Concurrent delay: unliquidated damages by employer and disruption claim by contractor
Credit: Shutterstock
JB Kim
London
Introduction
Concurrent delay, a controversial issue among construction lawyers and practitioners, centres around: (1) a contractor’s entitlement for an extension of time (EOT); (2) an employer’s right to impose liquidated damages; (3) a contractor’s entitlement for losses and expenses associated with an EOT (referred to as a prolongation claim); and (4) general principles as to ‘causation in fact’.1
The English position with regards to EOTs in concurrency cases is well illustrated in the Society of Construction Law Delay and Disruption Protocol (the ‘SCL Protocol’) in core principle 102 (referred to as a full EOT). However, a full EOT has been criticised on numerous grounds. One criticism is that employers lose the right to impose liquidated damages but are still expected to compensate for a contractor’s prolongation claim if a full EOT is granted (the ‘obverse problem’).3 To overcome such disadvantages, employers may claim unliquidated damages when contractors breach contracts. Also, a separate entitlement or causation in the form of a ‘but-for test’ can be applied when assessing prolongation claims.4 Therefore, the English position as to losses and expenses in concurrency cases means contractors are required to satisfy a but-for test or burden of proof test,5 a position that SCL Protocol core principle 14 fully supports.6
This essay will explore why the English position is the right approach for recouping time and money in cases involving concurrency; it will then explore how contractors can make disruption claims to obtain monetary compensation, tackling causal requirements in the form of a but-for test.
Consideration of but-for test in relation to EOT
To establish ‘causation in fact’, it is a requirement in contract law that a but-for test be satisfied. It usually operates on an all-or-nothing basis and is measured using civil law standards examining a balance of probabilities (ie, those in excess of 50 per cent7). The but-for test encounters well-known dif?culties when issues of concurrency arise.8 Moran QC examined causation as a general principle in tort law and contract law paying specific attention to construction contracts.9 He was especially concerned with concurrency and applications of causation and keen to determine whether ‘dominant cause tests’ and ‘approximately equal causative potency tests’ were a valid means of measuring these situations. He determined they were not. Consequently, he suggested the ‘effective cause test’, recently approved during Walter Lilly v Mackay.10 This test defines an effective cause as being one that causes critical delay to a project’s completion. An effective concurrent cause can be established by a ‘reverse but-for test’, and ‘is (in fact) routinely applied by courts in different areas of the law and would not be beyond contract administrators’.11
The English position as to losses and expenses in concurrency cases means contractors are required to satisfy a but-for test or burden of proof test.
|
Development of English law position on EOT entitlement
Extension of time clause and meaning of concurrency
Henry Boot v Malmaison,12 a leading case in England and Wales, saw a situation where no work was possible on a specific site for a week because of exceptionally ‘inclement weather’ (a relevant event under JCT).13 However, another issue had been manpower shortage (not a relevant event). Both issues were likely to delay project completion by one week. It was held that if there were two concurrent causes of delay, one of which was a relevant event and the other not, then the contractor would be entitled to an EOT for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. The decision was based on strict application and construction of a contract provision that contract administrators shall make ‘fair and reasonable’ assessment of ‘relevant events’ in the contract, a decision consistent with one made in Balfour Beatty v Chestermount.14 In Balfour Beatty it was held that an EOT should be assessed on a ‘net’ rather than ‘gross’ basis; therefore, no EOT should be refused on the grounds that a delay would have occurred by reason of labour shortage.15 Keating comments that the rationale for such an approach is that where the parties have expressly provided in their contract for an EOT caused by certain events, the parties must have contemplated that there could be concurrent delay but nevertheless by their express words the contractor is entitled to an EOT for an effective cause of delay.16
The Royal Brompton Hospital NHS Trust v Hammond (No 7)17 discussed the meaning of concurrent delay and made a distinction between true concurrency and sequential delays.18 True concurrency (the narrow approach) requires both the timing of events and their delaying effect to coincide. Therefore, true concurrency was separated from sequential delays that could have the same effect on completion, and it was held that sequential delays cannot be defined as concurrent delay.19 However, Keating and the SCL Protocol20 state that true concurrency rarely occurs, and probably only qualifies as such if each event is critical to completion of a project.21 The current consensus regarding ‘concurrent delay’ is that it represents a period of project overrun caused by two or more effective causes of delay of approximately equal causative potency.22 It is worth noting that the first edition of the SCL Protocol23 also distinguished true concurrency from sequential delay, but in all cases, ‘the contractor’s concurrent delay should not reduce any EOT due’.24
De Beers UK v Atos Origin IT Services UK25 followed the decision made in the Malmaison case, holding that the contractor ‘is entitled to have the time within which to complete which the contract allows or which the employer’s conduct has made reasonably necessary’ irrespective of the contractor’s risk events. The decision is consistent with the principle that ‘float is owned by the project’ as it relates to time.26
In contrast, in Scotland, City Inn v Shepherd Construction27 adopted apportionment where there was delay caused by two concurrent causes, one of which was a relevant event under JCT.28 Hamblen J, in Adyard Abu Dhabi v SD Marine Services,29 reviewed the decision of City Inn but did not follow the decision based on the dissenting judgment of Lord Carloway in City Inn, which supported ‘fair and reasonable’ assessment of ‘relevant events’ in the contract. In a more recent case, Walter Lilly v Mackay,30 Akenhead J held that a contractor was entitled to a full EOT in respect of the delay, where a period of delay has two effective causes.
