This paper discusses the importance of and role of: the preparation of the programs that will become the Contract programs both in relation to Contract provisions and the administration of the Contract; the management of time to ensure as far as is possible Contract success; concepts of float and contingency; target and gross programs; some of the more common Contract requirements in respect of delay; mechanisms for delay analysis; and cost of delay.
1. Introduction
This paper discusses the importance of and role of: the preparation of the programs that will become the Contract programs both in relation to Contract provisions and the administration of the Contract; the management of time to ensure as far as is possible Contract success; concepts of float and contingency; target and gross programs; some of the more common Contract requirements in respect of delay; mechanisms for delay analysis; and cost of delay.
In my experience no rules or guidelines enable facts to be inserted into a "claim delay formula" and an unchallengeable answer is spat out. This is because there is no formula that can deal with all of the concepts simply because of the unknown nature of complex building and construction projects as the design and/or construction develops through to commissioning and final completion of defects.
2. The Contract Program
2.1 What do the Contracts Say?
The majority of engineering and building Contracts require that a Contractor submit a program of his or her design and/or construction works. These contracts and their accompanying special conditions require varying degrees of sophistication in the preparation of the programme. While a Contractor may be required to submit these programs, the status of them in terms of being a contract document varies.
The Australian Standard General Conditions of Contract AS4000-1997 notes at Clause 32 in relation to programming that the Superintendent may direct in what order and at what time the various stages or portions of WUC shall be carried out, and that a construction program is a written statement showing the dates by which, or the time within which, the various stages or portions of WUC are to be carried out or completed — it shall be deemed a Contract document. The Superintendent may direct the Contractor to give a construction program within the time and in the form directed, and the Contractor shall not, without reasonable cause, depart from it. If compliance with such directions causes the Contractor to incur more or less cost, the difference is assessed by the Superintendent and added to or deducted from the Contract Sum.
The Property Council of Australia PC1 (1998) General Conditions of Contract deals with programming at Clause 10.2, requiring the Contractor to prepare a program within 14 days of the Award Date, update it periodically to account for changes and delays, and give the Contract Administrator copies for approval. Clause 10.3 goes on to note that any review, comment, approval, or failure to review a program will not relieve the Contractor of its obligations, will not evidence the granting of an extension of time or an instruction to accelerate, disrupt, prolong or vary the works, and will not affect the timing of the Owner's or Contract Administrator's own obligations.
The Australian Building Industry Contract ABIC NW-1 2001 Major Works Contract requires at Clause G5 that the Contractor give the Architect a program within 10 working days of possession of the site, including dates of commencement and completion of major stages, the Date for Practical Completion, start and completion dates of all trades, and a critical path — but notes the program is not part of the Contract. Clause G6 requires an updated program when the Date for Practical Completion has been adjusted by 5 working days or more. Clause G7 allows the Architect to instruct the Contractor to amend the program as an urgent instruction, and Clause G8 entitles the Contractor to claim for loss, expense or damage resulting from such an instruction, except where it results from the Contractor's own failure to progress the works diligently.
As can be seen from the above programming clauses, these three Contracts represent a range of approaches to programs and how they sit within the framework of the Contract. At one end of the continuum, PC1 specifies submission, updating and approval requirements without expressly relieving the Contractor of its obligations, and does not identify the program as forming part of the contract. The Australian Standard, by contrast, expressly deems the program a Contract document, raising issues of breach if either party fails to follow it, and gives an express entitlement to additional costs arising from Superintendent directions on the program. The ABIC Contract sits in between: while expressed not to form part of the Contract, it nonetheless gives rise to an entitlement to claim for loss or expense arising from an instruction to amend the program.
