KEY TAKEAWAYS

The key points that will be of interest to construction practitioners include:

• Disruption and delay are often inextricably linked.
• Disruption is inevitable on large projects – you must implement strategies and processes to manage it through the project life cycle.
• Setting up your project systems correctly can increase your ability to successfully claim relief from disruption.

INTRODUCTION

Disruption in construction is often encountered but rarely accounted for. Disruption affects the efficiency of the works and typically results in lost productivity and prolongation. Its complex nature makes its identification, management and quantification challenging.

This series of articles explores disruption in construction, its inevitability and how it can be managed through the various stages of a project. This includes discussion around pre-contract considerations, project setup, meticulous record-keeping and real-world case studies.

Part 1 of this series will cover a general introduction to disruption and how it can be managed in the pre-contract stage of a project.

WHAT IS DISRUPTION?

Disruption is often discussed in the context of delay and while they are often inevitably linked, they are both distinct concepts. Burr describes the two concepts as follows:

Delay is lateness (eg delayed completion equals late completion). Disruption is loss of productivity, disturbance, hindrance or interruption of progress.^[1]

Another definition is provided in the Second Edition of the Society of Construction Law’s Protocol (the SCL Protocol) as:

a disturbance, hindrance, or interruption to a Contractor’s normal working methods, resulting in lower efficiency^[2]

Disruption can arise from a range of sources and events and may have both direct and cumulative impacts on your project. Common causes observed in the building and infrastructure sectors are:

• Inclement weather
• Design scope creep
• Start/stop events
• Labour and/or material shortages
• Out of sequence works
• Defects and rework
• Unforeseen site conditions
• Acceleration

Disruption commonly leads to time and/or cost effects such as delays to completion and losses in productivity. In our experience, the two most common effects of disruption are:

• Costs arising from losses of labour and plant productivity; and
• Delay, which accrues over time leading to critical delay (i.e. delay to project completion).

Critical delay arising from disruption is particularly difficult to pursue (as distinct from a delay event that has a defined start and finish date). This is typically because:

• The disruptive effects may not be continuous and/or consistent making it difficult to define and demonstrate critical delay. As such, the traditional methods of program analysis may not be suitable to quantifying delay caused by disruption.
• There are often multiple sources of disruption with varying degrees of effect and overlap. There is also often variance in the relief available from the various causes of disruption, which impacts the ability to demonstrate clear contractual entitlement.
• The ability to substantiate the effects of disruption is generally an exercise in accurate and timely record keeping – an area where contractors and subcontractors often fall short.

In relation to costs, a significant amount of attention is focused on the loss suffered  in terms of productivity measured against the budget for an activity. However, less consideration is given to circumstances where a contractor/subcontractor may not exceed the budget for a task but disruption results in an inability to maximise its productivity.

In general a working activity will have a base or average level of productivity that must be achieved to ‘break even’^[3]. However, in many cases, contractors and subcontractors undertaking repetitive works (such as piling or pipeline construction) expect to gain the benefits of increased productivity over time through the learning curve effect^[4]. Even mild disruption may result in a substantial impact on the learning curve such that peak efficiency is achieved later (or not at all) or fluctuates.

As an example, the figure below shows three learning curves for the same task:

• Stretch representing the ideal level of performance.
• Base representing the minimum level of performance required to achieve budget.
• Actual representing the level of performance actually achieved for the task.

The Actual learning curve indicates that initial start-issues occurred and while the performance ultimately exceeded the Base scenario, it was unable to achieve the peak level of performance in the Stretch curve. In this case, there is a tendency to only focus on the productivity lost in relation to the Base scenario as arguably no financial loss may have been incurred against the Stretch scenario. However, to the extent that disruption prevented the Stretch level of performance from being achieved, a claim for lost productivity should also be considered.

DISRUPTION IS INEVITABLE

In today’s market it is nearly guaranteed that a construction project will experience some form of disruption. In our view, this has been driven by an increased risk profile in building and infrastructure projects and exacerbated by fixed lump sum pricing, late design changes, unforeseen working conditions and poor project management practices. All too often contractors have overlooked (or accepted) these increased risks while failing to account for them – either in its pricing or by ensuring there is a suitable mechanism within the contract to manage these risks. This has driven a similar level of risk allocation downstream to subcontractors by contractors where provisions dealing with relief for disruption are either non-existent or insurmountable.

With this in mind it is imperative that all parties consider the specific risks, their likelihood and how the contract assigns or manages these risks.

MANAGING DISRUPTION THROUGH THE PROJECT PHASES

The inevitability of disruption means it is critical that contractors and subcontractors implement measures to manage its effects. A fundamental aspect of this is identifying, detailing and addressing the key risks and opportunities relevant to the project’s specific circumstance. To successfully manage disruption, the following project phases should be considered:

• Pre-contract – prior to executing the contract;
• Project setup – after execution but prior to project commencement; and
• Project delivery – following project commencement.

This article focuses on the pre-contract phase.

Pre-contract Phase

The effects of disruption can be assigned or effectively managed through the terms and conditions of the contract. The first step in this process is the identifying and understanding the risks on the project, and the probability and disruptive effect each of these will have on the performance of activities such as design, procurement and construction.

Tools such as risk registers should be used to record and assess these disruptive effects to ensure they are suitable dealt with by the contract.

There are then numerous ways that these risks can be managed within a contract. First and foremost  ensure that the contract does not specifically exclude any claim related to disruption. If the contract does not permit time/cost recovery for disruption then your remaining option becomes an available cause of action at law – the former is far preferable.

