TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US.

PERSPECTIVE
CHOICES PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS
LAW PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN
IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA

TRETT Digest
ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQ
DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS
PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UN
NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECTR
ISSUE 35
COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION RE
FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US
PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS C
IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UNDER THE NEC CONTRAC
MANAGEMENT IN CHINA THE IMPACT OF ELECTRONIC COMMUNICATIONS I
MANAGEMENT JAPANESE ARBITRATION REFORMS - FIVE YEARS ON TIME
LOST CONSEQUENTIAL DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOIC
PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U
PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN CHIN
IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA
ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQ
DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS
PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UN
NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECTR
COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION RE
FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US
PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS C
IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UNDER THE NEC CONTRAC
MANAGEMENT IN CHINA THE IMPACT OF ELECTRONIC COMMUNICATIONS I
MANAGEMENT JAPANESE ARBITRATION REFORMS - FIVE YEARS ON TIME
LOST CONSEQUENTIAL DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOIC
ES PLANNING - MYTHS AND PITFALLS CUMULATIVE IMPACT CLAIMS
LAW PROGRAMME UNDER THE NEC CONTRACT PROJECT MANAGEMENT IN
IMPACT OF ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JA
ARBITRATION REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQ
DAMAGES: A US. PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS
PITFALLS CUMULATIVE IMPACT CLAIMS UNDER U.S. LAW PROGRAMME UN
NEC CONTRACT PROJECT MANAGEMENT IN CHINA THE IMPACT OF ELECTR
COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARBITRATION RE
FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAMAGES: A US
PERSPECTIVE INJUDICIOUS CHOICES PLANNING - MYTHS AND PITFALLS C
IMPACT CLAIMS UNDER U.S. LAW THE IMPACT OF ELECTRONIC COMMUNIC
DISPUTE MANAGEMENT PROGRAMME UNDER THE NEC CONTRACT THE IM
ELECTRONIC COMMUNICATIONS IN DISPUTE MANAGEMENT JAPANESE ARB
REFORMS - FIVE YEARS ON TIME SPENT, TIME LOST CONSEQUENTIAL DAM
1 TRETTDigest
TIME SPENT, TIME LOST
Claiming head office
personnel costs as part of a
loss and expense or damages
claim is often an uphill task.
Claims are often met with the
argument that the personnel
would have been employed
by the contractor in any event
and the contractor has,
therefore, not incurred any
additional cost. Kevin
R e e v e s notes that recent
case law from the UK may
make it easier to claim, and
sets out principles that can be
applied in other jurisdictions.
When making claims for loss and
expense or damages, whether arising
from employer delays, variations or
otherwise, contractors will often want
In this issue...
TIME SPENT, TIME LOST . . . . . . . . .1
CONSEQUENTIAL DAMAGES . . . . . . .3
INJUDICIOUS CHOICES . . . . . . . . . . .6
PLANNING - MYTHS & PITFALLS . . .7
CUMULATIVE IMPACT CLAIMS . . . . .9
THE CONSTRUCTION PROGRAMME
UNDER THE NEC CONTRACT . . . . . .11
PROJECT MANAGEMENT IN CHINA .13
THE IMPACT OF ELECTRONIC
COMMUNICATIONS . . . . . . . . . . . . .15
JAPANESE ARBITRATION . . . . . . . .17
to include the cost for time spent by
head office personnel. However, this
is frequently rejected on the basis that
the head office personnel would have
been employed in any event and,
therefore, no extra cost has been
incurred. ‘Keating on Construction
Contracts’, 8th Edition, 2006
explains compensation for employer
delays as follows:
“If particular head-office costs are
proved to have been increased by a
contract’s delay, they are recoverable.
Examples would be the cost of extra
staff recruited because the particular
contract was in difficulties or the cost
of extra telephone calls and postage
in the period of delay. But
substantial claims of this kind are
rarely made because most contractors
are able to cope with delay on a
particular contract with their existing
resources whose cost is reasonably
constant.”
This may not appear particularly fair
to contractors, who have had to divert
significant time of their managers
and other head office staff to deal
with a delayed project only to be told
that they would have incurred those
staff salaries anyway and so are not
entitled to claim. Contractors may,
therefore, take some comfort in the
recent English Court of Appeal case
of Aerospace Publishing Limited v
Thames Water Utilities Limited
(January 2007) and the subsequent
High Court case of Bridge UK Com
Ltd v Abbey Pynford Plc (April 2007).
AEROSPACE PUBLISHING
Aerospace Publishing involved a claim
for damages arising from a flood. The
claim included time spent by
Aerospace Publishing’s staff as a
result of the flood. While it is not a
case involving a construction
contract, it is important because it is a
Court of Appeal decision that sets out
principles of general application for
recovery of personnel time and
usefully analyses a number of
previous cases.
The Court of Appeal reviewed the
earlier judgement Tate and Lyle Food
and Distribution Ltd v Greater London
Council (1982), where the defendants
were liable to the claimants for
having failed to dredge silt which had
built up during its construction of
piers for a ferry. The claimants
themselves had to dredge the silt and,
as part of its claim, claimed
managerial and supervisory expenses.
Although the judge rejected this part
of the claim, in doing so he stated:
“I have no doubt that the expenditure
of managerial time in remedying an
actionable wrong done to a trading
concern can properly form the subject
matter of a head of special damage.
In a case such as this it would be
wholly unrealistic to assume that no
such additional managerial time was
in fact expended.”
The Tate and Lyle case is important
because it was the first case that gave
useful guidance on recovery of
management time and because it
made clear that management time
was in fact claimable. However, it did
not address the counter-argument
that where such management time is
for salaried staff, the management
costs would have been incurred in
any event, and thus no additional
costs have been incurred.
However, the Aerospace Publishing
case went on to explain how such
management costs may be claimed.
Aerospace Publishing owned a
library and archive that was damaged
by a flood from a burst pipe. Thames
Water was liable to Aerospace
Publishing for the loss and damage
that resulted. As part of its claim,
Aerospace Publishing sought to
recover payments made to staff for
work done in relation to, and
consequent upon, the flood.
TRETTDigest
Aerospace Publishing would have
always had to pay the staff salaries,
whether the flood had occurred or
not. The claim was, therefore, not
made on the basis that, in the absence
of the flood, Aerospace Publishing
would not have had to pay them.
Instead, the claim was made on the
basis that, if not for the flood, these
employees would have concentrated
upon their conventional activities,
out of which Aerospace Publishing
would have made money. The claim
was, therefore, framed in terms of loss
of revenue from these other activities.
After a review of Tate and Lyle and
four subsequent cases, the court in
Aerospace Publishing concluded that
this was a valid approach. Staff time
could be included as damages where
the staff had been diverted from other
activities on the basis that such
diversion resulted in a loss of revenue
from those other activities. The court
considered that the previous cases
established three propositions for
such a claim:
(a) The fact and extent of the
diversion of staff time have to be
properly established. Evidence of
these should be provided, failing
which the claimant is at risk of a
finding that they have not been
established.
(b) The claimant has to establish that
the diversion caused significant
disruption to its business.
(c) Strictly, the claim should be cast
in terms of a loss of revenue
attributable to the diversion of staff
time. However, in the ordinary case,
and unless the defendant can
establish the contrary, it is reasonable
for the court to infer from the
disruption that, had their time not
been diverted, staff would have been
applied to activities which would,
directly or indirectly, have generated
revenue for the claimant in an
amount at least equal to the costs of
employing them during that time.
Based on the particular facts of
Aerospace Publishing, the judge then
concluded that the diversion of time
for a significant number of the
claimants’ employees had been set
out in detail and adequately
established; and that there could be
no sensible challenge to a conclusion
that its business was thereby
disrupted, indeed substantially so.
The court was, therefore, entitled to
draw the inference that the employees
had been diverted from revenue-
generating activities and to make
allowance in the award of damages for
the cost of the diverted employees.
BRIDGE UK
Three months after Aerospace
Publishing, the Bridge UK case also
had to consider a claim for staff time.
In this case, a contractor was engaged
to construct a slab on which a
printing press was to be installed. As
a result of defects in the slab, the
installation of the printing press and
commencement of its operation were
delayed by over a month. The owner
claimed damages, including a claim
for management time dealing with
the problems caused by the
contractor.
Although the Aerospace Publishing
case was not referred to in the
judgment, some of the earlier case law
considered in Aerospace Publishing
was. The judge found that the
manager had been diverted from his
usual activities of selling and
marketing the company and awarded
damages based on the period of time
that he was diverted. This is broadly
consistent with Aerospace Publishing
and is a useful judgment to confirm
that the approach is acceptable to the
courts. However, Bridge UK also went
on to consider what evidence was
required to support the time claimed,
especially where detailed
contemporary records were not
available.
