DELAY OF WORKS:

Implication for Non-Completion, Liquidated

Ascertained Damages and Extension of Time
Dr. Naqiyatul Amirah binti Mohd Said, PVQS
 LECTURE OUTLINE: WEEK 10

Liquidated
Ascertained
1 Damages

Implication for 2
non-completion

3
Extension of
Time
Completion of Work
 What are the Contractor’s
main roles?

To complete the works and hand over

within the contract period.

Contract period = Date of Completion

Is there any necessity to specify the

Date of Completion in the Contract?
 Date of Completion
It is not necessary for a building contract to specify
Murdoch and Hughes (2008)
the Date of Completion.
If contract does not specify the date, then the Contractor will have an implied
obligation to complete the work within reasonable time.
It is not really good to rely on such “reasonable time” obligation.
HOWEVER, The client need some form of confidence as to the completion
date.

In project management book, clients want certainty as to time, cost and quality.

Without any specific completion date, there can be no provision for Liquidated and
Ascertained Damages as time is considered at large situation.
It is very common to state the date by which the completion is required. In PWD 203A
and PAM 2018, the date of completion is inserted in the Appendix Section.
 Date of Completion
There is no requirement for Contractors to state the completion date when tendering
for the works.

Instead, they are required to insert the construction period in the tender form.

The date for completion is then calculated by the Contract Administrator from the date
of Site Possession stated in the Letter of Acceptance.
Extension of Time
When time overruns and the employer allows the contractor to continue
without asserting that time is of the essence, then:

The time for completion becomes at large,

The Contractor’s duty is to complete the work within reasonable time,

The liquidated and ascertained damages clause becomes

inoperative; and

The Employer is only entitled to claim unliquidated damages.

CONTRACTUAL PROVISION

PWD 203A – Clause 43

Clause 43.1: Procedure

Clause 43.1 (a) – (j): Relevant Events

Provision – delays cause by NSC etc.

Provision - mitigation

Provision – Instructions to Remedy

Contractor’s default
CONTRACTUAL PROVISION

PWD 2018 – Clause 23

Clause 23.1 Clause 23.2 Clause 23.3
Procedure Delays caused by NSC Insufficient Information

Clause 23.4 Clause 23.5 Clause 23.6

Certificate of EOT Other considerations Mitigation

Clause 23.7 Clause 23.8(a) – (x) Clause 23.9

Notice to NSC Relevant events EOT after CPNC

Clause 23.10
Architect’s power to review
 What happened if there are delay?

Extend the time completion

There are two

options available
to Employer:
Instruct for acceleration of works
 Why should Employers extend time?

If delay caused by Employer and Employer does not extend the time, time
becomes at large.

Contractor only required to complete within reasonable time, not contracted time.

But contractor can be liable for general damages for not completing within
reasonable time.
 Definition of Extension of Time

“Is a time which reimbursed by one of the contract sides to the other as
compensation for project events and conditions, prevented that side from execute
portion of project work.”

Time CANNOT be extended: unless permitted by the

contract and strictly on its terms.
By the Employer for its own benefit if not permitted by
Limits to
contract.
Extension of
Time By the Contractor for any event not expressly set out in
the contract.
Unless there is strict compliance to the procedures and
pre-conditions in the contract.
Procedure for Extension of Time

Procedure Contractor to notify of delay Contractor to apply for EOT

usually
includes Contract administrator Contract administrator
assesses application extends time if appropriate

It is always the Contractor who must prove the need for EOT with the support of documents.

Role of Contract Administrator (CA)

CA must decide on an
Whether contract allows Whether circumstances
extension of time
extension reasonable for extension
application based on:
• Act fairly, reasonably and impartially, otherwise his decision
In deciding,
may be invalidated and may be sued.
administrator must:
• Apply the provisions of the contract.
Communicating the CA’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.

Usually, decision conveyed by way of a certificate for extension of time.

Challenging the Certificate for EOT

Certificate for Extension of Time can be invalidated.

Usually, it will not be Evidence of fraud, collusion

Disregard for the contract
invalidated unless there is: or similar wrongdoing.

