03 April 2013 Lecture 10 Extension of time

7/27/2019 03 April 2013 Lecture 10 Extension of time

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PROGRAMMING & EXTENSION OF TI0ME

Veenoy Dabee


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3 FACTORSIt is often said that for a building or construction project, there are threeobjectives which the owner of the project is aiming.

These are, in no order of priority or importance(A)money,

(B)quality(C) time.

The question of time is an important one in construction contracts.There are provisions in construction contracts, for example, that

the Contractor must complete the project, the design team must furnish the necessary drawings and information

to the Contractor, and that the Employer must pay the Contractor, all before a certain date. All

these carry with them their respective legal implications andconsequences.


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Extension of TIME To delay events beyond the control of the contractor or of

the parties mean that flexibility in respect of thecompletion date is typically provided for in all standardforms of construction contracts. This flexibility takes theform of a right to grant and be granted an extension oftime.

In order to reflect the fundamental importance of time inthe contract, to maintain the certainty of a definitecompletion date and to retain right to levy liquidated

damages in the event of the contractors default inachieving such date, the employer should ensure that aproper mechanism for extension of time is included in thecontract. Preventing the Time at Large situation fromarising.


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Revision.Time for completion of the Works can be said to be, or made, at large in the

following five situations:

(a) no time for completion is fixed in the contract;

(b) improper administration or misapplication of the extension of time provision in the

contract;(c) waiver of time requirements;

(d) the Employers interference in the certification process;

(e) when the extension of time provision does not confer power on theEngineer/Architect/S.O. to extend the time for completion of the Works on theoccurrence of event or events which fall(s) within the obligation of the Employer

The significant consequence of time for completion being at large is that the liquidateddamages clause in the contract becomes inoperative and the Employer cannot rely on thisliquidated damages clause to impose liquidated damages onto the Contractor.

The other significance when time for completion is at large is that the originalcompletion date or the contractually certified extended completion date no longer binds

the Contractor.


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Meaning of Completion The Meaning of Completion

Completion of the Works comprised within a contract is important as not only it has adirect bearing on the question of whether the Employer can levy liquidated damages onthe Contractor, but it also usually marks the transfer of certain risks or the crystallizationof certain rights between the Contractor and the Employer inter-se. Further, and as anadditional example to illustrate the importance of the meaning of completion, it mayalso be used to determine the extent of the right to payment in those contracts whichprovide for stage payments. In most standard contract forms, completion also marksthe commencement of defects liability period and also the release of half of the retentionmonies.What is the legal meaning ofCompletion? Legal definition and Express in contracts.There have been a number of judicial decisions attempting a legal definition of the termspractical completion and substantial completion.

J. Jarvis and Sons v. Westminster Corporation: practical completion as completion forthe purpose of allowing Employer to take possession of the Works and used them asintended.

Express Terms:Under FIDIC 1987, Clause 48.1 refers to Completion is defined by tests and thecompletion of specified work.


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FIDIC RED BOOK 87 The sharing of time-related risks is based on the liability for the delay.

If the delay is caused by an event for which the employer is liable, therisk is allocated to the employer. It is worth noting here that, if there isno express provision to extend the time for completion for a delaycaused by an event which is not the fault of the employer, thecontractor takes the risk of that delay. The relevant clauses of the RedBook which deal with the sharing of the time-related risks and theirconsequences are clauses 43, 44, 46, 47 and 48.

Clause 43 of the Red Book establishes the time by which the worksmust be completed. It requires the contractor to complete the whole ofthe Works and, if applicable, any Section required to be completed

within a particular time . . . in accordance with Clause 48, within thetime stated in the Appendix to Tender . . . , or such extended time asmay be allowed under Clause 44. Time for completion is a definedterm under sub-clause 1.1(c)(ii) of the Red Book and is calculated fromthe commencement date which is the date of receipt of the notice tocommence the works pursuant to clause 41.


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GRANTING EXTENSION OF TIME Failure to complete within the defined time limit is a breach of

contract, the remedy for which is provided in clause 47. Sub-clause 44.1 provides the following: In the event of (a) the amount or nature of extra or additional work, or

(b) any cause of delay referred to in these Conditions, or (c) exceptionally adverse climatic conditions, or (d) any delay, impediment or prevention by the Employer, or (e) other special circumstances which may occur, other than through a

default of or breach of contract by the Contractor or for which he isresponsible, being such as fairly to entitle the Contractor to anextension of the Time for Completion of the Works, or any Section orpart thereof, the Engineer shall, after due consultation with theEmployer and the Contractor, determine the amount of such extensionand shall notify the Contractor accordingly, with a copy to theEmployer.


