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Welcome to the third edition of Construction Law Quarterly for 2024. With summer around the corner, we hope readers will enjoy reading this quarter’s contributions by the beach. In this edition, we present three papers that delve into issues which are becoming increasingly common to participants in the construction industry.

Our first paper is from Jonathan Brierley, Callum Johnson and Primose Tay which deals with the issue of price volatility and escalation in energy and infrastructure projects. The paper provides useful guidance to readers on how to manage escalation risk through fixed price contracts and escalation clauses. This issue affects projects of all sizes, sectors and across geographic regions; the authors provide a timely reminder to readers that parties ought to consider how escalation risk is to be allocated under their contract and how that allocation is likely to affect party behavior and claims going forward.

Our second paper is from Viren Mascarenhas, Alexander Borisoff and Mariella Montplaisir Bazan discusses the hot topic of critical minerals, and provides crucial insight to readers on how to mitigate associated ESG risks and potential disputes. The authors note that participants in this sector should develop their compliance programs to address ESG concerns, ensure their due diligence addresses ESG considerations and structure dispute resolution options carefully to account for potential disputes.

The third and final paper from Neal Morris and Frankie Bell covers the topic of contractual and non-contractual acceleration. The paper also explores claims for constructive acceleration, where the contractor accelerates at its own cost to avoid or mitigate its potential exposure to liquidated damages.

As ever, should you have a short article or legal update that you would be interested in submitting for inclusion in a future issue please contact the journal editor at journals@icepublishing.com.

The content and the opinions expressed have been provided for information purposes only. It should not be relied on as a substitute for specific legal advice on any particular topic.

In recent years, escalation and price volatility have re-emerged in the global economy. The impact on large energy and infrastructure projects will be significant: Owners and contractors need to react and adapt.

After two decades of low inflation globally, in the past few years, supply chain disruptions and energy shocks caused by COVID-19 and the war in Ukraine have led to huge price spikes and fluctuations in the cost of multiple construction inputs—from material and labor costs to energy, shipping and fuel.

This has a profound impact on large projects, where higher budgets and longer durations mean there are more costs to escalate, and a longer period of time in which they can do so. It could be ten years between the date that a final investment decision is made on a multibillion-dollar mega energy project, for example, and the date that it starts operations. If escalation over that period significantly exceeds the parties’ initial expectations, then the resulting cost overruns could amount to tens or hundreds of millions of dollars.

The impact of price changes in certain inputs can also be particularly significant on sectors where there is intense competition for resources. A recent McKinsey & Company analysis found that a high concentration of new LNG projects around the US Gulf Coast—where more than 70 percent of all pre-final investment decision US LNG projects are located—had led to competition over a limited pool of local resources and contractors, and contributed to a 10 to 20 percent cost increase for such projects since the pandemic began.

This impact can also be seen where specific inputs make up a larger proportion of the contract price. In 2021, the International Energy Agency estimated that almost 12 percent of the cost of an onshore wind project was accounted for by the cost of freight and steel, and the total onshore wind investment cost change between 2019 and 2021 for these two inputs exceeded 15 percent. While more recently prices of key inputs have cooled, leading to a resumption in the downward trend of costs for many renewable energy projects, such significant price fluctuations can have a major impact on project budgets.

Parties must consider how escalation is treated under their contracts in order to understand their exposure.

Under a traditional lump sum EPC contract, the cost of escalation is borne by the contractor, unless it has a contractual entitlement to be paid for escalation. This will also be the case if the contractor is paid on a re-measurable or time and materials basis with fixed unit rates, where its entitlement to payment varies depending upon the quantity of units installed or expended, rather than on the cost of those units.

In the past, contractors have been able to manage escalation risk by, for example, locking in fixed prices with labor and subcontractors, buying materials early, and including an allowance for escalation in their project contingency.

However, given recent price volatility, these measures may no longer be as effective. Fixed pricing in the supply chain can be harder to achieve and maintain, given subcontractors and suppliers will also want to protect themselves from future cost increases.

While materials can be purchased in advance, the precise requirements for the project will not be clear until the design and procurement is sufficiently progressed, which, on a large project, can take several months or even years. Bulk buying early may also lead to increased material handling and storage costs, and, when prices are volatile, could simply bake in higher prices just before a fall.

