PART 1 – CONTRACT ADMINISTRATION & CONTRACT MANAGEMENT

1.0 WHAT IS CONTRACT ADMINISTRATION/MANAGEMENT: IS CONTRACT

ADMINISTRATION = CONTRACT MANAGEMENT?

1.1 Most people including construction professionals are confused with these terms.
Is contract administration the same with contract management? Are the 2 of
different meaning? What’s the difference?

1.2 Lets look at some definition for Contract Administration;

The professionals responsible for a company’s contract administration focus

their work on the planning and execution of contracts. The planning process
often includes sourcing potential contracting partners, for example via sending
out requests for proposal/quotation. In addition, contract administrators help
with ironing out the details of the contract arrangement, working with
prospective partners to negotiate on contract matters such as price, delivery
schedules, and performance expectations.

By creating and following a strong contract administration plan, your team will
be in a good position to successfully manage the new contract throughout until
it’s completion. This formal contract document should describe in explicit detail
what is expected of both parties during the term of the agreement in order to
limit possible breaches of contract or other issues that lead to either side not
fulfilling their contractual obligations.

[https://www.contractworks.com/blog/the-difference-between-contract-management-and-contract-
administration]

Another definition goes as;

Contract administration is concerned with the state of the agreement between

the two parties in the period before the contract has been finalized.
[https://www.contraxaware.com/blog/the-difference-between-contract-management-and-contract-
administration/]

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1.3 Definition for Contract Management;

Contract Management at its best is about managing risk, and managing

relationships. At its simplest, a contract is a document describing a
relationship between two parties, what each of them agree to do, and who
carries the risk if things don’t turn out as planned. Contract Management is
about managing that relationship, and those risks, to ensure that both
parties get the result they originally wanted. Everything such as cash flow,
revenue, obligations management, and all other areas around this, flow
from this simple premise.

So simply put, contract management is about defining resources,

relationships and risk.
[International Association for Contract & Commercial Management]

In complex projects, contract changes are going to happen, and they’ll

need to be managed (construction management team to the rescue!).
Ideally, how this process takes place should already be spelled out in the
original documentation.

Your construction management team knows how to formulate, fine-tune

and interpret all of the essential contracts you need for the different phases
of your project. This expertise is invaluable when it comes to minimizing
risk and maximizing satisfaction of all parties involved.
[https://stonemarkcm.com/blog/contract-management/]

Another definition for Contract Management as follows;

Contract management occurs after a contract has been executed and

taken effect. Thus, this entails working to ensure that the terms and
conditions contained within the contract are adhered to and that all of a
party’s contractual obligations are met satisfactorily.
[https://www.contractworks.com/blog/the-difference-between-contract-management-and-contract-
administration]

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1.4 To state it as simply as possible, contract administration is the work done before
a contract is signed into effect and contract management covers everything done
after signing to ensure that deliverables and deadlines are adhered to as outlined
in the agreement.

1.5 Although the industry may have distinguished the 2 functions, it is not
fundamentally important for these terms to be strictly used and followed. What is
more important is that the functions are carried out rightfully. In your standard form
of contract, the function of the S.O. (on the term been replaced) is by the Contract
Administrator “the C.A”.

2.0 FUNCTIONS OF CONTRACT ADMINISTRATOR AND CONTRACT MANAGER

2.1 Contract Administrator being involved in the pre-contract stage will be carrying out
among others the following functions;

• Identify and prepare contracts according to the requirements of the

organisation

• Procurement activities including sourcing potential business partners,

negotiate contract terms with internal and external business partners i.e.
contractors, vendors, etc.

• Closing the deal i.e. finalisation of the contract with business partners

• Review and update existing contracts based on needs or problems/defect

faced during construction

• Explain terms and conditions to contract managers, executers and

interested parties

• Ensure that employees understand and comply with company contracts

• Analyse potential risks involved with specific contract terms

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 • Stay up-to date with legislative changes and coordinate with the legal
department as needed and amend the contract as necessary

• Audit & Post Mortem exercise – Analyse and Ensure all deadlines and
conditions described on contracts are met.

There may be other functions not listed above, please include, add in and discuss.

2.2 Contract Manager being involved in the post-contract stage will be carrying out
among others the following functions;

• Preliminary activities including ensuring site possession is given, issuing

Notice to Proceed, making or assisting in the pre-requisite submissions to
local authorities and other relevant parties, permit applications etc.

• Ensure all responsibilities of the organisation towards the business

partners are discharged timely and in accordance with the contract.

• Ensure all obligations of the business partner are discharged timely and in
accordance with the contract.

• Develop and practice effective project monitoring system than consist of

key indicators and early warning system to ensure project complete on-
time and within budget.

• Manage all changes occurring during post-contract including variations,

changes in laws and legislation, 3rd party (local authorities etc.)
requirements , and any other matters which affects the performance of the
contract.

• Deal with and manage claims and counterclaims that arose out of the
contracts.

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3.0 ORGANISATION OF CONTRACT ADMINISTRATION & CONTRACT
MANAGEMENT – SAME PERSONNEL FOR THE 2 FUNCTIONS OR
DIFFERENT PERSONNEL

3.1 Lets look at your own organization, IDENTIFY WHETHER YOUR

ORGANISATION;

a. Employ the same personnel (or team) to carry out the contract administration
and contract management functions; or

b. Employ different personnel to carry out the contract administration and contract
management functions.

3.2 If the answer is (a), then the same personnel will be responsible for both functions
and it is unlikely to result in integration and communication problems when
executing the contract management functions.

3.3 If the answer is (b), then it makes sense for the contract administrators and
managers to remain in close communication and to trash out the idea formulated
during pre-tender so that contract managers will thoroughly understand the
intention of the contract administrator when they called out the request for
quotation (RFQ) and formed the contract documentation.

4.0 COMMON PROBLEMS BETWEEN THE CONTRACT ADMINISTRATION TEAM

& THE CONTRACT MANAGEMENT TEAM

4.1 As Contract Administrator and/or Contract Manager in your organisation, please

list down the most common problems between the 2 team.

4.2 I would say the a most common problem between the 2 team is ‘unfulfilled
expectation’ of the Contract Managers in executing the contract.

4.3 Most common complaints by Contract Administrator;

a. Contract Managers not reading the contract and not managing it as it’s
supposed to be.
b. Contract Managers deviated from what provided in the contract.

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4.4 Most common complaints by Contract Manager;

a. Contract documentation is poorly done not to include the necessary works

required at site.
b. Placing the responsibility and obligation to deal with authorities not onto the
Contractor, but to the Employer resulting Contractors blaming the Employer for
delay.
c. Error in description of work and/or quantities.
d. Contract documentation is not up to date as it ignore the recent changes in
laws, regulations, procedures etc.
e. The terms in the Conditions of Contract lacked provisions to deal with the
actual conditions during performance of contract.

4.5 So, how do you deal with these conflicts between the Contract Administrator and
Contract Manager? It only makes sense for the Contract Administrators and
Managers to remain in close communication and trash out the differences and
work to produce a more workable contracts.

4.6 Personal ego and the attitude of blaming each other should be avoided in any
event.

4.7 Frequent post mortem exercise should be made, especially when a contract is
completed so that Contract Administrator is aware of the issues faced during
execution and therefore make good the document and procurement process in the
future.

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PART 2 - FORMATION OF CONTRACT

This section sets out the basic principles relating to formation of contracts as a revision to
reinforce the participant’s knowledge on the subject.

1.0 ELEMENTS OF A SIMPLE CONTRACT

1.1 A simple contract constitutes an offer made by one party and acceptance by the
other party. The resulting agreement is, however, only enforceable as a contract
if the promises it comprises are supported by consideration. If a builder were to
offer to build a house without payment, even though the offer was expressly
accepted, no enforceable contract would result, since there would be no
consideration, or quid pro quo, for the promise to build the house – otherwise if
the promise were contained in a deed. An accepted offer to do building work
may, of course, make no mention of price, as for instance in small informally
concluded jobbing contracts or repair works, but this does not mean that
consideration is not present since whenever an offer is made and accepted in
circumstances in which an intention to pay and be paid can be inferred, the law
implies a promise to pay a reasonable price for the work (and indeed will imply
many other terms, for example as to the quality of the work or for due expedition).
Circumstances can arise in practice, however, where it may be difficult to decide
whether a promise to pay will be implied, even though work may have been
carried out or services performed.

1.2 The law relating to building contracts stems from the general law of contract and
is not governed, for the large part at least, by any codifying statute. All the
elements of a simple contract must be present and the general rules of
performance and discharge of contract apply to a building contract. In Malaysia,
the law relating to contracts is largely governed by the Contracts Act 1950. The
Act incorporates most of the common law principles of contract.

1.3 An agreement may be oral or written, or partly oral and partly written. In a
building contract, this sequence of events is normally preceded by a stage called
“an invitation to tender”. This may take the form of a public announcement that
a client desires to receive tenders from interested contractors for a particular

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 project, or it could be effected through private channels as where a client draws
up a list of suitable contractors and then proceeds to invite each contractor to
tender. It has been described as an offer to negotiate, but perhaps more
appropriately it should be construed as an offer to receive offers.

2.0 OFFER, ACCEPTANCE AND CONSIDERATION

2.1 Offer

An offer must be something an element of invites, which is intended by the offeror

to invite an acceptance, and must be sufficiently definite to be capable of
resulting in the formation of a contract if accepted. Section 4 Contracts Act
1950 states inter-alia that the communication of a proposal/offer is complete
when it comes to the knowledge of the person to whom it is made. For example,
if A proposes by letter to sell a house to B at a certain price, the communication
of that offer is complete when B receives the letter. There is, however, no
requirement that the word “offer” must be used, and an offer is no less an offer
because some other word such as “estimate” or “quotation” or even “order” or
“acceptance” is used. Thus a main contractor will frequently place his “order”
“accepting” the quotation which a nominated sub-contractor has previously
supplied in reply to an invitation from the architect, but generally, since the
original quotation was not given to him, the “order” will only rank as an offer by
the main contractor, until accepted by acknowledgement or by conduct, for
instance by the sub-contractor starting work.

2.2 Acceptance

The acceptance of an offer must be unequivocal and must be communicated to

the offeror if it is to result in a concluded contract. An acceptance, may, however,
be made either expressly by words or in writing, or impliedly by conduct, always
provided that the acceptance corresponds to the mode of acceptance
contemplated by the offer.

Section 7 of the Contracts Act 1950 states that:

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 In order to convert a proposal into a promise, the acceptance must (a) be
absolute and qualified, (b) be expressed in some usual and reasonable
manner, unless the proposal prescribes the manner in which it is to be
accepted. If the proposal prescribes a manner in which it is to be accepted,
and the acceptance is not made in that manner, the proposer may, within
a reasonable time after the acceptance is communicated to him, insist that
his proposal shall be accepted in the prescribed manner, and not
otherwise; but if he fails to do so, he accepts the acceptance.

Section 8 of the Contracts Act 1950 states that performance of the conditions of
the proposal, or acceptance of any consideration for a reciprocal promise which
may be offered with a proposal, is an acceptance of the proposal.

Thus if a householder asks a builder to do certain repairs and the builder does so,
there is a good contract, the builder having accepted the householder’s offer by
doing the repairs as asked.

Conduct will also, it is submitted, amount to acceptance if no other reasonable

inference can be drawn from the conduct in question. This is most important in the
field of building contracts, because even in major projects it is not uncommon for
a builder or sub-contractor to commence work when all terms have been
negotiated and agreed but no formal acceptance has been recorded. In such a
case both the employer (by standing by and giving up possession) and the builder
(by doing work) will usually, it is submitted, be evidencing their acceptance of the
contract terms, or, in a case of offer and counter-offer, of the latest state of the
contract terms contained in the last counter-offer.

Thus an offeree giving a conditional acceptance, in the sense that it fails to comply
with all the requirements of a previous offer or introduces a new or altered term,
has not validly accepted, and is simply making what is in law a new offer (or more
properly counter-offer) itself capable of acceptance by the original offeror, and
technically revoking any previous offers or acceptances of individual terms made
by the original offeree. These steps of offer and counter-offer, however they may
be described by the parties themselves, are a very frequent aspect of negotiations
leading up to a binding commercial contract, and the analysis required to ascertain

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 the moment when agreement has been reached and the parties are ad idem is not
always easy, and one where the Courts can easily differ on particular facts. Should
a party seek to introduce a new term after the critical point has been reached it
will, of course, be too late since he is already bound (unless the other party
chooses to re-open the negotiations with some further counter-offer which has the
effect of revoking the previously reached agreement).

An offeror cannot, however, impose a contract upon the offeree by a provision that
the offeree’s silence shall be taken as an acceptance.

2.3 Consideration

The law of contract was originally developed to meet the needs of the commercial
world, and this is still reflected in the rule that only an agreement which has an
element of bargain will be enforced by the courts – that is, an agreement by which
each party “gives something” to the other in return for the benefit he is receiving.
For example, the employer agrees to pay the price in consideration of the building
works carried out by the contractor. The benefit given – the consideration – need
not be equal in any way to the benefit received, and may be actually doing
something for the other party, or not doing something which would be to his
disadvantage, or promising to do either in the future. Where one party receives
no consideration of any of these kinds, an agreement will not be enforced:

Section 26 of the Contracts Act 1950 states inter-alia that an agreement

without consideration is void unless:

• It is in writing and registered, or

• It is a promise to compensate for something done, or
• It is a promise to pay a debt barred by limitation law.

For example, A, for natural love and affection, promises to give his son, B
RM1,000.00 and puts it in writing and registers it under a law for the time being
in force for the registration of such documents. This is a contract.

A finds B’s purse and gives it to him. B promises to pay A RM50.00. This is a
contract.

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A owes B RM1,000.00, but the debt is barred by limitation. A signs a written
promise to pay B RM500.00 on account of the debt. This is a contract.

In Sharpe v San Paulo Ry (1873) L.R. 8 Ch. App. 597, a contractor refused to
continue work unless the employer agreed to pay in addition to the Contract sum.
In fact, the work was included in the contract work in which the contractor was
bound to do for the original contract price. It was held that the contractor gave
no consideration for the employer’s promise to pay him extra, which therefore
was not binding.

But in Lester Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1,
[1990] 1 All ER 512, it was held by the Court of Appeal, that there were a number
of practical benefits obtained by the Contractor, and the sub-contractors were
entitled to extra payments.

A contractor submits a tender for works and agrees that it will be open for
acceptance for one week. The contractor may still withdraw his tender at any
time because the employer has given no consideration for his promise to keep it
open. But the contractor is bound by the promise if the employer makes any
payment for it, however small.

This rule may particularly cause trouble in the case of a quotation for a sub-
contract. A quotation may be withdrawn although a main contract has been
made including prices based on the quotation, unless it has actually been
accepted by the main contractor or there is a binding contract with consideration
to keep it open – Pigott Structures Ltd v Keiller Construction Co Ltd (1965) 50
D.L.R. (2d) 97 Can.

The only exception to this rule, again for historical reasons, is that a promise by
a party in a document on which he has put a seal is binding without consideration.

It follows from these principles that an employer or main contractor who requires
a tender which may not be withdrawn should specify in the tender form that it is
to remain open for a stated time and insist on having the tender made under seal.
Another way is to state in the tender form that the tender will be kept open for the

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 specified time in consideration of the employer having supplied the contract
documents to the tenderer at his request. The obligation to abide by an offer
may then be secured by a bid bond or cash deposit.

An act or forbearance done in the past may be the motive for the giving of a
promise, but it is not a good consideration to support the promise, for “past
consideration is no consideration”. Thus, if a contractor in response to an
owner’s request erects a house on the owner’s land without a price being agreed,
and after completion the owner promises to pay him $500,000, can the builder
enforce the promise to pay $500,000? He can, usually of course, recover a
reasonable sum for erecting the house, relying upon the owner’s promise to pay
to be implied from his original request to the contractor to erect the house.
Moreover the owner’s offer of $500,000 would usually be some evidence at least
against the owner of what the reasonable sum should be. Provided that the work
is done at the promisor’s request and it such work was always intended to be
paid for, it would seem that the promised sum is recoverable.

Another aspect of the requirement of consideration is that in principle, there can

be no consideration for a promise to pay for something in which the promisee is
already bound by his contract to do.

There is no requirement of law that consideration should be adequate, or that the

person giving the promise should receive a fair or reasonable return for the
promise: the slightest action or forbearance by the promisee can be sufficient
consideration. In normal commercial contracts, however, if the consideration is
obviously so inadequate as to be derisory, the burden of establishing the contract
is correspondingly greater. Nevertheless, there is no principle of law that will
relieve a party from a foolish or disastrous bargain once its terms are clearly
established and agreed.

3.0 CONTRACT TERMS

There are three aspects of the contents of a contract that we need to consider.

(a) What are the terms?

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 A contract is a bargain between the parties. The contents of the contract
are therefore principally express terms: what the parties agreed orally or
in writing. In strictly limited circumstances the courts are prepared to
imply terms.

(b) What is the status of those terms?

Obviously not all terms are of equal importance. If you buy a car and find
that it does not have, as advertised, a radio, then the seller is in breach
of a term. It is not a very important term, and you will be satisfied if the
seller gives you money with which to buy a radio. If you buy a car and
find there is no engine then a far more important term is breached. It
may be that money will not be enough: you will want to repudiate the
contract altogether. The more important terms of a contract are called
conditions; less important terms are called warranties. Where the
importance of a term is not apparent until it is breached, then the term is
called innominate.

(c) When do those terms come into effect?

Sometimes a term operates to suspend or terminate the contract. The

term is then called a condition precedent or a condition subsequent.

3.1 Express Terms

The terms of a contract may be:

(a) wholly oral ;

(b) wholly in writing ; or
(c) partly oral and partly in writing.
(a) Terms Wholly Oral

This presents a pure question of fact. What did the parties actually say?

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 (b) Terms Wholly In Writing

A contract in which is solely in writing is subject to the parol evidence

rule. The rule is this: “if there be a contract which has been reduced into
writing, verbal evidence is not allowed to be given of what passed
between the parties, either before the written instrument was made, or
during the time that it was in a state of preparation, so as to add to or
subtract from, or in any manner to vary or qualify the written contract” :
Goss v Lord Nugent (1833) 5B & Ad 58 per Lord Denman. The parol
evidence rule applies only to the express terms of the contract.

(c) Terms Partly Oral And Partly In Writing

Sometimes the actual agreement may be oral, for example an agreement

to buy a ticket, but it may be subject to a set of written standard term. In
Mendelssohn v Normand (1970) 1 W.L.R. 1121, P left his car in D’s
garage. He was told by an attendant not to lock the car, so he gave the
keys to the attendant, who agreed to lock the car when he had moved it.
The attendant gave P a ticket. The ticket exempted D from liability for
any loss or damage however caused. Later P found that his luggage
was stolen. The Court of Appeal held : D was liable for the loss of the
luggage notwithstanding the exemption clause. As Phillimore L. J. put it,
that “if one has an express undertaking, as here, followed by printed
clauses, the latter must fail in so far as they are repugnant to the express
undertaking.”

3.2 Implied Terms

The general rule is that the parties are presumed to have expressed their
intentions fully. “An unexpressed term can be implied if and only if the court finds
that the parties must have intended that term to form part of their contract. It is
not enough for the court to find that the parties as reasonable men would have
adopted such a term, if it had been suggested to them. It must have been a term
that went without saying, a term necessary to give business efficacy to the
contract, a term which although tacit, formed part of the contract which the parties

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made for themselves”: Trollope & Colls v N.W. Metropolitan Regional Hospital
Board [1973] 1 W.L.R. 641 per Lord Pearson.

There are three situations in which the courts will imply terms into contracts.

(a) To give effect to the clear intentions of the parties.

(b) Where custom or statute requires it.

(c) Where, in certain circumstances, it is necessary to give business efficacy

to the contract: The Moorcock (1889) 14 P.D. 64.

Lord Denning, M.R., has suggested that a term should be implied where this
would be reasonable and necessary. However, the House of Lords has rejected
this idea and restated the traditional position in Liverpool City Council v Irwin
[1976] Q.B. 319, a case which discussed the obligations of local authority
landlords towards their tenants in high rise or multi-storey dwellings. The issue
was whether there was an implied term that the council should maintain the
stairs, lifts and other common parts of the tower block in question. The decision
that they should was because stairs, lifts and lights were “essentials of the
tenancy, without which life in the dwellings, as a tenant, is not possible.” As
stated by Lord Wilberforce, “such obligation should be read into the contract as
the nature of the contract implicitly requires, no more, no less; a test in other
words of necessity.”

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 4.0 CONTRACT INTERPRETATION

In the use of language as a means of communication, interpretation is indeed a

necessary function. Even the simplest of statements does require some degree
of interpretation, which may take account of mutual knowledge, understanding
and convention as between the author and its recipient. The more complex the
subject matter, the more problems as to interpretation will arise.

It is little wonder therefore, that communications by way of legal documents,

which are often complex in their nature and prolix in their drafting, and which
invariably concern complicated subject matter, would give rise to interpretative
difficulties. This is particularly so in relation to contracts for construction projects
in that they often comprise many different documents, some legal and some
technical, but all of equal significance.

The problem of interpretation is that it often exacerbated by the competing

commercial interests of the concerned parties. Thus, where words, phrases or
terms are capable of bearing more than one meaning in the context in which they
appear, each party will doubtless construe them in their favour. Indeed there will
be an incentive to do so.

So, what is the approach of the courts in the face of such difficulties? Over the
centuries the courts have developed a number of techniques, presumptions and
guidelines for this purpose, primarily in construing statutes but equally applicable to
other legal instruments including construction contracts. Here are just a few.

4.1 The “Four Corners” of the Contract

In general terms, the objective of court interpretation is to ascertain the true

intention of the parties to their contract. However, there are limits in law as to what
may be adduced as evidence of that intention, and very often the courts can look
no further than the contract itself (the “four corners”).

In construing construction contracts the courts will do so by reference to the

contract as a whole. A clause will not be considered in isolation. Clauses, indeed

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 the individual words from which they are composed, must take their meaning from
the context in which they are found. However, even this seemingly simple principle
is not without problems. In some documents, the same word may have been used
in contexts that clearly afford different meanings. There is a presumption however
those legal draftsmen strive for consistency such that same words will have the
same meaning throughout.

In situations where printed words in a standard form are found to be inconsistent

with written words inserted by the parties, the presumption is that the written
words will prevail (Robertson v French (1803) 4.East 130).

4.2 The Meaning of Words

Essentially, whilst there have been differing schools of thought in judicial circles on
this point, the words of a contract should be given their plain ordinary meaning
save where to do so would give rise to absurdity, inconsistency or repugnancy
(Grey v Pearson (1857) 6. H.l.Cas.61). This is referred to as the ‘Golden Rule’ of
interpretation.

The popular sense of a word will prevail over the scientific unless it is evident within
the contract that the latter accords with the intentions of the parties. Similarly, the
ordinary meaning of a word is not necessarily the same as that found within a
dictionary, but may be that which is more commonly attached to it. In construction
contracts, the words found within the contract documents are often technical in
nature. Where documents contain technical terms, a court may use an appropriate
dictionary or glossary of terms to discover their meaning.

4.3 Punctuation

In Houston v Burns (1918) A.C. 337 Lord Shaw commented:

“Punctuation is a rational art of English composition, and is

sometimes quite significantly employed. I see no reason for
depriving legal documents of such significance…”

However, in Dorset County Council v Southern Felt Roofing (1989) 48 B.L.R 96,
C.A. a comma was omitted from a clause in reproducing a standard form of

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 contract, the existence of which was clearly of seminal importance to its
construction. The court interpreted the clause as if the comma was there.

4.4 Ejusdem Generis

The term Ejusdem Generis means words of a similar class. The rule is that where

particular words have a common characteristic (i.e. of a class) any general words

that follow should be construed as referring generally to that class; no wider

construction should be afforded.

In Saner v Bilton (1878) 1 Joh. & H. 436, a lease contained a proviso for
abatement of rent in the event of destruction or damage by “fire, flood, storm,
tempest or other inevitable accident”. It was held that the phrase “other inevitable
accident” must be construed as referring to inevitable accidents of the class
determined by the preceding words and accordingly excluded the situation of the
premises becoming unfit for use due to building failure.

Similarly, in Wells v Army & Navy Co-op Society (1902) 86 L.T. 764, an extension
of time clause provided that an extension may be granted if the works were
delayed due to any “alteration or addition … or in case of combination of workmen,
or strikes, or by default of the sub-contractors … or other causes beyond the
contractor’s control” the expression “other causes” was limited to the class of
events preceding it and was thereby held to exclude failure of the employer to
give possession of site.

However, in Henry Boot v Central Lancashire New Town Development

Corporation (1980) 15 BLR 1, it was surprisingly held that ejusdem generis did
not apply in construing the JCT 63 Standard Form of Building Contract. The
contract was considered to be commercial in nature, of the type that was treated
by the courts as not having been drafted by lawyers with ejusdem generis in mind
when the phrases in question were inserted.

It is also evident that the rule will not apply where it is clear from the words used
that it is intended not to do so. Thus, phrases such as “whatsoever”, “without
prejudice to the generality of the foregoing”, and “whether or not similar to the

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 foregoing” have been held to repel the application of the rule: Larson v Sylvester
& Co. (1908) A.C. 295.

4.5 Contra Proferentem

This expression denotes the rule that where there is ambiguity or dubiety as to
the meaning of a clause or provision within a contractual instrument, it shall be
construed most strongly against the party responsible for its incorporation. This
is particularly so in relation to exclusion clauses or clauses which attempt to limit
liability. In Peak Construction (Liverpool) Ltd v McKinney Foundations (1970) 1
B.L.R. 111, Salmon L.J. stated:

“The liquidated damages and extension of time clauses in printed

forms of contract must be construed strictly contra proferentem”

However, this might not be the position where the printed form is a standard form
of contract as negotiated by representative bodies of the contracting parties, such
as forms prepared by the Joint Contracts Tribunal or Institute of Civil Engineers
(Tersons Ltd v Stevenage Development Corporation (1963) 5 B.L.R. 58).

5.0 VOID AND VOIDABLE CONTRACTS

Notwithstanding the fact that an agreement may have been reached which
satisfies the legal requirements as to seal or consideration, in certain
circumstances such an agreement may be unenforceable as a contract because
it is said to be void or voidable. If a contract is void, there is in law no contract at
all. If a contract is voidable, there is a valid contract until such time as one of the
parties takes steps to have it set aside; however, the right to have it set aside
may be lost by delay, or by conduct affirming the contract, or by some innocent
stranger to the contract acquiring rights or title to property under it. Thus, where
there is a contract for the sale of goods which is void, no title to the goods passes
from the seller to the buyer and accordingly the buyer cannot, in general, pass
any title in the goods to a third party, from whom they can be recovered. If,
however, such a contract is only voidable, then title to the goods does pass and
only reverts when the contract is avoided. If, before steps are taken to avoid the
contract, the buyer resells the goods, he passes a good title to a purchaser

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without notice of the defect of title, and it is then too late to avoid the original
contract.

As will be seen, recovery in quasi-contract may in some cases of illegality be

permitted where work has been done. The commonest categories of void
contracts are contracts affected by:-

Mistake (See Section 21 Contracts Act 1950) – Where both the parties to an
agreement are under a mistake as to the matter of fact essential to the
agreement, the agreement is void; or

Illegality (such as contracts in breach of licensing or other regulations) – Section

24 Contracts Act 1950, or

Contracts without consideration (See Section 26 Contracts Act 1950 above),

or

Contracts which are uncertain (See Section 30 Contracts Act 1950).

For example, A agrees to sell to B “a hundred tons of oil”. There is nothing

to show what kind of oil was intended. The agreement is void for
uncertainty.

The majority of voidable contracts arise as a consequence of:-

Misrepresentation (Sections 18 & 19 Contracts Act 1950) – where consent to

an agreement is caused by coercion, fraud, or misrepresentation, the agreement
is a contract voidable at the option of the party whose consent was so caused
and the party whose consent was caused by the fraud or misrepresentation may,
if he thinks fit, insist that the contract shall be performed and that he shall be put
in the position in which he would have been if the representation had been true;
or

While not illegal, from failure to comply with requirements, usually statutory in
origin, as to their form, for example where writing, or an even more formal record
such as seal, is required for special categories of contract.

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6.0 APPLICATION OF PRINCIPLES TO CONSTRUCTION CONTRACT

6.1 Invitation To Tender

The employer, normally acting through his architect, sends out an invitation to
tender for the proposed works. This document usually includes the proposed
conditions of contract, plans and a specification and often unpriced bills of
quantities, i.e. a bill with the quantities of work set out but the price column blank.
An invitation to tender is not normally an offer which binds to the employer to
accept the lowest or any tender. It is comparable to an advertisement that one
has a stock of books to sell or houses to let and such advertisements have been
described as “offers to negotiate – offers to receive offers – offers to chaffer.” It
follows that the clause frequently inserted in tenders to the effect that the
employer does not undertake to accept the lowest or any tender is probably
unnecessary in law. But an express offer to accept the lowest tender can be
binding and have the effect of turning the invitation to tender into an offer, or it
may possibly be a unilateral or “if contract”, being an offer which the offeror may
be free to revoke until the offeror starts to perform its condition. To be in law an
offer, an invitation to tender must be construed as a contractual offer capable of
being converted by acceptance into a legally enforceable contract. Where
tenders are solicited from selected parties all of them known to the invitor and
the invitation prescribes a clear, orderly and familiar procedure, a tenderer
submitting a conforming tender before the prescribed deadline may be
contractually entitled at least to have his tender opened and considered in
conjunction with all other conforming tenders. An invitor who failed to open or
consider such a tender was held to be in breach of contract Blackpool and Fylde
Aero Club v Blackpool Borough Council [1990] 1 W.L.R. 1195 (CA). But a
tenderer is always at risk of having his tender rejected, either on its intrinsic merits
or on the ground of some disqualifying factor personal to the tenderer.

Statements of fact in the invitation to tender about such matters as the quantities
or the site or existing structures may, if a contract is entered into, have no legal
effect at all, or they may take effect as representations, or they may form
collateral warranties or they may give rise to a claim for negligent misstatement

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 or they may subsequently become incorporated into the contract. It is a question,
partly of fact and partly of construction, to determine the nature of such
statements.

6.2 Tender

The contractor’s offer to carry out the works is usually termed as “the tender”. It
may well happen that as a result of negotiation it is the employer who eventually
makes the offer. In any event, for a statement to amount to an offer, it must be
definite and unambiguous. The person making the offer is termed in law as “the
offeror”; the person to whom it is made, “the offeree”.

6.3 Letter of Intent

Documents so described are frequently sent. It is a question upon the facts of

each case whether the sending of a letter of intent can give rise to any, and if
any, what, liability.

A letter of intent ordinarily expresses an intention to enter into a contract in the

future but creates no liability in regard to that future contract. Construed in its
factual context, it may have no binding effect. It may exceptionally take effect as
an executory ancillary contract entitling the recipient to interim costs if the
intended future contract is not made and, perhaps, imposing liabilities, e.g. for
the quality or suitability of work done. It may effect an “if” contract under which
the writer asks the recipient to carry out a certain performance and promises that,
if he does so, he will receive remuneration in return. But an “if” contract must
contain the necessary terms. It may result in no contract, but the law may
nevertheless impose an obligation on the party who makes a request to pay a
reasonable sum for such work as has been done pursuant to the request if the
intended future contract is not made. If the intended future contract is made, the
rights of the parties are normally governed by that contract, the letter of intent
thus ceasing to have effect.

In Turriff Construction v Regalia (1971) 9 B.L.R. 20, a design and build contractor
offered to the employer to undertake certain urgent works of design necessary
to obtain estimates and planning permission provided he obtained an assumption

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 of liability to pay for such work. He indicated that he would regard receipt of a
letter of intent as an acceptance of his offer. The employer sent a letter of intent
and it was held that he was liable to pay for the work carried out. In British Steel
v Cleveland Bridge [1984] 1 All E.R. 504, suppliers of steel castings were held
entitled to a reasonable sum in quasi-contract or restitution. In Wilson Smithett
v Bangladesh Sugar [1986] 1 Lloyd’s Report 378, a letter of intent was construed
as an acceptance of an offer binding upon both parties.

6.4 Estimates

It may be an offer although the contractor makes it on a document called an

estimate. In Croshaw v Pritchard (1899) 16 T.L.R. 45 the employer’s architect
sent a letter to the defendants asking them if they “would be willing to give us a
tender in competition for the work”, and wrote later enclosing information required
for tender. In a letter headed “Estimate” the defendants wrote to the architect
saying “our estimate ….. amounts to the sum of £1,230. This was accepted. The
defendants then purported to withdraw their estimate and, when sued for the
difference between £1,230 and the cost incurred in having the work executed by
another contractor, claimed that they had made no offer capable of acceptance.
This defence was rejected and the damages claimed awarded to the plaintiff. It
was further held that there was no custom that a letter such as that written by the
defendants could not amount to an offer.

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6.5 “Battle Of Forms”

This expression refers to an offer followed by a series of counter-offers where

each party successively seeks to stipulate different terms, often their own
standard printed terms. “In some cases the battle is won by the man who fires
the last shot”, Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 W.L.R. 401
CC.A, the other party being taken to have agreed to the terms by conduct in
proceeding to perform the agreement without objection. Sometimes, agreement
is reached by an amalgamation of both parties’ proposed terms and conditions
construed together. Such battles quite often occur in building contracts.

6.6 Acceptance By Conduct

The offer cannot bind the offeree by a stipulation that silence will amount to
acceptance, but acceptance can be by conduct showing an intention to accept
the terms of the offer. (Charnock v Liverpool Corporation [1968] 1 W.L.R. 1498
AT 1507 (C.A.)) It is a question in each case whether conduct, known to the
offeror, shows such an intention. Thus if an offer is made to a contractor for the
performance of certain work upon stated terms, and without making any express
acceptance, or counter-offer, the contractor carries out the work, he is bound by
the terms of the offer. The same principles apply to an employer who, without
any express acceptance, or counter-offer, permits a contractor to carry out work
the subject matter of an offer subject to certain terms. He is bound by those
terms.

6.7 Acceptance By Post, Telex Or Fax…or Whatsapp and other MedSos?

The general rule is that acceptance must be communicated to the offeror, and
does not become effective until it reaches him but if the acceptance is by post,
special rules may apply. Where the circumstances are such that the parties must
have contemplated that the post might be used as a means of communication,
the acceptance is complete as soon as it is posted Henthorn v Fraser [1892] 2
Ch. 27, at 33, although the ordinary rule still applies that revocation of the offer
is not effective until it reaches the offeree. Therefore if in such circumstances an
acceptance is posted before the offeree knows of the revocation of the offer, a
contract comes into existence. (Byrne v Van Tienhoven (1880) 5 C.P.D. 344)

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The special rules as to acceptance by post do not apply where there is a contract
by telex. Where telex communication is instantaneous and between principals,
the contract is concluded where and when acceptance is communicated to the
offeror. Where communication is not instantaneous no universal rule applies.
Reference must be made to the intentions of the parties, sound business practice
and in some cases, to judgment as to where the risks should lie.