By reference to the earlier case of
Holman Group v Sherwood (2001), the
judge concluded that in the absence
of records of the time actually spent
by the manager, evidence in the form
of a reconstruction from memory was
acceptable. The manager had
calculated that he was engaged for
128 hours in dealing with the
problems caused by the contractor,
2
based on his assessment of the time
he spent on various matters. The
assessment was made retrospectively.
While the judge accepted this
approach, he went on to point out
that such an assessment was an
approximation of the hours spent and
may over-estimate or under-estimate
the actual time which would have
been recorded at the time. He then
cut the hours by c20%, allowing 100
hours of the manager’s time as
damages.
CONCLUSION
In claims for loss and expense or
damages, these recent cases suggest
that the time of head office staff may
be claimable provided that the three
‘propositions’ set out in the Aerospace
Publishing case are met. Such a claim
is on the basis of loss of revenue
arising from diversion of the staff
time, which is calculated using the
cost per hour of employing the staff.
Evidence of the time spent in the
form of timesheets or other
contemporary records should be
provided to prove the time spent.
However, the Bridge UK case
confirms that a retrospective
reconstruction is allowable, but this
should be treated with caution. An
unconvincing reconstruction may
result in that part of the claim being
rejected for lack of evidence. As the
judge in Tate and Lyle said when
referring to management time:
“I would also accept that it must be
extremely difficult to quantify. But
modern office arrangements permit
of the recording of the time spent by
managerial staff on particular
projects. I do not believe that it
would have been impossible for the
plaintiffs in this case to have kept
some record to show the extent to
which their trading routine was
disturbed...”
While courts will consider
reconstuctions, experience confirms
that keeping adequate records and
being able to show what occurred will
improve a party’s position.
Kevin Reeves is based at Trett
Consulting’s Kuala Lumpur office.
3 TRETTDigest

CONSEQUENTIAL DAMAGES:
Construction projects inherently face In determining whether particular considered in assessing the
the dangers of defective, incomplete damages are recoverable, courts foreseeability of damages in modern
or untimely work. In some cases, generally start by establishing the breach of construction contract cases:
construction projects are abandoned distinction between ‘direct’ and (1) the construction experience of the
altogether. Attorney Brian ‘consequential’ damages: parties; (2) general knowledge of
Comarda of Houston, Texas, explains construction sequences and
that losses stemming from the Direct damages are those which arise procedures; and (3) general
occurrence of these circumstances, ‘naturally’ or ‘ordinarily’ from a knowledge of the likely impacts of
can be simple to quantify and breach of contract; they are damages seasonable changes upon the
characterise – such as the cost to re- which, in the ordinary course of particular construction processes, see
supply a defective part – or they can human experience, can be expected to ... Bruner & O’Conner on
be quite complicated – such as result from a breach. Consequential Construction Law, § 19:19
damages resulting from delay, damages are those which arise from (discussing Spang Indus., Inc., Ft. Pitt
disruption and acceleration of the the intervention of ‘special Bridge Div. v Aetna Cas. & Sur. Co.,
work. Damages in the construction circumstances’ not ordinarily 512 F.2d 365 (2d Cir. 1975)). Utilising
context are characterised by courts as predictable. If damages are these factors, several courts have
either ‘direct’ or ‘consequential.’ determined to be direct, they are recently considered the limits of
Often times, entitlement to or compensable. If damages are foreseeability for the purpose of
liability for those damages is determined to be consequential, they evaluating consequential damages
determined by the terms of the are compensable only if it is claims.
construction contract, which determined that the special
commonly include waivers of any circumstances were within the For example, two courts have recently
consequential or incidental damages ‘contemplation’ of both contracting upheld awards of consequential
incurred by the parties to the parties (and the contract does not damages, finding the losses
contract. US Courts have expressly exclude them). Roanoke foreseeable to the parties at the time
traditionally upheld these waiver Hospital Ass’n v Doyle & Russell, Inc., of contracting. In Berkel & Company
provisions and relied on them in 214 S.E.2d 155 (Va. 1975). Contractors, Inc. v Palm & Associates,
determining what damages may be Inc., 814 N.E.2d 649
recovered by an owner or contractor. Put another way, the “Two courts have (Ind. Ct. App. 2004),
difference between recently upheld the Court affirmed
‘d i r e c t ’ a n d an award of
NO TWO COURTS THINK
‘consequential’
awards of consequential
ALIKE
damages is “the consequential damages for lost
While most courts recognise, or at degree to which the damages, finding profits to a surveyor
least cite to, the following damages are a the losses who was wrongfully
foreseeable (that is, terminated from a
cornerstone principles governing the foreseeable to the
distinction between direct and are highly probable) job by the general
consequence of a parties at the time contractor. The
consequential damages, although
defining consequential damages is breach.” Rexnord of contracting” Court upheld the
still a moving target. Simply put, no Corp. v DeWolff award because both
two courts view consequential Boberg & Assocs., Inc., 286 F.3d 1001 parties “foresaw that this was a
damages alike, as demonstrated by (7th Cir. 2002). Ultimately, the lucrative contract” and could have
golden rule is that the award of reasonably foreseen that the loss of
several recent rulings from around
consequential damages is limited to the job in question would result in
the United States. This is likely due
those damages which are foreseeable economic loss to the surveyor.
to the fact that an award of
at the time of contracting. Hadley v
consequential damages depends upon
Baxendale, 156 Eng. Rep. 145 (1854). Additionally, in Floor Express, Inc. v
foreseeability of the harm, a
Daly, 158 P.3d 619 (Wash. App. Div. 2
somewhat malleable concept.
DETERMINING WHAT 2007), the Court held that, where a
DAMAGES ARE FORESEEABLE subcontractor breached its agreement
FORESEEABILITY – THE TEST
with the general contractor by failing
FOR RECOVERY
The following factors are typically to properly perform the
 TRETTDigest
: A U.S. PERSPECTIVE
subcontracted work as called for in
the subcontract agreement, the
general contractor’s legal liability to
the owner was a recoverable
consequential damage of the
subcontractor’s breach. The Court
believed the subcontractor could have
reasonably foreseen that the owner
would hold the general contractor
responsible for correcting the
defective work of a contractor.
However, in EBWS, LLC v Britley
Corp., 928 A.2d 497 (Vt. 2007), the
Court reversed an award of
consequential damages for expenses
incurred by an owner of a creamery
on the ground that they were not
foreseeable; the expenses resulted
from a three week suspension of
operations at the creamery while
faulty work performed by a
contractor was repaired. The Court
noted that the owners were not, at the
time of contracting, contractually
obligated to incur the expenses,
which consisted of wages paid to
standby workers and purchased milk
that ultimately went to waste.
Accordingly, the court denied
recovery of these consequential
damages, holding that parties are not
presumed to know the condition of
each other’s affairs or to take into
account contracts with third parties
that are not communicated.
TENNESSEE GAS PIPELINE
COMPANY V. TECHNIP USA
CORPORATION
A recent Texas case also offers insight
into how courts may view different
types of alleged consequential
damges, including claims for delay
costs, lost profits, loss of efficiency
and use of money. Tennessee Gas
Pipeline Company (“TGP”) engaged
Technip USA Corporation
(“Technip”) to construct
improvements along an interstate gas
pipeline owned by TGP pursuant to a
4
“Lump Sum Turnkey, Engineering, breach of the contract. In this case,
Procurement and Construction the Contract, Article 19.1, reflected
Contract” (“Contract”). During the that TGP and Technip agreed to limit
course of the Project, numerous the remedies available in the event of
delays occurred that each party a breach:
attributed to various causes –
including issues with the components Consequential Damages: Not-
being installed, issues involving the withstanding any other provisions of this
new technology or new applications Agreement to the contrary, in no event
of technology being employed, delays shall Owner or Contractor be liable to
in change orders, shortages of skilled each other for any indirect, special,
labour, and inclement weather. incidental or consequential loss or
Ultimately, the project was completed damage including, but not limited to, loss
with up to twenty months of delay. of profits or revenue, loss of opportunity or
TGP thereafter sued Technip to use incurred by either Party to the other,
recoup its additional or like items of loss or
expenses and for “A party’s damage; and each
allegedly defective entitlement to Party hereby releases
work. Technip file a the other Party
counterclaim to consequential therefrom.
recover certain sums damages depends
it alleged to be owed TGP contended that
under the Contract.
largely on the its claims
A jury found that foreseeability of constituted ‘direct
Technip had the alleged loss damages’ and
breached the therefore, were not
Contract and claimed” precluded by Article
awarded delay 19.1. Technip
damages and defective work damages contended that all of TGP’s claims
to TGP. Subsequently, on the motion were for incidental, indirect and
of Technip, the trial court limited the consequential damages and were thus
jury award to certain defective work barred by Article 19.1.
damages. Both TGP and Technip
appealed, though Technip’s appeal is As an overall matter, the Court of
beyond the scope of this article. Appeal concluded that Article 19.1
did not preclude recovery for any and
The Court of Appeal entertained the all liability for delay that might occur
issue of whether TGP’s damages were under the Contract. It concluded that
direct or consequential, and if the waiver of consequential damages
consequential, whether those did not preclude direct damages
damages would be barred by the involving loss of use, opportunity, or
waiver of consequential damages profits.
provision contained in the contract.