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CLAUSE 44.1 The extension that sub-clause 44.1 provides for is an extension of the time for

completion of: (i) the works, or (ii) any section, or

(iii) any part of any section There are three important points of note arising here: first, each time the

engineer grants an extension of time pursuant to sub-clause 44.1, thecontractual time for completion increases cumulatively. Secondly, the wordfairly in the first line after paragraph (e) of the quoted text of sub -clause 44.1above, is not intended to be an open invitation to be construed as entitling thecontractor to an extension of time without the application of a wealth of

supporting scientific and legal principles that should be applied before such anextension is granted, see section 17.6 below. This second point is of greatimportance if the word fairly is to be interpreted by arbitrators, since thosewho are not skilled in construction law and the principles referred to abovemight err and decide a dispute incorrectly.


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CLAUSE 44.1 (e)It can be said that sub-clause 44.1(e) is a catch-all provision which in effect places the risk ofdelays caused by the occurrence of any special circumstance, other than that caused by thecontractor, firmly in the hands of the employer. Being somewhat of an ambiguous provisionit has, in practice, caused problems in interpretation and application.It is worth noting here that, other than this catch all provision, the fourth edition of theRed Book makes express provision for extension of time only for a limited number of specificevents, see Section 1.3 below. The following events are not expressly catered for, as they arein some other standard forms of construction contracts:

(i) Discrepancies in or divergence between contract documents;(ii) Errors in drawings, technical specifications, items of reference for setting out

of the works provided by the employer;(iii) Changes in law/legislation;

(iv) Delays caused by other contractors employed by the employer, ornominated subcontractors/suppliers;

(v) Delays caused by public bodies/authorities


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-PROGRAMMESProgramming involves introducing the parameter of timeinto the work activities and ultimately into the project itself.

Two relevant piece of information can be extracted from a

programme: firstly the

(i) duration i.e. commencement and planned completion ofeach and every major activity which is reflected on theprogramme,

(ii) the planned sequence of the Works, or strictly theplanned sequence of each and every work item thecompletion of which constitute the constructioncontract.


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PROGRAMMING (2)The details which can be highlighted in a network programme are:(a) Independence of one activity from another requiring that neither thestart nor the completion time of each is affected by the other.(b) Sequence of activities showing when one activity cannot start before

the completion of another.(c) Burst describing restrictive activities which when completed allowtwo or more activities to start.(d) Merge describing an activity which cannot start unless and until twoor more other activities have ended.(e) Combined burst and merge of activities describing the position when

several activities cannot start until two or more immediately precedingactivities have ended.(f) Timing of activities in a unit of time which usually depends on theduration of the whole project, and as a general rule expressed as one percent to two per cent of the timescale of the whole project. This operationalso includes an identification of the start and end of each activity.


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PREPARING A PROGRAMMEA project network analysis should be carried out in at least eight phases, as described below, but eachmay be sub-divided and expanded to give a more detailed picture:

(a) Planning phase where a network of all activities necessary for the completion of a project is plannedand drawn up. An activity is an operation where time and resources are consumed and it is representedby an arrow.

(b) Project timing where estimates of duration of activities are calculated to determine as accurately aspossible the project duration and to identify the activities which may prove to be critical. Durationestimates should be calculated without bias.

(c) Resource allocation where information is added to each activity duration to show the resourcesrequired to complete that activity within the projected duration.(d) Allocation of work to sub-contractors and a programme of appointment to be followed with aschedule for production and approval of subcontractors design, if any, and drawings.(e) Pricing of the various elements of the works.(f) Procurement of materials.(g) Commencement on site.

(h) Project control where the actual progress on site is periodically measured against the network planand where any corrective action can be identified and then taken. The network must then be updated inaccordance with the actions taken, and a report can be periodically compiled to highlight the status ofeach activity at the particular time. The report may show:(i) delay in an activity and its effect on other activities and on the time for completion;(ii) new activities due to a variation and the effect on others and on the time for completion;(iii) resources which must be drafted to redress any new situation;(iv) any other change in the critical path network.


