Who bears the brunt of time delays?
Employers can delay construction works in many different ways. For example, they may restrict access to parts of the site, instruct variations to the scope of the work or provide design or other information later than the contractor needs it. Any well drafted building contract will provide for the contractor to be granted an extension of time where employer action delays completion to avoid the draconian consequences of the prevention principle - explained below In Plain English.
However, as architects who act as contract administrators will know, sometimes a delay to the completion of the works is concurrently caused by more than one event. This is not a problem where either the contractor or the employer is responsible for both events – the contract administrator must not grant the contractor an extension of time in the former case and must grant it one in the latter.
But what if delay is concurrently caused by an event which would entitle the contractor to an extension of time (for example, the late provision of design information) and one which would not (for example, the need to remedy defective work)?
After considerable uncertainty over what a contract administrator should do in those circumstances, the answer from the courts became clear. Unless there is clear wording to the contrary in the building contract, the administrator should grant the contractor an extension for any period during which delay is being concurrently caused by an event which would entitle the contractor to an extension of time and one which would not.
However, what remained unclear until the recent case of North Midland Building Limited v Cyden Homes Limited, was whether or not a clause in a building contract which expressly states that the contractor will not be entitled to an extension of time where a period of delay is caused by an event for which it is responsible and an event for which the employer is responsible would be effective.
In this case, the contractor argued that a clause which made the contractor responsible for delay in these circumstances offends the prevention principle and so results in the contractor being allowed a reasonable period within which to complete the works and the employer being unable to claim liquidated damages.
The employer argued that the prevention principle did not apply because the contractor was being held liable for a delay which would have been incurred regardless of any acts of the employer.
The judge agreed with the employer and made it clear that it is a matter for the parties to decide how they allocate the risk of delays concurrently caused by one event for which the employer is responsible and one for which the contractor is responsible. It is not the role of the court to save a contractor from a bargain that it has freely chosen to make.
This decision is likely to lead to clauses of this nature being included in building contracts much more often. As a result, it is important that architects who act as contract administrators carefully review the extension of time clauses in contracts to ensure that they fully understand how they deal with problems associated with delay concurrently caused by events for which different parties are responsible. The financial consequences of extensions of time being wrongly granted can be substantial. Employers may be left with no alternative but to seek to recover from contract administrators any losses which they suffer as a result of extension of time provisions not being properly applied.
IN PLAIN ENGLISH: Prevention principle
Building contracts usually require the contractor to complete the works by a certain date and impose liquidated damages on the contractor if it completes the works late. The prevention principle provides that the employer cannot require the contractor to complete the works by the agreed date and claim liquidated damages for its failure to do so if acts of the employer have prevented the works from being completed by that date. Instead, the contractor’s obligation to complete the works by the agreed date is replaced by an obligation to complete the works within a reasonable time and the employer’s right to claim liquidated damages is replaced by a right to claim damages reflecting any actual losses it suffers as a result of any failure of the contractor to complete the works within a reasonable time. The prevention principle does not apply if the building contract provides for the contractor to be given an extension of time reflecting any delay caused by the employer.
A version of this article was published in RIBA Journal online on 1 November 2017.