Construction Law Digest PDF
Construction Law Digest PDF
Construction Law Digest PDF
Digest
Issue 5 Autumn 2008
In this issue:
1 Welcome 7 ADR Diary
1 Challenges to Liquidated Damages 8 ADR Analysis: The Burden & Standard of Proof
6 Evaluating Disruption
Welcome Challenges to
Liquidated
Patrick O’Neill, director of ADR Partnership, leads this edition
of the ADR Digest with a review of challenges that can be
Damages
made to the deduction of liquidated damages. The best
challenge is of course to extinguish any such right to deduct By Patrick J O’Neill BSc(Hons) LLB(Hons) DIPArb FRICS
liquidated damages by the submission of properly particularised MHKIS FCIArb FHKIArb MACostE HKIAC Accredited Mediator -
claims which give entitlement to full extensions of time. Director, ADR Partnership Ltd
ADR Digest 1
A liquidated damages clause The reason for the non-enforcement of penalties is plain:
if the courts were to guarantee a liquidated damages clause
reflects the agreement made irrespective of the amount, then that would provide a further
element of risk to the contract. The Employer, keen to exploit
by the parties that damages the situation and having spotted what might be a trivial
breach, would have the luxury of claiming liquidated damages
should be assessed on a far in excess of any actual damage incurred. The contractor
would consequently need to protect himself, presumably by
pre-determined basis. over performance of the contract, and with the end result
likely being both parties dispensing with the liquidated
damages concept altogether.
2 Autumn 2008
• the Employer having advised, in writing, before the date of complete. Completion is one thing but the Employer entering
the Final Certificate (or such other date as specified in the the Site and assuming possession of a part of the Works
contract) that he may deduct liquidated damages; might be something wholly different. The Employer may argue
that his entry on to the Site is under the auspices of access or
• any other express contractual requirements concerning limited occupation only and is in some way a lesser form of
the issue of withholding notices or any other condition physical presence and so does not equate to partial
precedent. possession, and therefore, does not stop liquidated damages
running. The Employer may further argue that the Employer’s
A failure by the Employer to comply with any condition presence has no effect on the contractor’s exclusive possession
precedent would result in the Employer being unable to deduct of the Works, nor as regards the contractor’s obligations with
liquidated damages and the Employer would again be forced respect to liquidated damages, retention, defects, liability and
into having to prove the damage rather than simply rely on insurance matters.
the agreed liquidated damages rate.
The basis on which the Employer takes possession of a part of
the Works needs to be clearly understood by the contractor,
Time at Large as does the matter of whether practical completion for that
The prevention principle acts as a defence to liquidated part of the Works has actually been achieved or not. For the
damages on the basis that a person cannot benefit from purposes of liquidated damages, contractors should argue
his own breach. Thus, where a contract has no provision to that the Employer has entered onto the premises on the basis
extend time, or, where the contractual provisions do not cover that that part of the Works has been substantially completed
the Employer’s default, then the right to liquidated damages is and, consequently, that a brake should therefore be applied to
lost. Standard forms of contract are drafted in such a way so the liquidated damages for that part of the Works.
as to include for the likely range of events for which the
Employer is likely to be responsible. However, gaps can and do In such instances, it would be appropriate for the rate of
often exist and these should be investigated by the contractor. liquidated damages to be reduced so as to reflect the value of
Time is said to be ‘at large’ when there is no specific date for the part that has achieved practical completion and which is
the completion of the Works or when the specified time is being used by the Employer, provided that the contractual
lost, or is rendered inoperable. In such situations, the machinery supports the concept of adjusting the liquidated
obligations on the contractor are to complete within a damages rate. In the absence of any machinery in the contract
reasonable time. Given that there is no specific date for to facilitate the reduction in the liquidated damages rate or to
completion in such situations, it follows that the Employer facilitate partial possession or staged completion, a claim for
forfeits any right to deduct liquidated damages and must liquidated damages for parts of the Works would likely fail.
therefore be content with general damages. The Employer would once again be faced with proving what
actual loss he has incurred as a result of the late completion
and would therefore be unable to solely rely on the liquidated
damages provisions in the contract.
ADR Digest 3
Redress in example the copper price, is unlikely to be adequately reflected.
This problem is compounded by the fact that any index is likely
an Inflationary to contain a limited number of items, for example in the case
of the Government’s Index a composite figure for wages for
Environment civil engineering projects, and as a result will fail to reflect or
fully reflect fluctuation of elements within the composite item.
