By TBH Associate Director, and international Cost team member, Corey Farrell
Over the past year or so, a number of industries have been affected by COVID-19, and the construction industry is not without exception. The impact of COVID has hindered ongoing construction projects in different ways, but most noticeably, it has caused delays and consequently affected the ability to complete the agreed scope of works within the time period specified within the Contract.
When a construction project is delayed, there can be financial consequences to both owners/developers as well as contractors. For example, if a contractor breaches the provisions within a Contract, it could be liable for liquidated damages (LD’s). If a client breaches the provisions within a Contract, it may need to award the contractor an extension of time (EOT), which will adjust and consequently prolong the date for practical completion. If the date for practical completion is prolonged, it may affect the client’s ability to generate revenue, for example, leasing the building.
Currently there is uncertainty in the construction industry with respect to COVID and the ability to use force majeure clauses in major project construction contracts. As these disputes are currently ongoing, it is not known who the courts will side with – in terms of which contractual party incurs the costs that have arisen due to the impact of COVID.
With this uncertainty, TBH is aware that some owners/developers have been pro-active in terms of trying to mitigate delays which have been caused by COVID. To mitigate delays, owners/developers have been instructing contractors to accelerate the construction works.
Generally, construction contracts include a provision for acceleration; however, when you include ‘change’ into a construction project, there is a risk that the ‘change’ could lead to a dispute. These disputes can be mitigated if measures are put in place prior to the ‘change’ and these measures are monitored throughout the ‘change’.
With over 55 years’ experience, TBH has developed a wealth of knowledge of how to manage ‘change’ in a construction project and thereby reduce the risk of disputes when involved in the ‘change’ process.
In the event you are considering instructing a change to the contract by means of acceleration or have been directed to accelerate, TBH recommends the following be considered prior to accelerating the works and during acceleration:
- Ascertain the status of the project works, in terms of both time and cost. It should also be determined what direct resources are required to complete the works if the contract remained unamended, that is, what direct resources are required to complete the works as originally planned. This ultimately will form the baseline from which to measure acceleration.
- Determine the target date for completion of the accelerated works.
- Develop a detailed methodology in terms of how to achieve the acceleration target date. The proposed methodology should be entered in a resource loaded programme to test if the acceleration methodology can be achieved. Further, it is recommended that the proposed acceleration methodology be based on actual productivities achieved on the project to date, rather than expected productivities, to increase the likelihood of achieving the accelerated date for completion.
- Establish the basis of payment for acceleration. From the acceleration claims TBH has been involved in, the chosen payment mechanism has been “Cost Plus”. A cost-plus contract is where a contractor obtains material and services to perform the works and is subsequently reimbursed on the actual costs incurred plus an agreed margin to cover its overheads and profit. The benefits of a “Cost Plus” payment mechanism is that it is an “open- book process” as it allows owners/developers to see the actual costs through invoices for each expense/direct cost for the Works. The downside to “Cost Plus” is that for it to be effective, it heavily depends on the supervision and administrative process put in place.
- Dedicated resource/s should be assigned to administer the acceleration process. These resource/s should be site based, monitoring the construction works and keeping detailed records which, amongst others, would include:
- Tasks/activities undertaken;
- Name of resources and hours worked to accurately measure the progress;
- Plant/ equipment which is productive as well as on standby; and
- Photographic evidence of progress.
- In order to keep track of the acceleration measures and costs, the detailed records should be submitted on a weekly basis along with timesheets, invoices for materials etc.
The above outlines some of the activities which are required to ensure the introduction of acceleration is effectively managed from a commercial perspective. There are a number of other elements to consider and expert advice should be considered before accelerating construction works.
If you have already issued or received an acceleration direction and are encountering issues with regards to the outcomes, please get in contact with Corey Farrell to discuss a means to resolve these issues.
Corey also has numerous years’ experience in assessing/preparing variations, adjudication applications, prolongation and disruption costs. If you have any issues in relation to the above, Corey is at your disposal to discuss.
To learn more about TBH’s end-to-end solution, please visit our Cost Management Services page.