August 22, 2022
Timely completion of a construction project is frequently seen as a major criterion of project success by clients, contractors and consultants alike. However, the concept of time is not the mere elapse of time from contract execution – rather, it is the period for performance of the construction obligations. When reviewing a contract, a contractor must consider; when is construction to begin, when is it to end, and under what circumstances may the time for construction be extended?
This article will explore some ‘timely’ points for your consideration.
Practical Completion
Practical completion (PC) is an important concept for contractors and a key milestone in a construction project as it is a contractual trigger point that has consequences for liquidated damages, extension of times, security, early completion bonuses etc. PC is often agreed and defined to be the time at which the construction works are complete except for minor defects or omissions. It is at this point that a significant portion of risk is passed from the contractor to the principal, therefore, what constitutes ‘practical completion’ in a contract requires careful drafting and negotiation by the parties.
When reviewing the definition of PC in a contract ensure:
- The clause specifically and clearly states what the contractor is required to do to satisfy PC (and the contractor is capable of doing so);
- The definition includes “when the Principal and/or Superintendent takes possession of Site”; and
- Any tests or assessment performed by the principal/superintendent are passed “to their reasonable satisfaction”.
To further protect a contractor’s interests, you may consider inserting a contract clause which states,
“The use or occupation or any part of the Works before Practical Completion by the Principal will mean that such part of the Works has reached practical completion”.
Such drafting allows the contractor (in circumstances where the principal has not issued a certificate for PC) to be relieved of possession of the site, will trigger entitlement to security, liability for liquidated damages will cease and the defects liability period will commence.
Extension of Time (EOT) Entitlement
An EOT to the practical completion for things outside the contractor’s control is critical to the contractor in managing its risk. When reviewing a contract, ensure entitlement to an EOT through what is defined as a ‘qualifying cause of delay’ and the conditions to establish entitlement are sufficient. Ideally, a contractor would want a qualifying cause of delay to include things such as:
- Inclement weather;
- Latent conditions;
- A force majeure event (see below);
- Industrial conditions beyond the reasonable control of the Contractor;
- Delays caused by an adjoining occupier;
- Delay in obtaining materials arising from or in connection with COVID-19; and
- Labour shortages arising from or in connection with COVID-19.
The allocation of the neutral events (i.e., inclement weather) will be a matter for commercial negotiation, however, you may consider other mitigating factors such as:
- the length of the program; or
- whether insurance covers any part of the claim,
before it is determined whether it will be required to be a qualifying cause of delay.
Force Majeure
A contractor will not get automatic relief for a force majeure event under common law; thus, the contract must provide for it. When undertaking a review, ensure force majeure is both clearly defined and there is an operative clause which specifically deals with the rights and obligations of the parties if a force majeure event occurs.
Further, note that just because a contract contains a force majeure clause does not mean it will entitle a party to relief under a claim due to a COVID-19 disruption. Therefore, ensure the definition clearly covers disruptions resulting directly from COVID-19 impacts.
Time bars
When considering time in construction contracts, you also need to address limitation periods. Construction contracts may contain wording such as:
“Unless the Contractor has given notice strictly in compliance with clause [], the Contractor shall be barred from making any Claim…”
A contractor may not be able to negotiate out of these types of clauses, therefore ensure to review and understand your time obligations for making EOT claims (and all other claims) to avoid the risk of losing entitlement.
Who owns the float?
Float refers to unallocated time in a critical path network under the contractor’s construction program. A contractor who owns the float can therefore use this unallocated time to absorb a delay caused by the contractor or for uncontrollable delays (i.e., wet weather). Alternatively, if the principal was to own the float entitlement to time or money would only arise once the float has been used up (including for principal’s breach).
Therefore, it is recommended the contractor compel to own the float. To do this, ensure the words “by the Date for Practical Completion” in the clause granting an EOT are excluded as underlined below:
“The Contractor will be entitled to an extension of time to the extent the Contractor is delayed in achieving Practical Completion by the Date for Completion by a qualifying cause of delay;”
Another drafting consideration you may wish to consider is the inclusion of the clause which states:
“in determining whether the Contractor is, or will be, delayed in reaching Practical Completion regard shall not be had to whether the Contractor can reach Practical Completion by the Date for Practical Completion without an extension of time”
Such drafting has the same effect (i.e., the contractor owns the float).
Legal Support
Lamont Project and Construction Lawyers have extensive experience in contract drafting and reviewing for both principals and contractors in the construction industry.
Our team can provide tailored support and detailed advice across the lifecycle of a project to assist clients as and when required.
If you have any questions about your current and future projects, please do not hesitate to contact LPC Lawyers for a discussion on how we can assist you.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Stephanie Purser
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
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Postal Address: PO Box 1133, Milton Qld 4064