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Cost reimbursable contracts – Owner’s recovery of overpayment

Article

Cost reimbursable contracts – Owner’s recovery of overpayment

12th December 2023

Jeff Badman

Partner and European Construction Claims & Expert Services Lead

jeffreybadman@hka.com

+44 7902 108 283

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There are millions of dollars to be recovered by owners from overpaying contractors on cost-reimbursable contracts. The author has been involved in reviewing and assessing extension of time and additional cost claims for owners on several large-scale international engineering, procurement and construction (EPC) contracts where the method of compensation was on a cost-reimbursable basis and found this to be the case.

This article explores how and why this overpayment occurs and what actions owners can take to recover these amounts.

“… to recover any overpayment, the owner will need to demonstrate that the contractor caused the non-compensable critical delays and that it was not entitled to payment of compensation during these periods of delay.”

What is a cost-reimbursable contract?

The nature of a cost-reimbursable contract is that the contractor is reimbursed for its actual costs incurred for engineering, procurement and construction, plus an additional fee to cover the contractor’s overhead and profit. The additional fee is usually in the form of a percentage of its costs or a fixed fee.

Incorporated into these types of contracts, by way of an exhibit or attachment, will usually be a detailed estimate of anticipated costs for the work together with documents that set out which costs are reimbursable and those that are non-reimbursable. The risk of cost increases for these types of contracts rests with the owner rather than the contractor.

The contractor prepares its payment applications for the work undertaken during the periods and provides records to evidence the costs claimed, plus the agreed fee. These applications tend to be very detailed, with the costs entered into the project’s accounts system for the owner to review and approve for payment.

The problem that arises with cost-reimbursable contracts and contractor delay

In addition to the cost risk residing with the owner, another benefit of cost-reimbursable contracts to the contractor is that it can submit what it views to be its reimbursable project costs in its payment application, and then wait for challenges from the owner as to their validity. This is where the problem arises, particularly when it comes to applying for time-related costs during contractor delays.

At the time of preparing its payment applications, there may be multiple ongoing events that are causing delays, some of which may critically impact the completion of the works or milestones dates. It may be uncertain if the contractor will be entitled to an extension of time (full, partial or none) and to what extent the contractor may be responsible for these delays.

In the author’s experience, whilst a contractor may have submitted notices for the events per the provisions in the contract, it is usually slow to submit detailed particulars demonstrating its entitlement to an extension of time. Sometimes, it can be many months before the owner receives these for review and assessment. In the meantime, the contractor will most likely include in its payment application all the time-related costs it has incurred on the basis or future belief that it will be entitled to a full extension of time.

The owner will conduct its payment evaluation based on the cost records submitted by the contractor and records of the work performed. It will then issue the payment certificate based on its evaluation and make the payment to the contractor accordingly. However, in doing so, it is unlikely to take into consideration the extent of any contractor critical delay and to make any adjustment to the associated time-related cost in its evaluation because it may be unknown at that time.  

As remarked above, it may be some months later that the impact of the delays is fully understood, and the contractor submits an extension of time submission to claim relief from liquidated damages. Such claims usually only focus on extension of time, they rarely if ever, identify the contractor’s delays or the contractor’s concurrent delays. It is then left to the owner to perform its own detailed delay analysis to assess the contractor’s entitlement to an extension of time, and the extent of the contractor’s delays and concurrent critical delays, to ascertain the compensable periods of delay.

For example, after assessing the contractor’s extension of time claim, it may be found that the owner is responsible for 40% of the delay period claimed, the contractor for 60%, plus there is 20% contractor critical concurrent delay. From the results of the delay analysis, the contractor would only be entitled to an extension of time of 40% of the delay period, of which only half is compensable, because of the occurrence of the 20% contractor critical concurrent delay.

Depending on the provisions in the contract, the contractor may be exposed to the recovery of liquidated damages by the owner for 60% of the critical delay (up to the limit of liability stated in the contract). But what about the time-related costs during the non-compensable periods (contractor delays and concurrent critical delays), 80% of the delay period, for which the owner may have already paid the contractor its associated time-related costs by way of its regular payments? If the contractor is allowed to retain these costs, the author considers that the contractor would be benefiting from its own delays and breaches.  

Recovery of overpayment

So how does the owner recover any overpayment of time-related costs incurred during periods of non-compensable delay? There are several provisions to look for in the contract that may assist the owner in formulating a contractual position.

The first is a clear expression of the contractor’s liability in respect of its accepted risk events and that it is not entitled to an extension of time, additional cost, or other relief if these occur.

For example:
Save pursuant to an express provision of the contract, the occurrence or effects of any risk borne by the contractor shall not relieve it of any obligation or liability under the contract and the contractor shall not by reason thereof become entitled to any additional payment, extension of time or other relief. Any other such entitlement is excluded.

The second is a condition in the contract terms or compensation exhibit stating that the time-related costs during periods of non-compensable delay are non-reimbursable.

The third is a condition that provides the owner with the ability to correct issued payment certificates.

The fourth is a condition that allows the owner to set off any overpayments against monies due and payable to the contractor.

For example: 
The owner may deduct, withhold, or set off from any payment due or amounts owing to the contractor under this contract any amounts due and payable to the owner under this contract, including any delay liquidated damages, performance liquidated damages or any earlier overpayment to the contractor by the owner.

The final is a non-waiver provision, which prevents an owner’s non-exercise of its contractual rights to recover the overpayments or over-certifying and paying in the first place, as constituting a waiver.

For example:
A failure to exercise or delay in exercising a right or remedy provided by the contract or by law does not constitute a waiver of a right or remedy or a waiver of other rights or remedies. Any waiver of rights arising under or in relation to the contract by either party shall be effective only if contained in a document which is duly signed on behalf of the waiving party and expressly stated to be a waiver under this clause.

The author considers that not having these provisions in the contract is by no means fatal to the owner’s chances of recovering overpayments, but they would certainly go a long way to assisting the process.

From a practical perspective, in terms of identifying and analysing contractor non-compensable delay periods, this can be achieved by the project controls team on a ‘live’ project closely monitoring the progress of the works to capture the critical delays, assigning causational responsibility, and making the appropriate discounts to the contractor’s payments. However, this can be challenging to achieve accurately on a ‘live’ project with multiple delay events that may be ongoing and impacting the schedule, especially if the project controls are not set up to identify these periods to the required level of detail.

Another approach is for the owner to undertake a detailed retrospective analysis once the contractor has submitted its extension of time claim or its own delay analysis periodically, to identify and analyse the critical delays, assign responsibility, and then assess the contractor’s associated time-related cost during the contractor’s critical periods of delay for deduction from the next payment certificate. 

Either way, to recover any overpayment, the owner will need to demonstrate that the contractor caused the non-compensable critical delays and that it was not entitled to payment of compensation during these periods of delay.

Potential legal challenges

It is appreciated that in some jurisdictions there may be legal challenges to the recovery of monies certified and paid to the contractor, and legal advice should be obtained before embarking on recovering any overpaid time-related costs from the contractor. There may be provisions in the law which may also assist the owner in recovering the overpayments in the absence of contractual provisions to support the recovery. 

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About the Author

Jeff Badman (BEng LLB MSc MCIArb) is a legally qualified Civil Engineer with over 30 years of engineering, construction and contract consultancy and claims experience with 11 years gained in the Far East, 16 years in the Middle East and the balance in Europe. Jeff leads the Construction, Claim and Expert Services Group (CCE) for Europe as part of HKA’s wider EMEA Region. He has led contract and claims management commissions on mega projects in the infrastructure, power and utilities, and oil and gas market sectors around globe.

Navigating the Building Safety Act’s position of Principal Designer

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Navigating the Building Safety Act’s position of Principal Designer

23rd November 2023

Paul Jolly

Technical Director

pauljolly@hka.com

T: +44 (0) 20 7618 1305

Expert Profile

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As first published in RIBA Journal 20 Nov 2023

As expectations mount for architects to shoulder the new role of Principal Designer, Paul Jolly analyses the differences with the old regime and considers the pros and cons of taking on this newly introduced responsibility.

On domestic projects, where the client has not appointed a Principal Designer that role falls to the designer of the design phase. Credit: Envelop’s De Beauvoir Square photographed by Helen Leech.

On 1 October the Building etc (Amendment) (England) Regulations 2023[1]The Building etc. (Amendment) (England) Regulations 2023, SI 2023 No.911. came into force, providing further clarity on how the government intends to implement the new regulatory regime introduced under the Building Safety Act 2022[2]Building Safety Act 2022, 2022 Chapter 30., Any project requiring a new Building Regulations application, from domestic house extensions to higher-risk buildings (HRBs), will now require two ‘principal duty holders’ to be appointed: the Principal Designer and the Principal Contractor.

