Effective programmes are about to become even more important if contractors are to protect their interests, a leading expert is warning.
Ahead of publication of the new FIDIC Yellow Book, Michael Gallucci, Managing Director of MGPQS, says new conditions in the greatly-extended volume make implementing programmes and cost controls even more important.
Mr Gallucci, who advises leading construction companies and speaks internationally on the subject of construction project contract law, says: “Programmes are absolutely vital when claiming for delays or combating counter-claims. They become yardsticks against which to measure the effects of delays.”
FIDIC already requires a baseline programme to be produced by the contractor, and the new edition – the first for 18 years – brings in new clauses in critical areas, including early warning, that ramp up the requirement for accurate monitoring and record-keeping.
Mr Gallucci, whose company provides financial and contractual services in the property sector, says: “Contractors need to consider if they have enough of the right personnel in their admin teams to produce, revise and update programmes as well as to keep accurate cost records.”
While the new Yellow Book looks set to increase the administrative burden on contractors, they may be comforted to know that it also sets out to reset the balance of responsibilities between employers and contractors. For example, employers no longer have an open-ended claims window with the introduction of new deadlines for both parties.
MPGQS advises when producing a baseline programme, the contractor should ensure it:
• Is based upon the works included in the contract at the time that the contract was entered into
• Shows the intended time and sequence of how the work is intended to progress
• Shows a clear critical path to completion
• Shows dates when the employer’s input is required, with links to the critical path
Contractors must revise programmes when the baseline programme no longer complies with the contract, it is no longer consistent with progress or extensions of time have been awarded.
It is also crucial to produce updated programmes at regular intervals to record progress and to predict the completion date. These will be invaluable in any analysis to establish the effect of delays.
Contractors should keep accurate cost records because FIDIC allows for Contractors to claim for incurred costs in certain circumstances. In the case of a breach of contract, the law provides that the other party is entitled to be put back in the position that he would have been had the breach not occurred.
FIDIC defines costs as ‘all expenditure reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overheads and similar charges. In a claim for costs, the contractor must have a way to demonstrate the expenditure incurred, so contractors should record:
• Resources present on site
• The cost of those resources
• Depreciation of capital equipment
• Head office running costs
• The cost of guarantees and bonds
• The cost of financing the project
The Yellow Book is the recommended “design and build document for projects where the employer wishes to protect its interests by appointing an engineer to supervise the overall construction of the works, notwithstanding that the overall responsibility for design lies with the contractor”.
At 108 pages, the draft of the new edition is 45 pages longer than its predecessor. It introduces a provision for early warnings designed to encourage the contractor and the supervising engineer or project manager to work together to tackle the delay rather than apportion blame. While it is unclear what steps they will be required to take, documenting the process and any agreements will be critical if the issue deteriorates so that one party makes a claim against the other.
The claims procedure in the new version of the Yellow Book now runs to three pages, and introduces a 28-day deadline for giving notice of a claim that applies to both contractor and employer. The notice period extends from when the claimant becomes aware of the event or ought to have become aware. The claim itself has to be submitted within 42 days.
To avoid formal adjudication where possible, the Yellow Book introduces a clause to allow both parties jointly to refer to the Dispute Adjudication / Avoidance Board.
Mr Gallucci adds: “That’s indicative of a general movement in the FIDIC books towards encouraging parties to work together to resolve matters before claims. If the additional conditions mean fewer escalating disputes, everyone should welcome the new Yellow Book.”