Valuation matters: acceleration

In writing this article, I have used the very helpful ‘acceleration’ RICS practice note. This is an authoritative and very helpful guidance document that is used and referred to by industry professionals when dealing with acceleration-related issues.

In this article, I will provide some background to acceleration, explore how you might deal with a common acceleration issue, and provide some guidance on how extensions of time and acceleration agreements can be used to control financial risk.

Background

In its simplest form, ‘acceleration’ is an increase to the originally planned or current rate of progress to achieve an earlier completion. It normally involves more intensive resource effort (back shifts, night shifts, weekend working, etc.) to increase the rate of production per hour/per day and, in theory at least, complete the work quicker than planned.

You could say, due to the nature of construction projects, that ‘acceleration’ is occurring daily on construction projects as project teams navigate their way through a multitude of issues in order to complete on time.

However, difficulties arise when you are recovering lost time caused by the other party’s risks. When this occurs, there are numerous issues at play, including financial, contractual, behavioural, etc., and you need a plan to navigate those issues and protect your project’s financial position.

To accelerate or not to accelerate

There are said to be three types of acceleration:

• Voluntary acceleration is where a contractor chooses to accelerate.
• Directed acceleration is where a client instructs the contractor to accelerate.
• Constructive acceleration where a contractor claims an Extension of Time (EoT), but the client does not award an EoT.

The dilemma arising in the constructive acceleration type of acceleration is common on construction projects.

You have lost time on the critical path, which you consider was caused by an event that was your client’s responsibility. You make your EoT application and expect to receive an award that will relieve you of your liability to pay damages. However, the EoT award isn’t forthcoming, and you keep being asked for more information. There comes a tipping point where, with damages looming, you need to consider investing in acceleration measures to mitigate that risk.

So, what do you do?

The first port of call if you haven’t already is to check your contract. What is your obligation where delay occurs and it is caused by your client?

The 'standard’ position would be that you need to take all reasonable steps to mitigate the loss resulting from the breach. What this means is you would not be obliged to recover the delay but, through your actions, you should not make it worse. If, for whatever reason, that occurs, your claim will survive, but you might find your financial contribution is more than it would have been but for your neglect.

That said, you need to be careful about the wording of your obligation in the contract. While I have described the standard position, you might find that you have signed up to a more onerous duty where you are obliged to recover delay and/or spend money to achieve this (which may or may not be recoverable!).

If you have any concerns here, take legal advice. Better still, take advice before you sign up for something that you might later regret.

Always remain in control of time

It sounds obvious, but your claim to be paid for acceleration measures will fall at the first hurdle if you have not made an application for an extension of time. How do you hope to convince your client that they are liable for the costs of acceleration measures if you haven’t even told them they have caused the delay? And yes, I have dealt with issues where this was the case.

The first step to protecting yourself is to keep on top of your extension of time entitlements. Reconcile critical path progress at regular intervals, understand who caused what delay, and make your applications for EoT contemporaneously with analysis and supporting evidence.

If you control time under a construction contract, you control your financial outcome; it's that simple, and it really is that important.

Agreeing to accelerate

As you are making these EoT applications, you should record those measures that you are taking to improve the situation and measures that could be taken to further improve the programme if they are funded.

Provide information proactively that allows your client to analyse their return if they did invest in acceleration measures. They too will be seeing the project issues unfold and will be running their own commercial calculations, so make sure you inform that process as much as you can.

This may result in an acceleration agreement, and there are provisions in JCT and NEC standard forms for this purpose. If this becomes a possibility, then care should be taken when negotiating and executing these agreements. The worst-case outcome, and very real risk, is that money is invested, and no time is recovered! And yes, I have seen that happen too (even situations where the agreement wasn’t documented at all and, unsurprisingly, both sides had a very different view as to what was agreed).

Think through the practical issues: what measures will be undertaken; how much will they cost; and how do you measure success? Beyond this, you may need to consider another layer of complexity if there are multiple work fronts because recovering critical delay to one set of activities might mean a different set of activities becomes critical.

Final reflections

It all comes down to time and whether you have control over your destiny as far as programme performance is concerned.

If you are a quantity surveyor and you are not actively involved in progress reporting, then get involved. Your knowledge of the contract and understanding of commercial risk and opportunity is invaluable to the project team’s approach.

When you conduct monthly project reviews, make sure critical path analysis is happening. get into the detail of that information. What is going on, what can be done differently, and what actions need to be taken to protect our financial position?

Panic early and don’t wait until it’s too late!

Next week, we will continue the focus of this valuation matters mini-series with a focus on inflation.

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