Quantum and delay in construction arbitration
Thierry Linares, Senior Managing Director, FTI Consulting
EXPERT opinion in complex construction arbitrations can vary in strength, credibility, and usefulness. As the standard of proof is at the heart of an arbitral decision, an expert opinion based on fact – not faith – is essential for ensuring optimal outcomes for the parties involved. Based on my experience of signing delay and quantum reports, testifying in court, and being cross-examined, this article outlines the building blocks of an authentic expert opinion.
Defining the role of an expert witness
An opinion is ‘a view, judgment, or appraisal formed in the mind about a particular matter’ and ‘a formal expression of judgment or advice by an expert’1. Expressing an opinion is very different from professing a point of view or making inferences and should not be confused with a view or a belief.
In principle, an expert is sought when the facts of a case are not evidently conclusive, necessitate interpretation, or a specialist analysis is needed to reach conclusions that will be helpful to the tribunal. In construction cases, this is customary for technical issues, as well as for delay and quantum forensic independent reports.
These reports present opinions, enabling to apprehend and complete the available facts. The role of an expert has several layers:
- Clarify and summarise evidence that may be difficult to digest for a tribunal.
- Use expert knowledge to interpret data.
- Question the data interpreted for coherence and completeness.
- Identify missing information, gaps, and assumptions.
- Request or search for any missing data. Exert common sense and provide true professional opinions on grey zones.
- Derive conclusions that answer the question(s) asked.
- Assess the reasonable character of the conclusions.
- Express and properly reference this process so that the end product, the expert opinion, gains evidential value.
- Testify on the conclusions and opinions reported.
There is no absolute truth or perfection; if an expert witness is called upon, the issues at stake are not binary. It’s important to ensure that the expert witness opinion is reliable and fact-based, which should be the threshold for an opinion to be useful.
When faced with dissenting opinions between experts, the technical methodology used is often brought forward as a main differentiator. While methodologies have an impact on the conclusions reached, any person should be able to understand and use an expert opinion, thanks to its structure. The root cause of dissenting opinions, and therefore the origin of the authentic value of each expert professed opinion, lies in a systemic approach, bringing credibility and reliability.
1. Answering the right question
The need for an expert opinion is driven by one or several questions, usually expressed in instructions. Sometimes a question can be very broad, such as asking an expert to assess the value of a prejudice. Questions can be directed by asking for a critical review of a specific existing or adverse assessment.
Questions can be directed by asking for a critical review of a specific existing or adverse assessment.They could also be more focused, directing the expert to a specific answer; for example, how much was lost, how much it cost, how much could have been earned or how much should have been earned.
Each question is led by the contractual and legal grounds driving the requests and identification of the prejudice that needs to be assessed, arising out of claims and positions pre-existing the expert’s involvement (and being out of its control and remit). This can lead experts to express alternate or subsidiary opinions, for example, to give a valuation based on the adverse parties’ legal take on the matter.
The expert analysis process is systemic; it should lead the expert to express an opinion that is a firm work product. The use of alternates should not be the consequence of uncertainty or guess work in one’s opinion, analysis, or assessment. This means ensuring clarity on the facts and the processes followed in the analysis, as expanded upon below.
2. Being clear on quantum
They could also be more focused, directing the expert to a specific answer. The expert analysis process is systemic; it should lead the expert to express an opinion that is a firm work product.The various heads of claim in construction arbitration usually revolve around three quantum fronts:
- Valuation of works (final accounts, reconciliation of payments, additions, or deletions of scope).
- Evaluation of over costs (prolongation, disruption, market conditions, risk events).
- Estimation of loss (loss of profit, overheads, financial loss).
To express a reliable and useful opinion, the expert will need to:
1. Establish an actual value by reading what the invoice or document mathematically presents and identifying what part of that value relates to the prejudice claimed. This means studying:
- Prima facie value of the document (even if it is obvious, care should be taken of the currency in which it is expressed or the decimals, including date and debtor).