There is no authority yet about the information of a contract using fax machines,
although Rules of Court provide that documents that do not require personal
service may be served by fax. It is submitted that there is no essential difference
between acceptance by fax and acceptance by telex.

The artificial concept of acceptance by posting yields to the express terms of the
offer. Thus, where an option to purchase a freehold was exercisable by “notice
in writing to ……” the defendant, it was held that actual communication of the
acceptance was necessary notwithstanding that the parties contemplated that
the post might be used. (Holwell Securities Ltd v Hughes [1974] 1 W.L.R. 155 AT
157 (C.A.)). Accordingly there was no valid exercise of the option where the
notice was lost in the post.

As for MedSos acceptance, there is no straight answer or cases that directly

address whether acceptance can be communicated via MedSos, however
information conveyed through it appears to be accepted as evidence.

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7.0 CASE EXAMPLES

7.1 Formation of Contract

– Hock Chuan Ann Construction Pte Ltd v Kimta Electric Pte Ltd [2000] 2 SLR
519; 1 CCL 5

Generally, a contract is formed where there is an offer that has been accepted
and the terms agreed to must enable the parties to perform the contract. In most
building contracts, there is a fair amount of negotiation over the terms of the
contract. The case of Hock Chuan Ann Construction Pte Ltd v Kimta Electric Pte
Ltd [2000] 2 SLR 519 is instructive as the court was invited to make sense out of
a mass of facts concerning the negotiations carried out by the parties with a view
of determining whether a sub-contract is formed as prescribed by the legal
principles. In addition, the court had to consider whether the contract is affected
by the concepts of ‘mistake’ and ‘misrepresentation’ if a contract is formed.

At page 532, the court examined the basic rules for the formation of contract.
Reference was made to Chitty on Contracts for the definition of offer and
acceptance:

The offer is an expression of willingness to contract made with the

intention (actual or apparent) that it shall become binding on the
person making it as soon as it is accepted by the person to whom it
is addressed. Under the objective test of agreement, an apparent
intention to be bound may suffice, i.e. the alleged offeror (A) may be
bound if his words and conduct are such as to induce a reasonable
person to believe that he intends to be bound, even though in fact
he had no such intension.

An acceptance is a final and unqualified expression of assent to the

terms of an offer. The objective test of agreement applies to an
acceptance no less than to an offer. On this test, a mere
acknowledgement of an offer would not be an acceptance; nor is
there an acceptance where a person who has received an offer to
sell goods merely replies that it is his ‘intention to place an order’
……..

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 Further, the court examined the relationship between on-going negotiations and
the formation of a contract while this process is taking place. At page 533, the
court adopted the principle laid down in Chitty on Contracts and held that, ‘The
fact that the parties were still negotiating on the terms does not preclude a
contract from being concluded.’ And at page 536, the court adopted the principle
laid down in Keating on Building Contracts and held that, ‘…… once a contract
comes into being, subsequent negotiations by either party seeking, for example,
to obtain better terms will not affect the existence of the previously concluded
contract.’

The court then laid down the principles of mistake and misrepresentation at page
537:

For the defendant to succeed on the defence of misrepresentation,

they must prove that:

(i) the plaintiffs made a statement of fact, past or present, as

distinct from a statement of opinion of intention, or law;

(ii) the statement was relied on by the defendants;

(iii) the defendants were thereby induced to enter into a

contract with the plaintiffs;

(iv) the defendants suffered a loss.

7.2 Letter of intent

- Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 222 Estates Gazette
169, 9 BLR 20

The plaintiff tendered for a design and build contract for the construction of a
factory for the defendant. The defendant told the plaintiff it wanted them to carry
out the work with completion in 1972. In order to achieve this extensive work
was required and the plaintiff asked for an early letter of intent. Many matters
had still to be agreed between the parties, indeed the site had not been

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 purchased, so no formal contract was possible but the defendant wrote to the
plaintiff as requested saying that it intended to award the contract to the plaintiff.
The plaintiff proceeded with the design work during the course of which the
defendant company was taken over and the project was cancelled. The plaintiff
claimed payment for the work completed.

HELD : The plaintiff had no claim in quasi-contract because the parties had
discussed the question of liability for the cost of the work being carried out. The
question was whether any contractual obligation had been created. The plaintiff
had offered to do the work with the required degree of urgency if the defendant
accepted liability for it by means of the letter of intent. In general, a letter of intent
expresses an intention to enter a contract at a future date and, therefore, has no
binding effect. Here however, although the letter stated that it was ‘subject to
agreement on an acceptable contract’ the sending of the letter amounted to
acceptance of the plaintiff’s offer to carry out the design work before the main
contract was agreed. The parties had, therefore, entered into an ancillary
contract and the plaintiff was entitled to payment under that contract.

7.3 Consideration
- Lester Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, [1990]
1 All ER 512, 48 BLR 69, CA

The plaintiff carpenter was appointed by the defendant for work in connection
with the refurbishment of flats for a sum of £20,000. The work was admitted by
both parties to have been underpriced and the plaintiff was in financial difficulties.
In order to ensure that work proceeded smoothly, the defendant agreed to pay a
further sum of £10,300 or £575 per completed flat to the plaintiff. The Plaintiff
continued working for another month achieving substantial completion in 17 out
of 27 flats. He then stopped work and sued for his fees.

The defendant argued that there had been no consideration for the promise to
pay £10,300 since the plaintiff had merely agreed to do the work which he was
already contractually bound to carry out. They also argued that substantial
completion did not amount to completion entitling the plaintiff to payment of £575
per flat.

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 HELD : That substantial completion was enough to entitle the plaintiff to payment
subject to a deduction for defective or incomplete work.

The court considered that the agreement to pay the additional sums was of value
to both sides since it ensured the continuance of the work. There was no
question of the plaintiff being guilty of economic duress or fraud. The defendant
had originally been quite prepared to pay the additional sums and it would be
unconscionable to allow them to withdraw their promise. Consideration was
provided by the plaintiff in conferring a benefit on the defendant and, therefore,
there was an enforceable agreement. A rigid approach to consideration was no
longer necessary or desirable and the court must be ready to find the existence
of consideration in order to reflect the intention of the parties.

7.4 Legal Effect Of A Tender

- Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] [1990] 1
W.L.R. 1195 (CA)

Some comments must be made on the legal position of a tender submitted by a

contractor in response to a tender invitation. A tender or bid is an offer, and until
an offer is duly accepted the general position is that no contractual obligation
arises. A party who invites tenders or bids is merely indicating an intention to
receive offers to undertake a particular project. He is under no obligation to
accept the lowest or any tender. In Blackpool and Fylde Aero Club v Blackpool
Borough Council (1990), a local council in Britain invited tenders for the operation
of pleasure flights from the local airport. The plaintiffs submitted its tender but
because of some administrative slips on the part of the town council, its tender
was recorded as having been received late and was accordingly not considered.
The English Court of Appeal held that, on the facts, it must be implied as a
condition of tender that if a tenderer submitted a conforming tender before the
deadline he would be entitled as a matter of contractual right to have his tender
opened and considered along with any other tenders that were considered. In
his judgment, Bingham, LJ made the following observations which could very
well describe the situation in the construction industry.

A tendering procedure of this kind is, in many respects, heavily

weighted in favour of the invitor. He can invite tenders from as

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 many or as few parties as he chooses. He need not tell any of
them who else, or how many others, he has invited. The invitee
may often ……. be put to considerable labour and expense in
preparing a tender, often without recompense if he is unsuccessful.
The invitation to tender itself, in a complex case … involve time and
expense to prepare, but the invitor does not commit himself to
proceed with the project, whatever it is; he need not accept the
highest tender, he need not accept any tender, he need not give
reasons to justify his acceptance or rejection of any tender
received.

The decision of the court appears to have been influenced to a large extent by
the fact that the tenders are solicited from selected parties all of them known to
the invitor, and from the consideration that the tender invitation prescribed a
clear, orderly and familiar procedure. The subject procedure in the case allows
for the inspection of draft contract conditions available which are plainly not open
to negotiation, the use of a prescribed form of tender, the supply of envelopes
designed to preserve the absolute anonymity of Tenderers and clearly to identify
the tender in question and the stipulation of an absolute deadline for the receipt
of tenders. Consequently, “in the context, a reasonable invitee would understand
the invitation to be saying, quite clearly, that if he submitted a timely and
conforming tender, it would be considered, at least if any such tender was
considered.” The learned judge proceeded to rule that, on the facts, “the
council’s invitation to tender was, to this limited extent, an offer, and the club’s
submission of a timely and conforming tender an acceptance.”

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8.0 MAIN FEATURES OF A CONSTRUCTION CONTRACTS GENERAL
FEATURES OF CONSTRUCTION CONTRACTS

8.1 Introduction

There is no set formula for the formation of a contract and it can be tailored to suit
the specific requirements of the parties involved. There are, however, certain
elements which will serve to clarify the terms of the contract and help in the event
of a future dispute. It is also important to be aware of situations where the terms of
a contract can be varied or even cancelled.

There are no hard and fast rules as to how a commercial agreement is formed. It
may be oral or written, or a combination of the two. To avoid unnecessary
argument, it is always advisable for the contracting parties to put down what they
have agreed upon in writing.

As there is always a risk that a court will have to interpret a commercial contract
should a dispute arise in the future, it is important for the contractual terms to be
clear, comprehensible and reflect what the parties have agreed upon accurately.

8.2 Typical elements of the contract

The structure of a commercial agreement varies depending on its nature, but many
agreements would contain the following elements:

• Commencement - when it would start

• Term - for what period the agreement is to be operative
• Date - the date of the agreement
• Parties - who is involved
• Recitals - the factual background to a clause
• Operative part - the essence of a contract - who has to do what
• Schedules - lists of relevant matters (usually appear separately)
• Execution and attestation - the fact that the contract will be carried out and
confirmation that the parties understand its terms

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 Most of the above elements are self-explanatory. However, there are three areas
which could be expanded. They are the recitals, operative parts and schedules.

8.2.1 Recitals

Recitals are not essential, but are useful, in commercial agreements. They set out
the factual background and make them easier to understand. For instance, the
factual background to a clause that may exclude certain specific things could be
useful as it may help in the argument on the reasonableness of the clause.

8.2.2 The operative part

The operative part of a commercial agreement creates the legal rights and
obligations of the parties. The clauses found here vary with the nature of the
agreement. These are some of the common clauses found in the operative part of
a commercial agreement.

8.2.3 Conditions precedent clauses

Conditions that must be satisfied before a contract comes into force.

8.2.4 Representations and warranties

Promises by one or other party about certain facts which are important to the
context of the agreement. Such promises are particularly important in agreements
for sale of businesses because the purchaser may inherit the liabilities of the
business even if they are unaware of them.

8.2.5 Boiler plate clauses

Standard clauses inserted as a matter of course into all agreements of a certain

type, such as:
• Force majeure - where fulfilling a contract has become impossible due to
unforeseen circumstances beyond anyone's control such as a war or
natural disaster
• How and when any notices under the agreement have to be served

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8.2.6 Schedules

Schedules are useful in commercial agreements to prevent the continuity of the

text from being broken by lots of detail. For example, a list of inventory can be
included in a sale of goods contract by setting it out in a schedule.

8.3 Drawing up the contract

According to general contract law principles, before there can be a contract, say
for example - the potential buyer must make an offer showing an intention to be
bound by a simple acceptance of the terms stated without further negotiation. The
seller must then accept on the same terms without qualification.

A form containing the seller's standard terms would normally then be drawn up
which would make clear that any order by the buyer must be made on a form
provided by the seller. The buyer may be required to sign the form, which would
mean that they would be bound by the terms even if they have not read them. If
the form is not signed, the seller will have to take reasonable steps to draw all the
terms to the buyer's attention.

9.0 SPECIAL FEATURES

List down any other special features that you may have seen in contracts.

1. ..................................................................................................
2. ...................................................................................................
3. ...................................................................................................
4. ....................................................................................................
5. ....................................................................................................

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9.0 CONTRACT ADMINISTRATION/MANAGEMENT TIPS

➢ When making an offer ensure the following conditions be satisfied;

o Offer must be sufficiently definite
o Offer must be communicated
o Communication must be completed
o Better if communicated in writing

➢ If one does not wish to make an offer or accept an offer, ensure that one’s
conduct does not suggest an offer is being/has been made or an acceptance
to an offer has been communicated.

➢ If the offer is not to be altered/amended in any manner, ensure that it is

expressed clearly so that no such alteration/amendment shall have any effect
to the offer made.

➢ When accepting an offer ensure that such acceptance;

o Is unequivocal
o is communicated and that such communication must be completed
o is communicated in writing

➢ If one does not wish to accept an offer, ensure that one’s conduct does not
suggest acceptance.

➢ Ensure consideration;
o exists
o is lawful
o has been exchanged and benefits transferred

➢ In drafting contracts;
o Ensure clarity of intentions
o Be consistent in using terms
o Ensure no contradicting terms and conditions

➢ If letter of intent is to be issued, ensure that;

o The expression does not suggest formation of contracts

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 o Avoid stating contract price, time frame, etc.
o Letter of intent must just be a statement of intention

Tenders

• May not constitute an offer and may be an invitation to treat, i.e. “an “offer”
to invite tenders
• Offer to accept lowest bid can be binding, therefore put in exclusion clause
• If no such intention to accept lowest bid, better to state that expressly in
tender to avoid any complications
• Also state that no claims for damages will be entertained if lowest bid not
accepted.

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PART 3 – S.O.’s FUNCTION, INSTRUCTIONS & CERTIFICATION

1.0 Introduction

The S.O. has specific functions under the contract, he shall be responsible for the
overall supervision and direction of the Works and among others he is to issue
instructions and certification during the course of the contract.

These function which includes duties, obligations etc. are explicitly stated and to
some extend are implied in the contract. The following sections generally list down
these functions.

2.0 The function of the S.O

Clause 3.1 says it all: “The S.O. shall be responsible for the overall supervision
and direction of the Works. All matters regarding the Works shall be dealt with by
the Contractor with the S.O.”

Is the S.O. a Contract Administrator or a Contract Manager?

The function of the S.O. commence when the contract is formed, therefore it’s a
post contract tasks.

As Contract Manager - Yes, the S.O. exists upon the formation of a contract. He
carry out most (if not all) the function of the Contract Manager as it entails working
to ensure that the terms and conditions contained within the contract are adhered
to and that all of a party’s contractual obligations are met satisfactorily.

Taking the expression under Clause 3.1, being responsible for the overall
supervision and direction of the Works entails the function of issuing instructions,
issue the various certificates, make decisions, and other matters required under
the contract etc.

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3.0 S.O.’s Representatives and Delegation of the S.O.’s duties

There are 2 matters here;

Appointment of S.O. Representative

a. The S.O. from time to time can appoint his representatives as he deem fit. The
S.O.’s Representative shall be responsible to the S.O. and his duties are to
watch and supervise the Works and to test and examine any materials or goods
to be used or workmanship employed in connection with the Works.

The S.O.’s Representative is basically the S.O.’s eyes and ears. All functions of
the S.O under the contract will still be discharged by himself.

Appointing S.O.’s Representative is casual and more of an internal matter. The

S.O.’s Representative report to the S.O. There shouldn’t be any correspondences
signed by the S.O.’s Representative communicating with the Contractor, however
he can be the witness for test, inspection etc.

Delegation of the S.O.’s duties

b. The S.O. can delegate to the S.O.’s Representative any of the powers and
authorities vested in the S.O. However, this must be done in writing via ‘Letter
of Delegation’ and the Contractor is to be given a copy of such letter.

c. The power of the S.O. to disapprove any work or material is not prejudice, he
can disapprove any work or material which has not been disapprove by the
S.O.’s Representative.

d. The S.O. still has the final say in all matters he is responsible for.

By way of the delegation, the S.O.’s Representative acts as if he is the S.O. for the
delegated task.

4.0 The S.O.’s Instruction

What amount to instruction under the contract? Is verbal instruction, an instruction

under the contract? What about verbal instruction recorded in the Minutes of
meetings?

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Clause 5.1 generally described what is S.O’s instruction. The S.O’s Instruction may
be in the form of drawings, details and/or written instruction in regard to the explicit
matter as follows;

(a) the Variation as referred to in clause 24 of the Conditions of Contract hereof;

(b) any discrepancy in or between the Contract Documents as referred to in

clause 8.2(b) of the Conditions of Contract hereof;

(c) the removal from the Site of any materials or goods brought thereon by the
Contractor and the substitutions of any other materials or goods therefore;

(d) the removal and/or re-execution of any works executed by the Contractor;

(e) the dismissal from the Works of any person mentioned in clause 23.6 of
the Conditions of Contract hereof employed thereupon;

(f) the opening up for inspection of any work covered up;

(g) the amending and making good of any defects whatsoever under clause
48;

(h) any matter which is necessary and incidental to the carrying out and
completion of the Works under this Contract; and

(i) any matter in respect of which the S.O. is expressly empowered by this
contract to issue instructions.

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 The Matrix of S.O.’s Instruction

No. Subject Matter of Instruction Clause Cross Reference

Clause

1. Vary the Works 5.1(a) 24.1

2. Resolve/Decide on any 5.1(b) 8.2(b)

discrepancy in or between the
Contract Documents
3. Removal of material from site 5.1(c) 36.3
etc.
4. Removal and/or re-execution of 5.1(d)
any works executed
5. Dismissal from the Works of any 5.1(e) 23.6
person
6. The opening up for inspection of 5.1(f) 35.2
any work covered up
7. The amending and making good 5.1(g) 48
of any defects whatsoever
8. On any matter which is 5.1(h)
necessary and incidental to the
carrying out and completion of
the Works
9. On any matter in respect of 5.1(i)
which the S.O. is expressly
empowered by this contract

5.0 The S.O.’s Certification

The S.O. is required to certify matters such the Interim Payment certificate,
Certificate of Non completion, Adjustments to Contract Sum, Certificate of Delay

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and Extension of Time, Certificate of Partial Occupation, Certificate of Practical
Completion, Certification of Completion for Making Good Defect, Certificate of
Termination Cost, and Final Certificate.

The Significant of Certification

To certify is to provide proof for something or to make something official. Therefore,

before any certificate is issued, a due process of determining facts must be carried
out and recorded. Thereafter, the S.O. will form his opinion which then will be
translated into the relevant certification.

It is fundamental that a paper compiling all factual documentation be made and be

kept safe so that later, whenever needed in cases like the S.O.’s certification is
being challenged, such justification document can be adduced as evidence.

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PART 4: VARIATIONS IN CONSTRUCTION CONTRACTS

1.0 INTRODUCTION

1.1 Management of variations under a contract can become a critical issue to a

contract administrator, especially when cash flow of the project is being affected.
This section of the lecture is tailored to address the issues of variations under a
contract.

1.2 Perhaps the best starting place is with definitions as to what is meant by
“variations”. To a lawyer, a variation is usually an agreed alteration or
modification to the terms of a contract.

1.3 That is not what a construction professional normally means. Normally, a

variation means an “alteration in the previously described work and materials to
be provided by the contractor (that is, shown on the drawings and described in
the specifications, or to be implied as the indispensably or contingently necessary
work included in the contractor’s obligation to complete such expressly described
work under the “inclusive price principle”)”. [Hudson’s Building and Engineering
Contracts Eleventh Edition (“Hudson”) page 877].

1.4 Further, a variation is usually an alteration which has been duly authorised by the
owner or his consultant.

1.5 Variation provisions in a contract normally constitute changes which follow a tried
and tested format such as the PAM 98 Conditions.

1.6 The PWD 203A Conditions provide thus:-

The term ‘Variation’ means a change in the Contract Document which

necessitates the alteration or modification of the design quality or quantity
of the Works as described by or referred to therein and affects the contract
Sum, including:

(a) the addition, omission or substitution of any work;

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 (b) the alteration of the kind or standard of any or the materials, goods
to be used in the Works; or

(c) the removal from the Site of any work executed or materials or
goods brought thereon by the Contractor for the purposes of the
Works other than work, materials or goods which are not in
accordance with this Contract.

The PAM 2006, CIDB 2000, IEM, whilst different and perhaps contain more
expression, offer certain similarity in phraseology.

1.7 The common usage of certain phraseology (“additions, omissions, substitutions,

alterations … etc.”) is apparent.

1.8 Its derivation can be traced to historic forms such as the JCT family of contracts,
the ICE form, FIDIC etc, and is generally well understood in the industry.

1.9 The need for a variation provision is abundantly clear to all of us in the
construction industry. Certainty of price is desirable, but does not sit easily with
the reality of design development and the other issues which require provision
for change.

1.10 A summary of the reasons perceived for a variation clause in a construction

contract may be listed thus:-

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 Perception What caused Variation Percentage %

Constraints of pre-contract time 10

Design team’s inability to define problem 5

Designer team’s inability to decide solution 8

Defects in design 7

Inadequate consideration – competence 20

Designer’s choice 10

Client changing mind – choice 22

Client changing mind - forced 8

Unforeseen event 5

Contractual safeguard to contractors 5

___

100
====

(Source: Building Contract – Variations, P R Hibberd (1980) MSc Thesis UMIST)

1.11 A survey of the actual causes of variations indicates that the perceived causes
are somewhat inaccurate, but nevertheless, the reasons are generally well
known.

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Actual causes of variation Percentage

Designer 19

Client – forced 1

Client – choice 10

Contractor 3

Management

-defects in design 9

-inadequate consideration of design 25

- incorrect assessment of brief 6

-defects in documentation 16

-unnecessary 5

Unforeseen 6
___

100

(Source: Building Contract – Variations, P R Hibberd (1980) MSc Thesis UMIST)

1.12 Variations are changes to the work as originally defined in the contract, not
merely any changes to the scope of the works. In order to be valid, they must be
confined within the limits of the empowering clause in the contract.

1.13 Differing contracts impose different levels of limitation. The PAM 2006, PAM 98
and CIDB 2000 conditions provide very wide powers for variation, including
(surprisingly) power to vary the work so as to change the ultimate use of the
Works. The PWD Form 203A and IEM conditions have a more traditional
approach.

1.14 In the absence of a variation provision, the Contractor would have no basis for
payment for additional works under the contract (although he could of course
argue that a separate agreement had been entered into).

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1.15 The general principles entitling a contractor to payment for a variation have been
summarised in the leading United States case of Watson Lumber Company v
Guennewig (1967) as thus:-

(1) that the work should be outside the narrower “agreed

scope” of the contract, that is outside the contractor’s
express or implied obligations in regard to the work
described in the original contract);

(2) that it should have been ordered by or on behalf of the

owner;

(3) that the owner should, either by words or conduct have

agreed to pay for it;

(4) that any extra work has not been furnished voluntarily by
the contractor;

(5) That the work should not have been rendered necessary
by the default of the contractor;

(6) where applicable, that any failure of the contractor to

comply with contract requirements as to procedure or form
should have been waived by the owner” [Hudson pages
880/8810].

1.16 In deciding when a variation is required, it is of course essential to have regard

to what is included in the contract.

1.17 The contractor’s obligations as to the original contract are normally described in

the contract drawings and specification and the Bills of Quantities.

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1.18 The position is often confined by the underlying obligation of a contractor to

include all works contingently or indispensably necessary for the execution of the

works (“the inclusive price principle”) (so that a contractor who failed to install

timber flooring to a house on grounds that there was no express mention of the

flooring in the specification was deemed to be in breach because he was required

to complete the house, not only the works mentioned in the specification

(Williams v Fitzmaurice (1988)).

1.19 In the absence of clearly defined conditions, confusion may arise as to what is

included in a contract and what is not.

1.20 In general in Malaysia, the situation is reasonably clear if the major forms of

contract are in use. However, the use of Bills of Quantities requires a detailed

knowledge of how they are used and interpreted in a contract. This normally

poses no difficulty to construction professionals (quantity surveyors of course are

expected to understand the use of BQs, as are architects and engineers)

1.21 Again, the formula for the valuation of variations follows a tried and tested route.

Examples from PWD 203A conditions are thus:-

“25.1 All variations instructed in writing by the S.O. in accordance with

clause 24 hereof shall be measured and valued by the S.O. The

valuation of Variation, unless previously or otherwise agreed, shall

be made in accordance with the following rules:

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 (a) the rates in the Bills of Quantities after adjustment if

necessary as provided in clauses 26.6 and 26.7

hereof, shall determine the valuation of work of

similar character and executed under similar

conditions as work priced therein;

(b) the said rates, where work is not of similar character

or executed under similar conditions as aforesaid,

shall be the basis of rates for the same, so far as

may be reasonable, failing which a fair valuation

thereof shall be made by the S.O.;

(c) the rates in the Bills of Quantities shall determine the

valuation of items omitted, PROVIDED THAT if the

omission substantially vary the conditions under

which any remaining items of work are carried out,

the rates of such remaining items shall be valued

under rule (b).

25.2 Where work cannot properly be measured or valued, the S.O.

may allow daywork price as specified in the Bills of Quantities.

Unless otherwise provided in the Bills of Quantities, the daywork

prices for the purpose of this Contract shall be taken to mean the

actual net cost to the Contractor of his materials, plant and labour

for the work concerned. The Contractor shall be paid daywork

prices, plus fifteen percent (15%), which shall include for the cost

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 of all ordinary plant, tools, scaffolding, supervision and profit.

PROVIDED ALWAYS that as a condition precedent to any right

to any payment the Contractor shall produce vouchers, receipts

and wage books specifying the time for labour and plant

employed and materials used to the S.O. not exceeding seven

(7) days after the work shall have been done.”

1.22 The formulae, in so far as they refer to prices being based on contract rates, are

very familiar to all engaged in construction. They are readily understood to

require the value of variations to be based upon the rates in the contract bills, so

far as may be reasonable. The intention is to confine the parties to what was

contemplated by them when entering into the contract, and to observe the same

level of pricing (be it high or low). Such a system has been adopted in most

familiar forms of contract.

1.23 The formula is said to be “price based” as opposed to cost based. It is only in

certain circumstances that a cost based formula is used (dayworks and claims).

1.24 Quantity surveyors are very familiar with the esoteric art of valuing variations on

a price-based formula. Whilst often seeming to lack logic or relevance to reality,

the methods of price manipulation are well understood in the industry, if not by

lawyers. The system of course has its faults and anomalies.

1.25 If the price is too high or low, then the parties are in general equally bound by

them as a basis of pricing variations. Similarly, they are bound by tendered profit

levels.

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1.26 This being so, it is perhaps surprising that there is not usually a contractual

requirement to provide a breakdown on rates for use in valuing variations.

Interestingly, it was stated by the judge in Henry Boot Ltd v Alstom Combined

Cycles Ltd (2000) BLR that the original tender analysis is of no contractual

relevance (save of course where expressly provided otherwise in the contract).

1.27 Problems may arise in deciding whether BQ rates are sufficiently similar to the

varied work to form a basis for pricing. This is very much the skill (or art) of the

quantity surveyor. Pro rata adjustments are his stock in trade. However, it is a

fertile ground for dispute.

2.0 VARIATIONS

2.1 Definition Of “Variation”

2.1.1 A variation is defined in Hudson Building and Engineering Contracts “as works
which are not expressly or impliedly included in the contract and therefore are
not included in the contract price. They represent any change or alteration of the
original work or simply an addition to or omission from it”.

2.1.2 Although the term “variation” can be used for a number of different applications
such as to vary the terms of a contract, in the context of construction contracts
the term is used in the narrow sense of an alteration in the previously described
work and materials to be provided by the contractor (that is, as shown on the
drawings and described in the specifications, or to be implied as necessary work
included in the contractor’s obligation to complete such expressly described
work).

2.1.3 The term “variations” also includes reduced or omitted work (“omissions”), or
altered work. Altered work will usually involve a combination of an omission of

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 the relevant part of the original work followed by the addition of new and different
work in its place.

2.1.4 The term “variation” normally will indicate a change which has been authorised
or instructed by the S.O. or the Architect or Engineer on the owner’s behalf. The
owner will be prima facie responsible to the contractor for the cost of any such
variation. Alterations that are not authorised but nevertheless carried out by the
contractor will usually be a breach of contract, for which damages are in principle
recoverable by the owner. However, alterations in the permanent work which
may be unavoidable in order for the contractor to discharge his completion or
other contractual obligations with respect to the original work, while technically a
breach of contract, may nevertheless constitute substantial performance, but will
not constitute variations per se.

2.1.5 The word “scope” is often used when considering variations or changes, in
expressions such as “outside the scope of the contract”. In fact the word has
very different meanings, sometimes meaning the original contract work (“the
agreed scope”), so that any work which is outside this particular “scope” will be
a variation or change if authorised; and sometimes meaning the project as a
whole, including any legitimate variations or changes which may be ordered
during its course (the “general scope” of the contract), so permitting changes to
be ordered under a changes or variations clause only if within, but not outside,
that enlarged “scope”. Any “outside scope” changes, if established as such, and
in the absence of waiver by the contractor, require separate agreement with the
owner himself to establish a contractual liability to pay.

3.0 VARIATION CLAUSES IN STANDARD FORMS

3.1 Variation Clauses in General

Variation clauses are found in most construction contracts for two good reasons.
Firstly, they give the owner the power to require a variation of the work,
unilaterally and as of right. This avoids the owner having to rely on the willingness
of the contractor to agree to the variation, which could put the contractor in a

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 dominant position with regard to pricing or other pressures on the owner (such
as extension of time bargaining) in return for his agreement to carry out the
variation. Secondly, the certifier has no implied authority to contract on behalf of
his employer. If a variation clause was not present in the contract then the
contractor would not be able to recover payment for any additional or varied work
which he has done on the certifier’s instructions, unless he could show that a
separate contract with the owner has been entered into. With such a provision
the contractor, provided he complies with any requirements of form (such as for
example a requirement to submit a price in advance for the variation instructed),
is protected from any denial by the owner of the certifier’s authority to order the
variation. Variation clauses are also useful in that they enable the parties to
agree in advance on the basis for valuing and pricing the varied work.

3.2 Defects in Standard Forms

3.2.1 General wording is used in some standard forms, so that the requirement is for
a written “instruction” of the certifier to do the work in question, with no express
acknowledgement in the instruction of the status of the work as an authorised
“variation”. Thus there is often no specific requirement for an expressly
identifiable “variation order” or “variation instruction” which could serve to
indicate a change of the ultimate contract price and to distinguish it from
instructions given where no financial consequence is intended. For example, an
instruction requiring compliance with the drawings or specification where they
are not being followed, or explaining or confirming the contract intention, or given
as a consequence of discovered defective work are all instructions requiring
compliance with contractual obligations. Under such forms of contract, the
owner will not be liable to pay for a variation unless the work instructed does as
a fact involve an alteration in the work required by the original contract.

3.2.2 It should also be obvious that, as indicated by the fourth listed requirement in the
Watson Lumber case above, instructions given by the certifier as a
consequence of contractor or sub-contractor breaches of contract or default
should not entitle the contractor to compensation under a variation clause, or
indeed any other contractual provision which permits additional payments.

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3.2.3 There are in fact other situations, which occur frequently in practice in
construction contracts and give rise to claims under express provisions based
on the certifier’s instructions, which warrant similar express exclusion of payment.
For example, where a variation is authorised at the request of the contractor in
order to assist him in overcoming a difficulty. Virtually no standard forms deal
expressly with this very common situation, where claims are often advanced by
contractors.

3.2.4 Not all standard forms have such general wording when referring to instructions,
which may result in a variation to the works. Some forms require “change orders”
to be issued whenever a variation is required and no other instruction will
constitute a variation to the works as an express provision of the contract.

3.2.5 Ideally, in the interests of clarity for the administrator and to avoid confusion,
phrases such as “variation order” or “change order” should be used to distinguish
between those situations and instructions which may entitle a contractor to
additional payment and those which will not.

3.2.6 For example, these matters are all dealt with in PAM 98 form of contract of which
Clause 11.1(vi) expressly states that ‘variation’ shall exclude any instruction
which has arisen due or is necessitated by or is intended to cure any default of
and/or breach of contract by the Contractor. Similar wording can be found in
Clause 28.1(b) of CIDB 2000. However, such provisions are not available in of
other standard forms like PWD Form 203A and IEM.

4.0 BASIS OF A VARIATION UNDER THE CONTRACT

4.1 The first question to be decided in considering any claim for a variation based on
a certifier’s or owner’s instruction is whether or not the work comprised in the
instruction is in fact a variation, that is to say, whether, as defined above, it differs
from the work which the contractor is already obliged to carry out for the contract
price. This will not simply involve an examination of the work now instructed in
the light of the earlier descriptions in the contract drawings and specifications.
The contractor’s basic completion obligation in a priced contract may well include

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 other ancillary work or processes, which although not expressly described in the
documents, are “indispensably” or unavoidably necessary for the proper
completion of the work, which has been described. While usually not presenting
a serious problem of interpretation in major contracts, problems can arise in less
formally concluded contracts.

4.2 Also the absolute nature of the contractor’s completion obligation may require
necessary work, often in the areas of temporary works and methods of working,
to be carried out within the overall contract price. This necessary work may in
extreme cases involve repairing damage to the work so far completed due to
external causes or the acts of third parties, and may even involve revising the
owner’s own design of the permanent work if that is necessary to bring the work
as a whole to satisfactory completion.

4.3 Instructions which are intended to ensure the full discharge of the entire
contractor’s actual or potential completion obligations in these situations will not
constitute a variation or change, even though, in some cases, altered or
additional undescribed work may be involved.

4.4 The foregoing principles apply with equal force to all types of priced contract,
whether lump sum or measured. In the latter (measured contract) case,
differences in “as built” quantities from the estimates in the original contract
documents may lead to upward or downward adjustments of the contract price,
but these re-measurement provisions are designed only to apply to differences
from the original contract quantities resulting from errors in taking off the
quantities from the drawings, or from the inherently provisional and unpredictable
nature of the quantities estimates of the work in question.

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5.0 VARIATION CLAIMS AND EXPRESS PROVISIONS IN CONSTRUCTION
CONTRACTS

5.1 The general rule is that a contractor who has been requested to do work which
is in fact a variation will be able to recover payment for it if the owner has himself
expressly or impliedly requested the work knowing it to be variation work. The
contractor, therefore, is unlikely to have a problem in pursuing a variation claim
unless either: -

(a) the owner has no knowledge of the variation and so has not authorised
the variation, or

(b) the wording of the contract prevents legal effect to any request or
authorisation by the owner or his certifier, which is relied on by the
contractor.

5.2 Thus, if an owner with full knowledge has himself ordered varied work and/or has
indicated in words or by conduct an intention to pay for it, that will almost always
constitute a variation of the contract itself in the legal sense, so overriding any
restrictive provision in that contract.

