Dealing with the Acceleration Issue

Dealing with the Acceleration Issue

What is Acceleration?

The standard forms of contract frequently used in Malaysia like the PAM, FIDIC, CIDB and PWD have no definition of acceleration. Many consider acceleration as the execution of outstanding contract works within a shorter time than originally planned to mitigate the extension of time that the contractor would have otherwise been entitled to due to one of the Employers risks but it is not so unusual for a contractor to decide once work commences to adopt a different approach than assumed at tender. He may see advantages in completing early due to factors which only come to light once more detailed planning is undertaken. In other words the Contractor may decide to accelerate because he perceives a commercial advantage. Acceleration is not a legal term. Its natural and common meaning is to “bring about in an earlier point in time” (Webster Dictionary), which is a comparative measure. There must be some benchmark against which to measure the acceleration. In construction, the main issue is the date against which progress is measured.

Acceleration may be achieved by a change in the deployment of the contractors or subcontractors resources. In some cases it may be achieved by simply changing the order or sequencing of works and may therefore not cause additional cost. More usually, acceleration is achieved by the contractors adopting longer working hours or additional days of working with the same resources. Alternatively or in addition to longer working hours and additional days of working acceleration involves the contractor employing additional resources, above those originally planned.

The Effect of Acceleration

Most standard form of contract allow the contractor to complete the works before the completion date. It is not totally unknown for a contractor to decide once work commences to adopt a different approach than assumed at tender. He may see advantages in completing early due to factors which only come to light once more detailed planning is undertaken. In other words the Contractor may decide to accelerate because he perceives a commercial advantage. This may create problems for the Employer in supplying the relevant information or completing other works.

In the case of Glenlion Construction Ltd v Guinness Trust (1987) it was held that whilst Glenlion was entitled to complete before the contractual completion date, Guinness was not required to actively co-operate to enable the earlier date to be achieved but was only required not to hinder completion.

This situation will, however, be different if the programme is incorporated in the contract as a contract document or if the entitlement under the contract is bound up with the programme. If an Employer does not wish to take possession of the works earlier than the time for completion, then this would need to be dealt with by amendment of the standard form contract terms  and this would allow the Contractor to allow accordingly in his price and planning.

When acceleration is adopted by the contractor as a reaction to events which have caused delay, rather than a planned strategy for optimisation of his resources, then this will normally result in additional expense for the contractor. Late and unplanned timing of acceleration measures may result in the resources deployed being different to the resources planned, due to lack of availability. The available additional equipment may operate at less than full capacity, being overcapacity for the work intended but with the additional hire costs involved. The need to use material more quickly than planned may result in reduced number of uses such as formwork, which will increase unit costs. The change in the sequence of working may result in an increased number of moves and/or distances for plant, such as craneage in piling. Additional resources and out of sequence working will place additional burden on the contractors management to order materials and consumables, and increase the supervision expenses.

Acceleration may affect the normal pattern of work, and this has an effect on efficiency, material delivery, equipment availability and therefore the cost of the executing the works. It is likely that acceleration will result in carrying out the works at a rate that is less than optimum in terms of cost. Acceleration in many situations will disrupt the works, affecting smooth trade interfaces and increasing interference between follow-on operations. In some cases it will mean unplanned access to working areas, reduced productivity and increases in rate of defects.

There is a misconception that additional payments for overtime or weekend working will result in increased productivity. Indeed extended overtime and long hours will usually reduce efficiency. Similarly additional shifts are not always productive, evening or back shifts and night shifts are more likely to be less productive than their equivalent day shifts, and may create more defects and less safe working. The out of hours working may increase the cost of delivery of materials, together with the additional cost associated with larger stockpile areas. New suppliers may need to be found for the increase in consumption, which may involve increase in unit costs of materials.

Contractors Obligation to Accelerate

Generally in Malaysia as elsewhere the Employers remedy for the Contractors breach of contract in failing to complete by the Completion Date will be damages, whether general damages or liquidated damages. Most if not all standard forms require the Contractor not only to complete the Works by the Completion Date but also to proceed regularly and diligently with their execution of the Works. Many standard forms provide a power for acceleration to be ordered in the event of the contractors default in progressing with due diligence, without additional payment. Many standard forms also provide a power for ordering the Contractor to adopt acceleration measures if it is considered that progress is not in accordance with the programme, if due to the Contractors default. Such powers do not normally extend to agreeing to accelerate in the absence of the contractors’ default, which requires a separate agreement.

