Studies in Contractual Claims — 6 Delays and disruptions in construction: ascertaining the cost A case study in assessing a contractor’s claim by P. GOODACRE MSc ARICS ISN 0 901822 949 Goodacre “The Institute of Building 1929CONTENTS ‘Acknowledgements Introduetion The case study Contractors claim Preliminary response Analyst of extensions of time Details of sscertainment of direct loss and expense Further action to be considered Page 18 ” 20 29ACKNOWLEDGEMENTS soni of she material for | am inclebtod to Geoffrey Trickay, FRICS, FIOS, AMBIM, ALArb for provi thes caee study. Some of the material has been usd previously in vaztous formas atthe Institute of Advanced i vrehitectural Studios in York and also at conferences neyanised and still being run by The Shoo! of in London, | atralso grateful to severct colleagues who have commented Business and Industrial Managemen con the draft, Finally, | owe a debt to the Institute of B P-A. Marlow, in particular for their encouragement to publish this ease stuey and for their great patience in idling and its Technical Information Officer, waiting for the final manuscript, For any errors or omissions which remain | 3m alone responsible, The facts and narrative on which this claim is based are wholly fictionalDELAYS AND DISRUPTIONS IN CONSTRUCTION; ASCERTAINING THE COST A case study in assessing a contractor's claim INTRODUCTION “This paper is not another legal treatise on the JCT Standard Form of Contract. Instead itis intended as a guide to the way in which the factual substance of contractual claims can be presented and also as @ basis for teaching anc discussion. Nevertheless, reference has to be made to the clauses of the JCT Standard Form of Contract which have a bearing con the particular points of the claim, Where these clauses are straightforward they have been interpreted accordingly. Where issues arise which are not specifically covered by the contract or which are covered but are capable of two or more interpretations they are indicated as such. In some of these issues a particular interpretation has been assumed to enable the case study to be completed. However, when such issues arise in practice they should be noted and legal advice sought if necessary. Agreement between the parties may then be reached before the issues become clouded by ‘the passage of time and succeeding events. “There seems little point in proceeding with @ building contract where an issue, which may be fundamental to @ ‘contractor's financial success, is left until the contract is completed. Given the general nature of the cules under which most building contracts are let, claims for extensions of time and for additional payments are inevitable. The contract anticipates that not everything has been decided before work on site commences, Indeed, itis impossible to know precisely what will happen during the construction process of any building, 1t is hoped thet this paper will dispel the attitude, prevalent in the industry, that many building claims represent an attempt by an unscrupulous “contractor to get money from the emplayer to which the contractor is not entitled. There are occasions when this ‘does occur but they should be saen as the exception, not the rule By nature the building process is not precise and, therefore, the settlement of contractual claims tends to be a process of negotiation and discussion, It hae always been in man’s nature to bargain and thus itis not unreasonable for a contractor to calculate his claim in such @ way that the circumstances are used to his best advantage. Equally. it ie the role of the employer's quantity surveyor to find ways of mitigating the effects of the circumstances which have given rise to the claim, Therefore, the case study is cast in the form of a narrative. The contractor's claim is presented first, followed by a detailed analysis of the claim by the employer's quantity surveyor. However, the Essesament of the claim by the quantity surveyor should in this case study be regarded a8 the amount to which the contractor is entitled. [n areal situation there would inevitably t discussion and negotiation concerning the facts themselves, ther interpretation and the method of calculating the costs. What should be avoided is the situation where agreement is reached. by splitting the financial difference between the two parties and settling at that value. This attitude only encourages the submission of inflated claims by contractors and equally ridiculous counterclaims by the employer's quantity surveyor. Whilst in this case study the value of the contractor's claim and the proposed settlement differ considerably, this should not be taken as a piece of contractor humiliation. The large difference is sicnply a result of making the claim as comprehensive as possible to give scope for discussion and comment in the text, THE CASE STUDY “The case study is presented in the following chronologies! sections a detailed CONTRACTOR'S CLAIM, This includes # narrative of the contract together wi analysis of the claim. PRELIMINARY RESPONS :, This consists of correspondence from the architect and quantity surveyor and addressed to the client and contr tor Section © ANALYSIS OF EXTENSIONS OF TIME, This is a summary of the extensions claims by the contractor together with ceatons for the extensions granted. Both the tender programme and a revised programme are attach id at the end of this ce study. Section D DETAILS OF ASCERTAINMENT OF DIRECT LOSS AND EXPENSE. This gives a yenera ‘synopsis of the claim followed by detailed calculations of the ascertainment by the quantity surveyor of the loss and expense under conditions 11(6) and 24(1) of the contract. The details of the contractor's tender build up follow the quantity surveyor's calculations. Section E. FURTHER ACTION TO BE CONSIDERED. This s a letter from the architect to the client stating that the contractor may wish to take further action, There are also certain steps which the client can take with regard to nominated subscontractors. ~SECTION A: THE CONTRACTOR'S CLAIM The contract would have been based on the 1971 revision of the JCT Standard Form of Contract. but for the purpose of this case study, reference will be made to the July 1977 revision of the Private Edition, With Quantities Form of Contract. Note: CONTRACTOR'S NARRATIVE Statement of claim by managing director fn accordance with Clauser,23 anid 24 of the contract we hereby elaimn our entitlement to an extension of time of 93 weeks and a reimbursement of direct loss and/or expense amounting to £978,942, fhe contreet ‘The contract comprised the erection and completicn of a factory with associated offices, at Industrial Estate, Anytown, The bills of quantitios were clqarly rushe I, although one would have thought from their présentation that the scheme had been designed in sletail, For ex mple, the bills measured strip foundations when complicated ground beams were necessary. The stjuctural frame items suggested simple columns and beams whilst in fact a more complex structure integral with load bearing brickivork was required. The contiact sum was €1,332,175 and the contract period! was 104 weeks. Sucts information as was available at the date of tender indicated a simple form of traditional construction