5.3 Additionally the courts have applied principles of waiver or estoppel, or unjust
enrichment, so as to prevent an owner in appropriate circumstances from setting
up a defence of non-compliance with contractual requirements of form for varied
work.

5.4 It will only be in cases where the owner does not know of and has not authorised
a variation, or where the person who has authorised it has no authority expressly
under the contract, that it will then become necessary, so as to ensure payment,
for the contractor to comply with the terms of a contractual variation clause.

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6.0 THE POWER TO ORDER VARIATIONS

6.1 Variation clauses in standard forms of contract tend to list matters where the
power to vary may be exercised. So far as the permanent work is concerned, all
that is in fact necessary is a power to add, omit, or substitute different work.

6.2 Where the contract contains a power to order additional work, there is no implied
term that, if additions are desired, the owner must necessarily employ the
contractor to carry them out.

6.3 The contractor is however, entitled to perform all the contract work, so that a
provision giving the owner or his certifier a power to make omissions only
contemplates genuine omissions, that is, work that it is intended should not be
carried out at all. The owner will generally not be entitled to use the power to
omit work from the contract works in order to give it to another contractor to do,
or to do the work himself, whether under a provision similar to the above clause
or otherwise. This is only expressly stated, amongst the standard forms, in
Clause 29.1(e) of CIDB 2000.

6.4 An important area where, in the absence of express provision or of agreement

with the contractor, there will be no power to order a variation or change in regard
to the progress and the completion date. For this reason, contracts may contain
an express power to order a postponement of work, or to order “changes in the
specified sequence or timing of construction”, or to order a suspension of work.
For example, PAM 98, Clause 11.1(v) uses express wordings like
“alterations…with regards to any limitation of working hours,…or the execution
and completion of the work in any specific order”. Interestingly, Clause 1.1 of
CIDB 2000 defines variation to include but not restricted to, inter alia, “the
postponement of any part of the Works…or a requirement to complete the Works
by a date earlier than the relevant Time for Completion desired by the Employer”.
Such wordings are not found in the PWD Form 203A and the IEM form. The
extension of time provisions found in construction contracts do not constitute a
variation but are a release of the contractor from his original obligation to
complete, achieved by substituting a new and later date for the earlier date on

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 which he would otherwise have become liable to pay liquidated or other damages
for non-completion.

6.5 An express contractual power to accelerate or advance the contract completion

date (that is, to give an “acceleration order”) is, save as for CIDB 2000, virtually
unknown for the practical reason that, on the assumption that the contract
completion date and the project have been planned on the basis of the use of an
optimal plant and labour force, acceleration in many cases will be impractical if
not actually impossible, or only at a wholly uneconomical cost.

7.0 ORDERS IN WRITING

7.1 Many standard forms of contract do not require documents in “change order” or
“variation order” form in order to validate a contractor’s claim for a variation. The
requirement is simply to provide the contractor with an “instruction in writing” to
do the work which he later claims to be a variation. This minimal formal
requirement can easily give rise to disputes since it does not distinguish between
orders intended only to implement the original work and orders intended to
change the work. However, there is the advantage of avoiding the impasse,
which can frequently arise in practice where a certifier who disagrees that a
particular instruction constitutes a variation will either hesitate in giving an
instruction for the work in writing, or refuse to express the instruction in a required
form entitling the contractor to additional payment.

7.2 Where a written order is required to be given pursuant to the terms of the contract
then the intention is that this written order is given prior to the execution of the
work. Pollock C.B. in Lamprell v Billericay Union [1849] said: -

“The deed when it requires written directions clearly means written

directions before the additional works should be done. A
subsequent written approval, even if the documents in evidence
amount to that, is a very different thing from a previous order to the
builders.”

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7.3 As a result construction contracts frequently contain provisions for “subsequent
sanction in writing” by the certifier of earlier orally ordered variations, or for
confirmation in writing by the contractor to the certifier in order to validate the
variation. Interim certificates, given after the varied work and being also by their
nature subject to review in later certificates, cannot constitute an order in writing,
although they may constitute “subsequent sanction” in writing if they included on
their face an intention to pay for the varied work. Payment under interim
certificates does not in general create an estoppel against the owner defending
any type of claim by the contractor, and in any event, even an order in writing will
not normally bind the owner if the work is not in fact a variation.

7.4 Requirements of form, however, must be complied with where the owner has not
himself authorised the variation, if he is to be bound by it.

8.0 CONFIRMATION OR SUBSEQUENT SANCTION IN WRITING

8.1 A contractor faced with a verbal instruction by a contract administrator which he

considers involves a variation may be placed in a dilemma, since contracts
frequently provide that he must obey all instructions of the administrator. In
practice, too, clerks of works or resident engineers frequently give oral
instructions of one kind or another, although their authority under most forms of
contract is so expressly restricted that such instructions may have little legal
effect. To assist the contractor’s difficulties in such situations, it is frequently
provided in construction contracts that if the administrator gives an instruction
orally which under the contract the administrator has express power to give in
writing, the contractor may confirm the instruction in writing to the administrator,
and if the administrator does not then dissent in writing within a specified time
the instruction is deemed to be an instruction in writing of the administrator,
entitling the contractor to be paid for any extra work involved.

8.2 In addition, to avoid injustice where the project owner has benefited from extra
work ordered verbally, contracts often give the certifier power subsequently to
sanction in writing extra or varied work which has been carried out without an

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 order in writing, and provide that variations so sanctioned shall be measured and
valued in the same way as those ordered in writing beforehand.

8.3 Except in specially defined situations, such as emergency work, it is difficult to

see why contractors who have varied the work without any oral or written
instruction to do so, particularly if they have available to them the opportunity to
confirm any instruction in writing, should receive any additional payment for such
varied work.

8.4 An interim certificate specifically showing variation, as the basis for payment will
constitute subsequent sanction or confirmation of a variation by the certifier,
where such a clause is present in the contract.

9.0 ORDER IN WRITING A CONDITION PRECEDENT

9.1 A contract may be drafted so that an order in writing, or written confirmation of

an oral order, or written sanction of work done, is made a condition of any right
to additional payment for extra work.

9.2 No such provision, however explicitly worded, will bar a claim if the owner
expressly or impliedly authorises the work.

9.3 Although an order in writing may be a condition precedent to the contractor’s

right to recover payment, the existence of a written order is not conclusive
evidence against the owner that the work to which it relates is in fact an extra.

9.4 Notwithstanding any provision within the contract preventing recovery without a
written order, it has been held that where a contractor requests an order in writing
on the grounds that an instruction involves a variation, and the administrator
refuses to give the order in writing, an arbitrator with a general power to decide
disputes can award payment despite the absence of a written order, thus
overriding the administrator’s decision.

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10.0 IS THE VARIATION A SEPARATE CONTRACT?

10.1 An employer might call for variation work in order to obtain the advantage of the
contractor’s prices or of his presence on site but the nature of this work could not
be fairly regarded as a variation or change within the contemplation of the
variation or changes clause of the contract.

10.2 Such work is often described as “outside the contract” or “outside the scope of
the contract” (that is, of its variation or changes clause).

10.3 If work is requested or instructed which is in fact outside the scope of the variation
clause, it will follow that: -

the contractor will be entitled to refuse to carry it out at all;

(a) if the request or instruction is expressly purported to be given by the

certifier under the variation clause, and the contractor complies with it
without objection, payment for the work will be restricted to that which
can be obtained under the terms of the clause;

(b) if the instruction or request is that of the owner himself, but no specific
reference is made to the variation clause, and the contractor then carries
out the work, there will be no such restriction on the contractor and if the
parties cannot agree on price then the contractor will be entitled to
reasonable remuneration on the basis of an implied reasonable price
under a separate contract;

(c) on the strict basis of interpretation applied to exclusion clauses, the

courts will construe restrictive provisions, for example, those requiring
written instructions as a condition precedent, as applying only to work
ordered within the scope of the clause, so enabling the contractor to
recover a reasonable price for work outside its scope free of any such
restrictions;

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 (d) if work outside the scope of the clause is carried out, departures from the
original prices should in principle only apply to the particular work outside
the scope of the contract, not to the rest of the contract work.

10.4 Variation valuation clauses often permit “open-ended” valuations, which,

although initially price-based, additionally permit differential costs, such as
disruption or delay caused by the variation, to be recovered under the clause.
“Scope” arguments are only likely to be put forward by contractors under these
types of contract if they are unhappy with the level of their original pricing of the
contract, either as reflected in the priced-based element of the valuation carried
out under the valuation clause, or, more fundamentally, in an attempt to
substitute a reasonable (higher) pricing structure for the total contract price of
the project.

10.5 Whether additional work in which has been ordered is of the character
contemplated by the contract, or whether it is outside the contract, will depend in
each case on the nature of the work and the terms of the contract.

10.6 Standard forms of contract sometimes contain express provisions that no

variation ordered under the power to order variations shall “vitiate the contract”.
Such a provision cannot as a matter of business efficacy be taken at its face
value, and must be subject to an implied limitation of reasonableness, so that,
under the terms of most contracts, the power to order extras, although apparently
unlimited, must in fact be limited to ordering extras of a certain value and type.
Additional work outside these limits will no longer be governed by the terms of
the contract because the word “variation”, if used in the contract, itself has a
restricted meaning, and like words such as “alteration” will not be appropriate to
something wholly different from the original work or project. The project as a
whole and, if necessary, the pre-contract correspondence, must be looked at and
a commonsense view taken of the variations ordered.

10.7 In “multiple variation” cases, it should be remembered that, in modern contracts

using detailed bills and specifications, very small or even trivial changes in the
work may rank as variations, and in many large contracts, it is not uncommon to
find hundreds or even thousands of variations in the final variation account, even

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 when the final project is in all important respects unchanged and has been
completed without disruption or delay. Mere numbers of variations, therefore, are
no indication of change in the character of the work until examined in detail, and
may be of minor importance compared with the subject matter of the variations
and above all their timing.

10.8 In the case of Thorn v London Corporation [1876] the judge said, “if the additional
or varied work is so peculiar, so unexpected, and so different from what any
person reckoned or calculated on, it may not be within the contract at all”. A mere
increase in the quantities of the work will not invalidate the original contract even
though substantial. The work ordered must be totally different from that
contracted for and this being the case the contractor will be entitled to payment
on a quantum meruit basis and not the contract rates.

10.9 Examples are provided in the following cases: -

Bush v Whitehaven Trustees [1888] – In this case a contractor undertook

to lay a conduit pipe in the month of June and, because of delays on the
part of the employer, was unable to proceed before the winter when wages
were higher and the works more difficult due to weather conditions. The
court held that these changed circumstances were such that the contractor
became entitled to payment on a quantum meruit basis.

Blue Circle v Holland Dredging Co. (1987) – The contractor was required
to remove large quantities of excavated material from the site as part of the
contract. A variation was issued by the Engineer to the effect that the
excavated material should be used to form a bird island instead of removing
it from the site. Again the court held that this variation amounted to a
separate contract.

By way of contrast, in the case of McAlpine Humberoak Ltd v McDermott

International (1992) a contract was let for the construction of four huge
pallets in connection with the construction of an oilrig. The number of
drawings use increased from 22 to 161 that led to many technical queries.
Further the number of pallets was reduced from four to two. The court
considered that these changes fell within the variation clause.

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11.0 VALUATION OF VARIATIONS

11.1 Types of Valuation Clauses

11.1.1 There are many types of variation valuation clauses, differing in different
jurisdictions. In more sophisticated forms of contract, the majority tend to be
initially price-based, using some sort of schedule of rates and prices, whether in
unit-price or fixed price (lump sum) contracts, which in lump sum contracts may
or may not contain estimated quantities. In a bill of quantities measured contract,
the bills themselves fulfil this initial variation valuation function.

11.1.2 However, it is widely recognised by standard forms of contract that, depending

on timing, location, quantity or other circumstances of a variation, these initial
prices may not be an accurate measure of the effect of a variation or fair
compensation to the contractor. Since under most contracts the prices are likely
to govern omissions as well as additions, and the former in particular, if
sufficiently large, may upset the economic balance of the contract, some less
sophisticated forms of contract seek to adopt relatively arbitrary methods, often
based on percentage differences of quantity or value, for adjusting the prices in
the contract schedules. For example there may be provision that allow the prices
in the original schedule or bills to be replaced by new prices should the owner’s
change orders result in an increase or decrease of more than a particular per
cent. On the other hand, the IEM form provides for the adjustment of rates or
prices under Clause 24(b) if the Engineer is of the opinion that the rate or price
has been rendered unreasonable by such omission or addition. The discretion
to exercise this clause seems to lie solely with the Engineer.

11.1.3 Apart from the fact that valuation clauses of these kinds based on either arbitrary
percentages or the Engineer’s discretionary opinion may or may not distinguish
between omitted and additional work, they pay little or no regard to the
economics and pricing realities of construction contracts, and are generally likely
to have an “upside” effect on the contract prices, and rarely if ever result in
“down-side” reductions, which in principle should be equally possible. For
example, large increases in quantities notified in good time may often be
extremely profitable to the contractor, thus logically justifying a reduction of the

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 unit price involved. Other things being equal, substantial increases in quantities,
if valued at the contract price rates or prices, should in principle benefit the
contractor, since his fixed and other site overheads will have already been
covered, while substantial omissions, on the contrary, may, for the same reason,
justify an increase in unit prices. This generalised approach is itself relatively
unsophisticated, and no final answer can be given until the internal make-up of
the contractor’s prices, in particular in regard to their labour, plant, materials and
sub-contract elements, has been ascertained. It is a very clear indication of the
extent of contractor’s influence that almost no standard forms require such as
make-up to be supplied by the successful tenderer, at the time of the contract
being executed, and so before the nature or extent of any variations or
differences in “as built” quantities can be known. In the absence of knowledge
as to the internal make-up of the contract prices, owners’ advisers can never be
well placed to counter contractors’ ex post facto and tailor-made arguments as
to their internal pricing in support of higher prices for the varied work, nor to
detect the loading and “unbalanced bid” practices and abuses to which
measured contracts are particularly exposed.

11.1.4 However, the great majority of variation valuation provisions are what can be
termed “open-ended”. Such clauses provide for a valuation that will initially be
price-based accordingly to the schedule of rates and prices or the bills of
quantities. The valuation clauses then provide that if no exactly applicable rates
are to be found in the schedule or bills for the work, which has been ordered,
comparable prices to be derived from those in the bills or schedule are to be
used. Under the terms of these types of clause, there is then superimposed on
the contractor’s original or comparable prices an adjustment based on cost
differences, should the varied work be carried out in circumstances differing for
any reason affecting its cost from the original unvaried contract work priced by
the contractor. In these contracts this cost-based adjustment is usually left for
estimation by the certifier or quantity surveyor on interim payment, but in the
absence of a binding certificate will of course be open to dispute on the final
account or before an arbitrator or the courts.

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12.0 CRITERIA FOR VALUATION

12.1 As previously stated, most variation valuation clauses require an initial

adherence to the quoted rates or prices in any bills or schedule forming part of
the contract, or the use of a comparable price derived from those prices (as
where for example units of concrete of different dimensions from those already
priced in the contract are called for, or units of excavation at different depths). If
no sufficiently similar priced item units are available for comparable prices to be
derived from them, most valuation clauses then provide for “reasonable” or
“suitable” or “applicable” or “fair” rates and prices or valuations to be used, but
rarely if ever expressly do more than this to define the criteria to be applied when
valuing the variation.

12.2 Neither owner nor contractor should be entitled to argue that such “reasonable”
or “fair” rates or prices or valuations should have regard to the contractor’s
general level of pricing, disregarding any element of profitability or unprofitably.
Whatever the correct interpretation, there can be no dispute that the variation
valuation clause must bind both parties to the contract, since owners as well as
contractors can seek to depart from the contract prices to suit their own
advantage by the use of this argument.

13.0 BASIS FOR MAKING A FAIR VALUATION

13.1 As stated above, most variation valuation clauses follow a sequential formula
whereby first contract rates are used if available, then comparable rates derived
from contract rates are used if no contract rate is available and finally if
comparable rates cannot be derived the certifier is usually required to make of
“fair” valuation. Where contract rates do not favour the contractor or employer
when applied to a particular variation, either party may wish to rush straight to
the fair valuation method avoiding the first two methods of the valuation
sequence if possible.

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13.2 Recent case law has assisted to clarify the way in which this three step
mechanism for valuation of variations is to operate and what constitutes a fair
valuation.

13.3 In Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2000] Clause 52
of the ICE form of contract that deals with the valuation of variations came under
scrutiny. Clause 52 provides that if the varied work is similar to work priced in
the contract bills and carried out under similar conditions, the bill rates applied.
If it is not, the bill rates are used as the basis of a reasonable valuation. If such
a valuation would produce an unfair result, because of the peculiar nature or
amount of the variation then, subject to some administrative machinery, the
engineer has to fix a fair rate.

13.4 Henry Boot had made a serious error in pricing some sheet piling, so when
substantial further sheet piling was ordered as a variation there was a dispute
about how to value it. The error was on the right side for Boot. It stood to make
a large profit on the extra piling because of its initial mistake.

13.5 The arbitrator had decided to use a fair rate that removed the windfall profit, but
when referred by Boot to the courts, Judge Lloyd decided that the arbitrator was
wrong and applied the bill rate regardless. The Court of Appeal agreed.

13.6 In the UK case of Weldon Plant v The Commission for the New Towns (2000), a
dispute arose concerning the manner in which a variation should be evaluated
under Clause 52 of the ICE Conditions of Contract 6th edition. Weldon Plant was
employed in the construction of a reservoir. An engineer’s instruction was issued
to remove all gravel below the bed of the reservoir and backfill with clay.

13.7 A dispute arose between the engineer and contractor as to how the work should
be evaluated and the matter was referred to arbitration. It was the decision of
the arbitrator that the work constituted a variation and, as there was no
appropriate bill rate, the work should be paid for on the basis of a fair valuation.
In arriving at the fair valuation he excluded any amount for overheads and profit.
This was on the basis that there was insufficient evidence of overhead costs and
lost profit.

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13.8 The contractor appealed against the arbitrator’s award. It was the decision of
the court that the arbitrator was wrong. Judge Lloyd decided that a fair valuation
had to include each of the elements that are normally found in a contract rate or
price, namely labour, plant, materials and a contribution to overheads and profit.

13.9 Contractors can find themselves in difficulties if they price an item in the contract
at “NIL” and subsequently the quantity substantially increases. This was the
situation in which the contractor found himself in the UK case of Aldi Stores Ltd
v Galliford [2000].

13.10 A contract was let for the construction of a store where the JCT Intermediate
Form of Contract (IFC 84) was used. The price included for disposing of 1500
cubic metres of contaminated material to licensed tip at a rate of £44.60 and the
disposal of clean material at a rate of £8.50.

13.11 During negotiations the contractor agreed to absorb the rates for the disposal of
both contaminated and clean material into the overall price for the construction
of the store. When work got underway it transpired that all the materials were
contaminated and had to be disposed of at the licensed tip. The contractor
claimed that this constituted a variation. No agreement was reached and the
matter was referred to arbitration. The arbitrator held that there had been an
error in the bills of quantities and that the contractor was entitled to an
Administrator’s variation.

13.12 A rate of £36.10 was awarded being the difference between the rate for
contaminated material and the rate for clean material. The employer appealed.
It was the decision of the court that the arbitrator was wrong. There had been
neither change in the conditions under which the work had been carried out, nor
a significant change in the quantity of the work. The work had simply been
moved from one category to another i.e. from uncontaminated soil to
contaminated soil. As the rate for both categories was nil there was no
justification in amending the price. The lesson for contractor’s being that pricing
items in bills of quantities or schedules of rates as “NIL” should be avoided.

14.0 VARIATION PROVISIONS IN MALAYSIAN STANDARD FORMS

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14.1 Measurement of Variations

14.1.1 Clause 11.4 of PAM 98 merely gives the Contractor the opportunity to be present
at the time of measurement of variations by the Architect or the Quantity Surveyor
and to take such notes and measurement as the Contractor requires. Whereas
Clause 25(e) of the PWD Form 203A states that the S.O. shall notify the
Contractor to attend or to send a qualified agent to furnish all particulars required
by the S.O. and to assist the S.O. in the measurement of the Works (deemed to
include variations). The Clause goes on to state that if the Contractor fails to
attend or send such agent, the S.O.’s measurement shall be taken as the correct
measurement. CIDB 2000 is worded in a similar way as the PWD form with the
exception that the CIDB takes one step further to prescribe the procedures
relating to the Contractor’s disagreement with the S.O.’s valuation and
measurement of the works including variations.

14.1.2 Common law courts have generally enforced these procedural requirements
strictly. In Monmouth CC v Costelloe & Kemple Ltd (1964), a contractor’s claim
for additional payment was defeated primarily because the claimant failed to
serve the required notice and provide an advance estimate of the additional costs
of the subject claim in accordance with the claim provisions in the contract.
However, many of these decisions were decided prior to the enactment of the
Unfair Contract Terms Act 1977, and it remains to be seen how much impact this
Act will eventually exert in terms of preventing otherwise meritorious claims from
being frustrated by mere non-observance of notification and other procedural
stipulations.

14.2 General Character of the Valuation Provisions

14.2.1 The valuation machinery set out in Clause 11.5 of the PAM 98 form resembles
to some extent that used in the JCT 63 form on which the previous PAM 69 Form
was modelled. The draftsman has used traditional terms employed in the JCT
types of contracts like works of a “similar character” and “executed under similar
conditions”. Consequentially, Clause 11.6 of PAM 2006 employs a more detail
rules to valuation.

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14.3 Direct Application of Contract Rates

14.3.1 Clause 11.6(b) of PAM 2006 and Clause 11.5(i) of PAM 98 form retains the
valuation mechanism of the previous PAM 69 form. It says that the prices in the
Contract Bills shall determine the valuation of work of a similar character
executed under similar conditions. However, it should be noted that the word
‘similar’ should be interpreted to man ‘of a like nature’ and not to be taken to
mean ‘identical’. The character of an item of work is determined by the
description given in the Contract Bills. Hence, items of work, which are required
to be measured or described differently, are not of similar character. Similar
conditions under which the work will be executed like similar site and weather
conditions must also be ascertained. Other forms like CIDB 2000, IEM and PWD
Form 203A are similarly worded.

14.4 Adjustment of Contract Rates

14.4.1 In Clause 11.6 (c) of PAM 2006 provides that if the works is not of a similar
character to the work set out in the contract document, the valuation shall be at
the fair market rates and prices determined by the Quantity Surveyor. Clause
11.5(ii) of PAM 98 provides for the valuation of variation work which is of a similar
character but not executed under similar conditions by using the Contract Bill
rates and prices ‘so far as may be reasonable’ with a fair allowance for the
difference in conditions. For example, the layout of a pipeline is moved laterally
by a very small distance into bad ground conditions which would not have been
present on the original line, the difference in cost will be recoverable under the
variation clause. Both PWD and CIDB 2000 are similarly worded save for IEM
form where much flexibility is afforded to the Engineer to use his discretion in
applying the contract rates and prices to the variations.

14.5 Daywork Claims

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14.5.1 Finally where all else fails, the valuation of variation works by daywork rates is
available under Clause 11.6(d) of PAM 2006 and Clause 11.5(iii) of PAM 98. The
day work rates are derived from the rates inserted in the Bills of Quantities,
otherwise the actual prime cost to the Contractor of his materials, transport and
labour for the work concerned plus 15 percent will be taken into account. This
percentage is inclusive of all ordinary plant, tools, scaffolding, supervision,
overheads and profit. The provision makes it clear that in both cases day work
vouchers must be produced for verification not later than 7 days after the work
has been completed. The forms like CIDB 2000, IEM and PWD Form 203A are
similarly worded.

14.6 Adjustment of Contract Rates Arising from Omissions

14.6.1 Clause 11.6(e) of PAM 2006 and Clause 11.5(iv) of PAM 98 is in effect a
statement of the principle that in the case of omission substantially changing the
conditions under which the remaining parts of the work are carried out, the
contractor is entitled to require an adjustment of contract rates for the remaining
parts of the work in accordance with the valuation mechanism in Clause 11.5(ii).
However, the word ‘conditions’ employed in this clause is too wide to the extent
that it may be argued that where the original quantity of a particular work item
was sufficient to enable the contractor to realise certain economics of scale, and
the effect of the variation order is to reduce the quantity of work below the
necessary critical mass, the contractor is entitled to claim for reduced profitability
for the rest of the work. This is not the same as a claim for loss of profit on the
omitted work. This power to omit work does not extend to omissions of such a
magnitude as to change the character of work, nor does it extend to omissions
ordered for the sole purpose of enabling some other party to do the work in lieu
of the contractor: see Carr v J A Berriman Pty Ltd (1953); Commissioner for Main
Roads v Reed and Stuart Pty Ltd and Anor (1974). Other forms like CIDB 2000,
IEM and PWD Form 203A are similarly worded.

14.7 Claims for Loss of Profit

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14.7.1 In the case of Wraight Ltd v PH and T Holdings (1968), a contractor’s contract
was wrongly determined with the work part completed. The determination clause
provided for the contractor to be paid “any direct loss and/or damage caused to
the contractor by the determination”. It was held that this wording included loss
of gross profit on the uncompleted work.

14.7.2 As a general point, PAM 2006 and PAM 98 is silent as to whether an element for
loss of profit should be included in a variation claim that arises from an omission.
However, Clause 11.6 of PAM 98 is worded in such a way that if the variation
has caused the Contractor direct loss and/or expense. Following the Wraight
case this would include loss of gross profit. Therefore if the Contractor could
show that as a result of an omission profit had been lost, the loss could be
recovered if the contract were worded in a like manner to PAM 2006 and PAM
98.

14.7.3 Clause 5(d) of both PWD Form 203A and IEM refers to an entitlement to loss or
expense beyond that reasonably contemplated by the Contractor in compliance
with the S.O.’s or Engineer’s instructions, including an omission of work. As for
CIDB 2000, Clause 31.1(h) provides for an entitlement to loss and expense
arising as a result of regular process and/or completion of the Works or any
section of the Works having been disrupted, prolonged or otherwise materially
affected by a variation. However, it should be noted that Clause 29.1(e) of CIDB
2000 expressly states that the Contractor shall not be entitled to loss and
expense for omission of work unless such work is carried out by the Employer or
by another contractor. It would therefore seem that CIDB 2000 is strictly adhering
to the case of Carr v JA Berriman Pty Ltd (1953) where it was held that if work
was omitted from the contract and given to others then the contractor would be
entitled to loss of profit.

15.0 QUANTUM MERUIT

Payment For Invalid Variations

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15.1 Most forms of construction contract contain provisions for valuing variations ordered
by the contract administrator. However, where additional work is ordered which, by
its nature, does not constitute a valid variation under the terms of the contract, is the
contractor obliged to execute that work?

15.2 Halsbury’s Laws of England 4th Edn Vol 4 para 1178 states:

“Work falling outside the contract. If the nature or extent of the

variation or additional work is such that it is not contemplated by
the contract, the contractor can refuse to carry it out or can
recover payment for it without complying with the requirements of
the variation clause”

15.3 So, a contractor may refuse to execute the additional works, or alternatively, reach
a separate agreement as to the terms; the contract rates need not apply.

15.4 However, care must be taken to ensure that the employer has sanctioned the
additional work. Whilst much will depend on the construction of the variation
clause it is possible that should a contractor unwittingly execute works which
have been wrongly instructed as variations by the contract administrator, but
which were not requested by the employer, the employer might not be bound to
pay for the works.

15.5 For additional work falling outside the scope of the variation clause, in the
absence of agreement as to payment, the contractor would ordinarily be entitled
to reimbursement on a quantum meruit basis. Keating on Building Contracts (6th
ed, 1995) states:

“Where a quantum meruit is recoverable for work done outside a

contract, it is wrong to regard the works as though it had been
performed to any extent under the Contract. The contractor
should be paid a fair commercial rate for the work done”

15.6 The phrase quantum meruit is used to describe different situations were a party
is entitled to payment for the work done as a reasonable sum. But how such sum
should be assessed will depend both on the particular facts and type of quantum

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 meruit. As Chitty on Contracts 927th ed, 1994 volume 1 states (at paragraph 29-
122).

“… in some categories the term covers a quasi-contractual or

restitutionary obligation based on incontrovertible benefit, in others
the obligation is often capable of analysis as a genuine implied
contract based on request, free acceptance or acquiescence while
in others the basis of liability appears to be the protection of the
plaintiff’s reasonable reliance rather than the unjust enrichment of
the defendant.”

15.7 In certain circumstances, the quantum meruit need not be the value of work
carried out by reference to the cost to the contractor, but may legitimately reflect
the advantage to the employer of having work outside the contract scope carried
out. This was considered in some detail in Costain Civil Engineering Ltd v Zanen
Dredging and Contracting Company Ltd (1996) 85 BLR 85.

15.8 In that case, part of the works comprised a tunnel under the River Conway for the
A55 Conway Bypass. This tunnel was to be formed by casting six pre-fabricated
tunnel elements from reinforced concrete that were to be floated out into position in
the river and sunk in a trench that had been dredged in the bed of the estuary. These
six sections, immersed and connected, would then be drained and form the tunnel.
The casting was to take place in a dry basin known as the casting basin, excavated
for that purpose adjacent to the river. Once the sections were cast, a channel was to
be cut into the river from the basin so that it would be flooded, and the operation could
take place. The Employer was the Welsh Office and the main contractor was the
Costain Tarmac Joint Venture. Zanen were engaged on the Standard Conditions of
Sub-Contract for use with the ICE Conditions of Contract (“the Blue Form”) by the
Joint Venture to carry out site preparation works and the majority of the dredging
operations.

15.9 An amended clause 8 to the Blue Form had been inserted which defined “authorised
variations” as follows:

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 “(a) A variation which is agreed to be made by the Employer and
the Contractor and confirmed in writing to the Sub-contractor
by the contractor, or

(b) A variation ordered in writing by the Contractor, or

(c) Any other circumstance relating to the Sub-Contract works

which constitutes a variation under the Main Contract.”

15.10 There was provision in the main contract for what was to become of the casting
basin after the operations were completed. There were various options that were
exercisable by the Welsh office, none of which were exercised, and so under the
main contract the Joint Venture were obliged to backfill and reinstate the basin to
its condition prior to the commencement of the works. This would be cheaper than
carting away all the material that had been excavated, and so under this provision
the Joint Venture was to allow the Welsh Office a credit of £1,050,000.

15.11 However, the Crown Estate (who were not a party to the main contract) decided to
build a marina using the flooded casting basin. In order that this be done, the Joint
Venture had to be relieved from its obligation under the main contract to backfill
and reinstate the basin. Accordingly, a supplemental agreement was entered into
between the Welsh Office and the Joint Venture on 21 December 1989, whereby
clause 137 of the specification of the main contract was changed so that the casting
basin was left flooded, but modified to ensure its stability. For this modification the
Joint Venture was to be paid the sum of £2,550,000.

15.12 The Joint Venture instructed Zanen to carry out certain works connected with the
marina. Zanen were concerned that the works were outside the scope of the
sub-contract, but the Joint Venture stated that they were not and continued to
give detailed instructions relating to the marina works. Zanen performed the
works but did not accept that they were an authorized variation, and so the parties
referred their disputes to arbitration, the award for which was the subject of an
appeal from the Joint Venture.

15.13 As regards whether the additional works were a variation to the sub-contract
works under the wide provisions of the sub-contract variation clause, the court

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 found that the marina works were not part of the main contract works, and
concomitant with this, could not be within the scope of the sub-contract works.
The works undertaken by Zanen were therefore outside the scope of the sub-
contract and not a variation to it.

15.14 The court then considered the matter of quantum meruit for the additional work.
Counsel for the Joint Venture suggested that the correct approach was to
reimburse the cost to the sub-contractor of executing the marina works (£380,000)
and allow “a reasonable uplift in respect of its overhead and profits” (taking
account of the previous three years trading) of around 10%.

15.15 The judge did not accept this proposition. He said that there was a distinction
between quantum meruit where there is an implied promise to pay, and quantum
meruit in situations where the assessment is based on restitution and unjust
enrichment. As Zanen had executed, under protest, additional work in which was
found to be wrongly instructed as a variation, this case fell into the latter category.
He then awarded Zanen a quantum meruit calculated by reference to the cost of
executing the additional work (£380,000) together with a portion of the substantial
profit made by the Joint Venture for the marina works (a further £386,000) which
he considered reflected the benefit to the Joint Venture of having those works
executed by a sub-contractor whose resources were already mobilised.

15.16 The Costain case provides a good example of how a quantum meruit should be
assessed where work is ordered which falls outside the contract scope or works.
A quantum meruit should be a fair commercial rate for the work done. In some
cases a quantum meruit may be determined not just by reference to the cost to
the party carrying out the work, but also by valuing the financial advantage to the
party instructing the additional work.

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16.0 CONTRACT ADMINISTRATION TIPS

➢ Always examine the variation clause in the contract and identify;

o Definition of variation, its scope and limitations
o Notice requirements
o Other procedural requirements
o Rules for valuing variations
o Payment mechanisms

➢ The contract administrator’s understanding of the above must be

communicated downstream/upstream

➢ When receiving instruction to vary the Works always;

o Check the authority of the person issuing such instruction
o Check whether the instruction is a variation or deviation in the scope of
works

➢ Always confirm verbal instructions in writing

➢ Observe and comply with the rules for evaluation of variations to avoid any
disputes and delays in assessing variations

➢ If a ‘quantum meruit’ claim is made, a reasonable commercial rate or price

should be submitted for assessment. It is best if an analysis of the rate or
price be provided

➢ Ensure the contract administrator is fully aware of the consequences of

improper administration of variations in contracts.

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PART 5 - TIME FOR COMPLETION, LIQUIDATED DAMAGES, EXTENSION OF TIME
AND MODERN DELAY ANALYSIS TECHNIQUES

1.0 INTRODUCTION

1.1 To enable effective contract administration function be exercised, contract

administrators must be able to understand 3 basic things: the contract
conditions, the legal issues and also the technical aspect of time management.
This section will firstly consider the basic principles of time in relation to
construction contracts, the legal issues with LAD, ‘Time at Large’, challenges
to LADs and the various techniques of assessing extension of time will also be
examined.

2.0 CONTRACTS WHERE NO TIME FOR COMPLETION IS SPECIFIED

2.1 When parties enter into a contract it is normal that they specify the time in
which performance of that contract must be carried out. However, this is not
necessary and a valid contract can be concluded even though no specific time
for performance has been specified.

2.2 For example one person may enter into an agreement with another that they
shall purchase a car belonging to that second party. In such cases it would be
unusual for a time for completion to be specified.

2.3 In such circumstances, the intention of the parties would be that the
performance of the contract is to be executed within a reasonable time. This
indeed reflects the legal principle where no time is specified in a contract - the
party who has contracted to carry out work must do so in a reasonable time.
This legal principle is underpinned by Section 47 of the Contract Act 1950
which states:

“Where, by the contract, a promisor is to perform his promise without

application by the promise, and no time for performance is specified,
the engagement must be performed within a reasonable time”

2.4 This situation may be relevant to a construction contract in two ways, either
where the parties enter into a contract without a time for completion (for

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 example where the Contractor employs a labour only sub-contractor to carry
out works on the basis of areas available), or where the specified time has
ceased to become applicable i.e. where time has become ‘at large’.

