EOT Related Cost Compensation Determination

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Determination of compensation due to a grant of EOT under FIDIC Conditions creates certain issues and the Society of Construction Law has set up a Protocol to overcome most of these issues with a well laid out procedure.

EOT Related Cost Compensation Determination

  1. 1. Extension of Time (EOT) and Related Costs in Construction
  2. 2. •Time is of Essence •Delays are inevitable on construction projects •Time and Money go hand-in-hand. When projects get delayed, additional costs are incurred to all the parties . •This makes it imperative to take control of project delays; timely and effectively.
  3. 3. FIDIC FIDIC FIDIC FIDIC FIDIC •Majority of construction projects worldwide are administered by the FIDIC forms of contract. •FIDIC recognises delay and related costs and has provisions related thereto. For example; Sub-Clauses 8.4 & 20.1 (FIDIC 1999 Edition) Clauses 44 & 53 (FIDIC 1987 Edition) http://www.ibclegal.com
  4. 4. The FIDIC Provisions define the conditions where delay may be claimed as the basis for an Extension of Time (EOT). Some examples are; Late provision of design or drawings Unforeseeable Physical Conditions encountered on Site Inclement Weather Variations instructed by the Engineer (Additional Works etc.) http://www.ibclegal.com
  5. 5. Meanwhile the principles of how delay and related costs should be calculated are not defined by FIDIC. This leads to issues; issues which are usually contentious due to various 'schools of thoughts' and varied interpretations existing worldwide. Disputes are the usual outcome. http://www.ibclegal.com
  6. 6. Contentious Issues in Delay Analysis resulting in Disputes – Critical Path – Who owns the Float? – Concurrent (or Contractor) Delays and how these effect Entitlement – EOT and its relation with Compensation for Delay – Which is the best Method of Delay Analysis? » » » » » As-Planned Vs. As-Built Comparison Impacted As-Planned Collapsed As-Built / But-For Time Slice / Sub-Networks / Time-Impact Etc. http://www.ibclegal.com
  7. 7. In order to eliminate disputes or facilitate settlement of disputes, there are now certain standards used worldwide. The leading standards are; Society of Construction Law’s Delay and Disruption Protocol (SCL Protocol) AACE 29R-03 (Forensic Schedule Analysis) http://www.ibclegal.com
  8. 8. The SCL Protocol was finalized in October 2002 after several years of deliberations and considerable debate and agreement between experts from different backgrounds http://www.ibclegal.com
  9. 9. The objective of the SCL Protocol was to bring reasonableness and fairness into the delay assessment process and to eliminate widespread manipulation of complex delay issues http://www.ibcl egal.com
  10. 10. The SCL Protocol tried to standardize the issues such that disputes would be reduced or eliminated http://www.ibcl egal.com
  11. 11. It is recommended that; should be adopted as a Standard and should be, where possible, incorporated in the Construction Contracts http://www.ibcl egal.com
  12. 12. The SCL Protocol can be downloaded from: www.eotprotocol.com http://www.ibclegal.com
  13. 13. The remaining slides of this lecture will review and discuss the basic Principles suggested and recommended by the SCL Protocol http://www.ibcl egal.com
  14. 14. Basic Principles suggested and recommended by the SCL Protocol http://www.ibcl egal.com
  15. 15. The Principles suggested by the SCL Protocol are simple. Some of the key principles suggested by the Protocol are; http://www.ibcl egal.com
