Deadlines are essential to ensure that the project team produces information at the right time. But fear of financial penalties can be counter-productive
I am advising on a project in the Middle East where, in response to the staged deadlines imposed by a hotel operator, I suggested that the consultants and contractors should agree corresponding deadlines for their own designs. This did not go down well with the consultants.
Concerns were expressed that the contractors would exploit agreed deadlines for their designs. In the view of the lead design consultant, it would be much better to agree only a "reasonable" time for these matters so as to keep the contractors on the back foot.
I was asked for examples of current British practice, so I went first to the JCT "information release schedule". The theory is that contractual deadlines are agreed so as to clarify when levels of additional design detail will be provided to the main contractor during the construction phase. Unfortunately, the JCT schedule has no matching provision in any published consultancy agreement. Also, it does not recognise that information released to the main contractor is often dependent on other information that the main contractor and its subcontractors need to release to the design consultants.
So I turned to NEC3 and its "key dates schedule", which looks more promising. This requires that key dates are agreed in advance for activities of the main contractor and consultants - and obliges each of them to meet these dates.
NEC3 does not specify what constitutes a key date, but the system lends itself to agreeing dates for design releases. It can also fix dates and periods for firming up provisional sums, for agreed access arrangements, for completion of specialist works packages and for handover of sections of the completed works.
The next question put to me by the Middle East project team was "What is the financial penalty for failing to meet a deadline?" They assumed that a complex system of liquidated damages for consultants and contractors would apply at every stage, and that without this the agreed deadlines were not worth the paper they were written on.
That is not my experience. For example, the PPC2000 partnering timetable and project timetable impose binding deadlines on clients, consultants and contractors, but do not specify liquidated damages for delays. Nevertheless, the agreed deadlines add clarity as to what each party has promised the others and as to what preconditions or obstacles will get in the way. Peer group pressure, with knowledge of the knock-on effect of delays on other team members, has proven a strong incentive for the parties to treat key dates with respect.
Peer group pressure, with knowledge of the knock-on effect of delays, has proven a strong incentive for the parties to treat key dates with respect
Deadlines offer a more efficient system of team-based working than the alternative of referring to "reasonable" periods of time, which keeps contractors and consultants guessing as to when they will get the details they need from each other in order to finish the job.
Of course, agreed deadlines are enforceable contractual obligations - with a right to sue for damages for loss and expense caused by a delay. For a team to work successfully, they need to rely on each other to meet deadlines. So agreed deadlines cannot be optional.
As to the financial consequences of such delays against key dates under NEC3, its clause 25.3 provides some very sharp teeth indeed, which consultants and contractors may find alarming. If the project manager decides that work (including design work) does not meet the required condition for a key date, and if as a result the employer incurs additional cost, such additional cost is payable by the contractor. There is no requirement to consult the contractor in advance and thus no way for the contractor to head off a major liability. The same provision applies to key dates agreed by consultants in clause 23.3 of the NEC professional services contract. This leaves the contractor and consultants vulnerable to the employer recouping whatever money it spends on paying others to do the relevant work whenever a key date is not met.
The problem here is that NEC3, having introduced a valuable technique to pinpoint deadlines for clients, contractors and consultants, is in danger of discouraging the use of its "key dates schedule" for fear of the consequences.
So what is the best way to motivate timely performance? For the client the primary motivation is the loss of amenity if its project is not completed. For consultants a fee structure that incentivises prompt performance is preferable to a straight percentage of project cost. For the main contractor (and its subcontractors) the contractual exclusion of any windfall profit and other benefits (beyond cost recovery) irrespective of the cause of delay can shift their efforts away from arguing about the cause of delay towards minimising its effects.
Fear of agreeing key dates leaves the team in an endless round of arguments as to what constitutes "a reasonable time". Key dates that are binding on clients, consultants and contractors (perhaps without the draconian NEC cost recovery system) offer the way forward when delay is a luxury that a project cannot afford whether it is a Middle East hotel or a sensitive UK sports facility scheduled for 2012.
David Mosey is a partner with Trowers & Hamlins