March 25, 2024
Under lump-sum contracts contractors are paid a fixed price for the delivery of an agreed scope of works by an agreed time, however, rarely do these three elements look the same at project completion. Practically, site instructions from the Principal may change the scope of works, extension of time (EOT) claims will vary the date for practical completion and variations can change the contract price. Often, a Contractor’s ability to claim entitlements for such variations and EOTs will be subject to strict timeframes, otherwise the claim will be time barred.
What is a Time Bar
Time bars prescribe the strict and absolute timeframe and content requirements of a notice or claim under a contract. If a contractor fails to adhere to these requirements, it may lose its ability to claim. Non-compliance with the time-bar provision may render the whole claim invalid and can expose a contractor to liquidated damages or possibly general damage claims for breach of contract.
In practice, parties do not always comply with notice requirements strictly, especially on large and complex construction projects. This can lead to Contractors being unable to claim entitlements under the contract and having to wear the costs, or alternatively, the breakdown of project administration. As a preventative measure, contracting parties ought to establish rigorous contract management systems at the outset.
Why are Time Bars Important
Time bars ensure fastidious commercial management of major construction contracts. They prompt early communication which can streamline the claims process and enable faster conflict resolution. Time bars generally favour the Principal or Head Contractor as they:
- enable the prompt assessment of claims;
- provide effective schedule management and facilitates the decision-making process by stakeholders;
- prevent an accumulation of claims at project completion; and
- improve the administration and management of issues when they arise.
Consequently, the Principal will often push for shorter time bars which require prescriptive notices. This comes with risks for the Contractor who may be placed under significant administrative burden, leaving them exposed in the event of an invalid claim. Therefore, during tender, contractors must fully understand whether the contractual requirements to claim are practically feasible, with all necessary resources being allowed for.
Unfair Time Bars
In light of the recent changes to the Unfair Contract Terms (UCT) regime, it is important to consider whether your time-bar provision is fair and reasonable. While the definition of an UCT remains the same, the scope and penalties have changed.
The UCT regime now allows small businesses and consumers to:
- have unfair contract terms declared void and unenforceable; and
- refer companies relying on unfair contract terms to the regulator who can impose large civil penalties.
As such, it is important when drafting your time bar provision to ensure that it would not:
- cause a significant imbalance in the parties’ rights and obligations under the contract;
- be reasonably unnecessary to protect the legitimate interests of the advantaged party; and
- cause detriment if it were relied on.
Enforceability of Time Bars
Generally, the courts have been unsympathetic to contractors whose claims were invalid due to non-compliance with the contractual notice requirements.[1] The enforceability of a time bar can be affected by whether compliance with the relevant notice requirement is mandatory[2] or the notice requirements are expressed to be a condition precedent to an entitlement.[3] The clearer the drafting of a provision, the more likely it will be enforceable. That is, a time bar provision which expressly states that a party who fails to give notice will lose its entitlement to claim would likely be more enforceable than one that does not specify the consequences of failure to meet the requirements. As such, clear and precise drafting of the clause is essential.
A party may be estopped from relying on a time bar where it has waived its right to insist on strict compliance by:
- making a representation that it would not require strict compliance with a time bar;
- proceeding to consider the merit of a claim, notwithstanding non-compliance with notice and time provisions over a substantial period of time without:
- expressly notifying the other party that a claim was time-barred; and
- expressing its intention to strictly rely on the time bar clause;
- requesting a contractor submit numerous claims notwithstanding non-compliance with a time bar clause; or
- has failed to adhere to its own obligation with respect to time related provisions under a contract.
However, it is likely that a time bar provision will be strictly enforced (notwithstanding any ambiguity). As such, it is imperative that both parties carefully consider and negotiate reasonable and realistically achievable management requirements and clearly draft the provision accordingly.
Lamont Project & Construction Lawyers
The Lamont Project & Construction Lawyers team has extensive knowledge regarding various contract mechanisms to mitigate current industry risks for both Principals and Contractors. With this knowledge and expertise, Lamont Project & Construction Lawyers can provide the required support and advise on major projects with respect to design risks across the life cycle of a project.
If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The content of this article is for information purposes only and 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 Kathryn Easton
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
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