The JCT 2005 Standard Forms Of Construction Contract Delay & The Problem Of Float

By Phillip Boulding Q.C. and Calum Lamont

1. The long-awaited JCT 2005 suite of contracts has generated substantial interest from construction professionals and practitioners alike. Much of the writing on the forms has focussed on the principle changes from the equivalent 1998 versions and is largely speculative, discussing the possible implications (for employers, contractors and third parties) of such alterations.

2. The purpose of this seminar is not to provide a general overview of the new forms. Rather, we intend to focus in on specific a problem area, namely delay, and to suggest how this may be affected by the mechanisms of the new 2005 contracts.

3. To date, no dispute concerning a 2005 form has reached the Courts, so our analysis is necessarily hypothetical. This is not to say that common law principles involving the 1998 versions will fall into abeyance; given that the bulk of the 1998 wording remains almost intact, it is unlikely that the introduction of the 2005 suite will see any major sea changes in the approach of the Courts to the JCT standard forms.

4. But before we start, a word of warning. Perhaps the greatest change in the 2005 contracts is the replacement of the old appendix with exclusive contract particulars located at the front of each form. There is no substitute for taking the time to ensure that the Contract Particulars are filled in correctly, with reference to the Guide and any other relevant publications.

5. The JCT has recently published a Practice Note entitled "Deciding upon the appropriate JCT contract" which is essential reading. It is split into 5 parts, of which Part 4 is probably the most useful, containing a tabulated comparison of provisions of some of the most popular contracts and a flow chart to assist users in making their choice of 2005 form.

6. If it is the intention to include separate contract documents, care must be taken to ensure that there are no contradictory provisions in the same or, if there are, that the form is properly amended so as to introduce a hierarchy of documents for interpretative purposes Is there something in the Contract Particulars about this? I have a recollection that there are default provisions. Please consider from our last lecture.NO – THE CLAUSES STATE THAT NOTHING IS TO SUPERSEDE THE CONTRACT ITSELF SO AMENDMENT/INSERTION OF ADDITIONAL ARTICLE REQUIRED.

7. This talk is split into 4 parts.

8. An EOT is in the discretion of the Architect/Contract Administrator provided that the matters in question are outwith the Contractor’s control.

9. It is possible that the contractor may be in a more favourable position under MW/MWD than the other forms, where an EOT award is contingent upon "Relevant Events". In other words, in the other forms, risk in respect of delay is more specifically allocated between the parties.

10. Whilst the supply of written notice is a mandatory requirement it is not thought that this amounts to a condition precedent to the granting of an extension as it is not expressly stated to have this effect and there is no indication of what consequence would follow from the failure to provide appropriate written notice.

11. Under the 1963 Standard Form it was held that such notice was not a condition precedent to the performance by the Architect of his duties under the clause. The wording at Clause 25.3.1 of the 1998 Standard Form was thought to infer that such a notice may well be a condition precedent to the grant of an extension prior to practical completion.

12. However, the wording of IC 05 (and IFC 98) indicates that notice is not a condition precedent. The discussion of an Architect’s duties under the clause in London Borough of Merton v Leach is therefore relevant. In that case it was submitted that in any event the Contractor must not benefit from his breach by receiving a greater extension than he would have received had the Architect upon notice at the proper time been able to avoid or reduce the delay by some instructions or reasonable requirement.

13. Under the 1963 Form it was held that the giving of written notice was not a condition precedent to the performance by the architect of his duties under the clause.

14. Despite changes made in the 1980 Form (and carried into the 2005 Form), it is thought that the discussion remains valid at least in relation to the grant of an extension of time after Practical Completion. Under the 1963 Form, failure by the Contractor to give notice was a breach of contract and this breach could be taken into account by the Architect in making the extension of time.

15. It is not clear how in practice the breach would be taken into account. It is submitted that in any event the Contractor must not benefit from his breach by receiving a greater extension than he would have received had the Architect upon notice at the proper time been able to avoid or reduce the delay by some instructions or reasonable requirement.