  16. 16. RULE NO. 1 If there is an Employer’s delay, which is beyond the Contractor’s control, and if this delay impacts the Completion Date of the Works, the Contractor should be entitled to receive an Extension of Time (EOT). [This will effectively result in an extended Time for Completion and will relieve the Contractor from having to pay penalties for delay (or Delay Damages under FIDIC)] http://www.ibcl egal.com
  17. 17. RULE NO. 2 For the case of recovery of delay (or prolongation) costs incurred due to the Employer delays, the Contractor must be able to prove that there has been no other delay, which is in his own control, and which is equally (or partly) contributing for delaying the Time for Completion. This category of delay is called a ‘Concurrent’ (or Contractor’s) Delay [In order to win a Delay Costs Claim, the Contractor must be able to prove that he has not been responsible for Concurrent Delays to the Time for Completion] http://www.ibcl egal.com
  18. 18. RULE NO. 3 Where Contractor’s Delay to Completion occurs concurrently with Employer’s Delay to Completion, the Contractor’s concurrent delay should NOT reduce any Extension of Time (EOT), which is due. [Result of Rule No. 1 will not change and is irrespective of the result of Rule No. 2] http://www.ibcl egal.com
  19. 19. The foregoing Rules proposed by the SCL Protocol are meant to bring fairness and reasonableness into the delay assessment process. [The emphasis of the SCL Protocol is that no one Party should benefit from default of the other Party] http://www.ibcl egal.com
  20. 20. The Illustrations demonstrating the principles of the SCL Protocol are contained in the following Figures A to G http://www.ibcl egal.com
  21. 21. Figure A - Accepted Contract Programme 1 2 3 Path 1 4 5 6 7 8 Weeks 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Path 1 Float = 3.5 Weeks Contract Start Date Contract Completion Date Path 2 Path 2 Float = 5.5 Weeks http://www.ibcl egal.com
  22. 22. Figure B - Delay Impact 1 1 2 3 4 5 6 7 8 9 10 Weeks 11 12 13 14 15 16 17 18 19 20 21 22 PRIOR TO EXCUSABLE DELAY (UPDATE WITH ACTUAL PROGRESS) Path 1 <=Date of Excusable Delay Path 1 Float = 3.0 Weeks Contract Start Date Contract Completion Date Path 2 Path 2 Float = 5.5 Weeks AFTER EXCUSABLE DELAY Path 1 Impact on Path 1 = 2.0 Weeks Excusable Delay Contract Completion Date Path 1 Float = 1.0 Week Path 2 Path 2 Float = 5.5 Weeks (1) EOT Entitlement (a) 2.0 Weeks (b) 1.0 Weeks (c) 0 Weeks (d) 5.5 Weeks (2) Period of Prolongation Costs (a) 5.5 Weeks (b) 0 Weeks (c) 1.0 Weeks (d) 2.0 Weeks (3) Compensation for Delay to Progress (a) 2.0 Weeks (b) 1.0 Weeks (c) 0 Weeks (d) 5.5 Weeks (4) Other Compensation (a) 0.1% of Contract Price (b) Direct Costs of Excusable Delay (c) NIL (d) (a) plus (b) http://www.ibcl egal.com
  23. 23. Principles & Provisions of the SCL Protocol relevant to Figure B Core Principle No. 7 - Float as it relates to time Unless there is express provision to the contrary in the contract, where there is remaining float in the programme at the time of an Employer Risk Event, an EOT should only be granted to the extent that the Employer Delay is predicted to reduce to below zero the total float on the activity paths affected by the Employer Delay. Guidance Section 1.12.1 If as a result of an Employer Delay, the Contractor is prevented from completing the works by the Contractor’s planned completion date (being a date earlier than the contract completion date), the Contractor should in principle be entitled to be paid the costs directly caused by the Employer Delay, notwithstanding that there is no delay to the contract completion date (and therefore no entitlement to an EOT), provided also that at the time they enter into the contract, the Employer is aware of the Contractor’s intention to complete the works prior to the contract completion date, and that intention is realistic and achievable. http://www.ibcl egal.com