Keating concludes the current position of English law, stating:
‘It is now generally accepted that under the Standard Form of Building Contract and similar contracts a contractor is entitled to an extension of time where delay is caused by matters falling within the clause notwithstanding the matter relied upon by the contractor is not the dominant cause of delay, provided only that it is an effective cause of delay.’31
Prevention principle
Several commentators have suggested that the right approach to concurrent delay needs to refer to the prevention principle.32 It has long been accepted that the prevention principle applies to every contract.33 The prevention principle in construction contracts was summarised by Lord Denning MR in Trollope & Colls v North West Metropolitan Regional Hospital Board,34 holding that the employer cannot impose liquidated damages or any penalties when the contractor has prevented the performance of other contracting parties. The prevention principle applies to concurrent delay as Salmon LJ in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd35 has observed:
‘If the failure to complete on time is due to the fault of both the employer and the contractor, in my view the clause (giving the employer liquidated damages) does not bite. I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that he cannot be fulfilled.’
The recent practice in construction contract conditions seeks to bar entitlement to an EOT for any period of contractor-responsible delay occurring during a period of delay for which the employer would otherwise be responsible.36 The question for the court was whether such a clause offends the prevention principle. The English Court of Appeal in North Midland Building Ltd v Cyden Homes37 decided that barring an extension of time in concurrent cases does not offend against the prevention principle. Coulson LJ viewed the prevention principle as implied terms rather than an overriding rule of public or legal policy; thus, the express terms (the parties’ agreement) can override the implied terms.
Approaches in other jurisdictions: apportionment and its rationale
Cocklin,38 analysing approaches in other common law jurisdictions, has suggested that other jurisdictions such as Australia,39 Canada, Hong Kong, Scotland and the US implement apportionment or critical path method (CPM) techniques in cases of concurrent delay. In a Hong Kong case, W Hing Construction Co Ltd v Boost Investment Ltd,40 the apportionment for an EOT was allowed, and the apportionment has now been regarded as a general principle in Hong Kong. Furthermore, Canadian courts do not recognise an all-or-nothing approach since it is regarded as leading to disproportionate results.41 The justification of apportionment in Canada has two bases: (1) the courts must ‘do the best they can’; and (2) stretching contributory negligence legislation, which entitles the court to apportion liability between a claimant and defendant in tort case. These approaches have given the Canadian courts the ability to allocate responsibility to cases of concurrent delay based on ‘guesswork’. Cocklin states that it may lead to an equitable solution in a complex concurrent delay case, but it lacks certainty of outcome. The US had adopted similar approaches to the UK but shifted to apportionment or CPM techniques due to development of delay analysis methodologies with the view that CPM could accurately segregate the impact of concurrent delays.
