The Clause for Early Completion Bonus ('Bonus') is provided in works contracts with the intention to reduce the time taken for completion that would normally be required. This is done by incentivising the contractor with a right to claim a certain percentage of the contract price as a bonus in case the actual completion date precedes the scheduled completion date. The contract may provide for such Bonus on early completion of a milestone, substantial work, or the complete project itself before the scheduled completion date.
The advantage of inserting such a provision in a contract is that, it acts as a tool to motivate efficient construction by encouraging the contractor to accelerate the work and complete the same before schedule. The contractor may do so either by means of efficient planning, strategic sub-contracting, working overtime or deploying extra labour/machinery/resources etc. Bonus clause is also inserted, keeping in mind the disruption and inconvenience caused to the general public owing to prolonged construction, especially in cases of public utility infrastructure, thereby ensuring that the project is completed as soon as possible.
In recent times, State Departments in India are also actively using tools like bonus in their standard form of contracts to provide a further impetus to infrastructure development being witnessed in India. This also ensures a win-win situation for all, since on one hand a contractor earns a higher contract price, and on the other hand the State Department saves on exorbitant escalation costs by circumventing prolongation of the contract period by ensuring faster delivery of projects.1
Establishing Entitlement to Bonus for Delayed Completion Due to Employer's Fault
The problem occurs in cases where the contract period is prolonged, especially where such prolongation is caused due to delays solely attributable to an employer. In such a scenario, a natural question arises: Is the contractor entitled to claim bonus? The catch-22 situation is further exacerbated in cases where all parts of the site are not handed over to the Contractor. As a result, the Engineer-in-Charge (who is usually the employer's appointee) is not in a position to furnish a completion certificate, which is a pre-requisite to raise a claim for bonus in most contracts.
It is seen that where work was completed after the scheduled date of completion, a claim for bonus can still be secured in arbitration, if a contractor can broadly show two things, first, that the contract period was prolonged due to delays that were solely attributable to the employer, and second, had there been no such delays, the contractor was in a position to complete the work before scheduled date of completion. It is obvious that in computing the period of delay caused by an employer, the delay caused by a contractor, if any, has to be subtracted.
Even though a bonus clause may be in the form of an incentive and not necessarily a component of the contract price, that does not permit a party responsible for causing delays to escape the consequences of a breach of contract. Where bonus is claimed for completing the work after the scheduled date of completion, it is not a claim raised under contractual clauses. Instead, it is in the form of a claim for prolongation cost under section 73 of the Indian Contract Act, 1872. It is an independent claim based on a breach of contract by an employer. Therefore, once it is established that an employer caused the delays, he cannot later turn around and deny a claim for bonus by alleging that the work was not completed in the scheduled time period.2 It is reiterated that in computing the period of delay caused by an employer, the delay caused by a contractor, if any. has to be subtracted. If after exclusion of the delay period so computed, the work is completed by the contractor in a period lesser than the stipulated period for completion, the contractor would be entitled to bonus.3 However, it is important to highlight herein that once an Arbitrator has recorded a finding that there is sufficient evidence to infer that a contractor was in a position to complete the works ahead of schedule, he cannot refuse to award a claim for bonus solely on the ground that such period of potential early completion could not be precisely determined.4
The question at hand focuses on what the contractor might have done or not done. In any adjudication, it is a challenge to definitively determine whether a particular event could have occurred in the past or not. Nevertheless, even without direct evidence, an arbitrator is empowered to make an assessment based on the evidence available on record.5 Where direct evidence is lacking, an arbitrator can rely on the following documents to make an assessment:
- Work Programme
A work programme is a document submitted by a contractor to an employer that gives orderly information about planning and scheduling of dates, duration and sequence of various activities in a construction project necessary to complete the project in a timely manner. In other words, it is a document that breaks down various activities in a construction project into short, manageable components with their corresponding duration and likely period of completion. A work programme is not a random collection of dates based on guesstimates and subjective assessments of a contractor but a scientific document prepared by project experts using mathematical tools based on widely used formulas of operations research like PERT and CPM that provide verifiable and reasoned information.
If a contractor submits a work programme that has been approved by the employer, it can be taken to be a sufficient piece of evidence to prove that the contractor could have completed the works before the scheduled completion date, had the delay attributable to the employer not occurred. However, for a work program to be accepted as valid evidence of possible early completion, the work program must have certain essential components, which are as under:
- Must have a start, intermediate and end milestone(s).
- The scheduling of activities shows a valid sequence.
- Must be based on computations of critical path method.
- Must be shown to have factored in lags and possible delays.
However, a work program should not be relied on to assess a contractor's ability to complete the works, where it is a mere bar chart with none of the aforesaid components. It is also important to verify whether a contractor had the requisite machinery and resources available for each and every milestone and for all kinds of work to be undertaken.
- Monthly Progress Reports
Monthly progress reports ('MPR' or 'MPRs') are prepared by a contractor during the execution of works and are issued to the employer after the end of every month. The usual contents of MPRs are descriptions of progress achieved at various stages of a project and/or components of a project, information regarding milestones completed, pendency of work, if any, a list of potential or actual delays, remedial action taken if any, a list of actual or average machinery, plant and equipment, labour and personnel and other resources deployed at the site, quality assurance test reports etc. MPRs help track the progress, challenges, and milestones of a construction project on a monthly basis, ensuring all stakeholders remain informed and engaged. It allows for the early identification of issues so that corrective actions can be taken to save time and resources.
