How to Manage Delays and Change in Lump Sum Contracts
Lump sum contracts are one of the more common forms of agreements in the construction industry. They provide the client with a degree of price certainty, as the contractor agrees to complete the works for a single, pre-agreed amount. However, while this arrangement may seem straightforward, it often hides complex risks. This is particularly true when delays or variations occur. Understanding how lump sum contracts allocate risk, handle changes, and address extensions of time is critical for managing delays and avoiding disputes.
What is a Lump Sum Contract?
In the construction industry, the term “lump sum” is often used interchangeably with “fixed price,”. However, the two are not entirely synonymous. A true fixed price contract would make no allowance for any fluctuations in costs of labour, plant, materials or overheads throughout the construction period.
A lump sum contract involves the contractor agreeing to complete a defined scope of works for a single, pre-agreed total price. However, there is usually some opportunity for variation under specific conditions. These include issues such as changes to the design or scope, or where the client instructs modifications. Nevertheless, the mechanisms for such adjustments are far more limited than in other contractual arrangements. As a result, lump sum contracts are often viewed as transferring a greater share of risk to the contractor.
Change Management under Lump Sum Contracts
A common source of dispute under lump sum contracts is change management. Even with the best planning, variations are almost inevitable in any construction project. The challenge lies in how these changes are managed and compensated. Under a lump sum arrangement, disagreements often arise over whether a particular change constitutes a variation to the original scope, and if so, how it should be valued.
Such disputes can lead to delays, cost overruns, and strained relationships between parties. The key to avoiding these conflicts lies in the clarity of the contract documentation at the outset. A precisely defined scope of works, clear design details and unambiguous tender documentation are essential to minimising the chance of misunderstandings arising. Although this may result in a longer and more expensive tendering process, it can greatly reduce the potential for disputes during execution.
Extension of Time
Most standard forms of lump sum contracts recognise the need to allow for unforeseen circumstances. These are often dealt with by provisions for an extension of time (EOT). Should the contractor be responsible for this delay, there is very little recourse for them to claim for an EOT. However, variations instructed by the client (such as delays in the provision of information, adverse weather conditions, or other events beyond the contractor’s control) can give rise to an entitlement to an EOT. When granted, an EOT relieves the contractor from liability for liquidated damages for the extended period.
However, whether the contractor is entitled to the prolongation costs depends on the precise terms of the contract. Some contracts provide only for additional time without financial compensation. This leaves the contractor to shoulder the cost of their overheads and extended site presence.
Risks
Understanding these nuances is vital for contractors and clients alike. Lump sum contracts, while offering price certainty to the employer, can impose heavy burdens on contractors. It is vital that risks are properly identified and managed. The key to success lies in a combination of careful planning, clear communication, and sound legal and commercial advice.
Contractors should ensure that they fully understand the contract provisions relating to variations, EOT, and risk allocation before signing. Equally, employers should recognise that an overly rigid approach to scope or change management can undermine project collaboration and ultimately increase costs.
In conclusion, lump sum contracts can be effective tools for delivering projects within a defined budget. However, they demand meticulous preparation and awareness of the risks involved. Parties should seek legal representation or professional consultation to interpret the contract provisions accurately. It is important to understand which mechanisms are available to mitigate potential delays and additional costs.
By taking a proactive, informed approach, contractors and clients can navigate the challenges inherent in lump sum contracting and achieve successful project outcomes.
This article was written by Lydia Garside at DeSimone.
If you are looking to improve your contract administration procedures, and get a better understanding of managing claims under lump sum contracts, check out our Effective Contract Administration E-course.
Float & Construction Projects: Understanding "Float" in Scheduling
In this article, we take a look at the subject of 'float' in construction project scheduling. On the most basic level, construction projects are intricate networks of interconnected tasks. When one task experiences delays, it can create a domino effect, disrupting the entire project timeline.
This is where the concept of float becomes invaluable. Let's try and take a look at how it works...
What Exactly is Float?
It represents the amount of time a specific task can be delayed without jeopardising the overall project completion deadline.
