CONTINUING PROFESSIONAL DEVELOPMENT Maximum Duration 3 Hours

DEALING WITH DELAYS AND EXTENSIONS OF TIME

By ROGER KNOWLES

DEALING WITH DELAYS AND EXTENSIONS OF TIME Delays are a curse on many construction projects. The road to hell they say is paved with good intentions and to complete on time is one of the main aims on most schemes. All too often however unpredicted events occur which have the effect of blowing the contractor off course resulting in a failure to complete on time. It is not all bad news however for contractors as most of the standard forms of contract provide grounds which excuse the contractor who has failed to complete on time and allow extensions of time. This provides an escape route from the financial liability in the form of liquidated damages which usually flows from a non excusable delay to completion. Commencement and Completion Dates All construction contracts of any consequence will usually have dates for commencement and completion. The contract must also either expressly or by implication provide for possession of the site to be made available otherwise commencement cannot take place. The ICE 7th Edition for example provides alternatives with regard to the commencement date. It may be stated in the Appendix to the contract, or a date agreed by the parties, or a date between 14 and 28 days of the award of the contract notified to the contractor by the Engineer. JCT 98 and 05 by contrast has provision in the Appendix for the Date of Possession to be inserted. This date of possession however may be deferred for a period of up to six weeks. A Date for Completion is to be included in the JCT contracts as the Date for Possession is a fixed date. The ICE conditions to reflect the alternatives available with regard to the commencement date provides in the Appendix for a Time for Completion which is to be expressed in weeks. It is essential if a liquidated damages clause is to be included in the contract for there to be a completion date provided for in the contract which is either stated in the contract such as the JCT contracts or may be calculated from the information provided in the contract such as the ICE contract. It is from this date that the liquidated damages can be calculated in the event of late completion. Most of the standard forms of contract including the JCT and ICE contracts allow for completion and handover to be achieved in prefixed sections. Delays Delays which affect or are likely to affect the completion date, depending upon the causes of the delay, may be the subject of the granting of an extension of time. There are two main causes of delay namely excusable and non-excusable delays. Excusable delays fall into two categories, those which entitle the contractor to be awarded an extension of time and so relieve the obligation to pay liquidated damages and delays which provide a right to both more time and in addition financial compensation. The delay and financial compensation type of delay normally results from an action or inaction on the part of the employer, his architect or engineer, or others acting on behalf of the employer. The excusable delays which allow the contractor to recover more time but do not carry any financial compensation comprise neutral events such as exceptionally inclement weather. Non-excusable delays are usually those due to