If such an agreement is entered into it is important to ensure that the terms relating to liquidated damages still operate as demonstrated in the case of John Barker Construction Ltd v London Portman Hotel Ltd (1996) Delays occurred in the execution of the project and it was apparent to all concerned that John Barker was indeed entitled to an extension to the time for completion of the Works. After negotiations it was agreed that the work would be accelerated so that all the work would be completed by 14th August 1994 and John Barker would receive additional payment.

After the acceleration agreement there were further delays and further instructions from the Architect. One of the issues which arose was the effect of the acceleration agreement on the sectional completion provisions of the contract in relation to liquidated damages.

At the time of the acceleration agreement neither party raised the question of abandoning the liquidated damages provisions. It was held that it was neither intended by the parties nor logically necessary that the liquidated damages would no longer apply.

Acceleration Agreements

Although some international standard forms of contract make provision for the parties to accelerate the progress of the works Malaysian domestic standard forms don’t with the exception of the Model Terms of Sub-contract 2007 (CICC-CIDB). This does not mean that it is impossible for the parties to agree to vary the contract to their mutual benefit. Consideration however, should be given to the possibility that if the acceleration is necessary solely due to the contractors default, that any agreement to accelerate may have no legal effect for lack of consideration, since the Employer is simply obtaining that which he is already required to receive under the contract.

This argument was used unsuccessfully by the defendant in the case of Lester Williams v Roffey Brothers & Nicholls (Contractors) Ltd (1989). In which delays resulted from Lester Williams who had initially under priced the job and then failed to supervise the works which resulted in poor productivity.

Roffey agreed to pay Williams an additional sum in order for Williams to continue with the works and complete on time. This decision was made taking into account that Roffey themselves would have been liable liquidated damages for delay under the main contract if Williams delayed their sub-contract works. The additional sums were not made by Roffey and Williams ceased the works following which Roffey was forced to engage others to complete the works.

Roffey argued that the agreement to make additional payments was not legally binding since they had agreed to pay for work which Williams was already bound to carry out under the sub-contract. Claiming there was no consideration. The court held that in this case a benefit was derived from the agreement by each party and that was sufficient consideration to make the agreement to make additional payments binding.

Acceleration Claims

Where a contract does not make completion by a particular date or time an obligation then the contractor will be unable to make a claim for the cost of acceleration measures as his only obligation would be to complete the works within a reasonable. In all domestic Malaysian standard forms the contractor has an obligation to complete by a particular date or within a specified period. Even with such an obligation, the contractor will have some difficulty in pursuing the additional costs of acceleration where the contract entitles him to an extension of time for the delays which have occurred. In the case where the extension of time provisions are not properly operated, the contractor may consider a constructive acceleration claim, but this is not an easy task.

Constructive acceleration occurs in the absence of owner directed acceleration. The Employer’s refusal to grant an Extension of Time for a delay for which the contractor is not responsible or liable under the conditions of contract may result in an acceleration effort by the contractor in order to complete the project on the contractual completion date to avoid the imposition of liquidated damages. The Society of Construction Law Protocol defines constructive acceleration as “Acceleration following failure by the Employer to recognize that the Contractor has encountered Employer Delay for which it is entitled to an extension of time and which failure required the Contractor to accelerate its progress in order to complete the works by the prevailing contract completion date”.

The American construction industry has become accustomed to the concept of a constructive acceleration order, where the refusal to grant Extension of Time for excusable delay in America is normally converted into an implied instruction to accelerate. In Norair Engineering Corp v United States (1981), it was held that for an acceleration claim to be successful the contractor must establish 3 elements (i) that an excusable delay had occurred (ii) the contractor was ordered to accelerate, and (iii) the contractor had actually accelerated and incurred costs. However, this is not the case in Malaysia. The approach under Malaysian law is that if there is no express authority in the contract to accelerate, then no entitlement arises to claim extra costs for acceleration. The argument adopted by contractors in Malaysia namely that a rejection to an Extension of Time request which the contractor believes is correct amounts to an instruction to accelerate and finish on time is simply incorrect. The only exclusion is where the Employer or the Contract Administrator on behalf of the Employer is expressly empowered under the contract to order acceleration by the Contractor.

Therefore the refusal to grant an Extension of Time does not amount to a “deemed” instruction to accelerate the works. A claim for constructive acceleration under Malaysian law must be based on the ordinary principles for breach of contract and damages.

