This is Part 2 of an article series examining acceleration of works for construction project both from a contractual and commercial perspectives. In general acceleration of works refers to bringing forward original practical completion date(s) through a combination of measures such as deployment of additional resources, re-sequencing of works, revision in design to adopt more time efficient specifications etc. In Singapore, most standard conditions of contract do not have provisions that allow the Employer and its agent to issue instruction for acceleration of works, apart from the Public Sector Standard Conditions of Contract (PSSCOC). This article series highlights the advantages of effecting acceleration by way of supplemental agreement, i.e. for parties to vary certain key terms of their existing contract. In Part 1 of this series, some of the key terms that ought to be included in such supplemental agreement were examined. In Part 2 of this article series, other pertinent issues of acceleration of works will be reviewed. Although acceleration of works is generally considered a schedule related matter, it is in reality a multi-faceted issue. When works are accelerated it may cause ripple effects on other contractual and commercial issues including changes to existing unit rates and pricing, logistical/ phasing considerations, contract administration of existing delaying events etc. Parties should consciously address these key issues during negotiation, as existing conditions of contract do not typically provide the required level of clarity on the consequences arising from acceleration of work. This article will address these consequential issues in further detail under subsequent sections of this article. 

For avoidance of doubt, the acceleration of works discussed in this article series refers to an intentional schedule amendment initiated by the Employer for its own benefit where there is an in-principle agreement that the contractor ought to be compensated for these extra over efforts. This is different from other circumstances such as ‘constructive acceleration’ or ‘delay mitigation’ where the contractor decides to expedite programme by its own volition in response to schedule overrun, rightly or wrongly. In such cases, there is generally a dispute over whether additional payment to the contractor is warranted. This is outside the scope of this article series. 

Acceleration Of Works – Implications On Existing Pricing And Unit Rates

As regards works that are subject to acceleration, should there be any adjustments made to its pricing and unit rates? Similarly, should there be any commercial adjustments for the remaining works that are not part of the accelerative measures? Whilst there is a general agreement that the contractor is entitled to additional payment for its accelerative measures, it is often debatable as regards how such amount should be derived. The first method is that the existing unit rates and prices of the accelerated works should be adjusted in order to calculate any increase in contract sum. An alternative method is that the acceleration cost should be calculated exclusively based on the additional resources to support the acceleration effort without any amendment to existing pricing and unit rate. The difference between these two methods is that the former approach involves a permanent change in pricing and unit rates. On the other hand, the prices and unit rates remain unchanged under the latter approach. To better understand the merits of these contrasting methods, one should examine the commercial basis of tender price which forms the original contract sum.

When a contractor submits its tender offer, the unit rates and prices are usually structured based on a defined scope of works to be completed within a specified time for completion. In other words, the productivity of its resources influences the basis of its pricing. A crew of workers working round the clock incurring overtime charges based on an ambitious timeline will clearly be more costly than the same crew of workers working based on an ordinary time frame. Whenever the existing scope of works are varied, the unit rates used to value such variation works may be adjusted if such works are executed under different conditions. Whilst acceleration of works may not necessarily be considered as ‘variation’ depending on the contract form used, there is a compelling argument that the contractor should be entitled to fair allowances to its existing pricing if acceleration changes the site conditions. This is particularly so if the change in site conditions affects not just the accelerated works but also other remaining works. By way of illustration, where accelerative measures involve additional work shifts resulting in logistical and resource congestion on site, the increase in work productivity changes the basis of the original pricing by the contractor. Certain shared site resources such as scaffolding, site storage, usage of shared plant and equipment etc which are typically provided for under preliminaries cost may be scarce during any surge in construction activities. The increase in demand drives up unit rates and prices to the extent that these uptick in construction activities extends throughout the construction duration. If and when there are any variations works instructed above and beyond the accelerative measures, these variations are carried out under an environment where there is a pre-existing surge in construction activities. It follows that the valuation of such variation works should be on the basis of adjusted unit rates and prices to reflect the stretched resources.

On the other hand, the Employer and its consultants may argue that the contractor’s entitlement to acceleration cost should be calculated on the basis of an exclusive lump sum. In other words, if and when there are any additional works instructed during the accelerative efforts, such variations shall be valued based on unamended existing unit rates and prices. The acceleration of works should not be an excuse for the contractor to unravel an existing commercial agreement, particularly in the absence of competitive bid. Any  remuneration arising from acceleration of works should included in the lump sum acceleration cost without any commercial spillover to other part of the works. 

   Whilst there are merits to the two competing reasonings given above, it should be noted the Employer has limited room to manoeuvre particularly if the requirement to accelerate is non negotiable. As mentioned in Part 1 of this article series, any incremental in contract sum should be balanced with omission in preliminaries cost by virtue of reduction in construction period due to acceleration. Further, any increase in unit rates could serve as a double-edged sword in that such enhanced rate shall also be used in case of variation to omit certain works. In this regard, the scope of acceleration should be as narrowly defined as possible in order to ensure that only unit rates and prices that are relevant are affected. Where the works subject to acceleration are loosely defined, it may give rise to unintended commercial implications. In view of these considerations, it is also in the interest of the Employer to consider simplification of design as means of acceleration instead of deployment of additional resources. Under such approach, the commercial effects of accelerative measures can be ring-fenced. 

