Extensions of time and liquidated damages in construction contracts in England and Wales

• Author: Daniel Brawn
• Position: Galadari and Associates, Dubai, United Arab Emirates

Building projects often cost more and take longer than originally planned. Delays may occur for example because the contractor was working inefficiently, which is its own fault, or because the employer instructed additional work, for which the contractor will be entitled to additional payment. If delays impacted upon the critical path rather than merely taking up available float, such that the contractor failed to meet the contractual completion date (“Critical Delay”), the contract will generally entitle the contractor to an extension of time (“EOT”) to the completion date for delaying events which under the contract are the responsibility of the employer. The contractor may also be entitled to its loss and expense, for example in the form of additional preliminaries (that is, the fixed cost of setting up and running the site per week).

The building contract should provide that the employer may grant an EOT if Critical Delay occurs which is the responsibility of the employer. In practice, EOTs are granted on behalf of the employer by the architect or contract administrator acting impartially between the parties. The contract may also provide that, if Critical Delay occurs which is the responsibility of the contractor (“Culpable Delay”), the employer may claim liquidated and ascertained damages (“LADs”) from the contractor. Thus, if a delay occurs, the contractor may seek an EOT, both as a defence to a claim for LADs and because it hopes to receive additional payment.

This article examines the relationship between EOTs and LADs, using the JCT form of building contract as an example ( Joint Contracts Tribunal Limited, 2009 ). This form is commonly used in England, its provisions are typical and the principles apply to other forms of contract, although some are more prescriptive than others as to precisely how an EOT is to be assessed. It is not intended here to examine the relationship between EOTs and additional payment to the contractor, which is a function of the precise wording of the contract and the particular facts. Likewise, the focus is on the law of England and Wales, although some reliance is also placed on extra jurisdictional case law for illustrative purposes.

The relationship between EOTs and LADs is defined in the building contract and at common law. The first task is to examine the law in relation to each and then to examine the relationship between them.

1 Extensions of time

The building contract regulates the relationship between the parties and apportions risk. It should list those events for which the contractor is entitled to an EOT if there is Critical Delay (“Relevant Events”), which will be at the employer's risk. Events that are not listed will be at the contractor's risk. The Relevant Events typically include: acts of default by the employer, such as failure to grant possession of the site by the start date and late provision of information; perfectly valid actions, such as instructing variations or additional work; and neutral events which the parties agree will be at the employer's risk, such as unforeseen ground conditions and exceptionally adverse weather. Relevant Events vary between different forms of contract and are often amended by special conditions. This article is not concerned with the nature of Relevant Events, but considers the legal position when a Relevant Event has occurred.

When a delay occurs, there is a three-stage process:

Assess whether the delay was caused by a Relevant Event. This is usually straightforward and depends upon the precise nature of the event and the words used in the contract, although it may be less straightforward if, for example, the contract has been amended to state that an event is not a Relevant Event if it arises from the contractor's negligence. If it is not a Relevant Event, the contractor is not entitled to an EOT.

If it is a Relevant Event, the next question is whether it caused Critical Delay. If it did not, there is no EOT.

If it did, a “fair and reasonable” EOT should be granted (usually equal to the period of delay caused by the Relevant Event) and a new completion date should be set accordingly.

In practice, the second and third questions overlap and it is here that difficulties arise, particularly when there are concurrent delaying events.

1. 1 Concurrent delay

Whether a Relevant Event caused Critical Delay depends upon an analysis of the facts as presented. The parties should maintain accurate contemporary records of events on site. However, it is not clear how EOTs should be assessed when Relevant Events occur concurrently with Culpable Delay.

In Walter Lawrence v. Commercial Union ¹, the contractor was already in Culpable Delay but was entitled to an EOT for exceptionally adverse weather which caused further delay. In Balfour Beatty v. Chestermount Properties ², the question was whether, under a JCT contract, an EOT for a Relevant Event occurring after the completion date should be calculated from the date of the event (the “gross” method) or from the date when the works ought to have been completed (the “net” method). Colman J. held that the net method applied and the contractor was not relieved of liability for those delays for which it was responsible.

The decision in Henry Boot v Malmaison ³ is often cited as the leading modern authority on concurrent delay under the JCT contract. The parties agreed that:

If there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event.

This agreement formed the basis of Dyson J.'s decision. In Steria v. Sigma ⁴ HHJ Stephen Davies noted that the decision in Malmaison was approved in Keating on Construction Contracts ( Furst and Ramsey, 2006 , at para. 8-021), and added that although Dyson J. was noting an agreement between counsel rather than reaching a decision himself, the fact that such an experienced judge “noted the agreement without adverse comment is a strong indication that he considered that it correctly stated the position. […] Accordingly, I intend to adopt that approach […]” That approach was approved in Motherwell Bridge v. Micafil ⁵, where it was emphasised that there should be common sense and fairness.

It is important to be clear as to what was decided in Malmaison. The issue before the learned judge was whether, in deciding the extent to which a Relevant Event caused Critical Delay during a period of Culpable Delay, the architect was permitted to consider the effect of other events. Dyson J. held that he was permitted to consider whether the true cause of delay was other events for which the contractor was responsible. Malmaison is not clear authority, as is sometimes asserted, for the proposition that where there is a Relevant Event and Culpable Delay, the contractor is automatically entitled to an EOT despite its own default. If that was the case, there would be no purpose to the architect considering the effect of other events. The question is the extent to which a Relevant Event caused Critical Delay. A further difficulty arises as to the meaning of the word “concurrent,” because most delays are not truly concurrent, in that they start and stop at the same time, they are sequential, in that they operate in parallel but may start or finish at different times.

The decision in Malmaison was distinguished in Royal Brompton v. Hammond ⁶, where HHJ Seymour said that it related to a situation where the works were proceeding in a regular fashion and then two delaying events occurred at the same time, one of which was a Relevant Event and one that was not. In that situation, there was genuine concurrency. That decision did not apply where the works were already in delay due to contractor default, and then a Relevant Event occurred. In this situation, by virtue of the existing delay, the Relevant Event might make no difference if its effect was not critical. Where events occur in sequence, it may not be immediately obvious which operations impact upon which other operations and it can be difficult for the architect to assess whether an EOT is merited.

Subsequently, in the Scottish case of City Inn v. Shepherd Construction ⁷, Lord Drummond Young questioned HJJ Seymour's distinction between situations where a Relevant Event occurs during a period of contractor delay, and situations where the delays occur at the same time. In his Lordship's view, both situations involve concurrent delay and the architect should grant such EOT as he considers fair and reasonable. It is relevant to consider which event was the “dominant cause” of delay, but if that cannot be established then all concurrent causes must be considered. It may be appropriate to apportion responsibility for the delay between two causes ⁸, on a basis that is fair and reasonable. This is likely to be a question of the degree of culpability of each of the causes of delay and the significance of each factor in causing delay. The architect should exercise his judgment and aim to achieve fairness between the parties.

Three years later, City Inn's appeal was rejected ⁹. In his leading judgment, Lord Osborne analysed existing case law and considered causation at length. He pointed out that “concurrent delaying events” could refer to a number of situations: events...