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PROGRAMMING (2) The network is divided into events which represent the

end of all preceding activities and the start of asucceeding activity.


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NETWORK ANALYSISThe right half of the circle is divided into quadrants;the upper quadrant carries the number of units of time representing the earliest event timethe lower quadrant carries the latest event time.These figures are calculated through a process called time analysis.(a)Earliest event time. These figures are calculated by adding from left to right through the network the

durations of activities leading to each event. This will give the earliest possible time within which

each event can be achieved. Where there is more than one path leading to an event, then the longestpath in terms of time the figure for the top right-hand quadrant of the event circle.

(b) The second set of calculations is carried out in a reverse order from the end of the project backtowards the start. By deducting the duration of events from the earliest time of the last event, one canobtain the latest possible time for each event to be completed an event, then once again the longestpath in terms of time duration is used.

A critical event is identified by the fact that its earliest and latest time are the same.

A critical activity is identified when it joins two critical events and has a duration equal to thedifference between the times of the critical events it joins.

A noncritical activity has float, which is the time available for an activity in addition to its duration.


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CONCURRENT DELAYTwo or more delay events occurring within the same

time period, each independently affectingtheCompletion Date.

In simple terms, concurrent delays arise where thecontractor is delayed by two critical events whichoccur contemporaneously or overlap, one for which hewould be entitled to an extension of time under one ofthe headings listed in sub-clause 44.1 (a clause 44event), the other one being his own responsibility.


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Concurrent delay: Scenario 1 In the first scenario, the two events, one a clause 44 event and the other an

event for which the contractor is liable, occur before either has had an effect onprogress and either of which, had it happened on its own, would have causeddelay. In such case, the contractor is entitled to an extension of time for theperiod of delay caused by the clause 44 event notwithstanding that the other

event has a concurrent effect, as per the reasoning in part of the decision ofHenry Boot Construction (UK) Ltdv.Malmaison Hotel(Manchester) Ltd17.29and confirmed in Royal Brompton Hospital NHS Trustv. Frederick A.Hammond and Others.

if no work ispossible on a site for a week not only because of exceptionallyinclement weather (arelevant event) but also because the contractor has ashortage of labour (not a relevantevent) and if the failure to work during that

week is likely to delay the works beyond thecompletion date by one week, then ifit considers it fair and reasonable to do so, thearchitect is required to grant anextension of time of one week. He cannot refuse to do so on the grounds that thedelay would have occurred in any event by reason of theshortage of labour.


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Concurrent delay: Scenario 2 In the second scenario, the event which is at the

contractors risk occurs first and has already causeddelay when the clause 44 event occurs. The clause 44event would have caused the contractor to be delayed,but in fact, because of the existing delay, it makes nodifference. Therefore, there is no entitlement to anextension of time as per the reasoning in another part

of the decision ofHenry Boot Construction and alsoconfirmed in the Royal Brompton Hospitalcase.


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Concurrent delay: Scenario 3 In the third scenario, the event which is at the contractors risk

occurs first and has already caused delay when the clause 44event occurs, similar to the second scenario above. However, inthis third scenario, the effect of the first event finishes beforethat of the clause 44 event so that the clause 44 event does makea difference and further delay occurs. This scenario wasconsidered in Balfour Beatty Building Ltdv. ChestermountProperties Ltd. It was held that the objective in assessing anextension of time was to assess whether the relevant event

(equivalent to the clause 44 event) had caused further delay tothe progress of the works, and if so how much. If there was infact further delay to the overall completion date, the contractor

was then entitled to an extension of time equal to the amount ofsuch further delay.


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Claims for both extension of time and moneyThus, in general terms, a contractor may have a claim for:(a) time alone(b) for money alone, or(c) for both time and money.

There are three types of claim which may be made under the Red Book linking delay andmoney.(1) The first type is associated with any critical delay which may occur in the completionof the works beyond the time for completion, and this is often referred to as a claim forprolongation.

(2) The second type of claim is associated with a non-critical delay of an activity that has

a positive float. There can be no claim for an extension of time for the time forcompletion, but there could be a claim for monetary compensation in this case, whichwill be limited to the effect of delay, if any, on the completion of that activity. For want ofa better term, it is sometimes referred to as a claim for elongation.

