Managing the Risks of Delay in Construction Projects
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Delay is a common risk in construction projects with multiple potential causes. Proper notice provisions and documentation are essential to support any delay claims between the employer and contractor. Liquidated damages, termination, and instructions to accelerate works are some of the remedies available to employers for contractor delay, but contractors may challenge these and claim their own remedies for employer-caused delays.
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Managing the Risks of Delay in Construction Projects
- 1. Ben Worthington, Senior Associate | 02 November 2015 ben.worthington@olswang.com | +44 20 7067 3541 | @disputes_lawyer Construction Law Masterclass 2015 Managing the Risks of Delay
- 2. | Delay risks constructiveblog.comManaging the Risks of Delay2 • Common causes: • Contractor performance • Design change or error • Inclement weather • Availability of labour/materials/equipment • Employer interference • Delay almost always causes increased cost: • Lost income • Alternative accommodation • Overheads • Delay damages
- 3. | Date for completion of the works constructiveblog.comManaging the Risks of Delay3 • Specific date almost always agreed in advance – if no completion date, contractor must complete within a reasonable time • Contractor usually obliged to provide a programme showing how the completion date can be achieved • Programme not normally a binding contract document • No implied term that contractor must progress works in accordance with the programme • Contractor can claim more time for: • Delays caused by the Employer • Delays which are not the contractor’s responsibility • But unless the contract provides that a specific risk is a relevant event, it will generally be at the contractor’s risk
- 4. | Extending time – the importance of notice provisions constructiveblog.comManaging the Risks of Delay4 • Notice provisions = allow client team to assess and manage delay risk • Key points: • For the contractor - be aware of the procedural requirements as to form and time • For the Employer - consider making the notice a condition precedent to entitlement to more time • For both parties - Be clear so that there is no dispute as to what is required and the consequences of any failure to comply • Employers / CAs need to be aware of waiver: City Inn v Shepherd Construction
- 5. | Extending time – insisting on contractual notices constructiveblog.comManaging the Risks of Delay5 • Contract will determine whether notice is a condition precedent to an EoT • “If and whenever it becomes reasonably apparent that the progress of the Works or any Section is being or is likely to be delayed the Contractor shall forthwith give notice to the Architect/ Contract Administrator of the material circumstances, including the cause or causes of the delay, and shall identify in the notice any event which in his opinion is a Relevant Event.” (JCT SBC 2011, 2.27.1) • “If… on receiving a notice and particulars…” the CA considers the notified event is i) a relevant event and ii) is likely to delay completion beyond the completion date under clause 2.27, then it must award an EoT (JCT SBC 2011, 2.28.1) • Contract must use very clear words to impose a condition precedent to an extension of time: WW Gear Construction Ltd v McGee Group Ltd (2010)
- 6. | Employer remedies for delay – liquidated damages constructiveblog.comManaging the Risks of Delay6 • In the event contractor fails to complete by specified date, employer is entitled to damages at a fixed rate for every week or month until the work is complete • Actual loss is irrelevant – contrast with claim for unliquidated damages • Why use them? • Complexity of construction claims • Saves time and cost • Avoids the need for dispute procedures • Certainty: (i) cost of delay (ii) risk of delay easier to price (iii) limits liability (see Temloc v Errill (1987))
- 7. | Challenging the employer’s entitlement to liquidated damages constructiveblog.comManaging the Risks of Delay7 • Penalty clauses not enforceable… normally • See: Alfred McAlpine Capital Projects v Tilebox Ltd (2005) – is the liquidated sum extravagant or unconscionable by comparison with the greatest loss that might be suffered? • Unaoil (2014) - $55m contract sum / $40m LDs payable for breach – liquidated sum was not a genuine pre-estimate of loss • Cavendish Square Holdings v Makdessi (2013) – even an extravagant liquidated sum may not penal where there was a commercial justification • Contractor entitled to an EoT
- 8. | Employer remedies for delay - termination constructiveblog.comManaging the Risks of Delay8 • JCT - employer can terminate where contractor: • Wholly or substantially suspends the work • Fails to proceed regularly and diligently with the work • Strict notice requirements • Serious consequences of unlawful termination • What is a failure to proceed regularly and diligently? West Faulkner Associates v London Borough of Newham (1994) – the contractor must proceed: • “continuously, industriously and efficiently with appropriate physical resources so as to progress the work steadily towards completion substantially in accordance with the contractual requirements as to time, sequence and quality of work”.
