Last edited 14 Dec 2018

Activity schedules in construction contracts

The term ‘activity schedule’ appears in contracts such as the NEC (New Engineering Contract) option A contract and in a number of standard lump sum contracts. In FIDIC contracts (Fédération Internationale des Ingénieurs-Conseils), it could be interpreted as fulfilling the requirements of the schedule of payments in a lump sum contract.

In essence, it relates to a programme where each activity is allocated a price and interim payments are made against completion of each activity. Its advantage is that it simplifies the administration of the interim payment process.

The activity schedule on these types of project is submitted together with a contract programme as part of the tender. It is important that all the activities priced add up to the tender sum and that major sub-contractors participate in the allocation of prices against their programmed activities. This may include payments for off-site goods and materials.

The simplest way to prepare an activity schedule is to draw up a bar chart (gantt chart) which covers all the main activities required, separating each element of work that is sub-contracted. Some preliminaries such as site offices need a separate price bar for set up, operational use and dismantling activities. Other preliminaries such as staff and electrical consumption will be part of a constant bar.

The bars longer than a month then have their bar line split by defining more accurately the piece of work completed in that period. A time-defined period is acceptable in the case of preliminaries. The price allocated to each total element of work is then proportionately split to match the more defined elements.

The client’s cost consultant must ensure that the pricing of the activity schedule is not unduly front-loaded and fairly reflects normal cash flow curves associated with building projects.

The contract conditions normally allow the contractor a short period of time after appointment to re-visit the activity schedule to expand its detail. In addition, during the course of the project the activity schedule can be adjusted to accommodate variations, extensions of time and compensation events.

The preparation of a monthly submission for interim payment is best achieved by the contractor's project manager walking the site with the client’s representative to agree progress in respect of completed activities. Here some judgement needs to be exercised by the client’s representative as to what is ‘complete’, otherwise, strictly speaking, on a 100% basis the contractor would suffer massive cash flow problems due to the withholding of payment.

Once the progress chart against the programme has been agreed it becomes a simple mathematical calculation of the relative prices to arrive at the valuation and its certification.

NB: Within the NEC3 Engineering and Construction Contract (ECC), The 'accepted programme' shows how the activities on the activity schedule are programmed. The accepted programme and the activity schedule need not show exactly the same activities, but there should be correlation between them, and they should be kept up to date. See accepted programme for more information.