2.2 How is the Program to be Used?
The Australian Standard at Clause 34.3 entitles the Contractor to an extension of time (EOT) if delayed by a qualifying cause of delay and a written claim is given within 28 days of becoming aware of the causation, evidencing the facts of causation and delay. Clause 34.4 requires the Superintendent to apportion delay where qualifying and non-qualifying causes overlap according to their respective contribution, disregarding whether WUC can nevertheless reach practical completion without an EOT or whether the Contractor can accelerate, but having regard to prevention and mitigation not effected by the Contractor. There is no express reference to the construction program in calculating a delay, though there is a requirement to evidence the facts and extent of the delay, and the overlapping-delay provision appears aimed at what we now know as "concurrency" — an issue discussed further below.
Under PC1, Clause 10.5 requires the Contractor to demonstrate it is, or is likely to be, delayed in achieving completion by the relevant Date for Completion before it may claim an extension of time. Clause 10.6 requires detailed particulars of the delay, its cause, and the basis of calculating the days claimed. Clause 10.7 sets certain conditions precedent to entitlement. Clause 10.9 reduces any extension to the extent the Contractor contributed to the delay or failed to take steps to preclude its cause and minimise its consequences — both of which can be satisfied by appropriate use of a regularly updated contract programme.
The ABIC Contract deals with adjustment of time at Section L, which refers to Section H for the requirements of making a claim, including identification of the instruction or event causing the claim, a cost breakdown, references to rates, and any required adjustment to the Date for Practical Completion. Clause L4.2 defines a "critical Construction Activity" as one that, if delayed, will have a direct effect on the Contractor's ability to achieve Practical Completion — the only reference among the three Contracts to a critical activity, notwithstanding that the program itself does not form part of the ABIC Contract.
The conclusion that can be drawn is that there is a requirement to identify to the Superintendent, Architect, or Contract Administrator that there has been a delay, and to detail how the delay period is calculated. While the Contract program is not an exact document and is, on one view, only ever a Contractor's stated intention (or, in the eyes of some cynical Owners, his "hope") as to how he will reach completion, it remains the primary document for assessing the likely effect of a delaying event on completion — albeit secondary to its more important function of helping contractors control their resources and subcontractors.
2.3 Float
A program, in simple terms, is a series of work activities of certain durations which have a logical relationship to each other. When joined into a network, a series of interconnecting activities will represent the longest path to completion — the critical path. There may be a number of other paths so close in duration to the critical path that they can be termed co-critical or near-critical; a small delay to an activity on one of those paths may change the critical path, and this can happen many times during a project.
Float, or more correctly total float, is the amount of time by which an activity can be delayed before it delays completion. Activities on the critical path have no float, so a delay to any of them delays completion, whereas near-critical activities have float that can absorb some delay before affecting completion. A contractor will often argue that this float belongs to him, so that if an Owner-caused delay consumes some of that float, he should be compensated by an extension of time — but this does not necessarily reflect what the contracts say.
Under PC1, an Owner-caused delay can consume total float without entitling the Contractor to an EOT until that float is exhausted, which can leave the Contractor facing liquidated damages for a later non-compensable delay that, but for the Owner's earlier use of the float, would not have caused a breach — raising complex causation questions. These provisions, where compensable delays are permitted to consume float, encourage contractors to produce programs with little or no float, where everything is critical or near-critical.
The Australian Standard is considerably more generous: the Contractor need only demonstrate delay in reaching Practical Completion, a physical state rather than a fixed date, which appears to preserve "early completion float." A compensable or Owner delay would still need to consume any float on the path to Practical Completion before it delays that state. The ABIC contract sits in the middle, defining a "critical construction activity" similarly to PC1 without expressly tying the extension-of-time provisions to that definition, though an Owner would likely argue that the claim particulars required under H2.1 effectively require the Contractor to demonstrate a critical construction activity has been delayed.
2.4 Contingency
A separate issue, often confused with float, is contingency. The duration of an activity is an estimate based on certain crew sizes, productivity and scope of work, and a prudent Contractor may build in extra time or "contingency" against the risk of not achieving planned productivity. Such contingency is generally not apparent within the program unless a reviewer undertakes their own estimate and questions the contractor — this is an area where the contractor makes his own assessment of the risks involved in design, labour, access and similar matters.
