Constructive acceleration

Late last year, the Supreme Court of Victoria, Australia, handed down judgment in V601 Developments v Probuild Constructions, whereby the contractor succeeded in a constructive acceleration claim.

Such claims (sometimes referred to as ‘implied acceleration’) are frequently raised but rarely succeed, at least in jurisdictions outside of the USA.

Six months on from V601 v Probuild, we consider constructive acceleration through the prism of (1) what the consensus was in common law jurisdictions; (2) does the Probuild case change that; and (3) what contractors can do to maximise their prospects of recovery.

Common law position

The SCL Delay and Disruption Protocol 2nd Edition (2017) defines constructive acceleration as, “Acceleration following failure by the CA [contract administrator] to recognise that the Contractor has encountered Employer Delay for which it is entitled to an EoT [extension of time] and which failure required the Contractor to accelerate its progress in order to complete the works by the prevailing contract completion date. This situation may be brought about by the Employer’s denial of a valid request for an EoT or by the CA’s late granting of an EoT. This is rarely recognised under English law.”

The rational for this was echoed in the Ascon Contracting v Alfred McAlpine Construction Isle of Man, in which the court observed that (subject to some exceptions that would be challenging to prove), if a contract presents a contractor the opportunity to claim an EoT and additional money, that contractor should not also be able to claim damages for constructive acceleration, as it would constitute double recovery.

This leaves the honest contractor who is denied an EoT in a difficult situation. Even if that contractor could introduce measures to accelerate the works to complete ‘in time’, the law says that absent an explicit instruction from your employer / project manager, they should not do so. This feels counterproductive, not for the benefit of the project and potentially unfair.

V601 v Probuild

V601 was developing a large site in Melbourne for mixed-use purposes and engaged Probuild under a design and build contract. When Probuild was delayed in completing the project, they submitted an EoT claim to the Project Manager which was rejected. V601 therefore claimed liquidated damages following the late completion of the project. Probuild raised a counterclaim that included costs for constructive acceleration.

Probuild argued it was entitled to recover its acceleration costs for three reasons:

• Probuild’s loss and damage arose from the Project Manager’s failure to certify EoT applications. The acceleration costs Probuild expended were a mitigation measure, and therefore recoverable.
• Damages for breach of an implied obligation on the part of the Project Manager to co-operate and act in accordance with the Contract.
• The Project Manager’s failure to award EoTs constituted a ‘direction’ to accelerate. It was argued that in refusing the extension, the Project Manager (whether expressly or by implication) created a requirement for Probuild to complete the works by the specified dates for practical completion, therefore falling within the contractual definition of ‘direction’ which included ‘requirements’.

Although grounds 2 and 3 were rejected, ground 1 was accepted. Highly relevant to the Court’s decision was the Project Manager’s lack of independence and collusion with the Employer – it was found that the, “Project Manager failed to appreciate the standard of independence and conduct required of its independent role of assessor and certifier, and allowed its processes of assessment, determination, and certification of Probuild’s entitlements under the Contract to be unduly and inappropriately influenced by the Proprietor’s strategies and tactics, and the Proprietor’s commercial interests.”

The Court held that the failure of V601 and its Project Manager to compensate Probuild for EoTs was a breach of contract, and that Probuild was therefore entitled to recover the mitigation costs expended to overcome and minimise delays to the works.

Furthermore, Probuild was held to have taken the necessary and reasonable measures to accelerate to reduce delay to achieve Practical Completion. There were some reductions as the rule against double recovery precluded Probuild from recovering acceleration costs which would likely result in recovering the same direct on-site time-related costs.

However, it must be noted that the application of the reasoning in Probuild is not new. For example, in the Canadian case of Morrison-Knudsen Co v British Columbia Hydro and Power Authority, the Court allowed for acceleration following a principal’s breach for (i) refusing to grant the EoT and (ii) subsequently demanding completion on time.

Therefore, while Probuild is no carte blanche to constructive acceleration claims, it indicates that a claim of that sort, based on the compensable mitigation theory (at least), will in principle be permitted in the State of Victoria, and conceivably will be permissible also in other common law jurisdictions in certain circumstances.

How to maximise recovery

There are many measures that contractors can take when faced with a situation whereby they consider it is commercially necessary to implement acceleration measures despite a refusal by the employer or project manager to officially instruct them (and in the absence of a suitably wide variation clause).

These are: The SCL Protocol recommends that a contractor should notify the employer / project manager of the intended acceleration measures and include those measures in a revised programme. This is consistent with express obligations on contractors in some of the common standard forms to update programmes when actual progress falls behind planned progress, such as clause 8.3 of FIDIC Red, Yellow and Silver Second Editions (2017).

Practically, and to minimise the risk of getting an expressly rejected acceleration proposal, this can be done in two stages. First, notwithstanding the employer / project manager’s rejection of the EoT claim, submit an updated programme showing the completion of the project later than the planned completion date as a direct result of the employer owned risks.

If the employer states that the programme is not acceptable, say that you consider this to be an instruction for acceleration considering the rejection of the EoT claim, and that you will be acting accordingly. At this point set out the acceleration measures.

If facing a situation whereby the project manager is not acting impartially, keep good and consistent documentary evidence of specific examples including of any collusion with the employer.

Keep good and consistent records of the acceleration measures in fact implemented and separate those costs from other project costs.

Keep the employer updated on the outcome of the acceleration measures and whether they have been successful.

Ensure that you comply with any conditions-precedent applying to the claim for additional payment.

While recovery prospects are inevitably fact specific, taking the above steps will maximise the contractor’s position in an area where successful claims are traditionally difficult in common law jurisdictions.