ACCELERATION COSTS: THE ESSENTIALS FOR MAKING A SUCCESSFUL CLAIM
By Eric Gabriel Gomez, Senior Associate at Skrine,
LL.B (Hons) (Reading), Barrister-at-Law (Lincoln’s Inn)
A. INTRODUCTION
Claims for acceleration costs are common in construction projects. Such claims typically arise when the contractor deploys additional manpower or equipment at the site, or extends the working hours of its personnel, in order to increase the pace of its works. There are various reasons why the contractor may elect – or be constrained – to accelerate its works, which will be explored in greater detail below.
Notwithstanding the frequency of such claims, most standard form contracts do not contain a provision on acceleration claims and there have been seldom few Malaysian cases on this aspect of construction law. As such, the recent High Court cases of Sykt Pembinaan Anggerik Sdn Bhd v Malaysia Airports Holdings Bhd [2022] 9 MLJ 391 (“SPASB”) and Infraprima Construction Sdn Bhd v Budaya Restu Sdn Bhd [2021] MLJU 1255 (“Infraprima”) have provided welcome guidance on the essentials for making a successful claim for acceleration costs.
B. CIRCUMSTANCES WHEN ACCELERATION COSTS CANNOT BE CLAIMED
At the outset, the High Court in SPASB determined that there is no basis for a contractor to claim for acceleration costs when the acceleration measures were initiated by the contractor itself, irrespective of the contractor’s motivation or reason for undertaking such measures.
Most commonly, the contractor may increase the pace of its works to recover time lost through the contractor’s own culpable delay. The High Court held that not only would such a circumstance not give rise to a claim for acceleration costs, but it does not even amount to a real acceleration of works. This in because, in reality, such an action would merely be an attempt by the contactor to mitigate its likely losses occasioned by its own antecedent slow progress.
The High Court stated that a real acceleration of works triggered on the contractor’s own initiative is one where the contractor is not behind schedule but nonetheless decides to implement acceleration measures. The High Court provided the following examples as to why a contractor may on its own volition elect to accelerate its works, all of which would similarly not give rise to a claim for acceleration costs:
a. Where the contractor has just completed another construction project and finds it financially beneficial to mobilise the other construction team, plant and machinery to the subject project in order to accelerate the work progress and thereby save overheads and time-related costs in the subject project.
b. Where the contractor is expecting to secure another sizeable new construction project soon and would like to complete the subject project ahead of the contractual date for completion so as to mobilise the same construction team, plant and machinery to the new project instead of spending additional money to employ a new team and rent new plant and machinery for the new project.
c. Where the contractor has assessed that it is financially more advantageous to complete the subject project earlier than the contractual date for completion.
d. Where the contractor, for the enhancement of its own track record, wants to expedite the progress of the works so as to have a significant project completed ahead of the contractual date for completion.
C. CIRCUMSTANCES WHEN ACCELERATION COSTS MAY BE CLAIMED
First and foremost, there is no requirement for a contract to contain an express provision on acceleration in order for a contractor to initiate a claim for acceleration costs. In both SPASB and Infraprima, the High Court considered a claim for acceleration costs despite there being no applicable acceleration provision in the respective contracts.
However, the test to determine a successful acceleration claim which was utilised by the High Court in each of these cases, while similar in nature, was not identical. This difference can be explained as follows:
a. In Infraprima, which was decided first, the learned Lim Chong Fong J adopted the acceleration test from the US case of Norair Engineering Corp v United States 229 Ct. Cl. 160.
b. In SPASB, which was decided less than 5 months after Infraprima and without the judgment of the earlier case, the learned Tee Geok Hock JC derived an acceleration test premised on the acceleration principles set out in the learned author Chow Kok Fong’s definitive textbook Law and Practice of Construction Contracts: Volume 1 (5th Edition).
Both of the acceleration tests applied by the High Court are explained in detail below.
C.1 The SPASB Acceleration Test
The High Court in SPASB stated that in order to sustain a claim for acceleration costs, the contractor must prove either one of the following:
a. The acceleration of works was in fact instructed by the employer or the superintending officer (“SO”); or
b. The employer’s breach of contract in wrongfully refusing to cause the SO to grant a reasonable extension of time (“EOT”) necessitated the contactor’s acceleration of works in order to mitigate or avoid liability for liquidated damages or other contractual losses.