- 9. | Employer remedies for delay – termination (2) constructiveblog.comManaging the Risks of Delay9 • contractor entitled to plan the works as he sees fit • delay is not by itself proof of a lack of due diligence • a failure to provide an adequate programme is not by itself proof of a lack of due diligence • delay due to a failure to deploy labour/resources will normally be evidence of a lack of due diligence • but poor management of labour and inadquate supervision not sufficient • the existence of defects is not by itself evidence of a lack of due diligence
- 10. | Employer remedies for delay – the power to omit work or instruct acceleration constructiveblog.comManaging the Risks of Delay10 • The power to omit works - Abbey Developments Ltd v PP Brickwork Limited (2003) – “It is implicit in most contracts that an owner who exercises a power to omit work must genuinely require the work not to be done at all, and cannot exercise such a power with a view to having the work carried out by someone else.” • clear words required to overturn this assumption • Acceleration: • CA may have power to instruct the contractor to make up for lost time • Usually employer will need to pay overtime, the costs of unproductive work as a result of rescheduling, wasted materials, supervision, site management, plant hire etc • Reduced payment periods, payment in advance • Resolution of any outstanding EoT claims
- 11. | Contractor remedies for delay constructiveblog.comManaging the Risks of Delay11 • Contractor entitled to more time where employer risk event occurs which causes critical delay • But occurrence of employer risk event and delay does not necessarily mean that the contractor may claim damages e.g. adverse weather may be a relevant event (time), but not a relevant matter (money) • Contractor must show the relevant event has caused a critical delay to the works: Cleveland Bridge UK Ltd v Severfield–Rowen Structures Ltd (2012): “it is necessary to show that the claiming party was actually delayed by the factors of which it complains; it simply does not follow as a matter of logic, let alone practice, on a construction or fabrication project, that, simply because a variation is issued or that information is provided later than programmed or that free issue materials are issued later in the programme than envisaged originally, the claimant is delayed.”
- 12. | The importance of project records to delay claims constructiveblog.comManaging the Risks of Delay12 • To establish entitlement as a result of a delay will require: • Documents • Witnesses of fact • Delay analysis
- 13. | The importance of project records to delay claims (2) constructiveblog.comManaging the Risks of Delay13 • Standard form contracts do not give detailed requirements • JCT 2011 SBC XQ - contractor must: • give notice of actual or likely delay • give particulars of the expected effects of any delay • “shall… supply such further information as the Architect/Contract Administrator may at any time reasonably require.“
- 14. | The importance of project records to delay claims (3) constructiveblog.comManaging the Risks of Delay14 • Claims must be based on reality • Tribunals are essentially concerned with practical issues, not theoretical arguments about delay analysis • Common problems: • Project documentation often turns out to be insufficient, inaccurate or unreliable • Failure to identify actual man hours and costs associated with discreet items of additional work or additional time • Failure to record productivity by activity • Failure to record day to day reporting of what is happening on the site, through progress reports, diaries etc
- 15. | For more information please contact Olswang: Changing Business. www.olswang.com Ben Worthington Construction +44 20 7067 3541 ben.worthington@olswang.com Brussels +32 2 647 4772 London +44 20 7067 3000 Madrid +34 91 187 1920 Munich +49 89 206 028 400 Singapore +65 6720 8278 Paris +33 17 091 8720 Thames Valley +44 20 7071 7300