It is also seen that FIDIC sub-clause 4.21 also mandates the regular submission of detailed MPRs. These reports are essential for project management, payment processing, and verification of claims, and their accurate and timely submission is critical to the successful execution of the construction project. Even, Standard EPC contracts of MoRT&H mandate regular submission of monthly progress reports, which are to be verified by the Authority Engineer within 7 days of its receipt. The condition providing for verification adds an essential layer of authenticity to these reports, and the same cannot be treated as unreliable or unauthentic by an employer subsequently. Further, if any extraordinary claims are raised regarding progress and/or losses during the execution of works, the same can be assessed in real-time by verifying the same using MPRs, unlike the belated assessment that happens in case of an arbitration.
A contractor can, therefore, produce an MPR in support of his claim for bonus. An Arbitrator, while relying on the same must assess whether the contractor deployed enough resources on the site to be able to complete the works ahead of schedule. Alternatively, or in addition to the aforesaid, the Arbitrator must also assess whether the Contractor was on schedule to complete the works by achieving significant progress in the works/milestones when the event causing delay had not occurred and must ensure that the contractor was only disabled from progressing owing to the delay attributable to the employer. The reliance of an Arbitrator on MPRs was considered valid in the case of NHAI v. Som Dutt Builders6 and NHAI v. Patel KNR (JV)7. It is important to note herein that the aforesaid details may not always be submitted by way of MPRs. A contractor may submit these details in its general correspondence with an employer, which is especially the case in most EPC contracts in India since they do not contain a provision for MPR. However, the reliability of such details being furnished in general correspondence would depend on the facts and circumstances of each case, taking into account a variety of factors and other documents/evidences on record.
Avoiding Duplication of Bonus and Prolongation Costs
For the purposes of claiming bonus, a MPR may fail to bolster a contractor's claim for bonus if the contractor has not attempted to distinguish between additional resources deployed to achieve early completion and resources that were required to achieve scheduled completion. It is pertinent to recall here that bonus is a recompense for the additional resources deployed by the contractor to achieve completion before the scheduled date. This is because the additional resources deployed by the Contractor are in the form of an extra expenditure/overhead. This expenditure is not cushioned/covered by the lumpsum price or rates quoted by the Contractor. However, where a contract period is prolonged, a contractor ends up treating all the machinery, labour, resources, etc., deployed at the site as extra expenditure/overheads, and not just the extra/additional resources deployed to achieve early completion. If a contractor claims compensation for all the resources deployed at the site in the prolonged period, the claim for bonus would amount to duplication because it would be a recompense for something that the prolongation cost already compensates. However, if the contractor claims compensation in the form of prolongation costs only for the resources deployed at the site for achieving the scheduled completion date, then in that case a claim for bonus may not result in duplication. This is for the simple reason that such a claim would then be a recompense for the extra/additional resources deployed at the site.
- Miscellaneous documents for claiming bonus
In addition to the aforementioned documents, a Contractor may inform the employer of his intention to claim bonus in his correspondence from time to time in case any event causing delay occurs. This would depict that the claim for bonus is not a convenient afterthought, and the contractor was intending and preparing to execute works in the timeline essential to ensure early completion. Apart from the aforementioned, a contractor can also produce a provisional completion certificate. If provisional completion was achieved within the scheduled completion period, or if it can be shown that a contractor could have achieved provisional completion within the scheduled period (if the delays are subtracted from the construction period), even that is a convincing piece of evidence. This is because most provisional completion certificates are provided wherein the works have progressed to the point where they can be commercially exploited. If an employer has started enjoying the fruits of the work rendered by a contractor, it cannot make a contractor forego a claim for bonus, for delays caused by its own fault.8
Conclusion
In conclusion, contractors can effectively claim bonuses in arbitration despite delays caused by the employer, provided they present solid evidence of their ability to meet the original schedule. It's crucial for contractors to differentiate between costs associated with prolonged periods and those incurred for early completion. A strategic approach in documenting and presenting claims is key to securing rightful compensation without falling into the trap of duplication.
Footnotes
1 10 per cent bonus in the works for early National Highway completion, THE ECONOMIC TIMES (Aug. 21, 2024, 05:07 PM), https://economictimes.indiatimes.com/news/economy/infrastructure/10-per-cent-bonus-in-the-works-for-early-national-highway-completion/articleshow/56507950.cms?from=mdr .
2 Mapex Infrastructure Pvt. Ltd. v. NHAI, 2018(2) ArbiLR 518.
3 Union of India v. M/s N.N. Buildcon Pvt. Ltd, 2015 SCC Online Del 11647; Union of India v. M/s N.N. Buildcon Pvt. Ltd, 2015 SCC Online Del 11647.
4 Paragon Construction (India) Pvt. Ltd. v. Union of India, 2008(1) ArbiLR 358.
5 NHAI v. ITD Cementation, O.M.P. No. 27/2010, Delhi High Court, decided on 22.01.2010.
6 2018 SCC Online Del 10783.
7 2018 SCC Online Del 13101.
8 National Highway Authority of India v. Andhra Expressway Limited, 2010 SCC Online Del 346.
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