Articles

21 October 2022

Constructive acceleration claims – Challenging, but not impossible

Constructive acceleration claims are frequently raised but rarely succeed in jurisdictions outside of the USA. Late last year, however, the V601 v Probuild [2021] VSC 849 ruling handed down in the Supreme Court of Victoria, Australia, saw a contractor win in a constructive acceleration claim. It is important to consider whether the consensus on constructive acceleration in common law jurisdictions has changed – and what contractors can do to maximise their prospects of recovery.

Constructive acceleration

The Society of Construction Law’s (SCL) Delay and Disruption Protocol, defines constructive acceleration as: “Acceleration following failure by the CA [Contracting Authority] 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.”

This rationale was echoed in Ascon Contracting v Alfred McAlpine Construction Isle of Man Ltd [1999] 66 ConLR 119. In that ruling, 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 can leave an 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 without an explicit instruction from its employer or project manager, they should not do so. This feels counterproductive, damaging for the project, and potentially unfair. 

V601 v Probuild judgement

V601 was developing a large site in Melbourne for mixed-use purposes and engaged Probuild under a design and build contract. Probuild was delayed in completing the project and submitted an EOT claim to the project manager which was ultimately rejected.

When V601 claimed liquidated damages following the late completion of the project, Probuild raised a counterclaim that included costs for constructive acceleration. In court, Probuild argued that it was entitled to recover its acceleration costs on three separate grounds:

1. firstly, as the cost of mitigating losses flowing from a failure to certify valid EOT claims;
2. secondly, as damages flowing from V601’s breaches of the contract relating to the independence and failures of the project manager; and
3. finally, as costs payable under an acceleration clause that required a ‘Direction’, that Probuild said was implied through conduct (including the failure to grant EOT’s).

The Court allowed Probuild’s claim as damages for V601’s breaches, and alternatively as mitigation costs. It 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 [V601’s] strategies and tactics, and [V601’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 entitled to recover the mitigation costs it had spent to overcome and minimise delays to the works. Probuild was also found to have taken the necessary and reasonable measures to accelerate to reduce delay to achieve practical completion.

V601 v Probuild implications

The judge’s reasoning in the V601 v Probuild ruling is not new. In earlier cases, like the Canadian case of Morrison-Knudsen Co Inc v British Columbia Hydro and Power Authority (1978) DLR (3d) 186 (BCCA), for example, the court allowed an acceleration claim following a principal’s breach for refusing to grant the EOT and for subsequently demanding completion on time.

However, V601 v Probuild does not extend this to the extent that it represents a ‘carte blanche’ for other constructive acceleration claims simply where a principal refused to grant a valid EOT – the facts here were unique.

The first and most important hurdle to cross for a contractor to claim successfully based on the reasoning in V601 v Probuild appears to be clearly identifying the breach by the employer that leads to the justified acceleration of works. Without clearly identifying that breach, a claim for constructive acceleration is doomed to fail. Thereafter, a claim for losses that foreseeably flow from that breach may include a claim based on constructive acceleration.

V601 v Probuild illustrates that the court will then consider the circumstances in which the principal refused to grant the valid EOT.  In V601 v Probuild, the court put weight on the fact that there was wrongful collusion between parties. In instances where an employer / project manager is mistaken and is honest in denying an EOT that should have been awarded, it is then less likely that a claim for constructive acceleration will be successful. However, V601 v Probuild does demonstrate that common law does permit constructive acceleration claims to be made if the circumstances permit.

How to maximise prospects of recovery

There are many measures that contractors can take when they consider it commercially necessary to implement acceleration measures despite a refusal by the employer or project manager to officially instruct them.

The SCL protocol recommends that a contractor should notify the employer or 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, including clause 8.3 of the FIDIC Red, Yellow, and Silver second editions.

To minimise the risk of getting an expressly rejected acceleration proposal, notifying the employer or project manager can be done in two stages. First, notwithstanding rejection of its EOT claim, a contractor should 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.

Then, if the employer states that the programme is not acceptable, the contractor should make clear that it considers this to be an instruction for acceleration, considering the rejection of the EOT claim, and that it will be acting accordingly. The contractor should then set out the acceleration measures at this point.

If a contractor believes the project manager is not acting impartially, it should keep good and consistent documentary evidence of specific examples, including of any collusion with the employer. They should also keep good and consistent records of the acceleration measures implemented and separate those costs from other project costs.

A contractor should keep the employer updated on the outcome of the acceleration measures and ensure that it complies with any conditions-precedent applying to the claim for additional payment. While recovery prospects are inevitably fact specific, taking the above steps will maximise a contractor’s position in an area where successful claims are traditionally difficult in common law jurisdictions.

Contributed by:

Connor Clark - Associate, Pinsent Masons