Architects will be familiar with these duty holder titles which were first introduced under the Construction (Design and Management) Regulations 2015[3]The Construction (Design and Management) Regulations 2015, SI 2015 No.51, But the duties and responsibilities for the Principal Designer under CDM (secondary legislation made under the Health and Safety at Work etc. Act 1974)[4]Health and Safety at Work etc. Act 1974, 1974 Chapter 37. are markedly different to those now required of the Principal Designer under the Building Regulations (secondary legislation made under the Building Act 1984[5]Building Act 1984, 1984 Chapter 55. and the Building Safety Act 2022).

What are the key differences?

Under CDM, the primary duty of the Principal Designer is to plan, manage and monitor the pre-construction phase of a project and to co-ordinate matters relating to health and safety[6]Duties of a principal designer in relation to health and safety at the pre-construction phase, paragraph 11.(1).. This is to ensure, so far as is reasonably practicable, that construction projects are designed and managed without risks to the health or safety of those who build, use, and maintain them.

Under the Building Regulations, the Principal Designer is required to ‘plan, manage and monitor the design work during the design phase’[7]Additional duties of a principal designer, paragraph 11M.(1)(a). and to ‘co-ordinate matters relating to the design work comprised in the project so that all reasonable steps are taken to ensure that the design is such that if the building work to which the design relates were built in accordance with that design the building work would be in compliance with all relevant requirements’[8]Additional duties of a principal designer, paragraph 11M.(1)(b).. These relevant requirements are defined, and include those listed in Schedule 1 to the Building Regulations 2010[9]The Building Regulations 2010, Schedule 1, SI 2010 No. 2214 (as amended 2023-09-21)., from Part A – Structure, through to Part S – Infrastructure for the Charging of Electric Vehicles, as well as Regulation 7[10]The Building Regulations 2010, Regulation 7 (Materials and workmanship), SI 2010 No. 2214 (as amended 2023-06-05)., governing materials and workmanship. Materials must be appropriate for the circumstances in which they are used, so as to adequately perform the functions for which they are designed.

In other words, the new Principal Designer duty holder must take ‘all reasonable steps’ to ensure the design work on a project is co-ordinated to demonstrate compliance with the Building Regulations. This reinforces Dame Judith Hackitt’s call for a more ‘robust ownership of accountability’ under her Building a Safer Future[11]Independent Review of Building Regulations and Fire Safety: final report, Cm 9607, May 2018, Dame Judith Hackitt DBE FREng. review, to regulate what was seen as an increasingly fragmented industry with design responsibilities split across multiple parties. Although individual designers remain responsible for the compliance of their own design work, the new Principal Designer will have overall responsibility for co-ordinating the design and must only accept commissions where they have the ‘skills, knowledge, experience, and behaviours necessary to fulfil their duties’[12]Competence: principal designer, paragraph 11G.(1)..

Extra roles and responsibilities

The Building (Higher-Risk Buildings Procedures) (England) Regulations 2023[13]The Building (Higher-Risk Buildings Procedures) (England) Regulations 2023, SI 2023 No.909. contain additional requirements, including the need for a ‘competence declaration’ and a ‘Building Regulations compliance statement’ to be provided as part of an HRB Building Control approval application. The Principal Designer must also ensure an ‘appropriate frequency of inspections’ is planned and carried out during the construction phase to ensure the works are built in accordance with the compliant design.

The RIBA has described this secondary legislation as forming part of arguably the most important regulatory change in the industry since the 1980s[14]Building Safety Act: What architects need to know about new secondary legislation, RIBA, 23 August 2023 (www.architecture.com). While the new Principal Designer role will attract increased liabilities and tougher sanctions, as was the case with CDM in 2015, the amended regime is seen as an opportunity for the profession to ‘step up’ and reassert control over the design phase. The RIBA considers that in the main, architects who are already competent in performing the role of lead designer should be well placed to discharge these new duties and add a further service to their portfolio.

But are architects ready to take on these additional roles and responsibilities? One of the key objectives of the CDM 2015 reforms was to replace the previous CDM Co-ordinator role with that of the Principal Designer, with duties to be performed by ‘an active designer’ with control over the pre-construction phase. The Health and Safety Executive’s declared intention was to place matters relating to health and safety at the heart of the design process and away from the preserve of peripheral Health and Safety Consultants. The lead designer, typically the architect, was seen as being best placed to perform this role. However, uptake in the profession has been limited.

An HSE research report published in June 2023[15]Implementation of the Principal Designer Role within CDM 2015, RR1198 (2023) Research Report prepared by MPW R&R Ltd for the HSE. found that those parties most commonly undertaking the CDM Principal Designer role were health and safety consultants, client advisors and project managers. RIBA members accounted for only 18% of the survey respondents, with the general feedback suggesting that ‘designers and architects did not want to take on the PD role’, seeing health and safety as the contractor’s responsibility. Is it possible we will see similar trends emerging for the new Building Regulations duty holder?


“The government does not expect ‘duplicate duty holders’, and the intention is for both Principal Designer roles to be performed by the same entity to avoid confusion…there is very likely to be increased demand for architects, as lead designers, to also act as the Principal Designer”.

The government has stated, under its recently published Consultation Outcome into the new Building Control Regime, that the parties procuring and undertaking the work in compliance with CDM should be the same as those considering compliance with the Building Regulations[16]Consultation on implementing the new building control regime for higher-risk buildings and wider changes to the building regulations for all buildings, updated 17 August 2023, response 2.7 … Continue reading. It does not expect ‘duplicate duty holders’, and the intention is for both Principal Designer roles to be performed by the same entity to avoid confusion. In this scenario, a ‘non-active designer’ such as a health and safety consultant, would not be suitably qualified to plan, manage, monitor and co-ordinate design work to demonstrate compliance with the Building Regulations. As a consequence, there is very likely to be an increased demand in professional appointments for architects, as lead designers, to also act as the Principal Designer.

Architects must ensure they fully understand their duties and wider obligations before entering into any such agreements. It is also important to understand, as has been the case with CDM, that in instances where a domestic client fails to appoint a Principal Designer, the designer in control of the design phase (most likely an architect) will automatically assume the Principal Designer role[17]Domestic Clients, paragraph 11C.(2).. The Principal Designer will not have to declare that the project has been designed and built in accordance with the Building Regulations, as previously published under (now removed) draft regulations from 2021, but they will have to make a declaration at completion (or partial completion) that they fulfilled their duties as a Principal Designer. The duties to plan, manage, monitor, and coordinate design work will cover all design disciplines and the designs of all elements. On domestic projects, this could include designs for foundations, basement waterproofing, heating systems, drainage, acoustics, and fire alarm systems. On more complex larger developments, the extent of design could extend across multiple designers and specialists.

Larger complex projects and HRBs are more likely to be viable for multi-disciplinary companies, where a broader spread of specialist design knowledge will already be provided in-house. While new technologies and expanding portfolios present opportunities for emerging practices or those looking to expand or diversify into alternative sectors, smaller companies will need to ensure their development plans allow for the requisite growth in competence before accepting new appointments.

Insurance challenges

Obtaining appropriate professional indemnity insurance cover under the current market conditions remains a significant, albeit lessening, challenge. The government has recognised this, and its original intention to impose strict liabilities on designers to ensure compliance have been tempered under the amendments to require ‘all reasonable steps’ to be taken[18]Consultation outcome as above, response 3.97.. While insurance remains a concern across the industry, the government has said it does intend to introduce strict liability duties on designers in the future, subject to consultation with the construction and insurance industries[19]Government response to the consultation on implementing the new building control regime for higher-risk buildings and wider changes to the building regulations for all buildings, clause 1.27. The government is also seeking to shake up the prevailing culture of design and build, in promoting alternative procurement models that use integrated projects insurance (IPI) to encourage collaborative behaviour across project teams[20]Collaborative procurement guidance for design and construction to support building safety, published 10 January 2022 (www.gov.uk)..

The RIBA has launched a ‘Principal Designer Register ‘for architects to demonstrate their competence to perform the roles required under both the Building Regulations and CDM, with a separate tier for those parties competent to perform the more demanding roles required for HRB projects[21]RIBA Principal Designer Register Competence Criteria, RIBA, 25 April 2023. It will be interesting to see over the coming months whether the register promotes a faster uptake for architects becoming Principal Designers than has been experienced to date under CDM. This is a significant opportunity for the profession: if architects remain reluctant to take on these increased responsibilities to lead the design process, no doubt someone else will.

