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Contract Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110Slide 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Delay to Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111Case Study 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112Nature of Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Slide 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Employer's Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Contractor's Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Neutral Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Concurrent Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118Slide 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

What is a Concurrent Delay? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119The Significance of the Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Case Study 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121Case Study 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Slide 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125



INDEX


When is the Contractor entitled so an Extension of Time? . . . . . . . . . . . . . . . . . . . . . . 126Conundrum 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126Conundrum 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Conundrum 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128Presenting a Claim for an Extension of Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Tools and Techniques of Construction Programming . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Programme Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131Slide 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Updating of Programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132Slide 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135Acceleration Following an Additional Work Variation Order . . . . . . . . . . . . . . . . 136

Case Study 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136Acceleration Following Excusable Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138Types of Acceleration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Slide 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139Additional Costs of Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Slide 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141Constructive Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Slide 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143Case Study 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144Article by Mr Chris Binnington "Constructive Acceleration - Why Not in South Africa?" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Variations and Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Variations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Case Study 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Precise Record Keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154Abrahamson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154The BCA Project Recording System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159Slide 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167What is a Claim? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167Claims Procedure and Time Bars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167Question 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172Question 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173What Should the Contractor Do If He Finds Himself Unable to Serve the Required Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174Case Study 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174Case Study 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176Early Warning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Early Warning Under NEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179Early Warning Under FIDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

Preparing the Claim Submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181Introduction - Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180



INDEX


Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180Contractual Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181History of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181Claim Heads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181Annexed Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181General Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181



WHO IS BCA?


BCA are frequently asked if seminars are our principal business to which the answer isno. Seminars are only one of the activities of the company. Our principal business is

providing advice to all players in the construction industry whether they be employers,members of the professional team, project managers, contractors, sub-contractors or

suppliers.

Our first prize is to offer advice upfront in order to prevent dispute situations arisingbut, if a claim or dispute situation arises, we will assist our clients up until the dispute isresolved whether by negotiation, mediation, adjudication, arbitration or litigation. Wehave experts who are familiar with all aspects of analysing and evaluating both merit

and quantum of all construction/contracting claim and dispute situations.

We are able to represent our clients at all formal hearings except in the courts and, ifour client prefers to use attorney and counsel for final hearings in other tribunals, we

are able to assist by being part of the team and frequently appearing as expertwitnesses.

Created to fulfill the needs of a construction community beset with problems anddisputes, BCA has, over the last twenty years, established itself as a highly professionalorganisation operating in a specialised niche requiring the marriage of technical and

contractual skills.

Whether representing the employer or the contractor, the firm endeavours to presentthe client's case in the best possible way whilst recognising that there are always

opposing views to every situation. Accordingly, not only is assessment made of thestrengths of the client's position but also, and frequently more importantly, the

weaknesses are highlighted.

BCA are able to draw on a wide variety of in-house technical skills and have specialisedin the representation of clients at mediation, arbitration and other forms of dispute

resolution procedures. Avoidance of the dispute and the settlement thereof bynegotiation is however the preferred route and such settlements are frequently foundedupon solid documentation aimed at presenting a balanced view of the client's position.

BCA's staff are versatile and have broad experience in working outside their ownparticular discipline. The objective of the firm is to provide expert knowledge relating

to contractual situations and the difficulties arising therefrom.

The practice specialises in the preparation, presentation and negotiation of claims in themore difficult areas of acceleration, delay and disruption as well as the usually

encountered claims for extensions of time and re-assessment of contract valuationarising out of changes in scope. Binnington Copeland & Associates (Pty) Ltd's ability

to provide a totally professional package over a wide variety of engineering andbuilding industry disciplines can, and frequently does, make the difference.

USIZO ENGINEERING (PTY) LTD

COMPARISON OF

JBCC, NEC, FIDIC AND GCC

BINNINGTON COPELAND & ASSOCIATES (PTY) LTD ENG INEERING & CO NSTRUCTIO N CO NTRACT CO NSULTAN TS

SEMINAR PROFILES


CHRIS BINNINGTON

Chris Binnington is the Managing Director of BCA. He is a Mechanical Engineer by training, but iswell known for his presentations to the construction industry in the fields of construction law,standard forms of contract, BOT and dispute resolution. He is the current Chairman of theAssociation of Arbitrators (Southern Africa) and for sixteen years served on the relevant ECSAcommittee investigating complaints by the public against registered professional engineers andchaired the committee for four years. He is a regular contributor to various construction magazines.

GIOVANNA FENSTER

Giovanna Fenster has a BA, LLB degree from Wits and an LLM (cum laude) from RAU. She alsohas a second LLM in advanced contract law with a special focus on construction contracts. She hascompleted the Association of Arbitrators' specialisation in construction law and the Higher Diplomain Arbitration. She has lectured law for some seven years and has written training courses, manualsand seminar notes for the construction and other industries. She has lectured law both to lay peopleand law students and has conducted numerous training seminars for the construction industry. Sheis a regular contributor to SA Builder. Gigi was a founding member of the Construction IndustryDevelopment Board. Gigi currently works as a senior policy analyst at the Ministry of EconomicDevelopment, New Zealand. She is an admitted advocate.

UGO HIDDEMA

Ugo Hiddema studied law at the University of Pretoria. He worked for the Department of WaterAffairs and Forestry for twenty-five years where he was responsible for all building andconstruction contracts and claims. He was also a member of the Lesotho Highlands WaterCommission and advised on the engineering contracts (FIDIC contracts) and claims on the LesothoHighlands Water Project. He was a member of the committee that drafted the 1990 GeneralConditions of Contract for the Construction of Civil Engineering Works (6 Edition). He is ath

Fellow of the Association of Arbitrators and has completed the Association's Specialisation inConstruction Law and the Higher Diploma in Arbitration. He contributed a chapter to Loots -Construction Law and Related Issues (1995).

BILL COPELAND

Bill Copeland is the Chairman of BCA. He is a civil engineer having graduated in 1953 at theUniversity of New South Wales (Sydney). During his forty-seven years of practice in theconstruction field he has obtained considerable experience which has ranged from professional,main contracting and sub-contracting. He is past president of the Precast Concrete Manufacturersof Australia and the South African Institute of Steel Construction. In the fifteen years with whichhe has been associated with BCA, it is rarely a contractual problem or dispute situation which hasarisen on which he has not had first hand experience on some previous occasion.

JIM GARNER

Jim Garner is a consultant at BCA. He is a chartered quantity surveyor and a member of theAssociation of Arbitrators (Southern Africa). His experience includes eleven years withprofessional quantity surveying practices and thirty years with contracting companies, in positionsfrom chief surveyor to project manager and managing director. He served on industry andgovernment committees for many years, with particular emphasis on contractual, legal andprocurement matters. He also has considerable experience in dealing with disputes in theconstruction industry.



NOTE TO DELEGATES


The case studies in this document may not necessarily have acorrect answer, which is why we do not give answers in the notes.

The case studies are intended to stimulate discussion andemphasise key principles.



THE COURTS' APPROACH TO CONTRACTS


SLIDE 1






SLIDE 2





Notwithstanding the equity jurisdiction of English Law, there is no common law requirementthat contracts must be fair. On the whole English and Tanzanian courts have tended towardsupholding the principle of sanctity of contract. This principle suggests that contracts, onceentered into freely and voluntarily, should be upheld by a court of law. This principle may, incertain circumstances, appear to be unjust, particularly where a contract, which is one sided orunfair, is upheld on the basis of sanctity. There are, however, sound reasons for insisting thatcontracts be upheld. Some of these reasons are:

M CERTAINTY IN BUSINESS

There can be little doubt that commercial transactions would be seriously hampered ifour courts allowed parties to escape their contractual obligations too readily;

M COUNTRY'S RELIABILITY AS A TRADING PARTNER

The degree of contract enforcement is seen by many as a measure of a country'sreliability as a trading partner;

M PROTECTION AGAINST EXCESSIVE HARDSHIP

The law of contract does offer protection against excessive hardship, in certain cases. These are discussed in detail below;

M DIFFICULTY IN DEFINING WHAT IS UNFAIR AND IN DISTINGUISHING BETWEEN A

GOOD BARGAIN, ON THE ONE HAND, AND AN UNFAIR CONTRACT, ON THE OTHER

The courts' approach to unfair contracts is clearly illustrated in these words fromBurger v Central South African Railways:

"Our law does not recognise the right of a court to release a contracting partyform the consequences of an agreement duly entered into by him merelybecause that agreement appears to be unreasonable.".





SLIDE 3





UNFAIR TERMS AND CONSTRUCTION CONTRACTS

In the construction industry much of the contracting is done by way of standard contracts thathave been drafted by bodies representative of various construction players. Ideally thesebodies should produce contracts that fairly balance the rights of the various players such thatno single player is prejudiced due to an inequality of bargaining power or for any otherreason. Unfortunately, the goal of fair balancing of rights and obligations is often not attainedfor various reasons, some of which are the following:

M Parties often amend the standard contracts, by way of special conditions or directamendment;

M The drafting bodies are not always representative of all role players or all role playersare not equally represented. This can result in unfair terms creeping into a standardcontract;

M There is nothing obliging the parties to a contract to adhere to a standard agreement. Parties are always free to negotiate their own terms of contract.

Employers who consider that they are well served by Standard Conditions of Contract which,are tilted substantially in their favour, should remember that, while such a contract is valid interms of the law, it may not actually serve their interests. The inclusion of unfair terms addsto the contractor's risk and the probability is that he will factor this risk into his price so thatthe employer will actually pay the cost of such onerous proportions. If the contractor does notfactor the risk into the price then the consequences for both contractor and employer could bevery serious. A well balanced contract, where the risk is reasonably apportioned between theparties and which gives the contractor a chance to recover any additional costs, ultimatelyserves the interests of both contractor and employer.





SLIDE 4A





SLIDE 4B





SLIDE 4C





SLIDE 4D



ENTERING INTO THE CONTRACT: AGREEMENT (CONSENSUS)



Agreement is the basis of every contract and the most important requirement for validity for

without agreement there can be no talk of a valid contract. There must be consensus and the

minds of the parties must be ad idem (at one).





SLIDE 5





English and Tanzanian common law distinguish between two forms of contract, namely thecontract entered into under seal and the simple contract.

M The simple contract is one entered into by way of simple agreement. The partiesconduct themselves or use words (whether written or oral) to show that they intendbeing bound. This contract is not recognised unless both parties perform in someway. There must be consideration flowing from both parties. There must be a quidpro quo between the parties. Where a contract has not been formally entered into it istherefore necessary to ask whether both parties have agreed to offer some form ofconsideration.

M The contract under seal is valid because it is formally entered into. There is norequirement for consideration when the contract documentation is formally signedunder seal.

M Where there is consideration the contract will be valid even if it is not formallyconcluded but is rather entered into orally or by conduct or in some other manner.

M Where there is no consideration it is necessary to ensure that the contract is enteredinto under seal.

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





CASE STUDY 1

The employer invites tenders for certain work to be done.

Contractor, C, submits a tender on 1 February 2006. In his tender he states that hewill keep his tender open for a period of three months.

On 1 March 2006 the employer sends C a letter of intent stating that he will contractwith him.

C goes back and looks at his figures and discovers that he has made a mistake in histender. Where he intended to quote $x per metre for the laying of tiles he quoted %xper m . This mistake will result in such loss that he does not believe that it is in his2

interests to undertake the work.

On 15 March 2006 C sends a letter to the agent stating that he is withdrawing histender. The agent argues that he is not entitled to do so as a contract has already beenentered into.

Has a contract been entered into?

Is C entitled to withdraw his tender?

O





O





CASE STUDY 2

E invites tenders for certain construction works. Contractor, C, submits a tender. Oneweek after the tender is submitted C receives a letter from the client's agent whichreads as follows:

"Letter of Intent

Duly instructed by our client, Employer, and acting on their behalf, we arepleased to inform you that we intend accepting your tender dated15 February 2006. We hereby instruct you to purchase the following (longlead) items ...".

On receiving this letter C immediately purchases the items at some cost. He alsotakes on extra casual staff to fulfil his obligations in terms of the tender.

After two weeks C has heard nothing from either the agent or the client. He phonesthe agent who tells him that they have decided not to go ahead with the works. WhenC complains the agent says that he does not know what C is complaining about, sincethe parties never signed a contract and there can therefore be no agreement.

Will it make any difference if the invitation for tenders stated that the contractwould be regulated by a particular set of contract documents?

O





O





SLIDE 6





QUESTION 1

Can you have a valid contract if the contract documents have not been signed?

O





WHAT HAPPENS IF THERE IS NEVER AGREEMENT ON THE CONTRACT TO BE USED?

CASE STUDY 3

The employer, E, phones contractor, C, and tells him he has been referred to him by afriend and that he is looking for someone to do renovation work at his house. C isvery interested in this work and he agrees to look at the house and to provide a quote. The work is fairly extensive, involving additional rooms, plumbing and electricalwork.

C does look at the house and he provides a quote. E is happy with the quote and theyagree that C will do the work. C starts work. C advises E that he thinks the work willtake around six months to complete. E says that he is quite happy with this. Theydiscuss the materials to be used.

C starts working at the house and all is progressing well. At the end of the secondweek C phones E and tells him that he will need money to purchase materials. Healso says that he will need money to pay his workers and as an interim payment toassist him with his cash flow.

E responds that C's cash flow is not his problem. He says that it is up to C to ensurethat he has enough money to pay his workers and that, if C wanted interim payments,he should have said so upfront.

C responds that everyone knows that the contractor cannot be expected to finance thewhole project and that it is accepted practice that he should be paid for work alreadydone.

Is C entitled to interim payment?

If so, how will the amount that he is entitled to be calculated?

O





O





CASE STUDY 4

Employer, E, phones contractor, C, and tells him that he has been referred to him assomeone who is good at building work. E is the headmaster of a school and islooking for a contractor to add a few classrooms and a kitchen to the school. E tells Cthat he was referred to him by the headmaster of another school (a certain Mr B). Mr B used C's services for extension work on his school and told E that he was veryhappy with the work done by C.

C provides a quote, at the bottom of which the following words appear:

"All contracts to be completed under the contractor's standard terms ofcontract. A copy of these may be read at the Contractor’s office, or purchasedfrom the contractor.".

E phones the C and tells him that he is happy with the quote and is prepared to goahead with the work. He tells C that there is just one matter that he is not happy with- the terms of contract. E has been advised by a friend that the work should rather bedone under an internationally recognized contract, such as the FIDIC Short Form.

C says that he is not familiar with the FIDIC Short Form but is prepared to consider it. E says that he will get a copy for them to look at.

In the meantime, work commences. At the end of the second week C phones E andtells him that he needs money to pay his workers and as an interim payment to assisthim with his cash flow.

E responds that C's cash flow is not his problem. He says that it is up to C to ensurethat he has enough money to pay his workers and that, if C wanted interim payments,he should have said so upfront. C says that, actually, he did make it clear that hewould require interim payments because this is clearly stated in his conditions ofcontract. He says that, had E bothered to check C's conditions of contract he wouldhave seen that the contract makes it clear that interim payments can be claimed.

E argues that C's conditions of contract are of absolutely no relevance since they werenever accepted. He says that, if any contract applies, it is the FIDIC Short Form. Hesays that he has ordered a copy and, for as long as they are waiting for it to arrive, Cshould just go on working and should not expect interim payment.