16. Under the 1963 Standard Form, it was held that written notice was not a condition precedent to the performance by the Architect of his duties under the clause. The wording of DB may well constitute a condition precedent to the grant of extensions of time during the Contract Period and before Practical Completion. However, the point will usually be somewhat academic, given that the provision of a notice is plainly not a condition precedent to the grant of an extension of time after Practical Completion, where the Employer must consider all Relevant Events, whether or not it has been specifically notified by the Contractor under Clause 2.24.1. In practical terms, therefore, the failure to provide a notice during the course of the works will normally be limited to some possible evidential value.

17. A failure to provide notice when the Contractor knew (or potentially, should have known) that delay would be caused by an anticipated relevant event is a breach of contract. It was held in London Borough of Merton v Leach that the failure by the Contractor to give notice could be taken into account when making the extension of time. It is not clear in practice how the breach would be taken into account. In this case it was submitted that in any event the Contractor must not benefit from his breach by receiving a greater extension than he would have received had the Architect upon notice at the proper time been able to avoid or reduce the delay by some instructions or reasonable requirement.

18. In principle the breach could sound in damages should the Employer be able to demonstrate some loss attributable to the failure. There could be losses flowing from the lost opportunity to avoid or mitigate the Relevant Event or the delay to be caused by it in some way. Indeed, the losses caused by the Relevant Event might constitute the payment to the Contractor of loss and expense and, possibly, an inability to recover liquidated damages. In this way the failure to have provided notice during the Works could conceivably give rise to a real defence to a claim (albeit a defence set – off).

19. In construction cases, the loss suffered by a claimant often manifests itself in the form of critical delay to the overall building project. A contractor may also run a parallel claim for costs incurred as a result of disruption to building works caused by acts or omissions of the employer.

20. Sometimes the claimant will experience considerable difficulties in attributing particular heads of loss to specific delay or disruption "events". In the past, a claim pleaded in this manner was prone to being struck out for want of particularity on account of its "global" nature

21. This strict approach is exemplified in the Privy Council’s decision of the Hong Kong case of Wharf Properties v Eric Cumine Associates (No. 2) [1991] 52 BLR 1, where the clients’ actions against their architects for negligent design and contract administration were struck out as incomplete and therefore disclosing no reasonable course of action. Per Lord Oliver:

22. The immediate reaction to this decision was that it sounded the beginning of the end for global claims. However on its true analysis it was a truly special case, determined on its own peculiar facts and procedural history, which involved a failure to give FBPs which had been agreed and ordered). The case did not relate to a composite or total cost claim, but was concerned with delay alleged to have been caused by various alleged breaches. Ultimately the strike out succeeded on an abuse of process basis as a result of the procedural history of the matter.

23. In any event, it can be seen that issues concerning delay and disruption have proven to be particularly complicated for the construction lawyer, especially in the field of causation.

24. Although there are no special principles in respect of the question of causation in construction contracts, the general rule is that a claimant must attribute each of his losses to a separately identified and particularised event which is the legal responsibility of the defendant ("a defendant event"): McAlpine Humberoak v McDermott International (1992) 58 BLR 1 at 28, CA.

25. Difficulties arise where causes of delay to a building are said to be "concurrent": i.e. where there are two or more competing causes of delay.

26. It goes without saying that each claim or group of claims in respect of delay must be examined on its own facts. It often turns out upon investigation that one or other is not a cause of delay at all, or not a cause of critical delay, or not a cause of delay which is concurrent. Further, it is frequently the case that the causative potency of each will often be different and, as a matter of fact, one particular cause will emerge as being critical. It may also be that contractual provision (e.g. variations) give rise to a consideration of the comparative potency of causal events and to apportionment.

27. However, if a particular delay event is one of the causes cooperating and of equal efficiency in causing loss to the claimant, the traditional approach of the courts was to hold the party responsible for breach to be liable to the claimant for that loss, as long as his breach was an "effective" cause of the same (Heskell v Continental Express [1995] 1 All ER 1033 at 1047A).

28. Successive editors of Keating on Building Contracts have suggested that the "dominant cause approach" is the correct approach to apply when choosing between competing causes. This requires an architect to choose between two competing causes of delay, with the "dominant" cause being operative.