References

References
↑1 The Building etc. (Amendment) (England) Regulations 2023, SI 2023 No.911.
↑2 Building Safety Act 2022, 2022 Chapter 30.
↑3 The Construction (Design and Management) Regulations 2015, SI 2015 No.51
↑4 Health and Safety at Work etc. Act 1974, 1974 Chapter 37.
↑5 Building Act 1984, 1984 Chapter 55.
↑6 Duties of a principal designer in relation to health and safety at the pre-construction phase, paragraph 11.(1).
↑7 Additional duties of a principal designer, paragraph 11M.(1)(a).
↑8 Additional duties of a principal designer, paragraph 11M.(1)(b).
↑9 The Building Regulations 2010, Schedule 1, SI 2010 No. 2214 (as amended 2023-09-21).
↑10 The Building Regulations 2010, Regulation 7 (Materials and workmanship), SI 2010 No. 2214 (as amended 2023-06-05).
↑11 Independent Review of Building Regulations and Fire Safety: final report, Cm 9607, May 2018, Dame Judith Hackitt DBE FREng.
↑12 Competence: principal designer, paragraph 11G.(1).
↑13 The Building (Higher-Risk Buildings Procedures) (England) Regulations 2023, SI 2023 No.909.
↑14 Building Safety Act: What architects need to know about new secondary legislation, RIBA, 23 August 2023 (www.architecture.com
↑15 Implementation of the Principal Designer Role within CDM 2015, RR1198 (2023) Research Report prepared by MPW R&R Ltd for the HSE.
↑16 Consultation on implementing the new building control regime for higher-risk buildings and wider changes to the building regulations for all buildings, updated 17 August 2023, response 2.7 (www.gov.uk).
↑17 Domestic Clients, paragraph 11C.(2).
↑18 Consultation outcome as above, response 3.97.
↑19 Government response to the consultation on implementing the new building control regime for higher-risk buildings and wider changes to the building regulations for all buildings, clause 1.27
↑20 Collaborative procurement guidance for design and construction to support building safety, published 10 January 2022 (www.gov.uk).
↑21 RIBA Principal Designer Register Competence Criteria, RIBA, 25 April 2023

Rudi Dedushaj joins HKA as Director in the EMEA Economics Consulting Practice

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Rudi Dedushaj joins HKA as Director in the EMEA Economics Consulting Practice

16th November 2023

HKA, a leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services, announces its second appointment in the recently launched Economics Consulting Practice in EMEA. This follows swiftly on from the appointment of Chris Williams as the Partner leading this new service line discipline.

“As we develop our new practice focused on the economic expert witness dispute market, we are rapidly building our team and capabilities. Rudi is a fantastic hire and I look forward to working with him to support our clients. He brings significant experience across the competition economics field, and with a particular focus on financial services”

Chris Williams – Partner, Economics

Rudi is an experienced consultant, with more than 10 years of experience working on commercial disputes, class actions and competition claims. He brings significant expertise with a focus on competition economics and financial services. He has advised clients and led on the economic analysis in a number of significant matters, including on disputes, regulatory and advisory matters. Rudi also brings experience in the practical application of economics to regulatory and legal proceedings, shaping the economic analysis around solid economic principles and frameworks. Prior to consulting, he held roles with the UK’s competition and consumer regulators, where he led on the economic analysis in high-profile matters, such as the Financial Conduct Authority’s first intervention under the Competition Act.

Rudi holds an MSc in Economics.

Rudi said: “I am very excited to join HKA as it looks to develop an economic consulting practice. We have exciting plans for growth, and I look forward to supporting our clients. Together with Chris Williams and HKA colleagues, we will look to embed high-quality economic analysis across both disputes and advisory services.”

ABOUT HKA

Headquartered in the UK, HKA is a leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services.

HKA brings a proud record of excellent service and high achievement to bear on today’s challenges. As trusted independent consultants, experts and advisers, we help clients manage disputes, risk and uncertainty on complex contracts and challenging projects. Our advice is impartial, incisive and authoritative.

We work with government agencies, local authorities, contractors, legal firms, and other professional service providers, as well as owners and operators, financial institutions and insurers. HKA’s global portfolio includes some of the world’s largest and most prestigious commissions across a wide range of industries, including aerospace and defence, buildings, energy and natural resources, environment and climate change, financial services, healthcare and life sciences, industrial and manufacturing, marine and shipping, mining and metals, oil and gas, power and utilities, real estate and tourism, sports and entertainment, technology, media and telecomms and transportation infrastructure.

HKA has in excess of 1,000 experts, consultants and advisors across 45+ offices in 17 countries with the skills and experience that are essential to get to the heart of even the most complex issues. Our people have vast first-hand experience spanning all major industries and the world’s most complex megaprojects, as well as an international track record of achieving successful outcomes.

For more information about HKA, visit hka.com and connect with us on LinkedIn, X (formerly Twitter, @HKAGlobal) and Facebook.

Media contact:

NameSuzanne Rayson
TitleMarketing & Communications Director, Europe
Number+44 1928 756 500
EmailSuzanneRayson@hka.com

Chris Williams joins HKA as Economics Partner in London

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Chris Williams joins HKA as Economics Partner in London

8th November 2023

HKA, a leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services, announces the launch of its Economics Practice in EMEA with the appointment of Chris Williams who joins as Partner based in London. As part of the wider Forensic Accounting and Commercial Damages (FACD) offering, the development of this new service line practice is the next step in the firm’s exciting growth journey.

“We are delighted to welcome Chris to the FACD team in EMEA. The development of an economics practice further widens our service offering in this space, and Chris’ expertise will be invaluable in enhancing and delivering a first class service to our clients.”

Amanda Clack – Partner and Regional CEO, EMEA

Chris brings more than 25 years of experience to his role and is an experienced expert economist who has provided evidence and testimony to a wide range of courts on numerous occasions, including International Arbitration Tribunals (investor state and commercial), as well as High Courts, Competition Courts and Judicial / Parliamentary Review proceedings across multiple jurisdictions. Chris also has extensive commercial and advisory experience of the practical application of economics for corporate and public sector clients in many sectors of the economy; including telecoms, media, technology, financial services and the wider data landscape.

“Chris brings additional capabilities to our rapidly growing partner team of financial and economic experts in EMEA. Chris’ impressive track record will undoubtedly make a significant impact as we continue to expand and pursue our ambitions and agenda for growth.”                  

Colin Johnson – Partner and FACD Lead, EMEA

Chris holds PhD, MSc and BA degrees from the University of Warwick and London School of Economics and will shortly be commencing a visiting professorship at a UK University. 

Prior to joining HKA, Chris has been a partner and held senior leadership positions within the economics practices at KMPG, Deloitte, Alvarez & Marsal, and most recently at Grant Thornton.

Chris said: “It’s an absolute pleasure to be developing an economics practice alongside a group of renowned dispute experts.  The opportunities to work together to provide a full service to best serve our clients are close to endless.”

ABOUT HKA

Headquartered in the UK, HKA is a leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services.

HKA brings a proud record of excellent service and high achievement to bear on today’s challenges. As trusted independent consultants, experts and advisers, we help clients manage disputes, risk and uncertainty on complex contracts and challenging projects. Our advice is impartial, incisive and authoritative.

We work with government agencies, local authorities, contractors, legal firms, and other professional service providers, as well as owners and operators, financial institutions and insurers. HKA’s global portfolio includes some of the world’s largest and most prestigious commissions across a wide range of industries, including aerospace and defence, buildings, energy and natural resources, environment and climate change, financial services, healthcare and life sciences, industrial and manufacturing, marine and shipping, mining and metals, oil and gas, power and utilities, real estate and tourism, sports and entertainment, technology, media and telecomms and transportation infrastructure.

HKA has in excess of 1,000 experts, consultants and advisors across 45+ offices in 17 countries with the skills and experience that are essential to get to the heart of even the most complex issues. Our people have vast first-hand experience spanning all major industries and the world’s most complex megaprojects, as well as an international track record of achieving successful outcomes.

For more information about HKA, visit hka.com and connect with us on LinkedIn, X (formerly Twitter, @HKAGlobal) and Facebook.

