Suspending projects prior to establish a valid cause is childish
Posted on March 9th, 2015
Dr. Chandana Jayalath
I heard, the ongoing enabling works at the Colombo Port City project is to be suspended till the environmental, economic and security issues concerning the project are fully revisited. My experience as a construction contract specialist never allows my mind to acknowledge the foregoing position of looking at these projects without adequate facts and honest conviction. Therefore, I thought of posting this write up in the layman’s terms.
Suspension usually occurs on a construction project when the owner or the developer or investor requires a contractor to temporarily stop work on all or a portion of the project. Termination, on the other hand, occurs when an owner instructs a contractor to permanently stop work and leave the site. Construction contracts typically specify each party’s rights, obligations, and remedies for suspension and termination. Therefore, it is advisable for all parties to thoroughly review, understand, and follow the contract provisions relative to suspension and termination, before any political opinions are issued in media. Suspension and termination on construction projects often result in claims and disputes; therefore, the decision to proceed with either option should not be taken lightly.
Contractually, the contractor shall suspend the progress on a number of specific circumstances which basically include climatic conditions, safety reasons, excepted risks etc. A mandatory requirement is cast on the contractor in many standard forms of contracts that the contractor shall give a written notice of his intension to claim for any additional cost and/or time within a specified period from the date of receiving order to suspend the work. Once notified, contractors may submit suspension-related claims together with a delay analysis to evaluate the impact to the project’s critical path. Critical path is where there is no float or buffer time for anyone to play with the shuffling of activities. In suspension, the contractor’s claim may include standby or idle costs in whatever and wherever unproductive resources. On longer suspensions, there may be a provision for compensation to the contractor for demobilizing from the site and later remobilizing to avoid the project owner having to continuously pay for labour and equipment which is not being used. In addition, if the owner’s actions do not allow the work to proceed but the suspension clause has not been invoked, the contractor may claim for what we call constructive suspension. A suspension can also be implemented if there is a dispute between the contractor and the owner, and a termination is being considered. Additionally, some contracts contain provisions that terminate the contract if the suspension lasts longer than the specified duration, as I said earlier. This duration is in most of the times 90 days. However, termination is the worst case eventuality in any contract. There are two general types of termination typically addressed in construction contracts; termination for convenience and termination for cause which is sometimes referred to as termination for default.
In a termination for convenience, the owner may terminate the contract for whatever reason it wishes, such as business reasons, or as the most expeditious way of eliminating a non-performing contractor with minimum risk of a legal dispute. Contractor’s remedies for termination for convenience vary from contract to contract, but may include the reasonable cost of work performed prior to termination including profit. It may even go up to the extent of any anticipated profits on uncompleted work and project wind-down costs.
Termination for cause may occur when the owner believes the contractor has not performed according to its contractual obligations and thus has materially breached the agreement. Some of the more commonly cited reasons for terminating a contract for cause could be the failure to pay labor, subcontractors, vendors, or material suppliers, failure to meet the project schedule or diligently perform the work or even defective or deficient performance. It may also include failure to follow applicable laws and regulations concerning quality, safety, health and environment.
A party can unilaterally suspend a project as long as it has a valid cause. Therefore, it is important to read and follow the contract, as some construction contracts provide for excusable delays, such as force majeure. Thus, decisions to terminate for cause must also consider events which are excusable under the contract and prevent the contractor from performing as required.
Typical claims from owners under termination for cause, to the extent that they are not waived by contract, include extended project duration and overhead costs (e.g., replacing one contractor with another almost invariably results in overall project delays), loss of use, loss of profits or deferred production, liquidated damages or actual damages for delay, cost to complete the project if the final project costs exceed the value of the terminated contract less amounts paid to the terminated contractor.
On the other hand, typical claims from contractors under termination for cause may have a long list of claimable components such as costs incurred to bid the project at the outset, mobilization and demobilization costs, anticipated profit on the project, costs for work performed but not paid, home office overhead costs, winding-down costs, damages for loss of good will, loss of future business due to potential negative publicity following termination. A smart claims consultant would advise the claimant on what we term betterment issues – changes or upgrades included in the owner’s cost-to-complete damage model that are above and beyond the contractor’s original scope of work.
In nutshell, suspension and termination actions on complex construction projects such as Port City or Uma Oya are complicated and expensive to resolve. Any such claims often result in litigation or other forms of dispute resolution such as international arbitration. This is why we as contracts specialists often advise the owners and contractors to maintain detailed records and documents, such as costs reports, progress reports, invoices, schedules, and other contemporaneous project documents, as this will facilitate fair settlement. Under circumstances, any decision to suspend or terminate a project should not be taken easily and lightly as it can result in severe time and cost consequences.
My advice is that any decision to suspend projects must be founded upon adequate facts and honest conviction. Any unreasonable suspension would undoubtedly carry severe time and cost consequences. The Southern expressway project was a classic example where at the end of the project, the government received a Rs. 4.8 billion claim from the project owners, for example.
March 7th, 2015 at 10:37 am
I don’t think they would suspend it.
Maithrpala Sirisena had told in India, that there is no point of stopping the port project as the fines for stopping the project would be heavy.
Only Ranil Wickramasinghe and his mouth piece, Kabir Hassim seem to talking about stopping thre project.
But, certainly there is a risk depending how China is planning to use it.