Examples of ground for challenging EOT Certificate

Certificate not given on Certificate not in the Certificate issued by

time correct format unauthorized person

Addressee of Decision to extend time Certificate not given

certificate not named improperly delegated fairly

Contractual procedures not followed

Analysis of Provision

Condition Certifying
Time to apply Procedure
precedent person

Relevant Certificate of
Mitigation
events EOT
 Time to Apply

PWD 203A PAM 2018

Clause 43.1 Clause 23.1

Upon it becoming reasonably If the Contractor is of the opinion that

apparent that the progress of the work the completion of the works is or will
is delayed. be delayed.
 Condition Precedent

PWD 203A PAM 2018

Clause 43.1 Clause 23.1(b)

Contractor’s notice to Architect:

“The giving of such written notice
No condition precedent prescribed.
shall be a condition precedent to an
entitlement to extension of time.”
 Procedure

PWD 203A PAM 2018

Clause 43.1 Clause 23.1(b)

Contractor’s notice to Architect:

“The giving of such written notice
No procedure prescribed.
shall be a condition precedent to an
entitlement to extension of time.”
Let’s have a look at Clause 43 of PWD 203A
43.0 DELAY AND EXTENSION OF TIME
43.1 Upon it becoming reasonably apparent that the progress of the Works is
delayed, the Contractor shall forthwith give written notice to the officer named in
Appendix as to the causes of delay and relevant information with supporting
documents enabling the said officer to form an opinion as to the cause and
calculation of the length of delay.

If in the opinion of the said officer named in Appendix the completion of the Works
is likely lo be delayed or has been delayed beyond the Date for Completion stated
in Appendix or beyond any extended Date for Completion previously fixed under
this Clause due to any or more of the following events:
 43.0 DELAY AND EXTENSION OF TIME

a) force majeure as provided under clause 57;**

b) exceptionally inclement weather;***

c) suspension of Works under clause 50;

d) directions given by the S.O., consequential upon disputes with neighbouring owners
provided the same is not due to any act, negligence or default of the Contractor or any
sub-contractor, nominated or otherwise;

e) S.O.'s instructions issued under clause 5 hereof, PROVIDED THAT such instructions are
not issued due to any act, negligence, default or breach of this Contract by the Contractor
or any sub-contractor, nominated or otherwise;
43.0 DELAY AND EXTENSION OF TIME

f) the Contractor not having received in due time instructions in regard to the nomination of
sub-contractors and/or suppliers provided in this Contract,

necessary instructions, drawings or levels for the execution of the Works from the S.O. due to
any negligence or default of the S.O.

PROVIDED THAT the Contractor shall have specifically applied in writing on a date which having
regard to the Date for Completion stated in Appendix or to any extension of time then fixed under
this clause, was neither unreasonably distant from nor unreasonably close to the date on
which it was necessary for him to receive the same

g) the Contractor's progress of works being adversely affected by the delay on the part of the
Government to effect interim payments which are due to the Contractor in accordance with
the Contract PROVIDED THAT the Contractor had given written notice to the S.O. of any such
delay which affects the progress of his work;

h) delay in giving possession of the Site as provided under clause 38.4 hereof other than claim
in effecting insurance and Performance Bond
43.0 DELAY AND EXTENSION OF TIME
then the officer named in Appendix may if he is of the opinion that the extension of
time should be granted, so soon as he_ is able to estimate the length of the delay
beyond the date or time aforesaid issue a Certificate of Delay and Extension of Time
giving a fair reasonable extension of time for completion of-the Works.

PROVIDED THAT all such delays —are not due to any act, negligence, default or
breach of contract by the Nominated Sub-contractor and/or Nominated Supplier and/or
the Contractor, or any of the servants-or agents of such Nominated Sub-contractor or
Nominated Supplier or the Contractor.

PROVIDED ALWAYS that the Contractor has taken all reasonable steps to avoid or
reduce such delay and shall do all that may reasonably be required to the satisfaction
of the S.O. to proceed with the Works.

PROVIDED FURTHER that the Contractor shall not be entitled to any extension of time
where the instructions or acts of the S.O. are necessitated by or intended to remedy any
default of or breach of contract by the Contractor.
 Issues

Condition Precedent If the Contractor fails to submit the notice of delay

1. Does it mean that he totally loss the right to get

extension of time?
2. Does it also mean that time becomes at large, and the
Employer is not entitled to claim the liquidated and
ascertained damages?
Liquidated and Unliquidated Damages
Contractor’s duty is to carry out and
complete the construction works
according to these three elements.

Contractor’s non-compliance with these

elements amounts to a breach that
entitles the Employer to claim damages
for breach of contract.