- Requalification (VAT, retention, currency exchange).
- Proof of actual expense (difference between quote, contract, invoice, payment support, accounting check of no debit note), depending on the potential complexity.
- Coherence between documents (quantities and rates mentioned in different documents).
2. Determine material causality by applying one’s professional knowledge and factual research on the prejudice to relate the value assessed with a chain of events, so that it can be interpreted correctly with regards to contractual or law stipulations. This means questioning if:
- The value identified is linked to the project (location, date, identification of purchase order and delivery).
- The value is linked to the event as claimed (material causality, necessitating a professional view on the need of the expense, mitigation).
- The prejudice is material (not hypothetical).
- A link to the impacts of the events can be identified (were the costs incurred needed and adapted?)
- The value is reasonable and commensurate to the prejudice claimed (if it is prospective or an estimate, by benchmarks, research, comparison to the contract’s existing rates and so forth).
To support the legal argumentation and ultimately the tribunal ruling on the entitlement, the quantum expert should distinguish between claims for which:
- The materiality of the prejudice or damage is established, either as a cost incurred (goods or services ordered, delivered, invoiced and paid for) or a firm commitment (for which only the payment step is missing).
- The prejudice is based on an estimation as the works or damage is identified but has not yet been committed in terms of resources or third parties’ costs.
- The prejudice itself is not clear, being only a potential liability with no certainty that costs will be engaged or with a material causality not being established between action and prejudice.
- The prejudice claimed is not established.
The difference between these cases resides in the factual support available but also depends on the analysis of the chronology and the subject of the claim by the expert, and an understanding of the material link between the costs alleged and the actions of a party.
To support the legal argumentation and ultimately the tribunal ruling on the entitlement, the quantum expert should distinguish between claims. In my experience, it is very useful to ask oneself systematic questions to articulate a useful analysis and opinion on the existence, valuation, and reasonableness of a prejudice, without which a mere arithmetical verification of a document brings no value.
The analysis should impact the expert’s conclusions, between a principal or ‘primary’ assessment and any kind of subsidiary, alternate or figures-as-figures. The principal assessment should reflect the expert’s opinion on the claim as expressed by the parties based on the available evidence, if and when the materiality of the prejudice is established, and a value assessment can be sufficiently ascertained.
Subsidiary, alternates, or figures as-figures are only useful where an assumption that needs to be made to reach an assessment (duration of the delay to be considered, rate of interest that shall be applied) is disputed. The expert can therefore present a different calculation should the ‘other’ assumption be the one retained.
3. The delay issue
While they are a common point of contention, methodology battles are pointless and ineffective. If the analysis is properly executed and allows comparison with the other party’s, any methodology will bring a valuable input to the arbitral process.
Different methodologies can (and should) bring different results. This should be made clear as they drive a varied analysis. As mentioned, answering the right question is at the heart of the expert opinion process, and should drive the choice of a methodology, rather than technical or software issues.
The most frequently used delay analysis methodologies answer very different questions:
- An impacted as planned analysis is a theoretical calculation, setting out the duration to which the contractor should be entitled to finish the project, as per the contractually agreed period and execution plan, and the addition of excusable events as if their impact and existence had been known at the start of the project.
- A longest path analysis is a retrospective view of the as-built schedule and determines which delay was the one driving the completion date in hindsight (or dominant delay).
- An as-planned vs as-built analysis compares the initial execution plan to the one achieved and explains the reasons for differences along the scheduled path(s).
- A deducted as-planned analysis reconstitutes what the delay of a project would have been, taking into consideration the actual sequence of events, and neutralising (removing from the programme) the excusable ones retrospectively.
- A time impact analysis studies the subject as it unfolded, reconstituting the delays as they could have been analysed along the progress of the project, without hindsight.
This is an oversimplification. There are other methodologies and layers of subtleties that are brought into the methodologies implementation2, but this gives a sufficient idea of why methodologies and their results differ.