  24. 24. Figure C - Delay Impact 2 1 2 3 4 5 6 7 8 9 10 Weeks 11 12 13 14 15 16 17 18 19 20 21 22 PRIOR TO EXCUSABLE DELAY (UPDATE WITH ACTUAL PROGRESS) Path 1 <=Date of Excusable Delay Path 1 Float = 3.0 Weeks Contract Start Date Contract Completion Date Path 2 Path 2 Float = 5.5 Weeks AFTER EXCUSABLE DELAY Path 1 Impact on Path 1 = 3.5 Weeks Excusable Delay Contract Completion Date Float = -0.5 Week Path 2 (1) EOT Entitlement (a) 0.5 Weeks (b) 3.5 Weeks (c) 0 Weeks (d) 5.5 Weeks (2) Period of Prolongation Costs (a) 5.5 Weeks (b) 0.5 Weeks (c) 3.5 Weeks (d) 0 Weeks (3) Compensation for Delay to Progress (a) 3.5 Weeks (b) 0.5 Weeks (c) 0 Weeks (d) 3.0 Weeks (4) Other Compensation (a) 0.15% of Contract Price (b) Direct Costs of Excusable Delay (c) (a) plus (b) (d) NIL http://www.ibcl egal.com
  25. 25. Principles & Provisions of the SCL Protocol relevant to Figure C Core Principle No. 4 - Procedure for granting extension of time The EOT should be granted to the extent that the Employer Risk Event is reasonably predicted to prevent the works being completed by the then prevailing contract completion date…..The goal of the EOT procedure is the ascertainment of the appropriate contractual entitlement to an EOT; the procedure is not to be based on whether or not the Contractor needs an EOT in order not to be liable for liquidated damages. Core Principle No. 5 – Effect of delay For an EOT to be granted, it is not necessary for the Employer Risk Event already to have begun to affect the Contractor’s progress with the works, or for the effect of the Employer Risk Event to have ended. http://www.ibcl egal.com
  26. 26. Figure D - Delay Impact 3 1 2 3 4 5 6 7 8 9 10 Weeks 11 12 13 14 15 16 17 18 19 20 21 22 PRIOR TO EXCUSABLE DELAY (UPDATE WITH ACTUAL PROGRESS) Path 1 <=Date of Excusable Delay Path 1 Float = 3.0 Weeks Contract Start Date Contract Completion Date Path 2 Path 2 Float = 5.5 Weeks AFTER EXCUSABLE DELAY Path 1 Contract Completion Date Float = -0.5 Week Path 2 Excusable Delay Impact on Path 2 = 6.0 Weeks (1) EOT Entitlement (a) 0 Weeks (b) 6.0 Weeks (c) 0.5 Weeks (d) 5.5 Weeks (2) Period of Prolongation Costs (a) 5.5 Weeks (b) 0 Weeks (c) 6.0 Weeks (d) 0.5 Weeks (3) Compensation for Delay to Progress (a) 3.5 Weeks (b) 0.5 Weeks (c) 6.0 Weeks (d) 3.0 Weeks (4) Other Compensation (a) (d) minus (c) (b) Direct Costs of Excusable Delay NIL (c) Direct Costs of Excusable Delay (d) 0.2% of Contract Price http://www.ibcl egal.com
  27. 27. Principles & Provisions of the SCL Protocol relevant to Figure D Core Principle No. 4 - Procedure for granting extension of time The EOT should be granted to the extent that the Employer Risk Event is reasonably predicted to prevent the works being completed by the then prevailing contract completion date…..The goal of the EOT procedure is the ascertainment of the appropriate contractual entitlement to an EOT; the procedure is not to be based on whether or not the Contractor needs an EOT in order not to be liable for liquidated damages. Core Principle No. 5 – Effect of delay For an EOT to be granted, it is not necessary for the Employer Risk Event already to have begun to affect the Contractor’s progress with the works, or for the effect of the Employer Risk Event to have ended. http://www.ibcl egal.com
