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Extension of time in construction contracts


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A review of the concept of extension of time for construction contracts, including why it is beneficial for employers to grant extensions. Includes a look at alternatives to extension, by way of acceleration of works.

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Extension of time in construction contracts

  1. 1. Extension of time in Construction Contracts
  2. 2. Over-riding principles ● Employer must fully co-operate with contractor ● Employer cannot hinder the works of the contractor ○ Luxor (Eastbourne) Ltd v Cooper ○ William Cory & Sons Ltd v City of London Corporation ● Failing which, employer cannot insist on strict completion date ○ Percy Bilton Ltd v Greater London Council
  3. 3. Importance of time ● Absolute obligation of contract to strictly complete works on time ○ Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board ○ Percy Bilton v Greater London Council ● Contractor’s time obligation is waived if there are delays caused by employer or neutral events
  4. 4. What happens if there are delays? ● Two options are available to employer if it has caused any delay ○ Extend time ○ Instruct for acceleration of works ● Neutral events can also cause delays, eg events of force majeure
  5. 5. Why should employers extend time? ● If delay caused by employer and employer does not extend time… ○ Time becomes at large ○ Contractor only required to complete within reasonable time, not contracted time ○ What is reasonable depends on the circumstances ■ Hick v Raymond & Reid ○ LAD is no longer applicable ■ Holme v Guppy ■ Roberts v Bury Improvement Commissioners ○ But contractor can be liable for general damages for not completing within reasonable time ■ Lian Soon Construction Pte Ltd v Guan Qian Realty Pte Ltd
  6. 6. Limits to extension of time ● Time CANNOT be extended: ○ Unless permitted by the contract and strictly on its terms (Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd) ○ By the employer for its own benefit if not permitted by contract (Dodd v Churton) ○ By the contractor for any event not expressly set out in the contract (Murdoch v Luckie) ○ Unless there is strict compliance to the procedures and pre- conditions in the contract
  7. 7. What if the contract is not clear? ● The specific words of the contract are important because it determines the power of the contract administrator to extend time (Wells v Army & Navy Co- operative Society Ltd) ● In the absence of clear words to the contrary, extension of time should be granted only for events which are likely or would actually cause a delay in completion, not for events which merely disrupt the works (Syarikat Tan Kim Beng & Rakan-Rakan v Pulai Jaya Sdn Bhd) ● If in doubt, the provisions of the contract will be read in favour of the contractor by reason of contra proferentum rule (Miller v London County Council)
  8. 8. Procedure for Extension ● Procedure is always set out in contract and must be complied strictly ● Usually it includes: ○ Contractor to notify of delay ○ Contractor to apply for extension of time ○ Contract administrator assesses application ○ Contract administrator extends time if appropriate ● It is always the Contractor who must prove the need for extension of time with the support of documents
  9. 9. What if Contractor Fails to Comply with Contract Procedures? ● Depends on whether procedures are directory or mandatory ● If mandatory, his application for extension of time can be denied ● If directory, his application can still be allowed but for a lesser time extension ○ Syarikat Tan Kim Beng & Rakan-Rakan v Pulai Jaya Sdn Bhd
  10. 10. The role of the contract administrator ● Contract administrator must decide on an extension of time application based on: ○ Whether contract allows extension ○ Whether circumstances reasonable for extension ● In deciding, administrator must: ○ act fairly, reasonably and impartially, otherwise his decision may be invalidated and he may even be sued ■ Holland Hannen & Cubitts (Northern) Ltd v Welsh Health Technical Services Organisation ○ Apply the provisions of the contract ■ John Barker Construction Ltd v London Portman Hotel Ltd
  11. 11. Communicating the administrator’s decision ● Administrator must communicate his decision within the contractual time (or within a reasonable time if no contractual time), otherwise extension can be deemed approved ○ Lion Engineering Sdn Bhd v Pauchuan Development Sdn Bhd ● Usually decision conveyed by way of a certificate for extension of time
  12. 12. Challenging the certificate for extension of time ● Certificate for extension of time can be invalidated ● Usually it will not be invalidated unless there is: ○ Disregard for the contract ○ Evidence of fraud, collusion or similar wrong doing ■ Lubenham Fidelities Investment Co Ltd v South Pembrokeshire District Council
  13. 13. Examples of grounds for challenging extension of time certificate ● Certificate not given on time ● Certificate not in the correct format ● Certificate issued by unauthorised person ● Addressee of certificate not named ● Decision to extend time improperly delegated ● Certificate not given fairly ● Contractual procedures not followed