Where there is no price fluctuation mechanism or the
mechanism provided is inadequate, a contractor seeking to
By Timothy Hill, Partner and Damon So, Consultant, Lovells
retrieve the situation must explore other approaches. If the
impact is caused or contributed to by a variation, resort may
be had to the valuation mechanisms. It may be suggested that
Construction projects are often of extended duration, but bid work undertaken at a different time is not executed under the
on fixed prices. In an increasingly inflationary environment, same or similar circumstances to the items of work priced in
this leaves contractors exposed to the vagaries of international the contract (under Clause 61(c) of the Government Form).
markets. This was recently felt with the very substantial
increases in copper and steel prices around the world. Of course In Henry Boot Construction Ltd v Alstom Combined Cycles Ltd
such pressures are not confined to material costs; labour can be [2000] BLR 247 LLoyd L.J. observed that the equivalent
similarly affected by the consequences of demand fluctuation. provision under the ICE 6th Edition applied;
Traditionally, construction contracts have sought to provide
“when the work covered by the variation order is a of a
some risks-sharing mechanism in respect of this risk. These
different character from the work priced in the Bill of
mechanisms have taken a number of forms but the most
Quantities, or is executed under different conditions.
obvious is price fluctuation provision. A typical price fluctuation
If the differences are relatively small, the Engineer is obliged
or cost adjustment provision uses an index or basket of items
to use the rates set out in the Bill of Quantities as the basis
for the purpose of price comparison. Clause 89 of the Hong
for his valuation, making such adjustment as may be
Kong Government’s Standard Form provides for the use of the
necessary to take account of the differences”.
Index Numbers of the Costs of Labour and Materials used in
Public Sector Construction Projects, which is an index
maintained by the Census and Statistics Department. This is
operated together with a Schedule of Proportions which
allocates a weighting to different elements of the Index.
The contractor’s ability to weigh different elements of the
Index is normally circumscribed.
4 Autumn 2008
reasonable rate. The judgement of HH Humphrey LLoyd QC in
Weldon Plant v Commission for the New Towns [2000] BLR 496
suggests that such rate should include cost, overhead and
profit. A consequence of this is that the employer loses the
benefit of any competitive bidding process and the contractor
avoids any error in its original pricing.
ADR Digest 5
Evaluating The author considers below the following possible methods that
are available for the purposes of assessing loss of productivity:
Disruption • Measured mile approach;
• Global approach;
• Comparison of actual productivity with allowances in the
tender;
By Kaymond H C Lam BEng(Hons) LLB(Hons) MSc DIC MHKIE
MICE CEng PCLL - Consultant, ADR Partnership Ltd • Comparison of actual productivity with other similar
projects; and
• Industry studies.
Introduction
Anyone involved in the construction industry will be aware Measured Mile Approach
of the effect of disruption and delay on a contract. The The most appropriate way to establish disruption is to apply
consequence is that substantial inefficiency is introduced to a technique known as ‘the Measured Mile’ (Whittal Builders
the performance of the work resulting in increases in the Company Ltd. v Chester-le-Street District Council). This technique
contractor’s labour and plant costs. Notwithstanding this, involves a comparison of the productivity in terms of man-
most standard forms of contract give no detailed guidance hours expended on an un-impacted part of the contract with
for the evaluation of disruption. This article reviews and that achieved on an impacted part (see Figure 1). However, care
comments on the widely adopted methodologies by which must be exercised to compare like with like. For example, it
contractors can claim additional payment for loss of would be incorrect to compare work carried out in the learning
productivity resulting from disruption. curve part of an operation with work executed after that period.
Loss of
Units/Hour
disrupted working
events and good records are
kept, every attempt should be Figure 1: The Measured Mile Approach
made to establish a causal ‘The measured mile’ approach is nothing new to Hong Kong
and has been used by the author in the preparation of a
relationship between the number of disruption claims for clients. It is an effective
approach that can be used where the work is repetitive and
disruptive event and the isolated areas of disrupted and non-disrupted work can be
identified, e.g. reclamation works, multi-storey offices and
resultant additional cost. residential blocks or other similar projects that involve
repetitive working arrangements.
Global Approach
There may be instances where competing causes of disruption
to the works all occur at the same time, some of which are
Disruption compensable and some of which are not compensable,
The term ‘disruption’ essentially means that the contractor’s thereby rendering it difficult, if not impossible, to link the
intended sequence, or method, or efficiency of performance cause and effect due to the complex interaction of events.
as envisaged at the time of tender has been prevented, wholly The issue of a ‘global claim’ therefore arises within the context
or in part, from actual performance on site. Disruption can of a disruption claim. By the global method of calculation, a
result as a consequence of a variety of factors including out- contractor may simply subtract the total estimated cost of
of-sequence working, late receipt of information, piecemeal performance from the actual cost of performance. In the case
access, unforeseen conditions, extra work and the adverse of John Doyle Construction Limited v Laing Management
effects of trade stacking. (Scotland) Limited, their lordships accepted in principle the use
of a ‘global claim’ approach in order to evaluate a disruption
In terms of analysing disruption claims, it is essential for the claim on the basis that any material contribution to the
contractor to establish that the planned orderly timing and causation of the global loss was not made by factors for
sequence of events has been affected by compensable events which the innocent party had a legal liability.
under the contract. In this regard, it is necessary to carry out
a labour reconciliation in order to isolate those causes This method is appropriate where the evidence of delay and
unrelated to the employer’s liability such as inclement disruption is overwhelming and where there is no significant
weather, plant breakdown and the like. In order to establish default on the part of the contractor. However, if it can be
a nexus between the disruptive events and resultant loss shown that the contractor was partly culpable for any
suffered, record keeping, with respect to what and when the additional cost, the ‘global claim’ approach would likely fail
work was carried out and what resources were actually used, entirely and in such situations it is recommended that other
is vital in order to undertake any form of disruption analysis. methods be adopted in order to quantify the disruption.
