This case is an interesting one factually not the least due to Mr Mackay. However, due to the aggressive approach taken by him, a Court has closely considered a number of issues that, from a construction law point of view, are very useful.In particular:
Mr Mackay and two others purchased three adjacent lots of land for the intention of having their “dream homes” constructed on it. The “dream home” was to have five floors and include:
“Mrs Mackay spent a very large amount of time in researching in particular the interior design and fitout. She collected images from magazines such as “House & Garden””.
Initially one contract for three houses was let for £15.5m with Walter Lilly & Co Ltd, a builder, with possession to be July 2004 and a date for practical completion as January 2006 (78 week build period). Sometime later the building contract was in effect split into three leaving the contract between Mackay and the builder at £5.2m.
The project was “a disaster waiting to happen”, largely due to the design being substantially incomplete at the time the project was let and the project being designed on the run. The reason for this was apparently that planning permission was due to run out. Mackay became disillusioned with his architect, quantity surveyor and builder.
Between July 2004 and July 2008 the builder lodged some 234 EOT notifications of which 196 remained unanswered by the end of June 2008.
During this period:
There were numerous claims by the parties against each other, most notably for our purposes, an extension of time and prolongation cost claim by the builder against the owner.
In hindsight, I expect that neither the builder nor the consultants would have had any dealing with Mr Mackay if they had their choice. To say he was a “difficult client” is an understatement. In particular:
The EOT clause in this contract was similar to ones commonly used in Australia. It entitled the contractor to an EOT where delay was caused by a relevant event – this included delay caused by the principal. A difficulty here was that there were some 234 EOT notifications from the builder and at the same time numerous allegations by the principal that the contractor had failed to order works within time or had to stop to rectify defects.
The Judge was faced with the daunting task of determining the EOT to which the builder was entitled and looked for the most efficient way of doing so. The approach taken was as follows.
The Judge liked and followed the approach of the builder’s expert, who approached the delays on a month by month basis, so that for each month he looked at what was actually impacting the works that month and compared that to what the contractor was planning to achieve that month. As a result he would look at a particular month and the events that took place that month and say that he was satisfied that the contractor had been delayed by say two weeks that month.
The treatment of the issue in Walter Lilly
One of the issues that arose during the course of the hearing was as to whether and to what extent the builder would be entitled to an extension of time where there were two concurrent causes of delay, one caused by the builder and the other by the owner. A typical example would be:
Does the Contractor get 12 or 9 weeks EOT?
The EOT clause in Walter Lilly relevantly:
The Judge found that:
The reasoning for allowing a full EOT notwithstanding a concurrent delay where there is no specific provision as to how this is to be assessed is:
Note that no loss could be recovered for the event of concurrent delay as the contractor was unable to proceed in any event. In our example, the Contractor would get a 12 week EOT but only become entitled to prolongation costs for 9 weeks.
It seems from Walter Lilly that if an EOT clause on its face permits an EOT for a “relevant delay” (or “qualifying causes of delay”) and does not expressly deal with the issue of concurrent irrelevant (non-qualifying) causes of delay, there’s a strong argument that the EOT must be granted in full even where concurrent delays occur.
As always it pays to read the precise words of the contract you have before you.
It is worth noting that clause 34 of AS4000 makes express provision for an apportionment in the event of concurrent delays:
The Contractor shall be entitled to such extension of time for carrying out WUC (including reaching practical completion) as the Superintendent assesses (‘EOT’), if:
a) the Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay; and
b) the Contractor gives the Superintendent, within 28 days of when the Contractor should reasonably have become aware of that causation occurring, a written claim for an EOT evidencing the facts of causation and of the delay to WUC (including extent).
If further delay results from a qualifying cause of delay evidenced in a claim under paragraph (b) of this subclause, the Contractor shall claim an EOT for such delay by promptly giving the Superintendent a written claim evidencing the facts of that delay.
