Possibilities to Investigate Extension of Time (EoT) claim using Quantitative Schedule Risk Analysis
Working as a Program Risk Manager, I regularly performed Quantitative Schedule Risk Analysis (QSRA) of at least 6 projects recently, required me to conduct at least monthly 6 Risk Management meetings with 6 Project Management teams. Regularly, I provided Risk adjusted schedule, Probability Distribution graphs analysis and Sensitivity analysis showing the driving risks and driving activities for respective schedule milestone at P50 and P80.
As per our program risk appetite, we chose P50 as our most likely region to decide for contingencies, hence, I regularly monitored P50 levels for all Contractual milestones as well as most of the Critical activities focusing CLIENT’s priorities for Commissioning and Start-up of project facility.
At the end of 6th month from that start of the project, our company management decided to file for 1st interim Extension of Time (EoT & Prolongation cost) claim. We proceeded with a renowned claim consultancy to sign a long term claims management contract after paying a heavy price.
After almost 3 months waiting for the report, when I saw the claim report summited by this Claims company (before I also worked as Forensic Planner & Claims expert), I was amazed at the “Executive summary” where I spent 1 hour of thinking about EoT finalized dates & Prolongation cost. Those dates were very near to our QSRA report’s P50 (most likely) forecast dates. All delay events were exactly matching with Risk events recorded in Risk register, further claims report nicely put it in a Contemporaneous Time Impact delay analysis in multiple windows.
Point of contemplation for me was if my QSRA report’s P50 forecast are on paper months before the EoT report was generated, WHY our CMs or PMs were RELUCTANT to take proactive actions on it and SOLELY were WAITING for CLAIMS report!! Any mitigation efforts according to the risk event's sensitivity could have reduced the intensity of Delay claimed.
EoT provides quantification of impact on the project completion dates and decides compensability in each window, similarly QSRA provides probabilistic impact values due to risk event on project completion date. Better results can be obtained, if contemporaneous delay events are treated as Risk events, a sensitivity analysis can clearly show which Delay events can be arranged in a Highest critical to lowest critical on tornado graph. Further, we can filter out driving activities with respect to the desired milestone in schedule.
Later, I discussed with my Senior manager about this finding and we were engaged in long discussion on that day agreeing on the facts / conclusions as below:
Project Manager should focus on QSRA results and its outputs, viz. Risk Drivers, P50 / P80 forecast dates and take proactive actions up to whatever possible extent than solely depending on an “EoT Claims report” which might cost a lot than Risk mitigation efforts
EoT claims are practical when CONTRACTOR acts on primary risk but fails due to Secondary or Residual risks, such risks often convert into delay events and has to be claimed using EoT
Often Delay event originates from Risk event, hence a Risk Register (which many Risk experts think as ‘useless’) is the Prime document to investigate and take required mitigation actions before Delay becomes a Critical Delay.
Proactive efforts are less costly (Cost of Risk Mitigation) than to award a huge amount of money to prepare a delay claim and get stuck over it for years; finally resulting into a litigation feud; CLIENT appreciates Risk Mitigation actions as “Voluntary Acceleration” sometimes CONTRACTORs gets compensated for such efforts
I experienced CLIENT often appreciates Proactive or Risk mitigation efforts; they assume it as act done in good faith; it is not recommended to hide Risk until it becomes a full-fledged delay event
EoT reports include a dedicated section on Contract clause references for rightful delay entitlement hence, parties to the contract should consider performing a CONTRACT RISK assessment (especially on the clauses of Variations, Change Orders, EoT procedure and notices) with the active participation of Contract managers from respective parties before signing a contract, any replies from CLIENT will be saved in addendum to the contract which can later strengthen risk management efforts in later stages or minimize delay
QSRA of a Delay analysis work can open up the doors for further negotiation and offer leeway for CLIENT to agree on extension claimed in range of “Most Likely” or “Conservative” range
It is highly recommended to CLIENT or CONSULTANT team to act and make Risk register work during project execution rather than using it as a document to show off for Top management (as and when they visit site)
It made me think to further research and look out the possibilities in Statistical analysis of Contemporaneous Delay Analysis incorporating Monte Carlo simulation either at the start or during project execution itself, which can help CLIENT or CONSULTANT understand Most likely or conservative dates while approving the delay claim filed by CONTRACTOR, which is always a single point estimate.
A QSRA can act as a helpful tool for Arbitral tribunal or Adjudication efforts in order to find Probabilistic ranges of Quantum analysis which may be flawed if it is based on the assumed rates, rounded amounts, calculated by less experience staff etc.
PS – I avoided to use any graphs or data from our company reports since its protected under contract, later I am planning a detailed presentation on this topic.
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The views expressed in this article are those of the author and do not reflect or represent the official policy, position or recommendation of any individual or organization. Any written or verbal recommendation has a general nature and should not be used for any decision making without further assessment for specific project and organization requirements.