An alternative method is to include a discrete contingency activity following the last construction activity but before the Date for Completion. Properly utilised, that activity reduces as Contractor-caused delays are experienced, and if it was a good estimate at the outset there should, in theory, be none left by the end of construction. Alternatively, a contractor may simply plan to complete early, saving time-dependent costs and increasing tendered margins.
2.5 Target and Gross Programs
Having prepared a program showing completion by the Date for Practical Completion, the Contractor has arguably satisfied his contractual requirement — this could be considered the "gross" program, including all allowances the contractor thinks necessary. The Contractor will then typically set subcontractors a "target" program with shorter overall durations than the gross program given to the Owner.
Where both target and gross programs exist there is a potential issue not dissimilar to contingency: if an Owner becomes aware of the target programs, possibly through a dispute process, can it argue that the Contractor is not delayed until the longer durations in the gross programme are exceeded? The question then arises as to which program should be used to evaluate delays, and whether an Owner can take advantage of the difference to absorb compensable delays.
2.6 Contract Administration
Once a program is submitted and accepted, I would caution against an Owner's Representative disallowing it merely because the Contractor's suggested sequence differs from how the Representative might have planned the work. The Representative is, in my view, only entitled to object where the program imposes requirements never previously advised, or deadlines impractical to achieve — this review at the commencement of the project is important so both parties are comfortable with the time allocated to fulfil their obligations to each other.
For the program to remain a useful tool for assessing delaying events, it is essential that it be regularly statused and updated to reflect, at any point in time, how the Contractor intends to achieve the original or adjusted completion dates. Regular statusing and rescheduling allows both Contractors and Owners to estimate the effect of a delaying event with confidence, and satisfies Contract requirements that oblige the Contractor to identify all delays, since the status will reveal whether the Date for Completion has moved and whether the critical path has changed.
Having statused the works, two options exist for the remaining works: retain the logic planned prior to the status, or change that logic going forward. The choice is usually governed by whether the delay revealed is compensable or non-compensable. Where a status shows the Works will complete after the Date for Completion due to the Contractor's own or non-compensable delays, most Standard Forms require the Contractor to reschedule to show completion by the current Date for Completion. Where a compensable delay is causing the overrun, this may instead constitute grounds for an extension of time, entitling the Contractor to progress as planned rather than being required to reprogram to overcome the delay — separate again from any direction to accelerate that may be given.
3. Delay Analysis
On the basis that the obligation lies with the Contractor to prove to the Superintendent, Contract Administrator or a third party the cause, effect and extent of a delay, the most critical issue is the availability and completeness of contemporaneous records — primarily the program at the time of the delay and the 'as constructed' or 'as built' records of progress. The ideal situation is where the Contractor has regularly updated and statused programs adjusted for delays as they occur; failing that, an 'as built' program assists in statusing the Works after the fact based on whatever programs were available at the time.
In my view the most appropriate method for estimating the effect of a delay event on completion includes the following steps: select the program in use at, or as close as possible to, the time of the delay; review and adjust its logic where appropriate without compromising the later analysis; status the program for the state of the work at the time of the delay; retain the logic to completion as planned at the time of that status, from which the critical path is established (this takes into account the Contractor's own delay); then introduce the delay event being considered to estimate whether it would delay completion, noting the delay may or may not expend float first depending on the governing Contract. Further delay events are considered sequentially using the same steps, which also deals with the issue of concurrency.
3.1 Prospective or Retrospective Analysis
Should an analysis of a delaying event's effect be undertaken prospectively — at the time of the event, looking ahead based on how the Contractor was planning to complete the Works — or retrospectively, looking back after the event to decide whether the Contractor was in fact delayed? There are, in my experience, two possible prospective approaches: evaluating with the facts known at the time of the delaying event, or with facts known later — and depending on the event, the result can differ significantly.