The Court referenced the cornerstone The Court next considered whether
definitions of consequential and the specific claims at issue
direct damages, and also held that a constituted consequential damages,
general measure of damages is subject which were waived by Article 19.1 of
to any agreement that the parties the Contract. The Court concluded
might have made with respect to that:
damages because parties to a contract
are free to limit or modify the n TGP was not precluded from
remedies available in the event of a recovering ‘project delay costs’
5 TRETTDigest
for extended expenses including,
labour, travel, environmental
contractors, TGP inspectors,
purchase and supply of additional
construction consumables,
hauling wastewater from the site,
and utilities, as TGP was
expressly responsible for these
costs under the Contract. The
Court found it could be
conclusively presumed to have
been foreseen or contemplated by
Technip that, as a consequence of
its breach of the Contract by
delay, TGP would have to
continue paying these ongoing
costs. Thus, these costs were not
precluded from recovery.
n TGP was not precluded from
recovering costs for providing
extended power at a specific
station separately from its
‘project delay costs’ above,
because the Court concluded in
its analysis of the ‘project delay
costs [above],’ that TGP was
expressly responsible for
providing that power under the
Contract. It could, therefore, be
conclusively presumed to have
been foreseen or contemplated by
Technip that, as a consequence of
its breach of the Contract by
delay, TGP would have to
continue paying those ongoing
costs. The Court concluded that
those damages resulting from the
delay also represented ‘direct
damages’ because they clearly
flowed naturally and necessarily
from the breach.
n TGP was precluded from
recovering costs for loss of
efficiency – excess gas, oil, and
labour that were incurred because
a new compressor component was
not timely installed – because
those claims constituted claims of
consequential ‘loss of use’
damages that were precluded
under Article 19.1.
n TGP was also precluded from
recovering damages for the costs
of a backup generator that it had
rented due to a power outage
because the necessity of a rented
backup generator could not have
been “conclusively presumed to have
been foreseen or contemplated” by
Technip at the time the Contract
was formed “as a consequence of
[its] breach of contract or wrongful
act.”
n TGP was further precluded from
recovering damages for the lost
use of money that it had invested
in the project, as those funds
represented an indirect loss to
TGP because any return that
might be attributable to
theoretical investments TGP
might have made fell outside its
Contract with Technip.
n TGP was precluded from
recovering damages for
‘premature energy costs at
Station 54’ – essentially the cost
paid to the utility company to
install and maintain high power
transmission lines to the station.
n Finally TGP was precluded from
recovering costs as a result of
activities that required the release
of gas into the atmosphere
resulting from Technip’s breach.
TGP contended that the released
gas would have been sold to
customers; therefore, the Appeal
Court construed TGP’s claim to
be for lost profits. The Court held
that TGP’s expectation of profit
through the sale of gas to its
customers was incidental and
consequential to the performance
of the Contract concerning the
installation of new equipment,
and thus were barred by Article
19.1.
In summary, the Court concluded
that all of TGP’s damages challenged
by Technip as consequential were
precluded under the terms of the
Contract, as a matter of law, except
those damages awarded for ‘Project
delay costs’ and for extended power
requirements at a specific station.
CONCLUSION
In the USA, and many other legal
jurisdictions, a party’s entitlement to
consequential damages depends
largely on the foreseeability of the
alleged loss claimed. Courts will not
award damages that are remote and
unexpected. Furthermore, courts in
the USA will respect contractual
provisions waiving a party’s right to
recover consequential damages.
Accordingly, these provisions should
be carefully drafted to precisely
define the types of damages
prohibited from recovery – whether
foreseeable or not.
** LeBlanc Bland is a law firm
specialising in construction advice
and litigation involving the marine,
energy and government sectors.
Brian Comarda is a Partner at their
Houston, Texas office.
(tel: +1 713 621 7100, email:
bcomarda@leblancbland.com.)
TRETT CONSULTING
BREAKFAST BRIEFING
– HOUSTON
‘PLANNING
FOR PROJECT
CHANGE’
Trett Consulting is hosting a
Seminar on the subject of
‘Planning for Project Change’
to be held at The Energy
Industries Council, 11490
Westheimer Road, Suite 850,
Houston, TX 77077 on the
morning of March 30, 2010.
The focus of this seminar is on
preparing for and managing
change on construction and
engineering projects.
For further information please
contact:
barry.bramble@trett.com
or tel: +1 713 547 4888
TRETTDigest
INJUDICIOUS CHOICES
Adjudication is increasingly
becoming a preferred form of early
dispute resolution in many countries.
In the UK, it was no surprise to
anybody that arbitration’s popularity
plummeted when statutory
adjudication came along in 1998.
Trett Consulting’s Eugene
Lenehan’s research shows that the
cause of arbitration’s demise arose
from a number of factors; for example
that the average length of an
arbitration was over 14 months,
though many drag on for years, and,
generally speaking the larger the
claim the longer they last. Nor are
arbitrations a sure-fire way of getting
your money. In the cases he studied,
only 54% of main contractor
claimants received the arbitrator’s
full award, and the amount awarded
was always less than claimed.
For example, what research has
shown is that when arbitration as a
dispute resolution process is
considered the preferred route, its
success is dependant upon the
selection of the arbitration tribunal.
Indeed the UK’s Arbitration Act
emphasises speed, economy and
fairness, and the selection of an
arbitrator who can comply with both
the spirit and the letter of the Act is
vital to success.
There are various procedures the
arbitrator can follow which can
reduce costs and duration, but not all
arbitrators will take advantage of
them.
AVOIDING EXPENSE
Section 1(a) of the Act provides:
“The object of arbitration is to
obtain the resolution to disputes by
an impartial tribunal without
unnecessary delay or expense”.
The aim of section 1(a) is taken up at
section 33(1)(b) of the Act which
imposes on the arbitrator the duty to
“adopt procedures suitable to the
circumstances to the particular case,
avoiding unnecessary delay or expense”.
This obliges the arbitrator to be
flexible in selecting procedures to suit
the individual circumstances of the
case before them and it is clear that
there is no need for the arbitrator to
follow ‘court’ procedures. Hence, an
arbitration has the flexibility to
establish relatively inexpensive
procedures.
There are a number of choices
available to an arbitrator which might
have a streamlining effect. These
include:-
(i) dispensing with pleadings /
statements of case
(ii) the scope of disclosure,
(iii) a fast track timetable for the
arbitration
(iv) using written submissions
instead of having interlocutory
hearings.
(v) using inquisitorial powers,
where the arbitrator searches for
facts, examines documents, and
makes further investigations.
PROCEDURAL MATTERS
These procedural matters are not
mandatory provision and, therefore,
the arbitrator’s power to decide on
procedural matters is subject to the
right of the parties to agree such
matters. If the parties can’t agree, the
arbitrator can decide to use them.
Research has found that confining
the scope of disclosure and the use of
a fast-track timetable / setting time
limits, both reduce the cost and the
duration of arbitration. When
dispensing with pleadings reduces
time but not necessarily cost; the use
of the inquisitorial powers reduced
costs but not duration of arbitration;
instructing written submissions
reduced duration but not costs.
ARBITRARY CHOICES
Section 16(1) of the Act provides that
6
the “parties are free to agree the
procedure for appointing the arbitrator”.
This can be done by the parties co-
operating in choosing their own
arbitrator once they decide on the
relevant experience and other criteria
of the potential arbitrator. This would
include considering the curriculum
vitae of prospective arbitrators before
agreeing. However, this sensible
procedure appears only to be adopted
infrequently.
Research has confirmed that in two
thirds of cases, the tribunal is
appointed by reference to an
institution. This is because the means
of appointing the arbitrator is
generally set out to be by this method
in the pre-existing contract between
the parties.
The nomination procedure of some
institutions, such as the UK’s RIBA
and the Institution of Mechanical
Engineers, involves matching the
respective geographical locations of
the potential arbitrator against those
of the parties. If there is more than
one arbitrator in that area, the
institutions then try to select
someone with qualifications that are
relevant to the dispute. Geographical
proximity is a practical advantage
rather than a necessity and it is
suggested that the main concern
should be to appoint the person with
the appropriate skills and knowledge.
CONCLUSIONS
In the author’s view, the parties
should only refer to an institution if
they fail to agree on who the
arbitrator should be. In addition,
both the arbitrator and the parties
should give careful thought to the
type of procedural directions they
may wish to use.
Eugene Lenehan is based at Trett
Consulting’s Coventry office
7 TRETTDigest
PLANNING – MYTHS AND PITFALLS
Planning (or scheduling), in any
environment, involves a disciplined
approach to work, through which
decisions are made, recorded and
communicated to all concerned.
