Construction Contracts

&
Provision of Time Extension
BY
Dr C.S.Suryawanshi
B.E.(Civil).M.Tech.(Struc).M.E(Const/Man).
LL.M, D.B.M, Ph.D, F I.E., FICI, FIGS,
MIBC, MIRC, MIABSE, MISET
Former C.E.& J.S.(Mah. PWD)
Sr. Consultant
Mumbai

Synopsis
One often sees clauses in construction contracts that require the contractor to submit
details of any claim for additional time within a prescribed number of days of becoming
aware of the relevant event. The intention of such a provision is that, if the contractor
does not submit the required information within the relevant timescale, it will not be
entitled to the appropriate relief under the contract. But will the courts always uphold
such conditions?

General principles
First, some general observations. Any provision that seeks to bar a contractor’s
entitlement to relief will be construed contra proferentem (usually against the owner) and,
as such, must be clearly drafted. Secondly, a number of contracts contain an independent
right for the contract administrator to assess the extension of time, regardless of what
information has been put forward.
Finally, remember the ‘prevention principle’, namely that neither party shall do anything
to prevent the other from performing the contract. This was seen in application in Peak
Construction v McKinney where the Court of Appeal held that an owner’s right to
liquidated damages would be lost where there was no extension of time provision
covering the owner’s delay. In the absence of an extension of time in such circumstances,
the contractual completion date no longer applies and the contractor is then only obliged
to complete within a reasonable period, time then being said to be ‘at large’.

Delay Caused By Owner

In Gaymark Investments Pty v Walter Construction Group Ltd, the arbitrator found that
Gaymark was responsible for 77 days of delay caused to Walter Construction. Given the
failure by Walter Construction to comply with the notification requirements of the
contract’s extension of time clause, however, he found that Walter was not entitled to an
extension of time.
Because Gaymark had caused the delay and there was no mechanism by which to extend
the time for completion, the arbitrator therefore found that Walter Construction was only
obliged to complete the work within a reasonable time, thus preventing Gaymark from
recovering liquidated damages for delay. This decision was the upheld by the Court. It
should be noted that Gaymark had deleted a provision from the relevant Australian

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standard form which would have entitled the superintendent (or contract administrator) to
extend the time for practical completion, notwithstanding that the contractor had not
given the relevant notice.
The judge felt that, while it was possible that the contractor’s failure to comply with the
requirement for the provision of information might reasonably deny him the entitlement
to additional costs arising out of the delay caused by the owner, it was inequitable that the
contractor could be exposed to liquidated damages as a result. This would, of course,
mean that the owner was effectively being paid for delay that he had caused.

The Role Of The Contract Administrator

In Peninsula Balmain Pty Ltd v Abigroup Contractors, Peninsula had engaged a
superintendent under a separate project management agreement to act as its agent under
the construction contract with Abigroup. Under the contract, Abigroup was required to
notify Peninsula of any delay within prescribed time periods. Failure to do so would
mean that its claim was time barred. Separately, the contract also provided that, even
where the contractor did not have an entitlement to an extension of time, the
superintendent ‘may at any time and from time to time before the issue of the final
certificate by notice in writing to the contractor extend the time for practical completion
for any reason’. The case came before the New South Wales Court of Appeal. The delay
was found to have been caused by an act of Peninsula. The Court of Appeal considered
that it was mandatory for Abigroup to follow the procedure set out in the contract and
that it would lose an extension of time entitlement if it did not do so. The Court also
found that the power conferred upon the superintendent to grant an extension of time
of his own volition was to be exercised in the interests of both parties. Furthermore, the
superintendent was obliged to act honestly and impartially when deciding whether to
exercise this power. It was recognised that delay caused by the contractor in submitting
its application for an extension of time may, in some circumstances, be a ground upon
which the superintendent could fairly refuse the extension of time, although this was not
suggested to be so in this case. A number of contracts make provision for an independent
certifier who will award extensions of time under the contract. It has long been
recognised by the English courts that where a third party is to exercise its professional
skill in coming to a decision under the contract, then they will act in a fair and unbiased
manner in applying the terms of the contract. This was the decision of the House of Lords
in Sutcliffe v Thackrah. It is by no means certain, however, that the English courts would
decide that the power to award an extension was, effectively, an obligation as in
Peninsula Balmain. It should also be remembered that not all contracts which provide for
certification by a third party necessarily contemplate that the third party will be acting
independently, and therefore each contract needs to be looked at on its own merits on this
particular issue. Both these Australian decisions appear to stretch the wording of the
contract. In each case there was a contractual procedure for claiming an extension of
time and the contractor failed to comply. On first reading, this should be the end of the
matter but the courts appear to have been influenced by the fact that the delay was caused
by the owner.