2.5 But in such circumstances what is a reasonable time? In Hick v Raymond and
Reid [1893] A.C. 22 Lord Watson said that where a contract shall be performed
within a reasonable time, it has:

“invariably been held to mean that the party upon whom it is

incumbent duly fulfils his obligations, notwithstanding protracted
delay, so long as such delay is attributable to causes outside his
control and he has neither acted negligently nor unreasonably.”

2.6 Where there is no time for completion specified in the contract a reasonable
time will be assessed on factual basis by examining the time the Contractor
actually took and then subtracting any delays for causes that were within his
control.

2.7 In most cases the original time for completion will be accepted as being a
reasonable time, so that by adding to that for delays outside the control of the
Contractor the reasonable time for completion can be arrived at.

3.0 CONTRACTS WHERE TIME FOR COMPLETION IS SPECIFIED

3.1 In the normal situation, where a time for completion is expressly stated in the
as Appendix to Tender in most of the local Malaysia forms of contract. The
Employer is entitled to liquidated damages if the Contractor does not complete
on time.

3.2 There are two different types of contract where a time for completion is
expressly stated as a term of the contract. Firstly time may be of the essence
or secondly time may be extendable.

Time of the Essence

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3.3 Time of the Essence is one of the most misused contractual terms, particularly
in construction contracts. Time is only said to be of the essence where failure
to meet the particular date is a fundamental breach of contract entitling the
other party to treat the contract as repudiated and claim damages.

3.4 Time is seldom of the essence in a construction contract because it is

uncommon for the Employer to express that if the building is not completed on
a certain date then he does not want the building at all and will treat the contract
as repudiated. Whilst one can think of circumstances where this may be
relevant for a building, for example the building of the National Sports Complex
to hold the XVI Commonwealth Games 1998 in Kuala Lumpur - there is no
value to the Employer in receiving the sports complex one month late when
the Commonwealth Games has passed, such would be very rare.

3.5 Generally, time is not considered to be of the essence in construction contracts,

this is because such contracts are different to most others in that the
Contractor will have expended heavily in performing the contract prior to a
delay in completion and in constructing the works the Employer will have
become owner of the property and thus have received a major and irretrievable
benefit. Further it is clearly arguable that liquidated damages clauses and
extension of time provisions are inconsistent with an interpretation that time is
of the essence, both clauses indicating a preference on the owner’s part to
allow the Contractor to complete and accept liquidated damages as
compensation.

3.6 For these reasons the courts have been very reluctant to interpret time in
construction contracts as being of the essence, even if it is stated as being so.
(Lucas v Godwin (1837)).

3.7 In a situation where there is an extendable time for completion, and the
Contractor is in delay, it is possible for an Employer to make time of the
essence by serving a notice requiring completion by a certain date. He cannot
do so, however, if his own breach of contract is already affecting the
Contractor’s ability to complete. This remedy would only be available in rare
cases where the Contractor’s failure to complete is so persistent or flagrant as

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 to evince an intention not to be bound by the contract (Felton v Wharrie (1905)
– where the court did not accept such intention even though the Contractor
was very late and had stated that he could not say when he would complete).

Time Extendable

3.8 The majority of construction contracts provide a time for completion, and a
provision that failure to complete by that date will entitle the Employer to
liquidated damages at a certain rate per day.

3.9 In the absence of any express provisions, the Contractor will be responsible to
complete within that time, and he will have no excuse if neutral events occur
which cause delays over which he or the Employer has no control, such as
weather, strikes, materials shortages or unforeseen ground conditions.

3.10 However, the position is entirely different if the Contractor suffers a delay which
is caused by the Employer. Such delays are common and may be failure to
give possession of the site on the required day, the issue of variations requiring
additional works, or any other disturbance caused by the Employer. It is clearly
established that one party cannot impose a contractual obligation on the other
where he has impeded the other in the performance of that obligation. In
Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC (1952)
Lord Denning said:

“..the building owner cannot insist on a condition if it is his own

fault that the condition has not been fulfilled.”

3.11 Therefore if the Employer causes a delay to the progress of the works, he loses
his right to have the works completed within the specified time for completion,
in which case time becomes ‘at large’ and the Contractor becomes obliged to
complete within a reasonable time (as if there were no time specified at all),
and the Employer loses his rights to liquidated damages. This was expressly
confirmed in the case of Peak Construction (Liverpool) Limited v McKinney
Foundations Limited (1970).

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 “... The liquidated damages clause contemplates a failure to
complete on time due to the fault of the contractor. It is inserted by
the Employer for his own protection; for it enables him to recover a
fixed sum as compensation for delay instead of facing the difficulty
and expenses of proving the actual damages which the delay may
have caused him. If failure to complete on time is due to the fault of
both the Employer and the contractor, in my view the clause does
not bite. I cannot see how, in the ordinary course the Employer can
insist on compliance with a condition if it is partly his own fault that
it cannot be fulfilled.”

3.12 It is for this reason that it is essential that construction contracts contain an
express term that the specified time for completion may be extended in the
event that the Employer causes a delay to the progress of the works. The
inclusion of such provisions thus protect the Employer’s rights to take
liquidated damages in the event of late completion and prevents time
becoming at large by extending the specified time for completion in the event
of acts of prevention by the Employer.

3.13 Such extension of time clauses need to be carefully worded to ensure that the
power is given to extend time for delays caused by the Employer, as general
words such that may give power to extend time due to “special circumstances”
has been found by the courts not to cover Employer’s delays. (Wells v Army &
Navy Co-operative Society (1902)).

3.14 Of course most major forms of construction contract are now drafted to ensure
that delays caused by the Employer are clearly covered and further are drafted
to incorporate some risk sharing between the Employer and the Contractor and
often entitle the Contractor to extensions of time due to neutral events such as
inclement weather or other matters outside his, or the Employer’s, control.

3.15 A detailed assessment of the extension of time clauses in the other forms of
contract most commonly used in Malaysia will be made later in these notes.

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3.16 However before this assessment, consideration needs to be given to the
requirement commonly included in a contract that the Contractor must proceed
with due diligence.

4.0 DUE DILIGENCE AND BEST ENDEAVOURS

Due Diligence

4.1 The previous section has considered the obligations of the Contractor to
complete the works within a specified time for completion, and in the event of
his failure to do so, the Employer’s right to impose liquidated damages.

4.2 However, delays may occur during the progress of the works that may cause
the Employer damage but which do not delay the overall completion. Such
delays will generally not entitle the Employer to claim damages and so in an
attempt to prevent such delays occurring it is common for construction
contracts to include terms that define the manner in which the works are to be
progressed.

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4.3 Contracts normally use such terms as:

“…shall commence the execution of the Works and regularly and

diligently proceed…” (PAM 2006, Clause 21.1)

“…regularly and diligently proceed…” (PAM98, Clause 21.1)

“…proceed regularly and diligently…” (PWD 203A, Clause 51 (a)(ii)).

“…shall proceed..with due expedition and without delay…” (IEM,

Clause 38(a))

“…shall proceed with due diligence and expedition and without delay…”
(CIDB 2000, Clause 17.1 (a)).

4.4 The definition of the terms ‘diligence’ and ‘expedition’ may be illustrated by
reference to the Shorter Oxford Dictionary thus:

Diligence - “the attention and care due from a person in a given situation”,

Expedition - “the act of expediting, to perform quickly, dispatch”.

4.5 The expression “due diligence and expedition” was dealt with in GLC v
Cleveland Bridge (1984) 34 BLR 50. Here the arbitrator’s view (which was
upheld by the court) was:
“If the access date, key dates and completion date are varied or
extended the respondent could not in my view be said to be lacking
in diligence if it paced its work so as to ensure delivery consistent
with the appropriate access and key dates even though this might
have the effect of increasing the sums eventually recoverable under
the VIC [Variation In Costs] provision”.

4.6 The judge further stated that the expression ‘due diligence’ imposed “an
obligation on the contractor to execute the works with such diligence and
expedition as were reasonably required in order to meet the key dates and
completion date in the contract”.

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4.7 In the case of West Faulkner v London Borough of Newham (1994) 71 BLR 1,
the Court of Appeal acknowledged the difficulty of defining “diligently” when the
proper construction of the term regularly and diligently was considered.

4.8 The courts in this case found that:

"… the word 'regularly' is not least a requirement to attend for work
on a regular daily basis with sufficient in the way of men, materials
and plant to have the physical capacity to progress the works
substantially in accordance with the contractual obligations.

What in particular the word diligently contributes to the concept is

the need to apply that physical capacity industriously and efficiently
toward that same end. "

4.9 This approach was adopted in the Hong Kong High Court case of Trident
Engineering Company Limited v Mansion Holdings Limited wherein Deputy
Judge To elaborated by stating:

"So far as supply of materials is concerned, the contractor has to

plan his requirements ahead and ensure that the materials of the
right quality and in the right quantity are available at the right time.
This is to enable the works to progress continuously, industriously
and efficiently. The most ideal situation would be to arrange
delivery to coincide with work progress so that the materials will
arrive at the site precisely when they are wanted and be lifted to
where they are required…. If such precise delivery is not possible,
at least the contractor should ensure that a minimum stock is kept
on site which is sufficient to provide for the time required for placing
orders and delivery, plus a reasonable provision for contingency.
Otherwise, labour will be wasted while waiting for materials and
delay will result.

The term “regularly and diligently” must incorporate a wide

spectrum of diligence and regularity. At the one end of the spectrum

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 are breaches which are just short of due diligence and regularity,
such as falling slightly behind the schedule or causing some minor
interruption. At the other end are severe breaches amounting non-
performance, such as doing no more than keeping a watchman on
the site, or perhaps proceeding with a less than minimal workforce
while directing the major labour workforce to other more profitable
projects. Both are breaches of duty but with very different
consequences. The former is a minor breach sounding in damages,
while the latter is a repudiatory breach as it evinces an intention on
the part of the contractor no longer to be bound by the contract.”

4.10 Notwithstanding the absence of a precise meaning of the terms used in

contracts, it seems clear that at the very least the Contractor must organise
and order his works so as to achieve the completion dates.

4.11 Whilst this may be general rule, the situation under the CIDB 2000 Conditions
of Contract is different. CIDB 2000 Conditions (Clause 17.1 (a)) required that
“the Contractor shall proceed with due diligence and expedition and without
delay…” which is a clause importing the obligations discussed above. However
the clause goes on to state:

“… in accordance with the Contract and by reference to the work

programme and/or method statement or any revised or modified works
programme and/or method statement accepted by the Superintending
Officer pursuant to Clause 5.”

This ties in the seemingly general obligation with the Contractor’s works
programme and method statement.

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 Best endeavours

4.12 The term ‘best endeavours’ can be found in most Malaysia forms of contract in
the context of the Contractor’s obligation to mitigate delays in progress. This
term can be closely associated with the term ‘due diligence’ and ‘regularly and
diligently’ as discussed earlier.

4.13 The term ‘best endeavours’ has been defined by Vincent Powell-Smith and
David Chappel’s Building Contract Dictionary as follows: -

“It must be read in the context of the contract in order to determine

its meaning. Best endeavours, in this context, means that the
contractor must constantly do everything reasonably practicable to
prevent delay, short of incurring additional expenditure. In the
majority of cases, best endeavours means simply that the contractor
must continue to work regularly and diligently and nothing more. Put
another way, provided the contractor has not contributed to the delay
by his own fault, he can be said to have used his best endeavours.
The point is often disputed. If, for example, the contractor could
reduce delay by switching a gang of bricklayers form one portion of
the work to another and does not do so, it could reasonably be said
that he is not using his best endeavours. Similarly, if the contractor
foresees delay, he must reprogramme if it is practicable to do so”.

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THE MECHANISM AND PROCEDURES DEALING WITH EXTENSION OF TIME

5.0 EXTENSION OF TIME FOR COMPLETION CLAUSES

Condition Precedent

5.1 Most of the Malaysia standard forms of contract (under Delay and Extension
of Time for Completion) require notification of delay by the contractor to notify
the Superintending Officer, Architect or Engineer of the delay event with a copy
to the Employer. Some of the conditions of contract require more than just a
notice of delay. If a Contractor seeks for entitlement to an extension of time
under the contract, he must submit a notice of delay, written particulars,
scheduling documentation and the his proposal to reduce or prevent the delays.

However, the JKR based contracts does not have any condition precedent
requirement for extension of time claim matters.

For the sake of discussion, these apparent conditions precedent will be further
examine below.

Notices of Delay

5.2 In most standard forms of contract there is a requirement for the Contractor to
submit written notice of delays to the contract administrator. Very often there
is a time limit on the submission of such notices.

5.3 The starting point for the submission period is generally either the start of the
event giving rise to the delay, an objective test, or when it becomes reasonably
apparent that an event is likely to cause delay, a subjective test.

5.4 Most forms, internationally, do not expressly state that giving of such notice is
a condition precedent to the right to an extension of time, and the case of
Bremer Handelsgesellschaft mbh v Vanden Avenne-Izegem [1978] 2 LLR 109,
confirmed that unless it was expressly so stated the clause would not be a
condition precedent.

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5.5 An example of a condition precedent can be seen in the PAM 2006, (Clause
23.1 (a)) clearly state that notice of delay is a condition precedent to the
Contractor’s entitlement for extension of time.

Under CIDB 2000 (Clause 24.5) provides for the Superintending Officer to
grant a fair and reasonable extension of time at his discretion despite the
Contractor’s failure to serve a notice of delay with particulars.

Other forms of contract such as PAM 98, PWD 203A, and IEM are silent on
the matter of whether a notice is a condition precedent.

5.6 The fear of incorporating strict compliance provisions is that in the event of an
Employer’s delay, if the Contractor fails to serve notice and is thus prevented
from claiming an extension of time, it may be open to argument that time is set
at large because the Employer has prevented completion and no extension of
time is permissible under the terms of the contract. This proposition stems from
the decision in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd
(1970) 69 LGR 1.

5.7 However, the recent Australian case Turner Corporation Ltd v Austotel Pty Ltd
(1992) 11 ACLR 156 suggests that this fear is unfounded where it held that:

“If a Builder, having a right to claim an extension of time fails to do

so, it cannot claim that the act of prevention which would have
entitled it to an extension of time for Practical Completion resulted
in its inability to complete by that time. A party to a contract cannot
rely upon preventing conduct of the other party where it failed to
exercise a contractual right which would have negated the effect of
that preventing conduct.”

5.8 This appears to support the acceptability of notices for extensions of time being
expressly stated as being conditions precedent to the grant of an extension of
time.

5.9 However, the recent case of Gaymark Investments Pty Ltd v Walter
Construction Group Ltd (20th December 1999) has revisited this matter. In this
case, the Employer, Gaymark Investments Pty Ltd entered into a contract with

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 the Contractor, Walter Construction Group Ltd for the construction of a hotel,
retail and office complex in Darwin, Australia. Delays occurred to the progress
of the works, including a 77-day delay for which the Employer was responsible.
The conditions of contract provided that the Contractor had an entitlement to
an extension of time for delays caused by the Employer, but only where:

“The Contractor has complied strictly with the notice provisions of

sub-clause SC19.1 and in particular has given the notices required
by the sub-clause SC19.1 strictly in the manner and within the times
stipulated by that sub-clause.”

5.10 The Contractor failed to get his notice in within the 14 days required and as a
result thereof the Employer took liquidated damages for the period of his own
delay. The matter went to arbitration and ultimately to court where the judge
held:

“Acceptance of Gaymark’s submissions would result in an entirely

unmeritorious award of liquidated damages for delays of its own
making [and this in addition to the avoidance of Concrete
Constructions (the previous name of Walter Construction) delay cost]
because of the company’s failure to comply with the notice
provisions of SC19.1.”

5.11 So this case has now placed doubt again on the validity of making notice
provisions a condition precedent to an extension of time claim, in particular
where the delay is caused by the Employer.

5.12 It may be the case where strict compliance to the provision of notice is not
adhered to the Contractor will lose his entitlement to extension of time. It may
be the case also that time is set at large.

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 Other requirements for particulars, documentation, etc.

5.14 Some standard forms of contract also require the Contractor to submit detailed
particulars of the extension of time claimed, within a specified time limit.
However it is not common (although not unheard of) for such particulars to be
a condition precedent to the grant of an extension of time.

5.15 Some contracts are relaxed i.e. Examples of a contract where there are no
requirement for written particulars are:-

(a) IEM (Clause 43); and

(b) PWD 203A (Clause 43).

5.16 Examples of other contracts where there are requirements to submit

particulars:

(a) PAM98 (Clause 23) requires the Contractor to “…notify the

Architect in writing identifying the relevant events causing the delay,
giving particulars of the expected effect and an estimate of the
extension of time required. The notice shall contain sufficient
information and reason why delay to completion will result.”

(b) CIDB 2000 (Clause 24.2) requires the following to be provided:

(i) the appropriate Contract references (if applicable) to such event

of delay;
(ii) the estimated length of the delay and of the extension of time
required; and
(iii) details of the effect of the event of delay on the works
programme accepted under Clause 5.
(iv) If the details submitted are insufficient to enable the
Superintending Officer to decide on an extension of time, then
the Superintending Officer may require the Contractor to
provide further information which may reasonably be required.

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5.17 It is therefore reasonable to say that written particulars generally, should as a
minimum refer to:

(a) Contract reference to such event of delay.

(b) The background of the delay event.

(c) The length of the delay and extension of time required.

Grounds for Extensions of Time for Completion

5.18 Traditional extension of time clauses contained a list of delaying events for
which the contract administrator is empowered to grant extensions of time.

5.19 The lists generally cover two types of delays:

(a) Delays which are the responsibility of the Employer (or his
representative, the S.O.), such as variations, late receipt of necessary
information from the contract administrator, suspension of the works
or a part thereof, and delays by sub-contractors/suppliers nominated
by the Employer and any other persons employed directly by the
Employer. As stated previously, it is essential for these grounds to be
included if the Employer’s rights to have the works completed within
the specified time for completion, and his entitlement to claim
liquidated damages, are to be maintained.

(b) Delays which are caused by neutral events which the Employer has
accepted responsibility for, such as inclement weather, utility
undertakings and force majeure or special circumstances.

5.20 It is important to note that the S.O. has the authority to evaluate and grant
extensions of time for events that are expressed under the contract conditions
only and no other.

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 PWD 203A

5.21 Your standard form of contract is basically the PWD 203A. The grounds upon
which the S.O is empowered to grant extension of time read as follows;

(a) force majeure as provided under clause 58;

(b) exceptionally inclement weather;

(c) suspension of Works under clause 50;

(d) directions given by the S.O., consequential upon disputes with

neighbouring owners provided the same is not due to any act,
negligence or default of the Contractor or any sub-contractor,
nominated or otherwise;

(e) S.O.’s instructions issued under clause 5 hereof, PROVIDED THAT

such instructions are not issued due to any act, negligence,
default or breach of this Contract by the Contractor or any sub-
contractor, nominated or otherwise;

(f) the Contractor not having received in due time instructions in regard
to the nomination of sub-contractors and/or suppliers provided in
this Contract, necessary instructions, drawings or levels for the
executions of the Works from the S.O. due to any negligence or
default of the S.O. PROVIDED THAT the Contractor shall have
specifically applied in writing on the date which having regards to
the Date for the Completion stated in Appendix 1 or to any
extension of time then fixed under this clause, was neither
unreasonably distant from nor unreasonably close to the date on
which it was necessary for him to receive the same;

(g) delay in giving possession of the Site as provided under clause 38.4
hereof other than claim in effecting insurance and Performance
Bond;

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 (h) delay on the part of artists, tradesmen or others engaged by the
Employer in executing work not forming part of this Contract;

(i) the Contractor’s inability for reason beyond his control and which
he could not reasonably have foreseen at the date of closing of
tender of this Contract to secure such goods, materials and/or
services as are essential to the proper carrying out of the Works; or

(j) delay on the part of the Nominated Sub-contractors and/or

Nominated Suppliers to perform their works, due to reasons as
stated above in sub-clauses (a) to (i),

5.22 Lets look at some of the issues surrounding these grounds. The main issue
is whether the grounds are sufficient for your project?

It must realized that the PWD is used by the Government for mostly civil
works, therefore extension of time provision is tailored to suit such
circumstances. Now, your organization should examine whether this
sufficiently suits your needs or otherwise. Matters to be considered;

a. Is your site enclosed or linear in nature? If you are constructing a

condominium, then your site is enclosed, but if you are constructing
road, pipeline, drains etc. then it’s a linear site. Having a linear site, you
may not be able to get possession in one go.

b. Does the project require various submissions to various authorities

throughout the contract period? There is a possibility of delayed
approval by these authorities.

c. Does you project require various coordination with other service

provider such as TNB, TELEKOM, GAS Malaysia etc.? Coordination
time may potentially be delayed.

There are other factors than the above which may time for completion. If
all these are relevant, it make sense to add in more grounds for extension
of time.

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5.23 Always remember that by having more grounds in a contract to grant extension
of time, means lesser chance for time to be At Large. This works as an
advantage to the Employer as you preserve your rights for LAD better. It is a
misconception that having more grounds for extension of time gives advantage
to the Contractor.

DUTIES OF THE CONTRACT ADMINISTRATOR IN GRANTING

EXTENSIONS OF TIME FOR COMPLETION

5.24 There is a general duty on the Superintending Officer or Architect/Engineer to

determine a fair and reasonable extension of time. This is expressly stated in
the various clauses as follows:

(a) PAM69 (Clause 23), PAM98 (Clause 23) and PAM2006 (Clause 23.10)
require the Architect to make/give “a fair and reasonable extension of
time”.

(b) CIDB 2000 Clause 24.3(b) provides that the Superintending Officer
may extend the Time for Completion of the works “as may in his
opinion be fair, reasonable and necessary for the completion of the
Works”.

(c) IEM and PWD Form 203A Clause 43 require the Engineer/
Superintending Officer to make “a fair and reasonable extension of
time”.

To discharge this duty to grant a ‘fair and reasonable extension of time’, a

systematic approach of delay analysis must be adopted so that the S.O. will be
able to justify his decision is fair and reasonable.

5.25 Most forms of contract also expressly require the contract administrator to
make such determination for extension within a reasonable period of time,
when the matter is fresh in all parties’ minds, thus the requirements for
contemporaneous notices to be issued. This is expressly stated in the various
clauses as follows:

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 (a) IEM Form, Clause 43 and PWD Form 203A, Clause 43 require the
Engineer/Superintending Officer to make an extension of time “so
soon as he is able to estimate the length of delay”.

(b) PAM98 Conditions Clause 23 requires the Architect to fix a new Date
for Completion “within a reasonable time from the receipt of the said
notice”. This is provided the Contractor has submitted to the Architect
his application for extension of time complete with particulars and
estimates and “having regard to the sufficiency of the particulars and
estimates of the aforesaid notice”.

(c) CIDB 2000, Clause 24.3 (a) and (b) contain an express time limit of 30
days from receipt of the notice or from receipt of any further information
in which the Superintending Officer is required to notify the Contractor
whether in principle the event of delay notified by the Contractor is one
which entitles the Contractor to an extension of time. Within a further
30 days (but in any event prior to the expiry of the Time for Completion)
the Superintending Officer shall grant any extension of time that is due.

(d) Unlike any common Malaysia standard form of contract, PAM2006

Conditions Clause 23.10 stated that the Architect is not obligated to
but may within 12 weeks after the date of Practical Completion review
and fix a Completion Date later than that previously fixed, if in his
opinion the fixing of such later Completion Date is fair and reasonable
to the delay event. In the event where the fixing of such later
Completion Date affects the amount of Liquidated Damages the
Employer is entitled to retain and he shall repay any surplus amount
to the Contractor within the Period of Honouring Certificate.

5.26 It is good practice to evaluate and determine the extension of time as and when
the delaying event has occurred as the issues would still be fresh in all parties’
minds.

5.27 In practice however it is all too common for a contract administrator to delay
determining the extent of the extension until the works are complete and base
the extension of time on the Contractor’s needs at that late time. From the

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 Contractor’s perspective, in the absence of a realistic completion date can
result in the Contractor accelerating at his own cost to reduce his potential
liability to payment of liquidated damages as he would not know whether any
extension would be granted or not.

5.28 It may be the case that a delaying event continues for a considerable time thus
preventing both the Contractor from providing definitive details of the overall
effect of the delay while it persists, and also preventing the contract
administrator from assessing and granting a finite period of extension of time
for the event. The answer to this dilemma can be found in CIDB 2000
conditions which provide for an Interim Decision of Extension of Time to be
granted in circumstances where a delaying event has a continuing effect. In
accordance with Clause 24.4, the Contractor will be entitled to an extension of
time provided he submits interim particulars at intervals of not more than 30
days and final particulars within 30 days of the events causing the delay
ceasing to have effect.

Extending Time and Reducing Time

5.29 All the situations discussed above are in relation to delays occurring and when
and how the contract administrator grants an extension for the specified time
for completion.

5.30 There are however situation where an event may occur which has the effect of
reducing the amount of work, and which would on first glance reasonably
require a reduction in the specified time for completion.

5.31 The Malaysian standard forms of contract do not allow for the possibility of
reducing the time for completion (save for acceleration clauses in some
contracts which is treated as a separate matter for the time being). PAM2006
and PAM98 Clause 23.5 expressly prevent the Architect from fixing a Date for
Completion which is earlier than the original Date for Completion. It is indeed
rare for construction contracts to allow for reducing the time for completion.

5.32 However, the extension of time provisions in most forms of contract permit the
contract administrator, whether expressly or impliedly, to take into account

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 omissions ordered by variations in determining the extension of time to be
granted for delays. The effect of such a provision is that whilst the time for
completion can never be reduced, a potential extension of time to be granted
can be reduced to take account of say omitted works, resulting in a net
extension of time for fewer days but at worse (from the Contractor’s viewpoint),
no additional extension. CIDB Clause 24.3(d) is one such example.

Further review of Extension of Time by the Contract Administrator

5.33 In the more recently published forms of contract there is provision for the
contract administrator to carry out a review of extension of time already granted
(but not reduce time given) if necessary.

5.34 CIDB Clause 24.7 provides such a mechanism as follows:-

“At any time prior to the issuance of the Final Certificate under Clause 42.8
the Superintending Officer may review any previous extension of time
granted and either:

a) Fix a Time for Completion later than that previously granted if in his
opinion the granting of such longer Time for Completion is fair and
reasonable; or

b) Confirm to the Contractor the Time for Completion previously fixed.”

5.35 PAM2006, PAM98, IEM and PWD 203A do not expressly provide for any later
review by the contract administrator.

6.0 LIQUIDATED DAMAGES, TIME AT LARGE, AND CHALLENGES TO

LIQUIDATED DAMAGES

Liquidated Damages

6.1 Construction contracts often contain provisions for the payment of sums of
money in the event of particular specified breaches of contract by either party.

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 These provisions vary considerably but one of their main objectives is to act
as an inducement to due performance of a particular contractual obligation, or
to regulate beforehand in an agreed and certain manner the rights of the
parties, rather than leave them to the less predictable remedies otherwise
available, and in particular the assessment of damages in the event of the
breach of the obligation in question.

6.2 The simplest provisions of this type are provisions stating in round figures what
payments are to be made or what damages are to be in a certain event. These
are classical liquidated damages provisions, and are most commonly found in
construction contracts in relation to the Contractor’s obligation to complete the
works within the specified time. There is also situation where a formulae is
stated such as “ xx % BLR x Contract Sum/ 365days” to arrive at a rate per
day LAD. These are all acceptable provided that it is clear that the LAD
rate/day dan be determined.

Time at Large

6.3 The phrase ‘time at large’ is one of those expressions, which are often cited in
contractual arguments regarding extensions of time and liquidated damages
but of which; few people have a proper understanding. Although mentioned in
brief earlier, some explanation is required.

6.4 Brian Egglestone in his book Liquidated Damages and Extensions aptly sums
up contractors’ perceptions of time at large as follows:

"The phrase ‘time at large’ is much loved by contractors. It has about

it ring of plenty; the suggestion that the contractor has as much
time as he wants to complete the works”

6.5 Employers and their contract administrators have fundamentally different

views from the contractors. They often view the claim of time is at large to be
nothing more than an excuse used by dilatory contractors, who have failed to

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 meet their completion obligations and want to avoid the deduction of liquidated
damages.

6.6 Brian Egglestone states that time becomes at large: -

“where an act of prevention by the employer creates delay and that

delay is not covered by an extension of time provision; and, to a
lesser extent:

… where the provisions for extension of time have not been

properly administered or have been misapplied;

… where there has been waiver of the original time requirements;

… where there has been interference by the employer in the

certifying process.”

6.7 In its simplest form, time is said to be at large where there is no specific time
for completion or where a previously fixed time for completion no longer applies.
This more commonly occurs in two ways.

(a) Firstly, where agreements for work to be carried out are entered into
without a completion date, or period, being stated. Common examples
of this type of situation are found in letters of intent, which often contain
instructions to commence work without a completion time being
agreed. Where there is no subsequent agreement as to the time for
completion, then time will be said to be at large.

(b) The second situation occurs when the previously agreed time for
completion has been rendered inoperable. This can occur in a number
of ways, when the most common of which is where there is an act of
prevention by the Employer at when there is no express provision
within the contract for extending the completion date.

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6.8 This derives from a fundamental principle of commercial law that has been
established for centuries, but which was best articulated in Barque Quilpué v
Bryant (1904).

6.9 In this case Lord Justice Vaughan Williams said:

"There is a term implied into every contract by each party that he will
not do anything to prevent the other party from performing a contract
or to delay him in performing it. I agree that generally such a term is
by law imported into every contract"

6.10 Where the Employer or his agent undertake some act or omits to act which
prevents the Contractor from completing the works by the date for completion,
for example, by failing to provide necessary drawings at the appropriate time,
then he can no longer maintain that the Contractor finishes his works by the
stipulated date for completion. Time is set at large unless the contract provides
for extending the date in such circumstances.

6.11 To overcome this problem most standard forms of building contract

acknowledge that acts of prevention are a reality in construction contracts and
provide mechanisms for changing the completion obligations when certain
delaying events occur. These mechanisms, found in extension of time clauses,
gives the contract administrator the power to grant extensions of time for delay
events caused by the Employer or his agents. This allows a definite time for
completion to be maintained and preserves the Employer's rights to deduct
liquidated damages if completion should occur after the extended date.

6.12 The JCT 1963 form of contract was the form of contract (similar to PAM69)
considered in the case of Rapid Building Group v Ealing Family Housing (1984).
Due to the presence of squatters, the Employer was unable to give possession
of the site on the prescribed date. Since there was no provision to extend time
for late possession, the Contractor was successful in his argument that that
time had become at large and accordingly the obligation for completion was

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 altered to that of a reasonable time, and the Employer lost his right to levy
liquidated damages.

6.13 A similar argument was put forward in the case of Peak Construction (Liverpool)
Ltd v McKinney Foundations Ltd heard before the Court of Appeal in 1970. It
was held that, as delays on the part of the City Council in approving remedial
works to the piling were not catered for in the extension of time provisions, the
right to liquidated and ascertained damages was lost and time became at large.
The corporation was left with an entitlement to claim such common law
damages as a result of the Contractor failing to complete within a reasonable
time as it was able to prove.

6.14 It is also clear from the case of Peak Construction (Liverpool) v McKinney
Foundations Ltd (1970) that the extent of the delay caused is not a relevant
factor to be considered in assessing whether time has been set at large, even
if the delay was slight.

6.15 Lord Justice Phillimore in this case summarised the law and the rationale
behind it as follows:

“I would re-state the position because I think it needs to be stated

quite simply. As I understand it, a clause providing for liquidated
damages (clause 22) is closely linked with a clause which provides
for an extension of time (clause 23). The reason for that is that
when the parties agree that if there is delay the contractor is to be
liable, they envisage that the delay shall be the fault of the
contractor and, of course, the agreement is designed to save the
employer from having to prove the actual damage which he has
suffered. It follows, once the clause is understood in that way, that
if part of the delay is due to the fault of the employer, then the
clause becomes unworkable if only because there is no fixed date
from which to calculate that for which the contractor is responsible
and for which he must pay liquidated damages. However, the
problem can be cured if allowance can be made for that part of the
delay caused by the actions of the employer, and it is for this
purpose that recourse is had to the clause dealing with extension
of time. If there is a clause which provides for extension of the
contractor’s time in the circumstances which happen, and if the
appropriate extension is certified by the architect, then the delay
due to the fault of the contractor is disentangled from that due to
the fault of the employer and a date is fixed from which the
liquidated damages can be calculated.”

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6.16 Similarly in the case of Inserco Ltd v Honeywell Control Systems (1996),
Inserco contracted to complete all work by 1 April 1991. Due to additional and
revised work, and lack of proper access and information, Inserco was
prevented from completing the works on time. There was no provision in the
contract for extending the completion date and time was held to be at large.

6.17 The Federal Court in Malaysia held in Sim Chio Huat v Wong Ted Fui [1983]
1 MLJ 151 that a housing developer who undertook to deliver houses erected
by him to a landowner, was not liable for liquidated damages because the
landowner had instructed for additional work to be done when their agreement
contained no clause for extension of time for completion. Time became at
large and consequently there was no date from which damages could run and
therefore no liquidated damages could be claimed.

6.18 The Supreme Court of Malaysia held in Thamesa Designs Sdn Bhd v Kuching
Hotels Sdn Bhd [1993] 3 MLJ 25 that the Employer was not entitled to deduct
liquidated damages because site possession was handed over late to the
Contractor and there was no extension of time provision for late possession.

6.19 Whilst some standard forms are corrected by way of special conditions of
contract, in some instances it is not and on these occasions the Contractor will
have grounds to argue that time has become at large due to the failure of the
Employer to discharge his obligation or other acts of prevention not expressly
provided for within the extension of time provisions.

6.20 Some contract draftsmen attempt to close this loophole by using general
‘catch-all’ expressions in the extension of time clause such as ‘other causes
beyond the contractor’s control’. However the courts in the case of Wells v
Army & Navy Co-operative Society Ltd (1902) 86 LT 764 held that words such
as these did not cover delays caused by interference of the Employer or the
architect, and accordingly an extension of time could not be granted and time
was set at large. Therefore the contract will need to give express provisions to
extend time where the Employer has prevented performance and general
clauses will not suffice.

