Acceleration of construction works is an initiative to bring a project to completion ahead of schedule. Project with additional scope of works could also be accelerated to complete on its original schedule so as to avoid time extension. There are various ways to accelerate works including deployment of additional resources, adopting more productive construction sequencing  methodology, implementation of alternative design that reduces construction duration etc. Acceleration could be targeted to either part or whole of the works. Although standard forms of construction contracts in Singapore typically allow changes or variations to be instructed on existing works, there are usually no suitable provisions for acceleration with the exception of the Public Sector Standard Conditions of Contract (also known as ‘PSSCOC’). If and when the Employer requires acceleration, it should be done via supplemental agreement with the contractor. Supplemental agreement essentially varies the existing contract terms. So what is so unique about acceleration such that it could not be accommodated under typical ‘instruction for variations’? What are some of the key terms to be included in this supplemental agreement? An understanding of these key terms explains why acceleration of works may be more complex than typical variation of works under contract. 

This is Part 1 of a two part article series examining accelerating construction works using supplemental agreement. In essence such supplemental agreement attempts to overcome constraints found in certain provisions of construction contracts which could not reasonably accommodate acceleration of works. Contrary to popular belief, commonly found construction provisions such as variation of works, early partial occupation etc are not suitable to effect acceleration of works for reasons that will be examined in this article series. This contract provision examination will be done in the context of contract forms commonly used in Singapore. For avoidance of doubt, apart from PSSCOC there are other international contract forms e.g. JCT 2016, NEC4 and FIDIC Red Book where express provisions are included for accelerating works. Even where contract forms have provisions to instruct acceleration of works, there are other commercial issues e.g. calculating cost of acceleration which may not be adequately addressed as a conventional legal matter. In order to facilitate a comprehensive review of accelerating construction works, some of these commercial issues will also be examined in this article series. By way of example whilst the contractor may be contractually required to submit a quotation for its effort to accelerate its works, what ought to be included in such quotation can be highly specific to the nature of project in hand. Further it is not uncommon for acceleration to involve certain amendments to existing design of works by the contractor in order to expedite schedule. There are residual issues that may not be adequately addressed by conventional contract provisions. 

The need for supplemental agreement arises when both parties agree that the proposed acceleration of works is beyond the contemplation of existing contract. In other words, the Employer in principle agrees to make additional payment to the contractor in exchange for schedule benefit. However there are other situations where there is a primary question over whether acceleration of works entitles additional payment. By way of example, a contractor that is in culpable delay may decide to accelerate its works in order to avoid liquidated damages. There could also be an alternative scenario where a contractor that was wrongfully denied extension of time may decide to carry out ‘constructive acceleration’ in order to meet the original completion date. There may be a case for such contractor to claim for costs incurred due to ‘constructive acceleration’ upon project completion. Under these circumstances, parties are unlikely to negotiate any supplemental agreement since there is dispute over whether such ‘acceleration’ were above and beyond the original agreement. For avoidance of doubt, these circumstances are outside the scope of this article.

Key Terms To Be Included In Supplemental Agreement For Acceleration Of Works

Since supplemental agreement varies the existing contract terms, care should be taken to clearly delineate proposed changes to existing contract terms from other terms that should remain unchanged. It should be noted that ‘variation to contract terms’ is different from ‘variation under the contract’. The former permanently alters the contract terms whilst the latter exercises a right found under an existing contract term. So what are the key terms that should be included in supplemental agreement?

