One of the most prominent areas for dispute in the construction industry relates to the entitlement (or lack thereof) to additional time or costs as a result of delay caused in the completion of a project, and associated with a varied scope in work.
In its most simple form, a construction Contract provides for the agreement to build the specified works or infrastructure, at the specified place, within a specified time period, and for payment of a specified price. Whilst the terminology and risk allocation may differ, these time and cost issues (and the possibility for dispute) are present and relevant in all types of construction Contracts, for all types of projects.
Over the next three weeks, this article series will discuss two of the most prominent topics of time and cost disputes in the construction industry, namely, Extensions of Time (Part 2) and Variations (Part 3), including entitlements to claim, payment, relevant contractual requirements, and their often-interconnected relationship with each other and project completion.
Extensions of Time
It is no secret that delays in the construction industry are increasingly prevalent, particularly in the current environment which is seeing extraordinary shortages (and delays in procuring) construction materials and labour. This is just one example of the infinite possible Contractor-caused, Principal-caused, or “neutral” events (being those outside the control of either party) which may delay the completion of a construction project.
Typically, a Contractor is under a strict obligation to complete the contracted works by a date specified in the Contract (often referred to as the “completion date” or “date for practical completion”), and as a Principal is likely unable to guarantee that it will not be responsible for any delays to completion of a project (including where it fails to provide documents or materials that it is contractually required to provide, or where it wishes to change the nature of the works by directing a Variation); the relevant construction Contract should provide a mechanism for the Contractor to seek an extension to that completion date due to delays (at the very least) caused by the Principal – this is often referred to as a claim for an “Extension of Time”.
Without an Extension of Time process (most critically in situations where the Principal has caused delay), the Principal may be seen as engaging in an act of prevention to which the “Prevention Principle” (or “Peak Principle”) applies. More specifically, in circumstances where the Principal “prevents” the Contractor from achieving a timely completion of the project, time under the Contract may be set “at large”, and the Contractor will no longer be bound by that completion date; instead, the Contractor will merely be required to complete the project within a “reasonable time”. For further discussion on the Prevention Principle, you may go to our article Liquidated Damages: Part 3 – A “Peak” into the Prevention Principle.
Put simply, where an event occurs which the Contractor could not have avoided (particularly where that event has been caused by the Principal), and that event has or will delay the Contractor in its completion of the works, the Contractor should be entitled to further time to complete that work.
Extension of Time Process
Each type of construction Contract (whether it is a standard form or bespoke) will contain different circumstances in which an Extension of Time (EOT) may be claimed, and a different process to follow when doing so. However, the EOT regime will typically specify:
- The circumstances in which an EOT may be claimed (including notification requirements, process for notifying / claiming an EOT, and generally strict timeframes for doing so);
- How it will be assessed (including the methodology for doing so);
- In what circumstances (and to what extent) an EOT may be granted;
- Any entitlement to costs where an EOT has been granted (where said costs may be a pre-determined liquidated amount, or as assessed by the Superintendent / Administrator); and
- The fate of an EOT claim which fails to comply with said regime (which, under some Contracts can result in a complete bar to entitlement).
In any event, it is in the parties’ interest to include a clear EOT process in their construction Contract as:
- It provides certainty to the parties as to the completion date, and any damages which flow from a failure to complete the works by that date;
- It provides certainty to the parties regarding the amount of costs payable to the Contractor where a Principal-caused delay has occurred (where a liquidated amount is specified in the Contract);
- It avoids complicated arguments for breach of Contract (by either party) related to the completion of works by the completion date;
- It provides a clear allocation of responsibility between the parties, based on the cause of the delay; and
- Consequently, it may avoid or minimise the likelihood of disputes.
The EOT process, requirements, obligations and entitlements (and the different circumstances in which an entitlement may arise and be assessed) will be further discussed in Part 2 of this Series.
The very nature of construction work means unforeseen or unanticipated events which necessitate a change in the scope or nature of the works required to be completed under a Contract, are inevitable. An addition or alteration to the scope or type of work under a construction Contract is often referred to as a “Variation”, and can be directed by the Superintendent / Administrator, or requested by a Contractor.
A clear process for claiming and granting Variations in a construction Contract is important, as it allows the party to alter the scope of works (which forms part of the Contract) without requiring a separate written agreement which formally varies the terms of the Contract (which would not be efficient).
A Variation directed by a Superintendent / Administrator will often be in writing (or required to be confirmed in writing), and may require the Contractor to:
- Increase, decrease or omit any part of the contracted work;
- Change the character or quality of any material or work;
- Change the levels, lines, positions or dimensions of any part of the contracted work;
- Execute additional works; or
- Demolish or remove material or work no longer required by the Principal.
These types of Variations may be directed where an inconsistency or ambiguity between Contract documents or scope of work has arisen, where part of the contracted works is no longer feasible in the manner required, or simply where the Principal has a change of mind regarding a certain part of the works. However, whatever the case, a Variation will often expressly be limited to being within the general nature of the contracted works – without such a limitation, directed Variations could effectively result in an entirely new Contract than the one which was bargained.
Conversely, a Variation requested by the Contractor is often done so for their “convenience”, which the Superintendent / Administrator may then approve or deny. A Variation for convenience is typically requested where, for example, a particular brand or piece of equipment (otherwise required under the Contract) is not available or has significantly increased in price, and the Contractor requests permission to vary their obligation accordingly.
Further, Variations which are directed by the Superintendent / Administrator may also entitle the Contractor to claim an EOT for the additional time required to undertake the works directed under the Variation, as well as costs associated with undertaking the directed Variation. However, a Contractor is less likely to be entitled to an EOT or associated costs where it has been granted (or directed) a Variation for its convenience.
The different types of Variations, requirements for directed or requested Variations, obligations and entitlements (and the different circumstances in which an entitlement may arise and be assessed), as well as different circumstances in which a Variation may arise, will be further discussed in Part 3 of this Series.
Lamont Project & Construction Lawyers
Our Team have the industry knowledge and experience to assist both Principals and Contractors in all major projects and payment disputes. If you would like to discuss any matters raised in the above article or the forthcoming series as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents 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 Lili Hoelscher
Phone: (07) 3248 8500
Address: Suite 1, Level 1, 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064