Acceleration Of Works – Resolving Existing Delaying Events

As acceleration is essentially an initiative to bring forward practical completion date(s), parties should in theory be in complete agreement on the exact revised/ accelerated practical completion date. By way of illustration if the original practical completion date was 1 July 2025 and parties agree to bring forward the completion date by six months through accelerative measures, the revised/ accelerated practical completion date is 1 January 2025. As acceleration of works is invariably initiated after project commencement, the original practical completion date could have possibly been affected by various delaying events – excusable or otherwise, prior to the agreement for acceleration. Contrary to popular belief, during the construction period the Employer and contractor are not always in concurrence on the prevailing completion date for a variety of reasons. The practical completion date is only extended if the certifier determines that there is indeed delay to the construction programme and such delaying event(s) is either an Employer related delaying event or neutral delaying event. Prior to any such determination, the contractor had to notify the certifier in accordance with the requirements set out under condition precedents, including continuous disclosure of the relevant facts, information, records etc. As most extension of time are granted retrospectively, there is invariably a time lag between the emergence of the delaying event to any grant of extension of time. Given that it is fairly common for projects to have multiple delaying events with some overlapping with one another, the determination of whether there should be any revision to the original practical completion date can be complex and time consuming. Therefore, as a matter of expedience most assessment of extension of time are carried out towards the end of the project or even after the original practical completion date. The certifier typically justifies such belated assessment with the need to allow the facts to unfold and be in the position to parse out the material information in order to enable a comprehensive analysis. It is therefore possible that when parties negotiate acceleration of works, there may not be any agreement on the prevailing practical completion date. Using the earlier example, if parties are not in agreement that the prevailing completion date is 1 July 2025, it is challenging to determine the revised/ accelerated completion date even if there is an agreement to accelerate the works by six months. Occasionally, the accelerated period could be influenced by the desired completion date.

In view of the above, it is advisable for parties to utilise the need for acceleration as a reason to ‘resolve’ all existing delaying events. The term ‘resolve’ could either refer to a proper and formal assessment of extension of time as provided for under the contract, or for a commercial settlement of all delaying events. In case of the latter, the merit of the contractor’s case may not exclusively determine any grant of extension of time. The Employer would have to make concessions based on its need for acceleration and to balance any concessions made with the ultimate acceleration cost imposed by the contractor. In doing so, the certifier simultaneously acting as the Employer’s agent had to navigate carefully for the following reasons. Firstly, certain delaying events may have been notified by the contractor but had not been assessed due to the continuing delaying effects. In other words, the schedule impact of such delaying event continue to be felt such that the actual magnitude of delay could not be meaningfully assessed. Secondly, there may be certain delaying event where there is clear merit to the contractor’s entitlement to extension of time but the contractor failed to comply with the condition precedents stipulated. Thirdly, there may be concurrent delaying events with varying level of culpability on the part of the contractor. It may be challenging to objectively determine the dominant cause of delay. Finally, there may be voluminous delaying events where its sheer magnitude is causing delay to full and proper analysis and assessment. 

Based on the scenarios above, the certifier could either (I) perform a proper delay analysis ‘by the books’ and arrive at a global determination purely based on merit of the contractor’s case, or alternatively (II) make a business decision notwithstanding the lack of adequate information or even merit to the contractor’s case. Intuitively, Option II may be the faster method of resolving all existing delaying events which is time sensitive in attempting to accelerate any works. However, the certifier who is simultaneously the Employer’s agent may be playing two distinct roles depending on whether to adopt Option I or Option II. If the Architect/ Superintending Officer/ Employer’s Representative adopts Option I, it is discharging the function of an impartial and neutral certifier. In such a case, the reasoning behind any assessment and the impartiality displayed during its certification function are essential legal requirements. However under Option II, the role played is that of an agent to the Employer. Under this scenario, business consideration may be the overriding determinant. 

So how is the distinction in role between certifier and the Employer’s agent relevant in negotiating supplemental agreement for acceleration of works? Assuming parties are able to agree on the terms to acceleration of works, why does it matter which hat the Architect/ Superintending Officer wore in facilitating such agreement? Such issue matters and relevant to the extent that extension of time certification is intrinsic in deriving the accelerated/ revised practical completion date.  Using the previous example, if parties agree to accelerate the time for completion by six months, the practical completion date is revised from 1 July 2025 to 1 January 2025. However if the original practical completion date of 1 July 2025 should have been extended to 1 August 2025 due to extension of time (prior to agreement to accelerate works), then the six months schedule acceleration should result in revised completion date of 1 February 2025. In other words, any challenge on the extension of time (or the lack thereof) could alter the commencing date from which the six months acceleration period is calculated. Such challenge in extension of time could involve the manner in which the extension of time was administered, which in turn implicates whether the certifier discharged his function appropriately as required under the law. On the other hand, if the parties arrive at an agreement purely based on business decision (i.e. Option II), then the supplemental agreement for acceleration of works should refrain from framing the acceleration period by way of duration. Instead, parties could agree to a new completion date of 1 January 2025 and in doing so irrevocably and unconditionally undertake not to pursue any claim for extension of time or liquidated damages arising from delaying events occurring prior to the date of conclusion of such supplemental agreement.  Under this approach, the stipulation of 1 January 2025 is irrelevant to any grant of extension of time which then relieves the parties from any risk of having the determination of extension of time being challenged. 

