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The Foundation Of Extension Of Time

 

Contracts may also include interim milestone or sectional completion dates for certain portions of the works.  These specified completion date(s) become a material part of the contract, and if the contractor fails to complete by the contracted date, then he is in breach and liable to pay damages to the employer.  Damages for late completion are expressed as liquidated damages/delay damages. 

All Standard Forms of Contract include provisions to extend time if the contractor has been delayed by certain defined risk events during the course of the contract.  These provisions are commonly known as the Extension of Time (“EOT”) provisions.  The events giving rise to an entitlement to an extension of time are usually set out in considerable detail in Standard Forms of Contract. 

These events may be referred to as “Relevant Events”[1], “Relevant Project Event”[2], “events”[3], “cause of delay”[4] or simply as “grounds”[5].  These contractually identified events represent excusable delays expressly provided for under the contract. 

Excusable delays may be subdivided into compensable delays, which permit the recovery of both time and money, and non-compensable delays, allowing only the recovery of time.  A non-excusable delay provides no basis for recovery of either time or money, and the contractor may be liable for the resulting liquidated/delay damages claim from the employer.

A contractor is entitled to extra time for any excusable delays that occur during the execution of the works.  It is however important to remember that delay does not automatically lead to an EOT.  The delay event must affect the activities on the critical path, and thereby delay the project completion date. 

 

BASELINE SCHEDULE

The project schedule is the contractor’s plan which illustrates the order and priority in which the various works is intended to be performed.  Once mutually agreed between the contracting parties, the project schedule is thereafter commonly referred to as the “Baseline schedule”.  

Today, most construction project schedules are generated with critical path method (“CPM”).  Critical path analysis is a technique that defines the shortest theoretical route through the sequence of programme activities, from project commencement to completion.  A critical path is established by linking the various work activities on the programme and applying estimated durations to these activities and relationships.

The importance of the technique is that it distinguishes between those activities that are critical to the completion date and those that are not.  In other words, delays to critical activities will affect the end date, whereas delays to non-critical activities may not.

The Baseline schedule provides the easiest means of monitoring the work.  The Baseline schedule is the benchmark against which performance may be measured by comparison of actual progress against the original plan.

In order to be capable of measuring the effect of the delay events against the original plan, the Baseline schedule must be network linked and able to react dynamically to change.  For this reason, this basically excludes project schedules prepared as a simple unlinked bar chart, line of balance etc.

Aside from providing a “roadmap” on how and when the contractor will deliver the project defined in the project scope, the Baseline schedule serves various other functions, inter alia:

  • Demonstrates to the employer how the contractor intends to complete the project[6];
  • Subcontractors and resource control;
  • Communicate procurement of major equipment/long lead time items;
  • Record progress;
  • Forecast changes and completion dates;
  • Provide a monitoring and control mechanisms to take corrective action;
  • Quantify delays for the purpose of award extension(s) of time;
  • Identify risks and facilitate risk management.

  

An essential part of any claim for extension of time is the requirement to demonstrate that the delay event actually had an effect on the time for completion.  This is typically carried out by measuring the effect of the delay events (commonly referred to as “impacting”) onto the Baseline schedule. 

 

 

The Baseline schedule provides the foundation of bedrock upon which all EOT claims are founded.  It follows that if the Baseline schedule is defective or contain scheduling flaws, this will undermine the robustness and reliability of the EOT claim itself.

