Published On: Sat, Nov 7th, 2015

The cost of construction delays

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Zane Hedge examines construction projects in the Middle East and how delays should be rightfully tackled with time impact analysis

In her July 2015 article my colleague from Deloitte, Cynthia Corby, identified a number of critical issues which commonly affect the construction industry. In addition to the issues identified by Cynthia, it is no secret that many construction projects are delivered late as a result of critical delay. In my role as a delay analysis expert one area which often causes a significant amount of disagreement is the methodology to be utilised when analysing the causes of said delay. In particular when one faces the challenge of whether to look forwards (a prospective form of analysis or entitlement-based approach) or whether to look backwards (a retrospective form of analysis or fact-based approach).

The delay analysts has available to them a selection of methodologies which can be utilised, either prospectively or retrospectively, all of which may be argued to be appropriate given the correct set of circumstances.

A mistake which is often made is the selection of an incorrect delay analysis methodology. Notwithstanding legal arguments, the experience of the delay analysts, the time and/or budget which is available, as well as strategic or tactical or other external dynamics, can all influence this decision. Historically this decision has also not been helped by the fact that until June 2015 The Society of Construction Law Delay and Disruption Protocol (D&DP) ostensibly recommended the use of time impact analysis (TIA) for the analysis of delays in all circumstances. However, in July 2015 the Society of Construction Law (SCL) issued Rider 1 of the D&DP which provided much needed clarity in relation to the other delay analysis methodologies which are available, and guidance as to the most appropriate use for each.

Something which should be considered positive is that despite previous criticism, and there was a significant amount of this in certain circles, TIA still has its place which has been arguably reinforced by Rider 1 of the D&DP. That place being on a live project when one can take account of the contractor’s actual progress in order to identify the critical impact of employer delay events. This approach is common in other jurisdictions and under certain standard form building contracts (SFBC), such as NEC 3, the use of TIA is mandated for the contemporaneous time and cost assessment of “compensation events”. However, if the parties are not familiar with this type of SFBC, or if they are of the “wait and see” school of thought, then this TIA method of analysis, along with its admirable intentions, may be somewhat alien or indeed unpalatable.

Construction projects in the Middle East region could benefit significantly if the impact of employer delay events are assessed taking into account the contractor’s actual progress at the time. Indeed, one might argue that disputes could be avoided altogether if, as is the case under NEC 3, the time and cost impact of employer delay events is agreed contemporaneously under the “one bite of the cherry” principle, thus permitting the parties to concentrate on completing the project in a timely manner as opposed to getting embroiled and entrenched in, often unsustainable, commercial and/or contractual positions. Such negative action invariably diverts commercial resources and management time away from their primary purpose which after all is to deliver the procured project within the contracted framework of time, cost and quality.

Why then do we not see TIA being widely used on live projects in the region?   Probably for the same reason that we do not see building information modelling (BIM) being adopted on every project. Both require collaboration which for many employers, and/or their representatives and advisors, will require a sea change in attitude or a wholescale re-thinking of their existing procurement strategies which, based on my own experience, unfortunately continue to be dominated by illusionary “lump sum” type contracts which seek to pass all of the risk onto the contractor without properly considering, or perhaps appreciating, the impact that this may have on the success of the project and/or the relationship between the parties.

It would be wrong to suggest that other jurisdictions are more advanced in this area as one is not comparing “apples for apples” in terms of market maturity. Indeed, there are still a considerable number of construction disputes in countries such as the UK where SFBCs such as NEC 3 are common place. However, it is disappointing that given the regions desire, and proven ability, to deliver world first projects, in timescales which would likely be unachievable elsewhere, that we do not see more collaboration or early contractor involvement. Both of which are proven steps to reduce disputes and better ensure timely project delivery.

It would also be wrong to suggest that TIA is some form of “silver bullet” for the prevention of construction disputes. There are numerous other considerations, both practical and legal, which can dramatically affect the reliability of the resultant delay analysis. However, if carried out properly by experienced professionals, and within the correct commercial and legal framework, TIA certainly has the potential to significantly reduce the number of construction disputes which result in arbitration or litigation, and which in turn should result in a “win-win” scenario for employers and contractors alike. Something which is essential if the construction industry is going to focus its energy and resources, as it arguably should, on the critical issues which were identified by Cynthia previously.

Based in Dubai, Zane Hedge is head of construction and real estate disputes at Deloitte Corporate Finance Limited (Regulated by the DFSA). Hedge is a chartered construction manager who holds Masters’ degrees in construction law and dispute resolution, as well as project management. He has been involved in a wide variety of projects, including; building, civil engineering, bridges, utilities, residential, retail, commercial, healthcare, airports, power stations, desalination, process plants and oil and gas projects.

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