Media contact:

NameSuzanne Rayson
TitleMarketing & Communications Director, Europe
Number+44 1928 756 500
EmailSuzanneRayson@hka.com

Nick Panes joins HKA as Investigations Partner in the Forensic Accounting and Commercial Damages Practice

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Nick Panes joins HKA as Investigations Partner in the Forensic Accounting and Commercial Damages Practice

11th October 2023

HKA, the leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services, announces a significant hire in its Forensic Accounting and Commercial Damages (FACD) practice, as Nick Panes joins the firm to focus on investigative, political risk, business intelligence, and regulatory compliance assignments.

Based in London, Nick will support client delivery across the EMEA region, working alongside the fast-growing Forensic Accounting and Commercial Damages Partner team.   

“I am thrilled to welcome Nick to our EMEA Partner team as he brings a wealth of experience and a highly regarded reputation in investigations from around the world to our FACD offering. Collectively having acted on over $300bn worth of cases, and with 12 WWL Thought Leaders or Global Elite Thought Leaders on board, our FACD practice continues to go from strength to strength globally and Nick will be instrumental as part of this strategic growth strategy.”

Amanda Clack – Partner and Regional CEO, EMEA

Nick brings more than 20 years of experience focusing on complex, multi-jurisdictional matters, with his career split between investigations, post-event problem-solving, and risk management consultancy across a wide range of sectors and geographies, including postings in Mexico City, New Delhi, Sydney and London. In addition to event and compliance-driven investigations, Nick has been engaged in the development of governance structures – including the application of associated risk identification, evaluation, and mitigation measures – to minimise his clients’ risk exposure.

He has worked across the full spectrum of projects, from strategic advisory work to tactical support. Previous projects have included designing and implementing risk management systems across multiple industries, conducting and managing complex and sensitive investigative matters on behalf of clients, and the design and implementation of pre-transaction due diligence and anti-corruption risk assessment tools to bolster organisational resilience.  Nick also has extensive experience in strategic business intelligence and stakeholder mapping for energy and infrastructure projects in Africa, Latin America and South Asia, asset tracing and recovery assignments across multiple jurisdictions, fraud and corruption risk assessments across several sectors, and anti-money laundering audits to ensure compliance with the relevant national financial authorities’ statutory requirements.

“With a global forensic accounting and commercial damages practice of over 140 people and, within that, a growing team of 8 Partners in our EMEA region, it is time to expand into the investigations space in Europe, and Nick is perfectly positioned to do that. His work in Asia, Africa, the Middle East and Latin America, as well as Europe, will enable him to work alongside colleagues around the world to further develop our global investigations practice.”                   

Colin Johnson – Partner and FACD Lead, EMEA

Nick was rankedin the Political Risk category by Chambers & Partners in their Crisis & Risk Management Guide 2021 and 2022; is a Member of the Association of Certified Anti-Money Laundering Specialists (ACAMS); a Member of the Association of Certified Sanctions Specialists (ACSS) and has Certificate III in Investigative Services and Certificate IV in Government (Fraud Control).

Prior to joining HKA, Nick was with J.S. Held, Charles River Associates and for over 18 years at Control Risks.

Nick said: “I am delighted to be joining HKA and the FACD team at an exciting time in the firm’s growth story. I very much look forward to working with colleagues across the group to support their existing teams, bring additional capabilities and generate new opportunities.

View Nick’s full expert profile

ABOUT HKA

HKA is a leading global consultancy in risk mitigation and dispute resolution, using our multi-disciplinary expertise to provide a comprehensive set of specialist services:

  • Expert, Claims and Advisory services for the capital projects and infrastructure sector
  • Forensic Accounting and Commercial Damages services for all types of contracts, including commercial and investment treaty disputes.
  • Consulting services to support companies working on US Federal Government contracts.

Headquartered in the UK, HKA brings a proud record of excellent service and high achievement to bear on today’s challenges. As trusted independent consultants, experts and advisers, we help clients manage disputes, risk and uncertainty on complex contracts and challenging projects.

We work with government agencies, local authorities, contractors, legal firms, and other professional service providers, as well as owners and operators, financial institutions and insurers. Clients have access to leaders and problem-solvers who decode complexity through collaborative working and innovative thinking, making the best possible outcomes a reality for our clients, every time.

As well as more than 500 expert witnesses, HKA now has in excess of 500 advisors and consultants – across 40+ offices in 18 countries – with the skills and experience that are essential to get to the heart of even the most complex issues. Our people have vast first-hand experience spanning all major industries and the world’s most complex megaprojects, as well as an international track record of achieving successful outcomes.

HKA’s global portfolio includes some of the world’s largest and most prestigious commissions across a wide range of industries including buildings, industrial and manufacturing, power and utilities, resources, transportation infrastructure, technology, financial services, government contracts and non-profit.

Media contact:

NameSuzanne Rayson
TitleMarketing & Communications Director, Europe
Number+44 1928 756 500
EmailSuzanneRayson@hka.com

Patrick Hébréard joins HKA as Partner in the Forensic Accounting and Commercial Damages practice, based in Paris

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Patrick Hébréard joins HKA as Partner in the Forensic Accounting and Commercial Damages practice, based in Paris

11th September 2023

HKA, a leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services, announces today that it has made another senior appointment in its Forensic Accounting and Commercial Damages (FACD) practice, as Who’s Who Legal Global Elite Thought Leader, Patrick Hébréard, joins the firm as Partner based in Paris working alongside six other Partners in the firm’s EMEA region.

Patrick has 20 years of experience acting as expert witness and adviser in the energy industry and has been appointed as testifying expert in many complex and high value arbitration proceedings. Specialising in international arbitration, Patrick has  assisted major companies and leading law firms in various regions across the world, including Europe, Africa, Middle East and South America. He has worked on large and complex cases where damages claimed have exceeded $1bn.

“I am thrilled to welcome Patrick, a highly experienced commercial damages and international arbitration expert, to our team based in Paris. With six FACD Partners now in post across EMEA along with a growing support team, our FACD practice is moving quickly to achieve its ambitions and growth agenda in this space, and to which Patrick’s wealth of experience will be invaluable.”

Amanda Clack – Partner and Regional CEO, EMEA

Patrick acts as a commercial damages expert and also as an energy industry expert, providing opinion on industry practice and market standard regarding contracts and project development, notably in relation to supply contracts, transportation matters, market dynamics and infrastructure development. He has been working recently on various matters in different regions of the world: the termination of a gas pipeline concession agreement in South America, the termination of a hydropower plant project in Southern Europe, a litigation in France over Force Majeure in a power sales contract during the Covid pandemic, a LNG price review in Southern Europe, a maritime border dispute in Africa, a gas pricing dispute in South East Asia, and the termination of a gas transportation contract in South East Asia.

In addition to his work as expert witness, during his career Patrick has also acquired significant experience of the gas/LNG and power markets and has negotiated multiple long-term supply and purchase, transportation and tolling agreements. Having acted as buyer, seller, producer, shipper, regasification capacity holder, pipeline operator and shareholder, he enjoys a broad and unique perspective on the commercial, contractual, regulatory and financial issues at play.

“Patrick provides further capabilities to our rapidly growing bench of world class financial and economic experts.  His depth of experience in the energy sector, including for gas pricing disputes, and ability to testify in three different languages (English, French and Spanish) are immensely valuable.”

Colin Johnson – Partner and FACD Lead, EMEA

Patrick is a trained engineer with a Master of Science, specialised in Energy and Aeronautics. He also holds a Master’s degree in Marketing and a Master’s degree in Arbitration Law.

Patrick is fluent and works in English, French and Spanish.

View Patrick’s full expert profile

Patrick said: “I am very pleased to join the team at HKA where I will be focusing on the energy sector, in both disputes and the advisory side. I am very excited to be part of the ambitious development of our expert dispute practice in EMEA and to be working with such an amazing group of talented and experienced professionals.”

ABOUT HKA

HKA is a leading global consultancy in risk mitigation and dispute resolution, using our multi-disciplinary expertise to provide a comprehensive set of specialist services:

  • Expert, Claims and Advisory services for the capital projects and infrastructure sector
  • Forensic Accounting and Commercial Damages services for all types of contracts, including commercial and investment treaty disputes.
  • Consulting services to support companies working on US Federal Government contracts.

Headquartered in the UK, HKA brings a proud record of excellent service and high achievement to bear on today’s challenges. As trusted independent consultants, experts and advisers, we help clients manage disputes, risk and uncertainty on complex contracts and challenging projects.

We work with government agencies, local authorities, contractors, legal firms, and other professional service providers, as well as owners and operators, financial institutions and insurers. Clients have access to leaders and problem-solvers who decode complexity through collaborative working and innovative thinking, making the best possible outcomes a reality for our clients, every time.

