Legal - Backwards or forwards?

As we all know, delays to completion commonly occur on construction projects – and equally commonly lead to disputes about the causes of such delay and whether the contractor is entitled to an extension of time as a result, or whether instead it has no such entitlement and will be liable for delay damages as a result. Resolving those disputes can be costly and time-consuming – particularly where parties disagree about the appropriate method of delay analysis. Arguments about which to use are likely to increase after a couple of recent decisions.

While causation is sometimes stated to be a matter to be dealt with on a commonsense basis, delay experts are often engaged to prepare reports analysing the delays on a project. Different delay analysis methods exist, and it is not uncommon for each expert to adopt a different method.

There is a broad distinction between methods that are “prospective” or “retrospective”. The former involve assessing the delays as at the time the events in question occurred. In contrast, retrospective methodologies take into account subsequent events and attempt to establish whether the events in question actually caused delay to completion when the progress of the work as a whole is considered.

The current state of confusion in this area can only lead to continuing lengthy and expensive disputes between parties as to entitlements to extensions of time 

A few years ago, the judgement in the Walter Lilly case considered which method should be used. It noted: “The debate about the ‘prospective’ or ‘retrospective’ approach to delay analysis was also sterile because both delay experts accepted that, if each approach was done correctly, they should produce the same result.” That comment surprised some, because a retrospective approach, by definition, takes into account matters that a prospective approach does not.

The question of whether prospective and retrospective analyses are likely to produce different results has recently been considered by the courts in Fluor vs Shanghai Zhenhua Heavy Industry Co. Fluor had entered into an EPC contract to build the foundations and infrastructure for a wind farm, and had subcontracted the fabrication of the steel foundation structures to Shanghai Zhenhua Heavy Industry Co (SZHI). Defects in SZHI’s works led to significant delays in Fluor’s works under its EPC contract. Fluor claimed damages from SZHI as a result. Inevitably Fluor’s claim required delay analysis, and this led to a debate about whether a prospective or retrospective approach to delay analysis should be adopted.

In its judgment the court noted: “I would accept […] that a prospective analysis – in other words considering the critical path at any particular point in time as viewed by those on the ground at that time – does not necessarily produce the same answer as an analysis carried out retrospectively.” 

The question arises as to which approach is to be preferred. There is a great deal of confusion on this point. The starting point should be the terms of the contract. What do these require?

Even then, the answer may not be clear.

Under the JCT form of contract, in addition to assessing extensions of time applied for during the course of the works (which would by necessity be carried out on a prospective basis), the contract administrator is required to carry out a final extension of time exercise after practical completion, although at that time any previously awarded extension cannot be reduced. This is often considered to support a retrospective approach. That said, in Fluor, having concluded there is indeed a difference between the results produced by prospective and retrospective analyses, the judge went on to say: “The former is the correct approach when considering matters such as the award of an extension of time.” Will this comment lead to a renewed vigour on the part of those espousing prospective analyses, including under JCT contracts?

Other contracts, such as the NEC, contain language that at first glance appears to require a prospective approach to extensions of time. Despite that, an attempt to require a prospective approach under the NEC recently failed in NIHE vs Healthy Buildings (Ireland) Ltd.

This decision relied in part on case law in relation to assessment of damages, to the effect that assessments should be made with the benefit of full information. The colourful statement given by Lord Macnaghten in the Bwllfa case in 1903 is often quoted in this respect: “Why should [the arbitrator] guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?” Will the Healthy Buildings decision lead to a renewed vigour on the part of those espousing retrospective analyses, including under NEC contracts?

Perhaps wisely, the SCL Delay and Disruption Protocol no longer plumps firmly for one approach over the other and instead now states that where an extension of time claim is being assessed at a time distant from the events in question, a “prospective analysis of delay […] may no longer be appropriate”.

The courts’ comments in Fluor and Healthy Buildings are likely to encourage further debate over prospective and retrospective approaches to delay analysis in English law. The current state of confusion in this area can only lead to continuing lengthy and expensive disputes between parties as to entitlements to extensions of time. Some clarification would be welcome.