Consequently, it is pertinent that a schedule audit be conducted to verify the structural integrity of the Baseline schedule.  The ideal period to carry out the audit will be prior to agreeing/accepting the Baseline schedule from the contractor.  However, the audit may also be carried out at any point during the progress of the contract, or during the dispute resolution stage.  At the most basic level, the schedule audit should verify that the Baseline schedule meets the following criteria:

  • The full scope of the contract is represented in the schedule
  • The milestones dates comply with the contract provisions
  • Calendars used for schedule calculations reflect actual working day constraints and restriction prescribed in the contract
  • The data date should match the start date of the project
  • There is at least one continuous critical path that start at the first schedule activity and ends at the latest occurring activities in the network
  • The critical path duration should match the project duration
  • All activities have at least one predecessor (except for the start milestone), and one successor (except for the finish milestone)

 

An extensive schedule audit, professionally conducted, would verify the appropriateness of activities’ relationship types, logic construction, constraints, float, duration, activities, resources etc.  Examination of the schedule architecture, performing critical path tests, ratios analysis, schedule density analysis etc. essentially provide employers with an objective assessment on the fitness of the Baseline schedule.  

The schedule audit should be repeated at regular interval during the course of the project, upon submission of updated/revised schedule, and when claims (e.g. Extension of Time claim, acceleration claim, and disruption claims) are submitted by contractors.

  

RISK ADJUSTED BASELINE SCHEDULE

Project milestones, completion date(s) as well as critical paths are established by looking at the scheduled results.  The dates in the schedule are specific and definitive.  All project managers strive to ensure that activities were carried out according to the estimated durations.  This is understandable as overrunning the dates in the schedule often carry with it adverse contractual implication.

Be that as it may, the problem all contractors and employers faced is that the dates in the schedule may not even be achievable.  The fact is that the dates in the schedule are best guess estimate by the contractors, and not the accurate and definitive dates for future events indicated in the schedule. 

Virtually all Baseline schedule submitted by contractors adhere to the mandated completion dates prescribed by employers in the tender document.  The activities in the schedule are manipulated to fit within the project duration stipulated, often when the scope, design and/or specification are incomplete.  The certainty of durations assigned to activities together with the milestones dates give an aura of certainty which masked numerous uncertainties, assumptions and incomplete design status.

Consequently, prudent employers wishing to pro-actively manage and ensure timely completion of projects typically identify risks, claims positioning issues by risk-adjusting the Baseline schedule.  This is carried out by identifying a list of risks for compilation into a risk register. 

The identified risks are graded and ranked based on the “likelihood of occurrence” and “the relative impact of the potential event” before assigning the risks to individual activities in the baseline schedule. 

  

A Monte Carlo simulation is commonly carried out to ascertain the uncertainty in the original Baseline schedule.  Typically, this involves a simulation of between 5,000 to 10,000 iterations of “what if” scenarios in the computation.  The results from the simulation provide an indication of the probability (or likelihood and confidence level) of achieving the dates and duration in the Baseline Schedule. 

The results may be presented in various reports, providing the relevant party the information to formulate risk mitigation and contingency plans.

 

CONCLUSION

Construction projects suffer more than other projects from time overrun (and the associated prolongation cost).  For this reason, disputes on delays are predominantly dispute concerning which party should bear the responsibility and cost of the delay (i.e. who caused the delay, and is it compensable?). 

In deciding this question, arbitral tribunal and/or courts look to the causes of the delay and to the expressed and implied obligations imposed by the contract. Determining the legal consequences that flow from a given delay, depend on correctly identifying the type of delay that has occurred. However, the issue of damages flowing from the events giving rise to liability and the substantiation is no less important.

An award of extension of time sets a new date for completion and postpones a contractor’s liability to pay liquidated damages.  Contrary to many misconception, the extension of time provision is intended to benefit the employer. They are included in the contract to enable time to be extended for delay events caused by the employer, thus protecting an employer’s entitlement to liquidated damages.

If a contractor is prevented from completing by the contracted date on matters outside his responsibility, and there are no provisions to extend time, then time will be 'at large' and his obligation will be to complete in a reasonable time. Further, the liquidated damages provisions become unenforceable and the employer can only claim for general or unliquidated damages where he will need to prove his actual costs incurred or losses suffered.

In order to successfully secure an Extension of Time, the contractor must establish the liability of the employer and the amount of its own damages, and prove the damages were caused by the acts giving rise to liability.  The Baseline is the bedrock from which to measure the effect of delays.  The contractor must demonstrate causation and ensure that its EOT claims are built upon the foundation of a robust Baseline schedule. 