Any greenfield or other union agreements may include cost escalation clauses, providing for labor rates to increase in line with an applicable index. On projects that are delayed or have a long duration, these agreements could expire before the project completes, leading to new, higher wage settlements mid-project. Strikes and labor disputes are also more likely in an inflationary environment, as workers seek pay increases to maintain their real wages.

Given these difficulties, contractors may be increasingly unwilling, or unable, to accept escalation risk in a traditional lump sum or re-measurable contract, without pricing in a level of contingency that owners cannot accept. In certain circumstances, and particularly in the case of longer-term projects with high capital expenditures, parties may therefore need to consider ways of accounting for escalation in the contract price.

A common way to account for escalation during the works is via an escalation clause, which provides a mechanism for the contract price to increase—and sometimes decrease—in line with prices. These adjustments are usually calculated by reference to applicable indices, though parties might also agree to compare actual prices paid to those anticipated in the contractor’s tender.

Escalation clauses are included in some of the most commonly used standard form contracts. For example, the FIDIC Silver Book 1999 and 2017 editions provide for adjustments to be made to the contract price where there are ‘rises or falls in the cost of labor, goods and other inputs to the works,’ if the parties make provisions in the particular conditions for escalation.

In both the NEC3 and NEC4 contracts, the relevant wording is found in option X1, ‘price adjustment for inflation.’ If parties select this option, then the contractor’s payments are adjusted using a price adjustment factor, which is calculated using price indices.

The details of the indices and items to which they are linked are left for the parties to agree upon and include in their contract.

Where an adjustment to the contract price is claimed under an escalation clause, or when negotiating the wording of such a clause, it will be important to consider a number of issues.

Firstly, parties to the contract should make sure they know precisely what types of costs fall within the ambit of the clause. The costs of labor, materials and equipment are often treated differently under escalation provisions, but it is not always obvious which precise types of costs fall under escalation provisions, and disagreements can arise over the meaning of the particular words used.

For example, when considering escalation clauses relating to labor costs, courts in England have previously decided that a ‘wage’ did not include holiday pay, while Australian courts have found that an ‘average weekly wage’ could include sick leave. If certain costs are, or are not, intended to be subject to escalation, then that should be made clear when drafting the clause.

Parties should be clear when escalation should be assessed and claimed. Parties often agree to a certain trigger for an escalation claim, which must occur before a claim can be made. This trigger could be a particular point in time, or the point at which costs fluctuate beyond a specified percentage. If the trigger is based on changes in cost, parties should consider whether to base this on changes in a particular index, or on actual costs incurred on the project; and whether (and how) the contractor is required to demonstrate that its actual costs have deviated from its original estimate.

Escalation clauses often provide for adjustments to be made in accordance with an algebraic formula or other methodology, which can be detailed and complex. Errors or inconsistencies in the drafting of these adjustment formulae can render the clause unworkable.

While courts and tribunals will generally try to give effect to contractual terms, if they are unable to do so, then, depending on the overall construction of the contract, that may lead to a variety of outcomes, from prices remaining unadjusted, to the contractor being paid a ‘reasonable price,’ or the whole contract being found to be void for uncertainty.

Escalation formulae often use rates taken from price indices as inputs. In order to ensure that any adjustments to the contract price reflect actual changes to the cost of the work, it is important that the parties select indices that are appropriate for their project. A general consumer price index is unlikely to accurately reflect the cost escalation that affects a construction project, and a construction-specific index that applies to an entire country might not be a good gauge for price fluctuations in the particular region where the works take place.

Indices tracking the price of particular commodities might also not reflect the price of a specific material under a contract, as the latter would need to account for the cost of manufacturing and transport, and not just the cost of the raw material itself. Indeed, given the impact of recent events on global shipping routes and prices, parties might consider carving out the cost of international logistics from other cost components in their escalation provision.

Finally, if the parties intend for the contractor to bear escalation costs attributable to its own default, then this should be expressly stated. In the 2017 FIDIC Silver Book, for example, if the contractor fails to comply with its obligation to complete on time, then adjustments for escalation thereafter are made on the basis of either: the prices that were applicable shortly before the completion date; or the current price index, whichever is more favorable to the owner.