Firstly, the practical completion date for either whole of the works or phase of works (or even stage of works) shall be varied. After all, this is the essential deliverable and the very reason for accelerating works. As the need for acceleration invariably arises after commencement of works, it is imperative to carry out contract administration due diligence on whether the original practical completion date had effectively been extended notwithstanding that any formal extension of time had yet been granted. This very issue will be elaborated further in Part 2 of this article series, but for now suffice to say that it is critical to establish ‘paper trail’ that both parties are in agreement of what should be the existing practical completion date immediately prior to entering into a supplemental agreement. Any potential disagreement over the very contractual date that ought to be accelerated will completely nullify the purpose of such supplemental agreement. This also explains why entering into a supplemental agreement is likely a superior option over exercising any right to acceleration that may be found under the contract. The negotiation between parties allow the establishment of a ‘clean slate’ of completion date. Out of abundance of caution, an expression of specific practical completion date is preferable over stipulation based on ‘time for completion’ duration. This is to avoid dispute over the date from which such duration should be calculated from. It may also be tricky to negotiate the completion dates for purposes of supplemental agreement in parallel with a dynamic site condition of a large and complex project. It is not uncommon for the occurrence of any major contentious delaying event in the midst of negotiation that could disrupt the purported agreement on any completion date. Therefore parties are advised to remain sensitive and vigilant of any material intervening events during the course of negotiation. It should also be noted that acceleration should be referenced to practical completion date given its definitive contractual nature e.g. trigger of maintenance period, objective definition of completion, contractor’s relinquish of control over site etc. Therefore acceleration that are reference to non practical completion date that lacks contract definition such as milestone date of certain construction activities can cause difficulties in contract administration. 

Secondly, there should be a clear agreement to the amount of additional payment (including a reasonable breakdown) that the contractor is entitled to in consideration of the acceleration effort and resources. This is also known as the ‘acceleration cost’. The ways to calculate acceleration costs will be further elaborated in the last section of this article. It should be noted that the derivation of an acceleration cost is in principle quite distinct from an ordinary contract sum for construction works. As regards the latter it represents the amount payable for physical works constructed on site. If the contractor decides to alter the construction methodology by its own volition in the midst of the project, the contract sum is not subject to any adjustment. This is because the original scope of works remain unchanged and the construction methodology is usually not included as part of the contract document. However when it comes to acceleration cost, it is generally to compensate the contractor not for any variation in physical scope of works but rather a change in construction methodology which results in increase in rate of construction (hence acceleration to the works). By way of illustration, although having additional labourers working over extended hours do not necessarily vary the final construction works, it objectively increases the contractor’s cost. These distinctions are important because the parties had to agree on the basis of the acceleration cost so that there is a mutual consent on progress payment arrangement for the purposes of compliance with Security of Payment Act. In this regard, a decision also has to be made on whether the acceleration methodology statement should be included in the supplemental agreement evidencing the underlying basis of acceleration. By way of example, the Employer may take the position that its focus is on the accomplishment of an earlier completion date without wishing to be drawn into exactly how many additional workers or additional work hours will be expended by the contractor. Others may take the opposite position by wanting a clear resource chart and acceleration methodology statement as means of supervising whether the contractor had delivered its end of the bargain. These contrasting school of thoughts are fundamentally a function of commercial judgment call.  

If the Employer is willing to pay acceleration cost, such additional payment is likely to be justified by the avoidance of a potential loss, damages or opportunity cost that may be incurred under the existing practical completion date. By way of illustration, the Employer may be required to provide an earlier handover of several floors of its development to a potential anchor tenant as part of a major lease negotiation. Failure to do so by the Employer may result in damages stipulated in the lease agreement or even potential loss of lucrative rental income. In other words, the existing liquidated damages may not necessarily be sufficient to compensate the Employer for losses arising from a newly emerging event that necessitated acceleration of works. Therefore, it is entirely possible that the liquidated damages may need to be revised as part of the key terms of the supplemental agreement.

It should also be noted that during tender evaluation and assessment, the contractor’s original construction methodology would typically be assessed rigorously. Therefore the actual margin available for acceleration through construction re-sequencing and adoption of a more efficient methodology may be limited. In order to fulfil a more aggressive schedule demand, it often involve revision to the Employer’s design as well as the use of alternative construction material or building system that has a shorter lead time. This often require simplification of design by utilising ‘off the shelf’ product rather than bespoke or proprietary systems. Therefore the supplemental agreement should include any amendments to original design and specifications as well as any implications on interfacing works. Where the contractor is required to provide supplementary interfacing design to accommodate these changes, it should also be made clear on the implications on overall design responsibility. 

Should Acceleration Of Works Be ‘Instructed As Variations’?