some fault of the contractor or those for whom he is responsible, or a delay caused by a contractors risk item such as shortage of materials. Benefit to Employers The clause which appears in most standard forms of contract which allows for extensions of time for completion is often much misunderstood. Its purpose strange to say is as much of a benefit to the employer as it is to the contractor. Many years ago Liverpool City Council let a contract to a company named Peak Construction to build flats in Kirby a sub district of Liverpool. During the construction phase a problem arose in connection with the piling and work ground to a halt. The City Council decided to seek the advice of Bullen and Partners a firm of consulting engineers. The advice duly delivered included a recommendation for the carrying out of remedial works necessary to put the job back on track. Unfortunately it took the City Council many months to make a decision to proceed with the remedial works during which time nothing was happening on the site. Eventually the City Council made up its mind and the work was restarted. The completion of the work over ran by some twelve months and the City Council decided to levy liquidated damages. A dispute arose which was referred to the Court of Appeal Peak Construction Liverpool Ltd v McKinney Foundations Ltd 1976. The court recognised that a part of the delay was due to faulty work by the contractor but the remainder arose from delay on the part of the City Council in coming to a decision. Under normal circumstances the contractor would have been granted an extension of time in respect of the delay caused by the City Council leaving the balance of the delay subject to the levy of liquidated damages. Unfortunately the extension of time clause made no provision for delays caused by the City Council. The court therefore held that in the absence of such a provision the extension of time clause was unworkable. This being the case the City Council was unable to levy liquidated damages as there was no date from which they could be calculated. The contract was not drawn up using any of the standard forms and it was said by one of the judges in the Court of Appeal that if a prize were to be awarded for the worst drafted contract this one would win the prize. Delays caused by the employer which affect the completion date constitute a breach of contract as there is an implied term in most construction contracts that the employer will not hinder or prevent the contractor from carrying out and completing the work in accordance with the contract. Where delays are caused by employers with no provision included in the contract for this type of delay time becomes at large and the employer will lose the right to deduct liquidated damages even if a part of the delay has been caused by the contractor. Most of the standard forms of contract as a result of this decision contain a provision which allows for an extension of time if the completion date is delayed as a result of any delay impediment prevention or default of the Employer or any person for whom the Employer is responsible. Neutral Events All construction contracts deal with the allocation of risk. The extension of time clause usually indicates in very clear terms which of the parties carry the risk of delays. Delay caused by the Employer and persons acting on its behalf will always be at the risk of the Employer. Fault on the part of the contractor which causes delay will rest with the contractor. But what of those matters which can cause delay which are the fault of neither party? Into this category falls inclement weather, strikes and other forms of industrial unrest, shortages of materials, riots, terrorism and delays by third parties such as local authorities and statutory undertakers. The standard forms of

contract are in most cases specific as to which of these risks, where they cause delay, are carried by the Employer and are set out clearly as grounds for extensions of time. For example in the ICE 7th Edition an extension of time should be granted if work is delayed by exceptionally adverse weather conditions. The contractor will however take the risk of delays caused by normal adverse weather conditions. If the contract is silent as to delays by a neutral even then the contractor takes the risk. For example many standard contracts such as the NEC contract make no reference to delays caused by a shortage of materials and so the contractor takes the risk. Delay caused by material shortages is specifically excluded in the I Chem. E Form but is optional in the JCT Forms. Force Majeure Force Majeure which appears in some of the standard forms of contract as a ground for granting an extension of time is not fully understood by many who regularly work on projects where one of the standard forms applies. In an ideal world the contract would provide a clear definition as to what is meant by force majeure. This occurs in the I Chem. E form which indicates that force majeure means any circumstances beyond the reasonable control of either party which prevents or impedes the due performance of the contract by that party The contract goes on to give examples of events which are to be classed as force majeure and includes government action or trade embargo, war hostilities and acts of terrorism and earthquake. Shortage of material is specifically excluded from the definition. By way of contrast the JCT Forms include force majeure as a ground for extending the completion date but do not provide a definition. This is most unfortunate as one of the leading text books on construction law Hudsons Building and Engineering Contracts Eleventh Edition indicates that force majeure does not have any precise meaning. It states in section 4.267 potentially the expression covers a wider class of events than Act of God since it will include man made events or interventions, such as strikes or war or legislation. The one minimum and common factor is that the event in question must be beyond the control of the party relying on it Uncertainty often leads to disputes and the inclusion of wording in a contract which isnt clear in its meaning should be avoided. Concurrent Delays It is a common occurrence on many construction projects for more than one delay to be occurring over the same period of time which have an adverse effect on the completion date. One or more of the delaying matters may give an entitlement to time and cost with others providing an entitlement to time only or they may be the result of some shortcoming on the part of the contractor or its subcontractors. The manner in which the extension of time clause is employed to ascertain if and over what period an extension of time is to be granted is often the subject of dispute. Unfortunately there is no hard and fast rule as to how this difficult aspect of contract administration should be addressed. Keating on Building Contracts Seventh Edition expresses the situation neatly be saying that there is a confusing number of possible permutations and goes on to offer a number of alternatives.(Concurrent delays are dealt with in the module entitled Concurrent Delays and Their Effect on the Contract Completion Date).

