OIL & GAS ASIA PACIFIC CONFERENCE 2011 27 & 28 OCTOBER 2011 ROYAL CHULAN HOTEL KUALA LUMPUR

OIL & GAS ASIA PACIFIC CONFERENCE 2011 27 & 28 OCTOBER 2011 ROYAL CHULAN HOTEL KUALA LUMPUR www.charltonmartin.com

DELAY & DISRUPTION BY SOH LIEH SIENG

If No Time is Specified - Time at Large Section 47 of the Contracts Act 1950 “Where … no time for performance is specified, the engagement must be performed within a reasonable time” But what is a ‘reasonable time’? Delay – Basic Principles

Reasonable Time Hick v Raymond and Reid [1893], when “… the party upon whom it is incumbent duly fulfils his obligations, notwithstanding protracted delay, so long as such delay is attributable to causes outside his control and he has neither acted negligently nor unreasonably” Delay – Basic Principles

Specified Time for Completion Two types … Time of the essence Time extendible Delay – Basic Principles

Time of the Essence Failure to achieve the agreed deadline constitutes a fundamental / serious breach Such a breach entitles the other party to treat the contract as repudiated and terminate the same Delay – Basic Principles

Time of the Essence Section 56(1) of the Contracts Act 1950 “When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified time, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.” Delay – Basic Principles

Time of the Essence Generally not applicable to construction contracts – not practical, necessary or fair Can be made of the essence by notice requiring performance by a certain date Ultimatum for completion of works by Contractor Ultimatum for payment by Owner Delay – Basic Principles

Time of the Essence Berjaya Times Square Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] s56(1) is to be read together with s40 of the Contracts Act 1950 non-defaulting party is not entitled to put an end to the contract under s40 if there is part-performance by the defaulting party Inclusion for payment of liquidated damages in the event of delay negates the operation of the time of essence clause in relation to the failure to deliver within the stipulated time Delay – Basic Principles

Time Extendible Most construction contracts (“EOT”) Once completion (date as extended) passes, Owner may impose LAD Unless expressed otherwise, Contractor: responsible for his own delays responsible for neutral events not responsible for Owner’s delays Delay – Basic Principles

Time Extendible EOT usually for Owner’s delays, e.g. Late possession of site Variations required Disturbance caused by Owner Delay – Basic Principles

Time Extendible Amalgamated Building Contractors v Waltham Holy Cross [1952] “… the building owner cannot insist on a condition if it is his own fault that the condition has not been fulfilled.” Delay – Basic Principles

Time Extendible Prudent employers would ensure EOT clauses drafted are wide Example : “act of prevention or breach of contract by the Owner” Delay – Basic Principles

Contractor’s Right to Time Extension for Concurrent Delays an act, omission, breach or default of the Company; suspension of the works by the Company (except where the suspension is due to an act or omission of the Contractor); a CHANGE or variation (except where the variation is due to an act or omission of the Contractor); and force majeure Delay – Contract Provisions

Three Approaches dealing with Concurrent Delays the Contractor has no entitlement to an extension of time if a concurrent delay occurs the Contractor has an entitlement to an extension of time if a concurrent delay occurs the causes of delay are apportioned between the parties and the Contractor receives an extension of time equal to the apportionment. For example, if the causes of a 10 day delay are apportioned 60:40 between Company and Contractor, the Contractor would receive a 6 day extension of time Delay – Contract Provisions

Methods of Analysis “What if” / As Planned Impacted Analysis “But For” As Built Collapse Analysis “Time-Slice” / “Window” Analysis How do they assist with concurrency? Delay – Delay Analysis

Concurrent Delays A question of fact whether an event (acting alone or concurrently with the other events) will cause delay to the completion of the works and give an entitlement to extension of time. Procedures for Applying for EOT

Concurrency - Relevance Concurrency is contractually significant when both delaying events are critical. If one delay is critical and one is not critical then the delays may be concurrent but not relevant to completion A proper analysis may reveal whether or not they delays are critical to completion Procedures for Applying for EOT

Concurrent Delay Royal Brompton Hospital NHS Trust v Hammond (No. 7) [2001] “a situation in which the works are proceeding in a regular fashion and on programme, when two things happen , either of which, had it happened on its own, would have caused delay, and one is a relevant event, while the other is not, In such circumstances there is a real concurrency of causes of the delay” Procedures for Applying for EOT

Concurrency - EOT Based on as-built records only, the consultant faces a dilemma as to how to deal with delay: - should he grant EOT?; or should he take the view that the contractor is responsible? EOT clauses usually require the consultant to decide what is fairly and reasonably required. Procedures for Applying for EOT

Concurrency - EOT Procedures for Applying for EOT

Concurrency - EOT Various approaches taken by courts to deal with the dilemma John Marrin QC mentions two: “But For” test (the delay would not have occurred but for the event) Malmaison Approach Procedures for Applying for EOT