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6.21 An example of specific provision that seems to cater for Employer’s delays is
included in PAM 98 Conditions at Clause 23.7 (ix) which states:-

“any act of prevention or breach of contract by the Employer not

mentioned in this Clause 23.7”

6.22 Another example of such provision is available in PAM 2006 Conditions at

Clause 23.8(m) which states:-

“any act of prevention or breach of contract by the Employer”

6.23 In circumstances where time is said to be at large, the Contractor's duty is then
to complete the works within a reasonable time. Further where time is at large,
the Employer loses his right to deduct liquidated damages since there is not a
time from which liquidated damages can run, there therefore can be no
upholding of the clause. Any claims for damages for late completion (beyond
what may be considered a reasonable time) will have to be made on the basis
of general damages, the amount of which must be proven to have had incurred.

Completion within a Reasonable Time

6.24 If time is at large, then as mentioned, the Contractor’s duty is to complete within
a reasonable time – but what is a reasonable time?

“If time does become ‘at large’, the contractor’s obligation is complete
within a reasonable time. What is a reasonable time is a question of
fact.” -- Fisher v Ford (1840) 12 Ad & El 654.

Whilst a profound statement, it gives no great assistance in practice and has

led to writers on construction law being divided as to how a reasonable time
should be calculated. Calculating a reasonable time remains a notoriously
difficult exercise and depends on the circumstances of each case.

6.25 The opinions fall into two main categories: -

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 (a) The starting point for calculation should be the original completion time
onto which should be added extensions of time for the delays occurring
prior to time becoming at large. Thereafter a reasonable time allowance
should be added in respect of the acts of prevention in which have
caused time to be at large. Therefore this method results in a time in
which is the same as that which would have been calculated had the
act been covered by the extension of time clause in the first place. This
view is in general terms the view advocated in Hudson's.

(b) The second option is to consider that the original time was not
reasonable, in that it was a time agreed between the parties usually
under competition and for a price which included the risk of late
completion. If this being the case that time is argued, it should not be
used as a starting point for calculating a reasonable time. This latter
view appears to receive some support in Emden’s Building Contracts
8th edition Volume 1 at page 177:-

‘Where a reasonable time for completion becomes substituted

for a time specified in the contract … then in order to ascertain
what is a reasonable time, the whole circumstances must be
taken into consideration and not merely those existing at the
time of the making of contract.’

6.26 Given the disparity of views on this subject, there is presently no prevailing
legal authority regarding on which of the above is the correct approach to adopt
in assessing what constitutes a reasonable time.

6.27 To summarise, the circumstances where time is at large does continue to occur
within construction contracts. Generally this occurs when there is no agreed
time for completion or where a previously agreed time has been rendered
inoperable, usually under the circumstances of there are no express provision
to extend time as a consequence of prevention by the Employer. Whether the
courts will accept that a reasonable time is as long as it takes or whether they
will merely extend time as if there was an extension of time provision is unclear.

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 However it is clear that when time is at large the Employer no longer has a
right to deduct liquidated damages.

Other Common Challenges to Liquidated Damages

6.28 Liquidated damages are levied when the Contractor achieves the specified
degree of completion later than the date by which he has contracted to do so
subject, of course, to the provisions within the contract for extending the
completion date.

6.29 This being the case the most common defences raised by contractors to the
imposition of liquidated damages are: -

(a) That there is entitlement to have the time for completion extended
beyond the date that has been awarded by the contract administrator;

(b) That the specified degree of completion was achieved at a date earlier
than the date certified.

6.30 Even after these matters have been resolved contractors may still be faced
with a liability for liquidated damages and in these situations the contractors
will often seek to challenge the enforceability of the liquidated damages.

6.31 Before addressing potential challenges to liquidated damages it is prudent to

revisit the nature and intention of liquidated damages clauses, which are:

• An amount agreed between the parties to be paid in the event of non-

performance of a contractual obligation
• This provides some certainty to the Employer as to the amount which he
will be entitled to recover in the event of non-performance, and apart from
Malaysia, without having the difficulty of proving loss.

• During tender stage it also provides contractors with certainty as to the

extent of the risk they are taking and allow them to estimate and price this
risk within their tender.

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6.32 Most construction contracts provide a contractual mechanism which allows the
Employer to deduct liquidated damages from amounts due to the Contractor
and as such it is common for the Contractor being in the position of taking the
action to recover damages which they consider to have been wrongly deducted.
The most common grounds for such challenges are addressed below.

Liquidated Damages as a Penalty

6.33 Where the courts hold that a liquidated damages provision constitutes a
penalty the sums will not be enforceable. This ground which is available in the
UK is however not available in Malaysia. Under section 75 of the Malaysian
Contracts Act 1950, there is no distinction made between liquidated damages
and penalties. Both are treated in the same way. Section 75 states: -

“When a contract has been broken, if a sum is named in the contract

as the amount to be paid in case of such breach, or if the contract
contains any other stipulation by way of penalty, the party complaining
of the breach is entitled, whether or not actual damage or loss is
proved to have been caused thereby, to receive from the party who
has broken the contract reasonable compensation not exceeding the
amount so named or, as the case may be, the penalty stipulated for.”

There is No Loss

6.34 On some occasions despite a delay to a project, which is the responsibility of

the Contractor, there may be no loss suffered by the Employer. More
commonly the Contractor may consider that the loss suffered by the Employer
is significantly less than is provided for in the liquidated damages provisions
and in the UK contractors may seek to raise a challenge to enforcement on the
basis that the sum is a penalty.

6.35 It was said by Lord Woolf in the Hong Kong case of Philips Hong Kong Ltd v
The Attorney General of Hong Kong (1993):

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 “Since it is to their (the parties) advantage that they should be able
to know with a reasonable degree of certainty the extent of their
liability and the risk which they run as a result of entering into the
contract. This is particularly true in the case of building and
engineering contracts. In the case of those contracts provision for
liquidated damages should enable the Employer to know the extent
to which he is protected in the event of the contractor failing to
perform his obligations.”

6.36 In the case of BFI Group of Companies Ltd v DCB Integration Systems Ltd
(1987) a contract had been let using the JCT Minor Works Form to alter and
refurbish offices and workshops. A dispute arose concerning liquidated
damages and was referred to arbitration. The arbitrator held that there had
been a delay in completion but declined to award liquidated damages on the
grounds that the Employer had suffered no resulting loss.

6.37 An appeal was lodged against the arbitrator’s award. His Honour Judge John
Davies QC who instinctively disliked provisions for liquidated damages heard
the appeal. He however decided that the liquidated damages clause
automatically came into play when the Contractor without contractual
justification completed late and the Employer was not required to demonstrate
that he had suffered loss. The arbitrator was wrong in law in refusing to award
payment of liquidated damages.

6.38 In summary following the decision in BFI Group of Companies v DCB

Integration Systems Ltd (1987) an Employer may, where provision is made in
the contract, deduct liquidated damages even though he has suffered no loss
in the event.

Malaysia and No loss

6.39 In Malaysia, the position on the deduction of liquidated damages is somewhat

different. The Federal Court in Malaysia has decided that section 75 of the
Contracts Act 1950 has limited application. This arose in the case of Selva

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 Kumar v Thiagarajah [1995] 1 MLJ 817 involving the sale of a medical clinic
where payment by instalments by the purchaser was delayed. The vendor in
turn imposed liquidated damages pursuant to the sale agreement. The Federal
Court, in interpreting section 75 in essence held as follows: -

(a) A plaintiff who is claiming for actual damages in an action for breach
of contract must still prove the actual damages or reasonable
compensation in accordance with settled principles in Hadley v
Baxendale [1854] 9 Exch 341. Any failure to prove such damages will
result in the refusal of the court to award such damages.

(b) Where there is no known measure of damages employable, and yet

the evidence clearly shows inherently some real loss that is not too
remote, section 75 will apply.

(c) In any event, the damages awarded must not exceed the sum in the
contract for liquidated damages.

6.40 The principle in Selva Kumar’s case requiring proof of actual loss before
imposing liquidated damages has been applied to construction contracts (e.g.
Lion Engineering Sdn Bhd v Pauchuan Development Sdn Bhd [1997] 4 AMR
3315). Employers in Malaysia must therefore be able to prove actual loss
before imposing liquidated damages.

Timescales Not Observed

6.41 Other challenges arise where the Contractor considers that the contract
administrator has not administered the contract correctly in relation to the
extension of time provisions and accordingly liquidated damages provisions
are rendered unenforceable.

6.42 Many modern contracts such as JCT 80 and ICE 6th Edition, and CIDB 2000
lay down timescales within which extension of time awards are to be decided.
The question arises as to whether a failure by the contract administrator to

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 comply with these timescales would be fatal to the Employer’s right to deduct
liquidated damages?

6.43 There have been two legal cases where this question has been considered.
Temloc v Errill Properties Ltd (1987) 39 BLR 34 and Aoki Corp v Lippoland
(Singapore) Pte Ltd (1994).

6.44 The case of Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 34 arose out of
a contract let using JCT 80. The Architect is required by the terms of the
contract to make decisions concerning extensions of time within a time scale.
With regard to the effect on the Employer’s entitlements should the Architect
fail to give his decision within the timescale, Croom-Johnson LJ in the Court of
Appeal had this to say:

“He says that that means that the certificate by the Architect fixing
the later completion date shall be given not later than the expiry of
twelve weeks from the date of practical completion.

In this case that period of twelve weeks was exceeded. Mr Machin

therefore submits that it was a condition precedent to the operation
of clause 24.2 (the liquidated damages clause) which was not
complied with. But the certificate referred to in clause 24.1 and
24.2.1 [Architect’s non-completion certificate] is not the certificate
which fixes the later completion date. It is a certificate which tells
the contractor that his liability to pay liquidated damages at the
agreed rate has begun.

In my view, even if the provision of clause 25.3.3 [requirement for

the Architect to review extensions of time within 12 weeks of
practical completion] is applicable, it is directory only as to time
and is not something which would invalidate the calculation and
payment of liquidated damages. The whole right of recovery of
liquidated damages under clause 24 does not depend on whether
the Architect, over whom the contractor has no control, has given
his certificate by the stipulated day.”

6.45 A similar matter was the subject of the decision in Aoki Corp v Lippoland
(Singapore) Pte Ltd (1994) in respect of Clause 23.2 of the SIA Conditions of
Contract where it was held that there is no rule that delay in the issue of the

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 delay certificate after the date for completion or the latest extended date for
completion, renders the delay certificate invalid.

6.46 It would seem that failure by the contract administrator to make a decision
concerning extensions of time within a timescale laid down in the contract is
not fatal to the Employer’s rights to deduct liquidated damages.

6.47 In summary it appears contracts such as JCT 80 which provide a timescale

within which the Architect must grant an extension of time and do not state
what effects a failure to comply with the timescales will have upon the
Employer’s rights to deduct liquidated and ascertained damages. The
decisions in Temloc v Errill Properties Ltd and Aoki Corp v Lippoland suggest
that provided a proper decision is made by the Architect concerning extensions
of time, a failure to meet the deadline will not affect the Employer’s rights.

Certificate Not Valid

6.48 There are some standard forms of contract that does make reference to the
contract administrator issuing a certificate when the Contractor fails to
complete on time. These provisions can be found in clause 22 of the PAM
forms, clause 40 of the PWD 203 and IEM forms and clause 26 of CIDB 2000.

6.49 The question is whether, in the absence of the Architect’s certificate, the
Employer remains entitled to deduct liquidated damages where the Contractor
finishes late.

6.50 The procedure was the subject of a decision of the High Court in the case of
A. Bell and Son (Paddington) Ltd v CBF Residential Care and Housing
Association (1989) 46 BLR 102. A. Bell, the Contractor, entered into a contract
with CBF Residential Care for the construction of an extension to Heinrich
Stahl House, The Bishops Avenue, London N2. The contract adopted the JCT
80 form Private Edition with Quantities. A date for possession of the site was
given as 28 May 1985 with a date for completion of 28 February 1986.
Liquidated damages for late completion were stated to be £700 per week.

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6.51 Work commenced on time but completion was not achieved by 28 February
1986. The Contractor served a delay notice and Mr Mellinge, the Architect,
granted an extension of time to provide a new completion date of 25 March
1986. Completion however, was not achieved by the new date for completion.
At this stage the Employer, CBF Residential Care considered that as
completion was late, liquidated damages would be due. JCT 80 requires the
Architect to issue a certificate of non-completion and provides for the Employer
to write to the Contractor indicating an intention to deduct liquidated damages.
Both Architect and Employer complied with this procedure. However,
subsequently the Architect had second thoughts and granted two further
extensions of time. The first extended the completion date to 14 April 1986,
then second further extended the date to 21 April 1986. Unfortunately the
Contractor did not complete the work until 18 July 1986 when the Architect
issued a certificate of practical completion. A long delay then occurred before
the Architect on 3 December 1987 granted another extension of time extending
the completion date to 20 May 1986. There was still however a shortfall
between the dates of 20 May 1986 by which time the Contractor should have
completed at 18 July 1986 when practical completion was achieved.

6.52 The Architect issued a Final Certificate on 25 February 1988 but the balance
due was reduced by £4,900 before payment in respect of liquidated damages.
It was argued by the Contractor that liquidated damages should not have been
deducted as the procedures required by JCT 80 had not been properly
complied with. Following his first granting of an extension of time showing a
revised date for completion of 14 April 1986, the Architect had issued a non-
completion certificate indicating that the Contractor had failed to achieve this
date. However, following the granting of further extensions of time it was
argued that the non-completion certificate should have been re-issued to
reflect the revised dates for completion. In the absence of properly re-issued
non-completion certificates the Employer, it was argued, lost the right to deduct
liquidated damages. The Architect had issued a Final Certificate and it was
therefore too late to re-issue the certificate.

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6.53 In finding in favour of the Contractor and ordering that the £4,900 be repaid
plus interest and costs, the court held:

“Construing clause 24.1 strictly and in accordance with its plain and
ordinary meaning, it demands the issue of a certificate when a
contractor had not completed by “the completion date”.... I think that
when a new completion date is fixed, if the contractor has not
completed by it, a certificate to that effect must be issued, and it is
irrelevant whether a certificate has been issued in relation to an
earlier, now superseded completion date.”

“Construing clause 24.2.1 in a similar manner to clause 24.1, since

the giving of a notice is made subject to the issue of a certificate
of non-completion, if the certificate is superseded, then logically
the notice should fall with it. ... If a new completion date is fixed,
any notice given by the Employer before it is at an end.”

6.54 Accordingly the condition precedent to the permissible deduction of liquidated

damages, i.e. the issue of an Architect’s non-completion certificate had not
been fulfilled and the Employer therefore lost the right to deduct liquidated
damages.

6.55 The matter of a non-completion certificate was again referred to in J F

Finnegan v Community Housing (1993) when it was held that a written notice
from the Employer under JCT80 is a condition precedent to the right to deduct
liquidated damages.

6.56 In Malaysia, the issue of a non-completion certificate was raised in Lion

Engineering Sdn Bhd v Pauchuan Development Sdn Bhd [1997] 4 AMR 3315.
The High Court held that clause 22 of PAM 69 clearly requires the Architect to
certify in writing the non-completion of the works before the defendant is said
to be entitled to deduct liquidated damages as the certificate of non-completion
is a condition precedent to the deduction of liquidated damages.

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6.57 In summary the Employer will lose the right to deduct liquidated damages
where fails to issue a proper non-completion certificate under clause 24.1.

Provisions Void for Uncertainty

6.58 One of the essential features of liquidated damages provisions is that they
provide certainty to the parties as to the amount to be recovered/ paid in the
event of non-performance. This was highlighted by Lord Woolf in the Hong
Kong case of Philips Hong Kong Ltd v The Attorney General of Hong Kong
(1993) as illustrated earlier.

6.59 Given that certainty is one of the essential features of a liquidated damages
provision there is authority from Bramall & Ogden v Sheffield City Council
(1983) that where provisions for liquidated damages can be shown to be
uncertain or inconsistent they will be held to be unenforceable.

6.60 In this case the terms of the contract were inconsistent with the amounts for
liquidated damages stipulated in the appendix to the contract in relation to
sectional completion. This was held to cause uncertainty and despite the fact
that the Employer chose to interpret this uncertainty in a reasonable manner.
The courts held that this could not affect the position at law and that the
liquidated damage provisions were unenforceable as being void for uncertainty.

Effect of a Successful Challenge to Liquidated Damages

6.61 If as a result of a successful challenge the Employer would still be entitled for
general damages for the period of culpable delay. The measure of these
damages will be to place the Employer in the same situation, with respect to
damage, as if the Contract had been performed (Robinson v Harman (1848)).

6.62 Whilst this may ultimately result in the calculated damages being in excess of
the amount of liquidated damages, Malaysia aside, the important distinction is
that the Employer will have to prove such damage occurred before becoming
entitled.

6.63 Further there is a school of thought that general damages cannot exceed the
amount stipulated as liquidated damages however despite there being no UK

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 authority for this proposition, this principle has been accepted by the Canadian
courts in Elsley v J G Collins Insurance Agencies Ltd.

7.0 CONTRACTORS AND SUB-CONTRACTORS IN LIQUIDATION

7.1 In practice, it is often the case where the Contractor withholds or delays
payment due to the various nominated sub-contractors or his other domestic
sub-contractors, thus constricting their cash flow. As a result, the various sub-
contract works would suffer delays which would turn into a collective detriment
to the Employer. Those sub-contractors who are small in size and capital may
easily wind up in liquidation.

7.2 The underlying assumption in cases like North-West Metropolitan Regional

Hospital Board v. TA Bickerton & Sons Ltd [1970] 1 All ER 1039, where this
principle was established, is that the Contractor does not have the right nor
duty to carry out the work himself.

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8.0 TECHNICAL MATTER: PROGRAMME FLOAT AND CONCURRENT DELAY

8.1 Two topics create considerable difficulty in determining a proper entitlement to

extension of time.

8.2 These are:

(i) Programme float, and who owns it

(ii) Concurrent delays

Programme Float, and Who Owns It?

8.3 Float is the time available to an activity or path in addition to its duration.

8.4 Taking the simplest possible example, if a Contractor has (say) 100 days in
order to construct a house, and programmes to carry out the task in 90 days,
then there is 10 days float in the programme, thus;

Figure 1

Build house Float

90d 10d

8.5 If at the outset, the Employer cannot give possession of site for 5 days, the
Contractor loses 5 days through no fault of his own.

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8.6 The question then arises as to whether or not an extension of time is due. Most
Architects or Engineers (“Consultants”) would say no for the simple reason that
there has been no delay to completion.

8.7 However, it should be borne in mind that a completion period (in this case 100
days) sets out two things:

“in the contract one finds the time limited within which the builder
has to do the work. This means not only that he has to do it within
that time, but it means also that he is to have that time within which
to do it ...” (Lord Justice Vaughan Williams’ observation in (Wells
v Army and Navy Cooperation Society (1902)).

8.8 In this analysis, then the builder has been denied his period of 100 days. This
may provide an entitlement to a claim for loss and expense, but under most
conditions of contract would not provide an entitlement to extension of time.
Generally, the only contractual reason for awarding extension of time is to
preserve the liquidated damages and adjust time to avoid them. The only
grounds for awarding extension of time (generally) is where a relevant event is
likely to, or has delayed completion of the works beyond the completion date or
extended completion date. It therefore remains the case in this example that
there would be no entitlement to EOT, thus:-

Figure 2

Delayed
procession

Build house Float

5d

90d 5d

Page 115 of 210

8.9 If the builder now finds himself in delay due to problems which do not qualify as
a relevant event, and these problems delay the whole construction by 10 days,
then the following arises:

Figure 3

Delayed
procession 100d

Build house Delay

5d

95d 5d

8.10 The question then arises as to whether or not an extension of time is due.

8.11 Arguments abound about who “got to the float “first, and who “owns the float”.

8.12 Perhaps the first observation should be that even though a Contractor
programmes to achieve early completion, he has no obligation to do so
(Glenlion Construction Ltd v The Guiness Trust (1987) 30 BLR 89). It should
be borne in mind that (unless otherwise provided) a programme is no more
than a management tool, a budget for time prepared by the Contractor, and
does not alter his contractual completion obligation.

8.13 It follows that the consultant only denies EOT due to late possession when
viewed at the outset of the contract, because at that time, late possession is
not likely to cause delay to completion. However, at some point during the
works, it will become apparent that the builder does indeed need his 100 days
(which he is entitled to) and at that point an EOT is due because the completion
date is likely to be delayed due to late possession of site.

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8.14 The question arises “will this provision be practical and workable for the benefit
of the Employer?”

8.15 A smart Contractor upon noticing this provision will definitely programme his
work, allowing for only minimal float.

8.16 A problem that may arise if float is said to be owned by the Employer is when
the Contractor does not perform the works in the sequence, logic and duration
shown in the Baseline Works programme. If this happened, the float shown in
the Baseline Work Programme is far from reality to be genuine and accurate.
It is then unreasonable for the Employer to insist that the float be taken away
for his benefit. Furthermore it is important to note that for this provision to work
the Baseline programme must be specified to form part of the contract. But in
most contracts the Baseline Programme is uncommon to be part of the terms
of the Contract.

8.17 Therefore, if any of the above (8.14 and 8.15) occurred, it is unlikely that one
can gain practical benefit for expressing that a float belongs to the Employer.
Nevertheless, it clears up the issue of who owned the float.

8.18 The purpose, ownership and use of float have generated much controversy
over the recent past. Prior to the development of computers and supporting
programming software, assessments of delay were somewhat impressionistic.
This is no longer acceptable (John Barker Construction Ltd v London Portman
Hotel Ltd (1997) 83 BLR31). Courts (if not arbitrators) move rather slowly in
following technical developments, but it does seem to be the case that they
now accept that delay assessments must have regard to critical paths as
represented by critical path analysis or logic linked programmes. (The Royal
Brompton Hospital National Health v Watkins Gray International and Others
[QBD 2000]). These inevitably show activities with their respective floats and
are used as models.

8.19 Until recently, there has been little technical or legal authority. This is changing
slowly. Keith Pickavance has written “Delay and Disruption in Construction
Contract” (second edition) and this (amongst others) offers more
comprehensive guidance than was formerly available. At Chapter 14, he deals

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 with float, and its ownership, and quotes from various legal authorities mainly
American. He gives examples somewhat similar to the above and illustrates
the possible outcomes.

8.20 Clearly, if (as appears common in America) float is expressly dealt with in the
contract, and its ownership defined (say) as belonging to the Contractor, or
shared between Contractor and Employer, then this dictates the analysis for
EOT purposes.

8.21 Pickavance gives various examples based upon the premise that “no time
extensions are allowed until the float is exhausted on the activity in question.
These clauses permit the individual who “gets to” the float first to gain the
benefit of the float. This also makes good sense when the causation principle
of “proximate cause” is considered”.

8.22 He illustrates this as follows:-

Figure 4
Start Original Completion

X Activity A – 30 days

Activity B – 10 days

Start Original Completion

Y Activity A – 30 days
D’s delay 10 days Activity B – 10 days

Start Original Completion

Z Activity A – 30 days 10 days delay
C’s delay 10 days

D’s delay 10 days Activity B – 10 days

Note: D is Developer, C: Contractor

Page 118 of 210

8.23 In example X, the original programme intentions are set out, showing Activity B
as having 10 days float, and being none critical.

8.24 In example Y, the Developer causes 10 days delay and this result in no delay to
completion, merely absorbing float. No EOT is due.

8.25 In example Z, the Contractor causes delay himself thereby pushing completion
into a 10 day delay. According to Pickavance’s, “proximate cause” interpretation,
this would mean that the last cause of delay takes responsibility and in example
Z, the Contractor would be liable.

8.26 Conversely, if example Z| below arises thus:-

Figure 5

Start Original Completion

Z| 10 days delay
Activity A – 30 days
D’s delay 10 days

C’s delay 10 days Activity B – 10 days

8.27 In this situation, because the Contractor got to the float first, the “proximate
cause” of delay would be the Developer’s responsibility and EOT would be
justified.

8.28 This whole theory relies upon the thesis that liability attaches to the last cause of
breach.

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8.29 The term “proximate cause” arises principally in insurance. Traditionally, the term
has been interpreted to mean that the last cause in point of time takes
responsibility. However, recent authority appears to have discredited this view. A
cause is “proximate” if it operated with reasonable certainty to occasion the loss).
The Judgment of the House of Lords in Leyland Shipping Co Ltd v Norwich Union
Fire Ins Sy Ltd [1918] AC 350 marks the end in England of an earlier rule that
looked at the last cause in point of time; cases decided before Leyland should be
treated with caution, unless cited with approval in that or later cases. (The Law of
Insurance Contracts Third Edition – Malcolm A Clarke). It does appears that the
rule that looks to the last cause survives in parts of the United States, and this
may account for the approach adopted by Pickavance, who pays much attention
to such cases.

8.30 One recent authority which lends some assistance is the case of Ascon
Contracting Limited v Alfred McAlpine Construction Isle of Man Limited (October
1999).

8.31 Ascon claimed extensions of time for completion of its sub-contract works.
McAlpine (the main contractor) denied that Ascon was entitled to extensions of
time and counter-claimed that the delayed completion of the main contract works
was entirely the consequence of Ascon’s delays.

8.32 The main contract programme contained float totalling 5 weeks. McAlpine
argued that it was entitled to use the float, if it so chose, to absorb the effect of its
own delays and delays caused by other sub-contractors, leaving Ascon solely
liable for the whole of the delayed completion of the main contract. Judge Hicks
held that float was not in the gift of the main contractor in this way. He confirmed
that the correct approach is to follow the usual legal analysis of the issues of
breach, loss and the causal link between the two.

8.33 Judge Hicks went on to give a hypothetical example. In that example, 6 sub-
contractors each caused delay of one week to the main contract. The main
contract programme contained 5 weeks’ float, and completion was therefore
delayed by 1 week. The judge suggested that, in such circumstances, the

Page 120 of 210

 defaulting sub-contractors would be entitled to share equally in the benefit of the
float and should bear equally the liability for the delayed completion.

8.34 This decision has attracted criticism from certain quarters, with critics relying
upon the view that if the float has been exhausted by the time that sub-contractor
number six causes delay, then on a proper analysis it would seem that he is liable
for the while of the delayed completion, the other five having taken the benefit of
the float.

8.35 Without entering a debate on the relevance of insurance authorities or the

propriety of the last cause approach, it is submitted that Judge Hick’s approach
in Ascon fits very sensibly with most conditions of contract where EOT clauses
require a fair and reasonable extension of time, and where there is no authority
to argue that merely because a party is responsible for the latest delay, that party
is denied use of the float because it has by then expired, and assumes
responsibility for delay. “Determining the proximate cause of loss is simply the
application of common sense”. The proximate cause is that which predominates.
(Modern Insurance Law John Birds Third Edition P218).

Concurrent Delays

8.36 Frequently, there is perceived to be more than one cause of delay operating at
the same time. This is referred to as a concurrent, parallel or competing delay.

8.37 Clearly, difficulties may arise where the causes of delay which are concurrent fall
to be treated differently under the conditions of contract, i.e. they may be any
combination of Contractor, Employer or neutrally caused delays, each
combination with different ramifications.

8.38 Before discussing the various techniques or approaches for dealing with
concurrency, it is desirable to be more precise about what it means, and when or
whether it has occurred.

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8.39 It should be appreciated that true and absolute concurrency where two or more
activities are delayed precisely in parallel with the same start, and end dates, is
relatively rare. Concurrency then is said to exist only when two (or more) delays,
each of which affect completion (i.e. they are critical items) occur at the same
time.

8.40 Concurrency is only significant where both delaying events are critical to
completion. If one of the events is not critical, and the other is, the delays may
be concurrent, but in terms of delay to completion, there is no concurrency.

8.41 In order to illustrate what that mean, the following scenario pose regarding a
simple steel framed building:-

Figure 6 Steel Frame Building – Original Plan

10d
Install Piles
7d
Pilecaps
10d
G/F Slab
30d
Erect Steel Frame

20d
Fabricate Steel Frame
Float
7d

1) Consider a simple construction involving the erection of a small steel

framed building.

2) The critical path initially runs through the concrete foundations and
erection of the structural steel.

3) Note that the fabrication activity has some 7 days float.

Page 122 of 210

8.42 Now consider the “as built” programme thus:

Figure 7 Steel Frame Building – As Built

10d
Install Piles
3d 7d
Pilecaps
(A) 10d
G/F Slab

30d
Erect Steel Frame

10d 10d 10d Completion Delayed by 3 days

Fabricate Steel Frame
(B)

(A) = Excusable Delay, e.g. additional rebar for pilecaps

(B) = Culpable Delay, e.g. shortage of welders

a) As-built situation shows slippage occurred during construction of Pilecaps

(A) and Steel Fabrication (B).

b) When viewing this scenario retrospectively, the consultant may argue that
the delays are concurrent. Furthermore, he may say that the Contractor,
due to his own culpable delay could not have commenced erection of the
Steel Frame any earlier than he actually did. This being so, delay A had no
effect and there is no entitlement to EOT.

c) At first glance this seems reasonable or at least arguable, but this may in
fact wrong in terms of basic legal principle and also because it is a
misinterpretation of the critical path.

8.43 Referring back to Figure 6, the baseline programme and tracking the events, it is
possible to see whether there is true concurrency in terms of critical activities, and
whether any entitlement to EOT exists:-

Page 123 of 210

 Figure 8 Steel Frame Building – After 13 days
10d
Install Piles
3d 7d
Pilecaps
(A) 10d
G/F Slab

30d
Erect Steel Frame

10d 10d Completion Delayed by 3 days

Fabricate Steel Frame
(B)

(A) = Excusable Delay, e.g. additional rebar for pilecaps

(B) = Culpable Delay, e.g. shortage of welders

1) Status of project after 13 days.

2) The delay to Pilecaps still drives the date for completion and thus is
ultimately critical.

3) At this stage the ‘concurrent’ delay to fabrication is not impacting the

completion of the project.

8.44 It follows from the above that under most conditions of contract, the Contractor
would give notice of delay to completion of the Works in respect of Item A and
not Item B, and the Engineer would duly take account of what was critical at the
time. It is clear from the critical activities that at that time Item A is the only cause
of delay to completion.

Figure 9 Steel Frame Building – After 19 days

10d
Install Piles

3d 7d
Pilecaps
(A) 10d
G/F Slab

30d
Erect Steel Frame

10d 9d 10d Completion Delayed by 3 days

Fabricate Steel Frame
(B)

(A) = Excusable Delay, e.g. additional rebar for pilecaps

(B) = Culpable Delay, e.g. shortage of welders

Page 124 of 210

 1) Status of the project after 19 days.

2) The delay to Pilecaps is now complete and normal progress has

resumed.

3) The delay to Fabrication is still ongoing, however it can be seen that

the shortage of welders is still not impacting the date for completion.

4) Taking this point through to its obvious conclusion, it is apparent that

Steel Fabrication was indeed never critical to the completion of the
building.

5) Therefore, these delaying events are not concurrent in terms of critical

activities and the Contractor should be awarded time against the
excusable delay (A).

8.45 It can be seen by use of the windows techniques that the delays at A and B, whilst
partially concurrent in terms of time, are not concurrent in terms of critical
activities. The delay at B can continue for a further day before any critical delay
takes place. After that, any delay will not attract EOT.

8.46 Taking the same scenario, an example of true concurrency may be seen as
follows:-

Figure 10 Steel Frame Building – Original Plan

10d
Install Piles
7d
Pilecaps
10d
G/F Slab
30d
Erect Steel Frame

27d
Fabricate Steel Frame

Page 125 of 210

8.47 In this situation, the fabrication is critical, the float having been removed. Moving
them to the next scenario.

Figure 11 Steel Frame Building – After 13 days

10d
Install Piles

3d 7d
Pilecaps
(A) 10d
G/F Slab

30d
Erect Steel Frame

10d 17d Completion Delayed by 3 days

Fabricate Steel Frame
(B)

(A) = Excusable Delay, e.g. additional rebar for pilecaps

(B) = Culpable Delay, e.g. shortage of welders

8.48 In this circumstance, genuine concurrency arises, and the consultant is faced with
the dilemma as to how to deal with the matter.

8.49 Now, turn to the treatment of concurrency.

8.50 There are several principal approaches to concurrency. The following are the
several principle approaches used to deal with concurrency in assessing cost
claims;

Principal Theories
 Devlin Approach
 Dominant Cause

 Burden of Proof
 Benefit from One’s Own Default

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8.51 Crucially, these approaches take into account the effects of delay both on an
entitlement to EOT and also, their effect on entitlement to damages. Keating in
“Keating on Building (6th Edition)” summarised the position as follows:-

“(1) the Devlin approach. If a breach of contract is one of

two causes of a loss, both causes co-operating and both
of approximately equal efficacy, the breach is sufficient to
carry judgment for the loss. This would apply where for
example there were two competing causes of delay which
entitled a contractor to an extension of time, excessively
adverse weather and late issue of instructions by the
Architect. Following the Devlin approach the contractor
would be entitled to extra time and loss and expense.

(2) the Dominant cause approach. If there are two causes,

one the contractual responsibility of the defendant and the
other the contractual responsibility of the plaintiff, the
plaintiff succeeds if he establishes that the cause for
which the defendant is responsible is the effective,
dominant cause. Which cause is dominant is a question
of fact, which is not solved by the mere point of order in
time, but is to be decided by applying common sense
standards.

(3) the Burden of proof approach. If part of the damages is

shown to be due to a breach of contract by the Claimant,
the claimant must show how much of the damage is
caused otherwise than by his breach of contract, failing
which he can recover nominal damages only”. An
example would be delays caused by correcting defective
work running at the same time as a delay caused by the
Employer. Little in the way of extra cost would be
recoverable, but more time would be allowed”.

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8.52 The dominant cause of delay theory has recently been rejected by the Courts in
the case of H Fairweather and Co Ltd v London Borough of Wandsworth (1987)
39 BLR 106. H Fairweather and Co Ltd were the main contractors for the erection
of 478 dwellings for the London Borough of Wandsworth employing JCT 1963
(July 1973 revision). Long delays occurred and liability for those delays and other
matters were referred to arbitration.

8.53 With regard to the delays the Architect granted an extension of eighty-one weeks
under conditions 23(d) by reason of strikes and combination of workmen. The
quantum of extension was not challenged but Fairweather contended before the
arbitrator that eighteen of those eighty-one should be reallocated under condition
23(e) or (f). The reasoning behind the contention was that only if there was such
a reallocation could Fairweather ever recover direct loss and expense under
condition 11(6) in respect of those weeks reallocated to condition 23(e) or
condition 24(1)(a) in respect of those weeks reallocated to condition 23(f).

8.54 The arbitrator’s reasons are to be found in sections 6.11 and 6.12 of his interim
award:-

“6.11 It is possible to envisage circumstances where an event

occurs on site which causes delay to the completion of
the works and which could be ascribed to more than one
of the eleven specified reasons but there is no
mechanism in the conditions for allocating an extension
between different heads so the extension must be
granted in respect of the dominant reason.

12.3 I accept the respondent’s contention that faced with the

events of this contract, nobody would say that the delays
which occurred in 1978 and 1979 were caused by reason
of the Architect’s instructions given in 1975 to 1977. I
hold that the dominant cause of the delay was the strikes
and combination of workmen and accordingly the

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 Architect was correct in granting his extension under
condition 23(d)”.