Colin Capper explains that planning
will define an organisation’s
objectives, establish an overall
strategy for achieving these objectives
and develop a comprehensive
hierarchy of plans to integrate and co-
ordinate activity.
In other words, what is to be done,
how it is to be achieved, by whom and
with what resources. In business
organisations the Plan, becomes a
statement of intent and a means of
control.
THE PURPOSE OF PLANNING
Planning involves the establishment
of business policies - rules laid down
to provide guidance for decisions by
managers. It assumes that alternative
courses of action exist and so assists
managers in the process of
organising, forecasting, coordinating,
controlling communications and
motivating people - planning then
becomes a key management ‘tool’.
SOME MYTHS
1. Planning that proves to be inaccurate
is a waste of management time
The end result of any form of
planning is only one of its purposes.
The process itself can be even more
valuable than the end product even if
the results miss the target.
Planning requires management to
think through what it wants to do and
how it is going to do it; this
clarification can have a significant
value in itself. For example, the
preparation of a detailed method
statement is a mandatory
requirement of most construction
contracts.
A programme often forms part of the
plan of what is to be done, however,
the method statement explaining how
the works are to be carried out and by
whom is very often overlooked and
not developed into a comprehensive
document particularly at the start of a
project.
Management that does a good job of
planning will have direction and
purpose and the planning is likely to
minimise the misdirection of energy;
this will happen despite the
possibility of missing the ultimate
objectives.
From my experience, delayed
completion and disrupted progress is
more easily avoided or controlled by
firms who use effective planning
techniques.
2. Planning makes future decisions
Planning does not make future
decisions. It is concerned with the
impact of current decisions on future
events. So while planning is
concerned with the future, planning
decisions are made in real time.
3. Planning can eliminate change
Planning cannot eliminate change.
Changes will happen regardless of
what management does.
Management engages in planning in
order to anticipate changes and to
develop the most effective response to
them.
4. Planning reduces flexibility
Planning implies commitment, but it
is a constraint only if a plan is
produced but not developed as
circumstances require. Planning is
an on-going activity. The fact that
formal plans have been reasoned out
and clearly articulated can make
them easier to revise than an
ambiguous set of assumptions.
PITFALLS AND
RECOMMENDATIONS
1. Level of detail
A plan or programme may contain
too much detail for some users and
too little for others. It would be
inappropriate to provide a full
network analysis to a ganger or
foreman on a construction site - he is
unlikely to want to decipher a
computer generated logic linked
critical path analysis programme.
Likewise, an unlinked bar chart
would be inappropriate for a complex
project where the project
management team is required to
consider the time, cost and resource
implications of alternative solutions.
A common trap is to attempt to plan
the whole project, activity by activity.
As soon as the project gets off the
ground, more information becomes
available. Some activities are no
longer required, new activities
become apparent and the project
manager can be sucked into a spiral of
planning and re-planning; he may
then cease to manage the plan and the
plan quickly loses credibility.
At the highest level, an overview of
the plan is appropriate, with progress
milestones. On a building project,
there might be:
n Completion of design
development. This is often a key
milestone when the full scope of
the Works to be carried out is
realised.
n Effective water tight date, when
the start of finishing activities
becomes a significant stage in the
programme. This date is often
confused with weather-tightness,
i.e. when all the roof and external
envelope of a building is fully
complete.
Without milestones, a mass of
detailed information can often
obscure critical information and
mask the key remaining stages as the
project moves towards the
TRETTDigest
completion of construction.
Modern computer software packages
allow for planning projects in detail.
However, summary bars can be
generated and reports issued to the
relevant departments within an
organisation, which allows further
appropriate levels of detail contained
within a programme, which can be
more sensibly produced properly by
those departments.
2. Focusing on a deadline
There is a tendency for some
managers to focus on a deadline. By
concerning themselves with a point
that lies far into the future, they feel
that there is plenty of time to do the
work, under-stating the current
priorities. To avoid this inherently
misplaced optimism, a manager
should set definite intermediate
targets for completion of the work.
To set shorter-time horizons, the plan
must contain goals and activities
which are controllable in the shorter
term. Taking the example above, the
sooner all design is complete and
information issued for construction
on a project, the less the likelihood of
change to the construction activities.
3. Flow of Information
The key to a successful project is
completion on time, to budget,
achieving the client’s performance
requirements. Financial and market
pressures can demand that projects
are finished in the shortest possible
time within a challenging cost
estimate. However, many projects
have insufficient information to fully
plan the project from start to finish at
the outset. Projects can suffer from
insufficient design information
required for efficient working and
effective control.
Progress on projects is sometimes
governed by the characteristics of the
flow of information. Despite this lack
of information, a project is expected
to be planned and controlled.
4. Creativity
Some planning methods can
discourage creativity. If the planning
tools are too cumbersome and only
the planner understands the
programme, other members of the
project team are unlikely to make a
creative contribution.
Sometimes, a Manager may organise
the work to be programmed in
isolation then delegate the
implementation of the plan to the
group. This often arises in large
construction companies which have
separate departments for
construction and planning –
particularly at pre-tender stage.
Planning is most effective as a group
activity, where the relevant parties
work together and communicate with
each other to solve the task.
5. Over-optimistic time forecasts
Over-optimism arises in two ways:
(a) arbitrary cuts
A company may work with detailed
methods of estimating, where
programming the work content and
cost of a project is based on historical
data previously used to plan similar
projects.
However, those responsible for
securing the project may be over
optimistic and consider that the work
can be done more quickly at less cost
– often it cannot!
Estimating methods should be
trusted or otherwise the effectiveness
of a tender bid is reduced.
(b) insufficient previous experience
8
Another form of over optimism is to
under estimate the time required to
carry out certain activities. It may be
that new technology or a general lack
of work study leads to insufficient
time and resource allocation. To
avoid this pitfall it is important to
involve those responsible for the
implementation of the activity in the
estimating process.
A plan or programme must not omit
activities, for example, a proving
period for engineering services or
final cleaning, which are critical to
the successful completion of the
project. Many projects are one-off
endeavours, but previous experience
on similar projects should enable the
preparation of a realistic checklist,
which includes all key activities.
CONCLUSION
Planning establishes an
organisation’s objectives and goals. It
enables actual performance to be
compared against objectives.
Deviations from the plan can be
identified and the necessary
corrective action taken.
In the writer’s view, regular
independent progress monitoring is
the key to identifying those activities
which require the most attention,
whether they are procurement or
lead-in activities or off site or
physical tasks on site.
Uncertainty in planning projects will
diminish as the overall design of a
project is completed andinformation
for construction is issued.
Without planning, there can be no
control. However, effective planning
utilising experienced planners can
allow time to be utilised more
effectively.
Time is unique; if wasted it can never
be replaced!
Colin Capper is based at Trett
Consulting’s Coventry office
9 TRETTDigest
CUMULATIVE IMPACT
CLAIMS UNDER U.S. LAW
A recent case in the United
States Court of Federal Claims
illustrates how a contractor
may be able to recover under
the ‘cumulative impact theory’
for the impact of multiple
changes. B a r r y B r a m b l e
discusses the background and
implications of this case on the
contracting industry.
In Bell BCI Company v. United States,
2008 U.S. Claims LEXIS 116 (Fed.
Cl. Apr. 21, 2008), the contractor,
Bell, entered into a $63.3 million
contract with the National Institutes
of Health (NIH) for the construction
of a new five-story laboratory
building with a full basement on the
NIH campus in Bethesda, Maryland.
The contract required completion
within 821 calendar days after notice
to proceed, which was issued on April
1, 1998, making June 29, 2000, the
required completion date. The
contract also contained a liquidated
damages clause stipulating $3,721 as
the amount that NIH could assess to
Bell for each day that Bell failed to
meet the completion date.
Approximately nine months into the
construction, NIH decided to add a
new floor to the building to
accommodate the needs and demands
of NIH researchers and scientists.
Prior to this time, NIH had made
relatively few changes to the contract,
and the project was 13 days ahead of
schedule. The addition of the new
floor resulted in numerous changes,
and the project was eventually
delayed by 19 months. The direct
impact of the added floor resulted in
separate change orders for the steel
and concrete work ($1.6 million and
30 days time extension), changes to
the partial infrastructure or ‘shell’
design of the floor ($6.9 million and
30 days time extension) and the final
design of the new floor ($1.8 million
and 30 days time extension), making
the new completion date to be
September 28, 2000. After these
changes, NIH represented that few
subsequent changes would be issued,
and asked Bell to agree to a series of
new interim completion dates that
would allow NIH to occupy the
building on a phased basis. The
parties then executed Modification 93
that increased the price by another
$2.3 million, revised the completion
date to April 30, 2001, and established
14 substantial completion milestones
for the phased completion, between
October 1, 2000 and April 30, 2001
with daily liquidated damages of $266
per day if Bell missed any of the 14
milestone dates. Modification 93
contained the following, and did not
contain any reservation of rights for
other claims, such as cumulative
impact or loss of efficiency.