29. However, a different approach was adopted in the case of Henry Boot Construction (UK) Limited v Malmaison Hotel (Manchester) Limited [1999] 70 Con LR 32, (and later approved in Royal Brompton Hospital NHS Trust v Hammond and Others (No. 7) [2001] 76 Con LR 148) in which the court recognised that any one delay or period of delay may, as a matter of causation, be attributed to more than one delaying event. In such circumstances, Dyson J held that an architect might legitimately grant a contractor an extension of time in the event of inclement weather, despite the fact that during that same period, the contractor could not mobilise sufficient labour to properly effect works on site. Thus, the operative cause is determined by the allocation of risk between the parties according to the provisions of the contract.

30. As set out above, the precise attribution of losses to particular delay or disruption events may not be practically possible in all cases. Instead, a claimant may be content to allege a "global" loss as a result of all the breaches of the defendant (or indeed those which can be proved): Crosby Ltd v Portland UDC (1967) 5 BLR 121, followed in London Borough of Merton v Stanley Hugh Leach (1985) 32 BLR 51, John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 82 BLR 81.

31. Pursuing a "global claim" will only be permissible in cases where it is impractical to disentangle specific losses which are attributable to specific causative events: John Holland Construction and Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 82 BLR.

32. A party must set out its case with "sufficient particularity", and state the nexus of causation/interaction of events with adequate clarity. Whilst a claimant may of course plead its claim on liability or quantum as it sees fit, the defendant is entitled to know what case it has to meet. "Sufficient particularity" is a matter of fact and degree in each case; a balance must be struck between excessive particularity and basic information: Bernhard’s Rugby Landscapes Ltd v Stockely Park Consortium Ltd (1997) 82 BLR 39.

33. The general position remains that a claim for loss and expense in "global" form must fail if any material contribution to the claimant’s "global" loss is caused by events for which the defendant bears no legal liability (Bernhard’s Rugby Landscapes). The claimant must therefore eliminate all matters that are not the defendant’s responsibility from the events which he alleges to have caused his loss.

34. The most important recent case on the subject of "global claims" in construction contracts is that of the Extra House of the Inner House of the Court of Session in Scotland (effectively the Scottish Court of Appeal) in Laing Management (Scotland) Ltd v John Doyle Construction Ltd 2004 B.L.R. (295).

35. John Doyle were engaged as works contractors by management contractors (Laing) to carry out certain work packages for the construction of new headquarters for Scottish Widows. The contract was an amended form of Scottish Works Contract (1988).

36. John Doyle sought an extension of time of 22 weeks, made a substantial claim for loss and expense (over ₤4m) and a claim upon the final account.

37. With regard to the loss and expense claim this was calculated utilising a comparison between pre-contract estimates and actual costs i.e. a global claim.

38. Laing accepted that, in principle, it was permissible to advance such a claim if it were impossible to trace the causal nexus between each individual event and each item of loss, although the burden of showing this was upon John Doyle.

39. Laing maintained, however, that such an approach was only permissible if:

40. Laing further contended that since, on the facts, it could be readily demonstrated that an element of the delay was not the fault of Laing, one of the essential factors for a global claim to succeed was absent. Accordingly, Laing contended that John Doyle’s claim should not be allowed to proceed to trial.

41. Laing’s contentions did not find favour with the Lord Ordinary and, on appeal, the Inner House Court of Session (Lords MacLean, Johnston and Drummond Young) dismissed Laing’s appeal. In doing so the Inner House’s (single) judgment contained an important reassessment of the current law on global claims which, although strictly speaking is not binding on the Courts in England and Wales, is likely (it is submitted) to be treated with the highest respect, and rightly so.

42. Whilst a comprehensive read of the judgment is recommended the following, it is hoped, provides an accurate summary:

43. It would be an exaggeration to assert that John Doyle has changed the law on global claims in a construction contract context. It is perhaps fair to suggest, however, that it signals at least three principal changes in emphasis each of which is an encouragement rather than discouragement to the pursuit of global claims. However, the case does rely heavily upon authorities from the USA.

44. The three changes of emphasis are as follows:

45. The decision in John Laing represents a welcome, common-sense approach to the potentially thorny question of competing causation, a frequent scenario in claims in respect of delay and disruption to building projects. In particular, the "apportionment" of loss according to the importance of each particular causative event prevents a plaintiff, advancing an otherwise meritorious claim, from being deprived of relief on purely technical grounds.