8.55 In 6.14 he said:-

“For the sake of clarity I declare that this extension does not carry
with it any right to claim direct loss and/or expense”.

8.56 The arbitrator’s award was the subject of an appeal. The judge in the case
disagreed with the arbitrator’s ruling that the extension of time should relate to the
dominant cause of delay. He said in his judgment:-

“’Dominant’ has a number of meanings: ‘Ruling, prevailing, most

influential’. On the assumption that condition 23 is not solely
concerned with liquidated or ascertained damages but also
triggers and conditions a right for a contractor to recover direct
loss and expense where applicable under condition 23 then an
Architect and in his turn an arbitrator has the task of allocating,
when the facts require it, the extension of time to the various
heads. I do not consider that the dominant test is correct. But I
have held earlier in this judgment that that assumption is false.
I think the proper course here is to order that this part of the
interim award should be remitted to Mr Alexander for his
reconsideration and that Mr Alexander should within six months
or such further period as the court may direct make his interim
award on this part”.

8.57 This decision places doubt upon Keating's “Dominant Cause” theory.

8.58 There is another rule that is applicable to concurrent delays. Where an Employer
delays the Contractor he will not be entitled to deduct liquidated damages even
though the Contractor is also in default. (Wells v Army and Navy Co-operative
Society (1903)).

Page 129 of 210

8.59 With this in mind Keith Pickavance in his book “Delay and Disruption in
Construction Contracts” as at page 253 states:-

“Lastly, and this is a legal conceptual problem, the rules which

apply to recovery of actual damages for delay, are not the same
rules that apply to the relief of liquidated damages for delay. If
the Contractor’s progress on the critical path has been interfered
with by the Developer’s act of prevention, then the Contractor
must be given sufficient time to accommodate the effects of that
and be relieved from LADs from a commensurate period.

On the other hand if, during the period of disruption to progress

or prolongation for which an EOT has been granted, the
predominant cause of the Contractor’s loss and expense is
disruption, or prolongation caused by a neutral event or his own
malfeasance (for which he bears the risk), then he will not be
able to recover damages for the compensable event unless he
can separate those costs flowing from the compensable event
from those costs which are at his own risk”.

8.60 The Courts in the USA have addressed this problem and applied the legal maxim
that a party cannot benefit from its own errors. An Employer who deducts
liquidated damages during an overrun period when the delay is being caused by
both late issue of information and correcting defective work running concurrently
could fall into this category. The USA Courts have taken the line that where this
type of situation arises the Employer will not be entitled to deduct liquidated
damages and for the same reason the Contractor will not be entitled to payment
of additional cost.

8.61 A simplistic approach sometimes taken is the “first past the post” approach. This
adopts the logic that where delays are running in parallel the cause of delay that
occurs first in terms of time will be used for adjustment of the contract period.
Other causes of delay will be ignored unless they affect the completion date and

Page 130 of 210

 continue on after the “first past the post” cause has ceased to have any delaying
affect. In which case only the latter part of the delay will be relevant.

8.62 Learned authors in various textbooks and articles however may have different
views as follows. It is found that “FIDIC 4th Edition A Practical Legal Guide” by E
C Corbett is particularly succinct.

8.63 At page 253, Corbett sets out three types of delay which may overlap:-

(i) delays only the responsibility of the Contractor: no extension of time or

reimbursement of costs, liquidated damages deducted;

(ii) neutral delays, where the Contractor receives extension of time but no
reimbursement of costs; and

(iii) delays wholly the responsibility of the Employer where the Contractor
receives extensions of time reimbursement of costs.

8.64 He then considers the various overlapping combinations thus:-

8.65 If neutral and Employer caused delays overlap, the convention, at least in the UK,
is that the delays are treated as the responsibility of the Employer and the
Contractor should receive his reimbursement.

8.66 If a Contractor caused delay overlaps with a neutral event, then in the broad
principles of fairness, the Contractor should receive an EOT but not his costs.
(He would have incurred his costs notwithstanding the neutral event, and in any
event he does not receive costs due to a neutral event. The Employer on the
other hand has agreed to share the risks of neutral events and in the absence of
the Contractor’s culpable delay, would in any event have to grant EOT).

8.67 If a Contractor’s default overlaps with an Employer’s default, the Contractor

should receive EOT but not his costs.

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8.68 It is to be emphasised that all of the above is to be interpreted according to the
terms of the contract in which will generally require fairness and reasonableness.
The guiding principle is that a party should not benefit from its own default, and
that common sense and the facts must prevail.

8.69 Although the dominant cause approach is not favourable, if it is to be adopted it

must be applied sensibly – Pickavance gives the example of two shipping cases
(page 500-501).

“The dominant cause approach to the allocation of damages

arose from a shipping accident case, Leyland Shipping Co Ltd v
Norwich Union Fire Insurance Society Ltd, in which a ship was
torpedoed by a German submarine and was subsequently taken
to Le Havre for repair. Whilst it was in the deep water harbour a
storm blew up and the ship was towed to anchorage near a
breakwater where it broke up and sank. The question was what
caused the losses arising out of the ship sinking? Was it the war
action for which the owners were not insured, or the perils of the
sea for which they were insured? It was held that the ship sank
because it was torpedoed and the losses were not recoverable
from insurers. Lord Shaw said: “When various factors or causes
are concurrent and one has to be selected … the choice falls
upon the one to which may variously be ascribed the qualities of
reality, predominance efficiency…”

8.70 Note that this was not the “last cause” or proximate cause in Pickavance’s
interpretation, which was the storm, but rather the earlier tope doing event which
was held responsible.

8.71 In another shipping case, Yorkshire Dales Steam Ship Co v Minister of War
Transport ([1942] AC 691), the ship was wrecked partly because of an unusual
tide which took the ship too close to the rocks and partly because the navigator
had taken that route to avoid enemy submarines. There, causation was dealt
with on the basis that: “One has to ask what was the effective and predominant

Page 132 of 210

 cause of the accident that happened, whatever the nature of that accident may
be”

8.72 He proceeds to give examples for work on site being suspended on Monday as
a result of drawings not arriving on that day, but arriving on Friday. On Tuesday,
work could not proceed in any event because labour did not turn up. Is there a
concurrency or is the late receipt of drawings the dominant cause. Common
sense suggests that it is the late receipt of drawings. Of course, arguments would
abound to the effect that the labour did not turn up because of the late receipt of
drawings etc – these are matters of fact.

8.73 If however the building was burnt to the ground on Tuesday, then, common sense
dictates that this was the dominant cause.

8.74 Referring to the earlier examples Figure 8 indicates that the culpable delay cause
B was irrelevant to the critical delay which was cause A. As a test, if delay A had
not occurred, then the delay B would have no effect until it exceeded 7 days.

8.75 If delay B did not occur, then any delay to A, causes delay to the contract
completion.

8.76 Turning to the as built scenario at Figure 7, however, when delay A was critical
initially, delay B finally was of equal significance. In the absence of either event,
the other would have caused delay.

8.77 Applying common sense, fairness and reasonableness, it seems that EOT must
be given, but no prolongation costs. If disruption costs can be related to delay A,
then they should be recoverable, but no costs would be recoverable for event B.
Applying the conditions of contract, the Engineer would grant EOT under cause
A.

8.78 Viewing matters retrospectively, he would not alter the EOT but may conclude
that the cause of delay fell equally between A and B. Applying Wandsworth, he
would then draw the above conclusions on costs.

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8.79 To conclude, there are no hard and fast rules which govern concurrency. As
shown in the initial analysis, true concurrency is rare, and with modern
techniques, can be verified with some degree of accuracy, given proper
records. In the event of true concurrency, the above principles can be applied
but fairness, reasonableness and common sense must prevail. In any event,
the decision relating to EOT may differ from that relating to entitlement to costs.

9.0 DELAY ANALYSIS TECHNIQUES

9.1 Traditionally, extension of time claims in construction contracts were assessed

by contract administrators on an impressionistic basis without much in the way
of detailed analytical reasoning. This was usually after the contractor had
submitted little more than a basic list of events that had caused him delay and
disruption, claiming a ‘gross’ EOT usually without reference to the cause and
effect of each individual delay event. This came to be termed the ‘global’ claim
approach; no actual analysis of the true effect of each delay event - by either
party - was deemed necessary. A typical example of global claim approach is
as the slide below;

Extension of Time Claim – Global Approach!

Causes of delay;
1. Late possession …………………... 25 days
2. Inclement weather………………….12 days
3. Variation-Add 500m Access road...15 days

----------------------------------------------------------------
Total Delay …………………………………52 days
Page 134 of 210
9.2 Nowadays however, the standard of proof often required by contract
administrators by which to admit extension of time claims is significantly higher.
The ‘global’ claim, while still popular, succeeds with increasing rarity. Contract
administrators now regularly require cogent proof that claimed delays have
actually delayed the project, normally by reference to their ‘criticality’. By far
the most common method of demonstrating cause, effect and criticality is to
use the Critical Path Method (CPM) network technique or Critical Path Analysis.
The critical path analysis has been referred to and considered to be useful in
the case of Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup
Partners International Ltd [2007] EWHC 918 (BMCC) . Toulmin J in this case
concurred with the textbook Delay and Disruption Contracts by Keith
Pickavance that the critical path analysis was a tool in assisting with the
management of construction projects and not an end in itself. The analysis
identifies at a given date which important activities of a project are falling
behind the programme, particularly if they are on or close to the critical path,
and what is the impact, if any, on other activities of the programme and where
additional resources need to be placed. It also demonstrates where the
activities are ahead of what is planned and enable a decision to be taken on
whether planned activities need to be rescheduled.

9.3 Retrospective delay analysis using CPM networks is a relatively new

phenomenon. The critical path method for project management was invented
less than 50 years ago. However, analysis ‘by hand’ using the method
frequently involves many hundreds of laborious and repetitive calculations, and
so the method was very slow to gain acceptance in the construction industry.
Indeed, it is only in the last 5-10 years that computer processing power and
user-friendly software have evolved to make the method available to the
mainstream in the profession. This represents a revolutionary change in a very
traditional industry.

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9.4 Perhaps as a result of this rapid development, the methods of retrospective
delay analysis using CPM networks are at present poorly understood by many
across the spectrum of the industry. Contract administrators and arbitrators,
more often than not, revert to making impressionistic EOT awards; contractors
for their part are often guilty of failing to construct reasoned logical networks,
working to them and re-planning and updating them when changes have
occurred (even though this is nothing more than basic good project
management practice). However, now the requirement for a CPM programme
to be prepared is no more new news. Most contracts expressly require the
contractor to produce critical path programme and impose the obligation for
the contractor to update and revise such programme regularly throughout the
duration of the contract. There is no bad thing about CPM programme.
Toulmin J in Mirant’s case agreed with the Core Principle No. 1 in The Society
of Construction Law Delay and Disruption Protocol that a properly prepared
and regularly updated programme would reduce the number of disputes
relating to delay. Therefore the preparation of a CPM programme must be seen
as a normal practice nowdays.

Delay Analysis using CPM

Networks

“What-if” or “As-Planned Impacted”

“But-For” or “As-Built Collapsed”
“Time-Slice” or “Window” Analysis

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 Purposes of Presentation
➢ To introduce the various CPM delay
analysis techniques

➢ To critically examine the different delay

analysis techniques

➢ To heighten awareness of the technical

and commercial importance of CPM
planning as a Project Management tool

9.5 The purpose of this presentation is twofold. Firstly, to introduce the various
CPM delay analysis techniques available and to examine the delay analysis
methods. This will be a practical demonstration and will highlight the
advantages and disadvantages of each type of method. There will be particular
emphasis on whether and to what extent each method is suitable for inclusion
in extension of time claims.

9.6 Secondly, the CPM method will be examined from perhaps a more positive
perspective: that of day-to-day project management. It will be demonstrated
that the proper maintenance and updating of project programmes, combined
with an ‘audit trail’ which traces why changes to the project plan have
eventuated, can effectively obviate the need for any retrospective delay
analysis at all.

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 What is a Critical Path Method (CPM) Network?
BS 4335 : 1987 Definitions:

➢ Network - A representation of
activities with their
inter-relationships and
dependencies

➢ Critical Path - A path (sequence of

activities) with least
float

➢ Float - The time available to an

activity or path in
addition to its duration

The Definition of Critical Path Network

9.7 These definitions are all taken from BS 4335 (the British Standard Glossary of
Terms in Project Network Techniques). The Mirant’s case referred to the
definition of critical path in B.S.6079-2.200 Part 2, 2.41 as the sequence of
activities through a project network from start to finish, the sum of whose
durations determined the overall project duration.

9.8 The ‘network’ definition is the cornerstone of the rest of the presentation. It is
crucial to the operation of the network that inter-dependencies (relationships)
between the various work activities are plotted out as accurately as possible.

9.9 By dint of the relationships, if any activity is delayed, then all of the following
activities (successors) that are linked to it are delayed. This, indeed, is the basis
of analysing delay using logically linked networks; a future effect due to a delay
can be immediately predicted.

9.10 The following example illustrates a ‘Network’, ‘Critical Path’ and ‘Float’.

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 Sample of a Simple Critical Path
Network
Get up

Switch On Wate r Heate r --Wait for Warm Wate r

Iron S hirt

Take Bath

Towel D ry
Shave

Get D ressed

Break fast

Travel to Work

Arrive Office

08h30

09h00
07h00

07h30

08h00
http://www.jrk.com.my 25

Example of a Simple Critical Path Network

i) This is a simple critical path network of activities (an early morning routine).

ii) Why is this a network, as opposed to a bar-chart? Well once again it is the
inter-relationships that are important.

iii) A bath cannot be taken until it has been heated and warm for cold early
morning bath. There is a logical link from the finish of running the bath to the
start of taking it.

iv) So what happens if there is a delay to any of these activities? Well let’s take
the shaving activity as an example: Imagine a shaving cut is suffered, and it
takes 10 minutes to heal (i.e. a 10 minute delay is incurred).

v) It follows that getting dressed will occur 10 minutes later, which will in turn
mean that taking breakfast will be 10 minutes later and thus the travelling to

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 work will be 10 minutes later than normal. This all holds true because of the
logical links in this plan.

vi) Now assume that because of leaving the flat 10 minutes late, a rush-hour traffic
jam is encountered, and the journey to work takes 15 minutes longer than usual.
Thus a second delay, this time to the ‘Travel to Work’ activity, has been
incurred.

vii) Let’s have a look at the effect of these two delays on the project ‘goal’: arriving
at the office at 9.00am ….

“What-if”/As Planned Impacted

Get up Analysis
Switch On Water Heater--Wait for Warm Water
Iron Shirt Shaving: 10 mins delay

Take Bath

Towel Dry
Shave Traffic Jam: 15 mins delay

Get Dressed

Breakfast

Travel to Work

Delay=25 mins
07h30

09h00
07h00

08h00

08h30

Arrive Office
09h25

The “What If”/As Planned Impacted Analysis

i) Here the delays have been added (or ‘impacted’) into the baseline programme,
and it can be seen that the total delay is calculated at 25 minutes.

ii) Note that it is the logical links which have ‘done the work’ here … the impact of
the 10 minute delay (at about 8.15am) when the shaving cut was suffered has
been felt by all of the successor activities so that when the second delay occurs
to the travel activity, this activity is in the right place (in time) to give the
accurate result for the total delay of 25 minutes.

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iii) This is very important; the effect of any delay can be assessed way ahead into
the future because of the network logic. It is in fact the first method of analysing
delays; the original plan is taken, the delays added (impacted), and the network
logic does the rest.

iv) This is the “what-if’, or “as-planned expanded/impacted” method of analysis. It

is by far the most popular CPM network-based method used in the construction
industry at the present time, and it seems to work very well in the above
example, so what’s the catch? Well this early morning plan is one that is
followed almost robotically. When the alarm goes off at 7.00am, it is
guaranteed that the above activities will be followed strictly to order: there is,
in other words, a high degree of certainty that the plan will be adhered to.

v) The more rigidity and certainty existing in the project, the more accurate and
suitable a ‘what-if’ method will be. Below are the strength and weaknesses of
the ‘What-If’ delay analysis method;

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9.11 Indeed, for a strict manufacturing process (e.g. a car, or a watch) on a
production line, then the ‘what-if’ analysis is an eminently suitable method. The
method also has the often-overlooked advantage of being simple to present
and to understand.

9.12 However construction is not a strictly controlled manufacturing process, and it

certainly is nowhere near as predictable as the early morning routine.
Therefore most of the time construction programme changed throughout the
construction period.

9.13 There are many factors that can and do affect construction programmes, which
are examined on the next slide. All of these, then, tend to restrict the reliability
and accuracy of the ‘what-if’ method when used in complex construction
projects.

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 Why Baseline Programme
Changes?
Among Others;
⚫ Delayed possession of works areas or access routes
⚫ Variations Order
⚫ Late release of design information
⚫ Remedying faulty design information = additional or
omitted works
⚫ Failure to start/resource/manage work, poor
workmanship resulting in abortive work, acceleration
by increase of resource
⚫ Inclement weather, unforeseen ground conditions,
interference/obstruction by third parties
⚫ Contractor changes his methodology/order of working

9.14 The main problem with basing any analysis on the initial plan is that the
Contractor’s plan (and, therefore, his critical path) is dynamic: it can and does
change throughout the currency of a project due to many factors. These include
not only influences from the Employer/Contract Administrator, such as
additional work, variations, and faulty design information, but also failure to
start work on time, failure to resource work adequately, and defective
workmanship (emanating from the Contractor), and inclement weather,
unforeseen ground conditions, and third party interference (neutral events).

9.15 There is yet another category that can produce even more dramatic changes
to a Contractor’s plan than any of the above: the Contractor changes his
methodology or his order of work (i.e. the Contractor changes his mind!)

9.16 Changes in this latter category are often precipitated by financial

considerations (a new supplier or subcontractor offers a saving with a
previously unconsidered material or method), however another cause is that
the Contractor simply corrects mistakes in his previous plan.

9.17 In summary, the Contractor’s plan to execute the works is subject to change
throughout the project duration. The programme and its critical path are, in fact,
constantly evolving.

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9.18 By using the “What if”/As Planned Impacted Analysis, we are assuming that
that critical path and sequencing of activities as static. This is the most
persistent criticism of the ‘what-if’ method when applied to construction
contracts.

Main Criticism of
‘What-if’ Method

⚫ The Contractor, rarely keeps to his initial plan,

therefore to analyse delay impact based on
initial plan would be an attempt to admit a
theoretical analysis = theoretical result!

⚫ Theoretical result= Does not in reality

demonstrate ‘cause’ and ‘effect’

9.19 Indeed, the only way to frame an extension of time claim on a complex project
when using the “what-if” method is to make a statement along the lines of: “This
is what our original programme would have been, had we known in advance
about all of the delaying events which have befallen us …”

9.20 Obviously, this is an extremely theoretical approach. The ‘what-if’ method,

whilst being overwhelmingly the most popular method of analysing delay,
suffers from the serious limitation of being a ‘static’ analysis. That is to say, it
only uses one single programme as the basis for the analysis. This often leads
to very distorted results.

9.21 Thus it often transpires that a contract administrator, when faced with an
analysis based purely upon the initial plan, rejects it with a comment along the
lines of: “This is too theoretical. It seems not to take account of any of your own

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 defaults, or changes in planning. Please show me an analysis based upon how
you’ve actually built the project”

9.22 At this juncture then, it is convenient to introduce the second CPM-based

approach: the “but-for” or “as-built-collapsed/subtracted” method.

‘But-For’ /As-Built Collapsed Analysis

1) As-built programme including delays

B Delay 1=Employer caused

D
Delay 2=Employer caused
E
Delay 3=Own fault
Actual
Finish
0 1 2 3 4 5 6 7 8

The “But For”/As Built Collapse Analysis

9.23 Instead of using the baseline programme as a basis of analysis, this method
uses the as built programme.

9.24 Here is an as-built programme. This Contractor has completed 5 activities (A

through to E) but has encountered delays on two of them (B and D.) The project
has been certified complete on the 8th month.

9.25 The “but-for” method, like the “what-if” technique, is extremely simple. In the
“what-if” method, the delays were added (or impacted) into the original plan.

9.26 The “but-for” method is a game of subtraction; the as-built Programme is simply
taken, and then the delays are ‘subtracted’ from it … the resultant programme
is then ‘collapsed’ as shown in the following slide.

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 As-Built Collapsed (‘But-For’) Method
2) As-built programme with delays omitted
A

C Entitlement
D

Contractor’s own delay E

considered!
Finish but for delays Actual
Finish
0 1 2 3 4 5 6 7 8

9.27 This gives a new theoretical finish, the finish that would have been achieved
BUT FOR the Employers delays.

9.28 The entitlement is thus the difference between the theoretical ‘but-for’ finish
and the actual certified finish date.

9.29 On the face of it, this is quite a powerful argument for the Contractor. He can
make strong statements to the Employer such as: “This is the as-built
programme without the delays caused by you. It can be seen that, but for your
delay, I would have finished on [date] … this even includes for my own culpable
delays”. Below are the strength and weaknesses of this ‘But-For’ delay analysis
mehod;

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9.30 The big argument in favour of the ‘but-for’ method is this: because the method
is based upon actual build times, the argument is extremely convincing … the
Contractors own malfeasances are built into his as-built bars …

9.31 Like the “what-if” method described previously, the “but-for” method is also
extremely simple and relatively quick to digest.

9.32 So, what are the criticism against the “but-for” method? Well, the “but-for”
method has one major disadvantage: it tends to emphasise those delays which
are on the longest as-built path … Because of changes to the workscope and
sequence due to the reasons discussed earlier, these delays may not
necessarily be those which delayed the project (i.e. were critical to completion.)

9.33 This, therefore, is precisely the same problem as the “what-if” method, but in
reverse:

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9.34 With the “what-if” method, a big disadvantage is that the initial plan is very
rarely followed: how can one be sure therefore that the critical path at the
beginning will be the same mid-way through a project?

9.35 However, the “but-for” method looks at the critical path at the end of the project
(the ‘longest path’ or last activity to finish.) Similarly, how can one be sure that
this was always the critical path, for example much earlier in the project?

9.36 There is no easy answer. For all of its apparent strengths, the “but-for” method
is just as static as the “what-if” technique: it is based upon just one network,
and therefore fails to record changes in criticality which may have occurred
previously.

9.37 So the limitations of the “what-if” and “but-for” approaches are equal and
opposite. They both suffer from the fact that they analyse delays over a long
period (i.e. a construction contract) from just a single network (either the
Baseline programme, or the ‘as-built’ programme).

9.38 Neither method therefore can take account of the changes to a programme,
and its critical status, throughout the duration of the work.

9.39 A third method, which is known variously as ‘contemporaneous period analysis’,

‘time-slice analysis’ or ‘window analysis’, seeks to address this limitation.

9.40 Instead of using one single programme to analyse delays, this method uses
several programmes, taken at regular ‘time-slice’ intervals (or ‘windows’ of time)
throughout the duration of the project.

9.41 Each programme, at the different slices of time, will naturally incorporate the
progress (or otherwise) that the contractor has made up to that point; each
programme will also have a critical path based upon the progress and
outstanding work left at the end of that window of time.

9.42 So in the Window analysis, it is possible to take the delays, and see if they
impacted upon the contemporary critical path; that is, the critical path in the
time ‘window’ in which the delay occurred. Toulmin J in Mirant’s case approved
the use of ‘window’ analysis as an excellent form of analysis to which identify

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 which activities fall on the critical path at that time and to inform the project
team what action they need to take to prevent delay to the project.

9.43 The method is inherently much more complex than the “but-for” and “what-if”
analyses. A discussion of general principals may be confusing, and the optimal
way to explain this method is therefore with a worked example …

REFER TO THE SLIDES

1. Nonetheless, it is submitted that the ‘time-slice’ analysis, because of its

dynamic nature of tracking progress, changes in plan, mitigation and
consequent changes in criticality, is the method that produces the optimal
result in determination of a fair and reasonable extension of time for the
contractor.

2. The real beauty of the ‘time-slice’ analysis is that it need not be carried out
retrospectively. Indeed, if a contractor exercises normal good
management practice: by first setting up a logically linked network of work
activities, and then regularly monitoring his progress against that network
(including any changes he makes to his programme to suit revised order
of work), then he will always know where his critical path lies and will be
in a position to assess how and why he is being delayed. A
contemporaneous ‘time-slice’ analysis, (i.e. carried out as the project
unfolds), gives a result which is relatively free from the distortions which
the more popular ‘what-if’ and ‘but-for’ delay analysis methods can
introduce. It therefore appears that, simply by normal, good project
management practice, the best determination of the contractor’s
entitlement to extension of time can be made.

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10.0 CONTRACT ADMINISTRATION TIPS

➢ Know your Contract Conditions well particularly on;

o Obligation to complete
o Risk for which is dealt with by the EoT provisions
o Procedures and mechanics of EoT provision
o Ensure you have sufficient grounds to grant EoT suitable to the
nature of your contracts
o Better to dictate what required for EoT submission in your contract
➢ LAD provisions-ensure;
o Clarity and free from uncertainty
o Can actual loss be proved?
➢ To avoid or minimize challenges to LAD, do;
o Manage EoT provisions effectively
o Calculate potential loss then insert in LAD amount
o Ensure grounds for EoT is sufficient to take care of Employer’s
default
➢ When applying and evaluating for EoT, ensure that;
o All procedural requirements are complied-do not take it for granted
o Be fair and frank about own delays
o State correct facts and do not manipulate
o Use proper delay analysis techniques
o ‘Global Claim’ to be avoided
➢ Practice good record keeping!

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PART 6 - LOSS AND EXPENSE EXPLEINED

1.0 The Meaning of Loss and Expense

1.1 The terms Loss and Expense and Additional Cost are terms in which all parties
to a construction contract are widely familiar with. However, before examining
the contract provisions for loss and expenses/additional cost in Malaysian
standard forms of contract, it would be prudent to give the meaning of Direct
Loss and Expense.

1.2 The 5th Edition of "Keating on Building Contracts" has this to say concerning the
meaning of direct loss/and or expense:

"Meaning of Direct Loss and Expense"

This was considered by the Court of Appeal in F G Minter v

W.H.T.S.O. The court held that direct loss and/or expense is loss
and expense that arises naturally and in the ordinary course of
things, as comprised in the first limb in Hadley v Baxendale. The
court approved the definition of "direct damage" in Saint Line Ltd
v Richardsons as "that which flows naturally from the breach
without other intervening cause and independently of special
circumstances, whereas indirect damage does not so flow". It
follows from the decision in Minter that the sole question which
arises in relation to any head of claim put forward by a Contractor
is whether such claim properly falls within the first limb in Hadley
v Baxendale so that it may be said to arise naturally and in the
ordinary course of things."

1.3 A similar line was taken by Megan J in Wraight Ltd v P H and T Holdings (1968)
13 BLR 26 when he said:

"In my judgement, there are no grounds for giving to the words

"direct loss and/or damage caused to the Contractor by the
determination" any other meaning than that which they have, for
example, in a case of breach of contract or other question or
relationship of a fault to damage in a legal context. Therefore it

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 follows... that the [contractors] are, as a matter of law entitled to
recover that which they would have obtained if this contract had
been fulfilled in terms of the picture visualised in advance but which
they have not obtained..."

1.4 Among the standard forms of contract available in Malaysia, only the CIDB 2000
provides an entitlement to loss and expense which is comprehensively defined
as:

“The direct relevant costs of labour, equipment, material, or goods

actually incurred on the Site… and costs of an overhead nature
actually necessarily incurred on the Site but in either case only in so
far they would not otherwise have been incurred and which were not
and should have been provided for by the Contractor; and the
amount equivalent to the percentage named in such cost referred to
(above)… such amounts shall be deemed to be inclusive of any
profits, head office or other administrative overheads, financing
charges (including foreign exchange losses) and any other costs,
loss or expenses of whatsoever nature and howsoever arising. This
percentage shall exclude interest payable pursuant to sub-clause
42.9(b) (interest for late payment).”

2.0 EVENTS GIVING RISE TO CLAIMS

2.1 Cause and Effect – Causative Events

If a contractor is to succeed in recovering his loss and expense or additional

costs he must demonstrate something more than just a casual link between a
causative event and the effect of that event (the effect being the loss and
expense or additional costs which he has incurred).

The first step is to identify what causative events entitle the contractor to
additional payment under the contract.

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 Figure 1 sets out the clauses, which, under the various standard forms of building
contract used in Malaysia, entitle the contractor to recover additional cost, be it
variation or loss and expense.

FIGURE 1

Item PAM PAM IEM PWD CIDB

2006 98 89 203A 2000

Variations 11.7 11.6 5(d) 5(d) 31.1(h)

Works under Provisional Sums 11.4 11.4 30(b) 30(b) 41.2

Late information 24.3(a) 24.2. (i) 44 44 31.1(b)

Opening up for inspection/testing 24.3(f) 24.2(ii) 5(d) 5(d) 31.1(d)

Discrepancies 24.2(iii) 5(d) 5(d) 31.1(c)

Artists and Tradesmen 24.3(d) 24.2(iv) 44 44 31.1(f)

AI's or E.R.’s instructions in respect of 24.3(c) 24.2(v) 31.1(g)

postponement/suspension

Antiquities 24.3 (h) 31.1(I)

Delay/failure of Employer to provide materials 24.3(e) 24.2(vi)

Failure by Employer to give entry/exit to site 24.3(l) 24.2(vii)

Act of prevention or breach of contract by the 24.3(g) 24.2(viii)

Employer

Removal of materials/goods from site 5(d) 5(d)

Removal, re-execution of works 5(d) 5(d)

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Removal/dismissal of any person from the works 24.3(i) 5(d) 5(d)

Amending/making good defects 5(d) 5(d)

Any matters necessary and incidental to execution of 5(d) 5(d)

works

Any matter which the Engineer/S.O is expressly 5(d) 5(d)

to empowered to instruct

Directions consequential to disputes with neighbours 24.3(j) 44 44

Delay/Failure in giving possession 44 31.1(c)

One or more of the excepted risks/special risks 31.1(a)

Other grounds expressly mentioned other than in 31.1(j)

clause 31

3.0 TYPES OF CLAIMS UNDER LOSS AND EXPENSE

Loss and expense claims can be categorised into 2, namely;

a. Prolongation Claims-refers to mostly time related cost and thereto related

and resulting from more time needed to complete the Works.

b. Disruption Claims-refers to cost resulting from disrupted work sequence or

methodology

4.0 PROLONGATION CLAIMS – POTENTIAL HEADS OF CLAIM

4.1 Prolongation claims arises when the Employer delay event had solely caused
prolongation of construction period. Broadly speaking the various heads of claim
can be categorised under time related charges and method related charges.
These types of charges can be illustrated by reference to use of plant and

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 equipment. This compensation is made when the Contractor’s performance is
solely delayed by the event for which the Employer is responsible for. In cases
where there are contractor’s concurrent delay, some sort of apportionment or
division of liability is needed.

4.2 If a variation delays completion of the work, and that variation requires the use
of a special piece of plant or equipment and provided that this cost is not already
compensated in the variation cost, then the time related charges will be, the hire
or depreciation and running costs, whereas the method related charges will be
the mobilisation and demobilisation charges if it was not already on site.

4.3 It is fairly difficult to generalise when it comes to listing what type of items can be
included in prolongation claims. Much will depend upon the nature of the project
and the cause of the delays. However typical heads of claim might be as follows:

4.3.1 Setting out and surveying

Site surveyors, chainmen, surveying equipment

4.3.2 Plant tools and vehicles

Hire or depreciation of plant and equipment or maintenance

A couple of points are worthy of note here.

Firstly if the delay arises from a variation care must be taken to

avoid duplication of cost. For example a variation involving
earthworks valued at bill rates may already cover part of the plant
costs (e.g. running costs). This will depend upon how the original
bill rates were built-up.

Secondly if the contractor uses his own plant – in other words it is

not hired in – then the correct basis of assessing time related
charges over the period of delay is as set out in the case of Sunley

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 v Cunard White Star [1940] 1 KB 740. It was held that there were
four possible heads of damage: (i) depreciation; (ii) interest on
money invested; (iii) cost of maintenance; (iv) expenditure of wages
thrown away.

4.3.3 Scaffolding

Hire or depreciation of scaffolding.

If the scaffolding needs to be re-erected, adapted or dismantled, then the

costs involved with this can be claimed as method related charges.

4.3.4 Site administration and security

Wages and on-costs of personnel involved in site management and

security

Again some care is required here to ensure there is no duplication of costs

with any variations valued at bill rates. Analysis of the contract rates is
essential.

On-costs might include housing and car allowances, insurances, travel

allowances, holidays with pay, overtime, medical leave, provision of
telephones, etc.

4.3.5 Protecting the works from inclement weather

Covers, temporary protection and other related temporary works.

4.3.6 Water lighting and power

The cost of water and electrical power.

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4.3.7 Temporary roads, hardstandings and crossings, fencing, etc

The maintenance and adaptation of any temporary roads, etc and fences.

4.3.8 Temporary site accommodation

Hire or depreciation of any temporary buildings; water and power

consumed therein; maintenance charges; rental of buildings or land off site.

4.3.9 Traffic signs

Hire or depreciation and maintenance of traffic signs or signals.

4.3.10 Safety health and welfare of workpeople

Provision of safety equipment; on site catering; first aid etc.

4.3.11 Disbursements arising from employment of workpeople

Insurance and SOSCO contributions for workers; allowances for medical

leave.

4.3.12 Removing rubbish

Periodic removal of rubbish from site; additional labour and plant costs.

4.3.13 Surety or performance bond

Additional premium or bank charges paid for securing a performance bond

over the period of delay.

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4.3.14 Insurances

Additional insurance premiums paid.

4.3.15 Photographs, records

Costs associated with the provision of photographs and records.

4.3.16 Finance charges on late release of retention

If a project is badly delayed this will lead to the retention money being tied
up for longer than it should have been. As a result a contractor may incur
additional finance charges on the retention sums.

4.3.17 Finance charges on loss and expense

Where contracts are drafted in terms of “loss and expense” then interest
on the amount spent on loss and expense (or interest which might have
been earned had that expenditure not occurred) is recoverable – F.G.
Minter v Welsh Health Technical Services Organization (1980) 13 BLR 1.

4.3.18 Head office overheads

The head office overheads will be discussed later in this lecture.

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5.0 DISRUPTION CLAIMS

5.1 In figure 2 below, the delay caused by artists and tradesmen was concurrent with
the delay caused by exceptionally inclement weather. The contractor would
most probably not recover his prolongation costs arising from the delay by artists
and tradesmen.

5.2 However, that does not preclude the contractor recovering any disruption costs
caused by the works of artists and tradesmen.