If contractor culpability is not addressed in the escalation clause, then disagreements may arise, as owners argue that contractors cannot recover costs incurred through their own default, while contractors claim that, absent an express exclusion, escalation should apply whenever costs are incurred.

While contracts will often expressly state how escalation costs are dealt with, that will not always be the case, particularly for ongoing projects where contracts were agreed upon during periods of low and stable inflation, when escalation was not such a concern.

If the contract does not give the contractor an express right to claim escalation costs, the general position under English law (and related common law systems) is that it has no right to escalation costs. In civil law systems, the position will depend on the provisions of the applicable civil code, but escalation costs can be excluded—or, at least, very difficult to recover—under some systems commonly used on international projects.

For example, article 373(1) of the Swiss Civil Code states that, if payment is ‘fixed in advance as an exact amount,’ then the contractor must perform the work for that amount and ‘may not charge more even if the work entailed more labor or greater expense than predicted.’ While the article provides exceptions to this general rule where there are exceptional and unforeseen circumstances that seriously hinder the contractor’s performance, it can be difficult to establish that these exceptions apply in practice.

Contractors may therefore attempt to claim escalation via the contractual variation or claims mechanisms. How these claims are presented typically differs depending on whether the costs relate to base or change scope.

Where the costs relate to change scope, contractors usually aim to have their escalated costs included in the valuation of the change. Contracts sometimes provide for variations or claims to be valued by reference to contractual rates, but allow for a valuation by reference to market rates, or actual costs, where the contractual rates are no longer appropriate or are not specified. A contractor could therefore argue that high escalation means that the original contract rates are no longer appropriate for valuing change.

To claim escalation costs impacting base scope, contractors would likely rely upon the contractual claims mechanism. Where a contractor is entitled to an EOT and associated costs, it may argue that escalation costs of completing delayed base scope should be included, as it is now obliged to complete that work later than planned.

Contractors may argue that escalation caused by trade disruption related to sanctions regimes, or other regulatory changes, is recoverable under change-in-law provisions. Failing all else, contractors could seek relief for force majeure, or argue that the cost of performance has become so onerous that they should be relieved from performance entirely under the common law doctrine of frustration, or similar concepts in civil law jurisdictions.

However, the bar for such forms of relief is high: The English courts, for example, have held that a ‘wholly abnormal rise or fall in prices’ was insufficient to frustrate a contract, and that price increases will not generally amount to force majeure.

When thinking about how to account for escalation, the key considerations for parties will depend on the status of their project. For projects that are still pre-contract, the focus should be on how best to allocate the risk of escalation and strike the right balance between cost exposure and the price uncertainty.

Parties have a number of aspects to consider when evaluating an escalation clause. To start with, they should think about whether the contract price should be subject to adjustment on account of input cost fluctuations in the first place, and if it will be subject to adjustment, whether—and how—those adjustments should account for cost decreases, as well as cost increases.

They should also consider whether any adjustments should be applied to the entire contract price, or only to specified costs or inputs; and whether the owner should take on the full risk of escalation, or whether that risk could be shared with the contractor. For example, the cost of escalation could be split between the parties via a ‘pain share’ mechanism, by setting a cap on the amount of escalation that can be claimed overall, or by setting a threshold that must be met before any escalation costs can be claimed.

Parties need to also consider how to ensure that the escalation provisions are consistent with other provisions in the contract, particularly the extension of time and claims provisions, and do not allow for the same costs to be claimed via more than one route, or provide relief for events and circumstances that are at the contractor’s risk under the contract.

Alternative means of addressing escalation risk should also be considered, such as including provisional sums for escalation in the contract price, or providing for particular aspects of the work to be priced on different bases.

One way to reduce price uncertainty on a long project, where there is a lag between the date the main contract is signed and the date that key subcontracts or purchase orders are agreed upon, could be for the parties to agree to a split-payment provision, with early works payable on a lump sum or re-measurable basis, while later works are either priced on a reimbursable basis, or left to be agreed upon subsequently, potentially on an open-book basis.

That way, contractors do not need large contingencies to guard against future cost increases, and owners have some assurance that they will not overpay relative to the actual market conditions at the relevant time.

However, where elements of the contract price will not be set until partway through a project, there is potential for uncertainty and disagreement between the parties.