Does C's standard contract apply?

The FIDIC Short Form?





Neither?

Both?

If neither applies, is C entitled to any interim payment?

How will this be calculated?

O





O





WHAT HAPPENS IF THERE IS NO AGREEMENT ON IMPORTANT TERMS?

CASE STUDY 5

Employer, E, is the owner of a small guest lodge just outside a major game reserve. The lodge consists of six small huts set around a small lake. Business is booming asmany tourists come to the area to see the annual animal migration. E decides to add afurther four huts to the lodge and, to this end, enters into negotiations with Contractor,C. From the outset E makes it clear that there is some urgency as the huts must becompleted before the next annual migration to take place in about nine months time. C says that he can comfortably complete in time as long as he starts workimmediately. C and E both sign a document which reads:

"C and E hereby agree that C will construct four additional huts on E's guestlodge. It is agreed that C will start work immediately upon signature of thisdocument and that negotiations will continue between the parties.".

C starts work. Two days later E phones C and says that he has been called urgently toanother lodge which he owns as there has been flooding in the area and the lodge hasbeen badly damaged. C says:

"Not to worry. I will keep going. Give me a call when you return.".

A month later E has not returned. C struggles to get hold of him but finally managesto get hold of his wife. E's wife tells C that the problems at the other lodge were moreserious than expected, that telephone lines are still down in the area and that E is onlyexpected back in another month. She says that she is expecting a call from E sometime during the week and that she will tell him that C is trying to get hold of him. Ccontinues work.

Three weeks later E's wife phones C and tells him that she has spoken to her husbandand that he is due back in two weeks time. She says that E has said that C should justcontinue working.

E finally returns four months after he first set off. By this time C has laid thefoundations for all four huts, has all the required material on site, has started electricaland plumbing work and has progressed quite far with building work.

E and C now restart discussion on the contract terms. Negotiations go badly. Theycannot agree on the amount that C will be paid or on the date for completion or on thequality of the work to be done or materials to be included.

C is getting fed up and he starts shifting his workers onto another project. The





relationship between them breaks down. C argues that he is entitled to:

Payment for the work already done;

Payment for the materials purchased;

Payment for his workers;

Profit of 50%, which is his standard profit;

A surcharge of 10% because he was required to accelerate to complete in timefor the rainy season;

A surcharge of 10% for all the hassle encountered in trying to get hold of C,collapsed negotiations and so on.

E argues that C is not entitled to anything because he has left the site with all the hutshalf finished. He says that the place is such a mess that he cannot have any guestthere for at least a year while it is cleaned up and the huts completed.

Which, if any, of the amounts claimed by C is he entitled to be paid?

Note: We are not, at this stage, interested in whether E would have a claim against C forbreach of contract. We will consider that matter later.

O





O





WHAT HAPPENS IF ONE PARTY THINKS THAT THERE IS AGREEMENT AND THE OTHER

DENIES THAT AGREEMENT HAS BEEN REACHED?

CASE STUDY 6

A contractor, C, needs bricks and therefore phones his supplier S to place an order. Sand C have a long standing relationship and have entered into many contracts forbricks in the past. In view of their long standing relationship, C simply requests that Ssend him an agreed number of bricks and the parties agree on a price.

The next day C receives a fax from S. The fax has the heading "Quotation". Itconfirms the price and the number of bags agreed upon telephonically. At the bottomof the fax, in small print, the words:

"Our terms and conditions apply. These may be requested by phoning Y. Onrequest we will gladly furnish you with a copy.".

C sends the quotation to his buying department where it is processed according to theusual procedure. One week later the bricks are delivered to the site. Accompanyingthe bricks is a document headed "Delivery Note". At the bottom of the note are listedcertain "terms and conditions". One of these provides that, in the event of any defectin the bricks, the supplier will not be liable for any damages whatsoever that arisefrom such defect.

The "Delivery Note" is signed by C's storeman who also inspects the bricks anddecides that all seems to be in order.

The bricks are fitted into the works and, after being plastered over, begin to showcertain defects with the result that the walls begin to crumble. The bricks are testedand it transpires that they were defective in that they contain high quantities ofmagnesium sulphate.

All the walls containing these bricks have to be demolished. As a result of thesedefective bricks C suffers considerable losses. He incurs penalties, the costs ofrebuilding the walls, payment to sub-contractors etc. When C attempts to recoverthese costs from S, S refers him to the terms and conditions referred to in the"Quotation" and printed on the "Delivery Note". S offers to replace the defectivebricks but denies liability for any other loss sustained by C.

Can C recover any of his losses from S?

O





O





OFFER AND ACCEPTANCE AS EVIDENCE OF AGREEMENT

In order to determine whether the minds of the parties were at one we ask whether one partymade an offer which the other accepted. Once it is found that there has been offer andacceptance there will be consensus. The rules of offer and acceptance help us to determinewhether there was agreement and also when and where agreement was reached. There will beagreement when one party (the offeror) has made an offer to another to enter into a contracton specified terms which the other party (the offeree) has accepted.

Requests for Tenders

When dealing with requests for tenders the question of who is making the offer and who isaccepting may once again raise problems. In deciding this issue, the Tanzanian courts willfollow the English principle that the contractor, and not the employer, is making the offer. The employer is therefore not obliged to accept the lowest bid or, indeed, any bid at all. Thisprinciple is clearly illustrated in the English case of Spencer & Others v Harding & Others(1870) LR 5 CP 561. Willes J:

"The question which arises here is whether there is any offer to contract or whetherthe circular is no more than an invitation to receive offers. In tenders for builders itis not usual to say that the tender will be given to the lowest bidder and the contract isnot always made with the lowest bidder. In the absence of words to the effect that thehighest bidder will be the purchaser the circular cannot be said to constitute anoffer.".

Note: The court concluded that the circular inviting tenders was no more than an invitationfor offers despite the fact that the words "offer ... for sale" appeared on the circular.

The court found that, unless there was an express, unequivocal undertaking to contract withthe highest bidder, the seller was not obliged to do so. This means that, in the constructioncontext, the employer is under no obligation to contract with the lowest bidder unless heactually states unequivocally that he intends doing so. It is fairly common for invitations totender to state that the employer is under no obligation to contract with the lowest bidder orwith any bidder at all. While these words make the situation quite explicit and do introduce ameasure of clarity they are, on the Spencer case, not necessary. The employer is the offereeand he is therefore free to accept or reject any offer. He is not obliged to accept the lowesttender, or any tender at all, unless words to the effect that he will do so expressly appear onthe invitation to tender.

Tanzania has, in recent years, devoted attention to reforming its procurement policies andlegislation. Procurement under public-financed projects is carried out in accordance withpolicies and procedures laid down in the Public Procurement Act No. 3 of 2001 and theProcurement of Goods and Works Regulations, 2001- Government Notice No. 138 of13 July 2001 (generally referred to as "Procurement Regulations"). The standard tenderingprocedures are divided into a number of sections. See the slides on the following pages.





SLIDE 7A





SLIDE 7B





Consequences of Rule That Contractor Is Making the Offer

The common law rule that the contractor is making the offer has a number of importantconsequences some of which are the following:

M Since the contractor is making the offer, the employer is not obliged to accept thelowest bid or to accept any bid at all. This common law principle is reiterated instandard construction contracts where the contractor will often affirm that heunderstands that the employer is not obliged to accept the lowest or, indeed, any offer. Even in the absence of such an affirmation the common law rule will apply;

M The employer has, at common law, absolute discretion as to whether to award thecontract at all and, if so, to whom. At common law he is not bound by any rules,principles or policies in deciding who should get the tender;

M The cost of preparing the tender is borne entirely by the contractor who cannot recovershould the contract not be awarded. There has been a suggestion that the contractorcould recover the cost of preparing the tender if the employer never had the intentionof entering into a contract with anyone and was requesting tenders for some purposewhich was not bona fide;

M The contractor is free to revoke his offer at any time before acceptance. This commonlaw rule is often amended by the parties who may (and in construction usually do)agree that the contractor will keep his offer open for a stipulated period. If thecontractor has so agreed to keep his offer open any revocation will constitute a breachof contract and will expose him to a claim for damages.



WHEN THINGS GO WRONG: BREACH OF CONTRACT







BREACH OF CONTRACT

What is a Breach of Contract?

A breach of contract is simply where one party does not do what he promised to do under thecontract. In other words, if a party does not fulfil his contractual obligations, he does notcomply with the terms of the contract.

Different Forms of Breach of Contract

A breach of contract can take various forms. We are not concerned here with all the differentforms but, it should be remembered that some breaches are more serious than others and that,depending on the seriousness of the breach, the remedies available to the innocent party maydiffer.





What Should I (Not) Do If the Other Party is in Breach of Contract?

CASE STUDY 7

Contractor, C, and employer, E, enter into an agreement in terms of which C willbuild twenty dwellings as part of a township development which E is developing.

E has sold units in the township and has promised purchasers that they will haveaccess to their properties by 1 July 2006. He is therefore very concerned to ensurethat the houses are completed on time. E advises C of this urgency and the partiesagreed that E will complete the houses by 15 June 2006 and will pay C liquidateddamages of $500.00 per house per week that he is late.

C starts work but it soon becomes clear that he is falling behind the programme. Esends a letter to C saying:

"I notice that you are falling behind on the programme. I remind you that it isof the utmost importance that these units are completed on time and thatliquidated damages may be claimed.".

On receipt of this letter C brings additional workers on to the site and work speeds up. He catches up to where he should be on the programme and then tells the extraworkers they can go.

Once again work slows down and slips below the programme. Once again E writes toC and once again extra workers are brought on site.

In each case it takes C about three weeks to catch up to the programme. This goes onuntil 1 May 2006. At this stage the work is about four weeks behind programme andE is very worried.

E decides that he cannot risk C being late and he decides to cancel the contract and tobring another contractor in to complete the work. E writes to C as follows:

"Due to your persistent and ongoing failure to comply with the programmeyou must acknowledge that you are in breach of contract. I hereby cancel thecontract as a result of the breach.".

C responds with a letter to E as follows:

"Dear E, I accept your repudiation of the contract. Please note that I intendclaiming damages for breach of contract.".





Is C in breach of contract for his failure to stick to the programme?

Assuming this is a breach, does C's delay entitle E to cancel the contract?

O





REMEDIES FOR BREACH OF CONTRACT

Before the Breach Occurs

Where one person fears a breach or suspects that a breach may occur, he can apply to court

for an interdict. Under certain circumstances is may also be appropriate to apply for a

declaration of rights.





SLIDE 8




These circumstances and the quotes are taken from Hudson's Building and Engineering1

Contracts at 612-3.


Note: M The innocent party will not always be entitled to terminate the contract. Thecircumstances under which termination is allowed are discussed below;

M We have not included here a power to suspend work (or to go slow) where theemployer pays late or otherwise breaches the contract. The right to suspend isnot recognised at common law and any effort to suspend the work must beincluded in the contract. If there is no express right to suspend in the contractthe law will not recognise such a right. Similarly, the employer is not entitledto suspend payment where the contractor is in breach, unless the contractexpressly gives the employer a right to do so.

Cancellation (Where the Innocent Party Chooses to Cancel the Contract)

Note: The mere fact that one party is in breach does not mean that the other is entitled tocancel.

While it is all very well to allow the innocent party to a breach to claim damages whileupholding the contract, there are clearly circumstances where it would be inappropriate torequire the parties to uphold the contract. This is particularly so where the breach is a serious,material one, where the breach is a protracted one or where one party clearly indicates that hedoes not intend performing. While these circumstances where it would be untenable toexpect the innocent party to uphold the contract do exist, it should be remembered that thelaw does not favour cancellation under all circumstances. There are some instances where thecourts will not allow a party to cancel too readily. The circumstances where a right toterminate will arise, in addition to damages, are the following :1

M Where the Breach is "Fundamental"

"Where there is a breach of a term of the contract which is so serious in itselfthat it would be unreasonable to expect the other party to continue with thecontract. It is sometimes said of such terms that they are "fundamental", andthat the breach of them evinces an intention not to be bound by the contract,but this is at best a legal fiction, and the breach may well be involuntary andthe guilty party may in fact be doing his best to perform, although simplyunable to do so for whatever reason, such as financial stringency, lack ofcompetence or outside events for which he is contractually responsible.";

M Protracted Or Repeated Breaches Plus Notice

"Where there is a breach of a term which, while not by itself sufficientlyserious, may be so protracted or repeated, despite protest or notice by theinnocent party, that it either evinces a subjective intention not to be bound bythe contract, as in the case of deliberate and continued breaches (however





minor), or simply an objective involuntary inability to perform the contractproperly.".

Where this form of breach is relied on to justify a termination, it is wisest to servenotices on the breaching party calling on him to remedy the breach. This will not onlyfacilitate proof of his breach but will also help to rebut any allegation that the innocentparty condoned the ongoing breach;

M Anticipatory Breaches

This form of breach arises where one party actually informs the other that he intendsnot to perform the contract as a whole, or any part of it, either presently or in thefuture, or where he acts in such a way as to render his own future performanceimpossible. These are usually called "anticipatory breaches";

M Language of the Contract

Sometimes the language used in the contract will indicate that a single breach of aparticular obligation will entitle the other party to cancel. Where, for example, thecontract indicate that "time is of the essence" the parties have effectively agreed thatthe works are of no use to the employer if not completed on time and that theemployer will therefore be entitled to cancel when the works are not completed ontime;

M Express Termination Provisions in the Contract

Construction contracts will often list specific circumstances under which the innocentparty is entitled to terminate. Here the innocent party is pinning his termination on aright contained in the contract and he will therefore only be entitled to terminate if theconduct of the guilty party fits squarely into the provisions of the clause relied on andif any procedures outlined in the contract are complied with. In FIDIC you will findthis in Clause 16.2 which lists the grounds upon which the contractor may terminateand Clause 15.2 which regulates termination by the employer. Thus, the FIDICcontract, like many others, stipulates which breaches are regarded as being materialso that the non-breaching party may cancel.





CASE STUDY 8

Contractor, C, and employer, E, agree that C will demolish some houses for E withinforty-two days.

The contract provided that C was to pay liquidated damages of $600.00 for every daythat he was late.

By Day 43 C had not completed. The employer asked C how long he expected tocomplete and C said that he "could not say". When asked whether it would take one,two or three months, C that he "could not say".

Throughout this process C was on site, working every day (albeit slowly).

On Day 60 C came onto site to find that E had taken occupation and refused to lethim on to site. When asked by C what was going on E said:

"I cannot stand it any more. I am terminating the contract due to yourabandonment of the works.".

Is E entitled to terminate under these conditions or is this an abandonment byE?

O





O





What should I (not) do if the other party is in breach?

M Do not walk off site without consulting someone with legal/contractual knowledge. Itcould even be dangerous to threaten to leave the site;

M Check your contract - what does it say about a breach?

M Consult with your legal team or an independent lawyer;

M Try to discuss the issue with the other party.

You should, by now, have gathered that termination is a tricky business. If correct proceduresare not followed you may find that you are in breach even though you are the innocent,cancelling party.

The dangers and risks inherent in termination should not be underestimated.

YOU SHOULD NOT TERMINATE A CONTRACT

WITHOUT CONSULTING YOUR LEGAL DIVISION!





SLIDE 9





What Happens If the Employer Refuses/fails to Pay the Contractor?