5.3 Suppose the part of the contract in question related to finishing works. If we
examine that part of the programme in more detail the following might have
occurred:

Figure 2

7 8 9 10 11 12 13 14 15

Main contractor
Ceiling finishes – as planned
Ceiling finishes – actual

Artists and tradesmen

Wall finishes – as planned
Wall finishes – as built

Main contractor
Floor finishes – as planned
Floor finishes – as built

Period of inclement weather

5.4 The main contractor planned to carry out the ceiling finishes in months 7 and 8.
He would then take his workers to another part of the site where they would be
usefully employed for two months (months 9 and 10). During this two months
period the artists and tradesmen would carry out their specialist wall finishes.

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5.5 Unfortunately for the main contractor, the artists and tradesmen took three
months (months 9, 10 and 11) instead of the two months planned.

5.6 At the end of month 10 the main contractor’s workers were ready to return and
carry out the floor finishes. The artists and tradesmen were still working on their
wall finishes, so the main contractor’s workers were standing idle for one month,
there being no other available work upon which they could usefully be employed.

5.7 Although the main contractor would be unlikely to recover his delay costs during
month 11 (because the delay by artists and tradesmen was concurrent with
delays from inclement weather), there is no reason why the main contractor
should not recover his disruption cost. In this instance the disruption cost is the
standing time of his workers whilst awaiting completion of the wall finishes by the
artists and tradesmen.

5.8 It is worth pointing out that the main contractor’s workers would not have been
affected by the exceptionally inclement weather as they were working on interior
finishes.

METHODS OF CALCULATING DISRUPTION COSTS

5.9 The term disruption is one synonymous with construction claims. But what does
it really mean, and how can it be properly demonstrated and evaluated?

5.10 Disruption in its simplest sense is the loss of productivity; a reduction in the output
of construction resources, those being, primarily, labour and plant. Disruption
costs may be distinguished from prolongation costs by virtue of the fact that the
latter are a function of time. Time related costs normally represent the costs of
the contractor’s site establishment, site management, common plant, etc. and
are said to be largely critically dependent; they arise where there is a delay to the
critical path to the works. Thus, once a delay has been established and
entitlement to an extension of time for that delay recognised, demonstrating an
entitlement to prolongation costs incurred, as consequence of the delay is usually
a matter of course.

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5.11 Disruption costs on the other hand are essentially production related and as such
are often very difficult to prove. One difficulty is that there are so many variables
involved; risks which the contractor has taken on board in preparing his tender
and, in particular, estimating the productivity level of his resources. Such
variables might include poor workmanship, inclement weather, poor supervision,
plant breakdowns, poor quality or damaged materials, etc. With all these factors
affecting construction output, how is a contractor able to demonstrate and prove
on a balance of probabilities (the civil standard of proof) that his reduced
productivity resulted from events, which were the responsibility of the Employer?

5.12 This is not an easy task. As readers will have been advised time and time again,
a principle key to success is in this regard is records, records and more records.
But not just any records.

5.13 Some contractors have sensibly implemented the use of a daily ‘disruption
schedules’ to record disruption at site level as it occurs. These schedules record,
for instance, that access to a particular area was not available on the date or in
the condition specified and that as a result, labour and plant were left idle for a
noted period of time; or that a site instruction was received which required labour
to be diverted to another task resulting in noted periods additional demobilisation
/ re-mobilisation time. These schedules are usually completed by the site /
section foreman, copied to the Employer’s agent and used by the site
management as the basis for timely submission of notifications.

5.14 As an alternative to a bespoke disruption schedule, better use could be made of

site records in which are required under the particular contract. For instance,
most contracts require the main contractor / sub-contractor to maintain daily
records of labour and plant utilised on site. These are often required to be
submitted on a daily / weekly basis to be incorporated in to the Employer's
agent’s “Site Diary” as an agreed record and can prove to be an essential aid to
establishing by way of contemporaneous documentation what work was taking
place when, and what resources were utilised in the process.

5.15 However, more could be done to improve the usefulness of these records as a
means of supporting a disruption claim. For instance, with minor modification

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 they can be transformed into a disruption record, highlighting matters which have
occurred on the particular day which have caused labour and plant to stand idle
or otherwise impacted upon their outputs, and noting the productivity lost as a
result. Further, by directly inputting the site data into an electronic version of the
site record on computer (as opposed to manually transposing to a hard version)
this valuable information can be used to assist with the fast and accurate
production of as-built programming information, saving time and cost.

5.16 If the above procedures are followed many of the difficulties often experienced in
demonstrating the effects of disruptive events will have been eliminated. Cost
details of the affected resource (as determined from the contemporaneous
records of down time, etc.) may then be compiled from the site accounting
records. On this basis any resulting disruption claim will be in respect of actual
cost or loss and expense incurred and reference to actual tender allowances
(which may have been unrealistic) will have been avoided.

5.17 However, not all projects are managed so efficiently as we would wish and
although disruptive events might have been notified, in the absence of
contemporaneous records as to the effect of those events, contractor’s are often
left with trying to establish a claim for disruption on the basis of what they allowed
in their tender for an activity, compared with what that activity finally cost; in other
words they are left with making a ‘global claim’. This approach is fraught with
difficulties and, in addition to the more obvious problem of linking cause and
effect, demonstrating that tender output allowances were reasonable for an
activity in the first place may prove to be a major stumbling block.

5.18 One method that has been accepted by the courts is to show that on parts of the
works where a similar activity was not subject to the disruption claimed, the
contractor achieved his planned output, thereby demonstrating that, but for the
events notified, the additional cost of performing the activity would not have
arisen. This in essence was the approach taken in How Engineering Services Ltd
v Linder Ceilings, Floors and Partitions plc (1999) 64 CLR 67 where, in order to
demonstrate that the disruption costs claimed had arisen from the matters
pleaded, reliance was made on the productivity achieved during the installation
of ceilings within parts of the works which were not disrupted. The productivity in

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 these areas proved to be consistent with the tendered allowances and this finding
of fact contributed to the success of the claim.

5.19 A similar approach was accepted by the courts in Whittal Builders Company Ltd
v Chester-Le-Street District Council (1985) 11 CLR 40 within which the
evaluation of disruption was carried out on the basis of a comparison of
productivity prior to the disruptive events taking place, compared with that
achieved during the period of disruption. In this case the comparison of outputs
was made by assessment of sums certified within interim payment certificates.

5.20 Therefore, whilst there is no substitute for accurate, contemporaneous records

of the actual effect of the disrupting event (and contractor’s should strive to
ensure that such are maintained) it will nevertheless be comforting for contractors
to know that in certain circumstances alternative methods of demonstrating and
evaluating disruption have been accepted by the courts.

6.0 CONTRACT PROVISIONS FOR LOSS AND EXPENSE

6.1 Notice requirements

All the building contracts commonly in use require the contractor to give written
notice or make an application if he intends to claim loss and expense.

IEM , PWD Form 203A and PAM Contracts

The IEM and PWD Form 203A are almost identical.

Clause 5(d) (loss and expense arising from Engineer’s/S.O.’s instructions) and
Clause 44 (loss and expense arising from delays) both require written notice
together with an estimate of the likely amount of loss and expense. Below is clause
44 which read as;

“44.0 CLAIMS FOR LOSS AND EXPENSE

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 44.1 If at any time during the regular progress of the Works or any part
thereof has been materially affected by reason of delays as stated
under clause 43.1(c),(d),(e),(f) and (h), and the Contractor has
incurred direct loss and /or expense beyond that reasonably
contemplated and for which the Contractor would not be reimbursed
by a payment made under any other provision in this Contract, then
the Contractor shall within thirty (30) days of the occurrence of such
event or circumstances or instructions give notice in writing to the
S.O. of his intention to claim for such direct loss or expense
together with an estimate of the amount of such loss and/or
expense, subject always to be clause 44.2 hereof.

44.2 As soon as is practicable but not later than ninety (90) days after
practical completion of the Works, the Contractor shall submit full
particulars of all claims for direct loss expense under clause 44.1
together with all supporting documents, vouchers, explanations and
calculations which may be necessary to enable the direct loss or
expense to be ascertained by the S.O.. The amount of such direct
loss or expense ascertained by the S.O shall be added to the
Contract Sum.

44.3 If the Contractor fails to comply with clauses 44.1 and 44.2, he shall
not be entitled to such claim and the Employer shall be discharged
from all liability in connection with the claim.”

By way of the expression of clause 44.3, the notice requirement is a condition

precedent to one’s right for loss and expense compensation.

IEM requires these notices to be given within 30 days of the receipt of the
instruction or the occurrence of the delaying event as the case may be. PWD Form
203A varies only in that the notices must be given within one month.

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 PAM contracts also is similar requiring notice to be given within a specified time
frame upon occurrence/instruction and after a timeframe require the submission of
full particulars of the cost.

CIDB 2000

CIDB 2000 sets out in some detail a procedure to be followed if claims for loss and
expense are to be made:

Clause 32.1 (a) requires the contractor to notify the SO of his intention to claim
loss and expense within 30 days after the event giving rise to the claim having first
arisen. The notice must specify: -

(i) the event and its consequences

(ii) the appropriate contract references
(iii) an estimated amount of the loss and expense

Clause 32.1 (b) goes on to say that the giving of such a notice shall be a condition
precedent to any entitlement that the contractor may have under the contract.

Conditions precedents are dealt with below under Section 6.3.

6.2 Nature and form of notice/application

The CIDB form is quite explicit as to what is required in terms of notices or

application for loss and expense.

IEM and PWD Form 203A require estimates of the likely amount of loss and
expense to be submitted in addition to the written notice.

PAM 2006 and PAM 1998 requires more than just notice of loss and expense.

Under Clause 24.1 (b) of PAM 2006, within 28 days after the notice of intention to
claim have been served, the Contractor shall send to the Architect or Quantity

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Surveyor of the complete particulars of his claim for loss and/or expense together
with all necessary calculations to substantiate his claim.

Under Clause 11.6 (loss and expense arising from variations) of PAM 1998 the
contractor must supply details in support of his application but only upon request
of the architect or quantity surveyor.

Clause 24 (loss and expense arising from disturbance of the regular progress of
the works) requires the contractor to submit additional information substantiating
his claim along with the notice/application.

The nature of applications for loss and expense was considered in the case of
London Borough of Merton v Stanley Hugh Leach (1985) 32 BLR 51. This case
involved the English JCT 1963 form of contract, which is to all intents and purposes
identical to PAM 1969. However the principles set out in the judgment are no doubt
equally applicable to the IEM and PWD Form 203A.

Vinelott J. had this to say about the amount of detail which must be submitted with
the applications: -

“The question of principle is whether an application under clauses 24(1) or

11(6) must contain sufficient information to enable the architect to form an
opinion on the question whether (in the case of clause 24) the regular
progress of the works has been materially affected by an event within the
numbered sub-paragraphs of clause 24 or (in the case of clause 11(6))
whether the variation has caused direct loss and expense of the kind there
described and in either case whether the loss and expense is such that it
would not be reimbursed by payment under other provisions of the
contract.”

The judge pointed out that it would not necessarily be enough simply to make what
might be described as a “bare” application that would satisfy the requirements of
clauses 11(6) and 24(1).

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The application had to be framed with sufficient particularity to enable the architect
to do what he was required to do. The application must therefore contain sufficient
detail for the architect to form an opinion as to whether or not there was any loss
and expense to be ascertained.

Vinelott J. also commented on the circumstances following the contractor’s

application, which had satisfied the minimum requirements of clause 11(6) and or
24(1). If the architect was able to form an opinion that loss and expense had been
incurred, then he was under a duty to ascertain (or instruct the quantity surveyor
to ascertain) the amount of that loss and expense.

“The contractor must clearly co-operate with the architect or the quantity
surveyor giving such particulars of the loss and expense claimed as the
architect or quantity surveyor may require to enable him to ascertain the
extent of the loss and expense; clearly the contractor cannot complain that
the architect has failed to ascertain or to instruct the quantity surveyor to
ascertain the amount of direct loss and expense attributable to one of the
specified heads if he has failed adequately to answer a request for
information which the architect requires if he or the quantity surveyor is to
carry out that task.”

He continued: -

“If [the contractor] makes a claim but fails to do so with sufficient

particularity to enable the architect to perform his duty or if he fails to
answer a reasonable request for further information he may lose any right
to recover loss or expense and may not be in a position to complain that
the architect was in breach of his duty.”

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6.3 Conditions precedent and the failure to give notice/application where the
terms of contract requires it

All the standard contract forms require a written notice of or application for loss
and expense.

CIDB 2000 expressly provides that giving notice of loss and expense is a condition
precedent to the right of recovery.

A condition precedent is one of which that suspends the operation of a right until
the happening of an event. In the case of clause 32.1(b) of CIDB 2000, the giving
of a notice is a condition precedent to the contractor’s right to recover loss and
expense. Or put another way, the contractor has no contractual right to recover
loss and expense unless he has first given a written notice.

CIDB 2000 sets out in some detail the procedure to be followed in making a claim
for loss and expense. Clause 32.6 states that if the contractor has complied with
Clause 32.1 (i.e. notice of claims) but has failed to comply fully or at all with
Clauses 32.2 to 32.4 (i.e. the detailed procedure following the notice), the SO shall
be entitled to make such assessment, valuation or opinion as shall be fair and
reasonable on the basis of information available to him.

As mentioned earlier, under PAM 2006, the Contractor shall submit his notice to
claim within 28 days from the date of the event that have given rise to the intention
to claim for loss and/or expense, and to submit the substantiation to such claim
within 28 days after issuance of such notice for the Architect or Quantity Surveyor
to evaluate it. If the Contractor fails to submit the required particulars within the
stated time, it shall be deemed that the Contractor have waived his rights for loss
and/or expense.

PAM1998 (clause 11.6) requires notice to be given within a reasonable time. The
question of what is a reasonable time was also considered in London Borough of
Merton v Stanley Hugh Leach (1985) 32 BLR 51. Vinelott J said:

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 “He [the contractor] must make his application within a reasonable time. It
must not be made so late that, for instance, the architect can no longer form
a competent opinion on the matters on which he is required to form an
opinion or satisfy himself that the contractor has suffered the loss and
expense claimed. But in considering whether the contractor has acted
reasonably and with reasonable expedition it must be borne in mind that
the architect is not a stranger to the work and may in some cases have a
very detailed knowledge of the progress of the work and the contractor’s
planning.”

The IEM and PWD form 203A require notices to be given within 30 days or one
month respectively.

Would the contractor lose his entitlement if notices were given after these periods?

In Bremer Hadelsgesellschaft mbh v Vanden Avenne Izegem [1978] 2 Lloyds Rep

109 the House of Lords considered how the rights of the party were affected by
the lack of a proper notice. In this case the contract required notice to be given
“without delay”. It also gives some guidance on how a condition precedent clause
should be constructed. Lord Salmon had this to say:

“In the event of shipment proving impossible during the contract period, the
second sentence of clause 21 requires the seller to advise the buyers
without delay of the impossibility and the reasons for it. It has been argued
by the buyers that this is a condition precedent to the seller’s rights under
that clause. I do not accept this argument. Had it been a condition
precedent I should have expected the clause to state the precise time
within which the notice was to be served and to have made plain by express
language that unless notice was served within the time, the sellers would
lose their rights under the clause.”

Most standard form of contract requires notices for loss and expense to be served
as a condition precedent to recovery of that loss and expense and that without that
notice or application the right to payment would be lost.

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6.4 Qualifications to loss and expense clauses

PAM 1998

Clause 11.6 – loss and expense arising from variations – only allows recovery
provided the contractor “would not be reimbursed under any [other] provisions in
the contract”.

Clause 24.2 states that the “contractor is not entitled to loss and/or expense except
in accordance with the express provisions of the contract”.

IEM and PWD Form 203A

Clauses 5(d) and 44 have similar requirements to PAM 1969 in that loss and
expense is recoverable only if the contractor “would not be reimbursed by a
payment made under any other provision of this contract”. This explicit expression
is to avoid duplication in claims. For example, if a delay is caused by instruction to
vary the works, such work would be paid as variation under the contract based on
the rules for valuing variation. Only elements of cost not paid as variation may be
considered here.

However, Clause 5(d) introduces another qualifying term. Loss and expense
arising from an Engineer’s/S.O.’s Instruction will not be recoverable if the
Instruction was issued owing to some breach of the contract by the contractor.
This reflects the common law position that a party shall not benefit from its own
breach.

CIDB 2000

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 The loss and expense clause in CIDB 2000 is heavily qualified to the extent that it
sets out procedures, which are to be followed if loss and expense is to be
recovered. The most important of these being that the giving of notice is a
condition precedent.

7.0 GLOBAL CLAIMS - WHAT COMMONLY SUBMITTED BY CONTRACTORS

7.1 A successful claim must establish something more than a causal link between
cause and effect. When it comes to prolongation claims, the cause is the
delaying event and the effect is the loss and expense or additional cost arising
specifically from that delaying event.

7.2 Contractors commonly submit what are called global claims (or rolled-up claims).
These combine all the different causes of delay and show a single effect – usually
a large amount of loss and expense relating to the total period of delay.

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FIGURE 3: PROLONGATION PERIOD

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

(12 months)
Contract period

Delays arising from

Variations (2 months)

late information (3 months)

works of artists and tradesmen (1 month)

exceptionally inclement weather (3months)

Overall delay to completion (8 months)

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 The contract period is 12 months and the following delays have occurred:

Cause Period of delay

Variations months 2 and 3

Late information months 6, 7 and 8
Works of artists and tradesmen month 11
Exceptionally inclement weather months 10,11 and 12

7.3 In the programme shown in figure 3 above, a global claim might typically be
prepared in the following manner:

(i) There is a total delay of 8 months.

(ii) Of this 3 months (months 10, 11 and 12) do not entitle the contractor to
reimbursement of loss and expense.

(iii) Hence the total period to which loss and expense applies is 5 months.

(iv) The contractor then prepares a claim setting out his loss and expense for
five months (perhaps over months 13 – 17 or months 16 – 20).

7.4 This claim is fundamentally flawed. It is unlikely to succeed at arbitration or in

litigation let alone pass the scrutiny of a knowledgeable architect, engineer or
quantity surveyor.

7.5 A more correct approach is to present the claim in the following manner:

Months 2 and 3:
Cause of delay: variations
Effect: loss and expense incurred during months 2 and 3

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 Months 6, 7 and 8:
Cause of delay: late information
Effect: loss and expense incurred during months 6, 7 and 8

7.6 When submitting global claims contractors often rely on the case of J.Crosby and
Sons Limited v Portland Urban District Council (1977) 5 BLR 121. The contract
overran by 46 weeks of which 31 weeks entitled the contractor to recover loss
and expense. The arbitrator awarded loss and expense without apportioning it
to each of the nine causative delaying events – in other words he adopted the
approach of a global claim.

7.7 The Employer appealed, and when it came before Justice Donaldson he agreed
with the arbitrator saying:

… … … I can see no reason why he (the arbitrator) should not

recognise the realities of the situation and make individual award in
respect of those parts of individual items of claim that can be dealt
with in isolation and a supplementary award in respect of the
remainder of these claims as a composite whole.

7.8 This approach was followed in London Borough of Merton v Stanley Hugh Leach,
(1985) 32 BLR 51 where Vinelott J said:

The loss or expense attributable to each head of claim cannot in

reality be separated.

7.9 These two cases represented the judicial “high water mark” as far as global
claims are concerned. Ever since the courts have been in retreat.

7.10 Wharf Properties Limited and Another v Eric Cumine Associates and Others
(1991) 52 BLR 1 related to pleadings that were formulated on the basis of a
global claim. The Privy Council was not impressed. Lord Oliver said:

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 The failure even to attempt to specify any discernable nexus
between the wrong alleged and the consequent delay provides, to
use [counsel’s] phrase “no agenda” for the trial.

7.11 In ICI v Bovis Construction Limited and Others (1992) 32 Const LR 90, His
Honour Judge Fox Andrews explained the difficulties of a global claim.

A global claim had been made for abortive work in respect of hundreds of items
amounting to over £840,000. It was claimed that apportionment was impossible.
The defendants asked: if they had a complete defence to all the items save for
two minor ones – circuits need changing and fire bell repositioned – what
monetary consequences would flow from these two items. The reply was to the
effect: “If any of the events are not proven at trial, the only consequence is that
the actual sum paid will fall to be distributed between a lesser number of events,
not that the total recoverable would be less.”

Judge Fox Andrews found it “palpable nonsense that £840,000 could be the cost
of repositioning a fire bell”.

7.12 Pleadings and global claims were again before the courts in Mid Glamorgan
District Council v J. Devonald Williams and Partners [1992] CILL 722.

After considering the decisions in Crosby, The London Borough of Merton and
Eric Cumine the judge set out some very useful principles to be applied in the
pleading of complicated construction cases:

• a proper cause of action has to be pleaded

• Where specific events are relied upon as giving rise to claim for moneys
under the contract then any pre-conditions which are made applicable to
such claims will have to be satisfied, and satisfied in respect of each of the
causative events relied upon.

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 • When it comes to quantum, whether time based or not, and whether claimed
under the contract or by way of damages, then a proper nexus should be
pleaded which relates each event relied upon to the money claimed.

• Where, however, a claim is made for extra costs incurred through delay as a
result of various events whose consequences have a complex interaction
that renders specific relation between event and time/money consequence
impossible or impracticable, it is possible to maintain a composite claim.

7.13 This was not the end of the matter. In British Airways Pension Trustees Limited
v Sir Robert Mc Alpine and Son (1994) 72 BLR 26 an unparticularised claim was
struck out by the Official Referees Court. However, it was reinstated upon
appeal. In summary Judge Saville said that although the pleadings were
deficient to the extent they were “embarrassing” the plaintiffs had been willing to
provide further particulars if necessary. It was not a case in which it could be
said that the plaintiff’s claims were fundamentally flawed in the sense that no
further particulars could assist their case.

7.14 Where does all this leave contractors who are faced with the task of preparing
complicated claims?

It seems that the courts will be reluctant strike out claims merely because the
pleadings are poorly particularised (or are formulated on a global basis).

However, once the claims get before the courts, the courts are unlikely to be too
impressed if the evidence presented does not demonstrate a proper link between
cause and effect. Mr Recorder Tackaberry QC summed it all up in the Mid
Glamorgan case. A plaintiff relying on a globalised claim is “pinning its colours
to a case which creates evidential difficulties and is unlikely to be successful.”

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8.0 COMMON LAW CLAIMS – ALTERNATIVELY KNOWN AS CLAIMS UNDER
THE CONTRACTS ACT 1950

8.1 Common law claims are those that arise independently of the express terms of
the contract.

8.2 Of course some claims can arise under the contract and at common law too. In
this case the contractor has the choice of pursuing them under the contract
certification process or at arbitration or litigation under the common law. The
practical approach is to make the claim first under the express terms of the
contract and see whether this leads to certification.

8.3 The architect, quantity surveyor or engineer has no obligation or jurisdiction to

deal with and certify payments against common law claims without the express
agreement of the parties. This applies to the IEM and PWD contracts.

8.4 However, in Clause 24.3 (g) of PAM 2006 and Clause 24.2(viii) of PAM 98,
respectively do impose on the Architect an obligation to ascertained the amount
of loss and expense arising from “any act of prevention, improper interference or
breach of contract by the Employer”. These clauses seem to impose an
obligation on the Architect or Quantity Surveyor to deal with common law claims
too.

8.5 Contractors may have no option other than to make common law claims when,
owing to some breach, they have suffered damages and the express terms of
the contract provide no remedy.

8.6 Whilst there are many different breaches, which will give rise to common law
claims the most frequent type, are as follows.

(a) Breach of an implied term

Terms can be implied into a contract under common law or by statute.

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 Breach of an implied term entitles the contractor to recover damages.
The most common implied terms relate to the Employer’s obligation to
co-operate with the contractor, not to prevent completion and to give
possession of the site.

There is an implied term in every construction contract that the Employer

must do all that is reasonably necessary to bring about completion of the
works – Mackay v Dick [1881] AC 251. And in Cory Limited v The City of
London Corporation (1951) it was held that there was an implied term not
to prevent completion. These implied terms were developed further in
The London Borough of Merton v Stanley Hugh Leach Limited (1985) 32
BLR 51 where the court held that implied terms existed such that:

• The Employer would not hinder or prevent the contractor from

carrying out its works in accordance with the terms of the contract

• The Employer and the architect would do all things necessary to

enable the contractor to carry out the work and that the Employer was
liable for any breach of duty of the architect

• The architect would provide the contractor with correct information

concerning the works

It is also an implied term in every construction contract that the Employer

will give possession of the site within a reasonable time – Freeman and
Son v Hensler (1900).

(b) Under Certification

In Amec Building v Cadmus Investment Company Limited (1996) a

contractor’s claim out of a JCT form of contract included interest for
under-certification. The arbitrator awarded the interest from the date of
under-certification but the Employer appealed. In finding for the
contractor the judge said:

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 “I accept the argument that if monies previously unpaid to a
contractor are subsequently found to be due by reason of the
determination in the arbitration, that an award of interest should be
made to compensate the contractor for the period during which
such monies have been withheld from him”.

(c) Late Payment of Certificates

Late payment by the Employer is, sadly, a perennial problem. Can a

contractor recover interest on overdue payments? Is the Employer
obliged to entertain such claims on the notion that it is common practice
to pay “as and when it is convenient to do so”?

Amongst the standard forms of contract, only CIDB 2000 attempts to

address this problem by introducing an express provision for the payment
of simple interest at the rate stated in the Appendix in respect of any sum
that remains unpaid from the date by which the same should have been
paid until the payment of such sum. In short, CIDB 2000 provides the
Contractor with a contractual redress if the Employer fails to honour the
certificate within the stipulated time period.

Nevertheless, in the absence of such contractual redress, the Contractor

would seek an alternative redress at common law or statute. The
Contract Administrator under any standard forms of contract should be
under a duty to advise the Employer of the validity of the Contractor’s
claims under the common law or statute. The starting point is the case of
Hadley v Baxendale (1854) 9 Ex. 341. This has been referred to above.

Late payment of certificates is breach of contract and the contractor, as

for any breach, is entitled to damages.

In Hadley v Baxendale a claimant is entitled to recover damages:

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 which naturally arose in the usual course of things from the
breach (these are known as general damages)

or which the parties knew, when they made the contract, to

be likely to result from the breach of it (these are known as
special damages)

The English courts have long held that that no interest can be recovered
by way of damages on late payment of a debt unless there is some
contractual or statutory right to interest.

The leading authority is London Chatham and Dover Railway Company

v South Eastern Railway Company [1893] AC 429 HL. However the
House of Lords have limited the application of this principle in the case of
The President of India v La Pintada Compania Navigacion SA, [1984] All
ER 773 HL. They upheld the position in London Chatham and Dover
Railway so far as it applied to general damages, but they held it did not
apply to special damages.

Consequently a contractor can recover interest on overdue payments

provided it is claimed or pleaded as special damages and provided that
he can demonstrate that he did in fact suffer some loss.

8.7 It might well be argued that there is little point in submitting common law claims
to the architect, quantity surveyor, or engineer, as they have no jurisdiction to
deal with these. However, the fact that the claims are common law claims rather
than a claim under the express terms of the contract does not make the Employer
any less liable.

8.8 Many Employers will not respond to common law claims until the contractor starts
arbitration or litigation proceedings.

8.9 Nonetheless, it is often advisable for contractors to submit these claims at an

early stage and at least at the same time as any contractual claims. If nothing

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 else, they often enable the contractor to negotiate a more favourable settlement
to his contractual claims.

8.10 The prudent architect, engineer or quantity surveyor would be wise not to ignore
common law claims even though he may have no jurisdiction to deal with them.
At the very least, the engineer or the contract supervisor probably has a duty to
advise the Employer of the existence of these claims (if the Employer is not
already aware of them) and provide preliminary advice as to what extent, if any,
they are coterminous with claims under the express terms of the contract.

9.0 FINANCING CHARGES – TO PAY OR NOT TO PAY

9.1 Projects often run into delays that prolong the contract period in which results in
additional expense being incurred by the Contractor in providing his preliminaries
etc. As such, loss and expense claims are often accompanied by claims for the
cost of financing the additional expenses. Does the Contractor have a valid
claim? How would the Engineer advise the Employer in this case?

9.2 There is now no doubt that the Contractor is entitled to relief, by way of loss
and/or expense, for the cost of financing. In his judgement in F.G. Minter Ltd -
v- Welsh Health Technical Services Organisation (1980) 13 BLR 1, Stephenson
L.J. said:

"It is further agreed that in the building and construction industry

the "cash flow" is vital to the contractor and delay in paying him for
the work he does naturally results in the ordinary course of things
in his being short of working capital, having to borrow capital to
pay wages and hire charges and locking up in plant, labour and
materials capital which he would have invested elsewhere. The
loss of the interest which he has to pay on the capital he is forced
to borrow and on the capital which he is not free to invest would
be recoverable for the Employer's breach of contract within the first
rule in Hadley -v- Baxendale (1854) 9 Ex 341, without resorting to
the second, and would accordingly be a direct loss, if an

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 authorised variation of the works, or the regular progress of the
works having been materially affected by an event specified in
clause 24(1), has involved the contractor in that loss."

In the case of Rees and Kirby Limited -v- Swansea City Council (1985) 30 BLR
1, the court held, in respect of the sum claimed for interest as part of a claim, that
the contractor was entitled both legally and morally to every penny. The Court
of Appeal confirmed that financing costs were a recoverable head of loss and
expense and stated such costs shall be calculated at compound interest. A
fortiori, the Sub-Contractor should therefore be entitled to be paid finance
charges.

9.3 It remains therefore, that if the principle of claiming for finance charges is
acceptable, the method of calculation, interest rate etc. will need to be
substantiated and proved for the claim to be validated.

9.4 One interesting point that is worthy of mention relates to the Malaysian Contracts
Act. The Contracts Act includes examples or illustrations as an aid to the
interpretation of the various clauses. Illustration (n) which immediately follows
section 74 is worded as follows: -

“A contracts to pay a sum of money to B on a day specified. A does not

pay the money on that day. B in consequence of not receiving the money
on that day is unable to pay his debts and is totally ruined. A is not liable
to make good to B anything except the principal sum he contracted to pay,
together with interest up to the day of payment” [emphasis added].

10.0 HEAD OFFICE OVERHEADS

10.1 Head Office Overheads

These are sometimes referred to as “Overheads”, “Establishment Charges” or

other such euphemisms.

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 Head Office Overheads will need to be considered in the light of the accounting
principles adopted by the Contractor. If the cost of senior management and head
office clerical staff are charged to the job, it will be easier to establish this as a
cost incurred by the Contractor in managing and carrying out the works.

10.1.1 If the Contractor does not charge the cost of senior management and clerical
staff to the job, then the cost (plus all other relevant Head Office costs), may be
allocated on a proportional basis over the period. The well-established "Hudson
Formula" is usually accepted as a means of calculating the additional Head
Office Overheads over the period, i.e.

Overheads percentage x Contract Sum x Period of Delay

100 Contract Period

The formula was approved in the case of Ellis Don Limited -v- The Parking
Authority of Toronto (1985) 28 BLR 98, subject to proof by the Contractor that
the loss of overheads could readily have been earned elsewhere but for the delay.

10.1.2 An alternative formula is produced in Emden's Building Contracts and Practice

8th Edition Volume 2 page N/46

h x c x pd

100 cp

h = head office percentage, arrived at by dividing the total

overhead cost and profit of the Contractor's organisation as
whole by the total turnover.

c = contract sum in question

cp = contract period in weeks

pd = period of delay in weeks

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 In the US, an almost identical formula to Emden's (The Eichleay Formula) was
approved in The Appeal of the Eichleay Corporation, ASBCA 5183, 60-2 BCA
(CCH) 2688 (1960). See also Capital Electric v U.S. (Appeal No.88/965, 7.2.84)
729 F.2d 143 (1984)

10.1.3 The position with regard to general head office overheads (e.g. office rental,
rates, heating, lighting, secretarial and clerical staff) would seem to be that a
percentage adjustment to prime cost is still an acceptable means of
ascertainment. The observations of the Recorder in Whittall Builders Company
Ltd -v- Chester-Le-Street District Council (1984) (unreported) are of value, the
Recorder stated:-

"What has to be calculated here is the contribution to off-site

overheads and profit which the Contractor might reasonably
have expected to earn with these resources if not deprived of
them. The percentage to be taken for overheads and profits for
this purpose is not therefore the percentage allowed by the
Contractor in compiling the price for this particular contract,
which may have been larger or smaller that his usual percentage
and may have not been realised. It is not that percentage (i.e.
the tender percentage) that one has to take for this purpose but
the average percentage earned by the Contractor on his
turnover as shown by the Contractor's accounts".

10.1.4 The Hudson formula was again given judicial approval in the case of J F
Finnegan -v- Sheffield City Council (1989) 43 BLR 124, when the judge dealt
with the calculation of overheads in the following terms:-

"It is generally accepted that, on principle, a contractor who is

delayed in completing a contract due to the default of his
Employer, may properly have a claim for head office or off-site
overheads during the period of delay, on the basis that the work-
force, but for the delay, might have had the opportunity of being
employed on another contract which would have had the effect

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 of funding the overheads during the overrun period. This
principle was approved in the Canadian case of Shore & Horwitz
Construction Co Ltd -v- Franki of Canada (1967) SCR 589, and
was also applied by Mr Recorder Percival QC, in the unreported
case of Whittall Builders Company Limited -v- Chester le Street
District Council. Furthermore, in Hudson's Building Contracts,
at page 599 of the 10th edition, a simple formula is set out to
determine the amount of the loss of funding of overheads and
profit during the period of overrun."

10.1.5 The contractor unfortunately did not calculate his head office overhead claim
using the Hudson formula but one of his own invention. This led Sir William to
comment:

"However, I confess that I consider the plaintiffs' method of

calculation of the overheads on the basis of a notional contract
valued by uplifting the value of the direct cost by the constant of
3.51 as being too speculative and I infinitely prefer the Hudson
formula which, in my judgment, is the right one to apply in this
case, that is to say, overhead and profit percentage based upon
a fair annual average, multiplied by the contract sum and the
period of delay in weeks, divided by the contract period."

10.1.6 The judge erred in referring to this calculation as the Hudson formula, as in fact
it related to the Emden formula. If the Hudson or Emden's formulae are used
appropriate credit should be allowed for additional overheads recovered by way
of variations.

10.1.7 It is concluded that the Emden's formula method using head office overheads
(excluding profit) calculated by dividing the total overhead cost of the
Contractor's organisation as a whole by the total turnover is an arguable method
of calculating a head office overhead claim based upon the above.

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10.1.8 There are grounds to argue that some (or most) of the Head Office Overhead
costs would have been incurred whether or not there had been any prolongation,
and as such, the formula represents a calculation of the possible loss to
Contractor that it may have earned, to cover its overheads elsewhere had there
been no delay (i.e. loss of opportunity which is usually difficult to illustrate).