Concurrency - EOT Malmasion Approach “If there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event” (Henry Boot Construction v Malmaison Hotel [1999]) Procedures for Applying for EOT

Concurrency - EOT The principal of concurrency applied to EOT: Where Employer causes delay he should not benefit by deducting liquidated damages even though the contractor is also in default and causes concurrent delay Wells v Army and Navy Co-operative Society [1902] Procedures for Applying for EOT

Concurrency - EOT Malmaison approach to EOT preferred: Concept is that the parties have expressed in the contract how various risks are to be dealt with. Once a relevant event occurs then EOT is to be granted notwithstanding other causes of delay Most standard forms require the Architect / Engineer to be fair and reasonable in assessing EOT and the Malmaison approach is consistent with this principle Procedures for Applying for EOT

Case Updates on Concurrent Delays City Inn Limited v Shepherd Construction Limited[2010] De Beers UK Limited v Atos Origin IT Services UK Limited [2010] Adyard Abu Dhabi v SD Marine Services[2011] Delay – Concurrency

CONCURRENCY CLAIMS WORKSHOP SESSION www.charltonmartin.com

Background Disruption: What is it? Disruption = Loss of productivity A reduction in the output of construction resources (labour and plant) Disruption Costs are production related not time related and therefore often very difficult to prove Many variables involved Risks taken on by Contractor in estimating productivity at tender stage

Loss of Efficiency Factors Common to Construction Projects Increased Labour / Additional Gangs Trade Stacking Overtime Adverse Weather Out-of-Sequence Work Acceleration Causes of Loss of Efficiency

Disruption Caused By Many Variables: Causes of Loss of Efficiency • Contractor Controlled • Poor Workmanship • Inclement Weather • Poor Supervision • Plant Breakdown • Poor Quality • Damaged Materials • Etc • Employer Controlled • Late / Reduced Access • Late / Wrong / Incomplete Information • Variations • Suspension • Directly Employed Contractors • Etc

Disruption: Legal Basis of Claims Types of Disruption Non-Compensable Events Contractor is responsible for the risk under the contract and therefore has no entitlement to claim e.g. Poor ground conditions, “Acts of God”, etc. Compensable Events Contractor may recover due to a specific provision of the contract or under general principles of law e.g. Changes or Variation clauses, instructions to suspend the works, an action for recovery of damages due to a breach of an express or implied term

Proving Cause and Effect of Disruption Establishing the causal relationship of the disruption to the damage Necessary for Contractor to show a monetary loss was suffered as a result of the disruptive event Segregated cost records required for effect of disruption events Where segregated cost records not available then at least take out extra costs NOT resulting from the disruption events

The Society of Construction Law Delay and Disruption Protocol An aid to interpretation of delay and disruption issues under construction and engineering contracts A unified and transparent approach to understanding the consequences of delay and disruption would reduce disputes Disruption defined as “disturbance, hindrance or interruption to a Contractor’s normal working methods, resulting in lower efficiency” which if caused by the Employer may give rise to a right to compensation either under the contract or as a breach of contract Provides points of guidance when dealing with disruption claims

Legal Basis of Claims & Standard of Proof Required Disruption: How to Calculate It? There is only one real route to success records, records, records The “Measured Mile” Approach Daily Disruption Schedules What Chance for Global Claims? Use of Industry Studies

Legal Basis of Claims & Standard of Proof Required The Measured Mile Approach Comparison of productivity achieved on an un-impacted part of the contract with that achieved on the impacted part The approach automatically factors out issues concerning unrealistic programmes and inefficient working Whittal Builders Company Ltd v Chester-le-Street District Council [1985] Contractor was able to demonstrate that the average productivity was GBP108 per man-week during the period of disruption compared with GBP162 per man-week during the period when the disruption had ceased

Figure 1: Daily Disruption Schedules * Proof of fact filled in this column is necessary.

Legal Basis of Claims & Standard of Proof Required The Global Approach In many cases it is difficult / impossible to calculate the cost of disruption of each individual element A global approach has been accepted by the courts but this is in the sense of applying average productivity factors and not a total cost claim approach Would be limited to situations where there is no significant default by the Contractor

Figure 2: MCAA Industry norms of the effect of unproductive working

Considerations in Pricing Disruption Claims Disruption claims have two component parts which should be presented separately: One off event costs which but for the disruption event would not have occurred (e.g. demob / remob costs) Lost productivity factor cost incurred by the Contractor due to reduced productivity resulting from the disruption (see Figure 3)

Figure 3: Example of Components of Disruption Note: This example assumes no additional quantities are made necessary by the disruptive action.

Figure 4: Cost of Disrupted Component Installation

Figure 5: Calculation of Disruption Impact Using Actual Productivity Rate from the Same Job

Figure 6: Example of Modified Total Cost Calculation * Specifically identified and calculated.

OIL & GAS ASIA PACIFIC CONFERENCE 2011 27 & 28 OCTOBER 2011 ROYAL CHULAN HOTEL KUALA LUMPUR