Theresa Mohammed and Zoeyah Shaheen examine a case which tested exactly when an extension of time should be apportioned during a contract.
Delay to construction projects is a ripe area for disputes, and construction contracts often address this in detail. If a party is in culpable delay it is usual to find the other party claiming costs and damages, and if a party is being delayed through no fault of its own, claims for extensions of time and loss and expense.
Applications for extensions of time can have huge commercial consequences as the events in question may also entitle claims for costs and associated loss and expense and put a stop to an entitlement to liquidated damages.
A successful application will of course also permit the contractor or subcontractor additional time to complete works which could have serious financial implications for developers or building owners.
When awarding an extension of time, most construction professionals have assumed the various standard form contracts intend for the extension to be added on to the date for completion, and not broken down and awarded at specific points in the construction programme where the actual delay occurred. To do that seems potentially complicated and of little practical use.
However, the reason this might be a preferable approach is if, as you would expect, construction costs vary throughout the course of the works. If the contract permitted, it might be very useful to be able to award an extension of time for a particular period and claim delay costs either side of it or thereafter.
It may be the case that culpable delays during the middle of the project could prompt huge amounts of claimable costs due to high levels of labour and plant, whereas delays at the end of the project may not incur such cost.
In addition, the rate of liquidated damages that can be applied against a contractor or subcontractor may change considerably over the course of the works.
This could mean that you may want to award an extension of time for a particular period and relinquish delay costs and damages for that period as that will be financially advantageous compared to adding the extension to the completion date where the costs and damages you could claim could be much less.
This issue is further complicated by the fact that while an extension of time is usually tacked on to the end, the assessment of loss and expense claimed in conjunction with the extension, usually requires an investigation of the precise delay period which is potentially in conflict with the actual award of additional time.
The issue of contiguous extensions of time to the completion date arose in a recent case in the Court of Appeal. Carillion Construction Ltd was engaged by Rolls Development UK Ltd to build the Rolls Building in London. The contract was based on the JCT Standard Form of Building Contract with Contractor’s Design, 1998 edition incorporating Amendments 1,2 and 4 together with some bespoke amendments.
Carillion then engaged Emcor Engineering Services Ltd to carry out mechanical and electrical works under a JCT Domestic Subcontract DOM/2, 1981 edition, with bespoke amendments.
The project was delayed and practical completion was certified 182 days late. Carillion blamed Emcor, among others, for the delay, which was disputed by Emcor. Carillion then started court proceedings claiming damages caused by the subcontractor’s delay.
This included Carillion’s costs and the liquidated damages that had been levied against it by Rolls Development. Emcor in response argued that it should be entitled to an extension of time.
There was a trial on preliminary issues which had to address whether, if Emcor was entitled to an extension of time, it should run contiguously, i.e. it should be dotted-on to the end of the current period of completion to provide an aggregate period within which Emcor had to complete the sub-contract works or, as Carillion argued, fix further periods during which Emcor could undertake the works which were not necessarily contiguous but reflected the period for which it had been delayed.
The relevant clause in the sub-contract that was examined was clause 11.3 which stated:
“11.3 If on receipt of any notice, particulars and estimate under clause 11.2 the Contractor properly considers that:
11.3.1 any of the causes of the delay is an act, omission or default of the Contractor, his servants or agents or his sub-contractors, their servants or agents (other than the Sub-Contractor, his servants or agents) or is the occurrence of a Relevant Event; and
11.3.2 the completion of the Sub-Contract Works is likely to be delayed thereby beyond the period or periods stated in the Appendix, part 4, or any revised such period or periods, then the Contractor shall, in writing, give an extension of time to the Sub-Contractor by fixing such revised or further revised period or periods for the completion of the Sub-Contract Works as the Contractor then estimates to be reasonable.”
Clause 12 of the subcontract allowed Carillion to recover "any direct loss and/or expense suffered or incurred" as a result of Emcor’s failure to complete its subcontract works on time.
This led Carillion to argue that if the extension of time was contiguous to the completion date it could mean that Emcor may incur a liability to Carillion that was greater or less than the true consequences of its breach.
The reason for this being if Emcor was given an extension of time for the actual period of non –culpable delay and was then found to be in culpable delay up to and past the completion date that may have a different financial outcome to just adding on a particular number of weeks to the completion date.
At first instance, the Technology and Construction Court held that, assuming Emcor was entitled to an extension of time, that extension should be added contiguously to the end of the current date for completion.
Carillion appealed against this decision, but the Court of Appeal dismissed the appeal finding that the natural meaning of the subcontract was that any extension of time should be contiguous and imposing a contiguous extension might lead to unfair results but this was not enough to detract from the natural meaning or offend commercial common sense.
While this might seem unfair, it does reflect what the construction industry’s perception of these kind of provisions has been for some time. Now that the issue has been examined at this level, what we might see is amendments to construction contracts to avoid contiguous extensions of time.
As a consequence, contractors and subcontractors should keep a close eye during the negotiation of new contracts as the commercial consequences of delay could be highly favourable or indeed the exact opposite, depending on where the extension of time is deemed to sit on the construction programme.
Theresa Mohammed, Partner and Zoeyah Shaheen, Solicitor in Contentious Construction at Trowers & Hamlins