As well as more than 500 expert witnesses, HKA now has in excess of 500 advisors and consultants – across 40+ offices in 18 countries – with the skills and experience that are essential to get to the heart of even the most complex issues. Our people have vast first-hand experience spanning all major industries and the world’s most complex megaprojects, as well as an international track record of achieving successful outcomes.

HKA’s global portfolio includes some of the world’s largest and most prestigious commissions across a wide range of industries including buildings, industrial and manufacturing, power and utilities, resources, transportation infrastructure, technology, financial services, government contracts and non-profit.

Media contact:

NameSuzanne Rayson
TitleMarketing & Communications Director, Europe
Number+44 1928 756 500
EmailSuzanneRayson@hka.com

India-CRUX Construction Dispute Causation Series Part V: Late Approvals

Article

India-CRUX Construction Dispute Causation Series Part V: Late Approvals

29th August 2023

Anand Udayakumar

Managing Consultant, HKA

anandudayakumar@hka.com

Payel Chatterjee

Partner, Trilegal

payel.chatterjee@trilegal.com

Aman Singhania

Senior Associate, Trilegal

aman.singhania@trilegal.com

Shuchita Choudhry

Senior Associate, Trilegal

shuchita.choudhry@trilegal.com

DOWNLOAD ARTICLE (PDF)

HKA-Trilegal Joint Publication

CRUX is HKA’s integrated research program which provides unprecedented insight into the common claim and dispute causation factors for engineering and construction projects on a sectoral and regional basis.

At present, the CRUX database encompasses more than 1,600 projects in 100 countries (including India) representing a total capital expenditure of more than US$2.13 trillion.  An interactive dashboard has been developed which allows the user to search by region and sector.

This publication series focuses on the top claim and dispute causative factors, prevalent in the Indian project landscape.

Previously, we have discussed in Part I Change in Scope, Part II Access Issues, Part III Unforeseen Physical Conditions, Part IV Late Materials or Product Deliveries. In the remaining parts of the series, HKA together with renowned Indian law firms will present topics on design issues, poor subcontractor/supplier management, spurious claims, cashflow and payment issues, and contract management and/or administration failures.

This Part V of the ten-part series focuses on ‘Late Approvals’ as HKA’s CRUX Report identifies this to be a main cause of claims and disputes on projects and covers potential triggers for Late Approvals, guidance on how to manage these challenges and legal stance/position under Indian law.

Potential Triggers

At a high-level, triggers for Late Approvals include:

  • Design changes and revisions
  • Weather and environmental considerations
  • Stakeholder conflicts and objections
  • Financial challenges, including sourcing funding or cash flow issues
  • Inadequate planning and coordination
  • Legal and regulatory disputes
  • Infrastructure limitations
  • lack of guarantees or warranties for the duration required
  • Non-inclusion of the employer’s approved vendor or subcontractor list
  • Employer unfamiliar with proposed material and requires greater documentation and testing data
  • Late inspections and factory visits to view source materials, samples and facilities
  • Project complexity and size
  • Resource constraints
  • Lack of experience/proper understanding of the applicable approval process
  • Complications in procuring technically compliant samples and later ensuring product/material compliance
  • Changing material specifications
  • Improper scheduling/deviation from a functional schedule
  • Subcontractor-related delays, including late and insufficient submission of required documents (not limited to technical ones)

For clarity, we have attempted to focus on Late Approvals for which the employer is responsible, including in situations where statutory/governmental approvals fall within the employer’s domain. Though statutory/government approvals are highly integral in construction projects, for this article we do not delve into contractor’s remedies (if any) in the event of Late Approvals caused by statutory/government authorities.

Managing Late Approvals

From the contractor’s perspective, it is integral to consider the guidance provided below on the pre-execution and execution stages of the project while providing due consideration to the above triggers.

Pre-Execution Stage

The starting point for the contractor at the tendering stage and on a project-specific basis is to map out all approvals required to be obtained before, during and after execution and attribute party responsibility (which could include subcontractors/ suppliers). In addition, the contractor should understand the timing for initiating the approval process, the procedure to be complied with and the potential duration for obtaining the approval(s).

Lessons learnt from previous projects where complications were encountered during the approvals processes should be applied. Based on these, the contractor should be able to identify approvals which can impact the project’s progress. In addition, proactive management of approvals will require the contract to detail a workable/practical process to prevent occurrences or prolonged continuance of Late Approvals.

In parallel, the contractor should lay importance on remedies available should Late Approvals occur. Remedies are to be approached from a time and cost perspective and could be encompassed in provisions relating to extension of time, non-imposition of liquidated damages, award of additional cost, and damages on account of breach of contract.

There may also be material sample and/or prototype requirements which may need to be sourced from the contractor’s proposed supply chain, which will require proper identification of capable subcontractors/suppliers, including backup options.

This could also set the stage for suggesting an expedited or fast-track approval process where practical/possible, which could include reliance on a pre-approved list of subcontractors/vendors, plant, and materials.

Execution stage

To ensure proactive management at this stage, the contractor should maintain approvals register to track/prevent Late Approvals. Moreover, establishing clear lines of communication with all stakeholders (including the employer) and adherence to the contractually prescribed approval process and concerned timelines. This includes regular notifications, updates, and status reports of each approval process, including addressing difficulties encountered, and mitigation measures deployed.

Given further insight at this stage, the contractor could engage in pre-emptive identification of potential approval issues through a detailed assessment of project design, plans and documentation, to prevent Late Approvals. Particularly important are the direct consequences stemming from Late Approvals, including cascading effects on design coordination, delayed project schedule, increased costs, workflow disruption and productivity loss.

The contractor should ensure remedies are sought in a timely and contractually compliant manner while fully recording the collateral impact resulting from Late Approvals attributable to the employer.

The legal position in India

The Indian construction sector is highly regulated by numerous national and state laws, rules and regulations, codes, by-laws etc. Contractual approvals include approvals relating to designs, drawings, materials etc. Statutory obligations regarding approvals include obtaining approvals/ licenses/ permits such as environmental clearances, municipal approvals, fire safety clearances, traffic police clearances, approvals for utility connections, electric supply, etc. from different government authorities. 

Late Approvals in Standard Form Contracts

The construction industry in India is driven by the Government authorities such as the National Highways Authority of India (“NHAI”), Central and State Public Works Departments (“CPWD/SPWD”) etc. as the Employer/Owner (directly or indirectly).  Such Government authorities employ their standard form contracts, often influenced by FIDIC, ICE, IIA etc., as per their departmental requirements for various projects, especially roads, airports, railways, and ports[1]See: Construction & Engineering Laws and Regulations Report 2022-2023 India (iclg.com); Construction And Engineering 2021 – Construction & Planning – India (mondaq.com).

Specifically, in the Indian context and based on our experience, we note that approvals which the employer must provide are likely to relate to design, materials, change orders, payment, inspection, safety, subcontractor and completion. Any delay in granting such approvals by the employer is usually addressed by one or a combination of: (a) grant of extension of time, (b) compensation/ damages; and (c) right to termination, in favour of the contractor[2]Ibid.

Rights, remedies, and obligations of the contractor under Indian Law

In India, the rights, remedies and obligations of the contractor in a situation of Late Approvals are broadly governed under the Indian Contract Act, of 1872 (“Contract Act”)[3]Section 51 to Section 55 of the Indian Contract Act, 1872..

Typically, the first remedy of extension of time is usually granted in favour of the contractor without major contentious disagreement[4]Government of Madhya Pradesh v. Khusiram & Co., 1995(2) Arb LR 13 (DB) (MP). The contractor may also treat the prevention of performance as a repudiation of the contract on the part of the employer. In contracts where time is of the essence (i.e., where contractual duration is prescribed), failure of the employer to perform a mutual obligation would make the contract voidable at the contractor’s option[5]G.M. Northern Rly. Vs. Sarvesh Chopra, (2002) 4 SCC 45: AIR 2002 SC 1272..

On the other hand, where time is not of the essence, the contractor would generally only be entitled to compensation for any losses incurred on account of the delay by the employer[6]Ibid..  However, in some cases, the contractor can still seek termination if the approval is not obtained by the employer within a reasonable time, despite advance notice to perform within such reasonable time[7]M/S. Arosan Enterprises Ltd vs Union Of India & Anr. [1999] 9 SCC 449..

