An almost unavoidable part of delivering construction projects is change management. Where this change originates from the client, the ownership in regards responsible for additional payment or relief from liquidated damages because of such instruction will, in most instances, entirely reside with the client. However, in the event of a dispute whereby the party delivering the works have notified a change rejected by the client, then proving who owns the liability will be vital for establishing the responsibility for paying damages.
It may often be straightforward as, if one party has breached the contract, there may be prescriptive clauses that already deal with how one should compensate the other. For example, in NEC ECC Contracts, there are compensation event clauses that describe what constitutes entitlement in principle to be paid for the breach, e.g.,
“the Client does not provide something it is to provide by the date shown in the Accepted Programme.”
“The Project Manager or the Supervisor does not reply to a communication from the Contractor within the period required by the contract.”
Therefore, once the contractor believes an event has occurred, they notify the client and reference the contract, which states, “the Contractor believes that the event is a compensation event”. The client then responds by acknowledging that it either, is, or is not, a compensation event. This process is the contractor demonstrating causation, that such a breach has had an effect, and the client is in agreement, and requests a quotation with a view that the contractor should be compensated.
However, not all contracts are as prescriptive regarding what constitutes a compensation event, variation or change event. Therefore, the onus on proving causation through a breach and the effect will be crucial for a successful claim for cost recovery.
As noted above whether there is a legal obligation to do something is established through the contract, i.e., where one party should take action by responding in time, carrying out a test in time or providing access by a set date etc., which they fail to do meaning a breach has occurred, it can be seen the parties have, through the executing of the contract, agreed to the obligation of such duties on either party and therefore if breached; they have pre-agreed the test for causation by way of the incorporated contract conditions that provide an entitlement for damages in the event of such a breach.
This is known as legal causation. The parties will need to establish the threshold for triggering the breach by reference to the contract conditions met. Then, who is responsible for such a breach risk paying damages to the claiming party.
Alternative to legal causation is factual causation, and this applies whereby the test for causation is less straightforward. As a result, the claimant will need to present all the facts surrounding the event in precise detail and link them to one other to demonstrate a chain of events that ultimately lead to the breach incurring damages by the claimant.
The issues involved are usually complex, and the interrelationship between the factors is an essential part of establishing merit in the claim.
By way of example, the client issues an instruction to procure materials early to avoid a delay due to suppliers’ lead times being significantly out with the contractor’s latest programme. The materials in question are stated in the specification to be supplied from one supplier. Still, the contractor is responsible for this particular supplier’s performance, including lead times.
The contractor however wishes to wait and expects the lead times to reduce, but the client does not want to take this risk and issues the instruction to procure early. The client believes they will need the materials in any event, and therefore no change to the price is required, and there should be no effect on the completion date.
Consequently, the contractor places the order with the supplier but then sometime later furnishes the supplier with new information, which increases the cost of the order and means the supplier must rebook manufacturing slots resulting in a delay in the delivery of materials and a consequential delay to the completion of the works. The contractor notifies the client that the instruction they issued is the root cause of this issue. Therefore, despite not intending to cause additional costs and delays, they have caused damages as a result, for which the contractor expects to be compensated under the contract.
From the client’s perspective, however, they are not in a position to understand or establish where the responsibility lies. In terms of factual causation, both parties should look to develop facts, including:
- The timing of programme activities at the point of instruction.
- The status of the design at the point of instruction, including any approvals in place or further changes instructed to the design.
- What was issued to the supplier by the contractor following the instruction?
- The timing of communications regarding the possibility of delay – were they served, should they have been performed, and at what point they served?
- What other activities were programmed concurrently, and were these activities on time or delayed – check for the concurrent delay with other events, including the cause of these was too?
Once the facts are established, the client should analyse them to conclude that the event would still have occurred on the balance of probabilities.
What does this mean?
The client may be thinking that the design changes were because of the contractor’s design not being on time which led to late design information being provided to the supplier, which resulted in the manufacturing slot being missed with the early materials procurement instruction being issued.
All the facts need to be established to determine whether this was the dominant reason for the delay. Therefore, the contractor is indeed the party that is responsible for the ensuing effects.
It could be that the sequence of programming activities was such that the contractor could prove that the design was not due to be completed until long after the client gave the instruction. The expectation that the contractor could place the order with the supplier was erroneous. Still, if there was no objection to the instruction at the time, the contractor, through its inaction of not challenging or notifying the situation, remains responsible for an element of the delay.
Conversely, there may be events that are the client’s responsibility, such as late response to technical queries or further instructions that changed the design resulting in downstream instructions through the supply chain that contributed to the delay. Therefore, taking all these events into consideration means there may be an issue with concurrent delay.
Now we are getting technical. Concurrent delay. It occurs when a situation of delay has happened but, two or more events run simultaneously through the period of delay, meaning that it is difficult to establish the dominant delaying event.
Establishing concurrent delay is essential where one delay event is due to an act by the client, and one is due to an act of the contractor. There may be delay damages involved from the client’s perspective, and the contractor will seek relief from delay damages and costs linked to an extension of time request.
An essential reference in case law regarding concurrent delay is “Adyard Abu Dhabi v SD Marine Services ”, in which there is a reference to a definition by John Marrin QC, who described the concurrent delay as “a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency”, a pivotal point to note is they do not need to be exact in their timings, so the events do have to align precisely.
There may be instances where the client caused a delay of 20 weeks, but for 10 of those weeks, there was another delaying event the contractor owned. An example of this could be an instruction changing the design specification issued by the client, which, when established, would add additional time to the design programme. Still, the contractor was already running late in delivering the design upon inspection. Therefore, a concurrent delay occurred, meaning the liability is shared and should be included when assessing the effect on time and cost recovery.
The court’s interpretation of entitlement where concurrent delay has occurred is to award contractors an extension of time because they should be allowed a reasonable time within which to complete the project, and they are not entirely at fault if the concurrent delay is found to have occurred. However, the position on costs is that they should not be awarded costs because they are jointly culpable regarding the delayed events. To be awarded costs is unreasonable in the circumstances.
Factor to consider in causation:
- If the contractor incurred the damages irrespective of the event, e.g., the material procurement was delayed as the terms of supply could not be agreed upon between the contractor and the manufacturer.
- What happened taking into account the evidence put before the assessor and considering the balance of probabilities.
- Suppose there were any intervening events in the chain of causation, e.g., as noted above. In that case, further instructions could be issued or other notifiable events that would give relief from the ownership of the breach.
- The cause of the breach that led to the damages preceded the event, i.e., if it happened after the start of the delaying period, then it can only be a contributory factor as opposed to the sole cause for the breach.
When assessing causation, you must establish all the facts surrounding an event and remove all those using the ‘but if’ test, i.e., the delaying event would still have occurred irrespective of whether they were there not. You will be left with the actual causes. Consider what the plan was or what should have happened before summarising what happened, remembering that the burden of proof relies on the claimant.
Photo by Verstappen Photography on Unsplash
About Dean Suttling
A member of the Royal Institution of Chartered Surveyors, Dean has twenty years of experience in commercial management and quantity surveying, undertaking roles for contractors, clients, and consultants.