46. It is interesting to note that in his judgment, Lord MacLean appears to have conflated the concept of "dominant" and "significant" causes, holding that should the defendant event fall under either of these descriptions, then a claimant will recover in full. This is to be contrasted with establishing that the defendant event is a mere "material" cause, in the event of which apportionment will take place. It is submitted that a "significant" cause is certainly closer to "material" than "dominant". This does pose conceptual difficulties: should a contractor who can only establish that the defendant event is a "significant cause" of his loss be entitled to recover as much as a contractor who can show, without doubt, that the defendant event was the "dominant cause" of the same? Further, defining when a "material" cause becomes a "significant" cause may be something of a grey area.

47. Perhaps rather aptly, John Laing Construction was a party to the first reported decision of the English courts in which the principles discussed above were applied with approval. In Great Eastern Hotel Company Limited v John Laing Construction [2005] EWHC 181 (TCC), the defendants advanced the argument that the claimant’s case ought to fail as it was unable to demonstrate the causal nexus between major breaches of contract and particular loss and damage. HHJ David Wilcox ruled (at paragraph 328):

48. HHJ Wilcox then carried out an exercise of apportionment in accordance with expert opinion. Whether this is entirely consistent with John Doyle is certainly questionable: in John Doyle, Lord MacLean stated that apportionment ought be properly entertained where it is only possible to establish that the defendant was responsible for the "material" cause, not the "dominant" cause, of the loss. In Great Eastern Hotel, HHJ Wilcox was satisfied that Laing’s breaches were the "dominant" cause, but apportioned losses nevertheless. This may perhaps be the first tentative step towards a general approach of apportionment in respect of questions of competing causation, irrespective of whether the defendant event is "material", "effective", "significant" or "dominant".

49. However, pursuing global delay claims is still somewhat of a risky enterprise as the onus of proving that loss has been suffered remains firmly the responsibility of the claimant.

50. In October 2002 the Society of Construction Law published a "Delay and Disruption Protocol" in an attempt to foster a transparent, balanced and unified approach to the management of delay and disruption issues as and when they arise. It is not intended to be a statement of law, or indeed to take precedence over the express terms of a contract; rather, it represents a scheme for dealing with delay and disruption issues that is fair and viable.

51. In relation to concurrent delay, the Protocol provides that where "Contractor Delay to Completion" has effect concurrently with "Employer Delay to Completion", the existence of the former should not reduce any extension of time due. This appears to reflect the logic adopted in Malmaison.

52. The Protocol frowns upon a "wait-and-see" approach to questions of delay. Its core objective is to encourage parties to deal with EOT applications as close in time as possible to the delay event, rather than waiting for its full effect to be felt and then analysed afterwards.

53. Prolongation costs will only be recoverable by the contractor to the extent that such costs can properly be attributable to employer delay events rather than his own. The evaluation of any sum due is made by reference to the period when the effect of the Employer Risk Event was felt, not by reference to the extended period after completion of the works.

54. The Protocol also encourages early completion, with appropriate contractual machinery to deal with problems which may emerge should the employer prevent the contractor from finishing the works prior to the agreed contractual completion date. Should a contractor intend to finish early, then such an intention ought to be communicated to the employer at the time of contracting.

The Protocol discourages the making of global claims, on the basis that the same is "rarely accepted by the Courts". Guidance is provided as to the keeping of records to prevent such a course of action, and emphasis placed on setting out details of the employer events relied upon so that the defendant may know with sufficient particularity the case that is being made against it. The Protocol’s assertion very probably overstates the position and, as matters currently stand, particularly following the decision in Laing Management (Scotland) Limited v John Doyle Construction Limited [2004] BLR 295, is probably incorrect. Disruption

55. Not all disruption will trigger the payment of compensation. A contractor will only be entitled to recover such costs if it can prove that the employer prevented or caused hindrance to the execution of the works.

56. In analysing claims for disruption, the Protocol favours the "Measured Mile" approach, which compared the productivity achieved on an un-impacted part of the contract with that achieved on the impacted part in order to factor out inefficient working or unrealistic programmes. Failing this, methods such as the use of productivity curves may be implemented.

57. The primary focus of expert evidence in claims involving delay and disruption will be on delay. Over the years, there have been a number of judicial pronouncements as to the necessity or desirability of software-based critical path analysis as evidence to support a delay claim.

