Delay claims under NEC3
In order to prove a delay claim under NEC3, a contractor must follow a two step-process to show that (i) a compensation event has occurred; and (ii) that this event caused a delay to the completion of the project.
In most instances this will require the use of expert delay analysis.
Detecting the cause for delay
A contractor can only make a delay claim for a compensation event if it actually delays (or is predicted to delay) completion. Therefore, not every compensation event will result in a claim for compensation.
On the other hand, a situation could arise where there are potentially multiple causes of a completion delay. If this is the case, each cause must be analysed to determine whether it is an effective cause (i.e. the effect of the event on the 'critical path' activity and whether this in turn delayed – or is predicted to delay – the completion date).
This is where the role of the expert analyst becomes crucial as it is the expert that will need to conduct a "critical path analysis" to identify the impact of a compensation event on the progress of the project.
Delay analysis methods
There are two alternative approaches to critical path delay analysis; prospective, or retrospective.
- Prospective techniques involve the assessment of the impact of a compensation event on a completion date at the time the event occurs. Interestingly, this analysis can also be carried out after the event if events postdating the compensation event are ignored by the expert analyst.
- Retrospective assessments are carried out after the impact of the compensation event has materialised so the analyst has the benefit of hindsight to establish what happened.
The NEC3 does not provide any express guidance on which of the two methods should be used to assess the impact of a compensation event. However, it's arguable that there is at the very least implicit support for the use of a prospective approach given the 'solve as you go' philosophy of the NEC3 to resolving the delay implications of compensatory events.
This conclusion is reinforced by the lack of a final account procedure in the NEC3. The deliberate omission of such a provision suggests an intention by the framers of the NEC3 to ensure that parties resolve all issues (including disputes) prior to the completion of a project. A prospective approach is therefore the only method that would allow parties to reach an agreement on the consequences of a compensatory event before completion.
On the other hand, there are a number of reasons why it might be appropriate for a contractor to adopt a retrospective method of analysis.
1. The courts' preference for retrospectivity
Case law suggests that the courts are critical of prospective analysis where a delay claim is brought after completion. This is because the approach does not consider the (mitigating or exacerbating) effect of later events on a delay caused by a compensation event. In addition, a failure to use a retrospective approach can make it difficult to establish a causal connection between the compensation event and the delay.
Therefore, where parties fail to resolve a delay before the completion of a project, a retrospective approach is likely to be most appropriate method of critical path analysis. If a prospective approach is adopted, the parties risk presenting evidence to the court that contradicts known facts.
2. The "compensatory principle" relating to damages
Strictly speaking this principle applies to damages claims, not contractual claims for time and money. Therefore, parties can agree contractual procedures that risk the contractor being under, or over-compensated.
However, the court may choose to apply the principle to a contractual claim to make an award that reflects the actual delay:
- if the compensation event mechanism has not been operated in accordance with the NEC3; or
- where damages are claimed at common law for a compensation event that is also a breach of contract
Both of these approaches indicate that a retrospective method of analysis should be pursued by the courts.
Finally, the very terms of the NEC3 reveal elements of retrospectivity that could persuade a court to rely on retrospective rather than prospective evidence. For example, the contract allows parties to re-examine a compensation event in instances where the effects were originally deemed too uncertain to be forecast reasonably. If the assumptions used assess the effects of the original compensation event turn out to inaccurate after completion a 'correction' can be issued by the project manager. This in itself will be classed as a compensation event and so will allow a new retrospective analysis of the impact of the event to take place.
It's clear that there are advantages and drawbacks in using either method of delay analysis.
Whilst a prospective analysis will enable parties to resolve delay claims prior to completion, there remains a significant risk that the results of this approach would under, or over-compensate the contractor.
Conversely, retrospective analysis provides all parties with the benefit of hindsight. Case law also suggests that the court prefers to decide cases on factual rather than hypothetical evidence (particular where the former contradicts the latter) in order to confirm the causal connection between the event and the delay.