The cost of later works is impacted by the progress and quality of preceding work, which can lead to disagreements regarding whether particular costs are payable. For example, an owner may object to reimbursing costs, or approving subcontract prices, that are higher in the construction phase of the works due to prior contractor failures in engineering and procurement.

Where different payment bases apply to different elements of the work, this can lead to confrontational dynamics and a lack of alignment between the parties, with owners preferring costs to be treated as incurred in the fixed price works, and contractors preferring to treat them as reimbursable.

Owners may also seek increased visibility or influence over subcontracting processes that relate to reimbursable portions of the work, which contractors may object to.

Where projects are already underway, the priorities of contractors and owners will naturally differ. Contractors will try to recover escalation costs, whether under an escalation clause or as part of a claim. A key challenge for contractors in presenting a compelling claim will be finding a way to segregate escalation resulting from compensable events from escalation incurred as a result of the contractor’s own performance. This is not always easy, particularly where other delay events, or resequencing, can make it difficult to compare the actual resourcing profile of a project with a contractor’s original plan.

To understand and respond to these claims, owners should seek evidence of the actual impact of escalation on the contractor’s costs. This will entail not only proper substantiation of the actual costs incurred, but a comparison of the actual escalation with the amount of escalation that was already built into the contractor’s pricing. That, in turn, will require an examination of the contractor’s tender build-up and assumptions, and original as-planned schedule and resource distribution.

While owners will focus on defending such claims, they may also need to think practically. If contracts become unprofitable for parties down the chain, that can cause problems, whether in the form of increased claims, reduced performance, or, potentially, threats to walk away from the project.

In extreme cases, contractors may be unable to continue with the works, or could become insolvent. In order to successfully complete their project, owners might consider a negotiated settlement, whether that be a temporary or partial restructuring of a contract to a reimbursable payment basis, limited one-off assistance, or some form of incentive scheme.

While these considerations are inherently party and project-specific, it seems clear that price fluctuation will be a major consideration for all large projects over the next few years, particularly energy and infrastructure projects, where long schedules and supply chains, and high material quantities, increase both the probability and the severity of price volatility impacts. Parties will need to consider how this risk has been allocated under their contract, and how that risk allocation is likely to affect party behavior and claims going forward.

Any views expressed in this publication are strictly those of the authors and should not be attributed in any way to White & Case LLP.

Governments all over the world are accelerating their implementation of measures to fulfill their obligations under the United Nations Framework Convention on Climate Change (‘UNFCCC’) and the Paris Agreement, as well as other international legal instruments. Meeting those targets as part of the energy transition necessarily will require increased mining of critical minerals. The exploration and exploitation of these critical minerals will give rise to disputes for several reasons:

• Governments all over the world are enacting protective measures over the critical minerals within their jurisdiction, changing ‘the rules of the game.’

• Increased scrutiny of environmental, social, and corporate governance (‘ESG’) factors, especially by downstream participants because of requirements under new laws or for reputational reasons.

• Supply chain constraints as upstream participants compete over limited available resources of these critical minerals and new downstream entrants seek to use these critical minerals in novel ways.

As discussed below in the Recommendations section, participants in these evolving markets need to:

• Develop their compliance programs. This is especially relevant to new entrants in the upstream market (for example, new junior mining companies) and downstream participants who recently are sourcing these minerals in their supply chains (for example, electric vehicle automakers investing in battery metals projects).

• Conduct due diligence that addresses ESG considerations to minimize lender liability risk. This is particularly relevant for lenders to critical minerals projects.

• Structure dispute resolution options carefully to account for potential disputes with governments when investing in metals projects in new markets and with upstream/downstream counterparties regarding ESG concerns.

The mining sector is elemental to the energy transition. Compared with fossil fuel-based energy systems, clean energy technologies require more rare and precious metals1, such as lithium, molybdenum, cobalt, copper, nickel, manganese, and zinc. The World Bank2 expects the transition away from fossil fuels to boost demand for minerals and metals massively.

• Production of minerals, such as graphite, lithium, and cobalt, could increase, by nearly 500%3 by 2050, to meet the growing demand for clean energy technologies.

• Recent estimates suggest that more than 3 billion tons of minerals and metals will be needed4 to meet the Paris Agreement’s goals of net-zero greenhouse gas emissions by 2050.

• Clean energy transition will require an estimated $1.7 trillion5 in global mining investment.