It is interesting to note that whilst part of existing scope of works could be omitted by way of ‘instruction for variations’ with an associated valuation method for such omission, there is no corresponding ‘omission’ or reduction to time for completion. This is in stark contrast to extension of time that are usually granted in case of instruction for additional works. Setting aside the issue of acceleration, it appears that the typical construction contract forms do not have a robust provision for time savings in case of omission of works. As evident from the preceding section of this article, whenever works are accelerated there are potential ripple effects caused to other non schedule related matters e.g. additional payment, change in progress payments, possible alteration to design responsibility, revision in liquidated damages etc. Admittedly there is no universal approach by standard forms of contract as regards acceleration works including those commonly used in Singapore’s construction projects. As alluded to earlier, the PSSCOC allows for acceleration of works to be instructed as variations, which can be found under Clause 19.1(f) of the eighth edition dated July 2020. Under this clause, the term ‘variation’ shall include a requirement to complete the works or any phase or part thereof earlier than the relevant stipulated ‘time for completion’. This is applicable for both its ‘design and build’ and ‘traditional construction works’ version of procurement pathways. On the other hand, the two other contract forms commonly used in Singapore namely SIA Building Contract and REDAS Design And Build Conditions of Contract do not have identical express acceleration provision under its respective variation clauses. Under the SIA form, whilst there are provisions for postponement of works under its variation clause, there is no allowance to require for an earlier completion. In general, its variation clause caters to physical change in the construction works rather than schedule of the construction works. Similarly under the REDAS form, the definition of variation as found under its Clause 1.1.33 refers to any alteration and/or modifications to the Employer’s Requirements of which the ‘Employer’s Requirements’ under Clause 1.1.17 refers to description of the ‘Works’ which was intended to be designed and constructed by the contractor. By all accounts, there is a strong suggestion that both the SIA form and REDAS form do not cater to acceleration of works by way of instruction of variations, unlike the PSSCOC. 

It appears that issuance of instruction for variation in order to accelerate the works might be the most administratively expedient method, at least compared to the negotiation of a supplemental agreement. Therefore for those who takes the position that its contract form provides for acceleration by instruction of variation, should this option be exercised in lieu of supplemental agreement? As pointed out in the preceding section of this article there are various critical issues that ought to be included in the supplemental agreement. These issues may not be adequately addressed if acceleration is instructed as a variation. By way of example, there are no provision to vary the liquidated damages if necessary. Parties may also be at odds with the accelerated completion date if there are various outstanding delaying events that are pending assessment of extension of time. There is also very limited guidance on the extent to which the accepted accelerated construction method, should be binding between the parties. Further, the valuation of variation provision in standard conditions of contract are primarily aimed at physical alteration and modification of scope of works. Therefore there are various elements of uncertainty that may complicate the administration of contract if parties are not required to deal with these issues prospectively. The negotiation of supplemental agreement on the other hand requires both parties to address these issues in an upfront manner. In this regard it offers contractual certainty and avoidance of downstream disputes.   

Can Acceleration Of Works Be Administered As Early Partial Occupation?

Early partial occupation is a commonly found provision in contract forms for construction works where there is a requirement for part of the works to be handed back to the Employer earlier than the stipulated practical completion date. This is generally an impromptu arrangement that arises after contract commencement. By way of context, there is a related article published on this website entitled ‘Part 6 of SIA vs PSSCOC – Early Partial Occupation Of The Works’ that is available for reference. Can acceleration of works be administered as early partial occupation? Proponents of this approach may favour the ease with which acceleration could be effected by way of issuance of instruction, thereby avoiding a possible long drawn negotiations that supplemental agreement may entail. Unfortunately, there are certain compromises that parties may need to accept under the administration of early partial occupation. 

Firstly whilst there are provisions to revise liquidated damages for the remaining scope of works by way of proportionate reduction based on contract value, there are no liquidated damages for the accelerated works. In other words, if the contractor fail to achieve the earlier practical completion date, no liquidated damages shall be applicable. Secondly, there are also no express provision to determine how the acceleration costs shall be determined. If the contractor anticipates additional costs to be incurred as a result of the acceleration of works, it is unclear whether such cost could be agreed in advance and if so, how such incremental sum shall be paid progressively throughout the course of acceleration. The lack of commercial and payment agreement as regards early partial occupation could also be attributed by the fact that there is an absence of mutual consent on the means and methods by which the works concerned shall be accelerated. In summary, the expedience afforded to the parties at the initial stage may come at a disproportionally significant costs.