Some other simple examples are provided below:

• Provide a clear schedule or annexure to the contract that specifically outlines the division of responsibilities between the parties. Ensure that the contract provides an appropriate mechanism in the event a party fails or is deficient in its responsibility.
• Introduce additional clauses or special conditions relating to key risks (and opportunities). For example, if there is a reliance on a particular design document or construction methodology – ensure that this is addressed in the contract or by a schedule/annexure. Incorporating a contract program is one simple way of establishing milestones or a particular construction sequence.
• If certain qualifications, inclusions and exclusions were provided with your tender submission, these must be included with the contract as a schedule/annexure. Ensure that there is a clear written understanding of how any differences are treated under the contract.
• Ensure an appropriate order of precedence provision is included within the contract. If you are relying on annexures, schedules or other contract documents to manage disruption then these may need to be listed higher in the order of precedence than other more generic contract documents or general provisions.

A simple way to visualise the process of managing disruption is provided in the flow chart below:

For each disruptive cause, you should verify that the above process can be engaged based on the terms of the proposed contract. For example:

• You have identified that the presence of other contractors within your work area would likely cause a major disruptive impact to your own works.
• To mitigate this risk you should ensure the contract includes a provision setting out working conditions that align with your assumptions for the performance of the works. This might involve exclusive or uninterrupted access to your work areas.
• If these conditions do not eventuate, the contract must provide a clear pathway to relief for time, costs or both.

Where possible, you should always ensure a clear contractual pathway to relief exists (e.g. a variation) rather than reliance on breach of a contractual term or under common law.

In practice it is likely that a contract will not resolve all risks to the satisfaction of both parties. What is imperative is that the key risks (in each party’s mind) are properly dealt with in that responsibility is with the other party or there is an appropriate relief mechanism in place should the risk arise.

CASE STUDIES & EXAMPLES

This section provides some brief case studies of how disruption has affected projects that Calibrate has been involved with and the importance of managing these through the pre-contract phase.

Utilities Project – Relocation and Enabling Works

On this project, the subcontractor was responsible for undertaking utility relocations and upgrades to existing infrastructure in preparation for a major road project. The subcontractor understood that a major risk in working with existing infrastructure – particularly those involving Authorities – would be unplanned and/or unforeseeable stoppages and delays outside its control.

To mitigate this, the subcontractor drafted a scope of work document with specific provisions around cost recovery including for unproductive works relating to any event or circumstances that arose outside of its control. This document ultimately formed part of the contract and was listed in the order of precedence before the general terms and conditions (which contained generic wording that would have resulted in no entitlement for cost recovery under these circumstances).

When delays and stoppages eventually occurred (predominantly due to unknown services and difficulties working with Authorities) the subcontractor was able to fully recover its direct and indirect costs through the mechanism introduced in the scope of work document. Without this mechanism, the subcontractor would have incurred significant non-recoverable costs relating to standdowns and additional preliminaries.

Utilities Project – Electrical Works

This project involved performance of electrical works (cable ladder, cable installation and asset installation) as part of a large tunnelling project. The subcontractor responsible for this scope was required to work with the main contractor (undertaking tunnelling and civil works) and various subcontractors performing the hydraulic and mechanical works.

The main contractor developed a detailed methodology for undertaking the combined works with specific sequencing devised to minimise interfaces and interruptions across the various scopes. This document was provided as part of the tender package and was ultimately an annexure to the contract that the electrical subcontractor entered into.

During the delivery phase, the detailed methodology was very quickly thrown to the side with the main contractor dictating the methodology and sequencing to mitigate its own delays to its tunnelling and civil works.

The electrical subcontractor submitted a detailed claim for lost productivity on the basis that the original detailed methodology was not implemented by the main contractor. The main contractor rejected the claim outright and the claim became the subject of a dispute. The electrical subcontractor was unsuccessful in its claim for the following reasons:

• The general contract conditions contained provisions that allocated the full risk of managing work interfaces with the electrical subcontractor. Further, the electrical subcontractor was required to work with the requirements of the main contractor’s program. The detailed methodology document sat lower in the order of precedence than the general contract conditions and hence the general provisions took precedence over the detailed methodology.
• The general contract conditions only provided cost relief for delay and specifically excluded disruption.

This demonstrates the importance of ensuring risks are properly managed in the pre-contract phase. With minor amendments to the drafting of the contract, the electrical subcontractor would have been in a far stronger position to achieve success in its disruption claim.

CONCLUSION

In construction, disruption is an inevitable challenge that can result in delays and lost productivity. By implementing strategies through the pre-contract phase, disruption can be successfully mitigated and commercially managed during the delivery phase.

The next articles in this series will detail the approaches to managing disruption through the project setup and delivery phases.

To learn more about these findings, please contact the author, Brendan Spratt, or the Calibrate office at info@calibrateconsulting.com.au or call +61 9188 7444.

Citations

[1] Burr, A 2016, Delay and Disruption in Construction Contracts, 5th edn, page 763.

[2] Society of Construction Law 2004, Delay and Disruption Protocol, 2nd edn, page 44.

[3] That is the labour input results in the minimum acceptable output. This relationship is commonly measured in labour hours (or manhours) and is referred to as a Productivity Factor.

[4] The learning curve effect refers to the decrease in the number of manhours required to achieve a unit of output as the operation is repeated. This effect is often applied in construction where an activity is repetitive and continuous with the expectation that productivity will increase over time due to experience and increased familiarity with the work activity.