Consider the construction project programme as a chain. Each task is a link, and the critical path (used by project managers to schedule activities) is the tightest sequence of links that determines the project’s finish date. Sticking with the metaphor, float is the “slack” in the chain for non-critical links. It provides a buffer or flexibility within the schedule.
Are There Different Types of Float?
Here’s where it begins to get a little complex — there are different types, depending on context. But, for most scenarios, there are two key float concepts to understand:
- Total Float: (TF) is the time a task can be delayed without delaying the project’s completion date. For example, if a task is scheduled to start on Monday and finish on Friday, but the next dependent task does not start until the following Tuesday, the task has a total float of one day.
- Free Float: (FF) measures how much delay the current task can tolerate, without affecting the start of the next sequential task. It’s more localised than total float and applies to individual tasks rather than the project in its entirety.
Why is it Important?
While it might sound like technical jargon, float is a very powerful tool that can help teams learn more about their work. It can help improve the productivity of projects. Moreover, it's crucial for maintaining flexibility in project programmes. This in turn helps project managers allocate resources more effectively, handle unexpected delays, and prioritise tasks to keep a project on track.
As an example, imagine a project which – among a myriad of things – contains two near-term tasks:
- Paint walls
- Install light fixture
Painting has two days total float, whilst the light installation has none, as it is on the critical path. But with limited resources a delay occurs. In this scenario, by prioritising lighting, the the overall project timeline remains on-time. The painting task can be rescheduled by up to two days later without affecting the critical path and completion date.
This is where prioritising activities comes into play. Rescheduling activities allows for the most efficient use of float. Importantly, this will preserve the expected completion date.
As you can begin to see, understanding the concept supports better communication between stakeholders and avoids unnecessary panic over tasks that do not immediately impact deadlines.
The Key to Delivering Projects On Time and Within Budget.
Without a thorough understanding of float, you will struggle to successfully manage projects in the construction industry and will likely be confronted with delays. By incorporating it into project schedules, project managers can enhance efficiency, limit risks, and ultimately deliver projects on time and within budget. For more detail on the 'ownership' of float take a look at this article.
This article was written by Paul Woodley BSc, LLB, MCIArb.
If you'd like to learn more about planning, scheduling and delay analysis, check out our delay analysis courses and get started today.
Float in Construction Scheduling: Who Owns It and Why?
This article examines ownership of float in construction, for an introduction to the concepts, see this article. Float, a fundamental concept in project scheduling and programming, represents the flexibility or delay tolerance within a project schedule. It signifies the amount of time by which it is possible to postpone an activity without impacting the overall project timeline. In particular, the critical path and contractual completion date.
The concept is relatively simple. However, its ownership and use can be complex, often subject to contractual interpretations and industry best practices.
Who Owns the Float?
Understanding the ownership of float (or slack) in construction project schedules can be challenging for many reasons. These include the specific type, the level of project planning expertise, and contract terms, or absence thereof. Take a look at the end of the article for a list of documents used in the creation of this article.
Shades of Ownership in Construction Contracts
AACE International clarifies that, in the absence of specific contractual language, ‘network float’, defined as the float available on any given path, is a shared commodity so no single party is at a disadvantage[1]. On the other hand, ‘project float’ is the time between the planned completion date and contractual completion date where the project is planned to complete before it is contractually obliged[2]. Where the contract is silent, project float is owned by the contractor. It can be used to accelerate the completion of a project or mitigate contractor-caused delays.
The Society of Construction Law (SCL) sets out that ownership is contract dependent. In one example, the SCL suggest that unless the contract states otherwise, if a delay event occurs which is employer related, and there is total float remaining, an extension of time (EoT) can be granted if the event will use all float available. This means it can be used to mitigate employer delay events.
The SCL discuss varying permutations of float ownership and resulting outcomes. They rightly point readers to their own project contracts for clarity. Ultimately, understanding and applying the principles of ownership requires a careful analysis of project context, contractual agreements, and industry best practices. Such an analysis will ensure, project teams can effectively manage project schedules, mitigate risks, and achieve project success.
