Things don’t always go according to plan in the world of construction, particularly with larger and more complex projects. Disruption claims have now become a prevalent within the industry, as contractors seek compensation for additional costs incurred due to interruptions in the smooth implementation of a project.
In this article, our construction disputes solicitors discuss the common causes of disruption claims, the legal implications and how to avoid them. We walk you through key considerations, and the process of bringing a claim for disruption, as well as risks/pitfalls to avoid.
Contents:
- What are disruption claims?
- How do disruption claims differ from delay claims?
- How can disruption claims be avoided?
- What are the common causes of disruption in construction projects?
- What are the key considerations for proving causation in disruption claims?
- How to prepare a disruption claim?
- How to make a disruption claim
- Valuing the disruption
- What remedies are available if your claim is successful?
- Summary
What are disruption claims?
A disruption claim refers to claims made by contractors for losses or additional costs and expenses incurred because of an event that disturbs, interrupts or hinders a project. These disruptions can be caused by factors, such as last-minute changes in project management or the scope of work, unforeseen site conditions, design errors, material shortages, late delivery of instructions, changes in work sequencing or excessive rework. Through no fault of their own, contractors find themselves incurring additional costs of plant, labour or other resources because they were unable to perform their work activities as efficiently as planned because of the disruption.
How do disruption claims differ from delay claims?
The distinction between disruption and delay is important because each claim requires a different approach. The delay claims process involves establishing who is responsible for the event, and a cause-effect relationship between the event and delay to the project Completion Date. The contractor may be entitled to an extension of time to complete the project, as well as compensation for any additional costs incurred because of the delay.
Disruption claims involve situations where the construction work is hindered or disrupted, leading to decreased productivity and increased costs. Both types of claims can impact the project schedule and cost, but they differ in their underlying causes and effects.
It is important to note that while disruptive events causing reduced productivity can be linked to delays in the timely completion of the project, disruption and delay claims are not the same. While a disruptive event may hinder the contractor’s economic progress in undertaking its work activities, it does not necessarily mean the project won’t be completed on time.
How can disruption claims be avoided?
Forward planning
It is important to identify the factors that can lead to interruptions to minimise them. By spotting problem areas early in the project lifecycle, there is an opportunity to initiate back up plans, make necessary adjustments or allocate resources to help reduce risk.
Communication and collaboration
Open communication among the project stakeholders is crucial to ensure that everyone is aligned with project objectives and any potential issues are promptly addressed.
Project planning and scope
Detailed project plans and scopes of work that clearly define the roles, responsibilities and expectations of all parties involved, complete with realistic timelines can help ensure the project remains on track.
Risk assessments
This involves analysing potential risks related to project scope, resource availability, external factors, and any other variables that could impact project delivery. By understanding these risks, stakeholders can proactively implement measures to mitigate their impact.
Fully-loaded contracts
This includes clearly outlining the project deliverables, milestones, payment terms, change order procedures, and dispute resolution mechanisms. Clarity in contractual terms can help manage expectations and prevent misunderstandings that may lead to disruption claims.
Accurate record keeping
It is important for all parties involved to maintain accurate records of project activities to substantiate their claims, enter negotiations and encourage settlement in the event of disagreements. This could include minutes of meetings, change orders, time-sheets, and progress reports.
Design development and variations
Restricting any design development work to undertaken during the time the project is live on site to a minimum and preferably to activities that are not on the critical path of the agreed contract programme. It should restrict the need to introduce variations that are likely to disrupt and/or delay the works on site.
What are the common causes of disruption in construction projects?
- Unforeseen site conditions
- Changes in project scope or design
- Material shortages
- Excessive rework of project
- Inadequate project planning
- Changes in project management
- Changes in work sequencing
- Accelerated or compressed schedules
- Poor communication
- Unexpected client requests or approvals
- Piecemeal site access different to what was originally planned
What are the key considerations for proving causation in disruption claims?
Disruption analysis
This involves assessing the productivity of work performed over time to identify periods of reduced productivity and the specific tasks affected. There are different methods, each with varying accuracy that can be applied for calculating loss of productivity. These are loosely categorised under productivity-based methods and cost methods in the SCL Delay and Disruption Protocol. The cost-based studies help to identify the difference between the actual cost and planned cost without first measuring productivity losses.
The commonly used productivity methods include:
Measured mile analysis
This involves comparing the productivity of a contractor during a period of disruption to their productivity during a period of normal operation for identical or like activities. The "measured mile" refers to a part of the project where the work proceeded without significant disruption, and then becomes the baseline against which to measure disruption.
