Jordan ... addressing disputes on delays.
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STUART JORDAN* discusses extension of time (EOT) in contracts and the prospective versus retrospective approach in the delay analysis.
01 November 2017
Should the contractor’s entitlement to an extension of time (EOT) be decided quickly after the delay event arises or later on when the full effects of the delay event have been seen? This is a “prospective versus retrospective assessment” question.
At first glance, this still-controversial question looks simple with an obvious answer: A prospective assessment is surely just a less-informed version of a retrospective assessment so it should not be the basis of entitlement to an EOT. In reality, like most things related to construction delay, the situation is more complex. As well as the question of how much is known at the time of the assessment, the prospective/retrospective viewpoint can exclude or include certain methods of delay analysis and can completely change the way an analysis is carried out, so bringing different results.
It is easy to see how this question matters to contractors and employers alike. It is also easy to see how uncertainties in contractual provisions on this question can produce disputes.
So, on the above reasoning, why would any parties want to agree an EOT entitlement based only on a prospective assessment? The short answer is: Certainty and finality. Parties might value an early and conclusive assessment of the EOT because it brings certainty. It also forces the parties (and the contract administrator) to examine the question while the events are unfolding, witnessing the situation fresh. Once the assessment is made, the contractor knows where he stands and can plan and re-plan the remainder of the works accordingly – including acceleration if needs be.
Conversely, the retrospective approach can allow difficult questions to remain unresolved (and inadequately examined or recorded) while later events (also unresolved) pile on top of them. The mess left for sorting out after works completion is less likely to be untangled and disputes, inevitably, will come. On top of that, the contractor may have planned the later works based on an incorrect expectation of his entitlement to EOTs.
So what do most parties do? Unfortunately, most of the main published standard forms do not address this question adequately and the resulting uncertainty brings further scope for disputes. One common problem is a basic mixing up of process and entitlement. All standard contracts (regardless of whether they are prospective or retrospective) provide for an early assessment by the contract administrator following an EOT claim. Logically, that will usually require a prospective judgment about the eventual effect of the event. Many standard contracts then provide for a later reassessment of that decision (with all others) in a general review after works completion. Others do not include the later review but either way, these contracts do not generally succeed in making a clear connection between this process and actual entitlement.
One form (the Engineering and Construction Contract) provides for a prospective assessment as the express basis of entitlement, with the assessor allowed to state specific assumptions on future effects of the delay event. This is a step forward in terms of clarity but even this contract does not conclusively state a fully-prospective approach.
Clarity on this question requires a contract to cover all the bases including:
• Stating whether entitlement to an EOT is determined by the actual impact of the delay event or by the contract administrator’s assessment of it, based on facts known at the time of the assessment, or at the time of the impact of the delay event;
• Stating whether this assessment is subject to review and, if so, on what basis;
• Stating – in a fully prospective approach – that any later review is limited to checking whether the original assessment was done correctly on the facts known at the relevant time; and is not a new, retrospective assessment.
It follows in this last situation that a court or an arbitrator would also be limited to examining the original assessment in the light of the facts known at the time, even if later events changed the picture completely. Most people in the industry find this idea to be unacceptable because it involves ignoring facts. However, they also see the cost of the “wait and see” approach in storing up entangled claims for after completion.
Clearly we can’t have it both ways. Most of us will stick with entitlement being based on the full facts and will accept that this means they have no certainty and no conclusion until everything is known. At the same time, a contract can still promote good practice in record-keeping, updating of programmes and other measures to keep things untangled as far as possible.
* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.
