Extension of Time in Construction Contracts

According to Palles-Clarke (2006) in nine out of ten projects, both parties to a contract work together to solve problems related to project delays as they arise. Some projects however do not proceed as efficiently and consequently disputes arise. In such cases, the parties will look to the contract.

The majority of standard form construction contracts enable the contract administrator to grant extensions of time for completion of the work where delay occurs due to certain specified causes. Such provision should be of benefit to both parties to the contract.

Standard forms and bespoke construction contracts would contain extension of time clauses setting out the criteria on how extensions of time will be awarded. The JCT makes no reference to calculating an extension of time on the basis of actual delay to completion however clause 25 of the JCT Standard Form includes an extension of time provision which sets out a series of ‘relevant events’ that may give rise to an extension of time to the contractor if it is considered by the architect to have delayed the works beyond the existing completion date. The architect should ensure to make a fair and reasonable assessment of what this might be as in the recent case City Inn Ltd v Shepherd Construction Ltd (2007). The effect of the clause is to protect the employer’s right to liquidated damages for any remaining (contractor) delays. It can therefore be said that the principal benefit of extension of time clauses is to the employer. This is because the absence of extension of time provisions can have the effect of preventing the employer’s entitlement to liquidated damages in cases where the delay, or even a small part of it, is due to some prevention or default of the employer or his or her agents, or any other matter for which the employer would be responsible.

Provision of extension of time clauses in the contract is also beneficial to the contractor. Where a contractor is not at fault or only partly to blame for the delay the contractor will benefit because the effect of the provision, if operated, would be to reduce or avoid liability to pay liquidated or unliquidated damages in the event of the delay in question. This would be true in cases where the disputes concern concurrent delays and when the completion date becomes ‘at large’.

Final accounts in dispute often feature resolving a contractor’s entitlement to an extension of time especially when several events have influenced a delay. Inherent in the mechanisms involved in clause 25 of the JCT is the consideration of whether any notified relevant event is acting concurrently with delay resulting from other events. A project overrun due to two or more effective causes of delay which have approximately equal contributory influences is denoted by a concurrent delay. Each concurrent cause of delay could have an equal delaying effect or alternatively could have significantly unequal effects. If a contractor seeks to rely on late instructions as entitlement for extension of time and at the same relevant time the contractor is also delayed by events for which it is responsible, the architect or contract administrator will need to satisfy himself that the delay caused by the late instruction was the dominant delay in order to award an extension time.

Henry Boot Construction Ltd v Malmaison Hotel Ltd (1999) held that in assessing a claim for an extension of time, the architect or contract administrator is entitled to take into account matters which he considers to have delayed the works but are not relevant events. He would be entitled to consider the contractor responsible for concurrent delays when establishing whether or not a relevant event has in fact caused a delay. The question for consideration by the architect or contract administrator when there are competing causes of delay, where one of which is a relevant event and the other is not, is which cause had been the dominant cause of delay. The courts also commented that where those competing causes were of equal causes then should the architect or contract administrator consider it fair and reasonable to do so he would be required to grant an extension of time. Extension of time clauses in the contract in this context therefore assures that the contractor would not bear sole liability for delays which have been brought upon by himself and the employer.

Another potential relief on the contractor’s part is that if, for reasons within the employer’s control, the contractor is prevented from completing by the completion date and there is no right to extend time for performance (or it has not been properly extended) the employer can no longer insist upon the completion date as in Peak Construction v McKinney Foundations (1970). It is then left without a firm date from which liquidated damages might be calculated. Time is then said to be ‘at large’ as a result based on the following factors:

Rule of law. The broad notion of justice is that a man should not be allowed to recover damages for what he himself has caused (Gaymark Investments v Walter Construction (1999)) nor rely on his own faults (Manchester and District Housing Association v Fearnley Construction Ltd and Another (2000)).

As an implied term, which on a matter of fairness or policy could be construed contra proferentem as in Aqua Design and Play International Ltd and Fenlock Hansen Limited v Kier Regional Ltd (2001).