The Employer’s entitlement to claim

damages for breach is provided for under
the Law of Contract
However, a contract may contain provisions that set out remedies
for breach of contract.

Example:
In construction main contracts, Contractors may be entitled to claim
from Employers, direct loss and expenses in the event the
Employers causes delays to the progress of the works
(unliquidated damages)

However, if Contractors caused the delays, the Employers may

deduct from the Contractors’ interim payments damages
(liquidated damages)

Common Law Coded in Section 75

Principle of Contract Act 1950
Remedies for Breach

Equitable
Damages
Remedies

Unliquidated Liquidated Specific

Injunction
Damages Damages Performance
Definition of Liquidated Damages

Genuine pre-estimate of the damage which seems likely to be caused if

Common the breach provided for should occur.”
Law The estimate is made at the time of making the contract, not at the time
of the breach.
Note:
Section 73 of the Contract Act 1950 uses the phrase
“reasonable compensation”
It is utmost important that the amount specified as Liquidated Damages be “genuine pre-
estimate” of the loss.
If the amount of Liquidated Damages stated in the contract is not genuine and it exceeds
the estimated loss that the Employer will suffer in the event of a breach, the Liquidated
damages is said to be a penalty.
In such event, the Liquidated Damages is unenforceable, and the Employer may only be
entitled to claim for Unliquidated Damages.

Main Issue in Whether or not the Liquidated Damages is a ‘genuine pre-estimate of

Common Law the loss’ or it is a penalty

Dunlop Pneumatic Tyre Ltd. v. New Garage & Motor Ltd. [1915] AC 79
Stipulated sum is extravagant and unconscionable in comparison with the greatest lost
conceivable.
Clydebank Engineering & Shipping Co. Ltd. v. Don Jose Ramos [1905] AC 6, at p.10
If the breach is in relation to paying a sum of money, the Liquidated Damages is greater
than the sum to be paid.
Ford Motor Co. v. Armstrong [1915], 31 TLR 267
A presumption – it is a penalty when the Liquidated Damages is compensation for breach
of contract for various events some of them are serious and others are trifling.
Difficulty of estimation of the loss is no bar to maintain that the Liquidated Damages is
genuine pre-estimate.
Definition of Liquidated Damages

Section 75 of Contract Act

When a contract is broken, if a sum is named in the contract as the

amount to be paid in case of such a breach, or if the contract contains
any other stipulation by way of penalty, the party complaining of such
a breach is entitled, whether or not actual damage or loss is proved
to have been caused thereby, to receive from the party who has
broken the contract reasonable compensation not exceeding the
amount so named or, as the case may be, the penalty stipulated for.
 Let us do some analysis on Section 75
• Amount of money specified as ‘penalty’ for breach:
• If the amount of money specified is less than the
actual loss, then the innocent is only entitled
receive from the party in breach the total amount
specified.
• However, if the amount specified is more than the
actual loss, the innocent party is only entitled to
receive from the party in breach the actual loss that
he is able to prove.
• However, if he is not able to prove his actual loss,
he may only get a ‘reasonable’ amount ‘not
exceeding the amount so named’.
 Recent Decisions

Selva Kumar A/L Murugiah v. Thiagarajah A/L Retnasamy [1995] 1 MLJ 817

Johor Coastal Development v Constrajaya [2009] 4 MLJ 445

Setegap Bhd (in creditors’ voluntary winding up) v. Ranhill Engineers and
Constructors Sdn Bhd [2011] 6 MLJ 684
 Look at this case

Balfour Beatty Building Ltd v Chestermount Properties [1993]

62 Build LR 1

1. Affirms the rule on acts of prevention setting time at large. The following
passage appears on p. 9 of the report:
In the absence of an express provision, the consequences of the
occurrence of an act of prevention…was that the entire extension of time,
completion date and liquidated and ascertained damages code was
displaced by a general contractual duty to complete the works within what
in all the circumstances was a reasonable time from the date of the act of
prevention … failing which the contractors would be liable for unliquidated
damages for breach of contract in failing to complete within a reasonable
time.
 And this case too

Peak Construction v McKinney Foundation [1970] BLR 111

If an Employer is in any way responsible for the

Contractor’s failure to achieve the completion date, he is
not entitled to Liquidated Damages.

Two Principles

Similar principle also applied if the Contractor

Administrator fails to grant extension of time when he
should have done so (because the Contractor should be
entitled to the extension).
 Peak Construction v McKinney Foundation [1970] BLR 111

Peak Construction was the main contractor, Liverpool Corporation was the employer and McKinney
Foundation was the nominated piling subcontractor.

