Delay and disruption are endemic in the construction industry and lead to time and cost overruns. It is therefore essential that delays and/or disruptions are identified early so that corrective action can be taken.
However, when delay and/or disruption occurs, the issue of quantifying the period of any delay, the effects of disruption, and the quantification of the resulting loss is complex.
Delay and Disruption – the Distinction
Although delay and disruption are often treated as being the same thing that is not the case. Essentially, delay is time related and disruption is productivity related. In Bell BCI v United States the court distinguished delay and disruption as follows:
There is a distinction between (1) a “delay” claim and (2) “disruption” or cumulative impact claim. Although the two claim types often arise together in the same project, a “delay” claim captures the time and cost of not being able to work, while a “disruption” claim captures the cost of working less efficiently than planned.
The SCL Protocol first edition also distinguishes delay and disruption as follows:
1.19.1 Disruption (as distinct from delay) is disturbance, hindrance or interruption to a contractor’s normal working methods, resulting in lower efficiency. If caused by the Employer, it may give rise to a right to compensation either under the contract or as a breach of contract.
1.19.2 Disruption is often treated by the construction industry as if it were the same thing as delay. It is commonly spoken of together with delay, as in “delay and disruption”. Delay and disruption are two separate things. They have their normal everyday meanings. Delay is lateness (eg delayed completion equals late completion). Disruption is loss of productivity, disturbance, hindrance or interruption of progress. In the construction context, disrupted work is often work that is carried out less efficiently than it would have been had it not been for the cause of disruption.
1.19.3 Disruption to construction work may lead to late completion of the work, but not necessarily so. It is possible for work to be disrupted and for the contract still to finish by the contract completion date. In this situation, [the contractor] will not have a claim for an EOT, but it may have a claim for the cost of the reduced efficiency of its workforce.
The SCL Protocol second edition characterises delay and disruption as follows:
18.1 Disruption (as distinct from delay) is a disturbance, hindrance or interruption to a contractor’s normal working methods, resulting in lower efficiency. Disruption claims relate to loss of productivity in the execution of particular work activities. Because of the disruption, these work activities are not able to be carried out as efficiently as reasonably planned (or as possible). The loss and expense resulting from that loss of productivity may be compensable where it was caused by disruption events for which the other party is contractually responsible.
18.2 Disruption events can have a direct effect on the works by reducing productivity (such as piecemeal site access different from that planned, out of sequence works or design changes). They can also lead to secondary consequences on the execution of the works, for example through crowding of labour or stacking of trades, dilution of supervision through fragmented work gangs, excessive overtime (which can lead to failure), repeated learning cycles and poor morale of labour which can further reduce productivity.
In summary, delay is time related and disruption is productivity related. Delay may cause disruption, disruption may cause delay, and both may, and often do, occur at the same time.
If productivity is impacted, labour costs in all probability will increase. Even though labour effort and project program are related, the courts consider that loss of productivity damages are not the same as program delay damages and they are therefore separate categories of recoverable damages.
Further, the English cases of Van Oard UK v Allseas UK and RWE Npower v Alstom Power show that courts are sometimes faced with combined claims for loss and expense due to delay and disruption which can require separation.
Why is it necessary to make the distinction?
There are several reasons why it is necessary to distinguish between delay and disruption, some of which are:
Many forms of construction contract do not give an entitlement to claim additional costs and/or loss due to disruption;
If there is no contractual entitlement to claim disruption costs, the contractor will be unable to take its dispute to adjudication under the Australian Security of Payment legislation as only disputes that arise under the contract can be adjudicated;
If the costs that have arisen as a result of delay and disruption are not separated the contractor’s claim will most probably fail in formal dispute resolution proceedings; etc.
It is therefore essential to remember that disruption is not delay. Although disruption and delay often result from the same causes, they are separate concepts.
My future articles will set out, in overarching terms, how to quantify the time and financial impacts of delay and disruption, and let’s not forget how concurrent delay impacts all of this.