Mitigation or Constructive Acceleration?
For many in the industry, the complexity of construction work will inevitably lead to delays.
The cause of delays, setting aside those that may be listed as events in the contract, emanates from multiple matters and parties. These can include access issues, weather, inability to procure resources, delayed drawings, changes in scope and more.
The provisions of most standard forms of construction contracts allow for the allocation of risk between the parties. Where an employer must compensate the contractor for excusable delays he will grant an extension of time. If, in granting an extension of time the delay event is compensable, the contractor may have the rights of entitlement. This may lead to payment for any costs it can demonstrate as a result of the delay event.
In the alternative, the employer may not deem it appropriate to issue an extension of time. For example, where an inexcusable delay caused by the contractor arises, the employer can impose liquidated damages under the contract.
The complexity of construction and the desire of employers to achieve completion on time may suggest another use of the contract and the argument brought about by constructive acceleration.
Projects with Critical Deadlines
The demands of the economic climate often render some projects incapable of being completed outside of the contract date.
The types of projects relevant could include:
- A hotel in tourist season.
- Shopping centres at Christmas time.
- Stadiums prior to major sporting events.
- Infrastructure projects.
The concept of constructive acceleration may come about because the employer cannot exist financially if a project fails to make the completion date. This might be for political or economic reasons. This has arguably led to a trend of employers placing contractors under extreme pressure to complete on time. This pressure then results in the contractor having to accelerate to complete their works. The aim of course, being to avoid the risk of liquidated damages. It may also lead to a scenario where the contractor has not secured its entitlement for the costs of doing such.
Acceleration of the works may result from the contractor using differing techniques to accelerate. By doing so it will aim to mitigate its risk with regard to damages:
- Resequencing work activities.
- Increasing its labour force.
- Increasing the number of resources.
- Working overtime and night shifts.
- Double shifts.
- Mobilising extra plant and equipment.
- Improving resource scheduling with material deliveries and off-site works.
- Changing working methods.
When Constructive Acceleration Arises and Court Responses:
The issue of constructive acceleration arises when the employer does not accept that the contractor has an entitlement but requires the works to be accelerated.
There follows much debate as to how constructive acceleration is dealt with by the contract. This debate is further complicated depending on the locale of the contract. For instance, the US courts adopt a very supportive approach to the contractor who finds himself coerced into constructive acceleration.
The English Approach
The approach in England and Wales may be seen as a return to a stricter interpretation of the contract. Here, some parties suggest that the constructive acceleration is brought about by an implied term or indeed a breach of contract.
Notably, Ian Duncan Wallace QC identified the theory of constructive acceleration as being incompatible with English Law. This is because it is “not founded on any consensual or quasi-contractual basis which would be acceptable in English or Commonwealth Courts”.
The courts in the USA are to more accepting of entitlement and rely on the following due process:
- There must be an excusable delay.
- The delay must have been notified in a timely manner and a time extension requested by the contractor.
- The time extension request must have been delayed or refused by the employer.
- The employer must have (expressly or implied) directed the contractor to complete within the original completion period.
- The contractor must implement acceleration and incur costs.
Constructive acceleration has received little judicial consideration within the English and South African legal systems.
English legal commentators seem to be split on whether such a claim would succeed in an English court. The debate in English construction law tends to centre around the inference that a person is wrongly blaming another for delay. Therefore, demanding an improvement in progress might implicitly lead to a payment of compensation. This would be the case if the inference of blame should turn out to be wrong.
It is this inference that causes difficulty in making or defending a claim for constructive acceleration.
We wonder therefore, if the following common law principles might be helpful in establishing the existence of constructive acceleration:
- The contractor demonstrates the incurred costs as a direct result of its efforts.
- The contractor demonstrates that it accelerated the work.
- Whilst it appears self-evidencing that the acceleration took place, the contractor must provide evidence to demonstrate that it took steps to accelerate.
- The contractor evidences a causal link between the employer’s failure and its own accelerative measures.
- The contractor evidences that it took reasonable steps to mitigate as a result of the employer’s actions.
- The costs incurred and why they were incurred are not the key issue. It is for the contractor to demonstrate that it incurred additional costs, as a result of acceleration.
A breach of contract
In a claim for a breach of contract, a claimant has two principles to establish:
- The claimant must demonstrate that the defendant has failed to fulfill an obligation under the contract.
- The claimant must establish that this failure caused a loss.
In this instance, does the employer take ownership of its engineers’ or agents’ actions, in the event of recognising something that is wrong? Does the employer have the right to interfere? Or is the employer limited from becoming involved?
In certain circumstances, it appears that interference by the employer has been a problem. In Perini Corporation v. Commonwealth of Australia, the Supreme Court of New South Wales found that a departmental policy pressured the employer’s engineer or agent to avoid granting time extensions. This action amounted to a breach of contract.
In such a scenario, it appears there is a high bar for a successful claim for constructive acceleration. The contractor would have to evidence that the employer influenced a decision not to issue an extension of time or an instruction to accelerate.
An alternative breach that could be established arises where the employer delays the period of time it has to deal with extensions of time. As a result of the protracted nature of not responding, the contractor then has to implement constructive acceleration.
To establish this as a breach of contract then the employer would have to be proven as wholly unreasonable in dealing with the application for an extension of time.