Earned value analysis (EVA)
This involves comparing the planned value (reasonable man hours allowed for completing certain activities) to the actual-hours in completing those activities, with the latter being “earned” as work progresses and the allowance expended.
Comparative analysis
This entails comparing the productivity or efficiency of a project with similar projects that were not disrupted. This analysis aims to identify differences in productivity or efficiency to determine the impact of the disruption on the project and ascertain responsibility for the disruption.
Isolating the disruptive event: Any contractor seeking to bring a causation claim will need to be clear on which event(s) have occurred, for which the employer is responsible, that precipitate the claim. The key point here is that the event(s) you complain of must have been caused by an act, omission or default of the employer. This is the first hurdle as many employers may try to introduce other events outside of their control or culpability that may have caused the disruption.
Linking the disruptive event: Next, you will need to demonstrate a direct link or connection between the event and the disruption of your workflow (lower productivity, performance or output). Employers may again try to pick holes in your argument and ‘break’ the causal link, for example by alleging the contractor was responsible for the reduced performance and / or did not mitigate the situation.
Additional costs: Even if you can demonstrate there was an event that caused disruption, you still need to prove that such disruption has resulted in the additional costs being sought in the claim. All the above needs to be demonstrated on the balance of probabilities.
How to prepare a disruption claim?
- Reviewing the contract: Carefully examine the rights, obligations and liabilities of the parties involved, as stipulated in the terms and conditions of the contract to root your claim - a contractor must have a legal entitlement to bring the claim against the employer under the contract.
- Comply with notice requirements: It is crucial that you notify your employer of the disruption in accordance with any relevant provisions in your contract. Failure to adhere to notice provisions has and can lead to the disruption claim being rejected in its entirety. It also demonstrates that the event has occurred.
- Cause and effect: Establish and demonstrate that your entitlement to claim is directly attributable to the disruptive event caused by the employer.
- Get your papers in order: Gather, source, and disclose when appropriate detailed, objective evidence to support your claim. It is well-noted in the industry and courts that a lack of contemporaneous evidence negatively impacts the claim’s credibility.
- Take reasonable steps: Take or showcase proactive measures to prevent or mitigate your losses.
How to make a disruption claim
You will need to work closely with legal and industry experts to assess merits and ensure all elements of the disruption claim are met. These claims are notoriously complex, so it is crucial that you team up with legal experts in the field to get the right advice unique to your circumstances.
Once you are confident you have a valid claim, attempt to resolve the issues through mediation, or negotiation first. Many contracts will set out alternative dispute resolution methods and provide that either may refer any dispute between them to adjudication at any and which is preferable (in many cases) before initiating court proceedings, or a referral to arbitration, depending upon what the final forum for dispute resolution is set out within the contract.
Valuing the disruption
If you are using a productivity-based method, first the loss of productivity in the utilised resources is measured and then that loss is priced. For example, with the measured mile approach, the loss of productivity can be quantified by demonstrating the difference in costs incurred between the disrupted and undisrupted periods (the amount expended over and above the resources as planned). EVA, on the other hand, quantifies the impact of disruptions by comparing the planned value of work to the earned value achieved during the disrupted period.
Whichever method is used, supporting documents of additional costs expended is key to evidencing your financial losses and making a credible claim.
What remedies are available if your claim is successful?
Damages
The most obvious and usual remedy sought is monetary compensation, which under contract aims to put the injured party in the same position they would have been had the breach/disruptive event not occurred. Financial losses can be direct and indirect, and will usually cover things like the costs of additional plant and labour, wasted expenditure, increased management costs and overheads by the contractor as a result of the loss of productivity. Most standard form contracts expressly exclude the contractor’s ability to recover any ‘indirect/consequential’ losses.
Variations to the contract
Adjustments can be made to the contract terms to account for the impact of the disruption.
Summary
Disruption claims, distinct from delay claims, exist to compensate contractors for losses/expenses incurred over and above the normal expected flow of work. They are technically and legally complex. One thing is clear, documenting the disruption including keeping contemporaneous records and receipts goes a long way. Equally as important is providing timely notice to the client employer of the disruptive event and its impact on your resources. Failing to do this alone can frustrate the whole claim.
Calling in the help of an experienced construction disputes solicitor early in the process can make all the difference. From an initial contract review to a full disruption analysis, expert input can make all the difference between a successful and unsuccessful claim. Here at Harper James, our construction teams have a wealth of experience navigating disruption claims.