Best Endeavours Many contracts require a contractor of subcontractor to use constantly his best endeavours to prevent delay. Best endeavours means that all steps to achieve the objective must be taken. Keating on Building Contracts 5th Edition at page 575 has this to say as to the meaning of the obligation to use best endeavours: This proviso is an important qualification of the right to an extension of time. Thus for example in some cases it might be the contractors duty to reprogramme the works either to prevent or to reduce delays. How far the contractor must take the other steps depends upon the circumstances of each case but it is thought that the proviso does not contemplate the expenditure of substantial sums of money. In the case of Terrell v Maby Todd and Co (1952) the judge held that a best endeavours obligation only required a party to do what was commercially practicable and what it could reasonably do in the circumstances. In an article in Building (10th September 1999) Neil White explained: A best endeavours clause means that you do what a reasonable person would to achieve an objective it is not a guarantee it may be overruled by conflicting obligations and it doesnt apply to intangible outcomes such as an agreement. Late Variations It is not uncommon for Architects and Engineers to issue variations during a period of culpable delay after the date by which work should have been completed. For example the contract completion date stands at 1st March and work is still incomplete. This remains the situation on 1st May when the Architect issues a change to the sanitary fittings. Work stands still for four weeks after which it recommences and is completed on 1st July. Should the extension of time amounting to four weeks be added to the 1st March i.e. the net period or should the extension of time be extended until beyond the date when the sanitary fittings were delivered to site i.e. the gross period? This was the issue in the case of Balfour Beatty Building Ltd v Chestermount Properties Ltd (1993) The works employing a standard JCT 80 contract comprised the construction of the shell and core of an office building with a completion date of 17th April 1989 which was later extended to 9th May 1989. Work was however still not competed by January 1990 due to fault on the part of the contractor. During the period 12th February 1990 and 12th July 1990 the architect issued instructions for the carrying out of the fit out works as a variation to the contract. Work was not completed until 25th February 1991. The architect granted a net extension of time up until 24th November which was before the date of the issue of the variation. This was contested by the contractor who considered that the extension of time should have been issued over the gross period to beyond the date of the issue of the variation and allowing a reasonable time for the work in the variation to be carried out. The judge agreed with the architect in stating: In the case of a variation which increases the work the fair and reasonable adjustment required to be made to the period for completion may involve movement of this completion date to a point in time which may fall before the issue of the variation instruction.

Float Most prudent contractors will allow some form of contingency in their programme to cover their risk items which may affect time. Bad ground conditions, inclement weather, shortages of labour and materials are risks are now regularly passed onto the contractor by the conditions of contract. The contractor will therefore be unwise not to make provision in his programme for these uncertainties and will often include a period of float time. The question to be answered is whether a period of float included in a contractor programme which has not already used by the contractor, may be used by the employer to overcome a delay for which he is responsible, if without the float the delay would have caused an overrun to the contract completion period. Keith Pickavance in his book Delay and Disruption in Construction Contracts at page 335 makes reference to a case heard before the Armed Services Board of Contract Appeals in the USA (Heat Exchanges 1963). In this case it was held that the contractors original cushion of time which was not necessary for performance should still be preserved when granting an extension of time for an employers delay. By way of contrast the Society of Construction Law Delay and Disruption Protocol 2002 expresses the following opinion concerning float time: Unless there is express provision to the contrary in the contract, where there is remaining float in the programme at the time of an Employer Risk Event an extension of time should only be granted to the extent that the Employer Delay is predicted to reduce to below zero the total float on the activity paths affected by the Employer Delay The decision in the UK case of Ascon Contracting Ltd v Alfred McAlpine Construction (1999) arrived at a similar conclusion as the Society of Construction Law. In this case the claimant finished its subcontract works late. Nonetheless McAlpine finished on time but went on to argue that had Ascon finished on time McAlpine would have finished early due to float in the programme. McAline claimed loss and expense from Ascon base on being prevented from finishing early. The judge was of the opinion that float was available to accommodate delays in general and not merely the contractors delays. It would seem that in the UK if float time exists in a programme it can be used on a first come first served basis. Notices and The Like It is common for contracts to include a requirement that contractors must serve a written notice and often to provide supporting information when requesting an extension of time. There is usually a time fame within which such information is to be submitted. The ICE 7th Edition requires the contractor within 28 days after the cause of any delay has arisen or as soon thereafter as is reasonable to deliver to the Employers Representative full and detailed particulars in justification of the period of extension claimed in order that the claim may be investigated at the time. A question frequently asked is whether a failure on the part of the contractor to submit this type of information will be fatal to an entitlement to an extension of time. The matter has been raised in a number of legal cases and the courts have been fairly consistent. It has been explained earlier in this article that the extension of time clause has benefits for the Employer. This being the case it would be inappropriate for the