  28. 28. Figure E - Delay Impact 4 1 2 3 4 5 6 7 8 9 10 Weeks 11 12 13 14 15 16 17 18 19 20 21 22 PRIOR TO EXCUSABLE DELAY (UPDATE WITH ACTUAL PROGRESS) Path 1 <=Date of Excusable Delay Contract Completion Date Contract Start Date Float = -1.5 Weeks Path 2 AFTER EXCUSABLE DELAY Path 1 Contract Completion Date Excusable Delay Impact on Path 1 = 2.0 Weeks Float = -3.5 Weeks Path 2 (1) EOT Entitlement (a) 3.5 Weeks (b) 2.0 Weeks (c) 1.5 Weeks (d) 0 Weeks (2) Period of Prolongation Costs (a) 2.0 Weeks (b) 0 Weeks (c) 3.5 Weeks (d) 1.5 Weeks (3) Compensation for Delay to Progress (a) 3.5 Weeks (b) 2.0 Weeks (c) 3.0 Weeks (d) 0 Weeks (4) Other Compensation (a) (c) plus (d) (b) Direct Costs of Excusable Delay NIL (c) Direct Costs of Excusable Delay (d) 0.1% of Contract Price http://www.ibclegal.com
  29. 29. Principles & Provisions of the SCL Protocol relevant to Figure E Guidance Section 1.2.11 …an EOT should be granted to the extent that the Employer Risk Event is predicted to prevent the works being completed by the then prevailing contract completion date. This process requires consideration of the available float… Guidance Section 1.4.12 …Where there has been Employer Delay, this may prevent the Employer charging the Contractor with LDs for failure to achieve a contract completion date… http://www.ibclegal.com
  30. 30. Figure F - Delay Impact 5 1 2 3 4 5 6 7 8 9 10 Weeks 11 12 13 14 15 16 17 18 19 20 21 22 PRIOR TO EXCUSABLE DELAY (UPDATE WITH ACTUAL PROGRESS) Path 1 <=Date of Excusable Delay Contract Completion Date Contract Start Date Float = -1.5 Weeks Path 2 AFTER EXCUSABLE DELAY Path 1 Contract Completion Date Impact on Path 1 = 2.0 Weeks Excusable Delay Float = -3.5 Weeks Path 2 (1) EOT Entitlement (a) 2.0 Weeks (b) 3.5 Weeks (c) 1.5 Weeks (d) 0 Weeks (2) Period of Prolongation Costs (a) 0 Weeks (b) 2.0 Weeks (c) 3.5 Weeks (d) 1.5 Weeks (3) Compensation for Delay to Progress (a) 3.5 Weeks (b) 2.0 Weeks (c) 3.0 Weeks (d) 0 Weeks (4) Other Compensation (a) (c) plus (d) (b) Direct Costs of Excusable Delay NIL (c) Direct Costs of Excusable Delay (d) 0.1% of Contract Price http://www.ibclegal.com
  31. 31. Principles & Provisions of the SCL Protocol relevant to Figure F Guidance Section 1.4.8 Where an Employer Risk Event occurs after the contract completion date, in a situation where failure to complete by the contract completion date has been caused by Contractor Delays, the principle set out in Section 1.4.7 above should apply, except where the Employer Risk Event is a non-compensable Employer Risk Event. In such an event, no EOT (or compensation) should be due. Where an EOT is due after the contract completion date, the Employer Risk Event does not exonerate the Contractor for all its delays prior to the Employer Risk Event occurring. The effect of the Employer Risk Event should be assessed as described above and any EOT found due should simply be added to the contract completion date. http://www.ibclegal.com
  32. 32. Figure G - Delay Impact 6 1 2 3 4 5 6 7 8 9 10 Weeks 11 12 13 14 15 16 17 18 19 20 21 22 PRIOR TO EXCUSABLE DELAY (UPDATE WITH ACTUAL PROGRESS) Path 1 <=Date of Excusable Delay Contract Completion Date Contract Start Date Float = -1.5 Weeks Path 2 Path 2 Float = 2.5 Weeks AFTER EXCUSABLE DELAY Path 1 Contract Completion Date Float = -1.5 Weeks Path 2 Excusable Delay = 3.5 Weeks (1) EOT Entitlement (a) 2.5 Weeks (b) 3.5 Weeks (c) 1.0 Weeks (d) 1.5 Weeks (2) Period of Prolongation Costs (a) 0 Weeks (b) 2.5 Weeks (c) 3.5 Weeks (d) 1.5 Weeks (3) Compensation for Delay to Progress (a) 0 Weeks (b) 2.0 Weeks (c) 3.0 Weeks (d) 3.5 Weeks (4) Other Compensation (a) (b) plus (d) (b) Direct Costs of Excusable Delay (c) NIL (d) 0.2% of Contract Price http://www.ibclegal.com