and the teruier was based aécordingly. The preliminaries of the bills also stated specific that the method of construction would be rationalised traditional Contract nar lis now clear that this contract was hastily planned on the part of the client and this fact is atthe root of the claim. A hasty start on site is often essential to the client and the consultants have litte time in which to undertake their task. Therefore, we began the contract in good faith and in spite of many difficulties, none of which were of our ‘making, tried to get the contract completed (on time). All our efforts were directed towards this end and we expected the client to play fair with us by reimbursing us for our efforts. Now we find we are being held to the letter of the law ‘and not its spirit, Even where we know we have obeyad the letter of the law it is still very difficult to collect the necessary facts on events which happened several years ago, Possession of the site Possession of site was given in the contract as 1 February 1972, However, when we came to take possession we found that part of the site was stil in occupation and therefore demolition had to commence ia @ piecemeal manner, It took Until 28 March for the client to obtain full possession; eight weeks after we had started on site, During this eight week Period we carried out only three weeks effective work and therefore claim for five weeks extension of time. It is true the architect encouraged us to revise our programme of work. However, all his suggestions meant bringing expensive plant to the site to work inefficiontly for a few days and then remain idle until full possession wes wailable. Remember, at this stage of the contract we did not know whether full possession would be forthcoming In alght days, eight weeks or eight months time. We gave the architect the programme at the first site meeting, then laid down what information was required and when covering the whole contract period. However, this programme seems to have been ignored as were subsequently amended versions. Late information We were plagued by late instructions from the architect, Four major instructions resulted in the total delay caused by late information. They were; (a) The foundations were redesigned which necessitated revised bending schedules. We were able to use the men elsewhere but on non-critical activities; there was thus a delay of five weeks. (b) The architect’s nomination for the mechanical serviexs seb-contractor was eight weeks later than the date stated in our programme. | fc) The roof covering materials were included in the bill of quantities asa provisional sur. We did not «ecoive instructions specifying what they should be until five weeks after the date stated in our programme, (a) We did not receive instructions on the external paving until seven weeks after the date stated in our programme, When the architect's Instruction was finally received it was to the effect that the external paving was to be omitted. Howaver, we were still delayed by the need to wait for Instructions in this ‘matter.Bankruptey of the cladding nominated sub-contractor ‘The cladding nominated sub-contractor became bankrupt after he had completed 50% of his work. AC first the architect refused to take any action concerning a renomination, However, after taking legal advice and establishing that he should renominate he then took action. The architect nominated a firm with whom we had had serious difficulties in the past. Therefore, we objected strongly to the nomination on the basis of both our past experience and a tumour that this sub-contractor's current financial position was poor. The delay here can be split into three parts (a) Delay in nomination - two weeks {b) Delay because the new sub-contractor quoted for a longer period to complete the outstanding work than was required under the original sub-contract - three weeks le) Delay due to general inefficiency of the sub-contractor and probable cash flow difficulties ‘wo weeks. Architect’ instructions Delays were also caused by the disruptive and extensive effect of architect's instructions and variations. There were 384 variations, many of which disrupted the flow of work. In addition some items of work which seemed small at tender stage turned out to be much more extensive. For example, against the item described in the bills 3¢ “work in support of a railway bridge’ was a provisional sum of £7,500. This tured out to be an extensive and difficult underpinning exercise with supporting scaffolding to a bridge carrying a major railway line over a busy "A classification road. In no way could we have envisaged this from the description in the bill. The total delay due to the disruption of work through these variations is calculated at ten weeks. Increased scope When the amount of our work finally executed is priced at bill rates the value of the final account is increased by 44%, This must rank for an extension of the original contract period by the same dmount. 44% of 104 weeks dives an extension of 46 weeks, Acceleration of the work If we summarise our entitlement to extension of time the following is obtained Delayed possession S weeks Late information 25 weeks Bankruptey of sub-contractor 7 weeks Architect’ instructions (disruption of work) 10 weeks Increased scope of works 46 weeks 83 weeks bbssed on the driginal completion date of 31 January 1974, an extension of 93 weeks would take us until 14 November 1975. In fact we finished on site on 1 August 1975, fifteen woeks early, We are, therefore, claiming for the extra cost involved in accelerating the work. That is, the difference of fifteen weeks was due to our efforts and is, theref-we, reimbursable, It is also an indication of our continuing good faith towards the client. ‘The final acco:int provisionslly agreed with the quantity surveyor is £1,805,000, The architect has granted an extension of time to date of 33 weeks. The final account reflects the quantity surveyor's provisional assessment of additional oretiminaries for this period. We dispute both the extension of time and the quantity surveyor’s method of calculating te additional preliminaies for that period, Contractor's costs ‘Our costs have amounted to £2,583,942, The difference between that sum and the provisional final amount is £978,942, and is the amount claimed. It is the direct loss and expense due to factors entirely outside our contral and is thus property reimbursable under the contract.We clan that we are not Hable for erors in ob il ates for work beyond the tne stoge, We cou not work aoa eraly due to constant disruptions; what we anticipated would be simple, repetitive 2) traditional ror tarned out to be complex non-repatitive work. There wat no way in which our craisney could earn aoanninsrmente under incentive arrangements, Theretore, we had to pey attraction money £0 0 work force. This ai a vmmey aso had to be paid for Longer than the original contract period. To quote 9 pans ‘example, aeee ee rparcs information on the drawings suggested straightforward bickeork. However: Nt architect a ate rc standard Ts to some exceodingly complicated brick bonds with constant chandi profi passa, purpose made bricks ete. The genera setting out af all he work aso had to be Wy precise. te have, ofcourse, sutfered througt ination on tis fixed price contract. The client has some chavs of recovering Fe a ot anajhr asset value of the buling and the consultants fees wil be related tne final cost of the aoe yen such easy remedy. We, Werefore, sek fir reimbursement for there and a oer 221 The dtails of the claim are summarised below ‘ suminary of aim \ Tender €1,332,175 Contract period 104 weeks Tensor breaksown : i bain contraeto’s work 820,000 Provisional sums 400,000 Pe sume 780,000 Preliminaries 132,175 392,178 2 possesion of site to be 1 February 1972 ae Completion to be 31 Janvary 1974 ; 3 Start on site 1 February. 