clause not to apply because the contractor has failed to comply with the notice requirements, a logic regularly adopted by the courts. There is however an exception to this rule and this occurs where the contract wording specifically indicates that a written notice is a condition precedent to the contractors right to an extension of time. The recent case of City Inn v Shepherd Construction (2001) reinforced the ruling. In this case the wording of a JCT 80 contract had been amended to indicate that a written notice from the contractor was a condition precedent to an extension of time and because the contractor failed to service a notice the court decided that there was no entitlement to an extension of time A different view was taken in the Australian courts in the case of Gaymark Investment Ltd v Walter Construction Group Ltd (1999) where the prevention principle was adopted. Under this principle the employer is prevented from levying liquidated damages if the delay is caused by his own act of prevention even though the contractor failed to submit a written notice which under the terms of the contract was a condition precedent to the right to an extension of time. The prevention principle has not yet been adopted by the UK courts.

Granting the Extension of Time Most standard forms of contract provide for the Employer or the Architect, Engineer or Representative to deal with requests from contractors relating to extensions of time. Contracts such as the ICE 7th Edition impose no time scale within which applications for extensions of time must be decided. The I Chem. E Form by contrast requires the Project Manager to issue a variation order dealing with a time extension within 14 days of the time the extent and consequences of any such delay are known. A failure on the part of the Project Manager is a breach of the requirements of the contract. It was decided however in the case of Temloc Ltd v Errill Properties Ltd (1988) that as the requirement to make a decision within a time was directory only a failure to operate the clause within the timescale would not affect the Employers right to deduct liquidated damages. The situation may be different if the contractor submits the notice required by the contract but it is ignored or a policy exists not to grant any extensions of time. If either of these situations occur the Employer may find himself denied an entitlement to recover liquidated damages. Conclusion Contractors need to become very familiar, before work commences, with the requirements of the contract regarding the clauses which deal with extensions of time. These clauses are provided to enable contractors to claim extra time if delays occur for which they have not taken the risk. A failure to secure proper extensions of time could prove financially damaging. Roger Knowles Chairman Knowles

Email roger.knowles@jrknowles.com

STANDARD QUESTIONS 1. How do standard forms of contracts usually deal with commencement and completion dates? 2. In what way does an extension of time clause in a standard form of contract benefit an employer? 3. What is meant by force majeure? 4. What is the difference between excusable and non excusable delays? 5. What is required if a contract provides for the contractor to use his best endeavours to prevent delays? 6. Who owns float on a construction contract?

MODEL ANSWERS 1. Most construction contracts include for commencement and completion dates. The ICE 7th Edition provides alternatives with regard to a commencement date. It may be stated in the Appendix to the contract, a date agreed by the parties or a dated between 14 and 28 days of the award of the contract notified to the contractor by the Engineer. With the commencement date in the ICE 7th Edition being flexible there is no date for completion stated but a period of time within which work is to be completed. By way of contrast the JCT contracts contain a Date for Possession leaving the contractor with some flexibility as to when work actually starts, together with a Date for Completion.