Accelerated Scope Of Works To Be Self Sufficient Operationally

Acceleration can refer to either bringing forward an existing overall practical completion date or phase completion date. If the project was under a single overall practical completion date, occasionally there may be a need to ‘carve out’ a geographical portion of the works for purposes of acceleration, whilst leaving the remaining works unchanged in terms of existing practical completion date. In such a case, the carved out part of the works may be a newly created ‘phase of works’ with an advance completion date. It is also possible for a project which is divided into multiple phases of works to have one or few of its phases of works to be subject to acceleration. The common theme in the different scenarios mentioned above is that the practical completion date or phase completion date are subject to acceleration. In other words, the works that are accelerated will have an advance handover to the Employer for its beneficial occupation. Such handover will bring about other consequential contractual effects such as earlier commencement of defects liability period (or maintenance period), associated release of retention sums, cessation of insurance coverage in respective of contractor’s all risk policies as well as liability for liquidated damages, issuance of statutory temporary occupation permit by the authorities for the concerned works etc. What should also be clear is that if a certain programme milestone dates are ‘expedited’ without the usual contractual significance associated with practical completion, such initiatives are not acceleration of works per se.

The different types of permutations for acceleration of works are typically more relevant to large projects with considerably long construction period. Given the contractual significance associated with the accelerated works, any supplemental agreements will need to include details involving inter phasing logistics that will enable the early handover. In essence, the works that are handed over in advance shall be self sufficient operationally. Therefore when parties negotiate the extent of works that shall be accelerated, the actual magnitude of such works could be higher than what was originally anticipated. This happens when parties include other ancillary and supporting services that enable the end user to enjoy beneficial occupation of the space concerned. This can be illustrated using a large mixed development project consisting of hotel, retail and office components. Assuming the retail portion of such development had to be accelerated for advance occupation, the actual magnitude of works that may be implicated is usually beyond the total floor areas of the retail component. These additional parts of works may include certain floors of car parking space, additional mechanical and electrical infrastructure works that supports the retail space, ingress and egress roads for traffic access to the retail areas etc. As much of these inter phasing logistics are unplanned, it is not uncommon to delegate the detail design responsibilities to the contractor for greater efficiency in carrying out the works. Parties ought to make certain that any shift in design liabilities (or amendments to insurance coverage) is included as part of the supplemental agreement for acceleration of works.

Contract Administration Of Accelerated Works

Whilst much of this article series focuses on negotiation leading to parties’ agreement to accelerate works, the post supplemental agreement contract administration is another subject that deserves attention. In theory, the administration of revised/ accelerated practical completion date is no different from the original practical completion date. Any culpable delay beyond such revised contractual date may attract liability for liquidated damages and likewise extension of time may be granted under grounds of excusable delays. 

The devil is in the detail in ensuring that the there is no delay to the accelerated works. Beyond the deal between main contractor and the Employer, any success in accelerating works is dependent on multiple parties such as subcontractors, consultants, statutory authorities etc. By way of illustration, the main contractor should ensure that relevant subcontractors involved in accelerative measures shall enter into a back to back subcontract supplemental agreements in a timely manner. These may involve both domestic subcontractors and nominated subcontractors. As much of the documentation of nominated subcontract are driven by the project consultants representing the Employer, the expectation is for the nominated subcontract negotiation to be coordinated in lock step with the main contract. On the other hand, the main contractor should play the same role as it relates to domestic subcontract. Therefore from a broader perspective, negotiation of supplemental agreements at both main and subcontract level is often a well coordinated multi-party effort. If the accelerated works involve multiple trades of works, the contract administration effort will be intensified given the need to coordinate with various subcontractors within a short span of time. One of the contract administration risks is that main contract supplemental agreement is not accompanied by corresponding subcontract supplemental agreements, under the assumption that the ‘administrative paper work will naturally follow’. This cannot be any further from the truth. The main contractor’s ability to execute against the concluded deal is primarily dependent on the support and commitment from parties actually carrying out the physical works. Any gaps between main contract and subcontract may potentially scupper the accelerative measures. The actual accelerative effort is only as good as the agreement to accelerate.  

Conclusion

Based on Part 1 and Part 2 of this article series, it is quite evident that establishing an agreement to accelerate can be fairly complex and require a thoughtful and meticulous process. Very often these matters are deemed administrative issues that can be sorted out as an after thought, since the main contractor is already on board. The issue of setting out a comprehensive agreement to accelerate can often be more time consuming than establishing the original construction contract that typically adopts a standard form of contract. The pain emanating from the lack of proper agreement will invariably be felt if and when the accelerated completion date is not fulfilled which follow by finger pointing game.



Koon Tak Hong Consulting Private Limited