This article is part two of a series of articles that examines the ways in which one can navigate expert reports issued for the purposes of construction arbitration. The focus of this article is on quantum issues. Quantum issues deal with assessment or determination of amounts payable for contractual claims. Under construction arbitration, such contractual claims can be broadly divided into three categories namely (1) variation claims, (2) loss and expense claims and (3) remedial works claims. Where the quantum disputes arise out of a main contract, first two categories of claims are likely to be advanced by the contractor whilst the third category is likely to be counter claims advanced by the Employer.

Similar to delay issues, quantum issues are mostly secondary issues that are to be dealt with after the question of liability or entitlement of certain primary issues are first determined. By way of example, if the arbitrator makes a favourable determination for the Employer for certain disputed scope of works, the quantum issue facilitates the assessment of amount which the contractor is liable for. This distinction is important in that experts should be mindful of such delineation and not venture into areas outside their scope of expertise. Quantum experts are usually professionals from quantity surveying background with expertise in valuation of construction costs. Notwithstanding this distinction in different realms of expertise, quantum experts may at times inadvertently stray into matters outside their terms of reference. In this regard, any reliance placed upon such expert evidence may give rise to procedural irregularities which can be problematic for the eventual arbitral award. 

The method of assessment of amounts payable for various types of claims are governed by the contract terms. Under the public sector standard conditions of contract (PSSCOC) used in Singapore, the contractor is required to provide the contract administrator with access to its books and documents that are material and relevant to any of its loss and expense claim. This is to allow the necessary audit, transcription, examination of such documentation to substantiate the loss and expense claim. Such paper trail are in essence factual evidence to demonstrate that the amount claimed is actually incurred, leaving little to no room for subjectivity and inferences. It is important to note that expert evidence are essentially evaluative opinions on technical matters that are meant to assist the tribunal. If the contract conditions prescribe a mandatory requirement for concrete, complete and comprehensive factual evidence for loss and expense claim, is there still a need for expert’s evaluative opinions? Whilst expert’s opinions are expected to be subjective, it is particularly helpful when the factual evidence on a technical issue is not entirely complete leaving room for narrative based on analysis and different interpretations. The rigours and demands of contract terms should compel one to examine under what circumstances should expert’s evidence on quantum issue be required to fulfil a factual evidence gap. Is it the role of a quantum expert to attest the factual credibility of documentation in support of loss and expense claim? 

To understand how quantum experts are best positioned to assist the tribunal, one has to understand the actual methods of assessments for various types of claims including its challenges. This will provide some clarity on where limitations of factual evidence is complemented by expert evidence. These issues will be further expanded in the next few sections of this article.

Challenges In Quantum Assessment of Variations Claims

Typically the time and effort taken to assess a technical issue is proportional with the associated magnitude and complexity of such issue. Interestingly, this may not always be true in the case of quantum assessment of variation claims. The time and intellectual rigour expended to assess a $100,000 variation claim is not necessarily ten times of the same effort for a $1million variation claim. In fact, such time and effort involved may be comparable or approximately similar. This is largely because the steps required for such assessment are similar regardless of the expected amount in dispute. Procedure wise, it is a fact sensitive line of enquiry that involves identification of (1) quantity of work done and (2) unit rates applicable. When parties differ over the amount payable for certain variations claim, it could be due to discrepancies in the associated quantity of work done and/or the unit rates applicable. 

In the identification of quantity of work done, comparisons had to firstly be made between the relevant categories of drawings such as between contract drawings with the corresponding construction drawings or as built drawings. It can be a tedious process because within any given category of drawings, subsequent comparisons had to be made between different types of drawings which relate to the scope of varied works such as layout plans, cross sectional views, detail drawings, elevation views etc. Where the varied works involve more than one construction discipline, further comparisons also had to be made between architectural drawings, structural drawings, mechanical drawings and electrical drawings. The reason why multiple comparisons of drawings are necessary is because the narrative or description of varied works included in the instructions issued to contractor are rarely inclusive of quantities of works affected. Therefore, measurements are taken based on the collective drawings identified above in accordance with rules included in standard methods of measurements, taking into consideration of any exceptions in the associated preambles. Given the large volume of documentation involved in this process, any quantum expert report should appropriately identify the list of drawings referred to including the breakdown of measurements taken from these drawings so as to form the basis of any independently derived quantities of work. This is particularly helpful and relevant where parties’ disputes include measurement of work done. Where neither parties’ expert requested for measurements to be taken via site visit, the accuracy of the relevant drawings are deemed accurate and not in dispute. 

