Construction projects, by their very nature, are susceptible to disruptions – events that hinder the regular and efficient progress of work, leading to a loss of productivity and increased costs. While delays extend the project timeline, disruption impacts the efficiency of work within that timeline, often without necessarily extending the overall completion date. Successfully navigating disruption claims is crucial for contractors to recover legitimate losses and for employers to understand their contractual obligations. This post explains disruption claims under two prominent FIDIC (Fédération Internationale Des Ingénieurs-Conseils) contract editions: FIDIC 1999 and FIDIC 2017, highlighting their differences, how to establish entitlement, and methods for quantifying associated costs or Extension of Time (EOT).
Understanding Disruption in Construction Contracts
Disruption, as defined by the Society of Construction Law (SCL) Delay and Disruption Protocol, is a “disturbance, interruption or hindrance to the regular progress of the works, resulting in a loss of, or reduction in, productivity.” Unlike a delay claim, which focuses on the impact on the completion date, a disruption claim focuses on the inefficiency and additional costs incurred due to reduced productivity. Common causes include late information, changes, piecemeal access, stacking of trades, and unforeseen site conditions.
FIDIC 1999 vs. FIDIC 2017: Key Differences for Disruption Claims
While both FIDIC editions provide mechanisms for claims, the 2017 suite introduces significant changes that impact how disruption claims are handled, primarily by being more prescriptive and detailed.
FIDIC 1999 (Red Book – Conditions of Contract for Construction): The 1999 Red Book, widely used for employer-designed projects, addresses claims for additional payment and/or EOT under Sub-Clause 20.1 (“Contractor’s Claims”). While it doesn’t explicitly define “disruption,” the effects of disruptive events (e.g., increased cost due to loss of productivity) can be claimed under various clauses that entitle the Contractor to additional payment or EOT. For instance:
- Sub-Clause 1.9 (Delayed Drawings or Instructions): Allows claims for delay and/or cost if necessary information is not provided in time.
- Sub-Clause 8.4 (Extension of Time for Completion): Provides grounds for EOT due to employer-caused delays or impediments.
- Sub-Clause 13 (Variations and Adjustments): Variations can lead to disruption, and the valuation of such variations should account for their knock-on effects.
The 1999 edition’s claim process, while present, was sometimes criticized for its vagueness, leading to disputes over valuation and timing. The Engineer plays a crucial role in determining claims, acting for the Employer but also expected to act neutrally.
FIDIC 2017 (Red Book – Conditions of Contract for Construction, 2nd Ed.): The 2017 suite is a response to market feedback, aiming for greater clarity, certainty, and dispute avoidance. It introduces a more detailed and prescriptive claims procedure, with a stronger emphasis on contemporaneous record-keeping and strict notice requirements.
- Increased Prescriptiveness: The 2017 edition is significantly longer and more detailed. It has many clauses requiring a “Notice” from either party, compared to fewer in 1999. Failure to comply with these strict notice provisions can prejudice entitlements.
- Defined “Notice”: The 2017 edition specifically defines what constitutes a valid “Notice,” requiring it to be in writing, clearly identified as a “Notice,” reference the relevant sub-clause, set out the events, and comply with time limits. This is a critical change; the giving of a Notice is often seen as the trigger point for all Claims, and without a valid notice, Claims may fail.
- Sub-Clause 8.5 (Extension of Time for Completion): This clause provides comprehensive criteria for EOT and includes detailed procedures for delay analysis. It also acknowledges concurrent delay, though it defers to Special Provisions or “as appropriate taking due regard to all relevant circumstances” for entitlement, often referencing the SCL Protocol.
- Early Warning: FIDIC 2017 includes an “early warning” procedure (Sub-Clause 8.4) for events likely to cause delay or additional costs, encouraging proactive management and dispute avoidance.
- Dispute Avoidance/Adjudication Board (DAAB): The 2017 contracts insist on a DAAB being appointed from the commencement of the contract, a significant shift from the optional Dispute Adjudication Board (DAB) in 1999. This emphasizes contemporaneous resolution of issues, which can be vital for complex disruption claims.
In essence, FIDIC 2017 places a much higher administrative burden on all parties, requiring more diligent contract administration and detailed record-keeping. The processes are more complex and prescriptive, aiming to bring greater certainty to major projects by dealing with claims as they arise.