6 Autumn 2008
Comparison of Actual Productivity
With Allowance in the Tender
In some cases, the use of ‘the Measured Mile’ approach may
not be possible where, for example, an undisrupted ‘test’
ADR Diary
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trades and activities may be substantially different during the
period of disruption when compared with the period of no
disruption and/or the impact of the causes of disruption may
affect all the relevant activities throughout the project duration;
i.e. there may be no periods of normal working. In these
circumstances, an alternative method of evaluating disruption
is to compare the actual resources deployed on site with the
manpower allowance in the tender. The disruption element
being the difference between the two. However, this method is
highly dependent on the adequacies of the provisions made in the
tender and the question of reasonableness of the contractor’s
programme and original estimate also come into play.
For further information contact: 9 Jan Lighthouse Club – January Get Together, Delaney’s
kaymond.lam@adrpartnership.com 1st Floor, Wanchai
ADR Digest 7
ADR Analysis
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The Burden & Standard of Proof If a party (or the prosecution) does not adduce sufficient
evidence to support their case, then they will lose the issue.
Success, therefore, depends on evidence or proof. What then,
is an appropriate standard of proof that a party has to satisfy?
Burden of Adducing Evidence
The first hurdle in any contested claim is to adduce sufficient Standard of Proof
evidence to persuade either the court or arbitral tribunal that In criminal cases, the prosecution is required to satisfy the
there is a case to answer. If there is insufficient evidence, then jury that the defendant’s guilt is “beyond reasonable doubt”.
there is no case to answer and the court or tribunal would However, in civil cases, the standard of proof is much lower
likely dismiss the case. In a typical construction dispute and a court or tribunal makes its decision on a “balance of
sufficient evidence might include: probabilities”. If the evidence is such that the tribunal can say,
• oral evidence of statements made by the parties and their “we think it more probable than not”, then the burden is
witnesses, including technical experts in quantum, discharged, but if the probabilities are equal, it is not.
programming and the like;
Construction Disputes
• documentary evidence produced for inspection by the court Applying these principles to construction disputes, a court or
or arbitral tribunal such as correspondence, minutes of arbitral tribunal is left with having heard the evidence presented
meetings, photographs, drawings, plans, instructions, labour before them to weigh up, on a balance of probabilities, the rival
returns, invoices and other contemporaneous records; and arguments on the facts, or law, and decide which argument
• real evidence such as samples and other material objects carries more weight. This is essentially a case of finding one
produced for inspection by the court or arbitral tribunal. version of the facts more likely than the other versions.
The burden of adducing such evidence in a civil case is generally When deciding issues of fact, the outcome will likely be
borne by the party making a statement or bearing the burden influenced by the probate value or weight attached by the
of proof. court or arbitral tribunal to the evidence adduced by the
parties. Some types of evidence will bear more weight than
others, an obvious example being that first hand oral
Burden of Proof testimony is of higher weight than hearsay or second hand
The burden of proof in a civil case will normally lie with the party evidence.
making the claim or defence to adduce sufficient evidence for
the court or tribunal to find in their favour. Conversely, in a For further information contact:
criminal trial, the burden of proof is borne by the prosecution. info@adrpartnership.com
ADR News
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End of Summer Sail Designed by: www.ichicoodesign.com Tel: +44 (0) 1274 560220
It has been the season of junk trips and ADR have participated
in a number of very enjoyable jaunts to the far-flung reaches of
Hong Kong with the site teams of Stonecutter’s Bridge, Kowloon
Southern Link and Eagle’s Nest Tunnel. We trust that next year’s
junk season will be as action-packed!
If you would like to discuss any of the articles published in this Digest ADR Partnership Limited
or your project requirements, please contact James Longbottom, 17A Seabright Plaza 9-23 Shell Street North Point Hong Kong
Patrick O’Neill or David Longbottom at ADR Partnership Limited on t: (852) 2234 5228 f: (852) 2234 6228
(852) 2234 5228 or e-mail us at info@adrpartnership.com e: info@adrpartnership.com www.adrpartnership.com
ADR Partnership Limited and the contributors to ADR Digest do not accept any liability for any views, opinions or advice given in this publication.
Readers are strongly recommended to take legal and/or technical specialist advice for their own particular circumstances.
8 Autumn 2008