Timely delivery is a high priority in construction projects. As a general principle, construction contracts require the contractor to proceed with due expedition and without delay to complete the works by a specified date.

Of course, the works may be delayed by the principal or a range of other causes beyond the contractor’s reasonable control. For this reason, extension of time (EOT) regimes are a common feature of construction contracts. They enable the parties to agree that the contractor will not be liable for certain delays, by entitling the contractor to claim an extension to the date for completion if it is delayed by a specified cause.

This article will explore the common features of EOT regimes in construction contracts. While the common law prevention principle is also relevant to the consideration of delays caused by the principal, this article focuses on contractual EOT regimes.

Consequences of delay

Time is not usually “of the essence” under construction contracts. This means that the principal will not automatically be entitled to terminate the contract if the contractor fails to achieve completion by the specified date for completion. However, the contractor will typically be liable for liquidated damages at a daily rate specified in the contract or, unless expressly excluded, general damages for delay at common law.

Given the potentially costly consequences of failing to meet the completion date, EOT regimes are a key concern for contractors. Similairly, principals must ensure that EOT regimes are properly drafted to promote timely delivery of projects and manage any upstream liabilities in respect of project delays.

Requirements for an EOT

EOT regimes are created by contractual agreement between the parties. Accordingly, their terms will vary between contracts. However, in most construction contracts, three broad requirements must be satisfied for the contractor to be entitled to an EOT:

1. Qualifying cause of delay

Construction contracts typically list the causes of delay for which the contractor is entitled to claim an EOT. They can generally be divided between:

  • events caused by or within the control of the principal (such as variations, suspension of the works or delays caused by the acts or omissions of the principal’s personnel); and
  • events beyond the control of either party and for which the contractor cannot commercially assume the risk (such as inclement weather or force majeure style events).1

As a general principle, it is preferable for the party who has the greatest level of control over an event to assume the risk of delay arising from its occurrence.

For example, a delay caused by the contractor’s suppliers will typically be borne by the contractor. Even though it is not within the contractor’s direct control, it can manage the risk through practical steps such as careful selection and monitoring of its suppliers and contingency planning should its preferred source of supply become unavailable.

The allocation of truly ‘neutral events’ (e.g. inclement weather) becomes a matter for commercial negotiation. In some cases, risks of this nature may be shared (through maximum allowances or thresholds before an entitlement accrues). In practice, allocating increased risk in neutral events to a contractor may result in a higher contract price.

2. Effect of qualifying cause of delay

The mere occurrence of a qualifying cause of delay is not typically enough to entitle the contractor to an EOT. The contractor must also generally establish that the qualifying cause of delay has actually delayed completion (it is not unusual that the contractor must also demonstrate that delay was on the critical path).

For example, if inclement weather occurs on a day when the contractor was not programmed to work (such as a weekend) and its effects are limited to that day, the event will not actually have delayed the contractor from achieving completion.

The contractor may also be precluded from claiming an EOT in other circumstances, including to the extent qualifying and non-qualifying causes of delay overlap or if the contractor has failed to take reasonable steps to mitigate any delay.

3. Procedural Requirements

In order to claim an EOT, the contractor will typically have to comply with a formal notification process.

Generally, the contractor will be required to notify the principal of the event giving rise to a delay (along with other prescribed details in relation to contractor’s claim) as soon as practicable or within a specified number of days after it became aware (or should reasonably have become aware) of the delay.

It is not unusual for these notice requirements to operate as a time bar on claims, although in some standard form contracts a failure to comply would not disentitle the contractor to claim an EOT. It is also not unusual for construction contracts to include an obligation on the contractor to provide regular updates in relation to the delay.

Take away

Delay is a key risk for construction projects. For this reason, EOT regimes are amongst the most important terms in a construction contract. It is crucial for both contractors and principals to ensure their EOT regime allocates time-related risks in an appropriate and commercial manner, having regard to the particular objectives, pressure points and risks of their project.

There is no “one size fits all” approach.

If you have any questions or queries regarding EOTs, or would like assistance drafting your EOT regime, please do not hesitate to contact us at Morrissey Law + Advisory.

[1] See Clause 50(1)(1) of the New South Wales Government GC21 – General Conditions of Contract

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