  14. 14. When to grant extension of time? ● EOTs are usually made prospectively ● Whether EOT can be granted retrospectively (ie after completion) depends on the terms of the contract ● If contract is unclear, it will be read to benefit the contractor (Amalgamated Building Contractors Ltd v Waltham Holy Cross UDC) ● Courts are strict to grant EOT to favour an employer, for example to reduce LAD (Balfour Beatty Building Ltd v Chestermount Properties Ltd) ● Retrospective EOTs are allowed if it can only be reasonably done under the circumstances (eg actual effect of intervening event on time cannot be evaluated until after completion) (Engineering Construction Pte Ltd v AG)
  15. 15. Concurrent delays ● Concurrent delays happen when two or more causes of delay overlap in time ● There are different approaches to deal with concurrent delays ○ Approach One: What is the dominant cause? (used in Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd) ○ Approach Two: The “but-for” approach (used in Quinn v Burch Bros (Builders) Ltd) ○ Approach Three: The apportionment/allocation approach (used in Tennant Radian Heat v Warrington Development Corporation) ● Which approach to be applied very much depends on the facts and the judge of each case
  16. 16. Multiple extensions ● Should ideally be handled separately ● Otherwise, if administrator elects to process multiple applications for EOTs “one-go”, there may be risk of time being made at large due to failure to adequately consider any one application
  17. 17. Effect of Omissions on Time Extensions ● Contract administrator cannot reduce contract period or even previously extended period even if there is any omission. The contractor cannot be compelled to complete the contract earlier than agreed (Glenlion Construction Ltd v The Guinness Trust) ● However, contract administrator can take into account omissions when deciding on extension of time applications, provided the net effect is that the completion date is not earlier than the one previously fixed
  18. 18. Extension when contractor is also culpable ● If contractor has delayed, but at the same time employer has committed some act of prevention, contractor is entitled to extension of time for net delay (Balfour Beatty Building Ltd v Chestermount Properties Ltd; Amalgamated Building Contractors Ltd v Waltham Holy Cross) ● However, if there was delay caused by neutral event, contractor who has delayed will only be entitled to extension if he can prove that the neutral event would have caused a delay even without his own delay ● However, some cases decided that a contractor who is culpable for delay is not entitled to extension for neutral events (Balfour Beatty Building Ltd v Chestermount Properties Ltd)
  19. 19. Reviewing extensions that are already granted ● Generally, this is not allowed ● However, can happen if allowed by the contract ● Any review is entirely the contract administrator’s discretion. He cannot be compelled or mandated to do so (Temloc Ltd v Errill Properties Ltd) ● After review, the administrator can confirm the completion period or fix a period that is later than the previous one, but not earlier ● Delay and extension of time for nominated subcontractors ○ Extensions of time sought by nominated subcontractors would usually be facilitated by the contractors ○ It is still the contract administrator who makes the decision on any application for extensions of time
  20. 20. Compensation following grant of time extension ● If an EOT is granted to the contractor, it does NOT mean that the contractor is entitled to claim loss or expense ● Time entitlement and issue of compensation are separate issues governed by different provisions of the contract
  21. 21. Acceleration of works ● Types and basis ○ Acceleration involves contractor taking deliberate steps to step up pace of works to catch up on delay or reduce time period for completion ○ Generally encompasses re-programming of work and employment of more resources ○ Acceleration can be “contractor initiated” or “instructed by contract administrator” ○ Contractor may accelerate works to redress any delay for which he is culpable, and he won’t be entitled to any costs
  22. 22. ○ Contractor who is not in culpable delay may accelerate works “constructively”, ie without any danger of delay/LAD being imposed ■ Firstly, when administrator fails to give decision on contractor’s application for EOT ■ When administrator disputes contractor’s entitlement to EOT and it is unclear at that point in time whether the administrator’s decision is valid ○ For constructive acceleration, contractor is entitled to claim for loss and expense if it is later established that contractor’s application for EOT was valid ○ For acceleration that is directed by administrator, this can only happen if the contract allows for it or by mutual agreement
  23. 23. ○ Administrator cannot accelerate works without contractor’s consent without express power to do so ○ Usually the contract will allow the administrator to accelerate works where: ■ The administrator is of the view the contractor won’t be able to meet the deadline ■ The contractor is entitled to EOT but administrator wants to maintain the original completion period
  24. 24. ● Acceleration in lieu of extension ○ It is becoming more commonplace for acceleration to be instructed in lieu of extension of time ○ If acceleration fails, then there may be a limited extension of time granted for the residual works ○ This requires either express provision in the contract or mutual agreement