A significant proportion of the essential minerals for the energy transition is located in sub-Saharan Africa and South America. Governments in these regions are implementing measures to control and to regulate these critical minerals more closely. Unresolved issues are arising regarding how public-private partnerships would operate6 or how governments would deal with foreign companies that have existing mining concessions7 to exploit these minerals.

• In Argentina8, Bolivia9, Chile10, and Mexico11, proposed measures have taken the form of nationalization or increased government involvement in the extraction and processing of lithium (in Argentina, a bill to nationalize lithium deposits is under review; upcoming elections in October could prove pivotal in a decision to nationalize lithium production).

• Argentina, Bolivia, and Chile are also considering establishing a lithium consortium12 for lithium-producing countries, and have sought to integrate other Latin American nations with a developing lithium industry, including Brazil and Mexico.

• In Indonesia13, Namibia14, and Zimbabwe15, measures have taken the form of a ban on exports of unprocessed critical minerals, in favor of attracting foreign investment to develop local processing industries.

The energy transition has already resulted in a significant surge16 in investor-state mining arbitrations. By way of background, investor-state arbitrations are arbitrations initiated by investors (such as mining companies or lenders or sponsors of a specific mining project) against the host States in which they have made investments regarding breaches of a bilateral or multilateral investment treaty or investment contract. In 2019, an ICSID arbitral tribunal awarded USD 6 billion to a mining company17 that sought to explore and develop one of the world’s largest undeveloped copper and gold deposits18 in Pakistan. The last three years alone have witnessed several high-profile mining disputes, including several matters involving the production of critical minerals as well as matters involving government programs phasing out the exploitation of fossil fuels. For example, Canada’s19 planned phase-out of coal has triggered arbitration with mining investors. In Australia, the passing of similar legislation20 in 2022 makes the future of its coal mines uncertain, and the possibility of investor-state mining disputes more likely.

Deep sea deposits of minerals (including polymetallic nodules, polymetallic sulphides, and cobalt-rich ferromanganese crusts21, which contain key ingredients for electric vehicle batteries) have recently received greater attention due to increased demand for materials necessary to decarbonize global energy and transport. The metals extraction industry has been particularly interested in seabed mining as an alternative to critical minerals from land-based projects.

The International Seabed Authority (‘ISA’) is tasked with overseeing deep-sea human activities in international waters. Since its inception in 1994, the ISA has issued 31 contracts for mineral exploration22 to mining operations sponsored by States23. The ISA Council was put under significant pressure to finalize exploitation regulations for deep-sea mining by July 2023, but the Council was not able to deliver the necessary regulations to form the Mining Code and the relevant deadline expired24. This led to concerns that the ISA would have to assess the world’s first commercial deep-sea mining application prematurely and potentially lead to unregulated deep-sea mining.

The applicant, a publicly traded Canadian company sponsored by three Pacific nations, acknowledged the opposition of ISA members to commercial mining being carried out in the absence of the Mining Code and declared that it now intends to submit an application in July 2024. Given the increased reliance by many industries on the critical minerals the seafloor can provide, the applicant expects to power the clean energy transition with the exploitation of nodules as early as the fourth quarter of 202525. However, the ISA indicated that in the event exploitations regulations are not completed by July 2024, it would aim to fulfil its obligation in 2025. The ISA Council has not indicated how it would handle permit applications for commercial deep seabed mining filed before the adoption of the exploitation regulations26.

Under the current version27 of the draft regulations, parties to an exploitation contract would have to settle their disputes in accordance with the procedures set in the United Nation Convention on the Law of the Sea, which grants broad jurisdiction28 to the Seabed Dispute Chamber of the International Tribunal for the Law of the Sea.

• The Seabed Dispute Chamber has jurisdiction over disputes concerning (i) the interpretation or application of a relevant contract/plan of work; and (ii) acts or omissions of a party to the contract relating to activities in the exploitation area and directed to the other party or directly affecting its legitimate interests.

• While any party to a dispute described in (i) may request binding commercial arbitration, any question of interpretation of the Convention on the Law of the Sea would have to be referred to the Seabed Dispute Chamber for ruling.

Fueled by the climate crisis, market volatility, and political shifts, ESG has become a key consideration for metals and manufacturing companies. Empirical evidence shows a growing number of mining disputes with ESG issues29 are coming before arbitral tribunals.