In my view the Standard Form Contracts commonly used in Australia contemplate a prospective analysis, given they speak of a Contractor being delayed or "likely to be" delayed — a theory strengthened by the fact that retrospective 'as built' critical path analyses can miss the true effect of a delay event. A further consideration for a compensable delay is whether reprogramming the remaining works so the delay does not delay completion is appropriate, or whether that strays into mitigation, given a contractor arguably remains entitled to finish in the manner and with the resources planned — and what happens if, having reprogrammed and removed float, the contractor is later delayed by a non-compensable event.
A further issue is where compensable and non-compensable delays occur early in a project and the Contractor has the ability to, and does, accelerate to recover time — a Principal may never have the same ability to overcome its own delay. By way of example: on a high-rise building with 8 levels of underground car park and 38 levels above ground including an integrated fit-out, the Contractor is delayed in the excavation works while the Owner separately misses a design-information deadline shown on programs to be on the critical path. At the time, a status shows the Contractor already behind schedule such that the Owner's delay does not delay completion, so no EOT is granted — but the Contractor then accelerates and recovers the lost time by Level 10, at which point the Owner's delay becomes a true delaying event. What is the appropriate method and timing for that analysis?
3.2 Concurrency
Concurrency of delays is, in my view, a concept not well understood and, properly analysed, exists very infrequently. To consider it properly we return to the basic proposition of cause and effect: a delay is caused by an event at a point in time, the effect of which may follow immediately (as with rainfall) or later (as with a variation). Since the Standard Forms most commonly used in Australia contemplate a prospective analysis, the effect of a delay event must be examined at the time it occurs, asking whether the Contractor has been, or is likely to be, delayed.
Concurrency largely disappears under this approach except in the rare case of two delay-causing events occurring at exactly the same instant. If a delay event occurring today causes a 10-day delay, and a second event occurs tomorrow, that second event only delays completion if its own effect exceeds the 9 days of float remaining in the first delay's tail — otherwise it is not, on proper analysis, a delaying event at all. Even where two different causes occur at the same instant and one affects the critical path while the other does not, the non-critical delay generally will not delay completion until the critical delay's float is exhausted. This is why we generally speak of a "dominant" or "first occurring" cause of delay, and Contracts that seek to disentitle Contractors from an EOT on the basis of "concurrent" delays will rarely achieve the outcome the drafter intended once the proper cause-and-effect analysis is undertaken.
3.3 Costs of Delay
There are generally two ways the cost of a compensable delay can be dealt with. The first is akin to liquidated damages for late completion by the Contractor — a pre-ascertained, liquidated delay cost payable where the Owner causes delay. This needs to be treated with some caution: if expressed simply as an amount per day of delay, the Contractor could recover it even where he has, for example, left the site and is not incurring the relevant costs, so some caveat should require evidence that costs have in fact been incurred due to the delay, even if the exact amount need not be proven.
The second method is an "extra costs" Contract, under which the Contractor recovers the extra costs actually incurred as a consequence of the compensable delay — this can produce a quite different result to the extension-of-time entitlement itself. For example, a Contractor might have a 50-day EOT entitlement due to a compensable delay, but if the Owner can establish the Contractor would, due to its own delays, have been on site for 30 of those days regardless, the extra costs recoverable may relate to only 20 days, not 50. While the burden of proof is greater for both parties under an extra-costs Contract, it can produce quite different outcomes depending on the factual matrix.
4. Conclusions
I have canvassed a number of issues in this paper to do with programming, the role programs may take in a Contract and its administration, and some thoughts on delay analysis and costs of delay. I think the conclusion to be drawn is that there are unique, project-specific issues on every engineering or building project, and therefore a need to consider in great detail the factual matrix surrounding the delay and the management of time generally.
Is time of the essence to Contract success? I think the answer can only be an emphatic yes — but unfortunately it remains an aspect that, even on major works projects, is still given limited attention and understanding by both contracting parties and contract administrators.