The Effect of the Certificate on the Employer's Obligation to Pay the Contractor

M The certificate constitutes a liquid document in which the employer acknowledgesliability as against the contractor. The contractor can use this document to getprovisional sentence against the employer. While it is not impossible to getprovisional sentence using a copy of the document, it is easier to do so when one hasthe original document. For this reason many standard construction contracts requirethat the agent give the contractor the original certificate while a copy is given to theemployer.

M Where the employer makes payment on the certificate he is not making payment forwork already done. He is rather giving the contractor an advance on the final amountowing. This principle applies notwithstanding that the amount owing by the employermay have been calculated on the basis of the value of the work done.

M Where the employer's agent signs the certificate, the employer is bound as if hehimself had signed the certificate. The employer cannot escape his agent’s certificateunless he can show fraud on the part of the contractor or collusion between thecontractor and the agent. The employer may not escape the certificate by arguing thathis agent negligently over certified the works. In this case the employer will beobliged to pay in terms of his agent's certificate and will then have to bring an actionagainst the agent to recover the excess, should he be unable to recover from thecontractor.

M The certification of the works for the purposes of payment will not relieve thecontractor of the obligation to complete the works in accordance with the contract. Ifthe works that have been certified prove to be defective the employer will still be ableto bring his usual remedies and it will be no defence for the contractor to argue that, incertifying the works the employer gave up remedies. This certificate is not evidenceof the quality of the work done and is not conclusive that the works are free of defects.





CASE STUDY 9

E and C enter into an agreement in terms of which C is to complete certain buildingworks for E. The agreement states that C will be paid on interim certificates and thatpayment will be made within ten working days of certification.

After work has progressed for some time C is declared insolvent. The liquidatorsdecide not to proceed with the contract but they nonetheless claim payment on theinterim certificates.

Is C entitled to payment on the certificate?

O





O





Late Payment by the Employer

Once the works have been certified for payment the employer is obliged to pay within thetime stipulated in the agreement or, in the absence of agreement, within a reasonable time. Ifthe employer fails to pay timeously the contractor will be entitled to interest for late payment.

Withholding Retention Moneys From Payment to the Contractor

There is nothing in the common law providing for the withholding of retention money and theemployer is therefore entitled to do so only if the contract provides for it. It is unfortunatelyfairly common for employers to withhold retention even though the contract is silent on thispoint. This practice is in contravention of the principle that the employer is obliged to pay theamount owing, in accordance with the contract. Retention should not be withheld unless theagreement expressly provides therefor. There is no hard and fast rule for how much retentionshould be withheld. All depends on the terms of the agreement between the parties. Theagreement will stipulate whether retention is to be withheld, how much retention is to bewithheld and how and when retention is to be repaid to the contractor.





CASE STUDY 10

E and C enter into an agreement in terms of which C is to construct certain works forE and E is to pay C. The agreement provides for interim payments and stipulates thatretention is to be withheld at a rate of 5% from each payment certificate.

After the works reach practical completion but before final completion is reached orfinal payment made, E goes insolvent. At the time of the insolvency some $20 000.00has been withheld as retention.

C now wishes to recover the money. The executors of E's insolvent estate refuse tohand over the money, arguing that it belongs to the estate.

Is C entitled to recover the money or does it belong to E's estate?

O





O





CASE STUDY 11

Employer, E, and contractor, C, agree that C will design and construct a small stadiumto go around a football field. C completes the design and starts work on theconstruction phase.

It soon becomes clear that E is experiencing financial difficulties - he pays the thirdcertificate late and does not pay the fourth certificate at all. When the fifth certificateis issued the engineer (E's agent) says to C:

"I do not know why I am bothering to issue this certificate. We all know that Eis absolutely broke.".

C is now very worried. He is even more worried when E fails to honour the fifthcertificate.

By this stage C is in financial difficulty himself. He decides that he has no choice butto take his materials off the site and to look for other work. He does this.

The next day C receives a letter from E's lawyers. It reads as follows:

"We hereby notify you that you are in breach of contract for your failure tomaintain a presence at the site. By removing yourself from the site you haverepudiated the contract. My client will be pursuing his remedies for breach ofcontract.".

Was C entitled to walk off site?

What would you have done if you found yourself in C's position?

O





O





SLIDE 10

POSSIBLE DEFENCES TO AN ACTION BASED ON BREACH OF CONTRACT





Impossibility of Performance (Frustration)

Sometimes the circumstances that the parties find themselves in are such that it has become

impossible to perform and therefore no longer binding. In these circumstances a party against

whom a breach is alleged will be entitled to argue that he has not breached the contract but

rather that performance has, through no fault of his own, become impossible. Impossibility is

discussed under the heading of requirements for a valid contract, above. In that section we

considered both impossibility that exists when the contract is entered into and impossibility

that arises at a later stage, and would provide a defence for breach.

Act of God or Force Majeure

The terms Act of God and force majeure are often misunderstood, misused terms. This is

largely because these terms do not have any precise legal meaning or any automatic legal

consequences. In each case you will need to look at the terms of your contract to determine

what constitutes an Act of God or force majeure and also what the consequences of such

characterisation are. Most authorities argue that the term "Act of God" refers to events which

cannot be foreseen or events which can be foreseen but cannot be guarded against. The term

"force majeure" is often defined quite widely in contracts so as to include acts of man such as

war, civil unrest or strikes.

It may well be that a breaching party can raise the defence of an Act of God or force majeure

but each case will depend on the definition in the contract as well as the consequences

outlined in the contract.

WHAT IS THE ROLE OF THE EMPLOYER'S AGENT WHERE THERE IS POTENTIAL FOR

BREACH?

The employer's agent should be aware of the circumstances on site and should, ideally be in a

position to pre-empt any breach of contract before it occurs. Ideally the agent should ensure

that there is:

M Early warning of a possible breach - there should be open communication between the

agent and the contractor such that the contractor feels free to advise the agent of a

possible breach, and the agent feels free to advise the contractor of circumstances from

his side which could contribute to a breach;

M If there is early warning the parties will be able to sit down and discuss the matter and

try to find a way of dealing with the (potential) breach in a way that mitigates the

damage;

M The agent should ensure that the employer is kept informed of the circumstances and

the potential for breach. Sometimes agents feel afraid to advise the employer of a

(potential) breach for fear that this may reflect badly on them. The agent should,

however, remember that he probably owes the employer a duty of care and that a

failure to advise the employer of a possible breach could expose him to liability as

against the employer.





SLIDE 11



DAMAGES FOR BREACH OF CONTRACT

As per Hudson at 1030.1



Irrespective of what other remedies may be available to the innocent party in a breach

situation, the remedy of damages is one which always remains available. The classical

description of damages in English law is that formulated by Parke B. in 1845 as:

"The rule of common law is, that where a party sustains a loss by reason of a breach

of contract, he is so far as money can do it, to be placed in the same situation, with

respect to damages, as if the contract had been performed.".1





SLIDE 12





Therefore, when measuring damages to be awarded for breach of contract we need to do thefollowing:

M Work out how much money the innocent party would have had if there had been nobreach. In other words, how much money would the innocent party have had if theguilty party had done what he had promised to do?

M Work out how much money the innocent party has got now, when there is a breach.

M The innocent party is now entitled to the difference between what he has got, after thebreach, and what he would have had, if there had been no breach.

In assessing the damages, in order to put the plaintiff in the position he would have occupiedhad the contract been performed, the courts are concerned exclusively with his financialposition and take no account of his injured feelings. The innocent party cannot claim forinjury to his feelings or to his dignity or any other non financial loss. When claiming forbreach of contract the innocent party can only claim for financial loss.

The onus to prove that damages have been suffered lies with the plaintiff, the innocent party,and if he is unable to prove any damages, none will be awarded.

MITIGATION OF DAMAGES

The mere fact that one party is in breach does not entitle the other to sit back and watch hisdamages grow. The innocent party is obliged to mitigate his damages. He must do thatwhich the reasonable person would have done to keep his damages low.

LIQUIDATED DAMAGES

It is often difficult to work out how much actual loss the innocent party has suffered. Theinnocent party may not wish to go to court and prove his actual damages. Rather than havingto prove the actual loss suffered, the parties may agree that the contractor will pay theemployer a sum agreed up front as the loss which the employer will suffer if the contractorbreaches the contract.

Construction contracts usually apply liquidated damages where the contractor does notcomplete by the contractually agreed completion date. There is, however, nothing preventingthe parties from agreeing on liquidated damages for a failure to reach certain performancemeasures or any other breach of contract.

Liquidated Damages v Penalty (Damages in Terrorem)

Many countries, including Tanzania follow the English Law on liquidated damages. According to this system, liquidated damages are not enforceable unless there is a genuineattempt to pre-estimate the loss which the employer expects to suffer. In other words, theliquidated damages should not be used as a threat to the contractor or as some sort of





punishment for completing late. Rather, they should be used to compensate the employer forthe loss which he expects to suffer.

Therefore:

M There must be a genuine effort to estimate the loss which the employer expects tosuffer;

M If there is no genuine effort to estimate the loss, and the liquidated damages are higherthan the loss which the employer expects to suffer, then the liquidated damages arereally a penalty and are unenforceable;

M If the liquidated damages provision is found to be an unenforceable penalty theemployer will still be entitled to claim damages for breach of contract. He will,however, have to prove the extent of his loss.





SLIDE 13





SLIDE 14





CASE STUDY 12

Employer, E, and contractor, C, agree that the contractor will complete certain workfor the employer and that the contractor will be liable for liquidated damages of$500.00 per day that he is late.

C sub-contracts different parts of the work to Sub-contractors S1, S2 and S3.

These three sub-contractors are working on different parts of the workssimultaneously. A delay by either one could delay the works. Their work iscompletely separate and a delay by one does not impact on the other. C is concernedthat either one could delay the completion of the works and therefore inserts into hiscontract with S1, S2 and S3 a liquidated damages provision in terms of which eachone will pay $500.00 per day that they are late.

Is this a valid liquidated damages or is it an invalid penalty?

If both S1 and S2 are late can the liquidated damages be levied againsteither/both/neither of them?

If you were the contractor in this situation, how much would you require eachsub-contractor to pay if he delays completion?

O





O



USE AND POSSESSION OF THE WORKS



WHEN CAN THE EMPLOYER START USING THE WORKS?

Taking Over and Stages of Completion

At common law the construction contract is an entire contract. Thus, at common law, the

contractor is left to complete the works in their entirety, at which point the employer pays him

for the completed work and takes over the completed works.





SLIDE 15A





SLIDE 15B





SLIDE 15C





Allocation of Risk Under the Common Law

The construction contract is a contract of locatio conductio operis. This type of contract isone in which an independent contractor (not an employee) undertakes to deliver certaincompleted works by an agreed date. At the end of the agreed period the contractor is to handover the completed works at which stage he is entitled to complete performance.

The classification of the construction contract as one of locatio conductio operis has anumber of consequences, some of which are the following:

M At common law the contractor is not entitled to interim payments and any interimpayment which is to be paid must be provided for in the contract;

M The contractor has agreed to hand over the completed works by the agreed date. Hemust therefore ensure that he is in a position to do so and he bears the risk for anydamage to the works. He must take care of the works, remedy any defects in theworks and ensure that he is in a position to hand over the completed works at the endof the construction period. Thus, any claim for remedial work must be provided for inthe contract (and is usually provided in the "Employer's Risk" clause which isdiscussed in greater detail below);

M The contractor has agreed to complete by a certain date and must therefore do so. Anyfailure to complete by the agreed date would amount to a breach by the contractor. The contractor would only be entitled to claim additional time where performancehad, for a period, become absolutely impossible;

M At common law the employer has no general right to change the work through theissuing of instructions. The parties agree up front on what is to be done, by whichdate and at what price. Thus, if the employer changes his mind on the work to bedone the common law would require an amendment to the terms of the contractwhich, of course, the contractor would need to agree to.

How Construction Contracts Amend the Common Law

The common law rules discussed above are usually unpalatable for both the contractor andthe client. It is therefore most common for construction contracts to introduce entitlement tomoney, time, instructions etc. by way of agreements. Some of the amendments that we willconsider during the course of this session are the following:

Common Law Most Construction Contracts

Contractor gets all his money at the endof the construction period, when thecompleted works are handed over.

Contractor entitled to claim interimpayment, valued according to themethod of valuation agreed in thecontract.




Common Law Most Construction Contracts


Contractor not entitled to additionalmoney where the works are damagedbefore hand over. If the damage isattributable to an act of the client (or hisemployees/agents) then the contractorwould have a direct action to recover thecost.

Allow the contractor to claim additionalmoney where the works are damagedthrough acts of God, act of the employerand various other circumstances. Entitlement to claim and the amountthat the contractor can claim isdetermined by the terms of the contract.

No general entitlement to claimadditional time. If employer causesdelay then agreed date for completionlapses and time becomes "at large".

Allow the contractor to claim additionaltime under certain circumstances. Circumstances when contractor canclaim and extent of claim determined byterms of contract.

Employer not entitled to instructchanges to the agreed work.

Allow employer (through agent) toinstruct changes. Amount ofcompensation determined by terms ofcontract.

There are no stages of completion. Onlyfinal completion, when the work is inaccordance with the contract isrecognised.

Stages of completion are provided for. These are usually practicalcompletion/taking over, finalcompletion. Sometimes other stages areagreed as well.





SLIDE 16





Possession of the Site

CASE STUDY 13

Employer, E, and contractor, C, agree that C will build five houses on E's land. Eintends renting these houses out. The work includes the construction of a boundarywall to go around the site.

On 15 May 2006 C starts work. He moves his workmen and machinery onto the siteand starts working. The first thing that C does is to construct the wall, which includesa gate as required by the contract.

On 30 June 2006 E comes to the site with his brother who he wants to show around. They find the gate closed. E calls the C on his cell phone and asks to be let onto thesite so that he can see how work is progressing.

C says:

"I am terribly sorry but we are very busy here and I do not have time to takeyou on a guided tour. There is a safety risk if I allow you on site at this time. Please e-mail me next week to arrange another time when you can come ontothe site. I cannot promise that we will be able to arrange something but if yougive me enough warning I will see what I can do.".

E is enraged. He has been embarrassed in front of this brother and cannot see why heshould not be allowed on to the site. All the title deeds and lease papers for the siteshow that it belongs to E.

Is C obliged to allow E on to the site?

O





O





Use of the Works by the Employer

Most construction contracts provide for a stage in the works where the works are not

complete but can be used for the purpose intended. This stage is often referred to as practical

completion or taking over. Where a contract allows for practical completion/taking over it

will stipulate what the consequences of taking over/practical completion are. These are

generally that:

M Liquidated damages cease;

M Retention moneys or other security reduces;

M The employer is entitled to start using the works.





SLIDE 17





REMEMBER

This is contract specific. In each case you need to check the terms of your contractto work out whether there is practical completion, and what the consequences are. The employer should not start using the works until all the contractual provisionsentitling him to do so have been complied with.





CASE STUDY 14

Employer, E, and contractor, C, enter into a contract in terms of which C is to designand build a school. The work includes the design and construction of six classroomsas well as a school hall and library.

