Drafting Acceleration Clauses 3

This is the third in a three-part series. The previous posts covered:

  1. Brainstorming to be carried out for drafting an acceleration clause
  2. Methodologies of achieving acceleration.
  3. Proving acceleration claim
  4. Standard acceleration clauses under FIDIC 1999, 2017 and NEC standard forms of contract
  5. Payment methodologies for acceleration.

This shall discuss how we drafted a simple acceleration clause suitable for the requirements and constraints of the project; which were:

  • Completion period – 3 years
  • Maximum Acceleration anticipated – 2 months
  • Acceleration likely to be ordered only during the final stages of the project and under extreme circumstances, mainly due to political considerations. Hence no question of refusal by the Contractor except in case of non-feasibility.
  • Acceleration may be ordered to reschedule the Original Completion Date (if there is no delay) or the Extended Completion Date, in case EOT has been granted.
  • No time to have mutually agreed costs before instructing acceleration.
  • The Contractor may not have the wherewithal/competency to prove all its entitlements. The Contractor need not worry about receiving his payment.
  • Partial acceleration is not acceptable since it would not be of any use to the Employer.

To cater to these project constraints, we drafted a simple acceleration clause that read as follows:

“The Employer may instruct the Contractor to accelerate the work to achieve completion of the Works by the scheduled Time for Completion as specified in the Particulars Details of Contract (PDC). The Contractor shall be bound to accept this instruction unless he proves that it is technically or practically not feasible; and in this event, as a result of such accelerated work undertaken, if the Contractor incurs any additional expenses, the Contractor shall be paid an amount equal to sum in percentage of the balance of the Contract Price, as mentioned in the Particular Details of Contract (PDC), as on date of such instruction for each week of acceleration or pro-rata for part thereof, before the scheduled Time for Completion, subject to a maximum percentage of balance Contract Price as mentioned in the Particular Details of Contract (PDC). In case the Contractor is not able to achieve the revised completion date as a result of instructions of acceleration, he will not be given any additional costs; however, delay damages will be levied only from the date of the pre-revised completion date.”

Points to Note

  • Any clause formulated must take into consideration specific project constraints.
  • Keep the wording simple. Complex, confusing wording does not “protect” the Employer.
  • Make the burden of proof (for the purposes of the claim) simple.

This concludes this three-part series. The previous posts can be read here and here. For a PDF of the entire series, please email hello@instituteccp.com with the subject line: Drafting Acceleration Clauses.

This post was contributed by Amit Kathpalia FICCP, MRICS. This was originally a LinkedIn post. Amit is the author of Practical Construction Contract Issues Which Are Not Commonly Understood

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Drafting Acceleration Clauses 2

This is the second in a three-part series. The previous post discussed the brainstorming by the Employer for formulating an Acceleration clause. This post shall discuss payment modalities and how standard contracts deal with acceleration.

Payment methodologies for acceleration may be:

  • Fixed lump sum payment (lump sum amount or percentage of contract value). This payment may be conditional on the completion of deliverables by the revised dates with and/or Liquidated Damages.
  • Payment of reasonable costs. This may be less risky to the Contractor than the first method but places a greater obligation on the Contractor to maintain accurate records and prove additional costs.

Dealing with delays during an acceleration period also needs some thinking. In extreme cases, the Contractor may lose out on additional costs and also be subjected to Liquidated Damages.

Other aspects that need to be considered are:

  • If midway the Contractor realises that he will not be able to achieve the revised completion date, should he abandon his Acceleration effort?
  • In the case of Employer-caused/neutral delay during the Acceleration period, will the revised completion date be extended and/or will the Contractor be entitled to additional costs?

None of these aspects can be precisely formulated in PCC, but it is preferable if both parties arrive at a mutual understanding of these issues.

Acceleration Under Standard Forms of Contract

FIDIC 1999

There is no clause for acceleration.

FIDIC 2017

Sub-Clause 8.7 (Rate of Progress) mentions "Sub-Clause 13.3.1 (Variation by Instruction) shall apply to revised methods including acceleration measures, instructed by the Engineer to reduce delays from resulting from causes under Sub-Clause 8.5 (Extension of Time for Completion).

Guidance Notes to FIDIC 2017

  1. The Engineer has no power to reduce time of completion.
  2. The Employer may ask the Contractor to speed up to reduce Period of (Excusable) Delay caused due to events listed in Sub-Clause 8.5, but only within the relevant time for completion.

Presumably, this implies that acceleration measures cannot be instructed to reduce the (extended) time of completion already accorded but only to reduce the impact of (excusable) delays that have happened after this.

