Delay claims

by Dr Jay Palmos
Last month, Deutsche Bank estimated that as many as 30 000 new units will enter the Dubai residential market this year, decreasing demand for new and existing units. A Union Bank of Switzerland study predicts rental prices could decline by as much as 30% during the course of financial year 2010 due to overcapacity in the sector. These reports paint a bleak picture for current developments.

Developers know that, to increase the probability of successfully renting space, they must enter the market at the earliest possible opportunity. Due to the immense pressure to complete their projects, developers are reticent to grant extensions of time, and continue to rely upon strict liquidated damages provisions to force contractors into timely completion. To this end, the prime contractor must exert pressure upon its subcontractors and suppliers to complete on time.

Of all the participants on a construction project, MEP contractors are most often blamed for project delay. The reasons are many and varied. However, the most common areas of blame stem from the fact that the MEP contractor is heavily dependent upon the performance of others for its own success. Some scenarios where a MEP contractor is affected include:
1. The MEP contractor is selected late in the nomination process, thereby reducing its overall time of performance (this issue is often compounded by unrealistic programme requirements);

2. Late access to site or critical parts of site such as the roof level (due to design change or delay in construction progress);

3. The MEP scope is the technical heart of any project, and therefore it is linked to many other disciplines requiring long co-ordination and/or approval periods for submittals;

4. Due to the ubiquitous nature of MEP work, installation must be co-ordinated expertly to reduce congestion between subcontractors of different disciplines. There can be no doubt that MEP contractors suffer disproportionately more from a sub-standard project manager;

5. Finally, even low-value MEP scope variations can have an enormous impact on completion if it affects a critical area of the scope. For example, an upgraded chiller system can impact the electrical requirements and ducting throughout the site – with the necessary utility co-ordination.

Delays have been reported as the most common and costly problem encountered on construction projects (Const Mgmt and Economics 1996). In normal economic conditions, contractors are compensated for delay caused by others through the extension of time provisions. However, in today’s market, it is increasingly difficult to obtain an extension of time. The most recent Middle Eastern academic research (Eng, Const & Architectural Mgmt Vol 16, No. 1, 2009) listed reasons where failure to provide adequate evaluations subsequently led to delay claims as:

1. Lack of awareness of site staff to detect a delay;

2. Insufficient skilled personnel for detecting a claim; and

3. Inadequate contract knowledge.

This research is particularly concerning for MEP contractors because most general contractors and developers are unfamiliar with the technical nuances of MEP scopes of work. Therefore it is often extremely difficult to convince general contractors of entitlement to an EOT. To this end, MEP contractors must support their prime contractor by providing clear claims which demonstrate entitlement.

The conclusions of the research, in combination with the impending squeeze on developer’s profit margins created by the global financial crisis, is clear: protect your interests by having personnel specially trained in delay identification and contract interpretation available to you. Early identification and prevention is the key to avoiding unnecessary costs. The survival of many contractors will depend upon the timing and total costs associated with their present contracts. Only time will reveal which companies survive the ‘balance sheet test’ looming on the horizon. However, to be best positioned to pass this test, developers and their contractors must ensure that they have the best-qualified construction delay professionals available in order to streamline projects.


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