1972, Full powession 28 March 1972 Piecemeat work carried out between 1 February ‘and 28 March { Effective delay: 5 weeks: i delay “4 la) Redesign of foundations and consequentat disruption 5 weeks (2) Cate nomination of mechanical sub contractor B weeks {Late specification of root coverings S weeks 10 specification and ultimate omission of extemal pangs T weeks 5 Bankiuptey of nominated sub contractor 7 weeks 6 Disruptive effect of variations 10 weeks t 1 Increased seope of main contractor’ work (44% of 104 weeks! a8 weeks I 8. ‘Acceleration of the work. This is calculated as the difference between the i eas complet the works and Ue contrac period plus extarsions of time Extension of item 3 above 5 wooks ' 4 (a) weeks: i al Alb) B weeks: fe Home AL) 5 weeks satay 7 weeks F “ 5 7 weeks & aaa 0 weeks ” 7 46 weak “ute etondion of the oan ® eae a Original completion date S31 danvary 1974 0 : ‘Provisional 8, 10. " Summary Add claimed extension of time of 93 weeks ‘ives a revised completion date ‘Actual completion date . 14 November 1975 1 August 1975 ‘Therefore the acceleration by contractor = 18 weeks ‘Total project time 104 weeks + 93 weeks - 15 weeks e 182 weeks (9% years) final account e Main contractor's work 1,180,000 Nominated firms 275,000 Preliminaries (including an allowance for extension of time) 150,000 €1,605,000 Contractor's costs 2,583,942 Provisional final account 1,805,000 Claimed as amount of direct loss and expense © 978,942 Detailed statement of item 10; namely Direct Loss and Expense. ‘The summary precedes the detailed statements against each heading of the claim. Extended preliminaries and lant vs0707 Atweoion money ve4oat erin and itoring ous Cisne by nominated ub eons ra.8 ov ox 318.981 sub wal osa.t2 Corto reprint ln ey) 1000 Amount of ectiss and expense cera "11.1 Extended preliminaries and plant Briet Tender allowance ‘Actual cost Diroct loss site supervision Insurance Fluctuations and plant Weltare Water for works Temporary lighting and power Telephone Protection of works € 53,728 787 12,000 30,622 6,000 3,818 12,000 § 12,420 132,178 E 158,498 1,650 26,250 53,589 10,500 7,532 27,650 2 1,623 "26,620 | 312,912 e 104,770 863 14,250 22,967 4,500 3714 15,650 823, 180,737 ue to the disruption 50% more site super: vision was required, including programming, than was tendered for. The contract period ‘was also extended from 2 to 3% years. There js a 20% increase in rate due to error in tender. ‘The tender pricing can only be held to apply {0 initial tender commitments. The annual allowance = £53,728 2 years = £26,864 “Therefore over 3% years this becomes £94,024. When increased by 50% this becomes £141,036. From this is deducted the tender allowance £53,728, This equals £87.308. To this must be added the 20% error. Therefore ‘the amount claimed is £104,770. Provisional assessment of premiums paid = £1,660 1% allowed on tender value (excluding preliminaries) for fluctuations not covered in the rates; actual cost nearer 1%% due to prolongation. Extra cost of plant and buildings pro rata to extensions of time to be granted. Extra cost of plant and buildings pro rata to extensions of time to be granted “The additional cost of plant and buildings pro rata to the extension of time, namely 1% times the annual rate, This equals £2,864, To this must be added the extra cost of temporary plumbing of £850. ‘Actual cost based upon invoices for fuel (£23,900) plus initial and final costs on temporary installation of £3,750. Telephone bills total £1,473 Installation and clearing charges £150. Dus to piecemeal working a greater degree of protection was necessary over the whole ‘contract duration,n2 116 Disruption of labour which information was supplied and in view of its jn many instances information was not 11.2.1 Owing to the piecemeal fashio lateness in relation to the contract programme (i supplied in due time in relation to the programme, although the architect was aware of the Gate upon which we required the dete from our list of requirements handed to him at the first site meating], the even flow of our labour was disrupted and tender output targets could not be realised in practice. Additionally, what was shown as simple construction on the tender drawings turned out to be complicated work 11.2.2 Tender value of labour = £380,000 ie. 28.5% of the total tender. 41.23 Labour value reimbursed through final account = 28.5% of £1,608,000 = £457,425. 14.2.4 Actual labour cost = £598,712. 11.2.5 Direct Loss/Expense = £141,287, ‘Attraction money 11.3.1 The average labour rate we assumed for tender purposes was £0.73 per hour based on ratio, of { labourer and 1 craftsman at £0.68 and £0.78 per hour respectivel 11.3.2 Inthe event the rates paid averaged £0.93 per hour (excluding fluctuations); this excessive rate (£0.30 per hour] wat necessary in order to tempt men on to this job where due to the disruption referred to elsewhere the opportunity to earn decent bonus was not available, 1d * 820,154 x £0.20 11.3.3 No. of hours wor 164,031 ‘Overtime and shiftworking 11.4.1 In order to accelerate the works we were compelled to introduce overtime and shiftworking, 11.4.2 Nonsproductive element in this amounted to £20,145 which represents our direct loss and/or expense. Claims by nominated sub-contractors 11.5.1 To date only one claim by @ nominated sub-contractor has been submitted, namely J. Sparks & Co, Ltd. electrical sub-contractor, in the sum of £23,128, However, we are informed that other claims are pending and could amount to 2 further £50,000 11.5.2 J. Sparks claim 23,128 Provisional allowance for pending claims i £73,128 ‘Our tender wos .or a fixed price and we made due allowance for increases in cost during the contract period ‘aving reyard for the Chancellor's comment, made during the election. ‘campaign immesliately prior to the submission of our tender, that he was resolved to get inflatich down to below 8% per annum and if possible he would aim to achieve as low 8 figure 28 4% por annun 11.6.2 We thus assumed that an average rate of inflation (to be on the safe side) might be 6% per annum. Accordingly we included in our-ates amounts equivalent to 1% per month. On the basis of theoretical monthly valuation amounts, this totalled £59,040. 