Governments’ commitment to various international instruments to protect human rights and local environment and the inclusion of ESG considerations in investment agreements30 have empowered tribunals to openly consider ESG issues and grant them a greater weight in their decision-making process. Tribunals now consider ESG issues raised as part of a State’s defense of its actions, a counterclaim brought by the State against the claimant/investor, or in the potential reduction of damages owed by a State to an investor in the event of a treaty breach (contributory fault or unclean hands).

• In South American Silver v. Bolivia31, finding that the investor’s actions exacerbated the conflict with indigenous communities and caused further violence, the tribunal awarded $18.7 million in damages of the $385.7 million sought.

• In Copper Mesa v. Ecuador32, finding that the investor contributed to 30% of its loss through its actions towards the local communities, the tribunal reduced the damages awarded by 30%.

• In Bear Creek v. Peru33, the dissenting arbitrator found that the investor’s inadequate preparation to obtain a social license contributed to the demise of the project, and as such the tribunal should have reduced the damages awarded by half.

• In Perenco v. Ecuador34, while the tribunal granted partial damages to the investor, it also awarded $54 million to Ecuador for its counterclaim for the restoration of the ecosystems.

ESG issues in mining disputes are expected to be brought forth with increased frequency in investor-state proceedings.

• Compliance Programs and Due Diligence:

  • All parties in this sector need to ensure that their compliance programs address ESG concerns. This may be particularly relevant to new entrants to the critical minerals market who may have less developed programs.

  • Downstream participants manufacturing products that require critical minerals in the supply chain need to ensure they conduct due diligence to account for ESG and political risk when investing in battery metals projects or entering into supply agreements with their suppliers.

  • Lenders to critical minerals projects need to ensure their due diligence covers ESG concerns, especially when projects are located in emerging markets.

• ESG Provisions in Contracts:

  • Substantively, keep abreast of national and international rules and guidelines on ESG. In addition to national and regional laws on ESG that might apply to commercial activity, compliance with ‘soft law’ instruments such as the UN Guiding Principles35 on Business and Human Rights might become binding depending on the terms of the contract.

  • Consider the extent to which ESG factors need to be weighed for all steps in the supply and value chains (and not just the immediate counterparty to a contract).

  • Attention should be paid to the forum in which ESG-related disputes will be adjudicated. Forms of alternate dispute resolution, such as mediation or conciliation, may be suitable for addressing this category of disputes. Alternatively, arbitration may be preferable to litigation for a number of reasons, including confidentiality and the bilateral nature of arbitral proceedings. It may also be necessary to draft express provisions on consolidation and joinder if multiple parties will be required to resolve a dispute arising under a bilateral contract.

• Treaty Protection Against Governmental Action Over Mining Projects:

  • When investing in the mining sector, consider routing investments through a jurisdiction that has executed a bilateral investment treaty with the target state of the investment.

  • Not all investment treaties are equal, though. Careful attention needs to be paid to how the treaty defines a qualifying investor and a qualifying investment. The treaty may impose restrictions on the place of business or contain carve-outs (such as tax carve-outs) from the scope of the treaty’s coverage. More recently executed treaties may contain relevant provisions on ESG and/or corporate social responsibility that could be instrumental to the dispute’s outcome.

In broad terms, ‘acceleration’ occurs when an employer on a construction project requires, or the parties agree to try and bring, the contractual completion date forwards. This is usually done through re-sequencing and/or the deployment of additional or different resources. This can be done in relation to the original or varied scope of works.

Acceleration is defined by the Society of Construction Law Delay & Disruption Protocol (2nd edition), February 2017, as: ‘The application of additional resources or alternative construction sequences or methodologies seeking to achieve the planned scope of works in a shorter time than planned or execution of additional scope of work within the original planned duration.’

Acceleration can arise either through the employer exercising an existing contractual right to require accelerated completion, or by the employer and contractor entering into an agreement to accelerate, which sits alongside the existing construction contract, and serves to vary its terms.

When acceleration occurs, it is critical for parties to understand what additional responsibilities and risks they are taking on and what entitlement to additional payment the contractor might have. Recording all of these points in a separate agreement between the parties is important.

