p.2 ~ Legal insight informs risk allocation in FPSO construction contracts

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Relevant Event occurring after completion date. When a contractor is in "culpable delay," i.e., it has missed the completion date due to its own fault, it is not uncommon for it to allege an act of prevention (e.g., additional works ordered by the owner), even though such acts of prevention have occurred after the completion date. Contractors may allege that the EOT mechanism does not apply to post completion events and it is therefore prevented from completing the work. If an act of prevention has occurred, post-completion, during a period of culpable delay, then liquidated damages will run up until that act of prevention. However, absent the clearest language, it should not matter whether an extension of time is sought, post or pre-the completion date and so, the liquidated damages regime should stay intact unless or until an action of prevention has occurred (notwithstanding possible issues as to the retrospective application of the extension of time).

Concurrent delay. Instances of concurrent delay, i.e., when there is "period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency," has been the subject of much legal debate over the years. The inherent conflicting interests of the owner and contractor in concurrent delay situations are illustrated in the accompanying diagram. The general thrust of the English approach on concurrent events is that the "contractor is entitled to an extension of time where delay is caused by matters falling within the clause notwithstanding the matter relied upon by the contractor is not the dominant cause of delay, provided only that it has at least equal 'causative potency' with all other matters causing delay."

The rationale for such an approach appears to be that by stipulating that a Relevant Event triggers an entitlement to an extension of time, the parties must have considered the possibility of other equal causes of delay operating at the same time, but have still viewed the right to an extension as paramount.

The approach seems sensible enough, but difficult questions can arise if the owner's acts or omissions had prevented the contractor from achieving the completion date (and there is no operative EOT mechanism for that act) but, nevertheless, that completion date would not have been achieved in any event because of concurrent delays caused by the contractor's own default. In this circumstance, the preventing act would not make an actual difference to the contractor missing the completion date. Should regard be had to the contractor's concurrent delay when the contractor itself is asserting an action of prevention?

Unfortunately, the English courts have not spoken with one voice on this issue. The need for the preventing act to cause actual delay to completion was emphasized by Justice Hamblen inAdyard Abu Dhabi v. SD Marine Service, and further doubts have been raised by Justice Coulson's comments in Jerram Falkus Construction v. Fenice Investments that the prevention principle does not apply in concurrent delay cases because the owner's act of prevention did not in fact delay completion.

This of course, does not sit neatly with other concurrent delay cases that appear to give paramount importance to the occurrence of the Relevant Event and its associated entitlement to an extension of time, notwithstanding the fact that the contractor would not have been able to achieve the necessary completion due to its own concurrent delay.

Practical tips

Clear and precise drafting of extension of time clauses can prevent or mitigate against the operation of the prevention principle. If seeking to contract out of the prevention principle, parties should be careful to avoid general language as "exceptional circumstances" or "any matters beyond the control of the builder" but to instead to identify specific acts of prevention that may give rise to an extension of time. This would inevitably involve FPSO owners recognizing the interactive nature of their construction project, as well as foreseeing and catering for possible delay events that may arise during the construction. Ultimately, the extension of time clause needs to be drafted to strike a balance between catering for a variety of situations including those highlighted in this article, while always ensuring that an EOT clause remain operable, to forestall arguments arising from the prevention principle.

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