The contract provides as follows:

Clause 9:

"If the contractor fails to achieve Practical Completion by20 January 2006 he shall be liable for liquidated damages in the sumof $300.00 per day.";

Clause 10:

"When, in the opinion of the contractor, the works are suitable for useas a school, the contractor may request an inspection by theemployer's agent.";

Clause 11:

"If the agent is of the opinion that the works are suitable for use as aschool he shall issue a certificate of Practical Completion.";

Clause 12:

"Once the certificate of practical completion is issued the followingconsequences flow:

12.1 The contractor's liability for liquidated damages ceases;

12.2 Three quarters of the retention is paid back to the contractor;

12.3 The employer may start using the works.";

Clause 13:

"Following the issuing of the certificate of practical completion thecontractor shall, diligently and expeditiously, work to bring the worksto final completion.".





On 12 January 2006 C advises the agent that he believes the works to be practically

complete. The agent makes an inspection of the works and agrees that they arepractically complete. He issues a certificate to that effect and the employer pays backthree quarters of the retention. At this stage the classrooms and hall are completed butthere is still work to be done on the library.

E immediately starts moving desks and seats into the classrooms.

On 20 January 2006 the school year commences and students start attending the newschool.

On 24 January 2006 three students wonder into the library at break, intending to sneaka cigarette. None of C's workers are on site as most of them moved to another sitewhen practical completion was achieved. The few that were left behind to completethe library are on lunch break when the students sneak in.

One of the students falls over the scaffolding, causing a major collapse of scaffolding. This injures the student and damages the works.

Is C liable for the injury to the student?

Is C responsible to make good the works?

Can C claim anything from E for having to redo part of the work?

O





O





SLIDE 18





CASE STUDY 15

Employer, E, and contractor, C, enter into a contract in terms of which C is to designand build a school. The work includes the design and construction of six classroomsas well as a school hall and library.


Clause 9:

"If the Contractor fails to achieve Practical Completion by20 January 2006 he shall be liable for liquidated damages in the sumof $300.00 per day.";

Clause 10:

"When, in the opinion of the contractor, the works are suitable for useas a school, the Contractor may request an inspection by theEmployer's agent.";

Clause 11:

"If the agent is of the opinion that the works are suitable for use as aschool he shall issue a certificate of practical completion.";

Clause 12:


12.1 The Contractor's liability for liquidated damages ceases;

12.2 Three quarters of the retention is paid back to the Contractor;

12.3 The Employer may start using the works.";

Clause 13:

"Following the issuing of the certificate of practical completion thecontractor shall, diligently and expeditiously, work to bring the worksto final completion.".






complete. The agent makes an inspection of the works. At the end of the inspectionthe agent tells C that he does not believe the works to be practically complete. Hegives C a list of outstanding work to be completed before practical completion will becertified. C starts working on the items on the agent's list.

On 15 January 2006 delivery vehicles arrive at the site with desks and chairs. C stopsthe delivery vehicles and asks what is going on. The driver says:

"I know nothing about your deal with E. I have furniture to deliver and I willdeliver it.".

Chairs and desks are delivered to the classrooms.

That evening C phones the agent to ask what is going on. The agent says:

"You should know that the school year starts on 20 January. What did youexpect to happen? If I were you I would stop moaning and start working. Donot forget that liquidated damages run from 20 January.".

On 20 January 2006 the school year commences and students start attending the newschool. On 24 January 2006 three students wonder into the library at break, intendingto sneak a cigarette. None of C's workers are on site as most of them moved toanother site when practical completion was achieved. The few that were left behindto complete the library are on lunch break when the students sneak in.

One of the students falls over the scaffolding, causing a major collapse of scaffolding. This injures the student and damages the works.

Is C liable for the injury to the student?

Is C responsible to make good the works?

Can C claim anything from the Employer for having to redo part of the work?

Is this situation different from the one in the previous case study?

How so?

What if E's agent keeps on finding problems with the works and refuses tocertify completion?





O





CASE STUDY 16

E and C enter into a contract in terms of which C is to design and build a school. Thework includes the design and construction of six classrooms as well as a school halland library.


Clause 9:

"If the Contractor fails to achieve Practical Completion by20 January 2006 he shall be liable for liquidated damages in the sumof $300.00 per day.";

Clause 10:

"When, in the opinion of the Contractor, the works are suitable for useas a school, the Contractor may request an inspection by theEmployer's agent.";

Clause 11:

"If the agent is of the opinion that the works are suitable for use as aschool he shall issue a certificate of practical completion.";

Clause 12:


12.1 The Contractor's liability for liquidated damages ceases;

12.2 Three quarters of the retention is paid back to the Contractor;

12.3 The Employer may start using the works.";

Clause 13:

"Following the issuing of the certificate of practical completion theContractor shall, diligently and expeditiously, work to bring the worksto final completion.".






complete. The agent makes an inspection of the works. At the end of the inspectionthe agent tells C that he does not believe the works to be practically complete. Hegives C a list of outstanding work to be completed before practical completion will becertified. The items listed by the agent are:

Handles on the cupboards in the library;

Painting the shelves in the library;

Putting up blackboards in the classrooms;

Painting the outside walls of the hall (all inside walls have been painted);

Paving in the corridor outside the library is lifting. Refit it.

C is of the view that none of these items interfere with the school being used as aschool. He says he can easily complete those jobs while the school is being used.

The agent argues that these interfere with the use of the school and that the certificatecannot possibly be given until all the items on the list are completed.

Is the agent entitled to withhold the certificate in these circumstances?

O





O





CASE STUDY 17

The facts in this case study are identical to those above.

Assume that C gets the list from the agent and decides that, rather than fighting, hewill just complete all the tasks on the list. He finishes them all and then calls foranother inspection.

The agent does another inspection. At the end of the inspection he says:

"You are wasting my time. These works are nowhere near complete.".

He issues another list which contains:

"Painting the roof of the library.".

C is furious. He argues that the painting of the roof should in no way interfere withthe granting of the Certificate of Practical Completion. He also says that the agent isnot entitled to add new items to the list after it is issued the first time.

Is the agent entitled to add new items to the list in this way?

O





O



DEFINING AND INTERPRETING DELAY AND DISRUPTION

Page 10 - "Delay and Disruption in Construction Contracts" by Keith Pickavance, LLP1

Limited, 1997.



RISK

Keith Pickavance defines risk as:

"The Possibility of activity or inactivity by others or of natural phenomenon causingdelay and/or economic loss.".1

All endeavours in life have risks attached to them, and it is up to each party to decide howmuch risk they are willing to accept.

The main purpose in drafting construction contracts is to define the allocation of risk betweenthe parties, ie. who takes the risk for what?

The purpose of the construction contract is to set out and define the rights, duties andliabilities of each party, in sufficient detail to allow the allocated risk to be properly managed. The challenge is in identifying the risk retained and recognising that risk which is transferredunder some circumstances may be retained under others. Risk must be accurately andproperly defined as any ambiguity or omission will lead to disputes which arise out ofmisinterpretation and consequent failures by a party to make adequate provision for such risk.

The allocation of risk between the contracting parties is a matter of commercial negotiation,however, over the years through the development of standard forms of contract, the definitionand allocation of risk and been developed and defined to what is currently accepted as anindustry norm.

Note: Any risk not defined in the contract as employer's risk is the contractor's risk.





SLIDE 19

MISCONCEPTIONS




As quoted in Thomas: Construction Contract Claims.2


Among the more common misconceptions are the following (based on Presentation on"Business Relations Between the Operators and the Service Industry: Who Assumes theFinancial Risk of a Project?" 2004 Daniel Valot, Chairman and CEO of Technic):

M Always Bid Low

There is an unfortunate tendency in the industry to underbid on contracts, in an effortto secure work. Often, a contractor will underbid in the hope that he can make somegains as the works progress. Employers often seize upon the lowest price on theassumption that this will give them value for money.

The irony here is that "the lowest" price is found (painfully) not in fact to be thelowest price at the end of the day. Projects or contracts based on awards to lowesttenderers irrespective of capabilities, expertise, experience etc. often end in:

M Poor project execution;

M Delays;

M Cost overruns;

M Claims and counterclaims.

An account of a tendering process which took place during the industrial revolution isgiven in Coleman in "The Railway Navvies":

"Firbank used to tell the story of one Mr Whythes (probably George Whytheswho undertook, among other lines, that from Dorchester to Maiden Newton)who was thinking of submitting an offer for a contract. He first thought£18 000 would be reasonable, but then consulted his wife and agreed it shouldbe £20 000. Thinking it over he decided not to take any risk, so made it£40 000. They slept on it and the next morning his wife said she thought hehad better make it £80 000. He did; it turned out to be the lowest tendernotwithstanding, and he founded a fortune on it." ;2

M Lump Sum Contracting for the Wrong Reasons

When used correctly, in appropriate circumstances, lump sum contracting can carrybenefits for both the employer and the contractor. In particular, the employer may getgreater certainty as to price. Lump sum contracting is not, however, alwaysappropriate and should not be used for the wrong reasons. Wrong reasons wouldinclude:

M The intention that a Lump Sum award be a quick and easy allocation of the





majority of risk on to the contractor;

M Full extent or scope not likely to be defined in time for award;

M The risks on the project are too difficult or remote to evaluate;

M To try and test the validity of your contingency amount;

M Fast Track Projects - the Way of the Future for All Projects

M Plagued by ever tightening deadlines one often jests about there only beingtwo kinds of projects at present, namely fast track versus super fast trackprojects;

M The nature of the works (level of complexity, degree of experience with typeof work) and the level at which the scope is defined will/should determinewhether to pursue this option;

M "Changing The Rules of The Game During The Game"

The primary purpose of entering into a contract is to establish the rules by which thework will be completed, so that all parties have certainty as to the terms by which theyare to work. Unfortunately, some parties do not stick to the agreed terms but attempt,rather to change the rules after they have been agreed. This can lead to greatdifficulties for all players, eg.:

M "Organizing bidding, then rebidding, and even re-rebidding";

M "Utilizing mysterious criteria to weight the offers from competitors during thebidding process";

M "During the contract execution, change the scope of work first and negotiatevariation orders second.";

M "Allocating Risks to The Wrong Party"

M "In addition to their job (contractor), E&C companies are often expected toact as:-

M A commercial bank (neg. cash flows on projects)M An insurance company (providing insurance coverage for clients'

risks)M A Forex gambler (contract in $, costs in various currencies).".

The different standard forms of contract apportion risk differently in respect to differentaspects of the contract and are specially designed for certain types of work. In the majority of





instances the risk of design is that of the employer whereas in turnkey contracts the designrisk is that of the contractor.

DEFINITION OF DELAY

The identification of delay and disruption is specific to each contract and is defined in theterms of contract.

Many disputes emanate from the fact that the word "delay" is not used with any precision andcontracts can present conflicting meanings of the word. It is often of no surprise that theparties have difficulty in identifying their rights and liabilities.

Note: What may be a delay in terms of one contract may not be in another and, similarly, thesame type of delay under different contracts may entitle a contractor to different or nocompensation at all.

In each case one needs to read the contract to determine:

M What constitutes a delay;

M Whether there will be any compensation for the delay.





SLIDE 20





Limited, 1997.


CAUSES OF DELAY

Keith Pickavance sets out three primary sources from which the risk of delay to completionarise:3

M Delay by those who have contractual obligations eg. contractors, sub-contractors,suppliers etc.;

M Delays which arise from circumstances outside of the control of the contractingparties, eg. unforeseen physical and climatic conditions, political changes, etc.;

M Delays arising out of compliance with statutory obligations, eg. planning authorities,health and safety etc.





SLIDE 21

Delay: Intention v Reality




Page 113 - "Delay and Disruption in Construction Contracts" by Keith Pickavance,4

LLP Limited, 1997.

US Court decisions: Gulf Contracting Inc., ASBCA No. 30,195, 89-2 BCA (CCH) para.5

22,812, affirmed 90-1 BCA (CCH) para. 22,293 (1989) and Ealahan Electic Co., DOTBCA

No. 1,959, 90-3 BCA (CCH) para. 23,177 (1990).


At the time of tender, or the commencement of the contract, the contractor provides aprogramme for the execution of the works. This is a theoretical assumption, based onexperience and the quality of the information contained in the tender documents, as to natureand extent of the works. The value of the programme is therefore directly proportional to thedegree of thought that has gone into its production and the logical analysis of the informationgiven to the contractor upon which it is based. The Contractor’s programme is no more than4

a statement of his intention, what he hopes to achieve using his best endeavours. In order tobe most effective and be acceptable proof the as-planned-programme must be up to date at thetime the particular delaying event occurs.5

Delay is therefore the difference between theoretical planning, and the hypothesis behind it,and what occurs in reality.





SLIDE 22Contract Provisions





Limited, 1997.

Group Five Building Ltd v Minister of Community Development 1993 (3) SA 629 (A).7


Limited, 1997.


Limited, 1997.


Contract provisions for excusable circumstances which entitle the contractor to an extensionto the contract period fall generally three categories:6

M Contracts where no provision is made;

M Contracts which provided a brief list of excusable delays which is further divided intocompensable and non compensable events; and

M Contracts which provide single clauses which by reference and cross-reference givecircumstances which will give rise to changes in the parties rights.

Where no provision is made for the employer to grant extension of time and the contractorwas delayed by supervening circumstances, through no fault of his own, there being nomechanism to extend the date for completion the contractor would be relieved of hisobligations to complete the works by the agreed date and would only be obliged to completewithin a reasonable time and time would said to be at large.7

The terms of contract generally define the excusable and/or compensable delays which entitlethe contractor to request an extension of the construction period as is generally found inengineering contracts.

Delay to Completion

Delay to completion, as previously mentioned, can be defined as a delay which causes theworks to continue beyond the contractual completion date, or contractually extendedcompletion date. The essential cause of the delay is a delay or extension of the duration ofone or more critical activities.8

It is only delay to completion that qualifies for an extension of time and by definition,depending on the particular terms of contract, are excusable and/or compensable.9

Logically it follows that if a delay to progress occurs which does not affect the contractorcompleting within the contracted period, it does not have to be excused. A delay to progressmay however entitle the contractor to compensation despite the fact that no extension of timeis granted.





CASE STUDY 18

A transport company owning a fleet of tipping trucks won a contract for the haulageof sand for the making of concrete for a new air force aerodrome being constructed ina remote location. There was a large amount of concrete at the aerodrome and thesand source was located approximately 55km from the aerodrome in a mountainousarea. The contract was a direct contract between the constructing authority (theemployer) and the haulage contractor, as the sand was required by several separateconstruction companies all of whom had direct contracts with the employer. Thecontract was let in terms of the FIDIC 1987 Conditions for Civil Engineering Works.

In order meet the production rate of concrete it was necessary for the haulagecontractor to resource the job with approximately forty trucks. The haulage roadbetween the sand source and the aerodrome for the majority of its length was notsealed, and crossed low-level bridges over two rivers. As the road was only usedinfrequently by the public, the contract provided that the haulage contractor wasresponsible for the maintenance of the road during the term of the contract.

An express term in the Special Conditions of Contract stated that the haulagecontractor was entitled to an extension of time for days on which the rainfall exceeded10mm, and also for one day following two or more successive days of such rainfall. Whilst the aerodrome was located in a flat topographical area, the road passed througha mountainous area of a different climatic area with high rainfall. The rain gauge forthe contract was located at the aerodrome, and the contract did not define the site asother than the "site of the works" (being the aerodrome). Rainfall statistics stated inthe special conditions were for a meteorological station in the vicinity of theaerodrome.

