Tag Archives: EOT Claims

Assessing Delay and Disruption

In preparation for the IAMA National conference later this week I have just finished developing and updating a short series of papers focused on addressing schedule delay and disruption.

  • Assessing Delay and Disruption – an overview of the accepted methods of forensic schedule analysis [ view the paper ]
  • Prolongation, Disruption and Acceleration Costs – an overview of the options for calculating costs associated with approved delays and acceleration [ view the paper ]
  • The complexities around concurrent and parallel delays are discussed on Mosaic’s White Paper WP1064 Concurrent and Parallel Delays

Any comments are welcome.

Advertisements

Using a Risk Management approach for Assessing Claims

One of the more difficult management decisions is how hard to pursue a contract claim. The claim will inevitably have a deleterious impact on a key stakeholder relationship and any significant claim will have proportionally high costs associated with legal and other expenses. Balancing the inevitable costs against the possible gains is a difficult but necessary decision before moving forward. Usually, the potential yield of a claim is given as a subjective assessment based on experience.

Dr. John Lancaster of Hill International has recently published a paper that seeks to remove the subjectivity from the assessment of which claims are worth pursuing (see 1 below). Lancaster proposes using a risk assessment approach to determine the likely range of outcomes and which claims contribute the most to the likely settlement. He suggests using the following factors:

  • Entitlement confidence:
    • The strength of the contractual argument for entitlement; and
    • Contractually compliant notices.
  • Magnitude confidence:
    • The quality and quantity of supporting records;
    • The quality of the project schedules (and any necessary corrections and/or repairs), cost records, etc; and
    • The certainty with which the effect/s of each event is known.

Applying a percentage weighting to these factors and using Monte Carlo analysis the likely range of cost and time outcomes can be assessed and the key claims identified.

It is important that the right people complete this assessment: the entitlement confidence categories should be assessed by counsel and the magnitude confidence categories assessed by the domain experts with input from the project staff.

The results of this analysis will identify:

  • The likely outcomes under the prevailing entitlement and magnitude confidence ratings;
  • The probabilities of securing different outcomes; and
  • Identifying the claims that are the most important to the overall claim and which ones require more work.

Based on this assessment and after factoring in the costs and consequences of making the claim, pragmatic decisions can be made on:

  • whether or not to pursue a claim;
  • where to set negotiation limits (see 2 below); and
  • which of the claims, with more work on establishing entitlement and/or substantiation, could contribute the most to a robust claim.

In an ideal world effective stakeholder relationship management would remove the need for contractual claims. When they become necessary, Dr. Lancaster’s ideas will help remove much of the unnecessary ‘heat’ from the assessment process and provide a pragmatic baseline for managing any claim in a professional and business like way.

  1. Lancaster, John, “The use of risk analysis techniques to evaluate potential delay claim outcomes,” Project Control Professional: The Journal of the Association of Cost Engineers, February 2010. The full article is available on request from johnlancaster@hillintl.com.
  2. For more on dispute management and negotiating see: http://www.mosaicprojects.com.au/WhitePapers/WP1049_Dispute_Management.pdf

Cause of Delay

Late last year the British High Court delivered a very interesting judgement on the assessment of delay, disruption and prolongation claims.

A delay to an activity may disrupt the work and it may delay the completion of the project. The two factors are independent (this is the fundamental principle in the UK Delay and Disruption Protocol).

In Costain Ltd v Charles Haswell & Partners Ltd [2009] EWHC B25 (TCC) (24 September 2009), the High Court has determined that for prolongation to occur, the actual delay has to flow through to a delay in the completion of the works. The mere fact the delayed activity was on the then critical path when it occurred is not of itself evidence the delay flowed through to the completion of the works. At paragraph 200(ii) the Justice Richard Fernyhough QC stated I find that it has not been shown by Costain that the critical delay caused to the project by the late provision of piled foundations to the RGF and IW buildings necessarily pushed out the contract completion date by that period or at all.

The fundamental issues relate to the definition of the critical path were canvassed inin my 2006  paper ‘Float is it real’.

At page 7 I argued:

Despite the CPM requirement for a single duration estimate, durations are variable; changing the estimate of a planned (future) duration or differences between the actual duration and planned duration on completed activities may change the critical path.

In the example above, at the ‘Initial Claim’ the critical path was running through the top chain of activities and ‘delay x’ was encountered. As no one can predict the future, at the time of the dealay it would be reasonable for everyone involved in the project to assume this is a critical delay and administer the contract accordingly.

Later, changes in the duration of the activities cause the critical path to move (either reduction in the time needed to complete some activities in the top chain or increases in duration in the lower chain, or both). When ‘delay y’ occurs as a ‘Later Claim’, this is also a critical delay based on the schedule at the time of the delay.

However, given the definition of the ‘Critical Path’ is: Generally, it is the longest path through the project. …that determines the duration of the project. The difficult question to answer is what happens to ‘delay x’, it appeared to be critical based on the best information available at the time the delay occurred. But changes over time (and after the time of the initial delay) have shown ‘delay x’ to actually be non-critical.

Certainly based on the Constain’s case, scheduling experts will need to define far more than simply a delay to an activity on the current critical path. As a minimum it will be necessary to show the delay impacted the overall completion and the extent of the impact. It will also be necessary to show the delay caused a general increase in costs for a prolongation claim to be sustained.