The expression ‘time at large’ is therefore usually used to indicate that the claimant believes that, for one reason or another, there is no enforceable date for completion of the works. And because there would then be no date from which they can be calculated, the employer’s right to liquidated damages should be overwhelmed. In Wells v Army & Navy Co-operative Society (1992) it was held that if time has become at large because of some act or default of the employer, there will be no date from which the liquidated damages can run and therefore right to claim them will have gone. If that argument succeeds, the contractor’s obligation would be then be to complete within a reasonable time. If it does not then the employer may recover its losses as general damages at common law. The only link contractually therefore is the implied term as mentioned above; should there have been a specific clause on how to deliberate an extension of time grant when time was at large then the contractor would have had something direct and contractual to depend on, and not just case laws. A recent case on the concept of ‘time at large’ is Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (2007). Here Jackson J had expressed disagreement with the Gaymark principle and in the end a settlement had been agreed which then unfortunately had not had the effect of setting time at large under subcontracts.

Extension of time clauses in a contract are then perceptibly usually interpreted alongside case laws during disputes. Another contract provision related to extension of time which had needed clarification from the courts was the establishment of the revised completion date not always being the same as the date of practical completion. In Balfour Beatty Building v Chestermount Properties (1993) it was held that the revised completion date was to be established by reference to the aggregate total number of working days, starting from the date of possession, within which the contractor ought fairly and reasonably to have completed the works.

Assessment of Loss due to Delays

One of the primary purposes of extension of time clauses in contracts is to preserve the effectiveness of the liquidated damages provisions for the benefit of the employer. Liquidated damages are a reasonable pre-estimate of the losses the employer is likely to incur if work is completed late. Such sums are enforceable if the contractor completes late due to his own default.

The basic essence of liquidated damages is that they represent a genuine pre-assessment of the likely loss that will flow from the breach of contract in question. Its aim is to place the innocent party in the position he would have occupied had the contract been performed without a breach. The primary purpose of damages is to put the claimant, so far as money can do it, in the position he would have been in if the contract had been performed, or performed properly as in Robinson v Harman (1848). Both parties then enter into the contract in full awareness of their monetary rights and liabilities in the event of a breach. When the breach occurs, the claimant can then recover his loss from the defendant without time-consuming litigations.

Clause 24 of the JCT includes the liquidated damages provision which serves the interest of both the contractor and the employer. Liquidated damages enable the contractor to ascertain in advance his liability to the employer for late completion and in doing so assist him to calculate whether, in commercial terms, it would be worth making an extra effort to avoid late completion. The liquidated damages provision would also provide the employer the security of receiving immediate payment in the event of a delay owing to the contractor, and also serve as an incentive to the contractor to finish in time.

It is also important to note in the application of Clause 26 of the JCT the realm of global claims under the loss and expense provisions. In City Inn Ltd v Shepherd Construction Ltd (2007) the judge defined a global claim as a claim that fails to show cause and effect as between the events causing the delays and the loss and expense as a consequence of those delays. It was also held in John Doyle Construction v Laing Management (2002) that if a global claim fails, it fails in its entirety and there is no apportionment available unless the contractor can extract a factor for loss for which it can verify cause and effect. It would therefore appear that whereas apportionment was allowed for concurrent delays, it was not to be endorsed for the costs associated with those delays, where the contractor would have to strictly prove cause and effect. A leading case recently is John Barker Construction Ltd v London Portman Hotel Ltd (2004) where it was held that even if the global claim failed (because some of the events were caused by the contractor rather than the employer), that did not mean that no claim whatsoever could succeed as there may be sufficient evidence of cause and effect to allow the court to find that certain losses are no longer to be classified as part of a global claim.

Consideration of the parties’ rights to float may also be measured as related to extension of time. The float should be neutral between the various defaulting parties as in Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (1999). If the float is exceeded and a project is therefore delivered late, the defaulting parties will all be responsible for the costs or damages associated with that delay.

Conclusion

The purpose of an extension of time clause in the contract is to preserve liquidated damages and prevent the contract from being frustrated. The main beneficiary of the extension of time clause is the employer. Therefore the liquidated damages provision will cease to have effect if the delay, or even a part of it, is the result of some act or default of the employer as liquidated damages and extension of time clauses in printed forms of contract must be constructed strictly contra proferentem.