The modification agreed to
herein is a fair and equitable
adjustment for the Contractor’s
direct and indirect costs. This
modification provides full
compensation for the changed
work, including both Contract
costs and Contract time. The
Contractor hereby releases the
Government from any and all
liability under the Contract for
further equitable adjustment
attributable to the Modification.
After Modification 93 was signed,
NIH issued 113 additional
modifications that incorporated over
200 extra work orders, many of which
emanated from NIH’s scientific
community, and the court noted that
“the NIH project team had no ability to
stop the NIH scientists from making
changes.” In these modifications, NIH
compensated Bell only for the direct
costs and Bell was directed to perform
the additional work without
extending or impacting the project
schedule or milestone dates. None of
the modifications provided any
compensation for cumulative impact
or inefficiency costs, and Bell
reserved its rights to such impact
claims. Also Bell notified NIH that
the continued issuance of changes
would delay the project and that the
only way to avoid impact to the
schedule was for NIH to authorise
acceleration of the work. NIH did not
authorise an acceleration effort, and
when Bell attempted to include
acceleration costs in its change order
pricing, NIH struck them out. NIH
further withheld $100,000 from Bell’s
payments “due to inadequate progress”
and repeatedly asserted its right to
assess liquidated damages if the
milestone completion dates were not
met.
The relationship between the parties
became strained as NIH continued to
issue changes, demanded compliance
with the milestone completion dates,
and even reneged on paying for
changes that had been negotiated and
accepted. The project was
substantially complete on February 8,
2002 (some 589 days after the original
contract completion date). Bell
submitted to the NIH contracting
officer a certified Request for
Equitable Adjustment in the amount
of $6.2 million for unpaid balance,
unresolved changes, delays, labour
inefficiency costs, profit on the
claims, and five subcontractor claims.
Bell’s claims were denied by the
contracting officer, who also asserted
NIH claims against Bell for
liquidated damages, re-testing and
estimated costs to remedy defective
work. Bell filed a complaint in the
United States Court of Federal
Claims.
One of Bell’s claims was for the
cumulative impact of the NIH
changes. The original contract price
was $63.6 million, and there were
TRETTDigest
$21.4 million in change orders, measure’ in the expert’s approach to
increasing the contract price by 34 the evaluation of the reasonableness
percent. The court noted that of Bell’s estimated productivity.
changes of this magnitude were Further, the expert testified that the
unusual for building construction majority of ‘unearned’ labour hours
or ‘inefficiency’ occurred after
projects. The court further noted that
there were approximately 700 extra Modification 93 was executed, and
that approximately 25 percent of
work orders that affected every floor
on the project, and that NIH’s Bell’s total labour hours expended on
internal documentation reflected the project were due to the labor
productivity loss caused by NIH
serious concerns regarding the extent
changes. The expert determined that
of changes after Modification 93. The
modifications did not specifically 80,317 hours were lost due to the
compensate Bell for the cumulative impact of NIH changes, and
impact of the NIH changes and calculated the total productivity loss
revisions, nor did the terms of the from these NIH changes by
modifications expressly release NIH multiplying these hours by the fully-
for liability for cumulative impact burdened average labor rate of $33.50
and labour to arrive at
productivity claims. $2,690,649 in
“if the employer damages to Bell.
At trial, Bell denies the The court was
presented both fact satisfied that Bell’s
evidence concerning additional time or expert had properly
its productivity money to perform quantified the
records and expert changed work, cumulative impact
testimony to prove of the NIH changes
its claim for
but nevertheless by using Bell’s
cumulative impact continues the flow h i s t o r i c a l
and lost labour of change orders productivity data
productivity. In its and project records
project record-
to the contractor, for measuring
keeping practices, a chaotic project earned and
Bell tracked may result” unearned labour
productivity by hours.
requiring its
foremen to record each week the The court sustained Bell’s claim of
number of units of work installed, $2,058,456 for the loss of efficiency
allowing Bell’s management to resulting from the cumulative impact
compare the actual time to install of NIH’s changes because of the
units of work against its estimates. ‘major, wholesale changes,’ the many
Where more time was spent installing renovations prior to move-in, and the
units than estimated, Bell deemed the failure to grant any time extensions
time to be unproductive. Bell’s expert for the changes. The combination of
witness analysed Bell’s productivity these factors created a classic
level based upon the weekly records environment for what has become
of units installed for each cost code, known as the ‘cumulative impact’
and determined the productivity level upon labor inefficiency. Multiple
by comparing the actual labour change orders on a construction
expended to perform units of work. project potentially can be
The expert testified that although accommodated if the employer
Bell was adversely affected by the acknowledges that additional time
addition of the new floor, Bell and money will be required, and if
performed this extra work at or near the parties carefully plan the
the same productivity rates originally sequencing of the changed work.
planned for the project. The expert However, if the employer as here
testified that Bell’s estimated denies the additional time or money
productivity was reasonable and even to perform changed work, but
added four percent to the baseline nevertheless continues the flow of
hours in his calculations, which the change orders to the contractor, a
court noted added a ‘conservative chaotic project may result.
10
While the cumulative impact
decision of recovery may have limited
application outside of U.S. federal
contract jurisdictions, it may be a
potential basis of recovery for
contractors who have experienced the
impact of multiple changes, additions
and extras without receiving any
compensation for the impacts. For
example, none of the 206 contract
modifications issued on the NIH
project included any payment or
other consideration to the contractor
for disruption, cumulative impact, or
labour inefficiency. Similarly, none of
the modifications contained any
language explicitly waiving or
releasing such a claim. The Bell BCI
court’s decision that prior releases
did not waive a subsequent
cumulative impact claim was based
on the facts – a careful presentation of
the details of the parties commercial
relations; how the parties
administered changes; when EWOs
and modifications were prepared;
what the parties communicated about
the changes; and what contract work
or earlier change each EWO and
modification had affected. These facts
convinced the Bell BCI court that
earlier releases had not waived the
later impact claim. While language
sporadically appeared in some
modifications purporting to reserve
rights, the court said that no meeting
of the minds between the parties ever
occurred. For example, the court
noted that many of the events
relevant to the cumulative impact
claim did not even arise until after
the parties signed Modification 093.
According to the court, prudent
contracting parties would be specific
in describing the exact scope of any
release or reservation of rights. Thus,
contracting parties should
specifically deal with time and cost
impacts, fully addressing these
matters by the specific terms in the
formal variation documents.
Barry Bramble is the new Regional
Director at Trett Consulting’s
Houston Office.
11
THE CONSTRUCTION
PROGRAMME UNDER
THE NEC CONTRACT
Originally drafted for the UK, but
increasingly recognised worldwide,
the NEC 3 form of contract is set up
in a way which is, on first application,
alien to the traditional construction
establishment. Instead of the usual
list of clauses and sub-(sub)-clauses
setting out what each party should
and should not do, the NEC sets out
to act as a tool for managing the
construction process itself. S t e v e
Davis argues that it is a contract
which is supposed to be read –
understood – and followed – by the
people who do the building.
The NEC contract encourages the
parties to think ahead and anticipate
problems, and most importantly, find
solutions before the problems
happen. There is no final account
and no opportunity to wait until the
end to wrap everything up.
One of the primary tools to manage
any construction process, and of
paramount importance to the NEC, is
the construction programme. The
contract requires the Contractor to
produce and maintain, and the
Project Manager to accept, a
programme for the works (‘the
Accepted Programme’). But the
Accepted Programme is not simply a
bar chart filling the gap between
‘starting date’ and ‘completion date’.
The NEC is quite explicit in what it
expects to be shown on the
programme. In the writer’s view this
is where the wheels start to fall off on
many projects, as the contract
contains extensive provisions which
go far beyond the requirements of
more traditional forms. Whilst these
might be seen as ‘best practice’ in any
event, the latest NEC difference is
that ‘best practice’ is now mandatory.
The Programme sets the dates for
access to and use of the site. It affects
amounts due for payment if no
programme is submitted by the
Contractor. It is also used to
determine the Contractor’s
entitlement to, and assessment of,
certain compensation events.
The Programme may be the
Contractor’s tender programme, if
this is incorporated into the contract
data. Employers beware, however, as
there are risks in this approach,
because the Contractor may be able to
claim reimbursement for required
changes to the programme – see, for
example, Yorkshire Water Authority v
Sir Alfred McAlpine Ltd 32 BLR 114
(1985). Contractors also beware; if
the programme results in a
compensation event to resolve
ambiguity or inconsistency, Clause
63.8 will require the event to be
assessed on the interpretation most
favourable to the Employer.
The list of information to be shown
on the Programme is stated at Clause
31.2, and includes the starting date,
access dates and the Completion
Date, all defined in the contract data.