When both non-qualifying and qualifying causes of delay overlap, the Superintendent shall apportion the resulting delay to WUC according to the respective causes‘ contribution. In assessing each EOT the Superintendent shall disregard questions of whether:
a) WUC can nevertheless reach practical completion without an EOT; or
b) the Contractor can accelerate, but shall have regard to what prevention and mitigation of the delay has not been effected by the Contractor.
By contrast, clause 35.5 of AS2124 states:
Where more than one event causes concurrent delays and the cause of at least one of those events, but not all of them, is not a cause referred to in the preceding paragraph, then to the extent that the delays are concurrent, the Contractor shall not be entitled to an extension of time for Practical Completion. More recently I have seen Rio Tinto conditions (which were very well drafted) not deal with the concurrency issue in the EOT provisions. I would expect the principles in Walter Lilly to apply to that contract.
Beware of contracts that allow EOT’s where it is the “sole cause” of the delay.
In Walter Lilly the contractor’s claim for delay costs was approx. £1.4m which was, in essence, a claim for continued preliminary costs incurred for the additional duration of the contract term. The contractor alleged that the contract period ran over because of facts and matters for which the Principal was responsible.
The claim for those costs was made under clause 26 of the contract:
If the Contractor makes written application to the architect that he has incurred or is likely to incur direct loss and/or expense…. in the execution of this contract for which he would not be reimbursed by a payment under any other provision because the regular progress of the works or of any part thereof has been or is likely to be materially affected by any one or more of the matters referred to in clause 26.2….
The sums claimed in the £1.4m fell broadly into two categories.
The principal argued that these claims were nothing more than “global costs claims” and, as such, were barred by relevant case authority.
A “global costs claim” is commonly known as a claim that is calculated by identifying numerous potential or actual causes of delay and/or disruption, working out a total cost incurred in completing the job, deducting from that the net payment made by the principal and lodging a claim for the difference on the basis that it is attributable, without more and by inference, to the causes of delay and disruption identified or relied upon by the contractor.
The Judge in Walter Lilly, in dealing with that argument, started by reviewing all of the relevant authorities on global costs claims. Having done that, he summarised a number of key points about global costs claims in general and their status in the industry:
Coming back to the Principal’s argument in Walter Lilly, the principal maintained that the £1.4m claim was a global costs claim. It argued that the claim did no more than:
and because of that, fell foul of those general principles.
It argued that by formulating its claim in that way, the contractor was doing no more than inviting the Court to draw an inference that the costs overrun was due to the delay events.
The Judge didn’t agree. He stated that he remained wholly unconvinced that on any proper analysis, the contractor’s claim was improperly formulated. He advised that:
The Judge also stated that he was satisfied that it was impractical for the Contractor to relate every dollar of loss to each established and pleaded delay event. In that respect he stated:
the project was a complete mess from the administrative side of [the principal]. The job started with remarkably little design, there were hundreds of variations, there was a substantial level of discord between the principal and its professional team. By early 2007 until the end of the project, it was virtually impossible to sensibly program the works…
This reflects preparedness on the part of the Court to take a flexible non-mathematical approach where it is clear that a contractor would have incurred at least some additional preliminaries by reason of a delay and disruption event. For instance, in relation to a project manager who divided his time between this project and other projects, the court could and would apportion the amount it felt could be recovered for the time that project manager spent on the particular job in question.
As to the issue of apportionment, one of the key witnesses for the contractor said in evidence: “…by definition any apportionment is going to be a process that has swings and roundabouts…”.
The judge had no difficulty with that evidence, stating:
in my judgement, there is nothing wrong with an attempt to apportion continuing site or project related costs on a project such as this. There could be no criticism from the Principal if a contemporaneous minute by minute allocation or apportionment had been done at the time. What has happened instead is that allocation or apportionment was done on a relatively broad brush basis at the time… The issue should be not whether apportionment is appropriate (because it clearly is) but, what the right apportionment is.
In that respect, it is probably naïve or disingenuous to suggest that little or nothing should be allowed in circumstances where it is patently obvious that substantial preliminary resources were deployed. Although arguments could no doubt be made that some of the time (and cost) may have been spent on matters for which the contractor had no entitlement to claim, the parties can of course argue as to whether it should be one third, one half or 100%. The fact, however, that the contractor is entitled to substantial reimbursement though is absolutely clear.