11.6.3 Since that time inflation has rocketted and at the end of the contract prices were some 40% higher than at tender stage. However, as some of this was due to market factors not related to cost, only part is claimed a reimbursable, The effect of this inflation is to add around £195,750 to our costs compared with the £59,040 included in our tender. “The increase we have thus suffered amounts to some £136,710 due to the prolongation of the contract which is claimed as our direct loss or expense, 137 nd profit Overheads and profit are under-reimbursed due to the prolongation of the contract period without @ comparable increase nount reimbursable is taken from the formula in Hudson's Building and Engineering Contracts, ie. 10% x predicted average weekly recovery x extension of time = 10 £1,992,175 2, Se 100 104 11.8 Interest on outstanding n-onies Sinco early on in this contract we have been complaining about under-certification, which view has now been entirely vindicate by this present claim, As the amount shown to be due to us in reality has been aceruing sine» almost the beginning of the contract we elaim interest at 124% per annum on the outstanding sum but as 2 gesture of goodwill and in an attempt to reach an early settlement will charge vis only from the original completion date, fe, Amount due.x 121% x V4 years = £815,951 x 124% x Weyears = £152,001 END OF CONTRACTOR'S NARRATIVE Comments ‘Whilst the catalogue of events which has befallen the contractor is large it is not untypical of many building contracts, Of great concern is the contractor's statement that although the design of the building was not complete at tender stage he is still expected to observe his own dutios in a meticulous fashion. For example, to what extent is itequitable for 2 contractor to be held to a firm set of prices on a building which is only in the early stages of design? It seems that clause 1 of the contract does not cover this situation. The requirements of the sixth edition Of the Standard Method of Measurement to list the drawings from which bills of quantities have been prepared and to give general description of many sections of work may go some way to remedying this situation, Because of the difficulty involved in trying to ascertain facts tong after they occurred iti prise, 1t cannot be over-emphasised that delay in settling a dispute will increase the difficulty in arriving at an sareement. If agreement is reached promptly then the contractor has a new time of cost target to work to, This Is trueh better than the demoralising task of working on a contract where the original time and cost targets still apply theoretically but which cannot possibly be met, The contractual process is one of a contractor agresing t3 do a tertoin amount of work for an agreed sum of money. There are provisions for varying both the amount of work tnd the sum of money. However, apart from certain circumstances, claims should not be based on the contractor's total costs, There are circumstances when the nature of the work is s0 changed that the only fair method of valuation is on a prime cost basis, This however, isthe exception rather than the rule, ctor. The costs actually Incurred The figures in the contract bills should be the basis of reimbursement to the cont by the contractor ate, therefore, of no relevance in settling a claim, “SECTION 8: PRELIMINARY RESPONSE Letter from Architect f0 Contractor A Builder & Co. Ltd.” iO High Street 01d Town Dear Sirs, Factory and Associated Offices at Any Town We enclose ur pro forma granting our final extension of time under Condition 23 of the contract giving an ‘extended completion date of 31 October 1974, ie, an effective extension of 39 weeks. ‘As you will know the certificate of practical completion is dated 1 August 1975 giving a delay for which liquidated and ascertained damages are due of a further 39 weeks, \With regard to your elaim for alleged direct loss and/or expense under Condition 11(6) and 24(1) we have referred the ascertainment ofthis to the quantity surveyors for the project R.E. Measure and Partners to whom ‘we have also made available the details upon which this extension of time is based. Yours faithfully, c.Wren Chartered Architects Letter from Architect to Client ‘A. Client & Co, 86 Carey Street New Town Dear Sirs \We have today issued our final'extension of time for the above contract giving a revised completion date of 3 October 1974, and in accordance with Condition 22 of the contract we certify that in our opinion the work ought reasonably to have been completed by that date, You will recall that practical completion took place on 1 August 1975; the delay for which the contractor is responsibio and for which you are entitled to liquidated and ascertained damages is therefore 39 weeks, The amount of liquidated and ascertained damages inserted in the Appendix to the contract is £2,500 per ‘woek and your total entitlement is therefore £2,500 x 39 weeks = £97,500. You will appreciate that this amount cannot be deducted by us from the amount shown as due on the next interim or final certificate for payment. We must certify the value of the work done but you may deduct the amount of dafizg’t when you make payment. However, as the only money outstanding to the contractor is the retention and that is only now a small amount you will have to sue the contractor for the recovery of damages {in addition to the amount of the provisional final account of £1,605,000 the contractor has submitted a claim for £978,042 due to delays and disruptions during the contract. We consider that the claim ie considerably in ‘excess of that to which the contractor is entitled. However, a preliminary assessment indicates that the amount ‘due may well exceed the amount of liquidated and ascertained damages. Therefore, you may feel it wise to await the final ascertainment of this claim before taking steps to recover the liquidated and ascertained damages Yours faithfully, C.Ween Chartered ArchitectsLetter from Quantity Surveyor to Contractor A. Builder & Co.Ltd 10 High Steot nd Town Dear Sirs, Factory at Any Town the amount of direct loss and/or expense ‘As you will know the architect for this project has asked us to ascer sshich is pronerly reimbursable under condition 11(6) and 24(1) of the contract, ‘copy of your claim submission has been forwarded to us and we must state that we do not consider this proper basis for evaluation. Would you plesse make available to us as soon as possible the following to enable us to make our ascertainment; a Receipted cost records of your preliminaries’ costs throughout the contract and in particular any alterations to your temporary works necessitated by architect's instructions and the Tike, b Dotails of all supervisory staff employed during the following activities: i Block ‘A’ foundations ii Block ‘A’ and ’BY frame i Block ’B’ cladding ww, Waiting for paving details ¥ ‘Any other period during which there was delay or disruption caused by the employer. ‘Yours Faithfully, ALE. Measure Quantity Surveyor END OF PRELIMINARY RESPONSE Comments “The Lotter from the architect to the contractor ie self-explanatory but the letter to the client needs further amplification, Clause 22 simply states that the Employer may deduct such sum (damages) from any monies due. ‘atthe full value of the work is certified but that the client makes the deduction when he pays the contractor 1 paragraph puts the contractor’s claim into Its true perspective, Whilst the contractor may ndosd have lost £978,942 on the contract this is not relevant in assessing the amount of the claim. Quite often an approximate analysis of the basis of the claim gives a better idea of the amount of the final settlement. For example, the tender breakdown sli-ngg,the maig contractor's work as £820,000, Assume the labour content of that sum to be £400,000. Now, if the work was so disrupted ond delayed that 60% more labour was required to complete the contract (and this is a large figure) then even on that basis the claim would be only £200,000. A simple analysis like this can be very helpful from the elient’s point of view in making an approximate assessment of the valu which the claim might be settled. 