If the Baseline schedule is defective or contain scheduling flaws, this will undermine the robustness and reliability of the EOT claim itself.  A schedule audit conducted at inception to verify the structural integrity of the Baseline schedule is an essential and integral step to timely completion.  The audit may also be carried out at any point during the progress of the contract, or during the dispute resolution stage.

An extensive schedule audit, professionally conducted, would verify the appropriateness of activities’ relationship types, logic construction, constraints, float, duration, activities, resources etc.  Examination of the schedule architecture, performing critical path tests, ratios analysis, schedule density analysis etc. essentially provide employers with an objective assessment on the fitness of the Baseline schedule.

Virtually all Baseline schedule submitted by contractors adhere to the mandated completion dates prescribed by employers in the tender document.  The activities in the schedule are manipulated to fit within the project duration stipulated, often when the scope, design and/or specification are incomplete.  The certainty of durations assigned to activities together with the milestones dates give an aura of certainty which masked numerous uncertainties, assumptions and incomplete design status.

Consequently, prudent employers wishing to pro-actively manage and ensure timely completion of projects typically identify risks, claims positioning issues by risk-adjusting the Baseline schedule.  This is carried out by identifying a list of risks for compilation into a risk register, assigning the risks to individual activities in the baseline schedule and conducting simulations.  This provides the relevant party with vital management information to formulate appropriate risk mitigation and contingency plans.

In this author’s opinion, having Baseline schedule professionally audited is the most pro-active effort contractors and/or employers could employed in their projects to ensure that projects start at the right footing.  Prudent contractors and employers committed to timely completion further ensure that project risks are identified, risk adjusted in the Baseline schedule, tracked and risk management plans formulated. 

The investment of ensuring the Baseline schedule is robust, built on solid bedrock of schedule logic provides contractors and employers the platform from which to communicate, record, report, monitor and control projects.  Unforeseen events may be addressed contemporaneously instead of allowing them to develop into a dispute.  When the schedule is used to make decisions, it plays a vital role in avoiding claims by facilitating an early resolution of issues.

 

[1]           PAM MC with quantities 2006

[2]           JCT Management Building Contract 2011

[3]           PWD Form 203A; PSSCOC D&B 2008

[4]           FIDIC suite of Standard Form of Contracts; PWD DB Rev2010; IEM Civil Engineering First Edition

[5]           SIA Lump Sum Contract, 8th Edition; Measurement 7th Edition; REDAS DB Contract

[6]           In conjunction with the method statement

 

 

About the author
Shawn Chong
Author: Shawn Chong

BSc(Hons), PGDip, MSc, MBA, MSc, MRICS, MCIOB, MRISM, ICECA, Reg.QS, Chartered Construc on Manager

Shawn is a highly-qualified multi-disciplinary professional with over 31 years of experience in construction, engineering, energy and infrastructure projects. His experience on large scale projects covers many sectors, executed under various contractual arrangements, inter alia, Traditional Contracts, Management Contracting, Construction Management, Design & Build, Turnkey, BOT, PFI and PPP. Shawn specialises in the provision of dispute related services, having previously been employed in two major contract consultancy groups and as senior commercial manager of a large multi-national company where he headed the commercial and risk division, managing and directing operation resources, oversees contract administration, arbitration, adjudication, and other legal matters. The combination of his technical, quantity surveying, project management, IT, law and business administration skills enables him to assist clients in a broad range of issues and maximising the prospects of success in a cost-effective manner. He counsels employers, contractors and subcontractors in commercial, retail, office, residential, civil engineering, industrial park, power plants and airport projects and was recognised for his ability to effectively resolve complex and difficult commercial and contractual matters.


“Logo IconThe Charlton Martin Group provides construction contract consultancy services to the construction, engineering, power, process, petrochemical, oil and gas industries worldwide, dealing specifically with the many disputes and varied problems, which frequently arise.

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