58.In John Barker Construction Ltd v London Portman Hotel Ltd 83 BLR 31,It was held that an architect’s impressionistic (rather than calculated) assessment was fundamentally flawed because, amongst other things, he did not carry out a logical analysis in a methodical way. The case was taken by many as a ringing endorsement of software based critical path analysis methods.

59. By contrast, in Royal Brompton Hospital NHS Trust v Hammond (No. 7) 76 Construction Law Reports 148, his Honour Judge Richard Seymour QC appeared to approve the adoption of an impressionistic approach. The Judge appeared to approve the following view (page 176):

60. Indeed, it quite frequently happens that many of the number assumptions that have been made in the construction of such a retrospective network are in the end so controversial that the network cannot be accepted by the Tribunal for the purposes for which it was created. Also, computer models are expensive and susceptible to criticism over their cost.

61. It is suggested that if experts are instructed on both sides, there should be an early meeting for the purposes of agreeing what is the most appropriate software package for them to use and what is to be done with it.

62. That said, the expert must be fully conversant with the facts, the chronology and the logic links between the different activities on the critical path. Otherwise, he cannot hope to make a satisfactory choice amongst the various events to be impacted. It is essential that the product is subjected to a "reality check". Probably, this will give rise to an iterative process. What is more, the checking process must be a continuing one.

63. Where there are realistic alternatives, the expert should address them. Thus, there should be a discussion of alternative events and alternative time slices, where appropriate. Equally, there will be cases in which an alternative presentation can be deployed. Such a presentation may represent a true alternative or may be used as a cross-check. Thus, a simple presentation of As-planned as against As-built can be deployed as a cross-check for a more sophisticated analysis.

64. Those of a traditional turn of mind have always supported the activity-specific claim. The observations in the John Doyle case cited above lend some support to this approach.

65. Such a claim involves identifying either a single activity or a limited group of activities. The exercise is then to compare the actual costs of undertaking those activities with the hypothetical cost which those activities would have involved but for the effect of the disruption.

66.The Society of Construction Law’s Delay and Disruption Protocol (2002) lends support to this approach, which has an established successful track record in international civil engineering claims. The Protocol guidance puts the matter as follows:

Such an approach lends itself well to civil engineering claims, where there is, typically, a high volume of broadly similar and repetitive work. There will be more difficulty in harnessing this technique for use in the context of claims arising out of conventional building work.

67. As stated previously, and as with the JCT 1998 form, caution with respect to notices should be exercised at all times. The basic advice under JCT 2005 is simple: if in doubt, supply a timeous written notice setting out the grounds of delay and the estimated duration of delay and/or disruption to the project in question.

68. Perhaps the two most significant areas in which changes will be encountered by parties pursuing a delay claim under JCT 2005 are:

69. The JCT 2005 suite sees a rationalising of Relevant Events with the effect that their number has been reduced.

70. In practical terms, most of the grounds for an extension of time under JCT 1998 have been adopted under JCT 2005.

71. However, one notable exception in 2005 is that non-availability of labour and materials is no longer a Relevant Event. Without a bespoke amendment, the risk of delay and/or disruption resulting from problems with supply of labour, plant or materials shifts squarely to the contractor.

72. In the event of a dispute over delay and/or EOT under JCT 2005, parties should be aware of the change in focus between the 1998 forms and the 2005 forms.

73. All forms contain an express clause which provides for mediation. This is not binding upon the parties (and indeed could not be, as this would be contrary to the HGCRA 1996, which requires that a dispute can be adjudicated at any time) but indicates an increased emphasis from the JCT on trying to resolve disputes without recourse to the courts.

74. Across the board, the JCT Adjudication rules have been scrapped in favour of the Scheme for Construction Contracts. Further, there is a provision for the naming of the Adjudicator. [SO YOU CAN CHOOSE PVB! OR CL]

75. Contractually, the Adjudicator is not bound to give reasons for his decision but often this is added as a bespoke amendment. In practice, many adjudicators feel compelled to set out their reasoning in any event.

76.Given that MW/IC are often used by parties who fall within the definition of "residential occupiers" for the purposes of s.106 Housing Grants, Construction and Regeneration Act 1996, the accompanying guides to each contract contain a "health warning":

77. However, it is possible that despite the "health warning", parties may find themselves embarking upon a contractual adjudication that will not be binding on the grounds that it is "unfair" to the residential occupier.