16 a = aSECTION G: QUANTITY SURVEYOR'S ANALYSIS OF EXTENSIONS OF TIME Factory and Offices at Any Town Quantity surveyor’s analysis of extensions claimed and granted. {Reference should be made to the tender pragramme and the revised programme which are at the end of this case study) Delay Alleged claimed Comments couse in weeks Extension granted T tate 5 "There fz no specific provision in Clause 23 for Swweeks possession extensions of time due to the contractor not being 2310) of site fable to take full possession of the site, The contractor may have been best advised not to commence on si until full possession was granted, as Clause 21 (1) states that the contractor is entitled to possession on the date stated in the contract. Non possassion of the site is therefore a breach of contract. However, the fact remains that he did take possession and the contractor claims a delay of five weeks. Both this claim and the Claim for delay due to redesigning the foundations should be considered together. The reason for this 2, Redesign of is that frequently delays do exist in various stages of foundations 5 the work but if they are not an the critical path they do not affect the overall duration of the contract. Nil (For the purpose of this case study itis assumed that | the contractor had access from the beginning to that part of the site on which Block A is located.) He ‘commenced work on the foundations of Block A and found unusual ground conditions. The men on site ‘were used elsewhere but the delay due to the redesign of the foundations was critical, This delay in starting on Block A meant that the contractor could not commence work on Block B foundations until week 23, when Block A foundations were complete. By that time he had complete possession lof the site and thus the delay in posession has no effect on the total contract duration. Thus no further . extension of time should be granted. 3, Exceptionally ‘Strangely enough this does not appear in the 6 wooks inclement contractor's claim for an extension of time. However, | - 23(b) weather dolay was recorded at the time (weeks 25-30 inctusivel during which period the works were brought to a complete standstill, The foundations of Block B and the frame to Block A were in the course of construction. Glock B is now on the critical path and therefore there is an extension of time of 6 weeks. ‘This delay for inclement weather also affects the time taken to complete the frame for Block A but does not add to the total project time, alate "6 ‘According to the contractor’ original programme Nit information on he required this nomination by week 30 for root commencement an site in week 40, Because of specification difficulties in specifying a suitable material this nomination was not made until week 38, However, the delay due to the redesign of the foundations, the weather and the extra work in the frame (see next item) which totals 15 woeks, means that although the nomination was supplied 5 weeks later than originally requettad this lack of information caused no delay to the roof. ”Alleged Dalay claimed in weaks Comments Extension granted 5. Extra work snl variation forilers 6, Bankruptey of cladding nominated sub, contractor 56 ‘The only significant change in worktoad due to a varied anil inereased work content occurred in the frame and cladding as a more complex structure was equited than originally envisaged, The assessed extension of time is as follows: (a) Frame Block A 4 weeks tb” BG weoks fe) Cladding” A 2weeks (a) BB weeks palays to dranves) There was a Mlaat of 2 weeks on the tender programme between the completion of the frames of Blocks A and B. However the 4 week delay means that this float disappears. As the frame of Block A is now on the critical path, it also delays the start of the frame on Block B by two weeks. The total olay to the project is therefore 6 weeks plus 2 weeks (4 weeks dolay less 2 weeks float. Delays to cledding The 2 weeks delay on Block A cladding is net on the critieal path and thus does not affect overall completion time. However the 6 weeks on Block B cladcing is critical. Nevertheless, the effect of this delay upon the ‘completion date would be reduced by 2 weeks becouse of the float that existed on the original program botowen the end of the finishes and the commence ment of services on Block B. A straightforward increase in the value of the final account is not a valid reason for an extension of tin ‘Most of the increases in cost occurred as result of enhanced specification of the roof and frame mater Which did not add to the time required for construction, Moreover the contractor's calculation of a 44% increase. is incorrect. His ealeulation is as follows: (refer to Paragraphs 7 and 9 of summary of claim in section A) £1,180,000,y.44 '820,000 However, he has omitted the £100,000 worth of provisional sums included in the tender. The provision al final account also included a sum of £80,000 for special rates under condition 11(4)(b) of the contract. ‘Tho correct increase in the value of main contractor's, work after taking into accouint the provisional sums and the extra £80,000 for special rates is 19.5%, calculated a follows: (1,180,000 - £80,000) 195 (€820,000 - £100,000) correct. The cladding nominated sub: work This claim ‘contractor went bankrupt halfway through fon Block B. There was a delay of 2 weeks in finding ‘nd nominating a replacement. Moreover the period {quoted for this residual work was 3 weeks longer than had previously been planned. The contractor's {ears of the new subscontractor’s possible lack of performance were considered reasonable. weeks 23(e) 4 wooks +230) T weoks 23401Delay Alleged claimed Comments cause in weeks Extension granted 6, Bankruptey of, However, after discussion the contractor agreed to the cladding nomination, The period for executing the remaining ‘nominated sub- work was extended by a further 2 weeks. This was contractor done by means of an addendum agreement between (contd.) the employer and contractor in wihich it was agreed. that further extensions of time and direct loss and/or expense caused by the sub-contractor would be recognised as if the delay and disruption were due to the late issue of instructions under Condition 23() and Condition 24(i)(a) respectively. 7. Late 8 ‘The services’ nomination was in fact more than 8 T weeks nomination of weeks after the date required in the tender programme | - 23(9) services sub- bbut earlier delays had rendered this date invalid In contractor practice the nomination was made in due time having regard to the progress of work and, therefore, no delay ‘wat caused. However, the services sub-contractor did not perform his work in accordance with his sub- contract period on Black 8, The sub-contractor’s own, ‘work was 7 weeks late and caused a similar delay in ‘completion of the main contract. 