Also required is the order and timing
of operations.
Beyond this, a series of defined
information is also required:
n Key Dates. These are not
sectional completion dates, but
dates by which the whole or parts
of the works must achieve a
defined condition or state of
completion.
TRETTDigest
n Planned Completion. This may
be earlier than the Completion
Date. The contract usefully
apportions ownership of any float
between planned completion and
the Completion Date, to the
Contractor.
n Order and timing of work of the
Employer or Others, and dates
when the Contractor plans to
complete any preceding work.
n Provisions for float, which does
not mean the foundation can be
shown floating out towards the
projects’s Completion Date!
n Provision for time risk
allowances, being the duration
allowed by the Contractor against
each activity, to allow for the risks
inherent in the work.
n Health & safety requirements.
n Any procedures specifically set
out in the contract.
n Dates for acceptances, plant and
materials and other things to be
provided by the Employer, and
information from others.
n A statement of how the
Contractor intends to carry out
each operation, including
planned equipment and
resources. In other words, a
method statement. Using this as
a baseline, compensation events
are more easily valued.
n Any other matters which the
‘Works Information’ requires the
Contractor to show on the
programme.
TRETTDigest
Some commentators suggest that this
is no more than what a competent
Contractor would put on his
programme in any event. In an ideal
world, perhaps this is true, but how
often does it happen? Also we should
be aware that, in the absence of a
programme identified in the contract
data, a quarter of amounts due under
interim payments is withheld until
the first programme is submitted for
acceptance.
Hence, under NEC, the programme is
prepared, submitted, becomes the
Accepted Programme. The
Contractor’s planner can go back to
the office and visit once a month to
make sure all is going to plan? Well,
not really. Once the programme is
submitted and accepted, the
Contractor’s work does not stop
there. The programme has to be
updated, normally monthly. On each
revised programme, according to
Clause 32, the Contractor must show:
n Actual progress achieved on each
operation and its effect on the
timing of the remaining work.
n Effects of implemented
compensation events, and of
notified early warning matters
(the latter requirement has been
omitted by the June 2006
amendment to NEC 3).
n
The Contractor’s proposals to
deal with delays and to correct
notified Defects.
n
Any other changes the Contractor
proposes to make to the Accepted
Programme.
When the revised programme is
submitted and accepted, it supersedes
any previous revisions of the
programme.
The benefits of this are clear. If all of
this information is shown on the
revised programme, delay is dealt
with as it arises, the parties know
precisely where the job stands, can
contemporaneously address and
mitigate delays where possible, and
the programme remains a valid tool
for measuring progress, delays and
the status of the work.
However, there are pitfalls to avoid in
the process. The sheer volume of
compensation events can be
overwhelming, and there may be a
failure to implement the process at
all.
It is not uncommon to find that the
Employer’s PM or his equivalent has
not approved or accepted the
Contractor’s programme; often just
saying nothing at all. This
undermines the intent of the NEC,
which allows the PM specified
reasons for refusing to accept the
programme. These are:
n That the plans it shows are not
practical.
n Information required by the
contract is not shown.
n The Contractor’s plans are not
realistically represented.
n It does not comply with the
Works Information.
Unfortunately for the Contractor,
these reasons can have a wide
interpretation. Both parties should
appreciate the benefits of co-
operating on programming matters.
Late response to the programme by
the PM is a compensation event in
itself, entitling the Contractor to
payment for any cost incurred. The
Contractors must keep the
programme updated for progress.
This is an action often insufficiently
presented, with no indication of
detailed percentage figures for each
activity. Also, when the programme is
revised, there can be difficulties in
relating between programmes
because their structure is changed.
In practice, many NEC contracts are
administered as though they were
governed by a traditional JCT form.
The work is carried out, a deal is done
at the end of the day, and all
concerned move on to the next job.
But what if there’s no deal?
Arguments about failure to follow
procedures might arise and, as the
12
Contractor has an 8 week window of
‘becoming aware’ to notify certain
compensation events, he should take
note of the potential effects.For
example, the case City Inn Ltd v
Shepherd Construction Ltd, Court of
Session 17 July 2001, confirmed that
condition precedent clauses might be
enforced despite a course of action
suggesting a waiver of contractual
obligations. Clause 12.3 of NEC 3
most likely closes this argument
against the Contractor in any event.
So if the NEC is the contract, apply
its provisions properly.
Under NEC the programme is in
place for the benefit of the project
members, and should be viewed as a
tool for the project as a whole – not
just the person using the computer.
Note however, that the NEC
procedures take time and resources;
also, given the added complexity
which the NEC brings to the
construction programming process,
experienced and able resources are
needed. NEC is a high maintenance
contract, requiring the commitment
of both Employer and Contractor and
their teams.
In summary under the NEC form of
contract, the programme plays a
significant and defined role in the
management of the works, setting out
the work to be carried out,
requirements to undertake that work,
and the periods and dates in which to
achieve it. Where the programme is
timeously and accurately updated the
effects of delaying events, both in
terms of time and money, should be
dealt with as they arise. The
Employer will have the optimum
opportunity to minimise the effects of
delays to his project whilst
maintaining cost certainty, and the
Contractor will have a tool by which
to manage his entire construction
process.
Steve Davis is based at Trett
Consulting’s Coventry office
13
PROJECT MANAGEMENT IN
CHINA
A s h l e y H o w l e t t considers
changes to the laws relating
to Project Management in the
People’s Republic of China.
It is fair to say that project
management services in China are
very much in their infancy and on the
whole tend to be undertaken by
foreign enterprises rather than
domestic Chinese enterprises. The
Chinese construction industry
remains organised in the traditional
manner, with the design institutes on
one side and contractors on the other.
As such, procurement systems such
as design-build and turnkey EPC are
rarely seen or used.
In light of these prevailing
circumstances, the Ministry of
Construction (MOC) has been
encouraging Chinese construction
enterprises to adopt the project
management model for a number of
years. In 2003, the MOC issued a
guidance opinion on fostering the
development of general contracting
and project management. This
opinion stressed that in order to assist
Chinese construction enterprises to
“go out,” it was necessary to adopt the
international practice of project
management in China. To this end,
Chinese construction enterprises
were encouraged to establish project
management organisations and
systems.
As part of this process, the MOC in
August 2004 issued a Code of
Management of General Project
Contracting for Construction
Projects. This Code is essentially a
National Standard and prescribes
standards for, amongst other things,
construction management, schedule
management, cost management,
quality and safety management as
TRETTDigest
well as contract management. In n Assisting the owner in
November 2004, the MOC issued the negotiating and executing
Provisional Measures on appropriate contracts with the
Construction Projects Management construction contractor as well as
(“the Provisional Measures”) aimed at suppliers of building materials,
improving the standard of equipment, structures, and
construction in China by placing fittings, as well as assisting with
more emphasis on project the supervision of their
management as a means of procuring implementation;
successful construction project
delivery. n Assisting the owner in managing
the construction process
THE INTENT AND SCOPE OF including budgeting, schedule,
THE PROVISIONAL MEASURES and claims management;
The Provisional Measures are n Assisting the owner with post
intended to apply to all construction construction management.
project management activities
conducted in association with The Provisional Measures apply to all
construction works in China. project management services
Construction project management is provided on construction projects in
very widely defined as “professional China, regardless of whether those
management and service activities carried services are provided by foreign or
out by enterprises engaged in project domestic enterprises.
management at the authorisation and
entrustment of the project owner, QUALIFICATION
throughout the works or during an REQUIREMENTS
individual stage.” Article 6 of the
Provisional Measures itemises project Prior to the issue of the Provisional
management as: Measures, project management
services providers were not required
n Assisting the owner in to hold a formal Chinese qualification
preparatory planning, economic certificate.
analysis, ad-hoc evaluations and
determination of investment; in However, the Provisional Measures
order words, assisting the owner require project management
with feasibility studies; enterprises to have qualifications in
one or several of the following fields:
n Assisting the owner in acquiring surveying, design, construction,
land and obtaining planning supervision, cost advice, or tendering
permits; agency. This means that all
enterprises undertaking project
n Assisting the owner in organising management must hold one or more
and managing the design process; of these qualification certificates.
n Assisting the owner in procuring INDEPENDENCE OF THE
appropriate construction, PROJECT MANAGER
equipment supply, and
supervision services; One of the significant initiatives
introduced by the Provisional
TRETTDigest
Measures is the concept of
independence. The Provisional
Measures dictate that project
management enterprises cannot own
or be associated with any of the
construction companies on the
projects that they are managing. The
reason behind this requirement is
made clear by the activities that are
expressly prohibited in the
Provisional Measures, such as
accepting bribes or asking for
kickbacks or other favours, or
conspiring with the contractor to use
substandard construction materials.