The NEC Contract
According to standard NEC phrasing, ‘free float’ is shared and consumed on a first-come, first-served basis. Delays caused by compensation events or slow rate of progress can be mitigated using free float. In contrast, ‘terminal float’ and ‘time risk allowance’ are owned by the contractor.
To protect their rights, contractors using NEC4 must ensure that their project programs clearly show total or terminal float, and time risk allowance. Failure to do so could jeopardise their ability to rely on these types to mitigate delays.
JCT & FIDIC
As far as JCT contract wording goes, float is generally considered a shared resource. It is available on a first-come, first-served basis. This means that any party, whether contractor or employer, can use available float to mitigate delays.
Unlike NEC4 and JCT contracts, FIDIC contracts do not explicitly define float ownership. This means that parties involved in a FIDIC contract must agree on float allocation and use. Ideally this happens before any disputes arise. We cover this, and much more, in our Understanding Claims Under FIDIC 2017 course content.
By being clear about float ownership up front, project participants can avoid potential conflicts and ensure the efficient management of project schedules.
Where float is not properly accounted for, disputes may result. The consequences could include significant financial losses if one party is found responsible for covering the full claim.
A Breakdown of Float Ownership by Document
The following table summarises who owns what type of float according to various sources:
| Ownership According to Contract
| ||||||
| Contract Doc | NEC4 | JCT | FIDIC 2017 | AACE Protocol
| SCL Protocol | CIOB Protocol |
| Free float
| Shared | Shared | N/A | Shared | N/A | N/A |
| Total float
| Shared | Shared | N/A | Shared | N/A | N/A |
| Time risk allowance
| Contractor | Shared | N/A | Shared | N/A | N/A |
| Terminal float
| Contractor | Shared | N/A | Contractor | N/A | N/A |
The Evolving Landscape of Ownership
Despite the guidance provided by industry best practices and contract documents, determining ownership remains a complex issue. Each project has unique circumstances that can influence how float is allocated and used.
As technology continues to shape the construction industry, project timelines are becoming increasingly dynamic. Changes and unforeseen challenges are inevitable. It is therefore vital to carefully consider issues like float, concurrent delays, and delay analysis during contract negotiation.
By carefully considering these factors and seeking expert advice, when necessary, project teams can minimise the risk of disputes and ensure they meet their goals. Finally, should you be interested in learning more about delay analysis and how scheduling and planning techniques can be used to manage and assess delay, check out our delay analysis courses.
Documents Referred To:
- AACE International Recommended Practice No. 29R-03 Forensic Schedule Analysis
- CIOB Planning Protocol 2021
- SCL Delay Protocol 2nd Edition
- NEC4 suite of contracts
- JCT 2024 suite of contracts
- FIDIC 2017 suite of contracts
This article was written by Paul Woodley BSc, LLB, MCIArb.
[1] s 1.5 sub-s B. AACE. (2011). Forensic Schedule Analysis: TCM Framework: 6.4 – Forensic Performance Assessment. AACE International, Inc.
[2] s 4.3 sub-s E. AACE. (2011). Forensic Schedule Analysis: TCM Framework: 6.4 – Forensic Performance Assessment. AACE International, Inc.
Cause and Effect: The Key to Successful Construction Delay Analysis
I’m sure that you have heard the advice that if an extension of time claim is going to succeed, the claim must demonstrate a link between cause and effect. The claim must demonstrate that the event(s) on which the claim is based affected the time for completion. Showing the impact and time involved is key.
Delayed activities may not be on the critical path. If this is the case, the delay event may consume float. In turn, this may cause subsequent activities to become closer to the critical path. But if the event does not affect the critical path and thus, the time for completion, there will be no extension of time.
Risk Allocation
The risk allocation of the contract may make the contractor responsible for the effects of some delays. If there is no entitlement to additional time in the contract there will be no extension of time.
Sometimes contractors realise towards the end of the project, that they will not complete on time. In such a case, delay penalties will likely be applied and they will incur overrun costs.