Please note that a contractor’s acceptance of belated performance by the employer would lead to waiver of the contractor’s right to void the contract and/or claim compensation,[8]Kalparaj Dharamshi v. Kotak Investment Advisors Ltd, 2021 SCC OnLine SC 204. unless, at the time of such belated acceptance, the contractor gives due notice of his intention to claim compensation.[9]Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015). Notably, under the Indian legal regime, while the contractor can choose to waive its right against Late Approval by the employer, it may not be legally permissible for the contractor to perform its obligations when statutory approval is required and pending[10]Section 15 of Environment Protection Act, 1986..

As a rule, these remedies in the event of default of an employer are subject to the terms of the contract entered between the parties. These contracts however need to be viewed through the lens of an Indian backdrop wherein government contracts are more favourable to the employer with less room for negotiation.

This leads to wide exclusionary clauses absolving the employer of any responsibility even if the delay is attributable to the employer. Private employers in India have also adopted such standard forms of government contracts which would allow no claim for damages by the contractor. Given the lack of a level-playing field and unequal bargaining power, Arbitral Tribunals and Courts in recent times have stepped in to carve out exceptions to such exclusionary clauses to avoid undue hardships for contractors.

Claim for damages despite exclusionary clauses?

In India, courts usually do not enforce, and strike down unfair, one-sided, and unreasonable contract/clauses entered between parties who are not equal in their bargaining power at the time of contract[11]Central Inland Water Transport Corporation v. Brojo Nath Ganguly , AIR 1986 SC 1571; Hindustan Construction Company Limited v. Tamil Nadu Electricity Board, 2005(1) Arb LR 41 (Mad) (DB); R.B. … Continue reading). Thus, an exclusionary clause which holds the employer unaccountable even for significant delays in approvals is likely to be disregarded while granting compensation to the contractor for the same[12]Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354 (SC); N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43 (SC).. In cases of significant delay attributable solely to the employer, a contractor is held entitled to damages, notwithstanding an exclusionary clause[13]N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43 (SC)..

Proof of damages?

As regards a claim of compensation by the contractor for breach of contract or delay (including Late Approvals), the contractor claiming such compensation would have to prove the loss and damage sustained by it[14]Section 73 of the Contract Act. on account of such breach/delay[15]Essar Procurement Service Ltd. v. Paramount Constructions 2016 SCC Online Bom 9697; Ajay Singh v. Suneel Darshan 2015 SCC Online Bom 1412; Maharashtra State Electricity Board v. Sterlite Industries … Continue reading.

Approach of Indian Courts and Arbitral Tribunals on Late Approvals

Indian courts have recognized that Late Approvals by employers can have a significant impact on the implementation of construction projects. Indian courts and arbitration tribunals often weigh in the factors responsible towards the delay, carefully examine the provisions related to approvals, time extensions, liquidated damages, and force majeure, in the contractual documents as well as consider the intent of the parties and then allocate responsibility for the delays. These decisions are often based on the specific terms of the construction contract and the circumstances surrounding Late Approvals. The outcomes and judgments can vary depending on the specific facts and contractual provisions on a case-to-case basis. 

In several cases where delay was attributable to an employer, courts have granted contractors extensions of time and awarded compensation[16]Union of India vs. Glove Civil Projects Pvt. Ltd., O.M.P. (COMM) 511/2022 – Decided on April 18, 2023 The Delhi High Court interestingly noted that the employer took an argument that the … Continue reading; and even ordered refund of liquidated damages imposed while holding that imposition of liquidated damages by the employer is illegal[17]Dedicated Freight Corridor Corporation of India Ltd. vs. Soma Enterprises Ltd, 2016 SCC OnLine Del 4262.

However, it may be noted that in several instances, where delay in statutory approvals occurs despite the employer’s utmost diligence, timely completion of formalities, making of applications with third parties/ government authorities, etc, Courts take a liberal approach and do not impose liability on the employer for delay beyond the control of the employer[18]Bhopal Sanchi Highways Private Limited vs. National Highways Authority of India, O.M.P. (COMM) 263/2019 – Decided on May 26, 2023. 

Conclusion

Timely approvals and clearances go to the root of the execution of any construction project. Late Approvals have the potential to derail contract schedules, smooth operations and relationships between parties.

The contractor needs to bear in mind that each instance of Late Approval could be linked to diverse causation factors, which may or may not run concurrently, and could be interlinked or independent of different issues between stakeholders.  Given this, the contractor should adopt a proactive and systematic strategy to counter the adverse impact stemming from Late Approvals, ensure that suitable remedies are incorporated in the contract, along with seeking remedies promptly to secure any entitlement due. These remedies in India normally include one or more of the following:

  • Extension of time for completion of the project;
  • Change in milestones dates as well as payment milestones under the contract;
  • Termination of the contract; and
  • Liquidated as well as unliquidated damages upon proof of actual damage and loss.

ABOUT HKA

HKA is the world’s leading consultancy of choice for multi-disciplinary experts and specialist services in risk mitigation and dispute resolution within the capital projects and infrastructure sector. We also have experience advising clients on the economic impact of commercial and investment treaty disputes, forensic accounting matters and privacy governance and compliance. In addition, HKA supports companies that conduct business with the US Federal Government, providing them with consulting services on complex government contracting matters.

As trusted independent consultants, experts and advisors, we deliver solutions amid uncertainty, dispute and overrun, and provide the insights that make the best possible outcomes a reality for public and private sector clients worldwide.

HKA has over 1,000 consultants, experts and advisors in more than 40 offices across 18 countries.

ABOUT TRILEGAL

Trilegal is a top-tier full-service law firm with offices in Bengaluru, Delhi, Gurugram and Mumbai. The Firm has been consistently recognised as the best Indian law firm for the quality of our services and client satisfaction.

With an expansive portfolio of expertise in domains including Corporate, Disputes, Projects and Capital Markets, the Firm has represented clients on many complex and high-value transactions in India.

Trilegal comprises over 800 lawyers, who are led by 104 partners. The Firm’s combination of its culture, depth of transactional experience, range of expertise and the quality and energy of its lawyers allows it to offer a level of client service that is unique in the Indian legal market.

References

References
↑1 See: Construction & Engineering Laws and Regulations Report 2022-2023 India (iclg.com); Construction And Engineering 2021 – Construction & Planning – India (mondaq.com)
↑2 Ibid
↑3 Section 51 to Section 55 of the Indian Contract Act, 1872.
↑4 Government of Madhya Pradesh v. Khusiram & Co., 1995(2) Arb LR 13 (DB) (MP
↑5 G.M. Northern Rly. Vs. Sarvesh Chopra, (2002) 4 SCC 45: AIR 2002 SC 1272.
↑6 Ibid.
↑7 M/S. Arosan Enterprises Ltd vs Union Of India & Anr. [1999] 9 SCC 449.
↑8 Kalparaj Dharamshi v. Kotak Investment Advisors Ltd, 2021 SCC OnLine SC 204.
↑9 Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015).
↑10 Section 15 of Environment Protection Act, 1986.
↑11 Central Inland Water Transport Corporation v. Brojo Nath Ganguly , AIR 1986 SC 1571; Hindustan Construction Company Limited v. Tamil Nadu Electricity Board, 2005(1) Arb LR 41 (Mad) (DB); R.B. Jodhamal v. State, 2005(1) Arb LR 534 (J&K
↑12 Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354 (SC); N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43 (SC).
↑13 N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43 (SC).
↑14 Section 73 of the Contract Act.
↑15 Essar Procurement Service Ltd. v. Paramount Constructions 2016 SCC Online Bom 9697; Ajay Singh v. Suneel Darshan 2015 SCC Online Bom 1412; Maharashtra State Electricity Board v. Sterlite Industries (India) Ltd 2000 SCC Online Bom 89.
↑16 Union of India vs. Glove Civil Projects Pvt. Ltd., O.M.P. (COMM) 511/2022 – Decided on April 18, 2023 The Delhi High Court interestingly noted that the employer took an argument that the employer is not liable to pay any damages/ compensation as they have granted extension of time within which the works were completed, and the contractor has also issued a no claim certificate/ undertaking. In this respect, the arbitral tribunal observed that “It is noteworthy that when the contract works get prolonged beyond the stipulated date of completion, inter-alia, due to Late Approvals and grant of extension of time by the employer, without levy of liquidated damages, such as in the present case, the demand of the employer has been that till such time a no claim certificate/ undertaking is tendered by the contractor, final bill shall not be paid, which is itself a circumstance to show that the contractor succumbed to the pressure of the employer.  That is also the position when the Claimant tendered the other undertakings at the time when Respondent granted EOT.
↑17 Dedicated Freight Corridor Corporation of India Ltd. vs. Soma Enterprises Ltd, 2016 SCC OnLine Del 4262
↑18 Bhopal Sanchi Highways Private Limited vs. National Highways Authority of India, O.M.P. (COMM) 263/2019 – Decided on May 26, 2023

Enforceability of Multi-Tiered Dispute Resolution Clauses Revisited in the Court of Appeal

Article

Enforceability of Multi-Tiered Dispute Resolution Clauses Revisited in the Court of Appeal

9th August 2023

Mark Dixon

Partner

markdixon@hka.com

T: +44 (0)7979 850684

Expert Profile

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Multi-tiered dispute resolution clauses are an increasingly common feature in high-value domestic and international construction and engineering contracts. That is not surprising because, if such a provision can facilitate early settlement of a dispute, the time and cost savings to the parties can be substantial.