In addition to the rainfall provision, applicable terms of the contract were:

"Clause 12.1 Sufficiency of Tender

The contractor shall be deemed to have satisfied himself as to the correctnessand sufficiency of the Tender and of the rates and prices stated in the Bill ofQuantities, all of which shall, except insofar as it is otherwise provided in thecontract, cover all his obligations under the contract, including those inrespect of the supply of goods, materials, plant or services or of contingenciesfor which there is a provisional sum, and all matters and things necessary forthe proper execution and completion of the works and the remedying of anydefects therein.

Clause 12.2 Not Foreseeable Physical Obstructions or Conditions

If, however, during the execution of the Works the contractor encounters





physical obstructions or physical conditions, other than climatic conditions on

the site, which obstructions or conditions were, in his opinion, not foreseeableby an experienced contractor, the contractor shall forthwith give noticethereof to the engineer, with a copy to the employer. On receipt of suchnotice, the engineer shall, if in his opinion such obstructions or conditionscould not have been reasonably foreseen by an experienced contractor, afterdue consultation with the employer and the contractor, determine:

(a) any extension of time to which the contractor is entitled underclause 44, and ...".

During a wet season, very heavy rainfall fell in the mountainous region of the road,causing major damage to the road, in addition the two rivers flooded, and the lowlevel bridges were impassable for a total of four weeks. No rainfall exceeding 10mmfell on one day at the site of aerodrome. The haulage contractor submitted a claim foran extension of time for four weeks putting forward the argument that the conditionwas unforeseeable, as the rainfall did not fall on the site as defined in the contract, itwas entitled to claim under Clause 12.2 of FIDIC.

Is the haulage contractor entitled to an extension of time?

O





O





Slide 23

NATURE OF DELAY





Employer's Delays

M Variations;

M Contract instructions;

M Late contract instructions;

M Not ready for contracting;

M Ill prepared sub-contracts;

M Access problems;

M Co-contracting;

M Late free issue materials;

M Inconsistent instructions;

M Incorrect design;

M Delay on approvals.

Contractor's Delays

M Slow mobilisation;

M Procurement problems;

M Incorrect construction;

M Inadequate staffing;

M Poor supervision.

Neutral Delays

M Weather;

M Ground conditions;





M Unforeseen conditions;

M Force majeure;

M Inability to obtain materials;

M Late supply of prime cost items;

M Making good physical loss or damage to the works.





SLIDE 24

CONCURRENT DELAYS





It is relatively simple to deal with a single delaying matter, ie. if there is only one delayoccurring during any period of time. Even if several delaying matters are occurring at thesame time, if there is a single dominant delay which affects the progress of the works, it maybe relatively easy to analyse the situation and grant, or refuse to grant, as the case may be, anextension of time. Unfortunately, construction contracts are delayed by numerous matters,some at the same time, some overlapping with other delays, some critical, some not critical,some qualifying for extensions of time and others entirely at the risk of the contractor. Forthis reason, a sensible and detailed analysis of the delays and of the contractor's programme,either manually or using computer techniques, is essential in order to arrive at a reasonableconclusion. Further, it is essential that the programme is updated to take account of previousdelays, ie. current delays should be compared with the latest updated "programme of the day".

Contractors will usually seek to show that delays for which they would be entitled to anextension of time (preferably delays which may give rise to a financial entitlement), caused,or were likely to cause, delay to completion of the works. It is not in the contractor's interestto consider concurrent delays which would not qualify for an extension of time, and it is notusually required to do so (under the terms of the contract).

From the employer's point of view, it is essential to consider concurrent delays. Notwithstanding the fact that extensions of time and extra costs, or loss and expense, arequite separate issues (an extension of time is not a condition precedent to a financial claim),the employer can minimise its exposure to financial claims, if a proper analysis of concurrentdelays is carried out as and when delays occur. This is essential in order to establish thecontractor's financial entitlements. For this reason, it is perhaps at least as important (if notmore important), that the principal agent employs planning and programming techniques,whether they are manual or computer applications, to monitor progress and analyse delay. Apart from looking after the employer's interests, it is evident from recent developments inthe courts, that the employer's professional advisers are increasingly open to claims fornegligence, if they fail to properly administer the contract. More disputes and arbitrationsarise out of poor contracts administration, than perhaps any other single cause. Theunrecovered costs of dealing with such disputes and subsequent proceedings, may be avoidedor minimised, by care and attention to contracts administration at all times during the periodof the contract.

Concurrency is the most challenging aspect of retrospective delay analysis and the mostcontentious.

What is a Concurrent Delay?

M A true concurrent delay is the occurrence of two or more delay events at the sametime, one employer risk event, the other a contractor risk event, the effects of whichare felt at the same time;

M "Concurrent effect" is a term used to describe the situation where two or more delayevents arise at different times, but the effects of which of them are felt at the sametime, in whole or part.





Concurrency causes many difficulties because more than one event or circumstance mayoccur simultaneously, for example:

M More than one activity in float;

M Activities on more than one float path;

M Activities on a critical path;

M Activities on more than one critical path; and

M Through lapse of time, an effect on float can be turned into an effect on the criticalpath and vice versa.





The Significance of the Programme

CASE STUDY 19

E and C agree that C will execute certain earth works. E appoints an engineer to actas his agent on site. In accordance with the principal agreement C submits aprogramme. The programme is approved of by the engineer. The programme showsan earlier date for completion to that shown in the contract.

The engineer fails to deliver certain drawings as and when required by the contract. Cfollows all the notice requirements of the contract and informs the engineer of a delayresulting from his failure.

Notwithstanding the delays C completes the works before the date given forcompletion in the contract. His completion is, however, later than the date given inthe programme and C therefore claims an extension of time with associated P&Gs.

Is C entitled to the extension and the additional costs?

O





O





CASE STUDY 20

The contract provides for a completion period of one year.

The contractor submits a programme in accordance with the contract, in which heindicates a completion period of eleven months.

Work progresses according to programme for ten months at which point nation widestrikes delay the progress of the works. The strikes are entirely outside of the controlof the contractor. The strikes affect the running of trains, trucking and the transport ofsupplies. The result is that the contractor cannot get supplies for three weeks.

The contractor takes all possible steps to mitigate the delay but is nonetheless delayedby two weeks. The contractor claims an extension of time of two weeks.

The engineer argues that the contractor is not entitled to any extension since he willstill complete the works within the completion period of one year.

Is the contractor entitled to an extension of time?

O





O





SLIDE 25





WHEN IS THE CONTRACTOR ENTITLED SO AN EXTENSION OF TIME?

CONUNDRUM 1

The contractor applies for an extension of time. The claim is based upon a variationorder. This order included additional work and omitted certain work. The agentconsiders the application and decides that in fact the variation has reduced the timeneeded to complete the work. The agent therefore decides to reduce the period forcompletion and to bring the completion date forward.

Is the agent entitled to bring forward the completion date?

O





CONUNDRUM 2

The contractual date for practical completion is the 30 September 2006. Thecontractor looks set to meet the date when he has a plant breakdown on25 September 2006. The effect of the plant breakdown is to delay him for two weeks. On 2 October 2006 the architect issues a variation order which amounts to one week'swork for the contractor. The contractor now applies for an extension of time, basedon the variation order. The architect's response is that the contractor is not entitled toany extension since he himself was in culpable delay at the time of the variation. Thearchitect proceeds to deduct penalties from 30 September 2006. The architect arguesthat even if he wanted to grant an extension he is not entitled to since the date forcompletion has passed. The contractor's response to this is to argue that time must beat large and the architect is not entitled to deduct liquidated damages.

Is the contractor entitled to an extension?

If so, from what date will the extension be granted?

Has time become "at large"?

Is the architect entitled to deduct liquidated damages?

O





CONUNDRUM 3

The agreement between contractor and employer provides that the architect is to makea decision regarding any claim for an extension of time within thirty days of receivingparticulars from the contractor. The contractual date for practical completion is30 September 2006. During the month of August there are unusual weather patternswith an inordinate amount of rain falling. This unexpected rainfall delays thecontractor who duly applies for an extension. The contractor requests a fourteen dayextension and serves all the required notices on the architect. The full particulars areserved on the architect on 21 August 2006. By 1 October 2006 the architect has notmade his decision on the application for an extension. He does, however, beginlevying liquidated damages against the contractor.

Is the architect entitled to deduct liquidated damages?

O




Construction Contract Claims.1


PRESENTING A CLAIM FOR AN EXTENSION OF TIME

Reg Thomas lists the following "major obstacles to prompt settlement of claims for1

extensions of time":

M The erroneous assumption that an extension of time is automatically linked toadditional payment;

M Late, insufficient or total lack of notice on the part of the contractor;

M Failure to recognise delays at the appropriate time and maintain contemporary records;

M Failure to regularly update the programme so that the effects of delay can bemonitored against a meaningful "programme of the day";

M Poor presentation of the claim to show how the progress of the work has beendelayed;

M Insistence, on the part of the employer's professional advisers, that unreasonablydetailed critical path programmes are essential in order to assess the effects of thedelay;

M The probability that the cause of the delay will reflect on the performance (or lack ofit) on the part of the employer's professional advisers;

M Pressure, on the part of the employer, to complete on time, irrespective of delayswhich occur.

The same author lists the following items which should be included in an extension of timeclaim:

M A description of the cause of delay and the contractual provision which is being reliedupon for the extension;

M The date when the delay commenced and the period of delay (giving details ofintermittent effects if appropriate);

M The date of notice of delay, specifying the reference of the relevant document;

M A summary of records and particular relied upon (with copies included in theappendix);

M A narrative of events and effects on progress;





M A diagrammatical illustration showing the status of the programme, progress andcurrent completion date prior to the commencement of the delay;

M A diagrammatic illustration showing the effects of the delay on the progress andcompletion date (including subsequent delays which may have reduced the float in theprogramme);

M A statement requesting an extension of time for the delay to completion for the periodshown on the submitted illustration.





SLIDE 26

TOOLS AND TECHNIQUES OF CONSTRUCTION PROGRAMMING

Programme Requirements





SLIDE 27

Updating of Programmes





The frequent updating of construction programmes is highly desirable for three principalreasons:

M For the realistic monitoring of progress;

M For the contractor to be able to plan its future work and resource allocations;

M For the assessment of the contractor's owns entitlement to extension of time.

It is again stressed that the original contractual programme, and any programme updates are astated intention of the manner in which the contractor intends to complete the remainingwork. They are not contractual documents and therefore have no contractual status. Arevision of the programme is not a claim by the contractor for an extension of time, and theapproval of such programme is not the granting of an extension of time by the principal agent.

All too often programme updates are not submitted by the contractor because it is notpossible for it to programme the remaining works to be completed by the completion date,and therefore the contractor prepares what is commonly called a "working programme". Such programmes have no place in good contract administration, as the contractor should beat liberty to prepare, and the principal agent should be willing to accept, a programme updatewhich extends beyond the contract completion date.

In a paper entitled "Extensions of Time - an Arbitrators Perspective" published in theInternational Construction Law Review July 2003, Keith Pickavance says:

"Most contractors start off with a programme of some sort that is said to encapsulatetheir intention for the future conduct of the works. But when the programme is basedupon incomplete design information, without discussion in any great detail with mostof the subcontractors, or the utilities, and has been produced by a planner who hadnot priced the work, but who produced it several weeks before the tender was eversubmitted, it is unlikely to have a great deal of meaning as to the contractor'sintention for the future conduct of the works for very long. So, if the contractor'sintention is to be identified by reference to the programme, the contract programmemust be reviewed and updated to reflect the contractor's intentions from time to time. If the programme is not reviewed and updated regularly then, generally, there isunlikely to be much to identify what is the contractor's intention and , if thecontractor's intention cannot be identified, it is extremely difficult to identify a delayto that intention.".

Updates of the programme should be made on the occasion of significant events which wouldcause change to the forward planning and/or quantities of the remaining work, or otherwise atregular intervals to be agreed between the principal agent and the contractor. The significantevents would include, but not be limited to:

M Variations and instructions;





M Late information;

M Lack of access;

M Significant changes in estimates of final quantities (affecting remaining work);

M Major slippage of critical or near critical activities.

A procedure which could be followed as at the date of update:

M The percentage completion and/or remaining duration of each item should be assessedbased on the previous estimate of quantities;

M The "to-day" (update) date vertical line should be inserted in the programme;

M Utilising the software facilities, split each activity on which work has commenced butis incomplete and behind schedule, such that all remaining work is moved to the righthand side of the "today" line, to ensure all remaining work is programmed to becompleted in the future. It is unfortunately not uncommon for contractors to leavework to be carried out on a date in the past, on the belief that it will be able to catchup!;

M The remaining duration for each activity to be reassessed, based on updated estimatesof quantities and revised production rates if applicable. For extension of timepurposes the cause for any revision in the revised production rate should be assessedto determine whether it is at contractor or employer's risk. Where final estimatedquantities are changed for existing activities, this will change the previously estimatedpercentage complete and/or remaining duration, and as such it is possible that thepercentage complete could reduce from one programme update to the next, despite thefact that no work was completed on that activity in the interim. There are facilitieswithin most software to accommodate negative changes in the percentage complete ofactivities.

M New work resulting from variations and/or instructions should be inserted togetherwith required information dates;

M The programme logic and sequence of work should be re-assessed as necessary to:

M Maintain the previous and/or desired logic if possible;

M Ensure the works are programmed to be completed at the earliest possiblereasonable completion date;

M Resources usage is optimised utilising the resource histograms and usingcurrent or otherwise agreed resource levels;





M In the event of over allocation of resources, the resource levelling facilitieswithin the software should preferably be utilised;

M At the time of finalising the programme update, new information schedules should beextracted or otherwise prepared.

Acceleration

Acceleration occurs when a contractor must accomplish a greater amount of work during thesame time period or accomplish the originally anticipated work during a reduced time period. Acceleration may be accomplished by increasing crew sizes, overtime, or multiple shifts.

Acceleration is a concept which is often misused in the construction industry. In particular,the employer's agents and contractors alike often believe that there is an automatic right toinstruct an acceleration or to claim for accelerating. Neither is the case. In each instance oneneeds to look to the provisions of the contract to determine whether the engineer is entitled toinstruct an acceleration and whether there will be financial compensation for acceleration.

A typical acceleration provision may read as follows:

"In any circumstances where the Engineer determines that the Contractor is entitledto an extension of the Time for Completion ... the Engineer may, subject to theagreement of the Employer, direct that the Contractor accelerate the Works byapplying additional resources if necessary or working longer hours or in whatevermanner is appropriate, at a fair cost to be determined by agreement between theContractor and the Employer.".

Under the example above the engineer is entitled to instruct an acceleration where there is aclaim for an extension of time. If agreement as to payment for the acceleration cannot bereached, the matter is to be dealt with through the dispute resolution process.





Acceleration Following an Additional Work Variation Order

CASE STUDY 21

Contractor, C, and employer, E, agree that C will complete certain works. Theircontract provides that C may claim additional time in certain listed circumstances, oneof which is extremely adverse weather conditions. A claims procedure is included inthe contract. The claims procedure gives E's agent one calendar month within whichto determine any claim.

Three months into the contract (and two months before the contractual completiondate) C is delayed due to rain. On Day 1 C serves the notices required to claimadditional time. In accordance with the contract, E's agent now has one calendarmonth within which to determine whether C is entitled to additional time.