While there are very good reasons
why, in the China context, it is
beneficial to have the project
manager independent from the
contractor, internationally it is not
uncommon for the project manager to
be connected with the contractor, and
in some cases (for example, in the
United States) the project manager
acts as the contractor. Of course,
when the project manager also acts as
the contractor, there is an inherent
conflict between the interests of the
owner and the interests of the project
manager. For example, when the
project manager acts as the owner’s
representative, its only concern is the
protection of the owner, whereas
when the project manager also acts as
contractor, there is a split of loyalty.
Nonetheless, it is possible to
incorporate checks and balances in
the project management agreement to
address and mitigate this issue.
Accordingly, the blanket prohibition
is not entirely appropriate and will no
doubt deter many large foreign
project managers or contractors who
commonly act as integrated total
construction solutions providers.
Such organisations provide
engineering, procurement,
construction management, and
general contracting services often on
a turnkey basis and as such deliver
potentially significant cost savings to
their owner clients. It is often the
potential cost savings that convince
owners to put less emphasis on the
issue of split loyalty.
ACCOUNTABILITY OF THE
PROJECT MANAGER
Another area where the Provisional
Measures promote international
practice is accountability. On every
project, it is vital that the project
owner has confidence and trust in the
entity managing the project – in
many cases, the project manager acts
as the owner’s representative and,
therefore, has a high degree of
responsibility. For this reason, it is
common for named individuals to be
appointed for the duration of a
project who can only be removed
with the owner’s consent. In this
regard, the Provisional Measures
promote accountability by not
permitting project management
companies to subcontract their
management business or allow other
companies to undertake project
management in their name.
INCENTIVES FOR THE
PROJECT MANAGER
The Provisional Measures allow
project owners to reward the project
management enterprise by granting
them a certain percentage of any cost
savings that result from
recommendations proposed or
implemented by the project
management enterprise. The parties
are free to agree to the percentage in
their project management contract.
SUMMARY
Effective project management is a key
component in successful construction
project implementation. In the
context of a construction project,
where the owner is not experienced in
the administration and organisation
of building or engineering projects, it
is important to engage a construction
professional with the necessary
qualifications who is able to make
decisions for the owner in relation to
carrying out the project.
An effective project manager will
assist the owner in deliberating and
decision making in connection with
the project. An experienced project
14
manager, by bringing to the project
his particular expertise to ensure that
the project comes in on time and
budget, allows the owner to reduce
the risk of cost overruns and project
completion delays.
Ashley Howlett is a Partner in the
firm of Jones Day and based at their
Beijing office.
Tel: +86 10 5866 1113,
email : ahowlett@jonesday.com.
TRETT CONSULTING
CELEBRATE ITS 10TH
ANNIVERSARY IN
ASIA-PACIFIC
Trett Consulting celebrates
the 10th anniversary of its
Asia-Pacific operations. We
would like to thank our
clients, staff and fellow
professional colleagues for
their continued support and
look forward to working
together in the future,
developing and expanding
our operations and building
upon our existing
relationships with our valued
clients.
Trett Consulting have offices in New
Dehli, Kuala Lumpur, Singapore,
Hong Kong, Kobe, Brisbane and
Perth and work extensively
throughout the Asia-Pacific region.
15
THE IMPACT OF ELECTRONIC
COMMUNICATIONS IN
DISPUTE MANAGEMENT
I a n P e a s e reviews how new
technology and the impetus
from the Courts is changing
the way cases are
investigated by lawyers.
What are “e-documents” (sometimes
called Electronically Stored
Information or ESI)? Look around
any modern office and you will see an
absence of filing cabinets, replaced
(usually in the basement) with servers
running the firm’s network. Very
little gets printed (for cost as well as
green reasons) but there is still
constant communication both within
and outwith the organisation, with
most of the crucial exchanges taking
place via e-mail.
A QUESTIONING MIND
Enter the lawyer. Whereas his first
port of call used to be to the hard copy
project files and the filing cabinet of
the project manager, now his
questions will be somewhat different.
Who were the individuals involved in
the project (both from our side and
for other parties)? In the ‘new speak’
that permeates our lives now, these
individuals are called key custodians.
What computing resources do they
use and have access to? This will
include all devices that could save e-
documents including not only servers
and laptops but also mobile phones
and other portable devices.
IT’S A PROTECTION RACKET
Once the lawyer has got a clear view
of the extent of the sources he has
(assuming there is a potential
dispute), to take them into protective
custody for two reasons. Firstly, so
that a proper, thorough, investigation
can commence into the facts of the
case and secondly, because there will
probably be the need to give
disclosure of some of them when
ordered to do so by the Court or
arbitrator. Note that in adjudication
there is not the same disclosure
obligation, however, there is still the
need to find the key documents so
that they can be deployed to further
the client’s case. This need to take
the documents into safe-keeping is
known as ‘legal hold’.
The most convenient way in which
legal hold can take place for e-
documents is to take a forensic copy
of the relevant sources to prevent the
normal processes of destruction,
archival and change taking place in
relation to that data set. The clients
can then continue to use their ‘live’
systems without disruption. I say
forensic because great care is needed
in handling e-documents, they are
very easily changed and their
associated ‘metadata’ corrupted. This
data can often be of great use in
determining who drafted, received or
modified particular documents.
SEARCHING TIMES
Once that pool of documents is
gathered it will be obvious that, in all
probability, the set is far too large to
be gone through individually. In any
case, the documents will need to be
sorted, reviewed and organised and
that can best be done by using a
specialist database.
A WINNING HAND?
The client may have felt that he was
‘holding all the cards’, but is this what
the documents reveal? Dependent
upon what this process throws up, the
TRETTDigest
lawyer will apply the suitable law and
procedurein advising the client.
INFORMATION OVERLOAD
Sorting and deciding what is relevant,
is the next step.
COSTS
Why are disputes so costly to settle
and what can we do about it? This is
a key question in the UK Civil Justice
Review of costs being undertaken by
Lord Justice Jackson. A lot of the
costs revolve around properly
considering documents and
disclosure. As I think we’ve est-
ablished there is assort of “Moore’s
Law” operating here, it’s not just the
facility with which we e-mail one
another (copying in multiple parties),
it’s also the other copies that we (and
our IT departments) habitually make.
This article may have various
versions and back-up copies before
it’s completed. Each such document,
if litigation was to eventuate, may
have to be considered for disclosure.
LITIGATION
Litigation used to be seen as
adversarial and overall it still is, but
there are parts of the process that the
Courts are increasingly stressing
should be cooperative; a recent case1
highlights that this has not got
through to all in the legal profession.
The judge in that case made the
following point:
47. This case provides an opportunity
for the Court to emphasise something
mentioned in Part 31 Practice
Direction [dealing with disclosure of
documents] which the parties in the
present case disregarded. Paragraph
TRETTDigest
2A.2 of the Practice Direction states
that the parties should at an early stage
in the litigation discuss issues that may
arise regarding searches for electronic
documents. Paragraph 2A.5 of the PD
states that where key word searches are
used they should be agreed as far as
possible between the parties. Neither
side paid attention to this advice. In
this application the focus is upon the
steps taken by the Defendants. They
did not discuss the issues that might
arise regarding searches for electronic
documents and they used key word
searches which they had not agreed in
advance or attempted to agree in
advance with the Claimants.
The Judge went on to conclude that
the Defendant’s solicitors had not
carried out a reasonable search in the
first instance and that the parties’
solicitors should meet to discuss how
restoration of the Defendant’s back-
up tapes could best be done and
“Following such a meeting, the
Defendants should embark so far as
reasonably practicable upon restoration of
the back-up tapes”. Additionally,
further key word searches had to be
done by the Defendants, at further
costs to the parties.
The lesson from the case is evident.
The Court will not look kindly upon
parties that take unilateral actions
when it comes to e-disclosure. In
future an “e-Disclosure Technology
Questionnaire” will have to be filled in
and discussed at the first case
management conference in UK
litigation.
SUMMARY
There can be no doubt that many of
the problems faced in terms of
comprehending the overall merits of
a clients’ case are added to by the
‘tyranny’ of the email (and other
electronic documents). However, also
provides solutions and benefits.
Ian Pease is a solicitor specialising
in construction & engineering
disputes (email: ian@pease-
family.net)
1Digicel
(St Lucia) Ltd and other companies v
Cable and Wireless plc and other companies
[2008] EWHC 2522 (Ch).§
ROGER TRETT
On 1 January 2010, 33 years
after first establishing Trett
Consulting, Roger Trett handed
over the executive management
of the business. He becomes a
Consultant to the company from
1 May 2010.
From a small office in Great
Yarmouth, one of the most
easterly towns in England,
Roger has seen the business he
started flourish from its humble
beginnings to the global
organisation of today,
employing 150 professionals in
15 offices situated across 9
countries.
Not only has Roger steered the
business through its
considerable growth, but he has
become a distinguished leader
of dispute resolution in the
construction and engineering
sectors. He is regularly
consulted by owners, operators
and contractors concerning
their major claims and
commercial problems and he
acts as an expert in the areas of
quantum and delay analysis. He
is widely regarded for always
offering no-nonsense advice.
