This short article focusses on the retrospective quantification of acceleration claims.
Author: John Mullen, Principal and Quantum Expert
Prospective valuation, where parties reach a prior acceleration agreement, is not covered, though these can cause their own problems. Potential legal and contractual bases for acceleration claims are also not considered.
By way of introduction to quantification (and also because the author was expert for the defendant who was awarded indemnity costs) it is worth considering these words from HHJ Hicks (Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man (1999) 66 ConLR 119): “increasing speed… finishing earlier… increased expense…”
In practice, such increasing speed and finishing earlier might be achieved in several ways.
These can all lead to increased expense:
- Increasing levels of resource. Either on the same or additional work fronts.
- Changing resources. These might only be available at greater expense.
- Changing methods. Particularly sequencing, overlapping, hours of work, and procurement.
- Changing work scope or specification.
The use of words such as “increase” and “change” begs the question “compared to what?”. Contractors often base acceleration claims on tender allowances. However, these may have been insufficient.
An alternative baseline is levels before the acceleration, but these too may be misleading. The proper baseline will usually be the contractor’s objectively reasonable ‘but for’ methods, resources and costs. These might be from a resourced programme, method statements, internal planning and budgeting, witness statements, expert evidence, or a mutually supportive combination of these.
Acceleration does not always only give rise to additional expense. Where work is carried out more quickly savings can arise particularly in relation to time-related costs. Where acceleration is achieved by changes to the works, savings can result from omission or reduced specification.
Another area that is often overlooked in contractors’ submissions is duplication with other claims. Where the cause of the acceleration relates to instructed Variations, their valuation may include the same costs. Claims for disruption can particularly overlap with acceleration claims. An often overlooked area of overlap is payments for cost escalation.
The usual heads of acceleration costs include:
- People, including both staff and operatives;
- Preliminaries and general items (site overheads);
- Materials; and
- Plant and equipment.
Other potential heads are:
- Off-site overheads;
- Profit;
- Risk/contingency; and
- The costs of quantification.
People costs are usually the largest head of acceleration claims, particularly staff. For both staff and operatives, overtime payments often feature. Bonus payments can be additional bonuses paid in recognition of the working circumstance or unearned bonuses which still have to be paid to retain people. Where additional people are introduced, they may be at a premium cost, particularly where payroll employees are supplemented by those from agencies, subcontractors or even imported into a country. Recruitment fees might be incurred, and bringing new people to a project can add costs of transport, visas, work permits, site inductions, health checks, accommodation, and other indirect costs.
“Staff thickening” claims often feature not only as an acceleration issue but also as a head of disruption or even prolongation claims.
Where staff thickening claims compare actual and planned resources, the usual questions apply to the differences. Alleged ‘but for’ resources might be based on tender allowances or staff organograms, but these might have been wrong or set intentionally low or high respectively, to win a bid. Planning and budgeting by the project team often proves a much better basis, ideally through contemporaneous documents, or otherwise through statements.
Objective evidence can be sought from experts or similar projects. Ideally, a mutually supportive combination of these sources might establish this ‘but for’ baseline. Actual staff costs will be tested in terms of the reasonableness of their numbers, job descriptions and rates.
Once the ‘but for’ and actual staff are established, comparison should not be of total numbers alone. Job descriptions should be looked at line-by-line. Who was added, when and why, should be established from factual evidence. In practise, such comparisons often show some reductions and this will lead to debate, including: why there is a reduction; whether the ‘but for’ would ever have been required; and why there was no actual resource; and whether they should be off set against the additions.
Staff thickening particularly arises in claims based on:
- The extent of changes, queries, revisions and documents;
- Increases in work fronts; or
- Increased labour levels.
A useful analysis plots the levels of staff against time and numbers of documents or work fronts or operatives. Discussion may ensue as to whether correlation proves causation and whether the resulting claim is ‘Global’ in the pejorative sense.
Regarding operatives, a number of indirect effects can cause additional cost. Long hours, crowded workspaces and overlapping trades can reduce production. Less obvious are learning curves and the effect of changes in the ratio of operatives to such as supervision, management, plant, equipment, and materials. Quantifying labour productivity losses involves the usual difficulties with disruption claims.
Methods include:
- Comparing planned and actual;
- Measured mile analysis;
- Earned value analysis;
- Records of lost time;
- Comparisons with similar projects;
- Expert evidence; and
- Historical data.
Ideally a claim for lost productivity applies more than one of these methods to mutually support each other.
Materials costs can include: part load premiums; increased waste; double handling; costlier suppliers; and expedited delivery charges. Changes in specification for earlier availability or faster construction can also increase costs.
Plant and equipment costs can include some similar features to the operatives using them. In particular, owned plant might be supplemented by hired plant at a greater cost and lower outputs.
Additions to the above for risk/contingency, quantification costs, off-site overheads and profit tend to be more relevant to prospective acceleration agreements. Inclusion will depend on such factors as: the contractual or legal basis; whether they were incurred or lost; and the bargaining strengths of the parties. Subcontractors can incur any of the cost headings identified above, and can add complexity. Related questions will include: whether a subcontractor’s costs actually arose from ‘domestic’ issues; whether they were reasonable; how the subcontractor was procured and managed; and whether the contractor actually has an incurred cost or liability.
Dispute as to whose culpable delays led to the acceleration is likely to see a counterclaim from the Employer. In particular, for additional fees paid such as to a FIDIC Engineer for providing additional staff or overtime and night shift attendance. The relationship between such costs and contractual Delay Damages may have to be considered.
Evaluating Contract Claims (by JP Mullen and RP Davison, published by Wiley Blackwell) offers further discussion on this broad and complicated topic.
Dated: 25/03/2021
This article was originally written and released as part of issue 21 of the Driver Trett Digest.
To view the publication, please visit: driver-group.com/digest-issue-21