The piling NSC did not do a good work - the piles were defective; stop work order issued.

Due dilatoriness of Liverpool Corporations, the stop work lasted 58 weeks although the remedial work
took only 6 weeks.
The Contract Administrator issued no Extension of Time and the Employer claimed Liquidated
Damages against the Main Contractor.

The MC brought action against the piling NSC to recover the LAD paid to the employer.

The court held that the Liquidated Damages clause should be strictly construed contra proferentem.

Thus, the Employer was not entitled to Liquidated Damages for delays which they were substantially
responsible.
 Damages
It is a form of compensation payable to the innocent party who would have
Definition
suffered (translated into monetary value) as a result of the breach
of Damages
committed by the guilty party.

This remedy is always available under the contract for construction. Unlike the remedy for
termination which is only available in cases of serious breach of contract.

It is the normal mechanism for claiming General Damages, most contracts include the
provision for Liquidated Damages or popularly known as Liquidated and Ascertain
Damages.

Liquidated and Ascertain Damages Unliquidated Damages

The financial damages calculated by the amount

Applied to a pre-determined sum which
of loss suffered by the innocent party. It is the
becomes payable by a party (the Contractor) to
amount decided by the court when the breach of
a contract if certain specific breach occur.
contract occurs.
 A claim for LAD can only succeed or can be imposed
REMINDER where the contract makes expressed provision for it.

Most construction contracts do this by means of a clause

Clause 40 of providing that the Contractor who is guilty of failure to
PWD 203A complete the Work by the contractual completion date (or as
extended date) shall pay or allow a certain amount of
liquidated damages (LAD) for every week of week of delay.

LAD provisions are in principle perfectly acceptable in the construction contract and
should be encouraged.

It will enable the parties (the Employer and the Contractor) to know from the start as
much as possible about the risk they bear if they commit a breach of contract.

It will save both parties the time and money on arbitration or litigation to claim for
general damages when the breach occur.
 Penalty

However, the problem is that, as the law always recognised that they are capable of
operating rather harshly in cases where the amount to be paid of forfeited is
GREATLY IN EXCESS of the actual loss caused by the breach of the Contract.

The most important aspects of the courts’ control of the LADs is their insistence that
a PENALTY CLAUSE (which means an attempt to terrorise the Contractor into
completing on time) is unconscionable and wholly unenforceable.

In our case, it is important for the Employer to prove his actual loss before he can
claim for damages due to the delay on the part of the contractor.

Philips Hong Kong Ltd v. Attorney General of Hong Kong

 Penalty
The most notable guidelines on distinguishing between liquidated damages and
penalties which have long been accepted are as follows (given by Lord Dunedin
in 1915):

The terms used in the contract are not conclusive, though they may be persuasive.

Unlike a penalty, liquidated damages represent a genuine attempt at a pre-

estimate of likely damage.

In deciding into which category a particular contract term falls, account must be
taken of circumstances at the time of making the contract, not at the time of
breach.
 Penalty
The most notable guidelines on distinguishing between liquidated damages and
penalties which have long been accepted are as follows (given by Lord Dunedin
in 1915):

The following 'tests' may be helpful, or even conclusive:

o If the sum stipulated is ‘extravagant and unconscionable’ compared with the

greatest amount of loss that could be caused, it is a penalty.
o If the breach consists simply of non-payment of money, and the sum
stipulated is a greater sum, it is a penalty.
o If a single sum is payable for a range of breaches of varying severity, there is
a presumption (but no more), it is a penalty.
 JKR 203A Standard Form of Contract
Damages for Non-Completion

Clause 40 – Damages for Non-Completion

40.1 If the Contractor fails to complete the Works by the "Date for Completion"
stated in the Appendix or within any extended time under Clause 43 hereof,
the S.O. shall issue a Certificate of Non-Completion** to the Contractor.

