July 24, 2023
Time & Cost: Part 2 – Extensions of Time
“Expect Delays” is what all Principals and Contractors should be considering when negotiating construction contracts in 2023, as delays to projects due to unavailability of labour and materials become the norm.
Understanding your contractual obligations and entitlements to claiming time and costs for delays on a construction project, is more apparent than ever. To assist, this article provides a refresher on the types of delay, entitlement to claim for delays, and the impact of Extension of Times on completion of a Project.
Types of Delay
Where a Contractor is delayed by certain events (as agreed between the parties and expressly provided for in the contract), it may be entitled to an Extension of Time (EOT) under its construction contract in respect of that delay.
The first hurdle in understanding an entitlement to claim for an EOT, is understanding what type of delay is being experienced.
Qualifying Cause of Delay
A type of delay event which entitles a Contractor to an EOT is often referred to as a “qualifying cause of delay”, and typically includes:
- Delays caused by the Principal (and its officers), which may include delays caused by a failure to provide access to Site, directing Variations (as will be discussed in Part 3 of this Series), and a failure to issue drawings or to complete some other contractual obligation. As discussed in Part 1 of this series, this is required to avoid the application of the “Prevention Principle”;
- Delays caused by the Superintendent / Administrator; and
- Other types of delay as agreed between the parties during the contract negotiation, which will likely include “neutral” delays (being delays which neither party has directly caused or is responsible for) such as extreme weather, force majeure events, changes in legislative requirements, industrial conditions, and most recently, impacts associated with COVID19 (including Government-mandated lockdowns and isolation periods).
Most often, a Contractor will have no entitlement to a delay which it has caused or contributed to, and these types of delay will likely not constitute a “qualifying cause of delay”.
As these types of delay will entitle a Contractor to claim an EOT, the definition of a “qualifying cause of delay” is often a key point of contention during contract negotiations.
To avoid subsequent disputes on what constitutes a “qualifying cause of delay”, the types of delaying events for which the Principal will be responsible for (and a Contractor will be entitled to claim for) should be clearly and comprehensively specified in the terms of the contract, including those “neutral” delays – a simple contractual statement that “delays other than as caused by the Contractor” is largely open for interpretation and may result in unintended entitlement to the Contractor, and greater disputes between the parties.
Concurrent Delays
A concurrent delay is where two (or more) delays to the completion of the works are overlapping. How concurrent delays will be dealt with (including where one delay may entitle a Contractor to an EOT and the other may not) will depend on the nature and wording of the contract. For further discussion on Concurrent Delays, you may go to our article What Does the Contract Say? Part 1 – Concurrent Delay.
Entitlement to Claim
Each type of construction contract (whether it is a standard form or bespoke) will contain different circumstances in which an EOT may be claimed, and a different process to follow when doing so.
In order to claim relief though an EOT, a Contractor is usually required to strictly comply with the contractual process. In some instances, an absence of strict compliance can strip a Contractor of its entitlement all together.
Delay to Progress or Delay to Completion
Where a “qualifying cause of delay” has occurred and the Contractor appears to have an entitlement to claim an EOT, the wording of the EOT clause must be carefully considered in determining whether the Contractor actually has an entitlement to claim.
Some contracts will specify that an EOT may only be awarded where the “qualifying cause of delay” will delay the achievement of Practical Completion by the specified completion date. In this instance, the Contractor will be required to demonstrate that Practical Completion will be delayed beyond that date, before it will be entitled to an extension. If it cannot (and whilst the delay still occurs, but merely only delays the progression of the works, and not the achievement of Practical Completion by the specified date), the Contractor may have nil entitlement to an EOT under the contract.
For example, where a clause states: “the Contractor will be entitled to an Extension of time to the extent it is delayed in achieving Practical Completion by the Date for Practical Completion by a qualifying cause of delay”, the presence of the underlined words will preclude the Contractor from claiming an EOT for a delay which merely delays an aspect of the works.
Contractual Process
Where a Contractor is entitled to claim an EOT, it will typically be responsible for that delay unless it has notified the Principal (or Superintendent / Administrator) in strict compliance with the contractual process. This often includes a specified timeframe in which the Contractor must notify the Principal of a delay (or potential delay), and in which it must submit is claim for an EOT – failure to comply with these timeframes may bar the Contractor completely from claiming (or being granted) an EOT.
When negotiating your contract, it is crucial to consider the viability of the time-bar related provisions, including the timeframes for notifying delays.
In addition to the strict time requirements, the contractual process may also require an EOT claim to be submitted in a specified form, and include specific information – this may include: a reference to the clause which it is claimed under, a detailed account of the delay event, when the delay commenced and the duration of the delay, an impacted Program showing the delay, and steps taken to mitigate or minimise the impact of the delay on the Project.
Payment
For some types of delay events, a Contractor may also be entitled to claim delay costs as compensation for the EOT which has been granted. This is often referred to as an entitlement to “time and cost” – additional time for the completion of a Project, and additional costs payable to correspond with that time.
Costs associated with an EOT are meant to compensate the Contractor for costs which it is required to expend to undertake works for a longer period than originally programmed (for example, costs associated with retaining labour and equipment on site longer than originally anticipated). These delay costs may be in the form of a pre-determined day rate, or it may be as assessed by the Superintendent / Administrator. However, in some instances, when determining whether a Contractor has an entitlement to delay costs, the Superintendent / Administrator may consider whether the Contractor has taken reasonable steps to minimise or mitigate the effect of the delay.
In the same way a contract should clearly outline the “qualifying causes of delay”, it should also clearly specify the events and amounts for which the Contractor may be entitled to be compensated for.
A Contractor will most often only be entitled to delay costs where it has been granted an EOT for a Principal-caused delay. Where an EOT has been granted for a “neutral” event, a Contractor may only be entitled to what is often referred to as “time only” or “time and no costs”, meaning it will be entitled to an EOT without corresponding delay costs.
Importantly, delay costs associated with an EOT are different and distinct from costs associated with, for example, the costs of undertaking the Variation for which the EOT was granted. In this instance, it is possible that the Contractor will receive Variation costs, as well as delay costs associated for the EOT granted because of the Variation.
Completion
The ability to claim (and grant) an EOT is beneficial for both parties. It assists the Contractor in maintaining its obligation to complete the works by the completion date, by providing it with additional time where an event outside its control arises which causes delay to the works.
Simultaneously, it also ensures the Principal’s entitlement to Liquidated Damages remains live – as outlined in Part 1 of this series, if there is no mechanism for an extension to the completion date, the Principal runs the risk that the “Prevention Principle” may come into play, setting time “at large”; meaning a Principal may ultimately lose its right to claim Liquidated Damages for late completion of a project. If a Contractor is delayed in completion of the Works by the specified completion date (and was either not entitled to an EOT, or lost its entitlement to an EOT), it will likely be required to pay Liquidated Damages to the Principal for each day (or week / other specified duration) after the completion date, until the Contractor achieves completion for the works. For further discussion on the Liquidated Damages, you may go to our article Liquidated Damages: Part 1 – No Double Dipping.
Lamont Project & Construction Lawyers
Our Team have the industry knowledge and experience to assist both Principals and Contractors in all major projects and disputes. If you would like to discuss any matters raised in the above article or this 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
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