The recent practice in construction contract conditions seeks to bar entitlement to an EOT for any period of contractor-responsible delay occurring during a period of delay for which the employer would otherwise be responsible.
|
Mastrandrea has also suggested apportionment based on the view that ‘due weight to the degree of culpability and the significance of the delaying factors of each of the relevant causes’ will provide a more satisfactory outcome than an all-or-nothing approach.42
Flaws of apportionment
The prevention principle and arguable penalty regime
Apportionment in the City Inn case and other similar cases appears to be contrary to the well-established prevention principle.43 Apportionment may lead to an irrational result where an employer’s delay may be used as a basis for liquidated damages. Having said that, Hudson asserts that the imposition of liquidated damages due to failure to grant an EOT due to a concurrency situation would constitute a penalty.44 Liquidated damages shall be imposed only for delays to completion of a project caused by a contractor. However, in situations of true concurrency, it is argued a contractor cannot be held liable for delays to completion of a contract, which is why imposing liquidated damages in such contexts is considered a penalty. Blackburn J in Roberts v Bury Commissioners45 said: ‘… no person can take advantage of the non-fulfilment of a condition the performance of which has been hindered by himself.’46
Uncertainty and non-reliance of delay analysis
Justice Ramsey argued that the adoption of a general apportionment approach based upon the respective culpability and/or causative potency of the concurrent causes would introduce a new element of uncertainty and could prove unworkable in practice.47 It may lead to an unnecessary dispute about the delay analysis methodologies as seen in the Walter Lilly48 case.
Apportionment heavily relies on expert reports and delay analyses, but the danger of usage of delay analyses to apportion delays has been met with considerable concern by a number of commentators. Wilmot-Smith refers to a series of case law to warn against overemphasis of delay analyses that rely on computer programme to identify critical paths and eventually analyse concurrent delay.49 Marshall analysed different delay analysis methodologies and concluded that even in a simple project, results of prospective and retrospective delay analyses are unlikely to produce the same results.50 Farrow was more critical about use of delay analysis to make a determination of concurrent delays.51 ‘It is not difficult to manipulate a methodology to arrive at the required answer. There are many related issues that influence the analysis […] Hence, an analyst’s view of a given set of facts will result in a different conclusion from another analyst. The methodologies do not tell you what the results mean in terms of contractual liability […] delay analysis […] is not as precise a science as some suggest [emphasis added].’
Although Mastrandrea has supported apportionment, he has also acknowledged the limitations of critical path analysis and has pointed out that ‘segregation of delays (has) not always (been) possible.’52 Even in the US, if the effects of concurrent delay cannot be accurately segregated, the court will be likely to revert to a non-apportionment type review.53
Contractual status of programmes
Moreover, the use of programmes to apportion delays has been questioned due to its contractual status.54 Unless the programme is incorporated into contract documents, there is no implied obligation to perform a set of activities in any particular sequence.55 In GLC v Cleveland Bridge,56 it was held that the contractor could carry out the work at any pace, whether or not it complies with the contractor’s programme. Burr criticised apportionment based on programmes averring that the most standard contracts may effectively give the contractor the right to incur its own delay during the construction period until the completion date unless the programme is incorporated into the contract or the contractor does not breach its duty to proceed ‘regularly and diligently’ with the works, or the contractor suspended works.57
The obverse problem and maxim ‘the loss lies where it falls’
One of the criticisms of a full EOT, which is used to support the case for apportionment, is that unless losses are to be apportioned, out of the two associated claims (ie, the employer’s liquidated damages claim and the contractor’s prolongation claim) one must succeed and the other must fail. This situation is referred to as the obverse problem.58
Furthermore, in situations of true concurrency, contractual responsibility for a delay to completion can be considered logically indeterminate because neither delay was actually necessary to cause completion delay. It can, therefore, be argued that, in such a scenario, the employer will not be able to determine its entitlement to liquidated damages. Similarly, the contractor will be unable to prove its corresponding entitlement to a prolongation claim. As Hudson59 puts it: ‘there is a substantial body of opinion which states that, in circumstances where there are concurrent causes of delay, the Contractor is entitled to an extension of time but does not receive loss and expense.’
Marrin QC describes this notion as the ‘Malmaison approach’,60 and it is sometimes referred to as ‘time but no money’.61 However, this expression is somewhat misleading. A contractor can get monetary compensation if he satisfies a but-for test.62 Willmot-Smith63 supports a but-for test to acquire losses and expenses quoting the maxim ‘the loss lies where it falls’. Having said that, Keating states the need for a different test of causation for entitlement to time and any associated losses and expenses.64 The current consensus is that an ‘effective cause test’ is best suited to situations requiring an EOT, and a but-for test or burden of proof approach to cover losses and expenses.65
Overcoming but-for test in English law
Unliquidated damages by employer
There is an opportunity for an employer to recover losses, based on the general principle that damages may be awarded for a contractor’s breach of contract that is not reliant on liquidated damages, and concurrently these liquidated damages cannot satisfy a but-for test. Salmon LJ in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd66 observed: ‘… the employer, in the circumstances postulated, is left to his ordinary remedy’; that is to say, to recover such damages as he can prove flow from the contractor’s breach.