At this point, they might consider they need an extension of time. This is in contract to considering whether entitlement to an extension of time exists. Consequently, they hurriedly submit a claim for multiple delay events. They assert that all these delays entitle them to an extension of time up to the date that they completed. This is known as a global claim. In all but exceptional circumstances, it will be rejected by arbitrators and the courts and thus, by contract administrators. This is because such a claim does not demonstrate the effect of each event, either individually or cumulatively, on the time for completion.
How To Show Cause And Effect?
So how can we demonstrate a link between cause and effect in our claims? The answer is by carrying out a suitable form of delay analysis. The purpose of such an analysis is to illustrate the effect of the claimable delay event on the time for completion by using suitable programming techniques.
There are many forms of delay analysis. The selection of the most suitable method depends on several things, including:
- The existence of suitable programmes.
- The quality of the baseline programme.
- The quality of the records.
- Where the project is in terms of execution at the time the claim is being prepared.
Considering all factors is key to successful analysis. The Society of Construction Law’s Delay and Disruption Protocol gives excellent advice on this subject.
Necessary Knowledge
Delay analysis can be a complicated subject and demands suitable knowledge and skill. It is, therefore, necessary to have suitable resources available to prepare this very essential part of the claim.
If you are the person responsible for preparing the claim and you are using others to perform the delay analysis, you don't have to be a programming expert. However, you need a strong overview of the subject so that you understand the protocols, techniques and how to identify specific causes and their effects. This will enable you to check and demonstrate a number of things:
- The accuracy of the analysis.
- Why the particular form of delay analysis is suitable.
- How the analysis was performed.
- What the analysis demonstrates.
If this topic interests you, you'll be delighted to find that we now offer delay analysis e-courses. Take a look and join us to bring your knowledge up to speed.
10 Things Construction Gets Wrong When it Comes to Claims
Inadequately expressed claims are one of the leading causes of time-consuming and costly disputes. Avoid common mistakes to ensure acceptance of claims.
In this post, we set out ten common reasons that claims end up as disputes and offer best practice tips so you can ensure you do better. Take a look at the following, have you fallen foul of them? Are you constantly looking out for them so you can avoid them?
Common Mistakes
- Contractors wait until the end of the project to submit claims, instead of submitting claims when entitled to, as the project progresses.
- Contractors include several delay events into a single consolidated claim instead of preparing separate claims for each delay event.
- Contractors do not give notices of claim within contractual timeframes, and notices do not contain necessary information.
- Claims do not contain an adequate examination of cause, effect, and entitlement to justify the claim.
- Claims are not adequately substantiated to prove that the claim is just.
- Engineers and contract administrators do not follow their contractual obligations to respond to claims and attempt to reach agreement.
- Both claims and responses to claims are poorly expressed, so the recipient has difficulty in understanding the claimant or respondent’s positions.
- Delay analyses to demonstrate extensions of time are not performed following good practice.
- Cost claims are poorly demonstrated and substantiated.
- Those tasked with preparing and responding to claims are inadequately trained and qualified.
Whilst very common mistakes, these are all avoidable. They are all things you can keep an eye out for and minimise or even eliminate to ensure project success.
If you would like to learn how to submit successful claims and achieve quick resolution on projects, take a look at our e-courses.
Top Tips for Delay Analysis in Construction
Delay analysis can be a confusing world. We’ve put our expertise together to create a free download with our top tips for preparing a delay analysis.
Despite ongoing improvements in the way in which projects are executed, delay remains one of the biggest sources of dispute. It is also one of the most significant causes of cost overrun in construction projects.
When a delay occurs on a construction project, analysing cause and effect is vital to understanding where liability lies. Delay analysis (sometimes called Forensic Planning) is something which some refer to as a ‘dark art’. Arguably because it’s often misunderstood by those who carry it out or claim to understand it.
There are at least six analysis techniques that are commonly accepted. However, depending on who you ask there are many more - which can add to confusion. It's generally agreed that no single method is better than the others. With a mix of prospective and retrospective approaches techniques can vary according to need.
A prospective analysis such as ‘Impacted as Planned’, or ‘Time Impact Analysis’ is often used whilst the project is still ongoing. This can help assess the impact a delaying event will have on the future completion date. Prospective methods can also be used on completed projects. However, extreme care should be taken when doing so to ensure the ‘theoretical’ prospective analysis corresponds with the ‘actual’ facts.