To justify any constructive acceleration claim the following should be established for the courts in Malaysia to consider an award:

a)   that the contractor encountered a delay that is excusable under the contract;

b)   that the contractor made a timely and sufficient request for an extension of the contract schedule;

c)   that the Employer denied the contractor’s request for an extension or failed to act on it within a reasonable time;

d)   that the Employer insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the employer that it regarded the alleged order to accelerate as a constructive change in the contract; and

e)   that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule.

In the case of Ascon Contracting Limited v Alfred McAlpine Construction Isle of Man Limited (1999) there had been several delays due to a number of causes. Ascon was the concrete sub-contractor to McAlpine. Ascon were claiming for losses resulting from acceleration measures it had undertaken. His Honour Judge Hicks QC stated that acceleration had no precise technical meaning. Acceleration was not required to meet the sub-contractors existing obligations and was likely to be the result of an instruction from the contractor for which he must pay. On the other hand pressure from the Contractor to make good delay caused by the sub-contractors own default was unlikely to be so construed. There was no instruction in this case. Ascon stated it was under pressure from McAlpine to accelerate the works to recover the time lost, and McAlpine were insisting that it was not going to pay for acceleration. Ascon’s claim on that basis did not therefore succeed.

Ascon claimed that it allocated additional resources, worked longer hours, including working seven days per week and purchased and supplied duplicate plant and equipment. Ascon claimed that these acceleration measures were taken in order to mitigate the delays caused.

The court held that there could not be both an extension to the full extent of the Employers culpable delay, with damages on that basis, and also damages in the form of expenses incurred by the way of mitigation, unless it was alleged and established that the attempt at mitigation, although reasonable, was wholly ineffective. Ascon had failed to put its case that way. It contended that the work was indeed completed sooner than it would have been in the absence of the accelerative measures. The mitigation claim wholly failed at the outset and the acceleration claim also failed.

Judge Toulmin handed down a very long and complex judgment in the case of Motherwell Bridge Construction Limited v Micafil Vakuumtecchnik (2002)

Motherwell was the subcontractor of Micafil for the construction of a steel vessel for the employer BICC under modified FIDIC form of contract. There were a large number of claims submitted by Motherwell.

One claim was for acceleration costs for the work in relation to on site fabrication for hours worked by Motherwell’s staff in excess of 46 hours for the period from 8th October 1998 to March 1999. Micafil raised the defence that a term of the contract provided that if unexpected delays and difficulties occurred, Motherwell was required to provide additional personnel at no extra cost at the request of Micafil in order to meet the required completion date. The Court held that the delays and difficulties came within the definition of “unexpected” and Motherwell could not succeed in their claim for recovery of costs although it was not disputed that Micafil had instructed them to deploy additional resources and work longer hours.

It is not only the case that entitlement is a tricky matter to establish but it also follows the evaluating the additional costs associated with acceleration is also no simple task. Good records are vital as with all claims but even more so with acceleration claims.

There are no hard and fast rules or formula for calculating acceleration costs. One ought to look at each situation individually and establish what costs were sustained in the attempt of buying back time. The method or combination of methods which can be used to calculate acceleration costs are:

1)   The global or total cost approach,

2)   The modified total cost approach,

3)   The time impact methodology,

4)   The measured mile approach, and

5)   Formula approaches.

In the case of Amec & Alfred McAlpine (Joint Venture) v Cheshire County Council (1999) Cheshire appointed the Joint Venture as contractor for construction of a Bypass under the ICE 5th Edition Form of Contract. There had been various delays for which were not responsible of the joint Venture. The Employer and the Joint Venture entered into an acceleration agreement in which the joint Venture was paid various sums for completing on a new date. Prior to the new date it became clear that there was going to be another overrun and the Joint Venture was entitled to further extensions of time due to the delays being the responsibility of the Employer. The parties entered into an informal agreement in which the Joint Venture agreed to use its best endeavours to complete by date in the first acceleration agreement and Cheshire would pay fair and reasonable remuneration for the additional acceleration measures necessary.

The date was achieved but no method of valuation had been agreed and disputes arose as to the method of valuation, which was aggravated because some of the delays Cheshire were not responsible for and because of the parties had difficulties in separating the cost of work which the Joint Venture was already obliged to do under the original contract.

A method of valuation was eventually agreed between the parties as a preliminary issue and this endorsed by the Court.

The Joint Ventures actual costs were ascertained for the period of acceleration. The amount that the work carried out in the period of acceleration should have cost was calculated taking into account all the events that had taken place before commencement of the acceleration period. The basic calculation of the acceleration cost was there for the difference between these two sums. Adjustments were then applied for factors and events for which the Joint Venture was liable together with variations instructed and executed during this period.

MALCONLAW