C is now concerned. He is worried that, if his claim is unsuccessful, he will runovertime. He is, however, fairly confident that the weather conditions were extremelyadverse.

C consults you. He says that he can bring additional workers in to complete on timebut he is unsure whether he will be compensated for this. He does not want to riskliquidated damages if he finishes late but also does not want the additional cost ofbringing extra workers on site.

Advise C.

O





O





When an employer orders a contract variation for additional work it is inevitable that theplanning of the remaining work will vary, and in all probability the additional work willrequire additional resources if the original completion date is to be maintained. Thecontractor has two alternatives:

M It can immediately apply for an extension of time; or

M It can accelerate the remaining works.

Immediately following an instruction which involves additional work, the contractor must inthe first instance give notice of its intention to apply for an extension of time. However, theclaim will take the contractor time to prepare, and the principal agent will take time todeliberate upon the claim.

The contractor faces a dilemma of whether to constructively accelerate or not in the meantimeuntil a decision is reached. If he does so, there is a distinct possibility that he will not be ableto recover the additional costs of acceleration he incurs until a decision is reached by theprincipal agent and/or employer.

Acceleration Following Excusable Delay

Following an excusable delay, the contractor is theoretically entitled to an extension of time. As in the case above, time will be lost whilst the contractor prepares its submission for anextension of time, and for the principal agent to consider the application and to make thenecessary award. Until such time as the award of extension of time is made, the contractorhas the obligation to complete the work by the contract completion date. Depending upon themagnitude of the excusable delay, once again the contractor is faced with the dilemma ofwhether to accelerate in the meantime or not.





SLIDE 28

Types of Acceleration Agreement





At the time a variation order is issued which increases the quantity of remaining work, orwhere the contractor suffers a significant excusable delay, a responsible employer and/orprincipal agent should be aware of the necessity to make a fast decision on whether toaccelerate or not. There is no standard form of an acceleration agreement, as each particularapplication has its own idiosyncrasies. Acceleration agreements fall into two majorcategories, namely:

M Effort based; or

M Result based,

or a combination of the two, and any form of acceleration agreement will almost inevitablyaddress the question of bonuses if the target is achieved, a neutral time zone between adjustedplanned completion date and actual completion date before liquidated damages are applied,and the application of liquidated damages.

As the name suggests, an effort based acceleration agreement is where the contractor isreimbursed its additional cost of accelerating, and would normally cover a wide range ofadditional costs which are addressed below.

A result based acceleration agreement is one in which the contractor is not reimbursed theadditional cost of accelerating as the accelerated work takes place, but rather receives aprearranged additional payment if it achieves the target, which may or may not be the contractcompletion date, but rather some intermediate target.

Bonuses can take many different forms, and maybe ratcheted to different amounts forreaching different completion dates.

It is essential for the parties to realise that, unless the contract expressly provides foracceleration, an acceleration agreement is an amendment to the contract agreement, and mustbe treated as such. Once the event which causes acceleration has taken place, it is highlydesirable that the acceleration agreement be put in place as quickly as possible, as the longerit takes to make the agreement, so the need for increased acceleration occurs. It is alsoessential that contractors are ever mindful of the fact that they should not commence theacceleration process until the acceleration agreement is in place.





SLIDE 29

Additional Costs of Acceleration





If a contractor's progress schedule to complete the remaining work is altered so that moreactivities must be accomplished concurrently, lost productivity costs caused by crowding canresult. Crowding occurs when more workers are placed in a given area than can functioneffectively. Crowding may result in lowered productivity.

The increased crew sizes which may be required by acceleration can also cause lostproductivity. Optimum crew size represents a balance between an acceptable rate of progressand the maximum return from the labour cost invested. Increasing crew size above optimumcan usually produce a higher rate of progress but at a higher unit cost. As more workers areadded to the optimum crew, each new worker increases crew productivity less than thepreviously added worker. Carried to the extreme, adding more workers contributes nothing tooverall crew productivity.

Acceleration can also cause extensive overtime. In discussing sustained overtime, theBusiness Roundtable in its "Summary Report of the Construction Industry Cost effectivenessProject" stated:

"To put the construction of immense industrial facilities on a long, sustained scheduleovertime basis ... in terms of inefficiency ... is enormously counterproductive. It isalso a frightful waste of the owner's money. And from the standpoint of the industryas a whole ... usually amounts to irresponsible behaviour.".

The most easily recognised costs of accelerating work are the premiums paid to labourers forovertime and shift work and the need for additional plant resources. Most wage agreementscall for overtime and most contractors record these costs separately. Acceleration often alsorequires a concomitant speedup in delivery of material. Higher prices paid for faster materialdelivery methods are properly included in the acceleration cost calculation. Similarly,acceleration may require additional materials. For instance, additional form work forconcrete may be required. At times, a contractor must also use extra or different equipmentto accelerate.





SLIDE 30

Constructive Acceleration





CASE STUDY 22

A contract was let in terms of FIDIC 1987 for the construction of 50km of concretelined irrigation canal in a remote country. The contractor designed a very elaborateslip form mould which was mounted on rails on the embankment on either side of thecanal. The mobilisation period took approximately five months from the date ofcontract until such time as the slip form mould was completed and ready forconcreting. The rate of progress of the slip form was such that it requiredapproximately 90% productivity on a twenty-four hour per day, seven day per week,basis.

After a learning curve the contractor was able to achieve its estimated productivity.

During the first year of construction the contractor was delayed by:

Exceptionally adverse climatic conditions (twenty days);

Unforeseen physical conditions to the extent that the soil conditions weredifferent to those reflected in the borehole samples and required theimportation of large quantities of borrow material, for which additionalpayment was authorised (fifty-two days);

Holds placed on construction of a 2km section due to a realignment of thecanal due to property acquisition problems, causing three unscheduledestablishments of the mould (twenty-one days).

The contractor complied with the contractual requirements and applied separately forextensions of time for each of the above delays, the total of which amounted toapproximately 30% of the remaining construction time. The principal agent, whilstappearing sympathetic to the claim, did not grant the extensions of time offering theexcuse that the contract provided for the employer to agree the extensions of time withthe principal agent before they were granted to the contractor and the employer hadfailed to respond.

After many months discussion it became obvious that the contractor could not finishthe contract within the non extended construction period. Clause 46.1 of FIDICstates:

"If for any reason, which does not entitle the Contractor to an extension oftime, the rate of progress of the Works or any Section is at any time, in theopinion of the Engineer, too slow to comply with the Time for Completion, theEngineer shall so notify the Contractor who shall thereupon take such steps asare necessary, subject to the consent of the Engineer, to expedite progress so





as to comply with the Time for Completion. The Contractor shall not be

entitled to any additional payment for taking such steps ...".

The principal agent gave notice to the contractor in terms of Clause 46.1 to take thosesteps to complete the contract by the contract completion date. The only courseavailable to the contractor was to duplicate the slip form mould at very high cost. Thecontractor complained to the principal agent, stating that the refusal to grant theextensions of time was unwarranted and in view of the notice given the contractor hadno alternative but to duplicate the mould, and had given notice before doing so that itintended to claim the amount of additional payment which it duly did. The claim wasrefused by the principal agent and the contractor declared a dispute and took thenecessary steps to have it resolved by arbitration.

There was no provision in the contract for acceleration and the action by thecontractor was regarded as constructive acceleration.

The contractor completed the construction by the contractual completion date.

If you were the arbitrator would you uphold the contractor's claim for theadditional payment for the loss and expense incurred by the contractor for theadditional mould and the extra over costs for the additional supervision andlabour associated with the operation of the second set?

O





O





ARTICLE BY MR CHRIS BINNINGTON

""CONSTRUCTIVE ACCELERATION - WHY NOT IN SOUTH AFRICA?"

In America, contractors have had success in relying upon what has been referred to as"Constructive Acceleration" to found a claim for the costs of accelerating the work in theabsence of an instruction or agreement to accelerate. In the UK and in South Africa, themore conservative approach of these jurisdictions has resulted in the approach being lesssuccessful than in the USA. Indeed in South Africa we do not have a reported case onConstructive Acceleration.

Author Chris Binnington is of the opinion that in the appropriate circumstances a claimbased on constructive acceleration may well succeed albeit it will not be an easy case to win.

Constructive acceleration occurs when the employer/principal agent requires the contractorto complete construction as originally scheduled rather than within the extended time thecontractor was entitled to as a result of excusable delays. Seven elements are often required:

M The contractor encounters one or more excusable delays (including additional variedwork), which would entitle it to an extension of time;

M Timely notice by the contractor of such delay;

M The contractor timeously requests an extension of time;

M The principal agent fails or refuses to grant a time extension;

M The employer/principal agent indicates lie requires the contractor to complete withinthe original contract period either expressly or impliedly by the employer’s actions;

M The contractor after giving notice to this effect reasonably attempts to accelerate itsrate of performance; and

M The contractor incurs additional costs as a result of the acceleration.

The theory of recovery of additional costs due to constructive acceleration is based on thepremise that when a contractor is excusably delayed, the contractor is entitled to a timeextension. If the employer/principal agent fails to recognise excusable delay and demandsperformance in accordance with the original schedule, an acceleration of the work pacetakes place, since the contractor is expected to do in less time that which should be givenmore time.

Don't forget to inform

During acceleration, the contractor may be forced to hire additional workers, work overtime,accelerate material delivery schedules, utilise additional supervision, and use additional





equipment. Any of these actions may cause an increase in the cost of performance which thecontractor should be entitled to recover.

The contractor may be entitled to recover these additional costs even though it did notachieve the requested completion date, hut it is a fundamental requirement that thecontractor gives notice of its intention to constructively accelerate and provide reasonsbefore it incurs the additional expense.

The most difficult issue in constructive acceleration is determining what type of statement oraction constitutes a requirement to accelerate. It is clear that a direct order to accelerate bythe owner/principal agent or designer to complete by the contract completion time despite theexistence of excusable delays constitutes a requirement to accelerate sufficient to permit thecontractor to recover additional costs. It is much more difficult to determine whether anacceleration has been required when no direct order by the owner/principal agent or itsrepresentative has been made. A request to accelerate may be equal to an order toaccelerate. Threats to terminate a contract for default, when a known excusable delay ispresent, may constitute acceleration.

An order to accelerate may also be found in a statement of the urgency of completion onthe original contract completion date, coupled with the owner/principal agent threateningto issue an unsatisfactory performance report regardless of the circumstances orthreatening to apply penalties.

Courts have found these actions by an employer/principal agent put precisely the kind ofpressure on the contractor that the contractor may reasonably infer as an order to speed up.

Cost recovery even without an instruction

Another determination to be made is whether the contractor must actually request a timeextension. Generally, the delayed contractor or sub-contractor must seek a time extension asrequired by the contract. However the failure to grant an extension of time when requesteddoes not imply an order to accelerate. Under some circumstances, the contractor may not berequired to ask for a specific time extension. For example, a formal request may not benecessary when the employer has specific knowledge of excusable delays and unequivocallyorders the contractor to complete on the contract completion date without regard toexcusable delays. However, the prudent contractor will always request an extension of timerather than assume that the employer/principal agent is on actual notice of the excusabledelay. It should be recognised that the answers to these and the questions in the accelerationarea turn on the facts of a particular situation rather than rules or formulas.

Even when the employer does not implicitly or expressly order acceleration, the contractormay be entitled to recover its constructive acceleration costs. For example, in one case,owner-caused delay was likely to force the contract performance into the rainy season andthe completion was likely to be delayed another three months. The contractor orderedovertime and completed the work before the commencement of heavy rains. As a result, thecontractor was allowed to recover these costs under a theory of the voluntary mitigation of



VARIATIONS AND CHANGE


damages rather than an acceleration theory.

Sri Lankan precedent

Of particular interest is the report of a hallmark case in Sri Lanka involving the constructionof irrigation canals. In that case the contractor was forced to spend a large sum onduplicating his temporary equipment due to the failure of the principal agent to award anextension of time timeously. The ICC Arbitration awarded the contractor some US$56-million being approximately 95% of its proven costs of constructive acceleration. Whatmakes this case of particular interest is that the law of the contract was Sri Lankan law andSri Lanka is one of the few countries outside South Africa having a Roman-Dutch legalfoundation.".


One of the key characteristics of the construction process is that it is almost inevitable thatthere will be some change during the progress of the works. One of the key challenges ofconstruction contracts is to determine how best to deal with change. Some of the changescommonly provided for in construction contracts include:

M Changes to the works - under most construction contracts the employer (or his agent)has the authority to instruct variations to the work;

M Changes in the circumstances - the conditions under which the contract is beingcompleted may change. There may, for example, be changes in weather patterns, inpolitical climate or other factors external to the parties.

VARIATIONS

One of the factors which makes construction complex is that they need to accommodatevariations to the works. When considering contractual provisions which allow for variationorders one should always ask:

M What procedure is to be followed in issuing variations, ie. must they be:

M Issued in writing?

M Confirmed in writing?

M Who can issue variation orders? Can the engineer's representative issue variationorders?

M Is there any limit to the extent of variation orders, eg. no variation order may increasethe value of the contract by more than 10%?

Note: This should not be confused with provisions allowing for different valuation of





payment for variation orders.

M When can variation orders be issued? Is there a cut off time (eg. once the works havebeen taken over)?

M How are variations to be valued?





CASE STUDY 23

The works to be completed is a road 100km long with two bridges and one tunnel tojoin to small towns.

The engineer issues a variation order which changes the route of the road so that itwill be 130km long and will have three bridges and two tunnels. The new tunnel is tobe almost 1km long while the initial tunnel was to be only 100m long. The newtunnel will involve special lighting, drainage and bracing which was not required inthe smaller tunnel.

The contractor lacks the resources to complete the works. He argues that the changeis so great as to fall outside of the scope of the contract and that the engineer cannotissue such a variation.

The engineer argues that he is fully entitled to issue the variation order.

Is the engineer entitled to issue this variation order?

Note: We are not concerned here with the compensation to be paid to the contractor forfulfilling the variation order. The issue is rather whether the contractor is obliged tocomply.

O





O





The following article is taken from the website of Longworth Consultinghttp://www.longworthconsulting.co.uk/.

"When Does a Variation in Construction Become a Separate Contract?

Variations Clause

Most standard forms of contract include a clause under which the employer or hisrepresentative is able to issue an instruction to the contractor to vary the works which aredescribed in the contract. A change in shape of the scheme, the introduction of differentmaterials, revised timing and sequence are all usually provided for by the variations clause. It will also usually include a mechanism for evaluating the financial effect of the variationand there is normally provision for adjusting the completion date. In the absence of such aclause the employer could be in a difficulty should a variation to the works be required. Thecontractor could either refuse to carry out the work or undertake the work and insist uponpayment on a quantum meruit or fair valuation basis. Calculation of the price for the extrawork applying this method could involve payment well in excess of the contract rates.

Separate Contract

Even where a contract includes the usual variations clause there may be circumstances whichcould lead to additions or changes introduced by the employer which falls outside thevariations clause. Contractors who find themselves with unattractive contract prices wouldfind it to their advantage to be able to argue that a change introduced by the employer felloutside the variations clause thus leaving the way open to argue that payment for the changeshould be on a quantum meruit or fair valuation basis.