  33. 33. Principles & Provisions of the SCL Protocol relevant to Figure G – Slide 1/2 Guidance Section 1.4.1 Where Contractor Delay to Completion occurs concurrently with Employer Delay to Completion, the Contractor’s concurrent delay should not reduce any EOT due. Guidance Section 1.4.7 Where Employer Risk Events and Contractor Risk Events occur sequentially but have concurrent effects, here again any Contractor Delay should not reduce the amount of EOT due to the Contractor as a result of the Employer Delay. Concurrency (Appendix A – Definations and Glossary) True concurrent delay is the occurrence of two or more delay events at the same time, one an Employer Risk Event, the other a Contractor Risk Event and the effects of which are felt at the same time. The term ‘concurrent delay’ is often used to describe the situation where two or more delay events arise at different times, but the effects of them are felt (in whole or in part) at the same time. To avoid confusion, this is more correctly termed the ‘concurrent effect’ of sequential delay events. http://www.ibclegal.com
  34. 34. Principles & Provisions of the SCL Protocol relevant to Figure G – Slide 2/2 Core Principle No. 9 - Concurrent delay – its effect on entitlement to extension of time Where Contractor Delay to Completion occurs or has effect concurrently with Employer Delay to Completion, the Contractor’s concurrent delay should not reduce any EOT due. Core Principle No. 14 - Link between extension of time and compensation Entitlement to an EOT does not automatically lead to entitlement to compensation (and vice versa). Core Principle No. 10 - Concurrent delay – its effect on entitlement to compensation for prolongation If the Contractor incurs additional costs that are caused both by Employer Delay and concurrent Contractor Delay, then the Contractor should only recover compensation to the extent it is able to separately identify the additional costs caused by the Employer Delay from those caused by the Contractor Delay. If it would have incurred the additional costs in any event as a result of Contractor Delays, the Contractor will not be entitled to recover those additional costs. http://www.ibclegal.com
  35. 35. Key Guideline, Suggestion and Advice of the SCL Protocol Guidance Section 3.2.13 Although the programme should be the primary tool for guiding the CA in his determination of EOT, it should be used in conjunction with the contemporary evidence to ensure that the resulting EOT is fair and reasonable. It will also be necessary for the parties to apply common sense and experience to the process to ensure that all relevant factors are taken into account, and that any anomalous results generated by the programme analysis are managed properly. http://www.ibclegal.com
  36. 36. Correct Responses for Figures B to G Figure No. Question 1 Question 2 Question 3 Question 4 B (c) (b) (a) (b) C (a) (b) (d) (b) D (c) (d) (d) (c) E (b) (a) (d) (c) F (a) (b) (d) (c) G (c) (a) (a) (b) http://www.ibclegal.com
  37. 37. Congratulations we have come to the end of the Lecture. You are now a Qualified and Certified Delay Claims Analyst and Expert. http://www.ibclegal.com
  38. 38. FIDIC and Construction Solutions thank you for your attendance and contribution. We wish you all Good Luck. http://www.ibclegal.com
  39. 39. We urge all participants to review the SCL Protocol on their own. Construction Solutions’ Claims Management Division (http://www.ibclegal.com) will remain available for further discussions on the foregoing and any other relevant issue. http://www.ibcl egal.com

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