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Engineers/Architect’s Instructions
Most recently, the Scottish court has heard an appeal in the case of City Inn v Shepherd
Construction Ltd. This case concerned the JCT 1980 standard form building contract
together with a number of bespoke amendments. Following issue of an architect’s
instruction, the architect had granted the contractor a four-week extension of time and
subsequently an adjudicator granted a further five weeks. The owner contended that the
contractor was not entitled to any extension of time because it had failed to comply with
one of the amendments to the JCT contract, namely that where any instruction would
require an adjustment to the contract sum or delay the completion date, the contractor
was required to submit to the architect within ten working days various information and
estimates so that the parties could endeavour to agree the entitlement. If the contractor
did not comply with these requirements, it would not be entitled to any extension of time
unless the architect dispensed with the requirement for compliance.
The effect of this, as with the Gaymark case, was that failure to give proper notice of
extension of time would first of all bar the contractor’s entitlement to an extension of
time and secondly cause a potential liability to pay liquidated damages should the
contractor fail to meet the completion date by reason of the instruction. In this case there
was no waiver by the architect of compliance with the provisions of the relevant clause.
The contractor claimed that the relevant clause was a penalty clause.
At first instance, Lord Macfadyen found that the failure of the contractor to give the
appropriate notice was a breach of contract and had deprived the owner of the
opportunity to consider the contractor’s opinion of the consequences of the instruction. If
not complied with, the clause had the effect of preserving the employer’s right to
liquidated damages for delay that would otherwise have been lost by an extension of time.
The liquidated damages therefore remained payable by the contractor where there was a
consequent delay in completion and could not be considered as a penalty simply because
the contractor failed to take the steps available to it.
On appeal, the Inner House of the Court of Session broadly agreed with Lord Macfadyen,
save that it pointed out that the contractor was not actually in breach of contract in failing
to give notice of any delay to the completion date that might arise out of the instruction.
The court found that the relevant clause actually gave the contractor an additional right
but did not oblige the contractor to invoke its protection. If the contractor failed to take
any action at the appropriate time, the ultimate effect of this failure might be that he was
unable to complete the works, as varied by the instruction, by the completion date, but
this would not be caused by a breach of the clause requiring additional information.
Instead it would be a result of failure to complete the works in accordance with the
completion date.

Conclusion
Although the facts of each of these cases are different, the issue is broadly the same and
is whether failure to comply with requirements for claiming an extension of time should
debar the contractor from its entitlement where the actual delay was caused by an act or
omission of the contractor. The approaches taken by the Australian and the Scottish
courts certainly conflict. The position in the City Inn case can perhaps be distinguished
on the grounds that the owner may have chosen not to proceed with the instruction if it
had been aware that it would have caused delay to the contractor.

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The position under English law remains to be tested, but both owners and contractors
need to think very carefully about the drafting of conditions precedent to an extension of
time claim and consider whether it is prudent to require the contractor to give notice
within a specified time period in order to qualify for an extension of time. If the provision
is not effective, the owner may lose his right to liquidated damages.