78. In one first instance decision, Picardi v Cuniberti, the Court held that the adjudication provisions of a standard form (in that case the RIBA form) were "unfair" within the meaning of the Unfair Terms in Consumer Contract Regulations 1999 and thus not enforceable. In that case it was the architect seeking to rely on the adjudication provision who had proffered the standard terms in question.

79. The position will be different where the residential occupier proffers terms containing an adjudication provision; often it is the case that the occupier’s insurers or agents collate the contractual documentation for the project in question. Consequently, it is possible that the situation in Picardi is exceptional. However, builders who insist upon the use of JCT 2005 or any contract including a contractual adjudication clause for a contract with a residential occupier should expect to encounter enforcement problems.

80. Arbitration still exists but is no longer the default position; for it to apply, an express entry must be made in the Contract Particulars. Otherwise the parties must pursue disputes in relation to delay through the courts.

81. In a contractor’s program, the ‘float’ is the additional period that is permitted beyond the period that is needed for any activity before the next critical activity.

82. Delay on the part of the employer to issue instructions for the next phase of the project is an example of a problem that may lead to the question of ownership of the float becoming a live issue. It becomes an issue because it impinges upon the time set aside by the contractor as float for the next phase of the project.

83. The issue of ownership arises where the delay causes a knock-on effect resulting in a delay to the completion date through no fault of the contractor.

84. Where there is a delay in the completion date by reason of the employer’s tardiness, contractors argue that they have a right to an extension of time to make up for the delay. In response, employers argue that the float is a matter for the contractor alone and that in any event the project should be completed by the completion date.

85. The relevant question is therefore: who has ownership of the float? The three possible answers are (i) the contractor; (ii) the employer; and (iii) the project. If it is the contractor, the employer is liable for an extension of time and (possibly) expense and loss. If it is the employer, the contractor is liable. If it is the project, then the party that uses the float first derives the benefit from it.

86. The mechanics of JCT have curious consequences in respect of "float", which stem from the fact that JCT in its previous guises does not expressly recognise the concept.

87. Thus, where initial delays are caused to a project on account of variations or "employer events" such as problems with accessing the site or late supply of design information, such matters will not be causative of delay to the completion date as they are absorbed by the "float".

88. Such circumstances can be somewhat unfair to contractors where "employer" delays use up the float, meaning that subsequent "contractor" delays mean that no EOT is granted and trigger the payment of liquidated damages. In other words, a contractor will be deprived of the benefit of its contingency plan (i.e. the float) through no fault of its own. Obviously, the order in which "contractor" and "employer" delaying events occur is impossible to predict and is outwith the control of the contractor.

89. This situation may now be avoided as a result of the decision in The Royal Brompton Hospital NHS Trust v Frederick Alexander Hammond and others [2002] EWHC 2037 (TCC).

90. His Honour Judge Humphrey Lloyd was of the opinion that in situations such as that described above an appropriate extension, not exceeding the float, should be given:

91. Whilst only a first instance judgment, it seems to suggest that the float is owned by the project whilst possibly also building in a level of protection for the forward-thinking contractor.

92. Of course, any potential "injustice" over ownership of float can be avoided, either by preparing a schedule which does not allow for any float, or by inserting an express contractual clause stipulating that in any award of an EOT, the contractor’s float must be taken into consideration and preserved. This, of course, involves a level of transparency as it will oblige contractors to disclose any float which may be disguised in a complicated construction programme. In practical terms, the issue of "float" will only become an issue vis a vis extensions of time in circumstances where an activity subject to any period of "float" is deemed to be on the critical path. As we have seen, many delaying "events" transpire to

93. What has been discussed so far has been in relation to JCT 2005. The concept of a float has different implications for NEC3 due to the differing nature of this type of contract.

94. In an NEC3 contract, the program is revised periodically (generally monthly) with the consequence that projected completion dates for each stage are continually being assessed and reassessed.

95. The hope is that, as a result, float is much less likely to be a point of contention due to the fact that it will be continually revised and float (providing of course that it is properly disclosed) will be protected when changes are made to the completion date.

© Keating Chambers 2006