Constructive acceleration successfully claimed

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Outside of the United States, claims for constructive acceleration usually fail.  However, in a recent Australian case such a claim succeeded.  Does this now open the way for contractors to deploy constructive acceleration claims?

 

Introduction

'Constructive acceleration' is used to describe when a contractor claims an extension of time ("EOT") for completing its works, but the employer wrongfully fails to grant the EOT, with the consequence that the contractor decides to accelerate the works in order to meet the unadjusted contractual completion date.  A claim based on constructive acceleration is one for the additional costs that a contractor incurs in taking measures to accelerate, such as using additional labour or plant resources, or paying a premium for overtime working.

The predominant legal theory of a constructive acceleration claim is that the failure by the contract administrator to grant an EOT constitutes a breach of contract attributable to the employer, and that the additional cost incurred by the contractor in accelerating represents a loss recoverable as damages.  The acceleration is "constructive" because it does not arise from any express instruction given to the contractor to accelerate.  It comes about because the contractor has attempted to complete the works by the unadjusted date, as a way of mitigating what would otherwise be the delay to the project.

One of the potential difficulties with constructive acceleration claims arises where the contract is administered by a third party consultant, such as an architect or engineer, and the contract does not (expressly or by implication) make the contract administrator the agent of the employer in respect of the assessing of EOT claims.  In such a case, a failure by the contract administrator to grant an EOT where one should have been granted may not amount to conduct which is attributable to the employer, and for which the employer can be liable in damages.  

This potential difficulty does not arise, however, where (i) the contract is administered by the employer or its representative; or (ii) the employer and the contract administrator have wrongfully colluded with a view to denying the contractor its true EOT entitlement.  This latter situation arose in a recent Australian case.

 

V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849

The case concerned a dispute between V601, the Principal, and Probuild, the Contractor, relating to the development and construction of a residential and commercial development project in the state of Victoria, Australia. 

  • The contract was an amended Australian Standard Contract AS4902-2000 form (the "Contract"). 
  • The Principal commenced litigation seeking liquidated damages under the Contract.  In its defence, the Contractor argued that the project manager, acting on behalf of the Principal, failed to allow its EOT claims.  The Contractor therefore counterclaimed for the cost of accelerating its work to meet the unadjusted completion date, i.e., it made a constructive acceleration claim.
  • The Contractor contended, among other things, that it 'accelerated' the performance of the works to try to reduce or overcome one or more of the delay events that were the subject of its EOT claims, or, alternatively, to try to achieve practical completion by the date for practical completion certified by the project manager. 
  • The Contractor argued it had a right to recover the costs incurred in accelerating these works, because of the project manager's failure to (i) approve updated versions of programmes; and/or (ii) grant in full the EOT that it was entitled to receive. 

The court allowed the Contractor's constructive acceleration claim, finding that:

  • the Principal, through its project manager, breached the Contract by not awarding and compensating the Contractor for its EOT claims.  It was important to the court reaching this conclusion that the Principal and the project manager had engaged in "contractually wrongful conduct" by colluding with a view to denying the Contractor its proper EOT entitlements;
  • the Contractor could in principle recover the additional costs it incurred in its efforts to overcome and minimise delay to the works;
  • the Contractor's acceleration costs were necessary and reasonable costs incurred in mitigating the delays to the works;
  • the Contractor's acceleration costs were within both parties' contemplation; and
  • the Contractor took the necessary and reasonable measures to accelerate the works and overcome or reduce delay to achieve practical completion by the dates for practical completion. 

 

Commercial Implications

The facts of V601 v Probuild were relatively uncommon, in that the Principal and the project manager had evidently colluded with a view to defeating the Contractor's justified EOT claims.  Wrongful interference by an employer with a contract administrator's functions constitutes a breach of contract, which opens the employer to a claim for damages for what foreseeably flows from that breach – which may include (as here) a claim based on constructive acceleration.

We may distinguish V601 v Probuild from those more usual cases where the employer and the contract administrator do not wrongfully collude together. Perhaps the contract administrator, acting genuinely but mistakenly, will simply "get it wrong", and not grant an EOT where an EOT should be granted.  The laws in England, Australia and other common law countries (the US aside) have not taken the line that any failure to grant an EOT by a contract administrator, where an EOT ought to have been awarded, opens the door to a constructive acceleration claim.  

For this reason, as the Society of Construction Law Delay & Disruption Protocol noted in 2002, "it is not recommended that a claim for so-called constructive acceleration is made".  The 2017 edition of the Protocol cautions that that constructive acceleration is "rarely recognised under English law".  

Nevertheless, conceptually the common law does permit constructive acceleration claims to be made in certain circumstances.  This is vividly illustrated by V601 v Probuild where a constructive acceleration claim succeeded.  The case also illustrates the empirical notion that wrongfully denying a justified EOT claim simply stores up a problem for another day.

 

Denisa Olaru (White & Case, Trainee Solicitor, London) contributed to the development of this publication.

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2022 White & Case LLP

 

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