(3)The third type of claim is associated with the possible effect of a claim event on theefficiency of the execution of some part or parts of the works. This type of claim isreferred to as a claim for disruption, which includes any reduction in the efficiency of the

disrupted partys resources.


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PROLONGATION Prolongation may be defined as a critical delay which results when the

time necessary to complete a critical activity is prolonged, as definedabove, thus extending the time for completion of the whole of the

works.

A prolongation claim is, therefore, a claim that a contractor wouldmake when the time necessary to complete a critical activity becomeslonger than that originally planned owing to the event giving rise to thecritical delay.

Delays in completion of the works might result in a number of addedcosts to the contractor for the additional time during which he remainson the site and also in respect of certain direct and indirect costs thathe may have suffered. If such delay is determined by the engineer to bethe responsibility of the employer, then the contractor would beentitled to an extension of time and a number of heads of claim forfinancial compensation can be pursued by the contractor.


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LIQUIDATED DAMAGE Clause 47 of the Fourth Edition of the Red Book regulates the

relationship between the employer and the contractor shouldthere be a failure by the contractor to comply with therequirement to complete in accordance with clause 48 within thetime for completion as specified in clause 43 and, if applicable,any extended time in accordance with clause 44.

Liquidated damages may be defined as the genuine pre-estimateof all the losses which are likely to be incurred by the employeras a result of late completion of the works, calculated at the time

of making the contract. The purpose of providing for a monetarypayment in the event of late completion is essentially tocompensate the employer for the damages incurred by thecontractors breach of contract in not completing the works onthe specified date.


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LIQUIDATED DAMAGE (2) The advantage of having a liquidated damages provision can be

said to be that the damages payable by the contractor in culpabledelay are limited and the employer who receives late completiondoes not have to prove his losses due to such delay. Additionally,the liquidated damages provision acts as an exhaustive remedyfor damages for late completion. Therefore, the provisionprovides certainty for both parties, enabling them to assess andprice the risk.

The employers ability to rely on the liquidated damages

provision is lost if the employer prevents the contractor fromcompleting by the completion date without any effectivemechanism for extending time for completion. In such a casetime is said to be at large, which was discussed earlier


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LIQUIDATED DAMAGE (3) Why Liquidated Damages?

Money may not be the answer to all programs which run late, asdelivery on time may be the only priority. All clients want projectsto specification and financial remedy is not as satisfying as a

perfect project. When things do go wrong or when something isnot operating properly, or is delayed, a solution is what clientswant.

In spite of this, general damages (or unliquidated damages) are one ofthe most important remedies for a breach of contract, but requires thatfirstly, the non-defaulting party proves that it has incurred actual lossas a result of the breach and secondly that the loss must not be too

remote Hadley v Baxendale [1854]. A liquidated damages clause (LAD) avoids these two legal

requirements. The Employer only needs to prove that a breach hasoccurred and the calculation based on an estimate of the costsresulting from the non performance.


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LIQUIDATED DAMAGE (4)However for a liquidated damage clause to successfully apply it must be a genuine preestimate of theemployers anticipated loss in the event of delay to the project. The onus is therefore on the employer topredict and genuinely estimate what the loss would be to his business, in the event that the contractorfails to complete the Works or a Section of the Works by the completion date.If things go wrong the contract mechanism provides a formula to assess the loss to the client without thebother of adding up its actual losses. This is much neater, but of course subject to challenge if not doneproperly. However, a client cannot rely on LADs where the client hinders or prevents the contractorsprogress Peek Construction (Liverpool) Ltd v McKinney Foundations Lrd CA [1970].

ARGUMENTS:Commercial tension is created for performance and/or timely delivery

The contracting parties have the certainty of knowing in advance what the financial cost of delay is andhow that risk is allocated.

The non-defaulting party benefits from making a recovery of damages without the difficulty and expenseof proving actual loss (usually to the clients benefit)Legal costs are reduced with recovery of compensation made under the contractContractual obligations are reinforced to deter breachThe contractor can appreciate the financial implications of completing, plan to complete on time or pricethe risk of delay (at least in theory).

Documents

03 April 2013 Lecture 10 Extension of time