Out-Law / Your Daily Need-To-Know

Coronavirus: who bears the cost of project acceleration?

Out-Law Guide | 10 Aug 2020 | 1:04 pm | 5 min. read

With the Covid-19 pandemic having delayed infrastructure projects around the world, pressure can arise for accelerative measures to claw back delays.

'Acceleration' is a term used on infrastructure projects to describe measures taken by a contractor to speed up a particular activity, or the project as a whole, to achieve completion earlier than would otherwise be possible. Acceleration may be achieved by a contractor re-sequencing activities; adopting alternative construction methods; increasing resource levels; introducing additional shift work; and possibly by changes to the design or project specification.

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, giving effective notices, managing delay and disruption claims. Guides to follow will address the impact of Covid-19 on varying the terms of agreement, the differences between civil and common law approaches to construction project claims, and termination and suspension.

When acceleration occurs, it will be critical to understand who will bear the commercial costs of this. One relevant factor is whether Covid-19 is an 'excusable' event under the contract entitling the contractor to an extension of time or a 'non-excusable' event, where the risk lies with the contractor. For more on this, see our Out-Law guide to pursuing and defending delayed project claims. Also relevant will be what, if anything, the contract says about entitlements to instruct acceleration.

Possible scenarios

Where the Covid-19 related delay is 'non-excusable' under the contract, the contractor will remain obliged to complete the project within the original time frame.

The contractor may consider speeding up or accelerating the remaining works to mitigate its exposure to liquidated damages or other claims and losses. This would be 'voluntary' acceleration, and there is unlikely to be any means for the contractor to recover the associated costs. Many forms of contract impose obligations on contractors to mitigate non-excusable delays and also expressly allow the employer to instruct them to accelerate to recover non-excusable delay.

Where the Covid-19 delay is 'excusable', the contractor should be entitled to an extension of time. However, the employer may ask the contractor to accelerate to achieve the original completion date or reduce the delay. This may be achieved by an instruction, where the contract expressly provides for acceleration instructions; in which case the contract will normally also provide that the contractor is entitled to be paid for accelerative measures. Where the contract does not provide for this, then parties would need to agree on any acceleration measures and associated payment. This should then be documented in a supplemental agreement or as a variation to the contract. This scenario would be 'express' or 'directed' acceleration, regardless of whether it takes place under the terms of the original contract or by a supplemental agreement.

Difficult issues arise when a contractor believes Covid-19 delay is excusable under the contract, but the employer disagrees and refuses to grant extensions of time or instruct paid acceleration. The contractor will then be left in the unenviable position of deciding whether to continue at the same pace and separately pursue extension of time entitlement, or whether to accelerate to avoid the risk of being proved wrong about their time entitlement and being exposed to liquidated damages, or even calling of security bonds or termination. If the contractor accelerates, it will then have to argue it did so because of the refusal to grant an extension. The employer is likely to argue that any acceleration was 'voluntary'. This scenario is often referred to as 'constructive acceleration'.

Understanding the contract

When facing a situation where there has been delay and the employer is insisting on completion by the original date, the first port of call is what the contract says.

The FIDIC forms impose strict obligations on achieving the completion date and for the contractor to proceed with the works with due expedition and without delay, and to mitigate force majeure delays. However, they do not include any mechanism allowing the employer to instruct acceleration in circumstances where the delay is not caused by the contractor.

This is typical of many standard forms. The NEC4 Engineering and Construction Contract similarly includes obligations to meet the completion date and to mitigate, but also has a mechanism to enable the contractor and the project manager to propose and agree on acceleration measures. The standard form of Hong Kong's Mass Transit Rail Corporation has an even more sophisticated approach. It allows the employer to instruct the contractor to recover non-excusable delays without additional payment, excusable delays with additional payment or, for situations where responsibility for delay is unclear or in dispute, to instruct acceleration on the basis that payment will be resolved later depending on the final assessment of responsibility for the delays being mitigated.

Constructive acceleration

In a constructive acceleration scenario – where the contract entitles the contractor to an extension but the employer does not grant one and does not instruct or agree acceleration measures – then the contractor will often wish to claim for their acceleration costs. This could be a challenge. Success will depend on the terms of the contract and the relevant law, and may also be influenced by what the parties said to one another at the point that acceleration was embarked on.

Such a claim is likely to be grounded on the employer's breach in performing the contract. An important step for the contractor is to notify and seek to establish its entitlement under the contract.

The contractor will need to prove:

  • the Covid-19 delays were excusable and thus an extension was unjustifiably withheld;
  • the additional cost was caused as a result of the measures taken to accelerate and mitigate the delay; and
  • the decision to accelerate arose out of the employer's failure to operate the contract – effectively, that there is a direct causal link between the breach and the damage.

It will usually be helpful to the contractor to have written to the employer before accelerating asserting that it should have been granted time; is having to accelerate because of the failure to award time; and will therefore be claiming the costs of acceleration. Maintaining good records will also be important to proving the contractor's claims. The Society of Construction Law's Delay and Disruption Protocol provides some useful guidance on records to be kept when acceleration measures are employed, and on what is reasonable and unreasonable in respect of recovering preparation costs for claims.

Whether the contractor is successful could also depend on the applicable law. For example, the laws of England and Wales generally do not recognise 'constructive acceleration', but do recognise damages arising out of a breach of contract and the obligation to mitigate damages. US laws do recognise constructive acceleration as a basis of claim. In civil law jurisdictions, it is unlikely that the term constructive acceleration will be recognised, or that there will be any specific legislative provisions addressing such claims. However, there are alternative legal principles which will allow a contractor to recover for breach of contract, implied terms, mitigation of delay, good faith and damages.

Non-contractual agreed acceleration

Where there is no acceleration mechanism in the contract, but the parties agree to accelerate, the contractor should agree terms before commencing acceleration of the works. Ideally, the agreement should be set out in writing, in unambiguous language.

Important elements to agree are:

  • the background – how did the need to accelerate arise?
  • the extent of the delay;
  • the acceleration measures to be implemented;
  • an agreed revised programme with completion date(s); and
  • the amount of additional costs to be paid, where possible.

If costs are not agreed as a lump sum in advance, then they may be on a reimbursable basis. If the parties agree a reimbursable basis, they should also agree on the types of records to be kept to record the resources used and the rates to be applied. Records should be agreed on a daily basis during the acceleration works, and any subsequent delay during the acceleration period will need to be addressed as it arises.