A successful claim for extension of time would not necessarily give way to a successful claim for loss and expense. The provisions in clause 26 have been written and presented separately and differently from that of clause 25 and should therefore be considered and applied that way.

A contract that contains no provision relating to extension of time would therefore have no mechanism for adjusting the completion date if delays affect completion caused by the employer and the employer lose his right to deduct liquidated damages in the event of further delay through the fault of the contractor. Inclusion of such provisions however does not guarantee a straightforward deliberation on when extensions of time are valid as the architect or contract administrator would still need to determine what is fair and reasonable for such grants, and as with most contract provisions some extension of time clauses are still open to interpretation, therefore the importance of case laws to provide direction as in the crucial point of clarification in Balfour Beatty Building v Chestermount Properties (1993).

ANSWER TO QUESTION 2a, 2b, 2c (Total number of words used: 678)

Before the architect or contract administrator can grant an extension of time under JCT 05, he needs to be satisfied that not only that a relevant event has occurred but also that it is likely to cause the completion of the works as a whole to be delayed (The Royal Brompton Hospital v Frederick Alexander Hammond and others (2000)).

Project is on target programme when a relevant event causing 10 weeks of delay occurs.

Assuming that the contractor has reported to the employer his target programme of 68 weeks, the 10 weeks delay on the target programme of 68 weeks essentially causes only 8 weeks delay on the actual contract period of 70 weeks. An extension of time of 8 weeks should therefore be granted to the contractor as the cause of the delay is a relevant event. The contractor would not be able to claim for the full 10 weeks as in Kitsons Sheet Metal Ltd v Matthew Hall Mechanical and Electrical Engineers Ltd (1989) where it was held that where a contractor has been told of the programme to which he is to work, an instruction changing that programme will not generally constitute a variation. This is because the contractor is not entitled to work to a programme and programmes are usually not to be regarded as contractual documents.

Project is on target programme when a relevant event causing two weeks of delay occurs at the same time as an error on the part of the contractor which also causes two weeks’ delay.

With numerous approaches available in dealing with concurrent delays there seems to be only one consistent rule which applies and that is in the event of a delay being caused by the employer no deduction of liquidated damages is allowable irrespective of what other cause is contributing to the overall delay. Such approaches are apportionment, the ‘but for’ test, dominant cause approach and most recently the Malmaison case, where the court’s guidance had proven to be more of a circular argument rather than a clear acknowledgment. However further guidance had been provided in The Royal Brompton Hospital v Frederick Alexander Hammond and others (2000) where Judge Seymour noted that two conditions should be met before an extension of time can be granted:

that the relevant event has occurred

that that relevant event is likely to cause the completion of the works as a whole to be delayed beyond the completion date then fixed under the contract

In this case therefore, where the relevant event causing 2 weeks delay on the target programme changes the completion period into 70 weeks which is the contract period, no extension of time should be granted even if the delay is partly due to a relevant event.

Project is scheduled to finish in Week 80 owing solely to the contractor’s own errors. The project is in Week 73 when a relevant event causing four weeks’ delay occurs.

In order to establish that an event has or will cause delay to the completion date it is necessary to establish that the event was on or will be on the critical path of the work as in Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik (2002). In the case, if the 4 weeks delay due to the relevant event did not fall in the critical path then the dominant cause approach can be further applied where it will be a matter of choosing the dominant or predominant delay where more than one delay is responsible for late completion. In H Fairweather and Co Ltd v London Borough of Wandsworth (1987) the use of the dominant cause approach had been rejected by the court where they held that an architect ‘has the task of allocating where the facts require it the extension of time to the various heads’. Recent cases however do not seem to be influenced by this as proven by John Doyle Ltd v Laing Management (Scotland) Ltd (2004) where the court stated that ‘it is frequently possible to say that an item of loss has been caused by a particular event notwithstanding that other events for which the employer is responsible can be described as the dominant cause of an item of loss, that will be sufficient to establish liability notwithstanding the existence of other causes that are to some degree at least concurrent’. An extension of time therefore should not be granted to the contractor on the grounds that the 4 weeks delay due to the relevant event will not add to the already determined length of dominant delay caused by the contractor.