Difficulties may arise, however, where the parties do not take sufficient care in drafting bespoke clauses. This can lead to a provision that is found to be unenforceable and, ultimately, having the opposite effect of what might have been subjectively intended by increasing the time and cost incurred in resolving a dispute.

One such example of where things can go wrong is considered in the recent Court of Appeal case Kajima Construction Europe (UK) Limited and Kajima Europe Limited v Children’s Ark Partnership [2023] EWCA Civ 292, where Lord Justice Popplewell described [at 121] the tiered dispute resolution provisions as being:

“a clumsy adoption of particular terms from a head contract into a sub-contract”

Although the case settled shortly after the appeal hearing, the judgement was nonetheless handed down because some of the points raised were of general importance.

Background to the case: Kajima Construction Europe (UK) Limited and Kajima Europe Limited v Children’s Ark Partnership [2023] EWCA Civ 292

Brighton and Sussex University Hospital NHS Trust (“the Trust”) engaged Children’s Ark Partnership (“CAP”) in 2004 to design, build and finance the redevelopment of the Royal Alexandra Hospital for Sick Children in Brighton (“the Project Agreement”). This was a PFI Project. CAP in turn engaged Kajima Construction Europe (UK) Limited (“Kajima”) to design, construct and commission the Hospital (“the Construction Contract”).

As was the case with many buildings in the UK, the Grenfell Tower tragedy in 2017 caused checks to be undertaken in respect of cladding and fire-stopping works at the Hospital. Concerns were identified and notified to Kajima, who agreed to carry out remedial works without any admission of liability. The remedial works commenced in December 2018 and were ongoing until early 2022. 

The Project Agreement contained a ‘Dispute Resolution Procedure’ (“DRP”), which provided that any disputes under the Project Agreement shall in the first instance be referred to the Liaison Committee and that any decision of the Liaison Committee shall be final and binding unless otherwise agreed by the parties. By clause 68, any entitlement to refer disputes to the courts of England and Wales for final resolution was “subject to” the provisions of the DRP.  The Liaison Committee comprised three representatives each from the Trust and CAP. The role and functions of the Liaison Committee—along with the procedures and practices to be followed—were set out in some detail in clauses 12.1 to 12.11 inclusive.  Notably, clause 12.2(c) provided that one of its functions was to provide a means of resolving disputes “amicably” pursuant to the DRP, and clause 12.3 provided that the overarching role of the Liaison Committee was to make recommendations, which the parties may at their complete discretion either accept or reject. 

In the Construction Contract, the meaning of ‘the Liaison Committee’ was defined by reference to clause 12 of the Project Agreement but, materially, clause 12 in the Construction Contract was in a very different form, such that clause 12.1 simply provided that Kajima was to provide such assistance as may reasonably be necessary to assist CAP in respect of ‘Work’ related matters under the Project Agreement that may be considered by the Liaison Committee. Significantly, clauses 12.2 to 12.11 inclusive were labelled “[Not Used]”. Notwithstanding this, both clause 68 and the DRP itself were incorporated into the Construction Contract in identical terms to that of the Project Agreement.

During the period of the remedial works being carried out by Kajima there was no progress made in resolving liability, or referral of any dispute to the Liaison Committee pursuant to the DRP.  The parties had the foresight, however, to extend the limitation of liability period under the Construction Contract to 29 December 2021. In early December 2021, the parties were discussing the possibility of further extending the limitation period, but no agreement was reached. In the circumstances, CAP elected to issue a Claim Form on 21 December 2021 against Kajima arising out of the alleged defects and on 3 February 2022 it applied for a stay in the proceedings in order to comply with the DRP. On the same day, Kajima applied to set aside or strike out the Claim Form on the grounds that CAP had not first complied with the DRP. 

Pausing there, it is relevant to note that, if Kajima had succeeded in its application, it is likely that CAP would have been time-barred from commencing fresh proceedings. The stakes were, therefore, high.

The above applications came before Mrs. Justice Smith in the TCC. The judge decided inter alia that the requirements of the DRP were a condition precedent, but that it was unenforceable due to a lack of certainty ([2022] EWHC 1595 (TCC)). The decision on enforceability was one of three grounds of appeal by Kajima.

The Appeal

Lord Justice Coulson gave the leading judgment in the appeal. The following principles may be drawn from his analysis of the authorities related to the question of enforceability:

  • Wherever possible, the court should seek to uphold the parties’ agreement. However, where there is a dispute about the enforceability of alternative dispute resolution provisions that are relied on to frustrate court proceedings, the courts have not backed away from determining that such provisions may not be enforceable.
  • The starting point is that a mere agreement to seek to settle disputes amicably, and only refer the matter to arbitration or litigation in the event of being unable to settle, is not an enforceable obligation. However, while there is an obvious lack of certainty in such an undertaking (because the court would have insufficient objective criteria to decide whether one or both parties were in compliance or breach of such a provision), provisions which set out the means by which any attempt to settle matters amicably is to be undertaken, are different.
  • For the courts to decline enforcement of alternative disputes resolution provisions on the basis of intrinsic uncertainty would be to fly in the face of public policy. However, any alternative dispute resolution provision must be sufficiently certain to be enforceable.
  • Considerations as to whether a clause is sufficiently certain include matters such as whether there exists: (a) an unequivocal undertaking in unqualified and mandatory terms, (b) provisions for the appointment of the person or entity to undertake any prescribed alternative dispute resolution role, (c) a clearly defined process or procedure and (d) clear provision that would enable a court to determine objectively what is required of the parties in terms of their minimum participation, and when or how the agreed process will be at an end or otherwise properly terminable.

The main reasons given by Coulson LJ in dismissing the appeal on the enforceability point may be summarised as follows:

  • On the face of it, the DRP would impose a final and binding decision by the Liaison Committee on Kajima, even though it: (a) had no representative on the Committee, (b) had no right to attend meetings, (c) was not expressly entitled to make representations to it or (d) had no right to see its documents.  That could not lead to “an amicable settlement”, which is suggestive of a pointless and unenforceable process.
  • Actual or perceived bias would be inherent in the whole structure of the DRP under the Construction Contract and so, in this way, the Liaison Committee was “a fundamentally flawed body” which could neither resolve a dispute involving Kajima “amicably”, nor could it fairly provide a decision binding on Kajima in any event, again suggestive of an unenforceable process.
  • The DRP provides no contractual commitment to engage in any particular process either covering the referral, or the process to be followed once a dispute had been referred.
  • As to the process itself, it is impossible to see what is required of either party as a minimum; Kajima had no right to attend the Liaison Committee or to make representations to it, and CAP’s obligations to participate as a respondent to any referral by Kajima are also unclear.
  • The provision is uncertain as to when the process concludes.

Although Lord Justices Popplewell and Holroyde agreed that the appeal should be dismissed, Popplewell LJ considered that the only reason why the provision was too uncertain to be enforceable was the absence of any provision as to how and when the process is complete. He specifically did not agree that there was any other aspect of the provision rendering it unenforceable for certainty. He also did not agree that the DRP would involve an adjudicatory process that could impose a resolution on Kajima but rather, based on an interpretation that he said yields to business common sense, it had a facilitative role and, in performing its function, the Liaison Committee would need to act in good faith and give Kajima a fair opportunity to be involved in the process.

Analysis and Lessons Learned

Although the decision to dismiss the appeal was unanimous, the very different reasons given by Coulson LJ and Popplewell LJ illustrates that the interpretation of a poorly drafted multi-tiered dispute resolution clause can be far from straightforward, making the outcome of any satellite litigation on the issue, and its consequences, uncertain.