Apart from the time consuming process of identification of quantity of works, the determination of unit rates applicable entails considerable efforts as well. As compared to identification of quantity of work, the assessment of unit rate requires a lot more professional judgment calls. This is because valuation is fundamentally an evaluative process where the outcome is inherently subjective. Opposing experts are expected to differ in matters of valuation. The real test is in their process of arriving at their respective conclusions. Variations are valued based on a tiered approach as prescribed in conditions of contract. There are in general four tiers where the unit rates applicable are strictly confined to those included in the contract if the variations are instructed with little or no disruptions to the contractor’s  prevailing sequence of works. As the variations instructed becomes more disruptive, additional allowances are included to compensate the contractor accordingly. The determination of whether or not varied works instructed are disruptive is both an art and science. Whilst an objective reference can be made to the prevailing construction programme to determine the extent of disruption if any, such programme may not be available since most contract conditions do not stipulate how frequently should a contemporaneous programme be updated. Apart from timing of the instructed works, the mathematical derivation of an adjusted rate is also a qualitative assessment with multiple layers of implicit assumptions. The unit rates are essentially composite rates that consist of labour costs, material costs and plant/ equipment costs. The percentage allowed for each cost component represents an average derived after the total cost was originally calculated based on first principle during the time of tender. There are other relevant considerations in adjustments of unit rates such as the element of profitability, the market price fluctuations, economies of scale etc are included in the mathematical extrapolations.

It is not uncommon for quantum experts to delegate the quantum assessment works to multiple assistants, all of whom are usually identified in the expert report for transparency. Since the party appointed expert usually maintains an overall supervision role, the detail measurement breakdown and arithmetical adjustments of relevant unit rates are not commonly disclosed unless such disclosure is specifically agreed upon by the parties or directed by the tribunal. Depending on the nature of the dispute, such disclosure might be helpful in providing clarity to the mechanics behind quantum assessments of variation claims. 

Different standard conditions of construction contracts are likely to describe its valuation of variation mechanism differently despite an overarching common valuation principles. Quantum experts may dedicate a significant portion of the expert report to provide their interpretations of such conditions as the basis of the quantum assessment works. If part of the legal issues between parties involve the interpretation of the relevant valuation clauses, strictly speaking it is up to the respective counsels to make their legal submissions on such matter. How a contract conditions ought to be construed is typically not within the quantum experts’ scope of expertise. In this regard, it would be advisable for the quantum expert to work in tandem with the party’s legal counsel on the issue of interpretation whilst maintaining an appropriate level of independence. 

Challenges In Quantum Assessment of Loss And Expense Claims

Loss and expense are usually presented in various heads of claims which include prolongation costs, disruption costs, loss of profit etc. As alluded to in the beginning of this article, the contractor is usually required to provide the contract administrator with unfettered access to its books and documents in support of its loss and expense claim. Such requirement is contractually provided for under Clause 23.4 of the ninth edition of the PSSCOC published in 2020. According to Clause 23.6, if the contractor fails to comply with such disclosure requirement, the contract administrator shall make an assessment as shall be reasonable on the basis of information made available by the contractor, if any. If the contractor disputes such assessment and subsequently refers the matter to arbitration, no account shall be taken of any information which was not previously supplied to the contract administrator, regardless of whether or not he could have possibly done so. Therefore, the scope of dispute before the arbitrator is restricted which in turn affects the tribunal’s jurisdiction. This invariably affects the extent to which the quantum expert can meaningfully provide his expert opinions on such loss and expense issues. 

The challenges in this regard are two fold. One, where the burden of information, records and books disclosure is so comprehensive and concrete, it raises the question of the extent to which an evaluative expert opinion is required to supplement the factual evidence. Expert opinions are meant to assist the tribunal on technical issues that are not traditionally within the arbitrator’s scope of expertise particularly those from pure legal background such as lawyers or state court judges. The level of document disclosure found in such clause is apparently meant to establish incontrovertible factual evidence, making little to no room for speculative narrative. Second, it limits the arbitrator’s ability to take into consideration any supplementary evidence that are presented “belatedly” even if such evidence could not logically be produced any earlier. Therefore any reliance on these supplementary evidence may give rise to procedural irregularities that may adversely affect the eventual arbitral award. In navigating quantum expert report, it is imperative that parties are well acquainted with such restrictions or time bar provisions found in the conditions of contract. 

Challenges In Quantum Assessment of Remedial Works Claims

Costs of remedial works are usually expenses incurred by the Employer for engaging third party contractor to rectify what is perceived to be unsatisfactory work carried out by the contractor in issue. Similar to claims by the contractor for variation works and loss and expense, the quantum assessment method is subject to the relevant terms under the contract. The contract conditions typically do not impose the same level of restrictions on the Employer as compared to the contractor’s claims. Therefore, the Employer is usually not subject to the typical condition precedents, early notifications, documentation disclosure, methods of valuation etc. The Employer is generally entitled to reimbursement based on damages and expenses incurred if and when liability is established in its favour. What are the expenses incurred is a question of fact that can be proven by way of receipts, invoices, quotations of such third party contractor. Again, this raises the question of whether the tribunal is genuinely in need of technical assistance by way of evaluative opinion from an expert when there is a complete paper trail in respect of expenses incurred. 

