Time and Delay Damages

What is the concept of time in construction contracts?

A date or a period stated in the contract for carrying out, completing an activity and/or fulfilling an obligation under the terms of the contract.

Why is time important in construction contracts?

Because it defines the contractor's obligation to complete by a specified date, allocates the risk of delay, links time to cost through extensions of time and damages, and provides certainty for enforcing contractual rights should dispute occur.

How do construction contracts manage time?

Through a range of interconnected clauses that underpin the importance of time. Date for possession (Clause 2.4), Date for Completion and Liquidated Damages (2.30-2.32).

What are the implications if no date is entered into the Date for Completion column?

There is no binding date for completion, time is 'at large'. The contractor is expected to complete the works in a reasonable time and the employer can't claim any delay damages.

What is delay?

Failure to complete the works by the completion date.

How do construction contracts deal with delays?

Through provisions in the contract - Relevant Events (2.29), Relevant Matters (4.22), Extension of Time (EoT), Compensation Events (Clause 60), Liquidated Damages (2.32/X7)

What is a Relevant Event?

A condition of the contract under 2.29, which lists events attributed to the Employer and others outside of his control and that allows for changes to the Completion Date of the works. Entitles the Contractor to EoT provided the event caused a delay, may entitle the Contractor to loss and or expense if the event qualifies as a Relevant Matter.

What is a Relevant Matter?

A condition of the contract under 4.22 which lists 5 matters which affects the progress of the works and may entitle the Contractor to loss and or expense.

What are Liquidated Damages (LDs) in construction?

LDs are a pre-determined sum of money specified in the contract that the contractor agrees to pay the employer if the works are not completed by the agreed completion date, serving as a genuine pre-estimate of loss.

Why are LDs used in construction contracts?

They provide certainty for both parties regarding the financial consequences of delay, avoid the difficulty of proving actual damages in court, and act as an incentive for the contractor to finish on time.

What are the relevant clauses for LDs in JCT and NEC4 contracts?

In JCT contracts, Clause 2.32 (or equivalent) governs the deduction of LDs. In NEC4 contracts, Option X7 provides the mechanism for Delay Damages.

What are the conditions precedent for deducting LDs?

The employer must typically issue a formal 'Non-Completion Certificate' (2.31) confirming the works were not finished by the Date for Completion. Employer then notifies the Contractor of his intention to withold or deduct LD's, with the period stipulated in which the Contractor is to pay at the rate specified in the Contract Particulars.

What are the consequences of failing to adhere to conditions precedent for LDs?

If the employer fails to issue a Non-Completion Certificate, they may lose the right to deduct LDs, leaving them only with the right to claim general damages for breach of contract, which are harder to prove.

What are the consequences of failing to adhere to conditions precedent for LDs (Case Law)?

Octoesse LLP v Trak Special Projects Ltd [2016]

Details of Octoesse LLP v Trak Special Projects Ltd [2016]

The Judge stated because an EOT had been agreed after the issuing of a Non-Completion Certificate (2.31) and no new Non-Completion Certificate issued, damages couldn't be deducted.

Details of Octoesse vs Trak Special Projects (2016)

Octoesse hired Trak to construct residential units. Practical Completion was later than the Completion Date. Octoesse issued a Non-Completion Certificate

Details of Octoesse vs Trak Special Projects (2016)

Trak submitted an EOT for 18 weeks and were awarded 9.5 weeks EOT

Details of Octoesse vs Trak Special Projects (2016)

Octoesse then tried to deduct damages with the final Payment Notice

Details of Octoesse vs Trak Special Projects (2016)

Trak objected on the grounds no further Non-Completion Certificate had been issued. Adjudicator agreed

What is an Extension of Time (EoT)?

A mechanism though which a client can award a contractor a defined amount of time to complete a project after the original completion date free from the obligation to pay damages.

What is the significance of the 'Date for Completion'? (or Completion Date - NEC4)

It is the contractual deadline by which the contractor must achieve 'Practical Completion'. It serves as the trigger point for calculating the duration of delay and the subsequent application of LDs.

What are the requirements of damages for them to be enforceable? (With case law)

A genuine pre estimate of loss agreed by both parties at the time of entering into contract. They must not constitute penalties else they become unenforceable. (Dunlop Tyre Co v New Garage & Motor Co 1914)