Either conflicting methodologies are used and naturally reach inconsistent conclusions as they address different questions, or a common methodology is exercised, and the actual opinions may diverge due to its implementation or the underlying analysis.
An additional technical layer is the quality of the records that need to be interpreted correctly and the need to answer questions affecting the quantum claims related to delays.
Nevertheless, experts’ opinions in a compared delay analysis are very seldom in opposition because of the methodology itself. Either conflicting methodologies are used and naturally reach inconsistent conclusions as they address different questions, or a common methodology is exercised, and the actual opinions may diverge due to its implementation or the underlying analysis.
Irrespective of this, the value of an opinion on delay goes through establishing the material causality between events and delays. The expert delay analyst acts as an investigator, trying to understand the link between an event and a change in the planning (mostly delays), through studying available evidence and facts, to be able to opine on the root cause of the impact. As with quantum, the expert’s input will be driven by experience and knowledge to fill in gaps or question the programmes and documents.
The equilibrium of this exercise is difficult to achieve, and while very significant, common sense and hunches should not be confused with, nor replace, fact analysis.
4. The impact of hindsight
For both quantum and delay matters, one of the roles of the expert is to remain a neutral observer. To form credible opinions, an expert will need to study and benchmark wider project circumstances that may influence the way a fact is interpreted.
A simple way to judge whether this standard is met is the preparedness of an expert for cross-examination or tribunal questioning – a proper opinion should not raise any doubt in this exercise, for it is authentic and can be fairly questioned, instead of asking for a leap of faith to adhere with the opinions expressed.
Failing to take these factors into account may lead to a misinterpretation of causation.
- The proper management of a project and the decision process during its execution were driven by the contemporaneous knowledge of the parties – an expert should look at a subject retrospectively and neutrally and consider the level of knowledge that existed contemporaneously and drove decisions, that may, in hindsight be disputed. For example, why holding a transport made sense and was a shared decision during the project but appears as the critical delay retrospectively.
- The quality of the records available to the experts is always limited to what has been gathered during the project and what is made available for inspection – an expert opinion should be based on this, but also question any missing or incoherent data, taking the benefit of analysing the subject after events unfolded (sometimes a few years after). For example, by looking for an invoice when only a quotation was available contemporaneously.
- The attitudes of the parties during the project execution, towards modifications, agreements, and how the contract was managed can impact the understanding of the marginal ones that are under dispute.
This list is not exhaustive but highlights the importance of background information that will help the expert to formulate its opinion on contentious subjects. It will also help them to differentiate between a hindsight view and an analysis of the fact and will drive them to search for additional information if needed, instead of being passively fed a possibly partial view.
Driving decision-making for the tribunal
Everyone is entitled to an opinion, but for it to be a valuable one, it must serve its purpose, be based on facts, clarify subjects for the tribunal and enable decision-making. Expert opinion based on faith (‘it is complicated but trust me, I know what I’m saying’ or ‘I allocated this, I deemed this reasonable’) should be dismissed.
Actual expert work can be used as evidence at it is based on clear facts and assumptions, through a systemic review and the filter of knowledge and experience. A tribunal should be put in a position to question premises and ask for an alternate valuation based on different premises if needed, and not be asked to trust the expert opinion blindly. Ultimately, logic and common sense underpin the reliability and value of an opinion.
A simple way to judge whether this standard is met is the preparedness of an expert for cross-examination or tribunal questioning – a proper opinion should not raise any doubt in this exercise, for it is authentic and can be fairly questioned, instead of asking for a leap of faith to adhere with the opinions expressed.
Thierry Linares, Senior Managing Director, FTI Consulting
thierry.linares@fticonsulting.com
The views expressed herein are those of the author and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals. FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.
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1 Merriam-Webster – www.merriam-webster.com/dictionary/opinion
2 See SCL and AACE guidelines