Retrospective and prospective delay analyses – do they provide the same results?
The recent case of Fluor v Shanghai Zhenhua Heavy Industry Co considered the difference between prospective and retrospective approaches to delay analysis and whether they lead to the same results.
The Claimant ("Fluor") contracted to engineer, procure and construct the foundations and infrastructure for 140 wind turbine generators to be installed at the Greater Gabbard wind farm. Fluor engaged the Defendant ("SZH") to provide the steel piles ("SPs") and transition pieces ("TPs"); the quality of these SPs and TPs was queried which contributed to considerable delay to the project.
The structural integrity of the SPs was questioned when testing highlighted that they were subject to transverse cracking. The judge accepted that the Employer would reasonably require that the cracks were either remedied or an Engineering Critical Assessment ("ECA") obtained stating that the structural integrity of the SPs was not adversely affected. It was later determined that the cracking did not impair structural integrity and the SPs were good for their 25 year required design life.
To complicate matters other defects became apparent which also contributed to delay:
the SPs were "out of roundness" meaning that the diameter across some cross sections of a number of the SPs was too wide for the hired hammer to drive them into the seabed; and
some transformers to be installed in the TPs were defective.
Delay over the summer months of 2009 meant that installation would have to take place during the autumn when there was a higher chance that adverse weather would cause additional delays. The judge held that for each installation day lost in July and August, 1.23 days should be added on in respect of time lost through bad weather between October and January.
For various reasons the ship intended to install the TPs, the Javelin, could not operate over the winter months. When the contract period ended in September, it could not be used again until March or April the following year. As by or during the first week in August Fluor had recognised that there was no prospect of installing any TPs in the near future, Fluor procured an alternative vessel, the Leviathan to install the TPs. However, the Leviathan was not as specialised for the process and would take 3.5 days to install each TP rather than the Javelin's 1 day per TP.
Fluor sued SZH for damages and was successful in establishing liability last year. The present decision concerned quantum with a significant proportion of the quantum concerning time implications. Part of the challenge for the courts involved consideration of whether a prospective or retrospective approach to delay analysis should be adopted.
Retrospective or prospective?
When considering the calculation of delay, departing from previous dicta, the judge stated that prospective analysis (i.e. contemporaneous assessment) will not necessarily produce the same answer as an analysis carried out retrospectively (i.e. hindsight assessment). He went on to find that a prospective exercise was appropriate when considering extensions of time but that some form of retrospective analysis was required on the facts of this case.
Practically, contractors should make their applications at the earliest opportunity and push for their entitlement to decided (on a prospective basis). The reality and window afforded in most contracts for both notifying and responding to extension of time applications means that some form of retrospective analysis is almost always undertaken.
Aside from delay analysis, the quantum judgment also had to deal with the fact that the claim had been partially settled and therefore some of the potential award to Fluor may have been waived. Whether costs had been waived depended on whether they stemmed from the issue of Non Conformance Reports ("NCRs").
The NCRs didn't explicitly require Fluor to refrain from extending the contract period of the Javelin, however the practical effect of the NCRs meant that it would not be possible to install any TPs until much later than originally anticipated. Although, the cracking in the SPs was not the only defect delaying matters during the summer of 2009 the judge considered that the decision not to extend the hire of the Javelin was a direct result of the issue of the NCRs on SP cracking and therefore the ability to recover costs of this had been waived.A further interesting point raised was the purpose for which documents are created in relation to privilege. In arbitration, Fluor had contended that the ECAs had been created for use in litigation and therefore privilege attached. However, in court Fluor attempted to argue that the primary reason for obtaining the ECA was to support their position on defects and protect their reputation and the costs of the same should be recoverable as damages. The judge considered that Fluor couldn't have it all ways; having already argued that the primary purpose of the ECA was for use in litigation, supporting their contractual position and protecting their reputation must be a subsidiary reason. As such, the judge considered that only 40% of the cost was recoverable costs on the facts.