If parties are in contention over what are ‘reasonably’ incurred by the Employer for engaging third party contractors, there are a few factors of consideration that may involve a quantum expert’s input based on his understanding of sequence of construction works, availability of resources, procurement process etc. In this regard the question is whether it is fair for the Employer to be fully compensated financially irrespective of whether the Employer had exercised prudence and reasonableness in the course of remedying the alleged defective works. If the Employer had not carried out competitive tendering for the works in hand, the costs incurred is expected to be higher in the absence of competition. Therefore, the question is whether such works is under genuine time pressure for completion that necessitates the practice of procurement ‘sole sourcing’, if indeed such measure can reasonably save time. It may well be that the Employer is entitled to engage third party contractor to carry out the works in contention that arise during the construction period. This is when there is non compliant by the contractor with the instructions to which it had been issued. It is worth noting that certain contract forms only expressly provide for the engagement of third party contractor after the contractor’s employment is terminated for default. The circumstances under which a third party contractor may be engaged is relevant to quantum assessment as it affects the time pressure for completion, the site congestions and availability of site resources (e.g. scaffolding, equipment, plant) to be used by the third party contractor. These are factors of consideration when assessing what should have been reasonably incurred by the Employer.

Framing Of Expert Issues

Based on the observations made above on variations claims, loss and expense claims and remedial works claims, it is quite evident that quantum expert opinions are not invariably required just because there are quantum issues before the tribunal. Where expert opinions are required, these issues ought to be framed appropriately with two general factors of consideration namely (1) where evaluative opinion is of value to provide analysis to complement factual evidence (2) arbitration costs. Whilst the expert opinions are primarily meant to assist and benefit the tribunal on certain complex technical issues, the ways it is framed is usually decided and driven by the parties’ legal counsels. Due to the adversarial nature of arbitral proceedings premised on common law systems, the tribunal is unlikely to direct the parties to present their expert evidence from a certain angle or perspective that will assist their deliberations. Consequently the parties may frame the expert issues in an overly all encompassing manner, that could inadvertently include both the issue of liability and quantum. Subject to the prevailing arbitration rules, from a procedural timetable perspective parties are usually required to submit their expert issues as well as the identity of their expert witness after the conclusion of terms of reference of the arbitration and document discovery.  It is at this juncture that parties should be able to have a good appreciation of any strength or deficiency in their documentary evidence and the scope of arbitration. Such information can be helpful in finding ways to frame the expert issue in the most advantageous manner.

As mentioned earlier in this article, the effort to parse out quantum issues may involve an overly voluminous amount of documentation where the time and effort expended may not always be proportional to the magnitude of the issue in hand. Where parties are expending a level of time and resources that exceed the amount in dispute, this indicates a lack of sense of proportionality and prudence in managing arbitration costs. This should always a point of concern when considering ways in which expert issues can be framed effectively. To this end, parties may be inclined to instruct its quantum expert to examine the “sufficiency of evidence” in respect of quantum claims in dispute. Under this approach, the quantum expert are not expected to measure the quantities in dispute and derive the applicable unit rates. Instead, the quantum expert may only “review” the documentation submitted in respect of the claims and provide an opinion whether the evidentiary value is adequate on the balance of probability. Such documentations supplied to the expert are usually claims advanced by the contractor as well as responses and evaluations by the project consultants. Where the said consultants are not enlisted as factual witnesses, any unquestioning reliance on such documentations may reveal partisanship. Further, critics have argued that the weighing of evidentiary value is a matter reserved for the tribunal and there is nothing technical in this regard. If the tribunal relies upon such expert opinion, it may be argued that the tribunal had abdicated its responsibilities. After all parties had not consented to referring their disputes to the experts. 

How The Laborious Nature Of Quantum Issues Influences Presentation of Expert Issues?

It is quite common for quantum claims to consist of a long list of discrete and separate issues with varying severity and amounts in dispute. Regardless of the amount claimable, each item of claim may involve a considerable list of documents that parties refer to in support of their positions. Usually the particularised list of claims is only be made available during the issuance and exchange of factual witness statements, way after parties have pleaded their respective positions. In order to ensure that the list of claims are well within the scope of arbitration and that the associated claim and defence are presented both exhaustively and comprehensively, Scott Schedule has been a quite useful format of presentation. This also allow the tribunal to focus on major points of contention and identifying the exact difference in parties’ respective positions, whether it is on the issue of quantity of works or unit rates applicable. Therefore in navigating an expert report on quantum issues, one of the primary focal points will be the Scott Schedule and both experts should provide a joint statement to set out their common grounds and areas of differences vis-a-vis the itemised Scott Schedule.

Conclusion

Very often parties instinctively frame and present their respective expert evidence primarily to magnify the merit of their case. In this regard, parties are driven by their desire to adduce the most persuasive and convincing arguments for its substantive issue. Expert evidence is most certainly a central part of this strategy. However, whether an arbitral award may be set aside do not usually depend on the merit of reasoning but rather the procedural integrity in arriving at such reasoning. Therefore the tribunal’s priority may not be completely aligned with the parties’ focus all the time. As regards quantum issues, due to the fact sensitive and document  driven nature of every item of claim, there should be a healthy balance between both substantive and procedural matter.




Koon Tak Hong Consulting Private Limited