This situation arose in the UK case of Blue Circle Industries v Holland Dredging Co (1987). The works involve dredging in Larne Lough in Ireland to enable larger vessels to dock. Thetender referred to the dredged material being deposited in areas approved by the publicauthorities, the intention being to discharge the material excavated in suitable areas in thelough. Resistance to the plan came from several quarters including the Larne HarbourBoard and as a result an alternative plan was agreed to use the excavated material to forman artificial bird island. It was argued by the contractor that this was not a variation to theworks within the confines of the contract but a separate contract in its own right.

The decision in Thorn v Mayor and Commonalty of London a case heard way back in 1876influenced the court. In this case it was held that if the additional or varied work were sopeculiar, so unexpected and so different from what any person reckoned or calculated uponto such an extent that it is not contemplated by the contract then it would constitute aseparate contract. The judge in the case considered that the construction of the bird islandwas wholly outside the scope of the original dredging contract and therefore constituted aseparated contract.




Engineering Law and the ICE Contracts, 4 Edition.th1


Experience In The USA

The position in the USA is similar but more developed. It addresses a situation where a largenumber of changes are instructed which individually fall within the ambit of the variationsclause but collectively have the effect of completely changing the scope of the works. Thissituation is referred to as either abandonment or cardinal change and deals with thesituation where the employer makes excessive changes to a project beyond what the partiesreasonably could have anticipated at the time the contract is entered into. Courts will look ata number of factors in helping to decide whether the changes have been excessive. Thestarting points are the size, complexity and expected duration of the contract. Other factorsto be considered are the number of changes, how many changes were anticipate when theproject started, the magnitude of the work involved in the changes and the length of time inwhich such changes were made.

There is no required intention on the part of the employer to abandon the contract byintroducing excessive changes; this will often be implied as a result of constant interferenceor change. If the parties ignore the procedural provisions of the contract with regard tovariations this could help influence the court into accepting that abandonment has occurred.

Conclusion

It is difficult to be hard and fast as to when additional or changed work will constitute aseparate contract or convert the contract the parties entered into a different one. Courts inthe USA seem to be more sympathetic to the contractor's case for abandonment or criticalchange than in most other countries. Courts and arbitrators in the UK and like jurisdictionsfind themselves in the long grass when trying to decide what is due if payment is to be on aquantum meruit or fair valuation basis. They feel more comfortable in dealing with additionsor changes priced at contract rates and are inclined to play it safe in holding that the facts aspresented have not resulted in a separate contract. Employers who are perhaps starting tofeel uneasy about the prospect of the USA attitudes creeping into the thinking of judges orarbitrators could give consideration to rewording the variations clause to give a widerdefinition of additions and change.

Longworth Consulting http://www.longworthconsulting.co.uk/".

Precise Record Keeping

ABRAHAMSON

"A party to a dispute, particularly if there is arbitration, will learn three lessons (often toolate): the importance of records, the importance of records, and the importance of records." .1

Whether a claim is to be adjudicated by the principal agent, the employer, an adjudicator,





mediator, conciliator, arbitrator or judge of a court, it will almost be doomed to failure unlesssupported by good records. The better the records the greater the chance of success for theclaim.

The nature of the records should be directly applicable to the event being claimed, and beagreed with the principal agent from the outset. Clause 53.2 of FIDIC 1987 for Works of aCivil Engineering Nature contains a very wise provision:

"Upon the happening of the event referred to in subclause 53.1, the contractor shallkeep such contemporary records as may be reasonably necessary to support anyclaim he may subsequently wish to make. Without necessarily admitting theemployer's liability, the engineer shall, on receipt of notice on the subclause 53.1,inspect such contemporary records and may instruct the contractor to keep anyfurther contemporary records as are reasonable and may be material to the claim ofwhich notice has been given. The contractor shall permit the engineer to inspect allrecords kept pursuant to this subclause and shall supply him with copies thereof asand when the engineer so instructs.".

When the claim is presented, not only should the records themselves be included, but theyshould be summarised in such a manner that they are easy to understand and such summariesrelated to the claims with explanation in easy to follow logic.

There often is a huge reluctance of contractor's to keep records specifically pertaining toclaims. There never appears to be a problem in the keeping of records of, eg. plant operatingand breakdown hours, but there appears to be a problem in keeping records of where and onwhat tasks the plant was working, and the cause of why the plant may have been idle oroperating at below budgeted efficiency. A method of keeping such records is included inthese notes, below.

The Protocol addresses model clauses relating to records for the inclusion into contracts ofdiffering values. Most general and/or sets of special conditions of contract would containmost of the clauses included, but the document is a good check list for items which may havebeen left out from initial drafts of contracts. The main points it schedules for good recordkeeping are:

M Identification of the contractor/sub-contractor working areas and their areas ofresponsibility. This item is of particular importance especially when there are manycontractors working on the same site. The principal agent should identify the exactworking areas for each of the contractors and the work space which is availableadjacent to each construction item being worked upon;

M Operating plant/equipment without work hours, idle or down for repair. This is ofparticular report and importance in a delay, disruption or acceleration situation, andthe BCA method of keeping records described at the end of this section suggests thatthis be broken down under further headings correctly record the delay in disruptiontime;





M Work performed to date giving the location, description and by whom and referenceto the contract programme. The importance of this cannot be stretched to greatly andit should be recorded on a daily basis. The importance to both billed quantities andprogramme activities is very important, and frequently overlooked on mostcontracting organisations;

M Test results and references to specification requirement has stopped his deficienciesidentified together with the corrective action. The recording of these items is mostly acontract condition, and quality assurance procedures mostly prescribed by the contractensures that these items are mostly well recorded;

M Material received with statement as to its acceptability and storage. On smallerprojects this item is probably of less significance than on larger multi-disciplinedprojects, where material control is extremely important. For larger projects the specialconditions of contract and/or specifications should set out the procedure for the receiptof material on site, quality inspection on arrival to ensure conformance withspecifications, and for the establishment of a well controlled and disciplined methodof ministerial storage on-site especially where large lay down areas are required. Theprocedures should also cover the recording and recovery of all materials from the laydown areas. This control is all the more necessary when the various contractors areeligible for the payment of materials received on site prior to installation;

M Information or drawings received with reference to the contract specifications, bywhom and action taken. Separate schedules should be kept for the receipt ofinformation, drawing transmittals, site instructions, confirmation of oral instructions,information requests by the contractor and the like. Experience has shown that it isthe interest of both parties if both hard and electronic copies of such schedules arekept and interchanged frequently to prevent disagreement of facts. Procedures shouldbe established at the kickoff meeting of the exact procedures to be followed if they arenot set out in special conditions or specifications;

M Job safety evaluations. The requirements should be laid out in the special conditionsor specifications;

M Progress photographs. It frequently occurs that whilst there are many photographstaken, when the need arises to examine them years later for a dispute, there is poorrecord of date taken, location, direction, time of day and the particular item of interest. Such record can be invaluable and the effort taken to record the information at thetime is only relatively minor. With the advent of digital cameras, there is a tendencyfor the photographs to stay in electronic format, on personal computers withoutnotation, and the value of the record becomes diminished accordingly;

M A list of instructions given and received and any conflicts in plans and/orspecifications. Site instructions have been referred to previously. Especially inremeasurable contracts or other contracts where the full set of "construction drawings"are not available at the outset, practically every drawing issued contains new





information, which is in fact a site instruction. The importance of scrutinising eachnew drawing issued by the principal agent, and reporting discrepancies back isfrequently overlooked, and places the contractor in a weaker position than it ought tobe, especially if there is a time barring provision in the contract for claims which mayresult from instructions on drawings indicating construction which was notcontemplated at the date of contracting. Arbitrators have ruled that it was the date onwhich drawings were issued to the contractor, when the contractor ought to havebecome aware of the variation, rather than the date on which the contractor firstlooked at the plans shortly before carrying out the varied construction ordered on anew drawing;

M Weather conditions encountered. As the contract requirements for extensions of timefor rainfall vary tremendously from contract to contract, daily rainfall should berecorded, and if the site is relatively large, it should be recorded in several places. Forexample in a large gold mining site in tropical Africa where there were significanthills, rainfall on particular days varied in magnitude over a very wide range. Innorthern Africa a road approximately 150km could pass through a number of distinctclimatic zones, each with vastly differing rainfall characteristics.

In addition to rainfall, sky conditions, maximum and minimum temperatures shouldbe recorded, especially if significant concreting is taking place. The condition of thesurface soil should also be recorded especially in earthworks contracts where theground conditions may be unsuitable for working many days after rain, oralternatively movement on site becomes not possible.

All the above records may contribute to a claim by the contractor for abnormalclimatic conditions, and whilst all claims may not be successful, there is a muchhigher possibility of success, if the claim can be supported by crisp well-plannedsummaries of adequately recorded criteria resulting from weather conditions;

M The number of persons working on site by trade activity and location. Most contractsrequire that the contractor record the number of persons on site by trade. The BCAmethod of recording at the end of this section will deal in greater detail with themanner in which the activity and location can be simply recorded;

M Information required from and by the employer and/or the principal agent;

M Any delays encountered.

Further matters included in the model record clauses of the Protocol include:

M Weekly reports delivered to the principal agent at the end of each working week (or asotherwise agreed). The principal agent is to sign each daily record (it is assumed thatthis is acknowledgement of receipt only and not necessarily agreement with thecontent);





M Any deficiencies identified, and as they are corrected such correction shall beacknowledged in the daily reports;

M The principal agent shall notify the contractor of any non-compliance with reportingrequirements, and these, together with oral instructions shall be included in the dailyreports;

M Weekly and monetary reports shall be produced by the contractor within a specifiednumber of days from the end of each week and/or month as the case may be: thereport is show include:

M Summary of the work performed in the period;

M Summary of the works performed as referenced on the agreed updatedprogramme;

M Summary of the listed deficiencies;

M Summary of delays encountered.





SLIDE 31

THE BCA PROJECT RECORDING SYSTEM





M The method is simple and evolves around recording the make up of the resources andthe activities of a working team rather than of individuals.

M It is not intended to replace the time clock or individual recording of hours worked bylabour for payment purposes or the detailed plant records for individual items of plant.

M On most projects, labour works in teams and has plant resources allocated to it forpart of, if not the whole of a day.

M Foremen and principal agents generally keep their own notebooks of events of theday, but they are not known as the best formal recorders of that information. Their jobis to supervise and organise construction, and they do not want to be sitting behind adesk for too long each day.

M The BCA system does require a project clerk, which may be regarded as anunnecessary expense, but the benefits are huge when it comes to a claim situation, andeven of a greater benefit if the claims require formal resolution in adjudication,mediation, arbitration or the courts.

M Experience has shown that many foremen and/or principal agents are highlyunco-operative when it comes to handing down information to recording clerks, whoare frequently told to go away.

M For any recording system which relies on obtaining information fromforemen/principal agents, it is highly desirable to employ a "people person" withwhom even the burliest and roughest person will enjoy communicating.

M The clerk needs to have some computer skills, but in today's environment it is moreunusual to find a person without computer skills, than with them.

M The system simply relies on the inter-relationships which are available on a simplecomputer spreadsheet, to be able to combine data from the data bases of labour andplant resources into the make up of the teams to enable the hourly or daily team costto be calculated. If the data can be imported from the contractor's "normal" controldatabases, so much the better. Today many of contractor's unique systems allow theexporting of data without the requirement of highly sophisticated computer operatorskills.

M The information sought daily from the foreman/principal agent by the record clerk isthe hours for the previous day for:

M Productive work;

M Varied work;

M Plant breakdown (contractor's risk);





M Standing time awaiting instruction from principal agent (with detail);

M Relocation to overcome employer delay (with details).

Other categories can be added to suit particular applications, but not too many and nottoo complex, as the whole principal of the system is to keep it simple (the KISSprincipal).

M The total daily or hourly team cost is then dissected into the various disruptioncategories.

M The principal agent is requested to acknowledge receipt of the daily summaries at nomore than weekly intervals. They are rarely in agreement with the information socontained, and generally reluctant to even sign an acknowledgement of receipt, butnevertheless the record does form part of the contemporary record, and provided thedaily dissection of disruption is recorded in a responsible manner, it is very goodevidence when an independent third party is adjudicating a disputed claim. Theevidence is far better than the majority of evidence put forward in a more globulartype of claim.

M Experience has shown that delay and disruption claims put forward on this basis havea much greater chance of success than any other form of recording known to BCA.



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CLAIMS

WHAT IS A CLAIM?

It is a misconception to believe that claims are a substitute for a well prepared tender and willcompensate a contractor for the deficiencies on his bid. Neither will a claims approach put acontractor back into a position of positive cashflow where he has deliberately pitched hisprice at a sub-economic level in order to keep his resources occupied. All too frequentlycontractors see claims as being methods of compensation for situations where it is thecontractor who has placed himself in a position of uneconomic contracting. A claim is mostdefinitely not the difference between what you thought the job would cost and what itactually cost. Many experienced contractors still seem to believe in this definition.

Neither should employers expect to finish the contract for the price of the contractor's bid,more particularly where the conditions of contract provide a mechanism for variations to beinstructed by the principal agent and for extensions of time to be granted for a variety ofdifferent circumstances.

If employers want the lump sum price without the possibility of changes affecting the contractprice then far more care needs to be taken in the period leading up to tender, and the extent towhich the design is complete will have a fundamental bearing on the ultimate price outcome.

It is not unusual for the employer's professional team to spend months preparing thedocumentation for tender and then giving the bidders unreasonable time periods within whichto respond. Alternatively, significant areas of the work are unspecified at the time of tenderand a provisional sum or, worse still, no allowance at all is made and the employer isultimately taken by surprise when the final price significantly exceeds the tender sum.

Contracting is not, and never will be, a claims free environment. Claims must be seen to bewhat they are - fair compensation within the terms of the contract for a situation which iscontemplated within the contract alternatively, where not contemplated and where the risklies other than with the contractor, compensation as the law provides.

CLAIMS PROCEDURE AND TIME BARS

There is nothing in the common law regulating extension of time claims, time bars and thelike. In each case the grounds for claiming an extension of time, as well as the procedures tobe followed, must be found in the contract. These matters are always contract specific. Consider the following clauses:

M FIDIC Conditions of Contract for Construction (from the "New" FIDIC Suite)Clause 20.1: Contractor's Claims:

"If the Contractor considers himself to be entitled to any extension of the timefor completion and/or any additional payment, under any clause of theseconditions or otherwise in connection with the Contract, the Contractor shall



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give notice to the Engineer, describing the event or circumstance giving rise tothe claim. The notice shall be given as soon as practicable, and not later than28 days after the Contractor became aware, or should have become aware, ofthe event or circumstance.

