The world continues to adjust to the effects of the COVID-19 pandemic. The only ‘normal’ we can expect from the ‘new normal’ is more change and uncertainty.
Like the dunes of the desert, problems are always there but, the contours are ever-changing. Mark Foden and Andrew Corton of CCi – Capital Consulting International – Dubai Branch, look at how contractors and project stakeholders can cope with Mitigation and Acceleration in the construction industry.
“There must be a ‘cashflow’ in the building trade. It is the very lifeblood of the enterprise.”
Lord Denning M.R. (1973)1
Cashflow is the lifeblood of the construction industry, whether it is a major ‘artery’ like employer payments or a capillary feeding an extremity in the supply chain. Wherever a disruption occurs in the circulation of cash it can harm the financial health of a project and of those who invested in it. A lack of cash can harden positions on disputed items quicker than cholesterol hardening the arteries, relationships dissolve and the project faces a multitude of escalating complications. The recovery will be painful and may have life changing effects on the project and the related organisations concerned.
During the early stages of the pandemic, uncertainty and apprehension meant countries around the world were variously affected by partial or full lockdowns and unprecedented adaptations to working practices driven by social distancing requirements. Some of these restrictions were reactions to statutory requirements, others were based on proactive ‘moral leadership’ by companies to protect the health and safety of their employees. Contractors and project owners had to make hard decisions where to cut, in order to preserve enough cash within the core business to keep it and its dependent projects alive.
Mitigation was the first wave of change that needed to be implemented to reduce the impact and consequences of the pandemic on businesses. Furloughing staff, closing sites, suspending projects, having a reduced labour supply, self-isolation requirements, office staff working from home, travel restrictions and unfortunately, many staff redundancies.
The fundamental concept of mitigation asserts that the parties of a construction contract are required to take all reasonable steps to mitigate the delays that occur on the project. In short, a contractor has a duty to mitigate costs and delay, even when the contractor is not culpable for the delay.
In many instances, when a project owner or a third party delays the progress on a project, there is usually a reluctance to grant an extension of time to the contractor. However, until a decision has been made on the extension of time claim, the contractor should use their best efforts to fulfil their contractual obligations and complete the project within the original contract timeframe.
Is it reasonable to assume that a contractor can fulfill this obligation to mitigate the employer’s delay, without incurring additional costs? Realistically, the answer is quite often a resounding “No”. It is at this point that disputes may arise between the parties.
A contractor may be expected by the employer/contract to use their ‘best endeavours’ and ‘all available resources’ to achieve the mitigation with no additional costs.2 However, it is often the case that the contractor needs to increase resources as well as the rate of progress to achieve the original contract completion date. Hence, the problem, this may no longer be seen as implementing mitigation measures, but rather acceleration, for which the contractor believes it is entitled to additional payment from the employer.
There is a fine line between mitigation and acceleration, it is usually this fine line that is the cause of many disputes within the industry. The dispute will often revolve around a decision as to who pays for the revised methods and procedures to achieve the agreed target completion date, always keeping in mind that, cashflow is the lifeblood of the industry. The Society of Construction Law Delay and Disruption Protocol explains further:
“Acceleration is a subset of mitigation, and typically refers to the situation where additional costs are incurred to seek to overcome all or part of delay or disruption (for example, to ensure that that the contract completion date is achieved). Where the Employer is responsible for that delay or disruption, the Contractor may claim its acceleration costs from the Employer. This situation is distinct from a Contractor’s general duty to mitigate its loss when it suffers delay and disruption or incurs additional cost due to an Employer Risk Event. That general duty to mitigate does not require the Contractor to incur additional costs.”
Acceleration on a construction project can be achieved using numerous methods, some examples include:
- Increasing manpower resources on site;
- Working longer hours (nightshifts and weekends);
- Increasing plant and machinery resources;
- A change in sequencing of the works;
- Alternative and quicker delivery methods of material delivery (such as additional costs for air freight as opposed to sea freight);
- Additional formworks or temporary works to reduce the time of the construction cycle process;
- Alternative materials procured for speed of delivery (locally sourced materials in lieu of overseas materials); and
- Changes to the design of the project to simplify construction.
Always remember the three ‘R’s………. Records, Records & Records!
Whether it is to demonstrate the mitigation measures that have been implemented or to prove the acceleration costs actually incurred, the process of maintaining contemporaneous records is vital to strengthening a claim and it is now easier than ever before. Records need to be managed correctly, stored safely and be easily retrievable.
Site diaries, photographs, daily labour sheets, invoices, purchase orders, material delivery sheets, accounting systems can now be kept in a digital format.4 These can all be shared and managed on site and cloud-based systems. Technology has changed the way that records are kept, new technology is being developed every day. For example, the introduction of wearable technology for labour on site can change the way that managers are able to monitor progress of the works and the manpower productivity based in each location of the project. CCi is working with wearable technology partners to develop technology solutions to construction industry problems, such as evidencing disruption claims.
The CCi advice to clients is, make sure any acceleration measures are clearly agreed between both the employer and the contractor prior to the implementation of such measures. Any such agreement should be confirmed in a written instruction. It should clearly define, which areas of work are to be included within the acceleration measures, what methods will be used to accelerate the works, and most importantly, how the acceleration works will be valued (cost plus or an agreed rate or lump sum).
Contractors should never proceed with acceleration measures without a written instruction from the employer. If they do, they face the risk of achieving the acceleration target whilst being unable to recover the additional costs incurred. Employers have been known to argue there was no instruction to accelerate and it was the contractor’s duty to mitigate the delay.
Employers should ensure they have a clear understanding of the proposed acceleration measures, the method by which they will be valued and their limitations. Employers must agree to these specific measures in writing before giving the contractor an instruction to proceed (accelerate). Otherwise, they face the risk of the contractor including all costs incurred for the remaining works and claiming these as ‘incurred acceleration costs’.
Both parties should understand the specific acceleration payment terms and consider the consequences if the acceleration measures are applied but fail to achieve the agreed objectives.
1 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd  71 LGR 162, 167.
2 “Ready, set, accelerate! Constructive acceleration in the UAE”, Beale & Co, May 2019
3 Society of Construction Law Delay and Disruption Protocol (2nd Edition), February 2017 – Guidance Part A: Paragraph 12 (Page 10)
4 “I Don’t Need Records … I have Spotify!” Jeffery Whitfield, May 2020