Stephenson LJ in Rapid Building v Ealing Family Housing67 said that: ‘where the claim for liquidated damages has been lost or has gone […] the defendants are not precluded from pursuing their counterclaim for unliquidated damages’.
Alternative disruption analysis by contractor to satisfy but-for test
In the US, in many cases, contractors submit disruption analysis focusing on increased or additional resources as an alternative to global delay claims.68 Nielsen states: ‘An emerging analysis and proof technique for delay and disruption dispute impacts is productivity analysis (disruption analysis).’69 Resource allocated programmes and cost control systems are known to be able to effectively manage projects, and their importance is recognised in the Chartered Institute of Building (CIOB) Guide in the UK.70 Global delay claims seem to be regarded as lacking a causal nexus between an employer’s delay and associated losses, consequently failing but-for tests. In a recent case, Costain v Haswell,71 the judge rejected a global delay claim since he was unable to ascertain losses due to a breach when the contractor submitted a site-wide project delay cost to cover a situation in which only two out of ten buildings were delayed by the architect.72
The solution may be unliquidated damage claims made by the employer, or particularised disruption claims made by the contractor. Disruption analysis needs to be studied further, not only to ensure equitable compensation but also for better project management.
|
The claimant could have submitted either a global delay claim or particularised disruption claim to cover losses and expenses based on particular resource increases linking an employer’s risk event to losses suffered due to a need for increased or additional resources.73 In the UK, a disruption approach was tested in cases involving concurrency in the Walter Lilly74 case. The court may have adopted a more relaxed approach assessing loss and expense on ‘balance of probabilities’ if the liability and its link to a disruption75 were established and substantial losses (increased resources) occurred due to the disruption compared to global delay claims. This contrasts with the decision made during the Costain76 case.77 While in Costain78 the court rejected the preliminary costs as delay damages in the context of a global claim, in the Walter Lilly79 case, Akenhead J approved the contractor’s particularised disruption claim for the delay damages. Keating commentated:
‘Akenhead J did not consider the […] preliminary costs to be a global […] claim if there was evidence to demonstrate that the contractor did apply a greater level of resources than originally planned for, and that the linkage between the relevant event and the need to provide that greater resource is established.’80
Conclusion
The rationale behind the UK position in relation to concurrent delays can be: (1) contractual construction of an EOT clause; (2) adherence to the prevention principle; (3) the ‘burden of proof on the claimant’ consideration; and (4) the penalty regime. Apportionment may be argued to be more equitable than a full EOT. However, apportionment will bring further uncertainty to the construction industry, leading to unnecessary disputes such as delay analysis methodologies. On the other hand, the ‘obverse problem’ may be overcome by employing different approaches replacing the liquidated damages and global prolongation claims in order to keep up with legal requirements as to causation in fact. The solution may be unliquidated damage claims made by the employer, or particularised disruption claims made by the contractor. Disruption analysis needs to be studied further, not only to ensure equitable compensation but also for better project management.
Notes
1 John Marrin QC, ‘Concurrent Delay Revisited’ (Society of Construction Law paper 179, February 2013).
2 Society of Construction Law Delay and Disruption Protocol (2nd ed, 2017).
3 See n 1 above.
4 Stephen Furst, Vivian Ramsey and Donald Keating (10th ed) Keating on Construction Contracts (London: Sweet & Maxwell, 2017) para 8-029; SCL Protocol, core principle 12.
5 Ibid, Furst, para 9-093.
6 See n 2 above.
7 Furst, para 9-090.
8 Franco Mastrandrea, (2014) ‘Concurrent delay in construction – principles and challenges’ The International Construction Law Review, 31(1), 83–107.
9 Vincent Moran QC, ‘Causation in Construction Law: The Demise of the “Dominant Cause” Test?’ (SCL paper 190, 2014).
10 [2012] EWHC 1773 (TCC).
11 See n 9 above.
12 [1999] Con LR 32.
13 JCT Standard Form of Building Contract, 1980 ed (with Quantities).
14 (1993) 62 BLR 1.