8, External 7 Due to the client’ inability to obtain the agreement, weeks paving cof the local authority to the finished levels of their 23(e) proposed new road at the north of the building, details fof the paving in this area were not resolved by the ‘he buildings were completed and ready for handover (week 180), We finally obtained the client's agreement +10 omit this work completely. However, the contractor had to wait two weeks for the client to reach this decision, Because the contractor had been instructed at an early stage to postpone this paving until the buildings were completed he cannot claim however that the late information held up other sections of work. Furthermore, the contractor dismissed both his ‘general and trades foremen on completion of the decoration of Bleck 8. The project manager remained ‘ ‘on ste to supervise the external paving, END OF QUANTITY SURVEYOR’S ANALYSIS OF EXTENSIONS OF TIME Comments In certain places the quantity surveyor has given reasons for the late issue of ir structions, far example, ‘Due to the client’s inability to obtain ........’ These reasons for the late issue of instru tions are frrelevant to the settlement Of the claim Sateen the contractor and employer. Whilst they may be valid ar d may be hetpful in explaining the reasons for delay to the client, they do not affeet the fact that the contractor vas delayed and is entitled to be reimbursed for that delay. The most important isue in the calculation of the e» tensions of time is whether @ particular activity which has been delayed is on the critical path. Furthermore, it is necessary to consider whether a delay in a non-critical activity then makes that activity critical and possibly alters the critical path. Its a criticism of contractors when making their claims that they do not distinguish between delays in eriti¢#! and non-critical situations. Equally, its a criticism of quantity surveyors wien considering claims that tiiéy pay insufficient attention to.2 contractor's planned sequence of activities. Activities cannot be shuffled like a pack of cards; nor can resources be employed or dismissed at random. A simple network analysis can provide extremely Useful evidence for the proper evaluations of claims. Close attention must be paid to problems of activity sequences and the effect on time and resources that changes may have on the planned sequence. Contractors should keep tailed records of these matters to enable @ proper assessment of a claim to be made.SeeeeeeseeEEEEtOEEREIECOCSEStOSEEOSIOSSESESOSSEEEOCESS SECTION D: DETAILS OF ASCERTAINMENT OF DIRECT LOSS AND EXPENSE BASED ON QUANTITY SURVEYOR'S ANALYSIS OF EXTENSION OF TIME Note: ference should be made to the architect's detailed enalysis of extensions of time and the revised programme incorporating these extensions (sce Section C]. In all cases the references to fections of work being completed in a particular week are references to the revised programme anid not to what may have actually happened. General synopsis ‘The total extension of time granted is 39 weeks. This is made up as follows Contract clause Extension Total (2) Con tition 2300) 6 (2) Corition 23¢e) seen 19 (3) Condition 23/0 7 (4) Cord'tion 23(g) 7 7 fe due to causes which also give rise to an entitlement to reimbursement Of this total time only (2) and (3) above tf prolongation costs. This isan increase of 26 weeks. It is most important that this distinetion is clearly understood. The granting of an extension of time primarity 1 liquidated and ascertained damages. There are 12 conditions under which there are only five conditions for which J prevents the employer from clai {an extension of time may be granted (clause 23(a)-(I}). However, payment may be made for loss and expense eaused by disturbance of the regular progress of the works (clause pala) lel). However, from a detailed perusal of programme B which incorporates the extensions of time the be drawn with regard to the entitlement of extra costs for 26 weeks: following conchisions Site Supervision. Extended from the contract period of 104 weeks to 130 weeks Inflation: ‘Additional inflation costs were Incurred not only by extending the contract period from 104 to 130 weeks, but also increasing the conteact value. Temporary huts “The hive period of site huts was increased from 94 weeks to 126 weeks, ie 26 weeks increase plus 6 weeks for the extended requirement for site supervision. The hite period of plant was increased from 60 weeks to 86 weeks. However, the use Plant of plant wes not as continuous as planted because during this period the float betwaen the building elements on Blocks A and B (cladding and roofing} increased. Temporary services: “The same applies to these as for the temporary huts. Disruption of labour: The distuption which is reimbursable under the contract took place at the following periods: [a) Weeks 10-15 due to redesign of foundations J (b) Weeks 36 - 40 due to varied and increased work on the frame of Block A [c) Weeks 64-60 due to the varied and increased work on the frame of Block B {d) Weeks 74-81 due to the bankruptey of the cladding sub-contractor on Block B fo) Weeks 141-143 due to the delay of instructions on tne extern! paving Detailed ascertainment of direct loss and/or expense [Referonce should be made to the contractor's tender details at the end of this section and to the contractor's tailed elaim in Section A.) 1. Site supervision “The project manager (PM) was required on site for the whole of the extension of time of 39 weeks. However, six of these weeks are due to inclement weather and seven waeks are due to the poor performance of the forvices sub.contractors. Therefore, only 26 weeks are reimbursable, The general (GF) and trades foremen (TF) were required on Block A until week 105, This is 17 weeks longer than the tender programme. Howev inclement weather; therefore 11 weeks are reimbursable sic weeks of the delay are due to I The general and trades foremen were required on Block B until week 141. This is 37 weeks longer than the 20tender programme. However, » deduction must ie made for the allowance for inclement weather (shx weeks} {and poor performance of the services sub-contractor (seven weeks). Therefore. the reimbursable extension of ‘ime is 24 weeks. ‘The site engineers (SE] for each black were due to leave the site after completion of the slabs. For Block A this occurred in week 51 compared with the tender date of week 36, an oxtension of time of 15 weeks bout as six weeks of that period are due to inclement weather the amount of reimbursable time is nine weeks. For Block 8, completion occurred in week 69 compared with the tender date of week 60, an extension of 19 weeks. However, the site engineer for this block was not required until the commencement of the foundations of Block B in week 23 instead of week 18, Therefore, he was not affected by the five week delay fon the foundations. The six weeks extension of time for inclement weather is not reimbursable, so the reimbursable extension is 19 - (6+5) = 8 weeks. The site supervisor (SS) was required for the whole additional period of 39 weeks. The reimbursable extension