Calculating Incremental Costs For Acceleration Of Works

Although it is generally true that the contractor should be entitled to additional payment for the additional resources and cost incurred in accelerating the works, it should be balanced with the fact that a reduction in construction duration would likely to reduce contractor’s time related preliminaries costs. Therefore the arithmetical exercise involved in calculating acceleration cost is usually a blend of additions and omissions with a likely overall net incremental cost.

Acceleration cost can be calculated in multiple ways, with different level of accuracies and perspectives. The first method is the direct cost method where each additional resource deployed for purposes of acceleration are itemised with the corresponding duration identified. By way of example, if additional 10 workers are deployed with 10 work hours per worker at the rate of $10/hour, the additional labour cost is 100 man-hours x $10/hour = $1,000. The same arithmetical approach can be used for other resources such as plant, machineries, equipment. An overall 15% surcharge could be added to cater to head office overheads and profit where it is not possible to identify resources exclusively dedicated to the accelerative measures. This direct cost method appear to be the most intuitively fair and transparent calculation given that it resembles ‘daywork’ method commonly utilised under valuation of variation. However parties should agree whether or not the contractor will be compensated for acceleration cost based on actual cost incurred subject to site records, or will it be a ‘lump sum’ arrangement where payments will be made strictly based on agreed amount regardless of actual resources deployed.

The second method to calculate acceleration cost is premised on productivity cost. This method is suitable where the works are fairly repetitive and there are good records of works completed so far with corresponding payments incurred. By way of illustration of pipe laying infrastructure works, if the record shows that the contractor expended $300,000 to lay 1,000 metres of pipe over one month duration at Part A of the site and $100,000 to lay 1,000 metres of pipe over two months at Part B of the site, a productivity comparison could be made. If it could be established that Part A was able to achieve higher productivity due to additional resources deployed, it is indicative that the accelerative measure to expedite the same amount of works by one month would cost around the ball park figure of $200,000 (i.e. the difference between $300,000 and $100,000). This productivity cost method requires existence of reliable record for comparable scope of works. It also assumes that a linear comparison is possible in the absence of any delaying events occurring on any selected parts of the project. This calculation avoids the need to identify each and every additional resource that is required to execute the accelerative measures by blending the entire cost into productivity rate. It should be a faster way to derive the acceleration cost but requires parties’ agreement on various variables incorporated into the productivity rate.  

The third method is an incentive method where the Employer offers a lump sum to the contractor based on a percentage of the commercial benefit that the Employer may stand to gain if acceleration is achieved. This departs from the conventional way where the quotation is submitted by the contractor to the Employer and its consultant for assessment and negotiation. The contractor would decide whether it could achieve the advance completion date by utilising the lump sum offered. The drawback to this approach could be that the acceleration cost may not bear any correlation to the actual resources required to effect the accelerative measures. If the accelerated part of the works are subject to any excusable delays after entering into supplemental agreement, the Employer will continue to be liable for the agreed amount without actually accruing its corresponding benefit. The benefit to this approach is that it provides an immediate litmus test on whether the accelerative measures make commercial sense. If the acceleration cost way exceeds that financial benefit that the Employer stand to gain by advance completion, the entire negotiation could be aborted immediately as it will no longer make any sense. 

In reality, the three methods identified above are by no means exhaustive nor mutually exclusive. Parties are free to mix and match any of these methods for purposes of deriving the overall acceleration cost, depending on availability of documentation and basis of calculation. It should also be noted that the calculation of acceleration cost for purposes of supplemental agreement is quite different from advancing acceleration claims in case of dispute. In case of the latter, the claimant has the benefit of hindsight by providing the court/tribunal with the relevant cost of additional resources deployed by comparing the as built programme and as-planned programme. Such benefit of hindsight is not available when parties are looking to negotiate a prospective deal.

Conclusion

It should be clear at least in Part 1 of this article series that the supplemental agreement method should be strongly considered by the parties even if there are existing contract provisions that could accommodate instruction for acceleration. In Part 2 of this article series, there will be further examination on the subject of acceleration including commercial and logistical issues. In summary whilst certain existing contract provisions may be readily available for parties’ use with the advantage of expedience, the short term gain should always be balanced with potential long term costs.




Koon Tak Hong Consulting Private Limited