Establishing Entitlement for Disruption Claims
Regardless of the FIDIC edition, establishing entitlement for a disruption claim requires proving three key elements on a balance of probabilities (i.e., 51% accuracy or reasonableness, not “beyond reasonable doubt”):
- Contractual/Legal Basis: There must be an event or circumstance that, under the contract terms or general law (e.g., breach of contract), entitles the contractor to compensation or EOT. This involves a thorough review of the contract clauses.
- Causation: A clear causal link must be demonstrated between the disruptive event(s) and the loss of productivity or additional costs incurred. This is often the most challenging aspect. A fundamental principle in claims dictates that he who alleges must prove.
- Quantification: The extent of the disruption and its financial effect must be measured and proven.
Key to Entitlement: Contemporaneous Records The paramount importance of contemporaneous records cannot be overstated. These include:
- Daily diaries, site logs, and progress reports.
- Meeting minutes.
- Correspondence (emails, letters, notices).
- Resource deployment records (labor, plant, materials).
- Productivity data (planned vs. actual output).
- Photographs and videos.
Without robust, contemporaneous evidence, the credibility of a disruption claim is significantly weakened.
Quantifying Costs or Extension of Time (EOT) for Disruption
Quantifying disruption is notoriously difficult because it often involves measuring the inefficiency of work rather than a complete stoppage. Several methodologies are accepted in the industry:
- Measured Mile Analysis:
- Concept: This is widely considered the preferred method for quantifying disruption. It compares the productivity achieved on an “undisrupted” portion of the work (the “measured mile”) with the productivity of similar work performed during the “disrupted” period. The difference represents the loss of productivity due to disruption.
- Application: Requires identifying a period or section of work that was unaffected by the disruptive event and is comparable in nature to the disrupted work.
- Challenge: In practice, it can be difficult to find two like-for-like elements of work on a project where one is disrupted and the other completely unaffected. If no direct “measured mile” exists on the same project, a similar project may be used, but differences in circumstances must be carefully accounted for.
- Earned Value Analysis:
- Concept: Compares the planned value (budgeted cost of work scheduled) to the actual cost of work performed and the earned value (budgeted cost of work performed). Deviations can indicate productivity losses.
- Application: Requires detailed cost and progress tracking.
- Productivity-Based Methods (e.g., Work or Trade Sampling, System Dynamics Modeling):
- Concept: These involve detailed studies of specific work activities to identify inefficiencies and quantify the impact of disruptive events on labor or plant output.
- Application: Can be effective but are often resource-intensive and may not be feasible for all projects.
- Cost-Based Methods (e.g., Estimated vs. Incurred Labor/Cost):
- Concept: Compares the estimated labor hours/costs for a task with the actual incurred labor hours/costs.
- Challenge: While seemingly straightforward, these methods can be flawed if not carefully applied, as they might not isolate the impact of the disruptive event from other factors (e.g., contractor inefficiencies, scope changes). Simply comparing “estimate versus incurred labor” or “estimate versus used cost” can be problematic without proper substantiation.
The CLC COVID-19 Cost Assessment Toolkit: A Practical Approach The Construction Leadership Council (CLC) COVID-19 Cost Assessment Toolkit offers a valuable, industry-accepted methodology, particularly useful for widespread disruptions like the pandemic, but adaptable for general disruptions.
- Purpose: Provides a framework for assessing and reporting cost implications of disrupted working conditions.
- Methodology: It uses a “baseline” period (pre-disruption) and compares it to the “disrupted” period. Key indicators include:
- Planned vs. Actual Revenue: To show under-recovery of overheads and support services.
- Workforce Indicator: Total actual number of workers on site (e.g., turnstile data) compared to planned.
- Productivity Indicator: Calculated by comparing actual revenue against the number of workers on site.
- Benefits: It offers a quick, simple, and robust way to quantify the disruption. The effectiveness lies in its comparative nature: even if the baseline data isn’t perfectly accurate, consistent application across baseline and disrupted periods provides a valid comparative indicator. This toolkit can be used throughout the project lifecycle to quantify disruption during specific phases.
Conclusion
Disruption claims are complex, but with a clear understanding of contractual entitlements, diligent record-keeping, and appropriate quantification methods, contractors can effectively pursue their claims. The shift in FIDIC 2017 towards more detailed and prescriptive claim procedures, coupled with the mandatory DAAB, underscores the importance of proactive contract administration and dispute avoidance. Tools like the CLC COVID-19 Cost Assessment Toolkit offer practical, industry-accepted approaches to quantifying the often-elusive costs of disruption, helping all parties achieve a more reasonable and equitable outcome.
For further information on the CLC COVID-19 Cost Assessment Toolkit, you can find it available for download on the Construction Leadership Council’s website.