March 7th, 2015 at 6:47 pm
Colombo is setting a dangerous trend.
the cancel the port city due to environmental impact issues and the security of Sri Lanka ( such as the increased possibility of Chinese subs using that port city or Sri Lankan waters in the future) \
IS AN ISSUE NOW THE BBS CAN BRING UP ON ANY PROJECT DONE BY COLOMBO, INVESTMENTS BY INDIA OR MONUMENTS AND TEMPLES CONSTRUCTED BY THE HINDUS, CHRISTIANS AND MUSLIMS.
HERE IN THE UNITED STATES THE ENTIRE COAL INDUSTRY IS ABOUT TO BE SHUT DOWN. GULF OIL RIGS SHUT DOWN, KEYSTONE PIPELINE NOW A HOTLY DEBATED ISSUE BETWEEN THE CONGRESS AND THE PRESIDENT SOLELY ON
ENVIRONMENTAL IMPACT STUDIES. A NATION CAN BE BROUGHT TO A GRINDING HALT IF ONE PATCH OF JUNGLE IS CLEARED, IF A PARK IS REMOVED, ANYTHING CAN BE USED TO JUSTIFY STOPPING COLOMBO, INDIA OR THE TAMILS FROM DOING ANYTHING IF A TORRENT OF FURY IS UNLEASHED ON THE FACT THAT SRI LANKA IS ONE OF 25 BIODIVERSITY HOTSPOTS IN THE WORLD. JEOPARDIZE A TREE AND SEE A COMPANY COLLAPSE.
March 8th, 2015 at 4:37 pm
After sitting in the opposition for the whole life Ranil is not aware of multinational contractual obligations and if he is not careful and can put the whole country in trouble.
March 8th, 2015 at 5:19 pm
It seems the UNP is making good of the promise it made in 2007 that under its rule, Mahinda time borrowing commitments will not be honoured. This shortsighted move aimed at appeasing India will cost Sri Lanka very badly. It will also affect Sri Lanka-China relations leading to economic disaster.
Mahinda group must reach out to China for financing their comeback campaign promising to do justice to Chinese interests in the country. They should also get China to put pressure on the pro-Indian UNP government.
There is no real opposition in the country. The few in the real opposition must replicate the UNP threat of 2007 and declare IMF, etc. borrowings of the UNP government will not be serviced by a future government.
In 2002 Mahinda (the Opposition Leader) threatened to take back without compensation any government entity the then UNF government planned to privatise. The threat worked well as foreign investors shunned the proposed sale of SLTB, etc. leading to an economic sqeeze. He kept his promise and took back 40 odd shabbily privatised entities in 2010.
March 9th, 2015 at 7:14 am
Namaste: Lots of idiots like me. The Empire has made the decision and now it is work. What ever the cost India won the day and it will pursue its interests what ever the cost to India or anyone else. Emperor is coming to see the colonists aand the subjects. Wear a black arm band while the Emperor is here. Jai Hind.
March 9th, 2015 at 1:27 pm
For the present illegal govt., the big problem with the Port City Project is that it is funded and managed by China. If a western country was doing the same project, it would pose no problem for the present illegal govt.
March 9th, 2015 at 4:03 pm
The snub made on China’s President Xi Jinping will not go unnoticed. The President of the second most powerful nation and the most important trading partner for Sri Lanka visited personally for the ground breaking ceremony of the Port City project in Colombo. Any stoppage to this project and vilification of China and their leader by the gay boys of Colombo will be highly detrimental to the future of Sri Lanka.
Moreover the gay boy illegal Prime Minister also lashed out against Indian fishermen in most undiplomatic terms. Although there is substance in what he said – it is difficult to believe that a lions roar can come out of a well shagged sheep like Ranil. He is really trying to hoodwink the idiotic Sinhalese into believing that he could be like Mahinda!
March 10th, 2015 at 6:31 am
The Indian security concerns regarding the port city, at best, is a sick joke. China already owns 2/3 of the Colombo south new harbour and who is to tell China not to accomodate Chinese submarines in their own harbour
March 10th, 2015 at 8:04 am
Why is there so much hype about China’s participation in Lanka projects ? If the west wanted to participate in Lanka projects they are/were free to do so. It is only when China participates, some folk want China out ! Yes, it is childish, isn’t it ?
Also, one assumes that environmental & security angles are all covered prior to any project, large or small. Dr Jayalath’s article points out the increase in costs that will probably happen due to delays. We can imagine how high that will be. Sir Ranil has not realised that developing small countries like Lanka (25,000 sq mls) cannot afford to tuss with giants in the economy. Proceed with caution, Sir Ranil. Thrusting political coups on unwary Lankans may be easy, but carrying the economy forward in a childish fashion is a no-no – that is cutting the branch you are sitting on.
March 11th, 2015 at 11:30 am
NAK:
NO NATION in that region questions the foreign or domestic policies of India even if they go against the national interest of those nations. the Nuclear power plant in Tamil Nadu was constructed IN SPITE OF PROTESTS FROM COLOMBO. Big or small is not the issue. the issue is the SOVEREIGN RIGHT OF A NATION.
Sri Lanka HAS THE SOVEREIGN RIGHT TO DO WHAT IS BEST FOR HER. NOT WHAT IS BEST FOR HER NEIGHBORS. IF THAT IS HOW POLICIES ARE DONE AROUND THE WORLD THEN NO MILITARY WOULD EXIST FOR BY THE VERY NATURE OF THE EXISTENCE OF A MILITARY IS A VIOLATION TO THE SECURITY OF OTHER NATIONS.