10.1.9 In order to resist the above argument, the Contractor should ensure that the
calculation of the overheads percentage reflects those costs which could
reasonably be said to be expenditure necessary to manage and carry out the
works. The following guidelines may be useful in meeting this objective:

a) Extract all items from the annual accounts (over a period which spans the
total contract period, including the prolonged period) which are relevant
to the operating costs of construction. In order to do this the annual costs
of marketing, publicity, staff training, staff recruitment and the like may
have to be deducted from the total overhead costs since they are costs
which would generally have been incurred irrespective of the delay, (if
any of these costs were incurred in respect of the job, these should be
dealt with separately).

b) If finance charges are incurred to enable the company to operate, and if

these appear in the accounts as overheads, exclude these from the
calculations since they may not have been incurred in connection with
the job. (A separate calculation should be done in respect of the finance
charges to avoid duplication).

10.1.10 The Contractor may also be able to produce evidence to illustrate that, save for
the delay, it would have been possible to reduce Head Office staff levels and
costs. (It may have been necessary to employ additional staff, or to work
excessive overtime). In principle, there are good grounds for the Contractor to
recover the extra cost of overheads due to the delay, by using a formula,
providing that there is no duplication (some adjustment may have to be made if
additional work, which, by the nature of the rates applicable to such work, contain

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 a percentage for overheads) and providing that a sensible and reasoned
approach to the calculation of overheads has been made.

10.1.11 It is often argued that the formula method produces an under recovery of the
Head Office Overheads. There are some merits in this argument, particularly
when a job goes "sour". In these circumstances it is often necessary for the
Contractor's most senior and experienced management personnel (possibly
directors of the company) to spend a disproportionate amount of their time at
meetings, writing letters etc. If this is the case then it would be good accounting
policy to charge all head office staff to the job according to time sheets, or based
upon some other reasonable estimates, e.g. it may be possible for staff to assess
their time on different projects on a percentage basis each week or month.

10.2 Limitation on the Application of the Formulae

This and similar formula methods were starting to be accepted by various

authorities and the courts, but is suggested that doubt as to their acceptability
has been raised by the case of Tate & Lyle -v- GLC (1983) 1-CLD-08-07. This
is not a building case but is of general application. The plaintiffs claimed 2.5%
on prime cost for managerial time, and the judge accepted that such a head of
claim was admissible but he did not accept the method of calculation and the
application was rejected. He remarked that it was up to managers to keep time
records of their activities.

10.2.1 The decision in Tate & Lyle, it is submitted, casts doubt on the formula methods
of calculation only insofar as the contractor is unable to demonstrate a loss of
opportunity to use the resources on other sites.

10.2.2 This could often occur during periods when the construction industry is in
recession. Contractors when faced with a downturn in work often lay off
resources as each job finishes until the size of the organisation is suitable for the
economic climate current at the time. It would under the circumstances be
inappropriate to claim reimbursement of head office overheads on the basis of a
lost opportunity.

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10.2.3 The Courts in recent times have scrutinised the use of the Hudson and Emden
formulae. As a result it is not sufficient to use these formulae without providing
supporting evidence.

10.2.4 In the recent case of Norwest Holst Construction Ltd v Cooperative Wholesale
Society (1998) 22 BLISS 4 when the Emden formula was discounted to one fifth
of the calculation by the arbitrator, the Court held that the following supporting
evidence must also be provided.

1. The loss in question must be proved to have occurred.

2. The delay in question must be shown to have caused the contractor to

decline to take on other work which was available and which would have
contributed to its overhead recovery. Alternatively, it must have caused
a reduction in the overhead recovery in the relevant financial year or
years which would have been earned but for that delay.

3. The delay must not have had associated with it a commensurate increase
in turnover and recovery towards overheads.

4. The overheads must not have been ones which would have been
incurred in any event without the contractor achieving turnover to pay for
them.

5. There must have been no change in the market affecting the possibility
of earning profit elsewhere and an alternative market must have been
available. Furthermore, there must have been no means for the
contractor to deploy its resources elsewhere despite the delay. In other
words, there must not have been a constraint in recovery of overheads
elsewhere.”

10.2.5 The learned judge stated :

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“In this claim by CWS, it is not a situation where CWS need merely
establish how it would have acted but for the delay CWS must,
instead, establish a number of inter-related facts :

1. That its senior management, who spent time on this

contract in the period of delay, would have spent that time
on other contracts on which CWS was working at the time.

2. Had that time been spent in that alternative way, the

administrative tasks that would have been undertaken on
those other contracts would have caused a variety of people
and a variety of contractors and supplies with whom CWS
where working with to have performed more speedily,
economically and efficiently such that CWS’ profit from
those companies would have been within CWS’ control.

3. As a result of CWS’ additional profitability, it would have

carried a greater contribution to its overheads from these
contracts than it actually did.”

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11.0 COST OF PREPARING THE CLAIM

11.1 When a claims situation arises, contractors and sub-contractors are invariably
put to cost in preparing a submission to go to the Architect or Engineer. The
question often asked is whether the cost is recoverable as part of the claim
ascertainment and payment.

There is no definitive "yes" or "no" answer to this question. Few examples in

practice can be identified where costs of preparing a claim have been certified
and paid.

11.2 There is however, one reported case where a court had to decide whether a
claims consultant's fees should be reimbursed to a successful claimant. The
case being James Longley and Co Ltd -v- South West Regional Health Authority
(1983) 25 BLR 56. The case arose out of a dispute concerning a successful
claimant's right to recover the costs of employing a claims consultant as part of
the costs of the action.

An arbitration between the parties was settled after the hearing had lasted
sixteen days.

11.3 The Claimants' bill of cost contained an item of £16,022 for the fees of Mr Roy K
Short, a claims consultant. It was directed that the fees insofar as they related
to work done in preparation of the Claimants' final account and to work as a
general adviser to the Claimants were to be disallowed but allowance was made
for £6,452 in respect of work done in preparing the Claimants' case for arbitration,
namely the preparation of these schedules annexed to the Points of Claim.

This case is no authority for the proposition that costs incurred in preparing
claims are recoverable.

11.4 It would seem that when approaching the matter of recovery of the costs of
preparing a claim, a number of questions should be addressed:

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1. It would seem unlikely that in the absence of express terms in the contract
which give an entitlement to payment, the cost of producing documents
in support of a claim as required by the conditions of contract will be
recovered. In providing this information the contractor or sub-contractor
is merely complying with the requirements of the contract.

2. Where the conditions of contract required the Architect or Engineer

having received notice and details from the Contractor or Sub-Contractor
to ascertain loss and expense, any failure to so ascertain will constitute
a breach of contract.

Vincent Powell Smith in an article appearing in Contract Journal dated 30

July 1992 had this to say on the matter with regard to claims under JCT
80:

"If the contractor invokes Clause 26 and does what is

required, the architect is under a duty to ascertain or
instruct the quantity surveyor to ascertain whether loss or
expense is being incurred and it amount. This follows from
the wording of Clause 26.1 which uses the word `shall' and
which thus imposes a duty on the architect, provided that
the architect has formed a prior opinion that the contractor
has been or is likely to be involved in direct loss and/or
expense as a result of the specified event(s) and which is
not recoverable under any other provisions of the
contract."

There is no doubt that the Employer is liable in damages for breach by

the architect of this duty and this is so whether the architect is an
employee, e.g., where the Employer is a public authority, or, as is more
usual, an independent architect engaged by the Employer. Where
Clause 26.1 says ‘the architect shall' this, in effect, means `the Employer
shall procure that the architect shall'. This point is implicit in the
reasoning in Merton -v- Leach and also follows from Croudace Ltd -v-
London Borough of Lambeth (1986) which is clear authority for the view

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that the Architect's failure to ascertain, or instruct the quantity surveyor to
ascertain, the amount of direct loss and/or expense suffered or incurred
by the contractor is a breach of contract for which the Employer may be
liable in damages if the contractor can establish that he has suffered
damage as a result of the breach.

This he can do without difficulty in most cases, and it does not raise any
great difficulties. In Croudace Lord Justice Balcombe dealt with the
matter in this way:

"Unless it can be successfully maintained by Lambeth that

there are no matters in respect of which Croudace are
entitled to claim for loss and expense under [what is now
Clause 26], it necessarily follows that Croudace must have
suffered some damage as a result of there being no one to
ascertain the amount of their claim" - the Employer in that
case having failed to appoint a successor architect when
the named architect retired."

A contractor when claiming damages for a breach by the Architect in not

ascertaining loss and expense will be governed by the rule in Hadley -v-
Baxendale (1854). The damages recoverable under these rules are:

➢ those arising naturally i.e. according to the usual course of things

from such breach.

➢ such as may reasonably be supposed to have been in the

contemplation of both parties as the time they made the contract.

It may be argued that both parties would contemplate that if the Architect
fails to ascertain loss and expense and hence is in breach the parties
should have contemplated that the contractor would be put to expense in
preparing a fully, documented claim which should therefore be
recoverable.

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 The same type of argument would apply under PAM 98 or CIDB 2000
conditions of contract where the Architect or SO fails to certify sums due
or arising out of a claim.

3. There is a precedent for the payment of managerial costs resulting from

a breach, in the case of Tate and Lyle Food Distribution -v- GLC [1982]
1 WLR 149. In that case Forbes J said:

"I have no doubt that the expenditure of managerial time in

remedying an actionable wrong done to a trading concern
can properly form the subject matter of a head of special
damage."

This argument may be extended to cover the cost of claims preparation

following a breach.

4. Where matters are referred to arbitration, an Arbitrator has a discretion

to direct by whom and to whom costs shall be paid. The exercise of the
Arbitrator's discretion is limited to costs connected with or leading up to
the arbitration. Normally the Arbitrator will award costs in favour of the
successful party which have been incurred after the service of the
arbitration notice. However, if costs incurred before the service of the
notice are in contemplation of the arbitration then the Arbitrator may
include them in his award of costs. It may be agreed that costs of
preparing a claim document which ultimately forms part of the pleadings
but is prepared before the arbitration notice is served falls into the
category of costs in contemplation of arbitration. A note on the file before
the claim is prepared to the effect that it is being preparing in
contemplation of arbitration may prove helpful.

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12.0 CASE LAW: RECENT DEVELOPMENT RELATING TO CLAUSE 44 OF
PWD203 ON LOSS AND EXPENSE

I have attempted to write briefly on this CA decision by highlighting matters relevant

to the QS and CMD scope of work. I am not discussing any legal debate therein
but just touch matters which will affect the assessment of loss and expense.

As a summary, the CA decision reversed the position taken by the HC.

A. The High Court (HC) ruling: Sunissa Sdn Bhd v Kerajaan Malaysia & Anor
[2020] MLJU 283

The important (if not an akward) decision ruled by the HC had distinguished the
loss and expense between what is 'within reasonably contemplation' and whats
'beyond reasonably contemplation'. By distinguishing the two, the ruling for
evaluating and awarding loss and expense also been categorised into 2 as the
following;

1. For claims within reasonable contemplation;

a. The strict requirement for notice under cl.44.1 is dispensed with on the
rationale that the parties have contemplated for such cost to occur in the
event of delay, therefore there is no justification for the notice to be a
condition precedent to one's entitlement.

b. The claims within reasonable contemplation are those recurring cost and
one off cost that obviously need to be extended as contained in the
Prelinaries section of the BQ.

c. The approach taken by the HC in evaluating and awarding cost is by taking

the recurring cost per month multiplied by the delay duration and on pro-
rata basis. With this approach, contractor will not need to demonstrate and
proof the actual loss incurred. The HC seems to ignore the principles of
assessing damages at law here, and treat this claim as if its a Variation
under the contract.

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 2. For claims beyond reasonable contemplation;

a. For claims beyond reasonable contemplation, notice under cl.44.1 and

strict compliance is required thus such notice requirement is considered as
condition precedent to one's entitlement. The rationale behind this ruling is
that, these are claims which are not contemplated by the parties and
therefore it is incumbent for the party intending to claim to give notice to the
other party so that the other party has the opportunity to identify and know
the cost he would be paying. By having notice as early as 30 days within
the occurrence of such event also provides means for the parties to decide,
control and manage the potential additional cost.

b. The claims for losses and expenses beyond reasonable contemplation can
be anything so far that it can be proven there is nexus between causation
and the loss and expenses claimed.

c. The approach for evaluating this category of claim is based on the

principles of assessing damages at law, meaning proof of nexus between
causation is required and claims based on actual loss and expenses.

B. The recent Court of Appeal (CA) ruling: Jabatan Kerja Raya Malaysia & Anor
v Sunissa Sdn Bhd [2022] MLJU 1035

a. The CA disagree with the HC approach distinguishing the loss and

expense between what is 'within reasonably contemplation' and what’s
'beyond reasonably contemplation'. Clause 44.1 should not be read in
isolation as it's linked with Clause 43.1. As there is no other provision in the
contract that allows claims for which are reasonably contemplated as a
consequence of a delay, it should all be within the ambit of Clause 43 and
44.

b. As the CA has decided all claims as a consequence of a delay falls under

clause 43 and 44, the following shall apply;

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i. Notice requirement under clause 44.1 shall strictly apply as a
condition precedent to the claims.

ii. The claims awarded by the HC cannot be sustained due to non

compliance with the notice requirement.

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PART 7: ACCELERATION COST

1.0 INTRODUCTION

1.1 Contracts frequently fall behind for various reasons leaving the completion date in
jeopardy. If the contractor does not voluntarily accelerate the works it will need an
express term of the contract or a separate agreement between the Employer and
contractor to facilitate acceleration.

1.2 Clause 25 of the CIDB for example states as follows: -

"Notification to Expedite

(a) If for any reason which does not entitle the Contractor to an
extension of time, the rate of progress of the Works or any section
of the Works is at any time, in the opinion of the Superintending
Officer, too slow to achieve completion by the Time for Completion
of the Works or any section of the Works, the Superintending Officer
shall instruct the Contractor accordingly.

(b) The Contractor shall upon the receipt of such instruction take such
steps as are necessary to expedite progress and to complete the
Works or any section of the Works in accordance with the said
instruction. Such steps shall include, if required by the
Superintending Officer, the preparation of a revised or modified
Works programme for acceptance pursuant to Clause 5.

(c) Unless the Superintending Officer shall issue an instruction for

Variation in accordance with Clause 28, the Contractor shall not be
entitled to any additional payment whatsoever for taking the steps
referred to in sub-clause 25.1(b)."

1.3 This clause only applies where, due to any reason which does not entitle the
contractor to an extension of time, the rate of progress of the works or any section
is at any time, in the opinion of the Superintending Officer, too slow to comply with

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 the Time for Completion. This can be a useful provision from the Employer's point
of view.

1.4 The ICE 6th Edition includes in clause 46(3) for the Employer or Engineer to request
the contractor to complete the works in a time less than the contract period or
extended contract period. If the contractor is in agreement, special terms and
conditions of payment will have to be agreed.

1.5 The JCT Management Form (JCT 87) includes detailed provisions for acceleration.
In like manner to clause 46(3) of the ICE conditions, the clause can only be
operated with the agreement of the contractor.

1.6 One of the difficulties of operating an acceleration clause is proving the cost of
additional resources and reduced outputs which result from acceleration measures.
It will be necessary to isolate the costs of acceleration measures. To do so
effectively will require the contractor to demonstrate the cost of resources, which
would have been employed, had no acceleration measures been taken.

1.7 Contractors and subcontractors often argue that they have been forced to
accelerate the works to overcome delays caused by the Architect or Engineer.
There may be some confusion between an acceleration claim and a loss of
productivity claim. Normally in the absence of an instruction to accelerate, the
contractor is not entitled to unilaterally decide to accelerate and expect the
Employer to pay the costs.

1.8 The contractor or subcontractor may however argue that he chose to accelerate
faced with the Architect or Engineer's refusal or neglect to grant a proper extension
of time.

1.9 The phrase coined for this scenario is 'constructive acceleration' which has its
origins in the United States Court of Claims where there is a legal doctrine of
constructive acceleration relating to situations where an instruction to accelerate
should be implied from the actions of the Employer/contract administrator. There is
no such doctrine in Malaysian law, or for that matter in any other commonwealth,
common law jurisdiction. So, can a constructive acceleration claim succeed in the
absence of such doctrine?

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1.10 At least one highly respected construction law writer suggests not. I.N.
Duncan Wallace, in his book Construction Contracts: Principles and Policies
in Tort and Contract states:

"Nor does it seem a reasonable inference that a person mistakenly

and wrongly blaming another for delay, and demanding an
improvement in progress, can be said to be impliedly authorising a
payment of compensation if that should turn out to be wrong."

1.11 The authors of Building Contract Claims by Powell-Smith & Sims (3rd Edition page
168) go further:

"Where the architect wrongfully fails to make an extension of time,

either at all or of sufficient length, the contractor's clear remedy
under the contract is arbitration ... If he increases his resources,
that is not a direct result of the architect's breach, but of the
contractor's decision."

1.12 But, do these learned opinions ignore the commercial realities of the situation? And
in Malaysia, where damages for late completion are invariably substantial, those
commercial realities are perhaps even more compelling.

1.13 Other commentators have expressed the view that a US-style doctrine is
unnecessary, as recovery of sums claimed in the circumstances described can be
achieved through application of ordinary legal principles, namely breach of contract
and damages. Abrahamson in his book, Engineering Law and the ICE Conditions
(4th Edition page 371) says:

"But if the contractor is driven to expedite in order to avoid possible

liability for damages ... because either the engineer has failed to
consider the contractor's right to an extension in good faith at the
times at which he is directed to do so ... then it seems that the
contractor may have a claim. The claim is for damages for breach

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 of contract by the Employer by way of failure of the engineer as his
agent to administer the contract in accordance with its terms."

1.14 Two decisions in courts of common law jurisdictions provide some support for this
view. The first is a Singaporean case. In Aoki v Lippoland (Singapore) Pte Ltd
[1995] 2 SLR 609, which was heard on appeal to the High Court, the contract
required the contract administrator to notify the contractor within one month of
receipt of the contractor's claim as to whether in principle he was entitled to an
extension of time. It was held that where the contract administrator failed to comply
with that requirement, this amounted to a breach entitling the contractor to
damages, which included the cost to the contractor of increasing his labour force
resulting from any initial uncertainty due to the contract administrator's omission to
act.

1.15 The second decision arises from the earlier Australian case of Perini Corporation v
Commonwealth of Australia (1969) 12 BLR 82. In that case, unlike Aoki above, no
time limit was contained within the contract for assessing and adjudicating upon a
contractor's application for extension of time. It was nevertheless held that a term
should be implied that the contract administrator should give his decision within a
reasonable time; failure to do so amounted to breach. Clearly, what amounts to a
reasonable time will depend upon the facts of each case. However, commenting
on the decision in Perini, based on the principle that a contractor is entitled to
damages which flowed in the ordinary course of things from such a breach, it is
suggested by Eggleston in his book Liquidated Damages and Extension of Time in
Construction Contracts (2nd Edition page 171) that if the contractor accelerates to
avoid liquidated damages he may be entitled to his costs.

1.16 Clause 25 of the CIDB for example states as follows: -

Notification to Expedite

(a) If for any reason which does not entitle the Contractor to an extension
of time, the rate of progress of the Works or any section of the Works
is at any time, in the opinion of the Superintending Officer, too slow to
achieve completion by the Time for Completion of the Works or any

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 section of the Works, the Superintending Officer shall instruct the
Contractor accordingly.

(b) The Contractor shall upon the receipt of such instruction take such
steps as are necessary to expedite progress and to complete the Works
or any section of the Works in accordance with the said instruction.
Such steps shall include, if required by the Superintending Officer, the
preparation of a revised or modified Works programme for acceptance
pursuant to Clause 5.

(d) Unless the Superintending Officer shall issue an instruction for

Variation in accordance with Clause 28, the Contractor shall not be
entitled to any additional payment whatsoever for taking the steps
referred to in sub-clause 25.1(b)."

1.17 This clause only applies where, due to any reason that does not entitle the
contractor to an extension of time, the rate of progress of the works or any section
is at any time, in the opinion of the Superintending Officer, too slow to comply with
the Time for Completion. This can be a useful provision from the Employer's point
of view.

1.18 The ICE 6th Edition includes in clause 46(3) for the Employer or Engineer to request
the contractor to complete the works in a time less than the contract period or
extended contract period. If the contractor is in agreement, special terms and
conditions of payment will have to be agreed.

1.19 The JCT Management Form (JCT 87) includes detailed provisions for acceleration.
In like manner to clause 46(3) of the ICE conditions, the clause can only be
operated with the agreement of the contractor.

1.20 One of the difficulties of operating an acceleration clause is proving the cost of
additional resources and reduced outputs which result from acceleration measures.
It will be necessary to isolate the costs of acceleration measures. To do so
effectively will require the contractor to demonstrate the cost of resources, which
would have been employed, had no acceleration measures been taken.

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1.21 Contractors and subcontractor often argue that they have been forced to accelerate
the works to overcome delays caused by the Architect or Engineer. There may be
some confusion between an acceleration claim and a loss of productivity claim.
Normally in the absence of an instruction to accelerate, the contractor is not entitled
to unilaterally decide to accelerate and expect the Employer to pay the costs.

1.22 The contractor or subcontractor may however argue that he chose to accelerate
faced with the Architect or Engineer's refusal or neglect to grant a proper extension
of time.

1.23 The phrase coined for this scenario is 'constructive acceleration' which has its
origins in the United States Court of Claims where there is a legal doctrine of
constructive acceleration relating to situations where an instruction to accelerate
should be implied from the actions of the Employer/contract administrator. There is
no such doctrine in Malaysian law, or for that matter in any other commonwealth,
common law jurisdiction. So, can a constructive acceleration claim succeed in the
absence of such doctrine?

1.24 At least one highly respected construction law writer suggests not. I.N.
Duncan Wallace, in his book Construction Contracts: Principles and Policies
in Tort and Contract states:

"Nor does it seem a reasonable inference that a person mistakenly

and wrongly blaming another for delay, and demanding an
improvement in progress, can be said to be impliedly authorising a
payment of compensation if that should turn out to be wrong."

1.25 The authors of Building Contract Claims by Powell-Smith & Sims (3rd Edition page
168) go further:

"Where the architect wrongfully fails to make an extension of time,

either at all or of sufficient length, the contractor's clear remedy
under the contract is arbitration ... If he increases his resources,
that is not a direct result of the architect's breach, but of the
contractor's decision."

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1.26 But, do these learned opinions ignore the commercial realities of the situation? And
in Malaysia, where damages for late completion are invariably substantial, those
commercial realities are perhaps even more compelling.

1.27 Other commentators have expressed the view that a US-style doctrine is
unnecessary, as recovery of sums claimed in the circumstances described can be
achieved through application of ordinary legal principles, namely breach of contract
and damages. Abrahamson in his book, Engineering Law and the ICE Conditions
(4th Edition page 371) says:

"But if the contractor is driven to expedite in order to avoid possible

liability for damages ... because either the engineer has failed to
consider the contractor's right to an extension in good faith at the
times at which he is directed to do so ... then it seems that the
contractor may have a claim. The claim is for damages for breach
of contract by the Employer by way of failure of the engineer as his
agent to administer the contract in accordance with its terms."

1.28 Two decisions in courts of common law jurisdictions provide some support for this
view. The first is a Singaporean case. In Aoki v Lippoland (Singapore) Pte Ltd
[1995] 2 SLR 609, which was heard on appeal to the High Court, the contract
required the contract administrator to notify the contractor within one month of
receipt of the contractor's claim as to whether in principle he was entitled to an
extension of time. It was held that where the contract administrator failed to comply
with that requirement, this amounted to a breach entitling the contractor to
damages, which included the cost to the contractor of increasing his labour force
resulting from any initial uncertainty due to the contract administrator's omission to
act.

1.29 The second decision arises from the earlier Australian case of Perini Corporation v
Commonwealth of Australia (1969) 12 BLR 82. In that case, unlike Aoki above, no
time limit was contained within the contract for assessing and adjudicating upon a
contractor's application for extension of time. It was nevertheless held that a term
should be implied that the contract administrator should give his decision within a
reasonable time; failure to do so amounted to breach. Clearly, what amounts to a

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 reasonable time will depend upon the facts of each case. However, commenting
on the decision in Perini, based on the principle that a contractor is entitled to
damages which flowed in the ordinary course of things from such a breach, it is
suggested by Eggleston in his book Liquidated Damages and Extension of Time in
Construction Contracts (2nd Edition page 171) that if the contractor accelerates to
avoid liquidated damages he may be entitled to his costs.

1.30 So, it would appear that notwithstanding the absence of a US-style doctrine of
constructive acceleration, such claims have succeeded in other common law
jurisdictions on the basis of ordinary legal principles of contract law relating breach
and damages Meanwhile, in order for such claims to have any real chance of
success (in addition to there obviously being a genuine entitlement) it is submitted
that contractors need to have fully complied with the contract notice provisions
relating to extensions of time, have advised the contract administrator that failure
to grant in accordance with the time requirements in the contract or, where no such
requirements, within a reasonable time would leave them with no option but to
accelerate, and as a consequence, to actually have incurred costs which are not
reimbursable under any other provision of the contract.

1.31 Acceleration Agreements

Most acceleration occurs because progress on site has fallen behind the contract
programme and extra measures must be taken to maintain the original
completion date. It is in the contractor’s interest to ensure that the acceleration
agreement contains a clear statement by the Employer that he will reimburse the
contractor for extra costs; notwithstanding any liability the Employer may
consider the contractor to have in relation to programme slippage. If this matter
is left open-ended, the Employer may seek to re-open the question of liability for
delay at some time in the future and attempt to have the contractor pick up some
of his acceleration costs. To the Employer, this can be a rather difficult position
to accept but he can at least demand that the contractor, in agreeing to the
acceleration deal, waives his rights to extensions of time for all matters and
events that have arisen up to the date of instructing acceleration.

1.32 Revised Programme

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 A detailed contract programme is usually an optional document in a construction
contract. However, it is in both parties’ interests for the contractor to draw up a
revised programme of work to show that the accelerated completion date can be
achieved and to have this programme firmly bound into the agreement. The
programme can be used by the contractor to establish the necessary resources
he requires at each stage and allows both parties to monitor progress. Inter-
trade coordination becomes more complex and the contractor must prepare
detailed programmes for each of his main subcontractors so that they can
understand their input. The design team need to know when they must provide
information to the contractor and so they should expect to see lead-in activities
indicating approval periods, manufacture periods and delivery dates.

1.33 Future Delays

This existing contractual relationship between the Employer and contractor will deal
with the rights and obligations of both when events and circumstances lead to delay.
For example, where exceptionally adverse weather causes delay, the contractor
would be entitled to a compensating extension of time but no additional monies. It is
recommended that the existing contractual machinery for extensions of time be
likewise applied to the acceleration agreement. However it is normal for the
Employer, having agreed to pay extra monies to the contractor for acceleration, to try
to further limit the contractor’s entitlement to extensions of time. He may insist that
“the completion date may only be extended in the case of substantial extra works
being instructed and major frustrations being encountered.” It would seem
reasonable to expect this to apply to the payment of a bonus for example, but not to
the contractor’s equitable right to additional time for delays outside his control.

1.34 Firm Commitment or Best Effort?

The parties must decide whether the agreement to finish by a specific date is to be a
firm contractual obligation or a target date that the contractor will use his best efforts
to achieve. In the first case, it would be normal to maintain the existing liquidated
damages clause and the contractor would forfeit all his accrued entitlements for
extensions of time. However it would seem reasonable for the contractor to be
allowed to price the risk of not achieving the date. Not surprisingly it can be difficult

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 to agree what the risk factor ought to be and so the parties may decide that the
acceleration should be carried out on a target-only basis, with the contractor
maintaining his accrued entitlements to extensions of time. The contractor would
only be liable for damages when he had failed to complete by the original completion
date plus the extra time awarded for delays that justified extensions of time.

1.35 Stick or Carrot?

It is a fact that things usually get done when there is the right incentive. The Employer
needs to decide how the contractor is best motivated; by either the threat of a financial
penalty for failure or the reward of a financial bonus for succeeding. It is probably
true to say that the contractor will give his greatest efforts if there is some reward at
completion. The alternative, of liquidated damages, results in the contractor not
losing out if he succeeds, but at the same time he gains nothing. If a bonus is
proposed, the Employer should consider a sliding scale of payments, say over a four-
week period. This at least ensures the contractor’s efforts are maintained when he
realises that the earliest completion date will not be achieved. The Employer may
propose to pay the contractor his costs on condition that the completion date is
actually achieved and only a portion of his costs if the date is not met. This will
obviously produce the same efforts from the contractor since he is risking his own
costs. However, this approach appears to be rather unreasonable on the contractor.

1.36 Completion

Since the reason for acceleration is to achieve an earlier completion date and as
some financial incentive or liability may flow from this, it may be wise to restate
or revise the requirements for achieving completion. There is usually more
snagging work associated with an accelerated project and it would be unfortunate
if the contractor suffered financially because the Employer adopted a strict
interpretation of the contract with regard to practical completion. It may be that
completion of the physical works is important to the Employer and that
commissioning and final testing operations would not hinder his own occupation.

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 Similarly, the Employer may only be concerned with, for example, retail areas of
a shopping development and works behind the scenes could proceed after the
official opening. It would therefore seem wise for the contractor to determine the
minimum requirements of the Employer and have the acceleration agreement
written around these.

1.37 Costs

There are two methods for agreeing costs; either a negotiated lump sum or a cost
reimbursement based on actual records of expenditure (a third option may be a
composite of both). The lump sum is by far the neatest method since both parties
know from day one what the financial package will be. However this is the most
difficult to negotiate since the parties take opposing views; the contractor will take the
most pessimistic approach, the Employer the more optimistic. The contractor will
have to make assumptions with regard to the extra resources he will require and
guesstimate the probable extra costs. He will obviously have to build in contingency
factors and it is perhaps these that will be considered as excessive and unnecessary
by the Employer. However if a lump sum price is agreed, both parties should
acknowledge it as a price for achieving a date. The Employer should not monitor the
contractor’s expenditure and expect credits if, for example, the amount of overtime
allowed is found to be excessive. Likewise, the contractor should not expect extra
payments should he find that he requires more labour than envisaged.

The alternative approach is to identify the heads of cost and the methods of
calculating extra resources and evaluating their individual expense. The
contractor can submit his daily labour returns to identify the overtime hours
worked and the Employer can check the premium time and costs from knowledge
of market rates. Similarly, the contractor can supply additional engineering staff
and demonstrate their employment costs from the company’s payroll. This
method of reimbursement creates the least incentive for the contract since he is
paid all that he expands; he can be as uneconomic as he wishes. The Employer
is also in a vulnerable position since his financial liability is unknown until
completion. However, some acceleration are so uncertain in terms of what has
to be done in order to save time, that the cost reimbursement method is the only

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realistic means of establishing the contractor’s compensation. In either case the
following cost factors need considering :

• Labour premium time: arising from a longer working week, non-

productive overtime payments may be incurred. Some of the employment-
on-costs (e.g. SOCSO, insurances, etc.) also attach to the non-productive
overtime, though many are fixed, irrespective of worked hours. An on-cost
of 15% on to the basic hourly rate is not an uncommon addition.

Import costs: average labour costs will increase if it is necessary to recruit

from further afield. This will initially include travel costs and travel time but
eventually cover board and lodgings.

• Productivity : if the works are carried out at a quicker pace by, increasing
the labour force, by working longer hours and by changing the method of
working and programme sequence, the productive output of site labour will
diminish ad it is not uncommon to have productivity levels fall by up to 50%.
This will obviously increase labour costs by a similar amount. If the
contractor maintains a system for monitoring labour output, it should be
possible to provide contemporaneous records to demonstrate how
productivity has been affected during a period of acceleration. However,
only a minority of contractors keep such records. Furthermore, if the parties
wish to predetermine the acceleration costs, negotiations will have to take
place to pre-agree the likely productivity effects. Records and statistics are
in short supply but recent research has pulled together UK and USA data
on acceleration and productivity effects on labour.

• Supervision : the level of supervision varies according to the number of

operatives and the complexity of the works. However, it is normally
expected that the level of supervision should be more than proportionally
increased during acceleration.

• Bonus incentives : Greater output and hence faster construction may

arise if some sort of incentive bonus is provided to the workforce. When

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 an incentive bonus system is in operation before acceleration, it is not
uncommon for bonus levels to diminish during acceleration because the
methods of working have to be revised and this may not allow labour to
earn a bonus; labour will expect to be compensated for this. It may even
be necessary to pay a bonus to maintain a site labour force in buoyant
market let alone to encourage more operatives to join the ranks.
Acceleration usually involves holiday working and it may be necessary to
pay above the standard rates to encourage the labour force to work. The
contractor must thoroughly plan out how he is going to deal with all these
matters and include any possible costs in his acceleration proposals.

• Preliminaries : The contractor must identify the extra resources he will

require. The difficult comes in recruitment since it is not easy to obtain staff
at short notice, perhaps for a relatively short period. Rates of pay will
therefore be higher than average. Existing staff will need to work overtime
and where this is paid, additional costs will be incurred. But who should
obtain the benefit of worked but unpaid overtime, so common to
construction staff?

• Plant and tools : associated with a larger labour force, more equipment
and consumables are needed. Cabin and associated office costs need
reviewing.

• Subcontractors and suppliers : these will incur the same costs as the
contractor and do require individual consideration. Where a manufacturer
has to be expedited, priority payments are not uncommon.

• Overheads and profit : a major acceleration will tie-up key resources and
will require a greater commitment from head office staff. It would, therefore,
seem reasonable for the contractor to be reimbursed an adequate margin
that is probably greater than that acknowledged for pricing variations.

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 • Contingency : in view of the uncertainty of what may arise during the
acceleration, the Employer would be well advised to provide a significant
contingency sum.

• Payment : having agreed to a fixed price or a method of ascertaining extra

costs, the parties will need to consider the method of payment. An agreed
fixed price can be divided by the planned period of acceleration to give an
average monthly cost. A cost reimbursement method usually takes at least
two months to produce firmed-up figures. In these cases, it is usual to
agree a series of monthly budget payments and substitute actual costs
when finalised. The contractor should also consider asking for advanced
payments since the greater part of expense is labour related and most of
these will be paid weekly, well before monthly interim certificates are paid.

An acceleration agreement requires some very detailed thought, covering

both the contractual implications of the deal and the possible effects of the
execution of the works and its practical and financial repercussions.

2.0 CONTRACT ADMINISTRATION/MANAGEMENT TIPS

➢ Be very sure whether you want the Contractor to accelerate or to expedite his
works to mitigate delays as both words carry different meaning!
➢ Refrain from giving instruction to ‘accelerate’ works but use the word to
‘expedite works to mitigate delay’
➢ Acceleration agreement can only be effective by way of a written agreement.
Carefully draft the terms of the acceleration agreement so that the end product
is expressed clearly together with the compensating mechanism.
➢ Avoid the situation of constructive acceleration. Grant whatever Eot which is
due to the Contractor.

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