If the Contractor fails to give notice of a claim within such period of 28 days,the Time for Completion shall not be extended, the Contractor shall not beentitled to additional payment, and the Employer shall be discharged from allliability in connection with the claim. Otherwise, the following provisions ofthis Sub-Clause shall apply. ...";

M FIDIC Conditions of Contract for Works of Civil Engineering Construction (The "OldRed Book"):

M Clause 53.1: Notice of Claims:

"Notwithstanding any other provision of the Contract, if theContractor intends to claim any additional payment pursuant to anyclause of these Conditions or otherwise, he shall give notice of hisintention to the Engineer, with a copy to the Employer, within 28 daysafter the event giving rise to the claim has first arisen.";

M Clause 53.4: Failure to Comply:

"If the Contractor fails to comply with any of the provisions of thisClause in respect of any claim which he seeks to make, his entitlementto payment in respect thereof shall not exceed such amount as theEngineer or any arbitrator. ... Assessing the claim considers to beverified by contemporary records (whether or not such records werebrought to the Engineer's notice as required under Sub-Clauses 53.2and 53.3).";

M National Construction Contract:

"26.0 VARIATION OF TIME FOR COMPLETION

26.1 Upon it becoming reasonably apparent that the progress of the Worksis likely to be delayed beyond Completion Date or beyond any timepreviously fixed under this clause due to the following event(s):

(a) by Employer's risk defined under sub-clause 21.1 (c) of theseconditions,

(b) by reason of any exceptionally inclement weather, or

(c) by reason of Architect’s instructions issued under clause 3,



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sub-clauses 13.1, 24.2 or 39.2 of these conditions,

(d) by reason of the Contractor not having received in due timenecessary instructions, drawings, details or levels from theArchitect for which he specifically applied in writing on a datewhich having regard to the Completion Date or to anyextension of time fixed under this clause was neitherunreasonably distant from nor unreasonably close to the dateon which it was necessary for him to receive the same, or

(e) by delay on the part of artists, tradesmen or others engaged bythe Employer in executing work not forming part of thisContract, or

(f) by reason of the opening up for inspection of any work coveredup or of the testing of any of the work materials or goods inaccordance with sub-clause 8.3 of these Conditions (includingmaking good in consequence of such opening up or testing), unless the inspection or test showed that the work, materials orgoods were not in accordance with this Contract, or

(g) by the Contractor's inability for reasons beyond his control andwhich he could not reasonably have foreseen at the date of thisContract to obtain delivery upon the Works such goods ormaterials which are essential to the proper carrying out of theWorks, or

(h) by delay caused in compliance to sub-clause 6.1 of theseConditions, or

(I) by delay caused by the Employer in failing to hand over thewhole of Site on the Date for Possession of Site named in theAppendix of these Conditions,

(j) or by delay caused by Employer in failing to pay theContractor's certificate in a stipulated time,

then within 30 days after such event(s) has first arisen the Contractorshall give a written notice to the Architect. Provided always that theContractor shall use constantly his best endeavour to prevent delaysand shall do all that may reasonably be required to the satisfaction ofthe Architect to proceed with the Works.

26.2 The Architect shall within 30 days of his receipt of detailed particularsof the claim for extension of time subject to sub-clause 26.3 of thisclause determine in writing a fair and reasonable extension of time for



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completion of the Works. Provided that if the Architect shall fail togive a decision on the Contractor's application of extension of timewithin the stipulated 30 days then the time applied by the Contractorshall be deemed to have been accepted by the Architect as being fairextension of time for completion of the Works.

26.3 The Architect is not bound to make any determination pursuant tosub-clause 26.2 of this clause unless the Contractor shall, within 30days after his notice under sub-clause 26.1 of this clause has beengiven, submit to the Architect detailed particulars of any extension oftime to which he considers himself entitled in order that suchsubmission may be investigated at the time.

26.4 Provided also that when an event has a continuing effect such that it isnot practicable for the Contractor to submit detailed particulars withinthe period of 30 days referred to in sub-clause 26.3 of this clause, heshall nevertheless be entitled to an extension of time provided that hehas submitted to the Architect interim particulars at intervals of notmore than 30 days and final particulars within 30 days of the end ofthe effects resulting from the event. On receipt of such interimparticulars, the Architect shall determine an interim extension of time and, on receipt of the final particulars, the Architect shall review allthe circumstances and shall determine an overall extension of time inregard to the event. No final review shall result in a decrease of anyextension of time already determined by the Architect. Provided alsothat the time stipulations for the Architects action and theconsequences thereof under sub-clause 26.1 of this clause shall beobserved.

26.5 If for the reason of Architect's instruction issued under sub-clause 13.2or 24.2 of these Conditions the scope of the Works has been reducedand to the opinion of the Architect the time for which the completion ofthe Works stated in Appendix or fixed under sub-clause 26.1 of theseConditions is likely to be or has been affected then the Architect shallforthwith make in writing a fair and reasonable reduction of time forcompletion of the Works.

27.0 LOSS AND EXPENSE CAUSED BY DISTURBANCE OFREGULAR PROGRESS OF THE WORKS

27.1 In the event that the Contractor has been involved in direct loss and/orexpense for which he would not be reimbursed by a payment madeunder any other clause in this Contract by reason of the regularprogress of the Works or of any part thereof having been materiallyaffected by:



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(a) the Contractor not having received in due time necessaryinstructions, drawings, details, or levels from the Architectwhich he specifically applied in writing on a date which havingregard to Completion Date stated in the Appendix to theseConditions was neither unreasonably distant from norunreasonably close to the date on which it was necessary forhim to receive the same, or

(b) the opening up for inspection of any work covered up or thetesting of any of the work, materials or goods in accordancewith sub-clause 8.3 of these Conditions (including making goodin consequence of such opening up or testing) unless theinspection or test showed that the work, materials, or goodswere not in accordance with this Contract, or

(c) any discrepancy in or divergence between the ContractDocuments, or

(d) delay on the part of artists, tradesmen or others engaged by theEmployer in executing work not forming part of this Contract,or

(f) Architect's instruction issued in regard to the postponement orany work to be executed under the provisions of the Contract,or

(g) delay caused by the Employer in failing to handover the wholeor part of the Site on the Date of Possession of Site named inthe Appendix of these Conditions,

(h) the supply by the Employer of materials and goods which theEmployer has agreed to provide for the Works or the failure soto supply, or

(I) by reason of increase or decrease of scope of Works certifiedby the Architect under sub-clause 13.1 of these Conditions,

then he shall give the Architect a notice of his intention to make such aclaim within 30 days after the event giving rise to the claim has firstarisen.

27.2 Within 30 days, or such other reasonable time as may be agreed by theArchitect, giving notice under sub-clause 27.1 of this clause theContractor shall send to the Architect an account giving detailedparticulars of the claim and the grounds upon which the claim isbased. Where the event giving rise to the claim has a continuing effect,



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such account shall be considered to be an interim account and theContractor shall at such intervals as the Architect may reasonablyrequire, send further interim accounts giving the accumulated amountof the claim and any further grounds upon which it is based. In casewhere interim accounts are sent to the Architect, the Contractor shallsend a final account within 30 days of the end of the effects resultingfrom the event. The Contractor shall if required by the Architect so todo, copy to the Employer all accounts sent to the Architect pursuant tothis sub-clause.

27.3 If the Contractor fails to comply with any of the provisions of thisclause in respect of any claim which he seeks to make, his entitlementto payment in respect thereof shall not exceed such amount as theArchitect or any Arbitrator(s) appointed pursuant to clause 40 of theseConditions assessing the claim considers to be verified bycontemporary records.

27.4 Any amount from time to time so ascertained shall be added to theContract Sum, and if an interim certificate is issued after the date ofascertainment any such amounts shall be added to the amount whichwould be otherwise stated as due in such certificate.".

QUESTION 2

How do these contracts approach the issue of time barring?

O



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As discussed above, the issue of time barring is always contract specific. The contract willprovide whether a failure to serve notices timeously constitutes a bar to a claim or whetherthe contractor still has a claim (albeit reduced), notwithstanding his failure to serve the propernotices in the proper time.

QUESTION 3

What if the contract is silent on the consequences of a failure to serve noticestimeously?

O



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WHAT SHOULD THE CONTRACTOR DO IF HE FINDS HIMSELF UNABLE TO SERVE THE

REQUIRED NOTICES

CASE STUDY 24

The contract requires that the contractor provide the following notices when he wishesto claim for additional time or money:

Notice that a circumstance has arisen to be provided within seven days of thecircumstance;

Details of the amount of time or money claimed within fourteen days of thecircumstance arising.

Both of these notices constitute full time bars in that the contract states:

"... failing which no claim shall be entertained.".

The contractor is delayed by rain. He serves the first notice within the seven days. Atthe end of the thirteen days, however, he finds himself unable to quantify the extent ofhis claim. He therefore serves the following notice on the agent:

"I find myself unable to calculate a precise quantification of my claim at thisstage. I therefore reserve my right to do so at a later stage and will send yousuch quantification as soon as I am able to provide same.".

Is the contractor still entitled to claim or has he lost the right to do so?

Note: Assume, for the purposes of this case study, that this is not an ongoing delay but israther an isolated event.

O



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O



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CASE STUDY 25

The contract requires that the contractor provide the following notices when he wishesto claim for additional time or money:

Notice that a circumstance has arisen to be provided within seven days of thecircumstance;

Details of the amount of time or money claimed within fourteen days of thecircumstance arising.

Both of these notices constitute full time bars in that the contract states:

"... failing which no claim shall be entertained.".

The agent has attended a training programme on project management where he wasadvised of the dangers of unexpected surprises and the importance of proper planning. He therefore puts up, at the beginning of each site meeting, a slide on the overheadprojector. This slide stays up for the entire meeting. It reads:

"Any delays? Any circumstances which could cause a delay? Anything weneed to know about?".

At these meetings various matters are discussed. At the third meeting the partiesdiscuss numerous issues. The contractor states that he is concerned that he will fallbehind if he does not receive drawings from the agent soon. The agent replies:

"No problem. I'll see to it.".

At the fourth site meeting a copy of the minutes from the third meeting is distributed. All of those attending the meeting glance over the minutes and sign them. Included inthese minutes are the following words:

"The contractor pointed out his concerns regarding delays in the issue ofdrawings. He stated that he could fall behind if he did not receive thedrawings soon. Action - Agent".

At the fifth site meeting the contractor raises the issue of a claim for late delivery ofdrawings. The agent argues that the contractor has failed to provide notice in terms ofthe contract and that he is therefore barred from claiming. The contractor argues thatnotice was given and he points to the minutes of the meeting as notice.



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Has proper notice been given?

O



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O



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EARLY WARNING

The concept of early warning was first introduced in the NEC contract and has subsequentlybeen imported into a number of other forms of contract, including the new FIDIC Short Form. An important aspect of the NEC philosophy is that this contract is more than a list of shallsand shall nots. It aims at providing more than a statement of the rights and obligations of theparties and providing, instead, a project management tool that facilitates streamlinedmanagement of the project by all parties. One of the mechanisms used to encourage soundproject management is the early warning procedure.

Early Warning Under NEC

The NEC contract provides a mechanism for either the contractor or the project manager togive an early warning of time, cost or works performance problems (this last beingparticularly applicable where design is being undertaken by the contractor). This innovativeprovision allows either the project manager or the contractor to actually instruct the otherparty to attend an early warning meeting for the purpose of discussing the problem. Either theproject manager or the contractor may also instruct other people to attend subject to theagreement of the other party.

The early warning meeting is intended to allow open discussion and to advance proposals andseek solutions, as well as to determine what actions would subsequently be taken arising outof the discussion. The responsibility for recording any proposals and decisions given remainthose of the project manager, who is obliged to give a copy of his record to the contractor.

The concept of early warning is an integral part of the NEC approach to contracting andillustrates the emphasis on sound project management. Matters should not be allowed toescalate but should rather be handled promptly, in a spirit of co-operation and at the lowestpossible cost.

M Clause 16 places a positive duty on both the contractor and the project manager togive early warning as soon as either becomes aware of a matter which could:

M Increase the total of the prices;

M Delay completion; or

M Impair the performance of the works.

M Either the contractor or the project manager may call an "early warning meeting" andmay call on others to attend.

M At the early warning meeting the parties are obliged to co-operate in finding solutionsto the potential delay/increase in cost/impaired performance.

M Any decisions taken or solutions found are recorded by the project manager who then



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gives a copy to the contractor.

If the contractor fails to give early warning of an event, the payment due to him for thecompensation event is reduced. Clause 63, which regulates the assessment of compensationevents, provides that, where the contractor has failed to give an early warning, hiscompensation will be assessed as what he would have received had timeous warning beengiven. Thus, if the effect of a compensation event could have been mitigated by timeouswarning, the contractor will be paid the reduced sum.

If the project manager fails to give early warning of an event, he will have breached thecontract and failed to maximise the employer's interests.

Early Warning Under FIDIC

The new FIDIC Short Form of Contract has introduced the concept of early warning inClause 10.3 which provides as follows:

"A Party shall notify the other as soon as he is aware of any circumstance which maydelay or disrupt the Works, or which may give rise to a claim for additional payment. The Contractor shall take all reasonable steps to minimise these effects.

The Contractor's entitlement to extension to the Time for Completion or additionalpayment shall be limited to the time and payment which would have been due if hehad given prompt notice and had taken all reasonable steps.".

PREPARING THE CLAIM SUBMISSION

There is no point whatsoever in dumping on the principal agent's desk a box of papers with acovering letter stating the amount of compensation which the contractor requires.

Irrespective of the size of the claim, if it is worth making then it is worth submitting in properformat. Good claims have received short shrift on many occasions because the submission ofthe claim has been shoddy. Equally some dubious claims have succeeded where they havebeen professionally set out and well presented.

The format for a claim submission is suggested as being as follows:

M Introduction

This will state the basic details of the contract and the reasons behind the claimsubmission. It will, if there are a number of claim heads, constitute an executivesummary and should state what is being claimed in general terms (ie. the sum of R4mtogether with an extension of time of six weeks);



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M Introduction - Executive Summary

M Index

The documentation will fall into several sections and should be indexed andpaginated appropriately;

M Contractual Summary

The contract details (contract data) will be set out and the essential clausesreferred to;

M History of Events

A synopsis of the key events giving rise to the claim, set out in chronologicalorder, cross-referencing key documents which documents will be annexed tothe submission;

M Claim Heads

Each of the heads of claim should be set out individually. It would beexpected that Section 3 would already have set out the generalities giving riseto the overall claim situation, but the heads under the situation will amplifySection 4 and will include the quantification and supporting documentation,either separately annexed and cross-referenced or included under theindividual head of claim;

M Annexed Documents

These should form part of the general pagination but might be sub-dividedinto, for example, correspondence, minutes, programmes etc.;

M General Comments

The claim should be written as if it was being addressed to a person with noknowledge of the contract. Similarly, even where documentation is obviouslyin the hands of the people to whom the claim is addressed, it should beincluded in the claim for ease of reference.

Emotive language should be avoided. Irrespective of the situation whichdeveloped on the site, a claim will have a far better chance of success if it isseen to be presented from a balanced point of view.

Do not include claims which have no basis in contract or law with theintention of using them as throwaway items during a negotiation. Theinclusion of claims having no substance will impact upon the credibility of



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those claims of substance. Similarly, do not over quantify claims in order tohave a negotiating margin. Whilst some margin is acceptable, the inclusion ofsignificant sums will again impact on the credibility of the substantive claim.

Finally, remember that if the negotiations fail and the claims have to moveforward into dispute resolution procedures, whether formal or ADR, the claimsubmission will have been made with prejudice and will be available to thetribunal, even if it has been superseded by another document. The samecomments apply regarding claim credibility. Thus, if the submission todispute differs radically from that to the agent, a full explanation must beincluded to avoid the suspicion that the claims are being manufactured.

Understanding Contracts Seminar Notes

Documents

Transcript of Understanding Contracts Seminar Notes