Acceleration Agreements

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Introduction.

In my article on claims for acceleration I defined how acceleration might come about, the risks associated with accelerating and what to consider when making a claim. I also touched upon the subject of Acceleration Agreements, which is developed further in this article.

Works carried out under a contract that makes no direct reference to acceleration may still be accelerated. It is always open to the parties to the contract to agree a set of additional or separate contractual terms to do with the acceleration, known as an acceleration agreement, which can be entered into whether the contract makes express provisions for acceleration or not.

The production of a workable and comprehensive acceleration agreement relies upon both parties giving due consideration to a wide range of possibilities and being able to negotiate the allocation or assumption of the risk for each potential situation. An acceleration agreement is a contractual and binding document, it is therefore vitally important that this is drafted by an experienced professional with full understanding of the main contract terms, permutations and risks. Due cognisance must also however be given to the importance of time concerned in preparing the agreement, since it is highly likely that timely completion of the works is already at risk.

 

Prior to the Agreement

A Clean Slate

It is in the interest of the contractor to ensure that the acceleration agreement contains a clear statement regarding future additional costs, irrespective of any liability for delay that may be considered to lie with the contractor, which has resulted in the need to accelerate. If the liability for delay is deemed to lie solely with the contractor it is highly unlikely that the employer will entertain any cost reimbursement for acceleration.

If there are open issues regarding delay at the time of making the acceleration agreement, the employer may seek to recoup some of the acceleration costs deemed in their liability by the contractor citing responsibility for the contributing delays.

Programme

It is important that any acceleration agreement includes a revised programme of work to demonstrate to the employer how the accelerated completion date can be achieved. More importantly, the programme should be developed prior to signing an acceleration agreement in order that the contractor can be certain of how the proposed completion date will be achieved Once the agreement is signed this will be a valuable tool to both the contractor, in helping with sequencing and planning the works to the revised date for completion, and to the employer in monitoring progress.

 

The Agreement

There are likely to be only minor differences between well written acceleration agreements as they will all have been developed with the same purpose; the protection of both parties to the agreement in the acceleration of the works; in mind. Some of the areas that should be covered under the agreement and some further considerations, which should be given to the potential pitfalls, are detailed herein.

Further Extensions of Time

Ordinarily the head contract will detail the rights and obligations of the parties where circumstances give rise to delay to completion and the issuing of extensions of time.

Where acceleration has been agreed it is entirely natural for the employer to wish to further limit its liability with regard to costs for further extensions of time.The employer may wish to include a clause in the agreement to limit claims for further extensions of time, such as that they may only be granted where, for example, substantial extra works are instructed or where unforeseen (at the time of agreement) issues are uncovered. On face value this may seem reasonable, however due consideration should be given to what rights remain in the contractor to make claims for delays outside of its control.



Practical Completion

Depending upon the methods of acceleration employed there may be an increased likelihood of minor defects arising in the works completed during the acceleration period, although the contractor will still be expected to exercise due care at all stages of the works. If works are not completed to the required standard then it is highly probable that practical or substantial completion will not be achieved, with the potential for the imposition of liquidated damages or other charges being imposed for late delivery. Works may also need to be absolutely complete and free of snags by the date for completion. Therefore it may be pertinent to consider a re-statement or revision of the definition of contractual phrases regarding completion.

The Agreed Date

Perhaps the pivotal part of the agreement is the date that both parties agree for the practical completion of the works. This date may either be a firm contractual obligation; essentially a revised completion date under the head contract by which all works must be substantially complete; or it may be a target date that the contractor must demonstrate that best efforts have been made to achieve, with the potential to extend further.

If the date is merely a target the employer may be liable to the contractor for additional costs which it is prevented from recovering from stakeholders in the eventuality that the agreed date is not achieved, although it should be assumed that additional expenditure on the part of the contractor will need to be demonstrated. The employer will likely have good reason for wanting to accelerate works and will therefore seek every assurance that the date for completion can be achieved and not exceeded.

There is an implied conflict of interest between the parties, which can make this a particularly difficult point to negotiate. However with due consideration and the clear recognition, apportionment and agreed quantification of risk negotiation can be relatively straightforward.

There may only be certain sections of the works requiring completion by the date for acceleration. In such situations it may be appropriate and preferable to the parties to opt for sectional completion of works, rather than a single overall completion date. The acceleration agreement may then only be applied to one section of the works leaving the remainder of the works to be completed to the original programme.

Cost and Payment

As with all construction contracts there are a number of options open to the parties for the agreement of cost and mechanism of payment. Whether fixed price or re-measurable it is common that costs will be reimbursed using the same method as under the main contract.

An agreed fixed lump sum may seem to be the simplest method since the financial implications are clearly defined to all parties ahead of the acceleration and are not subject to change.This method also removes any incentive to over-run since cost is linked directly to the completion of the works and will not increase with an extension to programme (not accounting for any further variances).

If it is agreed to price the acceleration on a fixed lump sum basis assumptions will need to be made with regard to the resources required, based upon the programmed and scheduled requirements. There may also be consideration given to any risks assessed to be relevant to the acceleration of the works.



As with all lump sum contracts, if a lump sum price is agreed the agreement should make it clear that it is a lump sum price for achieving certain criteria with due regard given to any caveats or assumptions that the parties may wish to make. The employer will have no contractual right either to pay based upon monitored expenditure and nor will it have a right to share in any savings made. Adversely the contractor will not be entitled to additional monies for overspend directly associated with the acceleration.

Where costs are to be reimbursed the heads of cost will be identified and an agreement will be made on the calculation of the additional resource requirements. The method of evaluation of individual expense for the heads of cost will also be agreed and may, for example, be based upon the submission of weekly resource records summarised and charged at already agreed contract rates inclusive of overhead and profit.

The method of payment is also an essential part of the agreement, although it may be agreed to release payment in accordance with the main contract conditions. The agreed sum for acceleration on a fixed price agreement may be divided by the planned period of acceleration to give an average, equally divided monthly cost. A cost reimbursable method may take more time to produce accurate figures with dedicated resource for the gathering, assimilation and submission of records. Under such agreements it may be be preferable to both parties to agree payments on account and for the actual costs to be finalized and submitted once finalised.

Productivity

As discussed in my article on Acceleration Claims many of the methods employed for accelerating works (such as increasing labour and/or working hours) may result in the reduction of productivity. Needless to say that this should be a consideration when pricing the claim. In the interest of being able to sufficiently demonstrate a loss of productivity (and therefore increased cost) it would be wise for a contractor to maintain records which monitor output and also to ensure that the benchmark by which productivity is being measured can be demonstrated, perhaps by providing records for previously complete similar works where the originally intended rate of productivity has been achieved.

Conclusion

An acceleration agreement requires a great amount of detail, covering both the contractual implications, the possible unintended effects of the accelerated completion of the works and the practical and financial implications. It also requires both parties to work collaboratively in the swift drafting of terms and signing of the agreement.

If you require any further information on acceleration and making a claim please my article on Acceleration Claims.

 

References

RICS. 2013. Acceleration Agreements. [Online]. [Accessed 22 April 2014]. Available from: Link.

Streetwise Subbie. 2014. Acceleration in Construction Contracts and Engineering Contracts. [Online]. [Accessed 22 April 2014]. Available from: Link.
 

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Follow Daniel Crompton:

Managing Director at Tier Once Commercial Management

Daniel is a Commercial Manager with an MSc in Commercial Management and Quantity Surveying and several years experience, primarily in Rail and Civil Engineering. A keen advocate of commercial procedure development and implementation and commercial involvement in full project life-cycle from tender to close-out.