Similar principles and propositions apply to claims by a contractor for head office overheads and lost profit resulting from delays.
To succeed in claims of that nature, it is necessary for the contractor to prove that:
Traditionally, contractors have used formulas such as the Emden or Hudson as methods for proving and quantifying those claims.
In Walter Lilly, the contractor relied on the “Emden formula” in making a separate claim over and above the £1.4m for head office overheads and loss of profits.
In dealing with that claim, the Judge commented that the use of the formula was a legitimate and helpful way of ascertaining, on the balance of probabilities, what the size of such a claim might be.
Bearing in mind that the general thrust of the Judge’s views and comments on these issues inWalter Lilly was that there was no one fixed way of proving delay or disruption claims.
As Walter Lilly makes clear, there is no one fixed way to prove a delay and disruption claim. Consistent with the statements in the Walter Lilly case indicating a preparedness to take a non- mathematical approach, there are a couple of cases dealing with a “measured mile” that take a similar approach.
The measured mile concept is particularly useful when the works are linear in nature such as construction of a road, railway or pipeline where you expect to be doing the same work over and over again.
James Corporation is an example.
In the US case of James Corp. d/b/a James Construction v. N. Allegheny Sch. Dist., et al. 938 A.2d 474 (P.A. Commw. Ct. 2007), the court took such an approach. In that case:
The Judge made the following points:
The law simply requires the claim to be supported by a reasonable basis for the calculation. The court will award compensation where the facts “afford a reasonably fair basis” for calculating the contractor’s entitlements. Para , , .
Contractor's witness, an expert in project controls and claims analysis (claim expert), explained his measured mile analysis included an earned value factor since the Project was delayed from the beginning and the work could not be easily compared. According to claim expert, this comports with industry standards.
Claim expert then described his methodology. Dividing the Project into two time periods, claim expert compared the percentage of work completed in each period to the number of labor hours utilized. During the first period, Contractor expended 4,279 hours to complete 41.76% of the Project. Had Contractor been able to work at the same pace during the second period, it would have expended an additional 5,967 hours to complete the remainder of the Project.
However, the Project's total hours equaled 19,645 hours; therefore, Contractor used 15,366 hours to complete the second period (19,645–5,967). Thus, the inefficient labor hours amounted to 9,366 (15,366–5,967 = 9,366). To arrive at an earned value factor of 61%, claim expert divided the inefficient labor hours by the number of hours worked in the second period (9,366 ÷ 15,366 = 61%).
Utilizing the earned value factor, claim expert then determined the number of inefficient labor hours Contractor and its subcontractor each experienced. The results were multiplied by the applicable hourly rates of pay. In total, claim expert valued Contractor's damages at $294,000.
Claim expert's testimony, accepted as credible here, is legally sufficient to establish the extent of Contractor's damages.
As stated, damages need not be calculated with mathematical precision; rather all the law requires is a reasonable basis for the calculation.
Moreover, the trial court did not blindly accept claim expert's valuation. The trial court reduced Contractor's asserted damages upon a broad finding the delays did not impact some areas of work as severely as others.
The statement in the James Corporation case that damages not be calculated with mathematical precision (just a reasonable basis) has found some support. For example in the Penvidic case in Canada:
The upshot is:
Where you have multiple disputed EOT claims over a long project, the correct approach to determining the EOT entitlement is on a day by day basis (or in Walter Lilly a month by month basis) looking see if on any particular day there was a delay caused by a relevant event.
In the absence of specific provision as to an EOT entitlement for concurrent delays, the Contractor will be entitled to the full EOT without deduction or apportionment. Contracts such as AS4000 and AS2124 may provide for apportionment or no EOT for concurrent delays.
Where it is clear that the contractor has suffered significant delay damages brought about by breach on the part of the principal, but it is difficult to prove the exact loss brought about by any breach, the Courts may be prepared to fix the damages based on its best estimate using a flexible, non mathematical approach. A method of doing that may be by the measured mile.