is therefore 26 weeks. Additional supervision was necessary during the period of the frame erection. One engineer (AE) was required from weoks 23 to 63. This is a period of 40 weeks but is reduced by the six weeks {or inclement weather. Other additional supervision employed to overcome site management and labour difficulties is not reimbursable. Overhead and profit a the tender allowance of 9% are added to the additional supervision costs. These supervision rates have also been increased by approximately 10% above the tender rate to take account of nereases in the cost of supervision. This is because the tender rate is an average for the whole contract period. As the supervision occurred later than planned the rates should therefore be inereased. However, the tender rates should be used as the basis of calculation for work beyond tender period even if the rate is incorrect as stated by the contractor. The summary of the amount calculated is given below: Item Weeks Weekly rate Total Elie ce pm xo 26 90) 2,340 GAL x2 W 70 1.540 Gray x2 24 70 3.260 THAD xt n 60 660 THB) x 1 Ey 60 1,440 Sea) x 2 : 9 80 1,440 see) x 2 8 80 1,280 SS (full time) 26 75, 1,950 Sundry expenses incurred during the extension of time calculated from penis invoices provided by the contractor 14,088 AE Er 80 2,720 16,808 Overheads and profit o% 1,513 To Summary: £18,321 Insurances ‘The increase reimbursable is 26 weeks @ £787 pa which equals £293.50. This is based on the tender actual costs paid are not relevant. To Summary: £394.00 Fluctuations The allowance for inflation in the preliminaries is a nominal amount and the residue must be deemed to be included in the rates. From the following schedule it will be seen that on the basis of the general contractor's probable expenditure of £1,180,000 (excluding preliminaries as provisional final account) the inflation on & 104 week (24 month) period would be £122,740, On the same basis the inflation costs on the general contractor's work over a 120 week (30 month) periad would be £143,715. The increase is therefore: £143,715 - £122,740 = £20,975. This calculation deals with all inflation except in the calculation of rates for supervision, plant hire, huts etc, dealt with above, To Summary _£20,976.00 aSchedule of probable monthly valuations (a) (bh (el (a) le) ( No. Index on (c} extension on fe) ; joos s co i a : a * = o . on = aa 7 = ° nao 0 eas & na 19 113.5 ‘ os 10,125 50, 6,750 7 119.9 Pry 4,800 TOTAL £143,715Temporary buildings and plant ‘There is an extra hire charge and use of buildings for 32 weeks. The rates are enhanced to £75 per week for hire charges and £25 par week for use, ‘The necessary moving of building during disruption on frarve has cost £928 which had been verified on daywork sheets. The tender allowance of £320 for removal has been increased by 13% due to inflation. ‘There are 28 weeks of extra plant hire at an increased rate of £175, The extra use of plant is limited to 22 weeks at an enhanced rate of £108. There is 13% inflation on removal of plant as for the removal of huts. Welfare There iv'extra use of welfare facilities, staffing etc, 26 weeks at an enhanced weekly cost of €57.95'per week. Water for works Additional water charges for 25 woeks related to last 26 \woeks from week 104 to 130 at £32.75 per week at additional Water Authority rates. The extra temporary plumbing is not allowable as it was not due to the reasons for which the extensions of time were granted. ‘Temporary lighting and power, ‘The average weekly fuel charge in weeks 104 and 130 is ‘equal to £127.80. For alterations to temporary services due to variations in frame there is a sub-contractor’s invoice of £1,578.98 for this item, The actual fuel costs are not relevant, Telephone ae ‘ The lephore chug pe cuts an th conti we lover hn unr stern of sty, one, tatrdvetoette wor during tr exten at reve etl to 1s fc te i leh EEO 0 per wk 108 wes ‘The rental must be paid for a further 26 weeks. The actual costs are not relevant. ‘The amount of protection required is similar to that allowed {or in the tender. There is no hire charge in any of the protection items. However, an allowsnce must be made for renewing some deteriorating protection. This Is based upon daywork charges which total-£870 including overheads, and profits. Weeks Total cotted £ € 32 78 2,400 32 25 ‘800 moving 928 13% on £320 42 Plant 26 175 4,550 2 105 2,310 moving 13% on £2,000 overheads and profit 9% To Summary: 26 57.95 overheads and profit 9% 138 ‘To Summary: £1,641 26 3275 851 overheads and - profit 9% 16 To Summary: £927 26 127.80 3,323 Sub-contractor 11579 4,902 overheads and profit 9% 441 To Summary: £5,343 18 5.28 95 Rental 26 25 120 overheads and profit 9% u To Summary: £131 To Summary £870 2310, Disruption of tabou a Labour costs including labour Assessed loss The general disruption of labour ie only a matter for the ' employer in the following specific instances: on-costs per G yer in the following spe oe output £ € Hem nal (a) Foundations to Block A Five weeks lost output over 8 14 week period 2,000 1,000 (b} Changes to frame of both blocks ‘The delays for Block A were four weeks and for Block 8 were six weeks. During this ten weeks period it is assessed that one third of the fabour ‘output was lost due to disruption 3,500 11,068 1179 x 10 werkt (fc) Cladding to Block 8 Seven weeks delay due to bankruptey of sub-contractor during which all the labour output was lost 1,530 10,710 [a External paving Two weeks. Men were kept waiting for instructions and were completely unproductive 208 436 overheads and ene profit 9% 2,983 To Summary £36,765 11, Attraction money ion on the ‘The higher payment to men was due to the general lack of labour in the area and lack of orgs cite. The only exception to this was during the periods of the foundations delay and the bankruptcy of the lauding sub-contractor. The opportunity for the men to earn a bonus and thus reduce the need for attraction money was denied the contractor. As these were matters which are within the responsibility of the client there is a basis for 9 claim, The labour involved at the relevant times amounted to 12,584 hours @0,30p 3,775 Overtveads and profit 9% 340 To Summary: £4,115 12. Overtime and shift working ‘There was no requirement, express or implied, to speed up the works nor to work overtime or shiftworking. Therefore, no claim can be allowed, 13. Nominated sub-conitéetor J. Sparks’ claim has been settled by the consulting engineer and has since been included in the final account. No athar elaimns have been notified to date and cannot therefore be included, 14, ation ‘This has boon dealt with under item 3. 