** It is very important for the S.O to issue this certificate to inform the Contractor
that he has failed to complete the project on time. It is also important procedure
for imposing the liquidated and ascertain damages.
 JKR 203A Standard Form of Contract
Damages for Non-Completion

Clause 40 – Damages for Non-Completion

40.1 Prior to the issuance of the Certificate of Non-completion,

the S.O shall issue a notice to the Contractor informing the Contractor the
intention of the Government to impose LIQUIDATED AND ASCERTAINED
DAMAGES (LAD) to the Contractor if the Contractor fails to complete the
Works by the Date for Completion or within any extended time granted.
 JKR 203A Standard Form of Contract
Damages for Non-Completion

Clause 40 – Damages for Non-Completion

40.2 Upon the issuance of the Certificate of Non-completion,

the Government shall be entitled to recover from the Contractor the Liquidated
and Ascertained Damages (LAD) calculated at the rate stated in the
Appendix from the period (date) of the issuance of the Certificate of Non-
completion to the date of the issuance of the Certificate of Practical
Completion** or the Date of Termination of This Contract.

** It is also very important for the S.O to state in the Certificate of Non-
completion of the new date for completion. If not “time will be at large” and the
entitlement to LAD will cease to operate”
 JKR 203A Standard Form of Contract
Damages for Non-Completion

Clause 40 – Damages for Non-Completion

40.2 …………. (Cont’d)

The S.O may deduct such damages from any money due to or
become due to the Contractor failing which such damages shall be
recovered from the Performance Bond or as debt due from the
Contractor.

The S.O shall inform the Contractor in writing of such deduction.

 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 21 – Date of Commencement and Completion

21.1 Commencement and Completion

On the Date of Commencement, possession of the site shall be given to the

Contractor who shall commence the execution of the Works and regularly
and diligently proceed with and complete the same ON or BEFORE the
COMPLETION DATE (normally will be stated in the Appendix of the Form of
Contract).
 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 22 – Liquidated Damages and Certificate of Non-Completion

22.1 Liquidated Damages and Certificate of Non-completion

If the Contractor fails to complete the Works by the Completion Date, and the
Architect is of the opinion the same ought reasonably so to have been
completed, the Architect shall issue a CERTIFICATE OF NON-COMPLETION
(CNC)

Upon issuance of the Certificate of Non-Completion, the Contractor shall shall

pay or allow to the Employer a sum calculated at the rate stated in the
Appendix as LIQUIDATED DAMAGES for the period from the Completion Date
to the Date of Practical Completion.
 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 22 – Liquidated Damages and Certificate of Non-Completion

22.1 Liquidated Damages and Certificate of Non-completion

The Employer may recover such sum from any monies due or to become due to
the Contractor under the Contract or the Employer may recover such sum from
the Performance Bond.

The Employer shall inform the Contractor in writing of such deduction or such
debt due from the Contractor.

The imposition of the Liquidated Damages by the Employer shall not be taken
into account by the Architect in the issuance of payment certificates and Final
Certificate and is not subjected to the set-off procedures under Clause 30.4.
 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 22 – Liquidated Damages and Certificate of Non-Completion

22.2 Agreed Liquidated Damages Amount

The Liquidated Damages stated in the Appendix is a genuine pre-estimate

of the loss and/or damages which the Employer will suffer in the event
that the Contractor is in breach of Clause 21.0 and 22.0.

The parties agree that by entering into the Contract, the Contractor shall pay
to the Employer the said amount, if it becomes due without the need for the
Employer to prove his loss and/or damage unless contrary is proven by
the Contractor.
 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 22 – Liquidated Damages and Certificate of Non-Completion

22.3 Certificate of Non-completion revoked by subsequent Certificate of

Extension of Time

In the event of the Architect issues a Certificate of Extension of Time under

Clause 23.4, 23.9 and 23.10 which has the effect of fixing a Completion Date
which is later than the date stated in the Certificate of Non-completion
previously issued, such certificate shall have the effect of revoking the
Certificate of Non-completion issued earlier.
 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 22 – Liquidated Damages and Certificate of Non-Completion

22.3 Certificate of Non-completion revoked by subsequent Certificate of

Extension of Time

The Employer shall then revise the amount of the Liquidated Damages he is
entitled to retain.

In the event the amount of Liquidated Damages exceeds the amount the
Employer entitled to retain; he shall repay the surplus amount to the
Contractor within the Period of Honouring Certificates from the date of the
latest Certificate of Extension of Time.
 PAM 2018 Standard Form of Contract
Date for Completion and Damages for Non-Completion

Clause 22 – Liquidated Damages and Certificate of Non-Completion

22.3 Certificate of Non-completion revoked by subsequent Certificate of

Extension of Time

If the Work is not completed by the Completion Date stated in such

Certificate of Extension of Time, the Architect shall issue further Certificate
of Non-completion.