{"id":42082,"date":"2015-03-09T18:05:23","date_gmt":"2015-03-10T00:05:23","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=42082"},"modified":"2015-03-07T05:24:07","modified_gmt":"2015-03-07T12:24:07","slug":"suspending-projects-prior-to-establish-a-valid-cause-is-childish","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2015\/03\/09\/suspending-projects-prior-to-establish-a-valid-cause-is-childish\/","title":{"rendered":"Suspending projects prior to establish a valid cause is childish"},"content":{"rendered":"

Dr. Chandana Jayalath<\/em><\/span><\/h2>\n

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\u2019s terms.<\/p>\n

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\u2019s 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.<\/p>\n

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\u2019s 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\u2019s 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\u2019s 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.<\/p>\n

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\u2019s 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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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 \u2013 changes or upgrades included in the owner\u2019s cost-to-complete damage model that are above and beyond the contractor\u2019s original scope of work.<\/p>\n

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.<\/p>\n

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.<\/p>\n","protected":false},"excerpt":{"rendered":"

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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-42082","post","type-post","status-publish","format-standard","hentry","category-forum"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/42082","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=42082"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/42082\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=42082"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=42082"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=42082"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}