Acceleration due to an instruction
When the contractor’s claim for acceleration costs is premised on an instruction by the employer or the SO, the High Court held that such a claim ought to be based upon the loss and/or expense clause in the contract or, alternatively, upon the variation clause in the contract if said clause is widely-worded enough to cover a change in the sequence or the duration of work.
In SPASB, the plaintiff contractor’s claim for acceleration costs had been premised on a purported instruction by the SO. In determining that the plaintiff contractor had not established its case, the High Court found that the plaintiff contractor had failed to satisfy the notice requirements in the relevant contractual clause and, further, had failed to even prove that there had been an instruction by the SO to accelerate the works.
Acceleration due to the wrongful refusal to grant a reasonable EOT
When the contractor’s claim for acceleration costs is premised on the employer’s breach of contract in wrongfully refusing to cause the SO to grant a reasonable EOT, the High Court held that the contractor ought to specifically plead and prove the following elements:
a. There were in fact delay events which fell within the contractual EOT clause;
b. The contractor complied with the notice and claim procedure for its EOT application;
c. In spite of items (a) and (b) above, the SO wrongfully refused to grant a reasonable EOT for the excusable delay events;
d. Despite the contractor’s notification to the employer of the SO’s wrongful refusal to grant a reasonable EOT and the contractor’s need to accelerate works in order to avoid liquidation damages, the employer did not inform the SO to certify the EOT; and
e. The contractor thereafter proceeded to implement acceleration measures and incurred damages in the form of additional costs and expenses which it would not have had to incur if not for the acceleration measures.
C.2 The Infraprima Acceleration Test
The High Court in Infraprima stated that in order to sustain a claim for acceleration costs, the contractor must satisfy all of the three following elements:
a. The delay has to be excusable;
b. The contractor must have been ordered to accelerate; and
c. The contractor has in fact accelerated its works and incurred costs. This is a matter of strict proof and must be properly substantiated with documentary evidence.
In Infraprima, the High Court found that while the plaintiff sub-contractor had established the first two elements, it had not satisfied the third element.
D. QUANTUM EVIDENCE REQUIRED
D.1 Quantum Assessment in SPASB
In SPASB, the plaintiff contractor had quantified its claim for acceleration costs based on a calculation involving the total number of accelerated days, the total value of works done in the accelerated areas, and a percentage modifier of 16.1% derived by the plaintiff contractor itself.
The High Court determined that this method of quantification was not appropriate and held that the plaintiff contractor’s acceleration claim ought to have been supported with specific evidence of the alleged losses. However, the High Court did not go as far as to specify exactly what sort of quantum evidence would be necessary to substantiate a claim for acceleration costs.
D.2 Quantum Assessment in Inframprima
In Infraprima, the High Court reiterated the “best evidence” rule which provides that relevant documents which substantiate or support oral allegations must be adduced at the trial where such documentary evidence is expected to be available in the ordinary course of business. If these documents are not adduced, a reasonable explanation must be tendered to justify their non-production. In the absence of such documents or a reasonable explanation, oral testimony alone is not sufficient to satisfy the burden of proving the allegations on a balance of probabilities.
In this particular case, the High Court stated that it expected the plaintiff contractor to have demonstrated as follows:
a. Adduce the as-planned works programme and the corresponding resources deployment plan based on that planned programme.
b. Adduce the as-built accelerated works programme and the actual resources deployment record based on that accelerated programme.
c. Compare the anticipated costs of the planned resources deployment plan against the costs of the actual deployment resources.
d. The difference between the anticipated costs and the actual costs would in principle be the compensable acceleration costs, subject to the reasonableness of the actual costs incurred.
E. CONCLUSION
The High Court’s decisions in SPASB and Infraprima fill a peculiar lacuna in Malaysian caselaw which had lacked a comprehensive authority on the issue of acceleration costs. The cases will certainly provide welcome clarity to both contractors and employers when raising or addressing such claims in the future.
Disclaimer: The SPASB decision was subsequently appealed and the Court of Appeal awarded the plaintiff contractor a portion of its claim for acceleration costs. The Court of Appeal has yet to release its grounds of judgment for this decision.