Whatever method is being used to analyse delay there are a few things you need to establish for a successful claim.
We have put together some of our top tips on preparing a successful delay analysis from our team of claims experts. Download our top 20 tips on delay analysis for free here:
Progress Updates – Fact or Fiction?
Contractors often shoot themselves in the foot when preparing progress updates for the employer’s team. Many times, we see months’ worth of updates that present a rose-tinted view of project progress.
While it may be tempting to keep reporting good news month after month, be wary. A less-than-competent consultant may believe such reports because good news will not involve them in additional and troublesome work. However, you could be causing problems for yourself further down the line.
Problems frequently arise when the contractor needs to submit a claim for an extension of time. It becomes very difficult for them to subsequently tell the employer’s team: “I know we kept telling you that there was no delay to the completion date, but actually there is, and it’s not our fault, so please can I have an extension of time.”
A progress update, as-built programme, or updated programme (all different names for the same thing) is created using the latest agreed programme. It uses planned start and finish dates plus the percentage of progress for any activity started but not finished. The logic contained in the programme and the programming software will then predict the completion date based on progress to date.
Before I specialized in contractual matters and claims, I was a project manager for both contractors and consultants. When my planning team produced a progress update, I wanted only one thing from them, and that was…
THE TRUTH.
If the update predicted early or on-time completion, then I knew we were doing okay. But if the update was predicting a delay, I needed the planners to tell me the cause, or causes, of the delay so that we could take action.
If the delay was caused by us or was due to something that we were responsible for under the contract, we had to find ways to recover the delay. This could mean working longer hours or mobilizing additional resources.
But what if the delay was caused by the employer or by something that is at the employer’s risk under the contract? In this case, we needed to identify the cause, submit the necessary notices, and make preparations to submit a claim.
So, what would I report to the employer’s team in our monthly progress reports under such circumstances? Again…
THE TRUTH.
Many contractors will not agree with this tactic and will be reluctant to tell the employer’s team that the project is in delay for any reason at all. The contractor should admit to their own delays but explain the steps they are taking to mitigate them. Generally, the employer’s team will accept that delays do happen and will appreciate that the contractor is being proactive in dealing with them. Telling the employer’s team about predicted delays will only support subsequent claims, particularly when the cause is something that will entitle the contractor to an extension of time.
This, of course, only works if the contractor does not simply bury their head in the sand and hope that the delay will go away. Trust me, it probably won’t. The contractor must actually take mitigating action to recover their own delays. Make sure to send the necessary notices and submit a claim without undue delay.
So, what is the alternative to telling the employer’s team THE TRUTH? Manipulate the programme so that it no longer predicts a delayed completion date? Unfortunately, this is what many contractors do to avoid giving the employer’s team any bad news.
The fact that this knee-jerk reaction is not sustainable through multiple progress updates and will not support any legitimate claims for extensions of time seems lost on such contractors.
Fact or fiction? I will leave you to decide the best approach.
Understanding the importance of contract administration is vital to avoiding claims. Discover more with our Understanding Claims Under FIDIC e-course.
Time at Large - An Explanation
A blog reader asked for an explanation of “time at large”. This is not something that I have personally come across in practical terms. For the advice that I am about to give, I am indebted to my ex-boss, Roger Knowles. Roger provides an explanation in his book, 150 Contractual Problems and their Solutions. Roger explains it arises:
"when a contract is entered into with no period of time fixed for completion. Where this occurs, the contractor’s obligation is to compete within a reasonable time."
I have never experienced such a situation and I expect that when it does occur, it will be on Read more
Student’s Questions - FIDIC Information, Delay and Prevention
One of the modules on our e-courses requires the students to review various case studies to identify potential claims. Having identified the claims, the student is required to explain the reasons for the claim and what may be claimed. We examine the contractual clauses under the FIDIC Red Book that provide entitlement and explain how the claim would be evaluated. Having completed the module, one student posed certain questions. These were particularly around information and clause 8.4 on delay, impediment or prevention, which I think are worth repeating here.Read more