It sometimes happens, well, actually, it usually happens.
Late design, unexpected ground conditions, force majoure, or unfortunate decisions. These are the common reasons for delays; if you are the Ordering Party, you would certainly deal with it.
The following blog post will outline directions and points to focus on to effectively manage arisen delays from the perspective of the Ordering Party.
I divided it into five points:
Common ways to abuse delays,
Record keeping – the foundation of abuse prevention,
How to mitigate delays,
Granting time extension,
Tips on compensation evaluation,
[Common ways to abuse delays] If some delay occurs and the Contractor wants to work longer – it’s inconvenient for the Ordering Party. It raises the necessity to evaluate how long to extend the timeline and whether to compensate it. There are many factors we should account for. Therefore, it increases the area for self-made mistakes, biases, and another side’s manipulation and abuses.
The common attempts to benefit on the occasion of delays are to:
Get the longest possible time extension,
To hide own delays,
Get excessive compensation,
[Record keeping – foundation of abuse prevention] Normally, whenever the scope is ordered, the Contractor is usually a professional who benefits from finishing as fast as possible. So and if you set him free, he should perform well, or in the worst case, you would recover penalties.
Although it is recommended to always track the Contractor, as long as the assumptions underlying the contract do not change – you might not lose from the lost track of some aspects of his performance.
But if the delays occur, letting the Contractor uncontrolled would expose you to the risk of piling up benefits from delays – such as excessive time extension and compensation.
Proper tracking should focus around:
Contractor’s delays that might be concurrent and therefore lower compensation,
Possibilities to mitigate and their proper execution,
So, based on the above, you should ask for the contemporary records of (i) engaged resources, (ii) progress measurements, and (iii) the status of deliveries.
Most contracts oblige the Contractor to reveal, per request, all documents that might be necessary to evaluate the claims and the Contractor's situation.
This essential step would help in the future with the evaluation of entitlement.
[Delay mitigation] Contemporaneous to delays, the implied duties to mitigate and cooperate play a crucial role. Although some of the delay aspects you could leave for the future (such as time extension or price adjustment), prompt reaction and taking steps to mitigate is crucial to prevent unrecoverable delays.
Let me share a few pieces of advice below.
[Mitigation – rule one] Although the Contractor is obliged to mitigate delays and should evaluate possibilities to do it, he might miss some of the possible measures (even deliberately). Benefits from eventual mitigation plans might diminish over time.
So rule number one is to work out the best mitigation plans with the Contractor – advise him, request details and cost estimation, and finally issue direct instruction and force him to introduce measures if necessary.
Sometimes inexperienced managers think they don’t have to care about undertaking mitigation measures. So they are served with a mitigation plan most profitable to the Contractor.
[Mitigation – rule two] Some of your delays might be forecasted – such as information on when the delayed supplies would arrive. Such information helps to avoid stand-bys. The Contractor might move his resources to another project, utilize them, and you would be released from stand-by costs.
Rule two is to keep the Contractor updated with forecasts about delays to avoid stand-by costs.
[Mitigation – rule three] Most of the schedules have time contingencies. If your plan has it and you can utilize it at no cost – it’s time to use it. Let’s leave for future consideration whether you should compensate for such contingencies. In most cases, the contracts do not address this issue.
But the strangest situation is, whenever the delay occurs, the Contractor might be willing to shift the future work accordingly to plan, together with available contingencies – it is highly undesirable.
Rule number three – ensure that the Contractor excludes time contingencies while shifting the subsequent works.
[Mitigation – rule four] Basic acceleration measure is to increase the resources. Since they are additional, these might be hired at higher rates than primary ones. My advice is to track the rates. It is allowed to find supportive resources by yourself; if it’s reasonable, you could hire them by yourself. By having such a possibility at hand, your negotiation position is leveraged.
When hiring resources on your own, please consider whether your former supplier should be compensated for lost scope (deprived profits).
Rule four – actively evaluate your own acceleration possibilities.
[Mitigation – rule five] Sometimes acceleration is not worth the costs. If it’s your case, grant the extension of time.
[Granting time extension] Schedule analysis is a long topic, certainly not for this blog post. But some parties manage it without a professional (or just by the scheduler on site). They often make the mistake of starting by rejecting the Time Extension application.
[Granting time extension – unreasonable rejection] Such rejection without due consideration is the Ordering Party's breach of good faith obligation and contractual clauses for extension of time and liquidated damages.
The first setback is grounded in the prevention principle. You cannot benefit from ignoring the extension of time clause, so if you do, then the courts used to forbid the use of liquidated damages. Consequently, it allows the Contractor to execute the works as long as it’s reasonable.
I found one rule where the Contractor exceeded the reasonable period – when he was about to construe a parking plot that should take three months, but he started only after eight months. As we see, it’s hard to exceed a reasonable period, and if you like to benefit from fast completion, you have to deal with the extension of the time clause properly.
The second setback from the extension of time rejection is the possibility of constructive acceleration. Whenever the Contractor has to stick to the original deadline, and the project is delayed, he should accelerate. It might be overtime work or other measures – and he should be compensated.
Assume you have a time contingency for force majeure – would you let the Contractor exceed the budget instead of allowing for a time extension?
Assume that the Contractor chose the acceleration on his own – the cap on daily acceleration rate is around the rate of Liquidated Damages (as the rule of thumb – please be careful with that – or call me). Would you like to pay so much (or even half of it) for acceleration?
[Granting time extension – unreasonable baseline program] Contemporaneous Extension of time used to utilize prospective schedule i.e., prediction as to future. Although I advise granting time extensions promptly, the prospective schedule is sometimes unreasonable. In such cases, please:
Consider proper adjustment to the prospective schedule (delete unreasonable logics or some contingencies, ask for the backup data for the durations et.al.)
Consider adjustments for mitigation measures,
Otherwise, you have to grant some extension but put a mark that would allow you to reconsider such retrospectively when some time passes.
In general, comments about unreasonable logic or backup data for the durations should be issued not as late as the EoT application is issued but as early as the Contractor releases the schedule. Nevertheless, it’s not a big mistake.
[Tips on compensation evaluation] Sorry to say, but it’s another wide topic for consideration. My only advice is to look for the concurrent delays and perform a critical path analysis – if the eventual compensation might be lowered.
On the other hand, Ordering parties often refer to delays that occur simultaneously but are of minor importance – such as lack of representative present at the meeting (cheers to my adversaries from the last proceedings : ) ), or easily curable delays.
[End word] I am sure knowing the above would prevent conflicts and dampen cooperation. Best regards!