In an environment where there is pressure on supply chains and resources are often not readily available, a contractor may think twice before agreeing to accelerate. However, it is vital to understand the original contract terms and how they might apply to the particular circumstances.

Acceleration should not be confused with a contractor taking steps to finish earlier in circumstances where a project is running late because of that contractor’s culpable delay. Efforts to finish earlier in these circumstances – and thereby avoid liability for delay damages – are more likely to be characterised as mitigation than acceleration.

Where an employer instructs a contractor to accelerate under an agreed contractual provision, the basis for the contractor to be paid costs associated with that acceleration might already be identified in that provision. These additional costs are usually agreed by the employer accepting a quotation from the contractor to accelerate, followed by the issue of a formal instruction to accelerate. For example, a contractor might be paid its acceleration costs on a lump sum basis or on a cost reimbursable basis.

Contracts also ought to identify how further delay in a period of acceleration – whether culpable or excusable – is to be addressed and what happens if, for whatever reason, the accelerated completion date is missed. If there are deficiencies in the contractually agreed process, it may be that a separate acceleration agreement is needed to address these points.

If the construction contract does not provide for acceleration, but the contractor and employer nevertheless agree that accelerative measures should be taken, the commercial terms on which acceleration is to take place ought to be recorded in a supplemental agreement before those measures are put into effect. This agreement will act as a variation to the original construction contract and so any provisions in the existing contract which regulate how the construction contract is to be varied need to be properly addressed.

Under JCT contracts, an acceleration quotation is necessary for the adjustment or variation of, for example, the completion date and the final sum. Such quotations may, depending upon the standard form, involve a timetable for any revised proposals and acceptance or non-acceptance of the quotation.

Under NEC contracts, the contractor and project manager may propose acceleration to the other, again with the provision of a quotation. The provision of the quotation results in a timetable for the acceptance of the acceleration and acceptance of a revised programme.

A variety of measures might be taken for the purposes of accelerating progress or recovering delay. Potential options may include:

• increasing labour resources, including introducing longer or additional shifts in the form of evening or weekend working;

• increasing the quantity of available plant and equipment;

• increasing the allocation of head office or other administrative or supervisory resources;

• adopting alternative construction methods, such as off-site manufacturing;

• re-sequencing or compressing activities in the programme;

• changing the design or specification of the works;

• increasing quality control resource and enhancing quality control procedures; or

• adding new suppliers to the existing supply chain.

For these measures to work effectively, the contractor might require certain commitments or assurances from the employer. For example, the employer might be required to issue design information or approve designs by an earlier date, perhaps subject to the contractor providing regular and reliable ‘look-ahead’ forecasts which identify when approved design information is required.

If a contractor is delayed for reasons which it argues are not its responsibility, but the employer disagrees and refuses to award an extension of time or instruct acceleration, the contractor can have a tough decision to make: whether to make a formal claim for an extension of time that the employer has already refused; or to accelerate, at its own cost, to avoid or mitigate its potential exposure to liquidated damages. The latter scenario is described as ‘constructive acceleration’.

Claims for constructive acceleration have yet to succeed in the courts in England and Wales. Here, the accepted notion is that where the contract provides for acceleration, payment for acceleration should be based on the terms of the contract and where there are no acceleration provisions, contractors may risk accelerating without being able to recover the costs of doing so. However, courts in other Commonwealth jurisdictions have been more sympathetic to this line of argument.

An Australian case, V601 Developments Pty Ltd v. Probuild Constructions (Aust) Pty Ltd36, highlighted the potential for a contractor to claim acceleration costs where it can establish a breach of contract by the employer in not awarding an extension of time in circumstances where it was obliged to do so.

Unless there is a shift in approach in the courts of England and Wales, contractors may wish to seek an early decision through adjudication as to whether they are entitled to an extension of time.

If this is not possible, the contractor could consider documenting the basis of the steps it intends to take, explaining why the employer’s conduct is such that it has to accelerate. The contractor could also look to prepare alternative programmes to show the effect of accelerative measures. Such steps may assist the contractor to recover its acceleration costs if it is able to demonstrate that the causes of delay are the employer’s responsibility, either as loss and expense or as damages for breach of contract. Taking those steps does not guarantee a contractor that it will overcome the problems of ‘constructive acceleration’, but they may be useful in commercial dialogue and in formal proceedings.