2 515, 17, Overtieads and profi “These have been dealt with either by use of rates which include overheads and profit in this ascertainment or by the specific addition of 9%. However, itis still the right of the contractor to demonstrate either that; (a) The level of overhead commitment due to the changes in design was higher than would otherwise have been expected or; (b) The turnover per month was reduced, thus reducing the trading potential of his capital. In this project the turnover per month was almost identical to that planned at the tender stage. However, even if the turnover had been significantly reduced it would be necessary for the contractor to show the following before a claim for loss could be agreed: i. That there was an opportunity to employ his capital elsewhere. Ti. What the level of return on the alternative use of capital would have been. Iii, A comparison between the level of committed capital on the project with the reimbursable extensions of time and without those extensions of time. ‘The contractor has not been able to satisfy us on these points. Cost of preparing the ‘The contractor was not asked, nor does the contract require the contractor to prepare the claim. His involvement should have been restricted to giving notices under Conditions 11(6) and 24(1) and in providing the necessary cost data. This is more than covered by the recognition of extended head office overheads. Sanne Reference . Amount £ 1 Site supervision 18,321 2 Insurance 304 3 Fluctuations 20,795 4 Temporary buildings and plant 12,306 5 Welfare . 1.641 6 Water 927 7 Temporary lighting and power 5.343 8 Telephone 131 9 Protection 870 10 . Labour disruption 35,765 " Attraction money 4s Total of direct loss and/or expense under £100,608 Condition 11(6) and 24(1) (excluding any claims by nominated sub-contractors yet to be notified) idated and ascertained damages , Week ‘The date of practical completion was 1 August 1975 192 The extended completion date as certified under condition 22 was 31 O :tober 1974 143 Delay in completion by contractor in weeks 39 The weekly amount of liquidated and ascertained damages stated.in the Appendix to the contract conditions is £2,500 Therefore the total amount of liquidated and ascertained dameges is £2,500 x 39Surninary £ Contract sum (page 10) 1,332,175 Net additions trom agreed final account 272,825 Provisional final account exeluding loss and expense (page 11, iter 9) 1,605,000 ‘Accertainad loss and expense (nage 25) 100.608 7 1,708,608 Less sum of the amounts paid to the contractor under interim certificates 41,572,000 Balance due to be certified to the contractor 133,608 Loss Hiquidated and ascertained damages (page 25) 97,500 Net amount due to contractor £36,108 DETAILS OF TENDER BUILD UP. 1.0 Site supervision Stat Week No. Weeks Rate £ Project manager 0.98 98 £80 7,940 General foreman 2no Block A 0-88 88 £60 10,560 2no Block B 18-104 86 £60 10,320 Trades foreman Ino Block A 18-88 70 £50 3,500 1 no Block B 32-104 2 £50 3,600 Engineer (structure) 2 no Block A 0-36 36 £70 5,040 2no Block B 16-50 cn €70 4,780 Site surveyor ‘ (hal timed 0-104 104 £65 3,980 49,000 Overheads and profit 9% 4,410 53,410 Expenses a8 £53,728 2.0 Insurances ‘The premium per annurn is £360 ‘Over 2 yeors . £720 Overheads and profit 9% say 67 £787i | i | i 4.0 Temporary buildings DETAILS OF TENDER BUILD UP (contd.) 30 Fluctu 1% allowance on £1,100,000 I (Main contractor's work and P.C. sums) Overheads and profit 9% £ fa) Buildings Set up 450 (94 weeks @ £60) 5,640 Running costs (94 weeks @ £20) 1,880 Remove 320 {b) Plant Set up 3,000 Hire (60 weeks @ £160) 9,600 > Running charges - (85 weeks at £95] 5,225 Remove 2,000 £28,115 Overheads and profit 9% say 2,507 5.0 Welfare Setting up costs 200 Weekly costs (104 weeks @ £49.50) say 5,180 Removal * . 150 5,500 Overheads and profit 9% 500, 6.0 Water for works 0.318% on £1,100,000 say 3,500 ‘Overheads and profit 9% say 318 7.0 Temporary lighting and power . 1,800 (weeks 4 to 98) = 94 woeks @ £101 say Overheads and profit 9% say 80 Telephone Insalaion a“ Mental 2 yur @ £50 per yer 100 calle 550 Overheads and rote 2% 738 € 11,000 1,000 £12,000 £30,622 £6,000 £3,818 £12,000 £ 800 2De TANS OF TENDER BUILD UP (contd) 9.0 Protection of works Protection £ 1% of €1,100,000 11,000 Special protection far equipment 400 11,400 Overheads and profit 9% say i £12,420 TOTAL £132,175 END OF QUANTITY SURVEYOR’S ASCERTAINMENT OF DIRECT LOSS AND EXPENSE Comments ‘Most of the necessary comments have been maide in the text. However, two important issues arise. Tha first is that the tender values should be used wherever possible for calculating the costs for extended work and time. The contractor knows that the contract envisages variations and he must, as a general rule, expect these variations to be costed at rates given in the tender. The secon! point is that just because a contract has overrun its duration by say 50%, 1 cannot be assumed that preliminary costs can automatically be increated by the same proportion. Clause 24 refers to direct loss and/or texpense and these losses or expenses must be capable of being shown before they can be allowed in a contractual claim, 28SECTION E: FURTHER ACTION TO BE CONSIDERED A.Glient & Co, 66 Carey Street New Town Dear Sirs, Factory at Anytown We enclose our statement of the cost accruing under the building contract for the above. From this you will see that the net amount due to the contractor, after deduction of liquidated and ascertained damages is £36,108 although the final certificate when issued will be for the amount due prior to the deduction of damages, namely, £133,608, ‘There ate however three further points to which | must draw your attention: — 1. The main contractor's reaction Although not required under the terms of the contract we feel we should attempt to obtain the contractor's agreement to these figui.. :vior to the issue of the final certificate, otherwise arbitration proceedings may follow. It may be that in considering our ascertainment he can bring to our notice other facts of which we are not aware and which could affect his entitlement. However, this is nat intended to indicate an arbitrary ‘compromise between his claim and our ascertainment, We have invited him to meet us as soon as possible and will report to you further shortly 2. Bankruptey of the nominated subcontractor for the cladding ‘Substantial extra costs have accrued due to this bankruptey a8 a result of (a) Extra cost of delay and disruption in the works generally (6) Delay in the handover of the building. (c) Extra costs in renominating the residue of this work. {In general the costs at (a and (c) above are included in the final account. The direct loss and/or expense of those items, less a minor set-off of some £3,582 which was the retention owing to the bankrupt sub-contractor has been set against the extra cost of the new sub-contract. ‘You could, no doubt, get the main contractor to try to claim against the liquidator but we understand that there is unitkely to be a dividend, Therefore, we recommend that you do not pursue this course of action. 3. Delay by services sub-contractor This delay, which amounted to 7 weeks, was entirely due to poor management anid organisation by this nominated sub-contractor. This delay has required us to extend the completion date by seven weeks denying you the right to liquidated and ascertained damages for this period. This would have amounted to £17,500, You have an agreement with this nominated sub-contractor in the standard form of warranty. This gives you the right to recover this sum direct from the sub-contractor but not a deduction under the building contract. ‘Therefore, it has been ignored by us in our ealeulations. No doubt you will consider pursuing this course of section and if you require data from us in order to do 20 please le us know, Yours faithfully, Wren Chartered Architects 29