2. Extension of time clauses provide a benefit to both contractor and employer. For liquidated damages to be applied it is necessary for there to be a fixed date by which the contractor should have completed the work. Delays can be measured against the date and liquidated damages if appropriate applied. It may be the case that an extension of time clause does not include an entitlement to an extension of time resulting from delays by the employer. A delay caused by the employer which affects the completion date amounts to a breach of contract as employers have an implied obligation not to hinder or prevent the contractor from completing work in accordance with the contract. If therefore the employer causes the delay but there is no mechanism for adjusting the completion date it has been held in the case of Peak Construction Liverpool Ltd v McKinney Foundations Ltd 1976 that time becomes at large and therefore there is no fixed date from which liquidated damages can be calculated. The employer therefore loses the right to deduct liquidated damages even if some of the delay is due to a fault on the part of the contractor. Most of the standard forms of contract to overcome the problem include a composite clause which entitles the contractor to an extension of time in the event of any delay impediment prevention or default of the Employer or any person for whom the Employer is responsible.

3. It is not clear under English law precisely what is meant by the term force majeure which appears as a ground for granting an extension of time in many of the standard forms of contract. Some contracts such as the ICemE form provide a definition as to its meaning which in this form is any circumstances beyond the reasonable control of either party which prevents or impedes the due performance of the contract by that party The JCT forms whilst including force majeure as a ground for granting an extension of time do not provide a definition. This leaves the parties to fall back on legal text books for a meaning. Hudsons Building and Engineering Contracts Eleventh Edition defines force majeure as potentially the expression covers a wider class of events than Act of God since it will include man made events such as strikes

or war or legislation. The one minimum and common factor is that the event in question must be beyond the control of the party relying on it

4. Delays which affect the completion date may be either excusable or nonexcusable delays. Excusable delays fall into two categories. Those which entitle the contractor to recover more time and in addition financial compensation and those which allow for the granting of more time only. The time and financial compensation type of delay will normally comprise those which result from some action or inaction on the part of the employer, his architect engineer or other person acting on behalf of the employer. Time only types of delay result from neutral events such as exceptionally inclement weather, strikes, lock out and other forms of industrial unrest. Non-excusable delays are usually caused by the contractor or those for whom he is responsible, or risks carried by the contractor under the terms of the contract such as shortages of materials and carry no entitlement to an extension of time.

5. It is common to find in standard forms of contract in the extension of time clause an obligation placed upon the contractor to constantly use his best endeavours to prevent delay. The meaning placed on these words which best describe them appears in Keating on Building Contracts 5th Edition where it explains the obligation to use best endeavours as: This proviso is an important qualification of the right to an extension of time. Thus for example in some cases it might be the contractors duty to reprogramme the works either to prevent or to reduce delays. How far the contractor must take the other steps depends upon the circumstances of each case but it is thought that the proviso does not contemplate the expenditure of substantial sums of money.

6. Most contractors will make some allowance in the programme for float. As the contractor is required by the terms of the contract to take risks which may cause delay it is prudent to include some element of contingency in the timing of event to ensure that if one or more of these risks becomes a reality the spectre of liquidated damages does not loom large. Despite the basic reason for including float in the programme the ownership of float has over the years become a hotly debated subject. There is a divergence of opinion as to where ownership lies. The courts in the USA seem to hold to the view that float belongs to the contractor. What little authority exists in the UK supports the view that float may be used on a first come first served basis. For example the Society of Construction Law Delay and Disruption Protocol 2002 expresses the following opinion in relation to float: Unless there is express provision to the contrary in the contract where there is remaining float in the

programme at the time of an employer risk item an extension of time should only be granted to the extent that the employer delay is predicted to reduced below zero the total float on the activity paths affected by the employer delay Support for this view can be found in the case of Ascon Contracting Ltd v Alfred McAlpine Construction (1999).