For over two decades, Roger has
held senior positions in the
Academy of Experts, having
been its Chairman for 6 years.
The Academy is one of the
leading international
organisations promoting the
very best of standards and
practices for experts opining in
litigation, arbitration and other
forms of dispute resolution.
In 2008, Roger led the company
to merge with the European
Engineering Consultancy,
Grontmij, whose 8,000
professionals provide multi-
disciplinary services in the
water, energy, transport and
environmental sectors. Having
overseen the successful
16
integration of Trett with
Grontmij, Roger now intends to
focus on his professional
activities, actively working with
clients and their legal advisors
to promote the earliest
resolution of the most
challenging commercial
problems.
Roger leaves behind a strong
management team led by Tony
Farrow, Group Managing
Director. Tony has a long career
with Trett Consulting, having
joined the firm 21 years ago.
Roger comments that:
“It has been an enormous
privilege to have led a group of
talented and committed
colleagues over such a period. I
see the forthcoming years as a
very exciting time for Trett
Consulting. Building upon our
traditional values and global
presence, I am sure the business
will identify new business
opportunities and continue to
grow. However, our main focus
has always been, and I am sure
will continue to be, to provide
our clients with the highest
possible standards of excellence
in delivering our services and to
provide our employees with
challenging and rewarding
careers. I wish clients,
colleagues and fellow
professionals the very best
wishes for the future and thank
them for their support over the
years.”
All at Trett Consulting thank
Roger for providing the
leadership which has allowed
each of us to develop our careers
and potential. We also
acknowledge that Roger has
been at the helm for longer than
Sir Alex Ferguson at
Manchester United, a fact that
he can be rightly proud of!
17
JAPANESE ARBITRATION REFORMS
For many years, arbitration
has been one of the most
preferred forums for dispute
resolution internationally and
every country has it owns
rules and procedures. In this
article, Peter Godwin
highlights the improvements
in Japanese arbitration over
the last five years, resulting in
diminished criticism of the
Japanese arbitration system.
THE NEED FOR CHANGE
One of the most frequently rehearsed
complaints against arbitration in
Japan was that the law relating to it
was inadequate and out-of-date.
There was no stand-alone arbitration
code and arbitration was given only
limited attention in articles 786 to
805 of the old Code of Civil
Procedure of 1890. The Japanese
Arbitration Law (Law No. 138 of
2003) which came into force on 1
March 2004 (the ‘New Law’) was
based on the 1985 UNCITRAL
Model Law on International
Commercial Arbitration (the ‘Model
Law’), providing instant familiarity
and certainty to users.
The New Law sought to follow the
general UNCITRAL objectives but it
recognised a need to depart from
some of the standard provisions. A
number of the modifications are
specific to Japanese requirements yet
none of them should undermine the
New Law in the eyes of experienced
international arbitrators and
arbitration counsel::
n The New Law applies to both
international and domestic
arbitration, and to both
commercial and non-commercial
civil arbitration – as long as the
place of arbitration is in Japan. In
contrast, the Model Law only
applies to international
commercial arbitration.
n The New Law has included
provisions to recognise that
arbitrators can have a role as
mediators in amicable
settlements (Article 38(4)
Japanese Arbitration Law 2003).
n The New Law has included
provisions which give special
treatment to consumers and
individuals that are involved in
arbitration agreements.
Any gaps in the New Law’s content,
such as the fact that it is silent on key
issues like confidentiality and
arbitrator’s immunity, have been
addressed in the new commercial
arbitration rules of the JCAA, which
were updated at the same time as the
enactment of the New Law to bring
them into line with the law, the
UNCITRAL arbitration rules and
also with the other leading
international commercial dispute
resolution organisations. Parties can
choose to adopt the rules or adopt
them with modifications, although
most parties tend to adopt the rules in
full.
KEY REFORMS
A number of key reforms were made
in 2004 to address some of the
repeated criticisms of the Japanese
arbitration system.
Hearing procedures
Arbitration proceedings in Japan
often used to be criticised for being
extremely lengthy and slow; one of
the main focuses of the reforms of
2004 was to improve the efficiency of
the system. In the New Rules, the
JCAA gave the arbitral tribunal the
power to speed up the proceedings
and prevent unnecessary delay. If one
of the parties fails to submit evidence
TRETTDigest
or fails to appear at a hearing without
good cause, the tribunal can proceed
regardless (Rules 32 and 35 JCAA
Rules). Furthermore, documents are
to be submitted to the tribunal
directly rather than through the
JCAA and they can be submitted via
electromagnetic record or facsimile if
the tribunal agrees. Further, in place
of numerous short hearings spaced a
few weeks apart, are single longer
evidentiary hearings of the type
familiar to arbitrators and arbitration
counsel in all the major arbitration
centres.
Selection of Arbitrators
In the past, the selection of
arbitrators was hugely restrictive.
There was a general bias in favour of
a single arbitrator, and any attempt to
avoid this needed early action from
one of the parties. Furthermore,
arbitrators had to be resident in Japan
on appointment and only a small
number were registered with the
JCAA, so the choice of arbitrator was
limited.
In line with international norms, the
New Law:
n Gives the parties the freedom to
determine the number of
arbitrators, and then implements
default provision for occasions
when the parties fail to do so;
n Does not require any specific
qualifications for arbitrators, so
there is complete freedom to
appoint the arbitrators most
suitable for the case;
n Puts no restrictions on
nationality or residence of
arbitrators; leaving parties to
choose from the widest possible
pool
Finally, where the JCAA is called
upon to make an appointment, it has
 TRETTDigest 18

– FIVE YEARS ON SEMINARS BEING

RUN BY TRETT
recognised the need to may conduct arbitration in Japan in
internationalise its panel of return for the payment of fees. AUSTRALIA IN
arbitrators and this process is Furthermore, foreign lawyers may
proceeding apace at the time of represent clients in an international 2010
writing. arbitration case when they are
appointed outside of Japan. The Australian Government has
Any criticisms about the lack of allowed different States and
impartiality of arbitrators are dealt CONCLUSION Territories to enact what now
with by a number of provisions in the amounts to eight different forms
New Law and New Rules, which Japan has addressed many of the of security-for-payment
require impartiality and criticisms which for many years were legislation to be enacted in one
independence from arbitrators, as made about its arbitration system. country.
well as full disclosure of any interest More could be done, especially in
they may have in the proceedings. keeping up-to-date with any changes For organisations operating
There are also grounds to challenge that are made by UNCITRAL to its across all the States and
an arbitrator if there is a justifiable Model Law and Rules. Territories of Australia, the
doubt as to his or her impartiality and situation is one of complexity
there are criminal penalties for However, for now the New Law and and increased risk.
corruption of an New Rules together Consequently, Trett Australia is
arbitrator, such as allow for a very running a series of ‘Adjudication
“There are
bribery. (Articles 50 flexible and Awareness’ seminars specifically
through to 55 grounds to progressive designed to help firms become
J a p a n e s e challenge an arbitration system aware of the pitfalls inherent in
Arbitration Law in Japan. They have the rules and procedures.
2003)
arbitrator if there created much
is a justifiable greater autonomy Other seminars being run in
Language 2010 include ‘Managing
doubt as to his or for parties involved, Change in Construction
and while they set
The New Law her impartiality” out a default Contracts’, ‘Methods of
provides that parties standard for Analysing Extensions of Time’
are now free to agree on the language arbitration practice, they also allow and ‘How to Prepare and
or languages to be used in the arbitral parties to vary any of the provisions Defend Delay Claims’.
proceedings, or in the absence of such that they find unacceptable to their
an agreement, for this to be circumstances. Japan has established For further information, contact
determined by the arbitral tribunal. a framework suitable for use in both our National Director at
In practice, more and more JCAA domestic and international david.court@trett.com
arbitrations are now being conducted arbitration.
in English.
In short, there is no longer any reason
Representation (legal or procedural) why an
international commercial arbitration
One of the most enduring issues in conducted in Japan should not look
Japanese arbitration has been the lack identical to one conducted in any of
of clarity as to who may represent a the major arbitration centres. The
party in arbitration proceedings. For challenge still remains to encourage
some time, the JCCA and Japanese its use.
Bar interpreted the Lawyers’ Law
(Bengoshi Ho) (Law No. 205, 1949) as
prohibiting all foreign lawyers from
acting as arbitration counsel of Peter Godwin is head of the Tokyo
record. However, it has since been Disputes Practice at Herbert Smith
acknowledged that a foreign lawyer (tel: +81 3 5412 5444, email
registered as a gaikokuho jimu bengoshi peter.godwin@herbertsmith.com)

Articles and opinions in this
digest are the opinions of the
authors and not necessarily of
Trett Consulting.
You can contact us by
e-mail at: info@trett.com
www.trett.com
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