15 Nicholas Dennys, Robert Clay, Alfred A Hudson and Atkin Chambers (13th ed) Hudson’s Building and Engineering Contracts (London: Sweet & Maxwell, 2015) 6-059.
16 Furst, para 8-026.
17 [2001] 76 Con LR 148.
18 K Pickavance (3rd ed) Delay and Disruption in Construction Contracts (London LLP, 2005) 620; Dennys, para 6-060; Society of Construction Law Delay and Disruption Protocol (1st ed, 2002).
19 Ibid
20 SCL Protocol (2nd ed) cl 10.3.
21 Furst, para 8-025.
22 See n 9 above.
23 SCL Protocol (1st ed).
24 Ibid, cl 1.4.6.
25 [2010] EWHC 3276 (TCC).
26 Ascon Contracting v Alfred McAlpine Construction Isle of Man(1999) 66 Con LR 119; Furst, para 8-062.
27 [2010] BLR 473.
28 See n 13 above.
29 [2011] EWHC 848.
30 See n 10 above.
31 Furst, 1st supplement para 8-026.
32 See n 1 above.
33 Marrin; Dennys, 3-127; as per Vaughan Williams LJ in Barque Quilpé Ltd v Brown [1904] 2 KB 264 at 274.
34 [1973] 1 WLR 601 (HL).
35 (1970) 1 B.L.R. 111.
36 SeeNorth Midland Building Ltd v Cyden Homes [2018] EWCA Civ 1744.
37 [2018] EWCA Civ 1744.
38 M Cocklin, ‘International Approaches to the Legal Analysis of Concurrent Delay: Is There a Solution for English Law?’ (SCL paper 182, April 2013).
39 (Bailey examined standard forms of contract AS 4000-1997 form) J Bailey (2nd ed) Construction Law (London: Informa Law, 2016).
40 [2009] BLR 338.
41 Cocklin, pp 11–13.
42 Mastrandrea, pp 84.
43 Marrin, pp 4–7.
44 Dennys, para. 6-602.
45 (1870) LR 5 CP 310.
46 Dennys, para 3-127.
47 Furst, para 9-098.
48 See n 10 above.
49 R Wilmot-Smith (3rd ed) Wilmot-Smith on Construction Contracts (London: OUP, 2014), pp 372–375.
50 John Marshall, ‘Delay Analysis: Backwards or Forwards: Does it Make a difference?’ (SCL paper 196, 2016).
51 Tony Farrow, ‘Delay Analysis – Methodology and Mythology’ (SCL paper 098, 2001).
52 Mastrandrea.
53 Thomas J Kelleher and G Scott Walters (4th ed) Common Sense Construction Law (New Jersey: John Wiley & Sons, 2009) pp 289–290.
54 Pickavance.
55 J Uff (12th ed) Construction Law: Law and Practice Relating to the Construction Industry (London: Sweet & Maxwell, 2017).
56 (1986) 34 BLR 50.
57 Pickavance.
58 Marrin.
59 Dennys, para. 6-058.
60 Ibid.
61 Cocklin.
62 Furst, paras 8-029 9-092,9-093.
63 Wilmot-Smith, para 14.37.
64 Furst, para 8-029.
65 Marrin; Moran; Furst chs 8, 9; SCL Protocol (2nd Edition) core principle 10 and 14.
66 (1970) 1 BLR 111.
67 (1984) 29 BLR 5,16 and 19.
68 Nielsen, Kris R, and Galloway, Patricia D, Proof Development for Construction Litigation American Journal of Trial Advocacy 433.
69 Ibid.
70 CIOB, Guide to Good Practice in the Management of Time in Complex Projects (Chichester: Wiley Blackwell, 2010).
71 [2009] EWHC 3140 (TCC).
72 R Champion ‘Prolongation Costs: Where Now AfterCostain v Haswell?’ (SCL paper 170, 2011); Dennys, para 6-076.
73 Bailey, para 11-182.
74 [2012] EWHC 1773 (TCC).
75 Furst, para 8-075.
76 [2009] EWHC 3140 (TCC).
77 Furst, para 8-077; see n 10 above; seealsoSKK (S) Pte Ltd v MCST [2011] SGHC 215.
78 [2009] EWHC 3140 (TCC).
79 [2012] EWHC 1773 (TCC).
80 Furst, para 8-077.
|
JB Kim is a managing consultant at Blackrock Expert Services in London and can be contacted at jbkim@blackrockx.com.
|
Back to top