However if the 4 weeks delay due to the relevant event fell in the critical path then the programme would now be set to complete at week 84 and an extension of time should be granted to the contractor for those 4 weeks as an application of clause 25 of the JCT, with a 10 week penalty for the contractor.

ANSWER TO QUESTION 2d (Total number of words used: 731)

Failure to comply with the obligations stipulated in a contract can include defects to drawings or specifications along with any implied terms related to design, quality of workmanship or performance. The employer can claim damages due to these defects on the grounds of breach of contract.

Defects can be patent or latent, and can occur either during or shortly after construction. Under most of the building contracts (including JCT) a defect liability period begins when the Certificate of Practical Completion is issued and usually comes to an end after 6-12 months when the Architect issues the Certificate of Making Good Defects. During this period any defects due to the negligent work of the contractor have to be corrected at the cost of the contractor as held in Pearce & High v John P Baxter & Mrs A Baxter (1999). For latent defects an employer would be able to sue the contractor within specified limitation periods. Within the limitation period, an employer can sue in contract, in tort or both. Different limitation considerations apply to claims in tort due to the involvement of statute law and progression of case laws.

The Limitation Act 1980 provides that an action must be brought within six years of the date on which the cause of action grew for actions founded on simple contract and within twelve years for contracts by deed. The statutory limitation period runs from the date of breach of contract which can be earlier than the date of issue of the practical completion certificate. Limitation in tort (six years except for personal injury claims) starts to run from the accrual of a cause of action, that is, when the damage is suffered (CEM, 2010). In Pirelli General Cable Works Limited v Oscar Faber & Partners (1983) the court decided that the limitation period ran from the date of the damage, similar to Western Challenge Housing Association Limited v Percy Thomas Partnership and Others (1995). In both cases the claimants were unaware of the defective works until it was too late to claim.

Following these cases Section 14A of the Limitation Act 1980 has been modified, and the claimant has three years to bring an action for damages “in respect of the relevant defect, from the date when he had the knowledge required for bringing an action". Section 14A applies to claims in tort, which was applied in the cases Iron Trades Mutual Insurance Company Limited v K Buckenham Limited (1990) and Societe Commercial de Reassurance v ERAS (International) Limited (1992).

Section 32 of the Limitation Act 1980 states that for there to be intentional concealment, there has to be the "deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time". It also states that where there has been fraud, concealment or mistake the limitation period can be extended. In British Steel Plc v Wyvern Structures Limited (1996) it was found insufficient to prove that incompetent work had been covered up. This application of deliberate concealment had also been previously agreed by the courts in William Hill Organisation v Bernard Sunley & Sons (1982). Another example of this approach is Sheldon and Others v RHM Outhwaite Ltd and Others (1995) where it was held that the limitation period does not start against the claimant until he has discovered the concealment even when the concealment took place after the expiry of the limitation period. In Cave v Robinson Jarvis & Rolf (2002) it was decided that a breach of duty cannot push back the limitation period unless the party concerned is aware that what he is doing is in breach of duty; postponement of the limitation period according to Section 32 would therefore not apply.

As for when the limitation period commences, there is no common starting point in construction cases. As observed in the development of case laws it can be when the contract was breached, when the works were completed, when the damage occurred or when the claimant discovered the damage. It would be also difficult to pinpoint exactly when the designer may have fallen into an error, therefore the need for considering practical completion as the date from which at least some of the time limits start to run. This clarification on timeline can be observed in the cases of News Islington and Hackney Housing Association v Pollard Thomas and Edwards (2001) where an architect has to ensure that a project has indeed reached practical completion, and Tesco Stores v Costain Construction (2003) where the judge found that a simple contract started when the letter of intent had been signed by all parties.

It can be therefore concluded that the issuance of the final certificate from the architect may mean the end of liability in contract, but liability in tort would still be present. Claims in tort could only be for putting the work right and not for economic loss. A designer is under a continuing duty to review the designs and to resolve any known faults in the construction up to the date of the practical completion, and may even be up to the date of actual date of completion as in University Court of Glasgow v William Whitfield and John Laing Ltd (1988).

BIBLIOGRAPHY AND LIST OF REFERENCES

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