Assessment of compensation events under NEC - analysing construction delays

We look at prospective and retrospective analysis in relation to NEC.

There has been much written and said in the past 12 months about the pronouncements of Mr Justice Akenhead in the case of Walter Lilly v Mackay. Much of this comment has revolved around the judge’s important remarks on the subjects of concurrent delay and global claims. However, other aspects of the lengthy judgment have, by contrast, received relatively little attention. One aspect of the judgment that has attracted little attention from commentators is what the judge had to say when discussing the correct approach to be adopted when analysing construction delays. These comments may be of some interest to those involved in the assessment of compensation events under the various NEC forms of contract.

There has been some debate in recent years among legal practitioners and those who analyse construction delays as experts about whether the correct method to adopt should involve a “prospective” or a “retrospective” approach.

A prospective approach (such as “time slice” or “windows” analysis) generally involves using construction programmes produced during the currency of the project in order to identify critical activities and delays. This will inevitably involve a degree of “forward looking”, as the analysis will take account of views on criticality and delay held contemporaneously by those involved in the project (and who, at the time, were looking forward from the perspective of a partially completed project). Those views will not have the benefit of hindsight in light of what subsequently happened on the project (although, with techniques such as time slice or windows analysis, the benefit of hindsight will gradually reveal itself as the analysis progresses).

Retrospective techniques, on the other hand, view the project completely with the benefit of hindsight and will generally use a final “as-built” programme as the primary analytical tool.

From our experience, in the ordinary course of events, an expert who adopts a time slice or windows analysis (both of which, incidentally, were expressly approved in the 2007 decision of Mr Justice Toulmin in Mirant v Ove Arup) will inevitably find himself criticised by the opposing party for adopting a “prospective” approach that favours contemporaneous perceptions over actual events. Similarly, an expert adopting an entirely retrospective approach may find himself criticised by the other side for the cardinal sin of ignoring contemporaneous views which, in practice, shaped the contractor’s priorities and therefore may have directly affected the critical path.

In disputes where the key concern is to properly understand the facts surrounding delays, debates about the methodology can be wasteful of time and costs. Mr Justice Akenhead certainly thought so in the Walter Lilly case. He commented in this regard that “the debate about the ‘prospective’ or ‘retrospective’ approach to delay analysis was also sterile because both delay experts accepted that, if each approach was done correctly, they should produce the same result”. In the case of a “prospective” analysis, the judge explained that this may involve sense-checking the results of each “contemporaneous” time slice (or window) in light of subsequent known events. This would help to avoid the results of the analysis being distorted by contemporaneous perceptions which, in light of subsequent events, turned out to be seriously misguided.

In fact Mr Justice Akenhead confirmed that, with better contemporaneous programmes and other records (the learned judge explained that this lack of contemporaneous data was because “throughout 2007 … completion was perceived by all parties to be not very far away” and therefore the usual records of progress were not maintained. This is another unusual aspect of this case that has received very little comment), both delay experts in the Walter Lilly case “would in all probability have done the prospective exercise, albeit in the light of the events which happened”. As it was, the learned judge preferred the approach of Walter Lilly’s expert, which he considered, notwithstanding the unfortunate lack of contemporaneous data, “was a sensible variant on the conventional approach of delay experts which was to review on a month by month basis what in each month was probably delaying overall completion” and then to apply “a cross check by reference to what actually happened”.

This apparent preference for a “prospective” approach to delay analysis, even when conducted retrospectively in the context of a formal dispute, ought to help reduce in the future sterile debates about methodology. However, with its emphasis on forward looking analysis, it also resonates with the method for assessing (and, if possible, agreeing) Compensation Events in the NEC contract.

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