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Activity Schedules – demystifying common perceptions!

1st June 2013

There’s lots of confusion in practice about the purpose, use and significance of Activity Schedules.

Under the Engineering & Construction Contract (ECC) the Activity Schedules are only relevant under Options A & C. Activity Schedules also appear in the Professional Services Contract (PSC) and Engineering & Construction Subcontract (ECS). The focus of this article is the ECC. Although the same term ‘Activity Schedule’ is used, they have very different roles in A & C. In a similar vein that the Price for Work Done to Date (PWDD) is a generic term but means different things under different main Options i.e. what the Contractor is paid.

The myths? I often come across reports that the Contractor believes that they can change the Option A Activity Schedule at their discretion (to better cash flow) or that the Project Manager is refusing payment under Option C because the Activity Schedule does not accord with their perceptions. Both are incorrect.

So what does the ECC tell us about Activity Schedules under Options A and C? I suppose the first port of call should be to look at the Defined Terms:

Clause 11.2 (20) states:
The Activity Schedule* is the activity schedule** unless later changed in accordance with this contract.

Both Options A and C share the same Defined Term as above but this is largely where the similarity stops. Interpreted, this clause means that the contractual Activity Schedule* is the one contained within Contract Data part 2** (by the Contractor – by virtue of the italics) ‘unless changed in accordance with this contract’ – this is the bit we need to explore.

Option A (Priced Contract with Activity Schedule) is effectively a lump sum contract. The Contractor prices ‘activities’ on the Activity Schedule at tender stage and submits both the Activity Schedule and it’s total – the Total of the Prices. Some Employers’ prescribe a format to the Activity Schedule for tender comparison purposes which is fine but the Contractor needs to bear in mind that the format submitted will form the basis of payment so may need to expand on this.

Under Option A the Activity Schedule cannot be just expanded after tender stage to afford better cash flow. It can only be changed ‘in accordance with this contract’. The aim of Option A is that it is a low administration contract and payment for an activity should be a straightforward decision – is it 100% complete or not? If yes, pay; if no, no payment is due.

Option C is a different story. Again this is submitted at tender stage (and Employers’ usually use this to compare and contrast) but it is not used for the purposes of payment. The Contractor is paid on Defined Cost plus Fee (clause 11.2(29)).

Under both Options A & C clause 54.2 requires the Activity Schedule to be updated (and submitted for acceptance) if the Contractor has changed a planned method of working. So if, for example, he has erection of scaffolding as an activity on the Activity Schedule and he decides to use cherry pickers instead then the scaffolding will no longer be on the Accepted Programme. In that case he has changed his method of working and he can change the Activity Schedule. This alignment to the programme does not purport to be a cash flow forecast nor Earned Value Analysis – rather a professional financial breakdown of the project – a useful management document.

The other element of ‘changing in accordance with this contract’ is for compensation events. I used to maintain an ‘omit’ and ‘add’ schedule from the contract sum on other forms of contract. This is effectively what we do under the ECC but via the Activity Schedule:

Clause 63.12 states:
Assessments for changed Prices for compensation events are in the form of changes to the Activity Schedule.

So the Activity Schedule should be updated for compensation events – it’s a dynamic document that will change pretty much every month on most projects.

Effectively, the Activity Schedule gives a running total of the ‘value’ – what we call the ‘Prices’ under the ECC. This is further supported by a regularly updated forecast of the total Defined Cost for the whole of the works under Option C. This provides an excellent projection of the share ranges.

What we’ve covered so far are the tender stage and construction stage.

At Completion of the whole of the works under Option C, the Project Manager makes a preliminary assessment of the Contractors’ share by comparing the previously mentioned forecast of Defined Cost against the updated (hopefully!) Activity Schedule. If the Activity Schedule is not up-to-date then this will not work accurately. Under Option A the same incentive is there to keep updated as payment is made upon competed activities on the Activity Schedule.

In essence, the Activity Schedule is maintaining (in old terms) a ‘final account value’. Under Option A this is how the Contractor is paid throughout and under Option C it is used to derive the share ranges at the end. As the Contractor (under C) is paid Defined Cost plus Fee during the works, the critical stage when the Activity Schedule is used is at Completion of the whole of the works.

Maintenance of this Activity Schedule requires some professional rigor. It also needs to show the interrelationship with the programme (clause 31.4) – not a one-to-one but a ‘relationship’. So, for example, the Contractor says that operation 27 of the Accepted Programme is part of Activity 12 in the Activity Schedule, and so on.

The attached table serves as a summary of the points covered.

Hopefully, as the article title suggested, this clarifies some of the myths about Activity Schedules.

To summarise, the purpose of the Activity Schedule is to record updates in the ‘Prices’ as a result of compensation events (what I used to call an ‘omit’ and ‘add’ schedule).

Under Option A, this is also how the Contractor is paid (so critical to get right at tender stage) and to maintain. In addition, both Options require the Activity Schedule to be updated if the planned method of working is altered and for this to explain its’ relationship with the programme.

Furthermore, Option C contains a requirement to forecast Defined Cost (a constant projection of the ‘Prices’ reconciled against a forecast total ‘Defined Cost’).

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