Unravelling the true time and cost implications of variations made to a contract is a complex business, especially if the project finished years before. The process is harder still where the work was carried out in the days before the widespread use of computers to manage the programme.
To help cope with these difficulties, an unusual step was taken in a major arbitration which finished recently. Client, engineer, contractor and arbitrators agreed to adopt Primavera Project Planner software, and to use it to model the contract programme retrospectively. This allowed everyone to work through the effects of changes that had been made on site, seeing whether they should have entitled the contractor to extra time and money.
'It is the first time I have ever seen a dispute on a major contract presented with such reliance upon technology,' says Peter Shaw, partner in the litigation department of solicitor Taylor Joynson Garrett, acting for the client. 'The way in which the technology and software was used to develop the claim was very original and very imaginative.'
The project was a new military airbase in the Middle East, engineered for the government there by the US Army Corps of Engineers and built by a Far Eastern contractor. Work finished in the early 1990s, and the contractor had put in claims of some $250M (£156M) on top of the $100M project cost.
It was seeking extensions of time, recovery of liquidated damages from failing to meet various milestones, and additional costs for delays. The arbitration finished in March this year, awarding the contractor under $20M, including interest. The case was not a great financial success for the contractor, says Shaw, but ultimately, it did succeed in proving sufficient extensions of time for the repayment of all liquidated damages.
Going back over the project on computer essentially allowed the project to be recreated, Shaw says. The contractor had put in a global claim and its case was, he says, rather vague and almost impossible to prove in any other way.
Use of the Primavera system started in 1995, with the system upgraded to version 2B part way through through the arbitration. Shaw worked with Gardiner & Theobald Fairway, who advised on its use.
Work was to the FIDIC contract, but extensively altered by the Army. 'One of the most fascinating amendments was that they had obliged the contractor to produce a very sophisticated schedule and network analysis programme,' says Shaw. 'The programme had to specify in the region of 5,000 different work items.' It showed a time range for each item, with early-start, early-finish and late-start, late-finish dates, to give the contractor flexibility in its work.
The irony, he adds, is that the engineer's method of monitoring the contractor was turned around to develop the claim. 'The Corps of Engineers not only obliged the contractor to adopt a fairly sophisticated programme, but also stipulated the mechanics of how it would be updated and reviewed. Where it failed was that the technology wasn't good enough in the late 1980s to do a lot of what the engineer wanted, but both sides muddled on.' Project planning and scheduling software still remains a top priority, according to the findings of an EC taskforce (NCE 6 May).
The suggestion to set up the computer modelling for the arbitration came from Gardiner & Theobald Fairway. A lot of contractors may use such software to develop a claim, but would generally keep their conclusions under wraps, Shaw says.
First, the original schedule was recreated, and then the arbitrators made a series of rulings about how it should be updated to reflect instructions, delays and costs incurred.
The tribunal decided that there would be no entitlement to extra time if a change to the work simply used up float time. There could, however, be monetary compensation for having to rearrange the work.
'The contractor then had to begin to try to demonstrate what delay was caused and what it cost,' says Shaw. Each issue was worked through.
Everyone had six months after the initial hearing to work through the implications of the decisions, and disagreements were resolved at the second
Use of the system developed a basis for the payments. A point was reached, after three major hearings, where the network had developed to such a point that the computer 'literally started to print out the results' Shaw says. It showed where float time had been used up, entitling the contractor to extra money and extensions of time.
In a future case, there might be more use of computers 'live' in the arbitration room, he feels, giving the evidence electronically, whereas here it was printed out. 'In the end, we reverted to bar charts to demonstrate what happened in a fairly time-honoured fashion.'
Use of such an electronically-based system will inevitably increase, but it is a double-edged sword, Shaw warns.
'If the contractor is on top of reviewing the schedule it can also use it to build up a good claim,' he says. On the other hand, both sides may agree on fair compensation without going as far as arbitration. Without evidence to back up arguments, they often end up in dispute simply because neither understands the other's point of view.