FIDIC contracts have a clear preference for a supplemental agreement for achieving acceleration.

NEC4

NEC4 has a very clear and simple clause, the gist of which is:

Either party may propose acceleration to achieve an earlier completion date. The PM instructs the Contractor to submit quotations in either case to include changes in key dates and associated additional costs. Based on the quotation, the PM accepts the Acceleration or the completion and key dates remain unchanged.

Indian Standard Contracts

Indian Standard Contracts have no clause which deals with acceleration.

This is the second in a three-part series. The next post shall discuss why and how we had to modify these clauses in PCC based on the specific requirements of the project.

The previous post can be read here.

This post was contributed by Amit Kathpalia FICCP, MRICS. This was originally a LinkedIn post. Amit is the author of Practical Construction Contract Issues Which Are Not Commonly Understood

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox? Or, want access to a library of members-only content on contracts and claims? Check out our Membership page and join the ICCP community today.


Drafting Acceleration Clauses

This is the first in a three-part series on drafting acceleration clauses. This post will examine the considerations necessary before committing to an acceleration clause.

I have been involved in a INR 2000 crore (US$250 million) Indian Public Sector EPC Project based on the FIDIC Silver Book 1999 (modified as usual by PCC - but not distorted), wherein we decided to include an Acceleration (Directed Acceleration) clause- a first in Indian Public Sector Construction Projects.

  • Acceleration clauses look easy, but are actually quite difficult to implement. The aspects that we considered were:
  • Do we really need an acceleration clause? Can’t we just achieve this through an amendment to the contract or Supplementary Agreement?
  • How much acceleration is actually feasible?
  • Should acceleration be applicable for only extended periods or for the original period of the contract as well?
  • What will be the correlation of acceleration with the bonus clause, which was also there in the contract?
  • How will we value and ascertain the payment for the acceleration? Will the Contractor be able to substantiate his expenses? Is the valuation likely to lead to disputes?
  • What if we do not get willing acquiescence of the Contractor for the acceleration?
  • Should we instruct acceleration only if there is mutual consent of both parties or, like a Variation, wherein the Contractor has limited rights to dissent?
  • Will we be able to measure, quantify and agree to additional costs beforehand, keeping in view time constraints?
  • How can we assure the Contractor that he is likely to get his additional costs due for acceleration?
  • Will the Contractor be subject to Liquidated Damages or will he get part acceleration costs or both, in case he is not able to achieve the full desired
  • Acceleration and complete by the revised date?
  • In case there is a delay/disruption during the accelerated period due to neutral or Employer-caused events, how will that be quantified? And what will be its interface with the accelerated period and acceleration being undertaken by the Contractor?

Acceleration may be achieved through a combination of many methods, such as:

  • Utilising additional resources,
  • Early delivery of material,
  • Using better technology, and/or
  • Change in sequence/methodology.

To be entitled to acceleration costs, the Contractor needs to prove:

  1. He undertook certain measures which were necessary for achieving the acceleration.
  2. He incurred extra costs as a direct result of those measures.
  3. Those measures did, in fact, achieve acceleration.
  4. The Contractor also fulfilled his duty to mitigate the additional costs as far as possible.

In the next two posts, we shall discuss more on the brainstorming that we did and the results of that brainstorming, with specific reference to the project in hand.

This post was contributed by Amit Kathpalia FICCP, MRICS. This was originally a LinkedIn post. Amit is the author of Practical Construction Contract Issues Which Are Not Commonly Understood

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox? Or, want access to a library of members-only content on contracts and claims? Check out our Membership page and join the ICCP community today.


Formulation of a Balanced Construction Contract Part 2

This is the second in a two-part series. The previous post examined what an equitable contract is. This post will look at a case study of how an equitable contract was achieved on a Public Sector project in India.

To briefly recap the previous post, there are two ways in which Employers formulate contracts:

  • The Employer ‘de-risks’ itself by allocating maximum risks to the Contractor. This is normally found in bespoke contracts.
  • Risks are allocated equitably based on certain principles which have been best illustrated in works of Max Abrahamson and Nael Bunni. Standard contracts like FIDIC are based on this.

I propose a third way, which is, that each and every clause should be ‘war gamed’ for maximum contingencies and the clause should be formulated:

  • to be in the best interests of the project,
  • cater for maximum contingencies without leading to disputes.

This should be done in consultation with prospective bidders.

Case Study

We will now examine one Directed Acceleration clause that we included in an Indian Public sector contract based on this methodology. This is the first government contract in India with a specific acceleration clause.