This case highlights that, in formulating multi-tiered dispute resolution procedures, parties should take care to ensure that each ‘tier’ contains:

  • An unequivocal undertaking to comply with the provision.
  • A clear procedure for identifying and/or appointing the person or entity to undertake any prescribed facilitative or adjudicative role.
  • Clear provisions setting out the process or procedure to be followed and what is required of the parties.
  • A process or procedure that is fair as between the parties.
  • Clear provision setting out how and when the process is exhausted or terminable without breach.

In addition, where provisions are being stepped down from a head contract, care should be taken to ensure that they remain unambiguous in the context of the subcontract.

Sam Lydon joins HKA as Director in the EMEA Region

News

Sam Lydon joins HKA as Director in the EMEA Region

24th July 2023

HKA, a leading global consultancy in risk mitigation, dispute resolution, expert witness and litigation support services, announces today that Sam Lydon has joined the firm as Director in the EMEA Growth Office.

Sam will report directly to Stuart Ells, HKA’s Chief Growth Officer for EMEA. Together, their focus will be to accelerate and support the growth agenda for the EMEA region, working with the EMEA Leadership Team in identifying and sourcing growth opportunities for the region, including securing individual senior talent, and team lift outs, as well as M&A opportunities that will underpin the firm’s growth journey.

“We are excited to have Sam join the HKA EMEA team. His wealth of experience in professional services will be invaluable as we pursue our growth ambitions.”

Stuart Ells, Chief Growth Officer, EMEA

Sam has more than 12 years of experience in professional and financial services. Most recently, he served as UK Chief of Staff at Avaloq, where he was responsible for the growth, strategic initiatives and day-to-day operations of the UK business. 

Prior to Avaloq, Sam was Senior Business Manager for Alvarez & Marsal (A&M) Europe & Middle East for over seven years, where he was a key member of the team responsible for the inorganic growth strategy – identifying and executing all M&A, team lifts and senior level recruitment activities. During his time with A&M, Sam successfully recruited a number of senior fee earning teams and individuals, and opened multiple offices across Europe and the Middle East as the firm grew significantly with a CAGR in excess of 30%. In addition, his role included the operational management of the corporate support functions and leading the project management office (PMO) in order to future proof and make the corporate support functions scalable for the continued growth of A&M in the EMEA region. 

Sam has also previously worked at IG and Deloitte, and holds a Bachelor’s Degree in Economics. 

Sam said: “I am delighted to be joining HKA at this exciting time in its growth journey. I am looking forward to working with so many expert colleagues to achieve HKA’s ambitious growth plans and can’t wait to get started.”

ABOUT HKA

HKA is a leading global consultancy in risk mitigation and dispute resolution, using our multi-disciplinary expertise to provide a comprehensive set of specialist services:

  • Expert, Claims and Advisory services for the capital projects and infrastructure sector
  • Forensic Accounting and Commercial Damages services for all types of contracts, including commercial and investment treaty disputes
  • Consulting services to support companies working on US Federal Government contracts.

Headquartered in the UK, HKA brings a proud record of excellent service and high achievement to bear on today’s challenges. As trusted independent consultants, experts and advisers, we help clients manage disputes, risk and uncertainty on complex contracts and challenging projects.

We work with government agencies, local authorities, contractors, legal firms, and other professional service providers, as well as owners and operators, financial institutions and insurers. Clients have access to leaders and problem-solvers who decode complexity through collaborative working and innovative thinking, making the best possible outcomes a reality for our clients, every time.

As well as more than 500 expert witnesses, HKA now has in excess of 500 advisors and consultants – across 40+ offices in 18 countries – with the skills and experience that are essential to get to the heart of even the most complex issues. Our people have vast first-hand experience spanning all major industries and the world’s most complex megaprojects, as well as an international track record of achieving successful outcomes.

HKA’s global portfolio includes some of the world’s largest and most prestigious commissions across a wide range of industries including buildings, industrial and manufacturing, power and utilities, resources, transportation infrastructure, technology, financial services, government contracts and non-profit.

Media contact

NameSuzanne Rayson
TitleMarketing & Communications Director, Europe
Number+44 1928 756 500
EmailSuzanneRayson@hka.com

Establishing the causes of project delay

Article

Establishing the causes of project delay

21st June 2023

Russell Bates

Principal

russellbates@hka.com

T: +44 (0) 7715 027 511

DOWNLOAD ARTICLE (PDF)

In this article, Delay Expert and HKA Principal Russell Bates, explores the difficult area of identifying and assessing the possible impact of delay related causes in a retrospective analysis of events.

Introduction and context

Delay analysis methodologies divide between consideration of assessing the critical path from either a prospective, contemporaneous or retrospective view.

In a prospective view, the causative issue is known, and the objective is to assess the impact (effect of that issue). It is referred to as a causation-based analysis.

In a contemporaneous or retrospective view of criticality, the approach is to establish the effect first, i.e., during the course of a project, when and for how long critical delay was experienced. This is referred to as an effect-based analysis.

Stage 1 – Incidence and extent of Critical Delay

This is illustrated in the figure below which compares a planned timeline of 12 months (highlighted in green) for a building project with the actual timeline of 14 months (highlighted in blue). In this instance, the analyst concludes that all phases were completed in accordance with the planned intent with the exception of the cladding phase. The cladding phase took 4 months to complete as compared to the two months planned, resulting in a two-month critical delay to the project (highlighted in red). The conclusion is that there was a critical delay of 2 months to the progress of the cladding.

Figure 1: establishing the incidence and extent of critical delay

In this example, one would deduce that the cladding phase started in line with the planned date required, however, once the works were underway, delay began to accrue. The next step for the analyst is therefore to establish the causative issue(s) that gave rise to the critical delay to progress of the cladding.

I recall a discussion with a colleague who took the view that as delay analysts, our unique skill is in establishing which activities were critical and the extent of critical delay incurred. Establishing the causative issues should be relatively straight forward and be evident from factual records, or in the absence of such, witness testimony of those present on the project. In other words, you should not need a third-party consultant or expert to research this, it is something the client ought to be able to establish.

Nonetheless, in my experience establishing both cause and effect has been part of the service expected by clients and their legal advisors, often because:

  1. Inevitably, as a practising delay expert, I am appointed to take a retrospective view of events. Personnel turnover is a normal feature of any project, therefore those who might be most able to comment on particular issues are long gone.
  2. The appointment of a third party, whilst not having first-hand knowledge of the project, provides an independent view which is not coloured by project politics or ongoing arguments between the project participants. In effect, the delay expert provides a second opinion.

Nonetheless, based on my colleague’s view, when carrying out a delay analysis, either as a precursor to, or part of dispute related proceedings, one would expect that the most likely source of controversy would be in ascertaining the incidence and extent of critical delay regardless of cause.

Stage 2 – Forensic Investigation of Records – Access to Records

In so far as it describes various methodologies for delay analysis, the SCL Protocol[1]Society of Construction law Delay and Disruption Protocol, 2nd Edition 2017, Clause 11.6; subclauses (c) ‘Time Slice Analysis’, (d) ‘As-planned versus as built in windows’ and (e) … Continue reading identifies methodologies for establishing ‘effect’ in terms of criticality but when it comes to causation, merely states:

Thereafter, the analyst investigates the project records to determine what events might have caused the identified critical delay in each period.

In my experience this part of the analysis can be controversial and no less complicated to unravel. I recall a past project for a new office build where I was appointed to provide an expert opinion on behalf of the contractor on the incidence and extent of critical delay and the causes of critical delay.

When I first became involved, the issue that had been occupying the minds of the parties and had resulted in delay to the start of the internal fit out of the building, was having to carry out remedial works to fire protection. However, I concluded that the critical path was elsewhere, through a work sequence associated with external cladding.

So when I was asked to engage with the employer’s appointed a delay expert, my expectation was for there to be disagreement as to the course of the critical path through the project. To my astonishment he agreed with my assessment of criticality. However, any sense of relief was cut short because it transpired that he took a very different view as to the causes of delay to the external cladding.

Whilst the information provided to me indicated that the progress of on-site installations was being hampered by late issue of design information, my opposing expert concluded that delay was the result of manpower shortages by the cladding subcontractor, a matter which he said had been recorded in documents provided to him by his client.

It was therefore evident from our discussions that the identification of a specific cause, was predicated on what documents we had been given access to that in turn informed our understanding or perception of where the particular problem lay.

Why could such a circumstance arise?

To continue reading please download the full article here

References

References
↑1 Society of Construction law Delay and Disruption Protocol, 2nd Edition 2017, Clause 11.6; subclauses (c) ‘Time Slice Analysis’, (d) ‘As-planned versus as built in windows’ and (e) ‘Retrospective longest path’ analysis.
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