The SCL Protocol
The Society of Construction Law Delay and Disruption Protocol (2nd Edition) offers helpful insight into the distinction between acceleration and mitigation,
“…The Protocol makes reference to both mitigation and acceleration. Mitigation simply means to make less severe or lessen delay, disruption and/or the resultant costs and/or loss. Acceleration is a subset of mitigation, and typically refers to the situation where additional costs are incurred to seek to overcome all or part of delay or disruption (for example, to ensure that the contract completion date is achieved). Where the Employer is responsible for that delay or disruption, the Contractor may claim its acceleration costs from the Employer.
‘This situation is distinct from a Contractor’s general duty to mitigate its loss when it suffers delay and disruption or incurs additional cost due to an Employer Risk Event. That general duty to mitigate does not require the Contractor to incur additional costs…”
It should be remembered that in South African law a party’s duty to mitigate damages only arises after cancellation.
The purpose of the article was to examine whether claims for constructive acceleration can succeed. The preceding examination includes an understanding of what the existing contract forms do and don’t do in the matter of constructive acceleration. It appears that many standard forms do provide for resolution under the contract. The express terms of those contracts provide a contractual route for resolution of the matter when it raises its head.
The claimant is best advised to follow the express terms of its contract and possibly ignore Duncan Wallace’s principal objections to constructive acceleration, which were,
“In the U.K. at least, there is little or no sign of contractors who, in the absence of an exceptionally heavy liquidated damages provision, believe themselves to be in the right about an extension of time claim, but feel constrained to incur expenditure in order to accelerate progress…. Nor does it seem a reasonable inference that a person mistakenly and wrongly blaming another for delay, and demanding an improvement in progress, can be said to be impliedly authorising a payment of compensation if that should turn out to be wrong.”
Substantive Reasons Needed:
In the event of a marked departure from the express provisions of the contract, the contractor needs to provide a substantive reason as to why the express provisions do not apply. The contractor will have to face the reality of financing the matter for decision at a tribunal. Where an acceleration clause exists, it would appear that this is the most stable route for addressing cost reimbursement of a contractor who finds himself in the situation of constructively accelerating.
The step-down provision in the event of an acceleration clause being excluded relies heavily on proving that the employer’s behaviour was such that constructive acceleration was required. The task of evidencing that an employer or his engineer (acting impartially) was in effect incorrect in their objective assessment of a contractor’s entitlement to an extension of time or an instruction to accelerate, is not without difficulty. The process raises challenges for lawyers and experts alike.
A Need for Awareness
Importantly though, a contractor should remain alive to its own culpability and actions. The contractor should avoid reliance upon implied terms to address the failings of his own management and resources. A failure to complete on time may be the responsibility of the contractor. Using constructive acceleration as a defence to such is equally capable of being challenged by the employer. This will create an exposure to costs from the employer.
However, for clarity, a contractor may be subject to the employer’s actions causing constructive acceleration. In such a scenario, it may be entitled to make such a claim under the contract. This may be through express conditions or implied terms. The manner of such a claim will depend, very much, on jurisdiction. International contractors and their advisers should be aware of the challenge that they may face in differing jurisdictions with the differing forms of contract.
The process will be subject to change depending on the country of law but interestingly in South African law, the courts do not currently recognise the doctrine of constructive acceleration.
Arguments of Commentators
It has been said by Sheikh that,
“The argument adopted by many contractors in South Africa namely that a rejection to an Extension of Time request which the contractor believes is correct amounts to an instruction to accelerate and finish on time is simply incorrect. The refusal to grant an Extension of Time can’t amount to a ‘deemed’ instruction to accelerate. A claim for constructive acceleration under English and South African law must be based on ordinary principles for breach of contract and damages”.
However, it has been pointed out by scholars (Jack, 2012) that under FIDIC, NEC, JBCC, and the SAICE :
“The engineer owes a duty of care towards the contractor in administering the contract to determine such [time] extension and is obliged, not entitled, to carry out this function. It is the engineer and not the employer who must determine and grant the extension. …The engineer is obliged to reach a decision and convey this decision to the contractor within a reasonable period of time after the extra or additional work or other special circumstances have arisen.”
FIDIC and Africa
The FIDIC Contract does not provide express terms for acceleration. However, as a commonly used contract across Africa, it does provide for acceleration by mutual agreement under the provisions of clause 20.1. On the basis of this principle, any failure on the part of the engineer to properly administer the time extension provisions of the contract could be a breach of contract.
If the employer then demands on-time completion, it may cause the contractor to accelerate its work. Therefore damages, in the form of the contractor’s entitlement to reimbursement will arise. These will be recoverable, if they are proven to flow from the breach of contract.
For a South African contractor to be successful in a claim for constructive acceleration, it must be urged to obtain the employer’s demand for on-time completion in writing. Otherwise, the courts of South Africa are unlikely (whilst it seems to be a sensible approach), to accept a “deemed” instruction to accelerate.
Delay and Quantum Expert
Advocate Gavin Doubell
 Duncan Wallace, Ian, QC, (ed.) Hudson’s Building and Engineering Contracts (11th edn, 1995, Sweet & Maxwell, p. 909 as referenced by Pickavance, Keith, Delay and Disruption in Construction Contracts, Third Edition, T&F Informa (UK) Ltd., 2005, p. 390.