In the construction industry, claims for disruption can be raised in cases where the smooth implementation of projects is affected by disruptive events, even if that disruption does not impact on the timely completion of works.
The disruption to construction projects in the UK stemming from the Covid-19 pandemic is likely to spur contractors and sub-contractors to consider whether they have any entitlement to compensation to cover the additional costs they have incurred. Not all Covid-19 related disruption will give rise to successful claims, however.
This is part of a series of guides from the specialist infrastructure lawyers at Pinsent Masons. Other guides published include on the topics of managing change and the importance of notices. Guides to follow will address the impact of Covid-19 on managing delay, acceleration, varying the terms of agreement, the differences between civil and common law approaches to construction project claims, and termination and suspension.
What is disruption?
In essence, disruption is a reduction in productivity for which a contractor is not responsible. Restricted or piecemeal site access, out of sequence working and late provision of instructions are all examples of disruptive events which may well have occurred as a result of the Covid-19 pandemic.
Disruptive events usually lead to other problems which further adversely affect productivity on site, such as the crowding of labour, idle labour and stacking of trades.
What is a disruption claim?
Whilst a reduction in productivity may lead to delay in the progress of the works and it is not unusual for claims for delay and disruption to be brought together, a disruption claim is distinguishable from a delay claim.
The purpose of a disruption claim is to recover additional costs incurred, or the losses suffered, as a result of a disruptive event. It is possible for work to be disrupted and for the works still to complete on time. In such instances a contractor will not have a claim for an extension of time and/or loss and/or expense but it may have a claim for the cost of the reduced efficiency of its workforce and additional costs incurred.
Disruption claims are not for time-related costs and should only include additional task-related costs resulting from the loss of productivity caused by the disruptive event. Disruption claims may fall under categories such as wasted expenditure, additional costs of labour or plant and unproductive management time.
How to bring a disruption claim?
A contractor considering bringing a disruption claim should first make reference to the court's guidance set out in the case of Walter Lilly v Mackay to determine whether there is any basis for a disruption claim to be made. In that case the court advised that in order to succeed in bringing a disruption claim, a contractor has to demonstrate on a balance of probabilities that:
- a disruptive event occurred which entitles it to loss and expense. For example, that such event is a 'Relevant Matter' under a JCT contract, or a 'Compensation Event' under the NEC suite of contracts. Proving that a disruptive event occurred is purely factual;
- that the disruptive event actually caused delay and/or disruption. It is not sufficient just to demonstrate that a disruptive event happened and expect recovery of additional costs. Evidence and analysis is required to prove that causal link between the disruptive event and the disruption suffered.
- that such delay or disruption caused it to incur loss and/or expense and/or damage and those costs must be evidenced and justified.
Whilst there is no set way in preparing such a case and it is open to a contractor to choose whatever approach it chooses to support a reasonable assessment of the disruption caused, the following issues are likely to be determinative in any disruption claim:
- a baseline of what productivity levels would have been achieved by reference to cost and resource allowed by the tender, had the disruptive event not occurred;
- establishing that the allowances made in the tender were reasonable;
- the recording and maintaining of contemporaneous documents concerning the disruptive event and its affect on productivity is paramount. A claim's credibility is severely affected if there is a lack of contemporaneous evidence;
- complying with notice requirements under the contract.Where there are no relevant notice provisions, contemporaneously communicating to the other party that a disruptive event occurred, that it has disrupted productivity and that consequently, additional costs will be incurred. Claims made after the event lack credibility;
- credibility of the claim can also be affected if contractor risk events and their impact are ignored;
- expert evidence can be of assistance to supplement but not replace contemporaneous evidence – experts can deploy various different approaches such as sampling or the measured mile to determine quantum of the claim, and;
- whilst not fatal, global claims are less credible. For a claim to be successful, it is recommended that claims are prepared on an area by area, activity by activity, or period by period basis.
Covid-19 implications
The mere existence of the Covid-19 pandemic will not automatically result in an entitlement to additional money. However, depending on the terms of the relevant contract, actions taken by the parties as a result of the pandemic and measures introduced by authorities may entitle a contractor to claim.
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