The project, based on the FIDIC Silver Book 1999, is a high-profile EPC project which is to be inaugurated by a VVIP at the end of October 2023.

The War Gamed Scenario

"What if we are directed to complete the project in an earlier time frame due to certain compulsions?"
We should have a mechanism to reschedule the completion date of the project to an earlier time frame in a way that does not lead to disputes or reluctance from the Contractor.

Detailed war gaming led to the following conclusions:

  • Time compression will be in the range of 1-4 weeks.
  • There is a likelihood of short notice–hence no time for quotations or negotiations.
  • Not achieving the rescheduled target date is not acceptable, hence it has to be binding on the Contractor (with the limited exception of technical non-feasibility).
  • The Contractor should not have any apprehension about being compensated reasonable additional costs.

FIDIC 1999 has no clause for directed acceleration. FIDIC 2017 Sub-Clause 8.7 (Rate of Progress) has a paragraph treating directed acceleration as a variation, but only for acceleration measures to reduce delays from causes entitling the Contractor to an Extension of Time (EOT).

NEC3 has a specific clause on acceleration, but the methodology required a longer time frame than what we were likely to get due to the process of asking the Contractor for quotations with substantiation, followed by negotiations.

Hence, we made a simple clause in consultation with prospective bidders, the gist of which was as follows:

  • The Employer may instruct the Contractor to accelerate the works to achieve an earlier completion up to a maximum of four weeks.
  • The Contractor is bound to accept these instructions unless he can prove that the same is not technically feasible.
  • The Contractor will be given additional costs of 0.5% of the balance value of the contract for every week of acceleration or pro rata thereof.

This high-pressure project with an 18-month time frame commenced in June 2022 and is running on schedule without any dispute so far.

This post was contributed by Amit Kathpalia FICCP, MRICS. This was originally a LinkedIn post.

Amit is the author of Practical Construction Contract Issues Which Are Not Commonly Understood.

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox? Or, want access to a library of members-only content on contracts and claims? Check out our Membership page and join the ICCP community today.


Formulation of a Balanced Construction Contract Part 1

This is the first in a two-part series. This post will focus on equitable contracting.

A contract is invariably drafted by the Employer (with or without the assistance of a Consultant). So an Employer would normally look at including contract clauses which will assist in achieving the following :

  • Timely completion of the project – achieved through incentives (a bonus clause) and penalties (Liquidated Damages).
  • Quality – through a Quality Assurance (QA) mechanism, putting clauses for testing and defect rectification.
  • Protection (shield) from Contractor claims– by putting exclusion clauses and having clear clauses about the Contractor’s entitlements.

A Contractor would want the following from a contract:

  • A mechanism to ensure timely and correct payments.
  • Timely decision-making by the Employer/Engineer.
  • Fast and fair Dispute Resolution Mechanism (DRM).

This list, of course, is not exhaustive and just gives three important ingredients.

A lopsided imbalanced contract will always tilt in favour of the Employer - I have never seen a contract “tilting” in favour of the Contractor. A contract like FIDIC or NEC tries to be fair by having equitable (not equal) risk sharing so that the parties get responsibilities and have liabilities based on their capabilities and principles as per risk sharing principles enunciated by Max Abrahamson, Nael Bunni and other experts.

So should we all simply aspire for an equitable contract?

I would like to indicate a different approach to formulating a contract, in that each and every clause should be in the best interest of the project. ‘The best interest of the project’ implies achieving timely completion, fit for purpose, and with minimum disputes.
So will an equitable contract with appropriate risk sharing not achieve that?

In my opinion, largely yes, but not always!

The difference between this approach and the approach taken by standard contracts is that in this approach, we "war game" the maximum possible contingencies related to each clause and see whether that clause is working in favour of keeping the project on track in terms of:

  • Cost,
  • Quality,
  • Time, and
  • Dispute Avoidance.

Personality issues and organisational culture are also considered in these war gaming scenarios.

In my next post, we shall discuss how we achieved this in a Public Sector Indian contract by making a mix of FIDIC Silver Book, NEC3 and CPWD GCC coupled with the project management techniques of PRINCE 2.

This post was contributed by Amit Kathpalia FICCP, MRICS. This was originally a LinkedIn post.

Amit is the author of Practical Construction Contract Issues Which Are Not Commonly Understood.

Enjoying the ICCP’s articles? Why not sign up for our mailing list and receive new articles straight into your mailbox? Or, want access to a library of members-only content on contracts and claims? Check out our Membership page and join the ICCP community today.