June 2019
Time is a subject that is highly relevant, and hotly contested, in an industry in which delays in completing works can prove costly to the party who may be responsible and legally liable for any loss, damages and expense resulting from such delays.
The most pressing concern for an owner under a building contract is that it can rely on, and plan ahead on the basis of, the date scheduled for completion of the works. For instance, the owner may have a ‘blue chip’ tenant to take possession of the completed build on a specified date. If that date arrives and the property is unfinished or unfit for occupation the owner will immediately begin to lose rent and may suffer other financial penalties and liabilities for breach of contractual commitments to the prospective tenant.
Commencing the works
It is common for the following time related issues to be expressly provided for in a building contract:
- The date for commencement of the works and possession of the site by the contractor; and
- The date for completion of the works.
If a contract provides that time is of the essence in relation to completion of the works, or some other obligation, then the contractor will be in material breach of contract if it fails to complete the works or obligation by the due date. The owner may hold the contractor to be in repudiatory breach of contract, rescind the contract and sue for damages.
Progress of the works
The contractor is to complete the works by a specified date. Prior to the completion date, any delay in the progress of the works does not of itself confer any rights on the owner. Until there is an actual delay in completing on or before the completion date, the owner does not have any right to claim damages from the contractor.
In extreme cases a delay in making progress with the works may constitute anticipatory breach of the contract. In standard form building contracts the builder is required to proceed regularly and diligently with the works. This has been held to denote a sense of activity, of orderly progress and of industry and perseverance probably such as will ensure completion according to the contract. Some contracts provide the owner with a right to terminate the contract if the contractor fails to proceed regularly and diligently with the works.
Extensions of time
At common law, if the owner acts in such a way as to render it difficult or impossible for the contractor to complete the works in the contractually stipulated timescale, for example, by instructing additional works or some other contract variation, then the owner cannot insist on strict adherence to the specified completion date. Further, the owner cannot claim any liquidated damages for non-completion by that date. The time is said to be ‘at large’ and the owner can insist only that the works be completed within a reasonable time. In other words, there must be added to the original completion date a reasonable extension of time (‘EOT’) for the delay caused by the owner’s acts.
Building contracts generally incorporate provisions for an extension of time to the original completion date and also specify circumstances in which EOT for completion may be appropriate. Less usual is the possibility of making up time by acceleration.
Extensions of time make reference to the occurrence of a relevant event which entitles the contractor to an EOT. The types of events conferring a right on the contractor to extend the completion date include:
- Force majeure – something beyond the control of the parties that prevents its performance, for example, war.
- Exceptionally adverse weather conditions – bad weather is not enough. A contractor must show that the delay in the progress of the works caused by those weather conditions and in support provide local weather reports.
- Specified perils – usually defined in a contract to include fire, lightning, explosion, storm, tempest and flood.
- Civil commotion and strikes.
- Compliance with the architect’s instructions, for example, instructions regarding discrepancies between contract documents; the postponement of works; finding antiquities; opening up works for inspection and testing.
- Delay in receipt of the architect’s instructions, namely, delay on the part of the architect to provide drawings, suppliers list, details or levels.
- Delay on the part of a nominated subcontractor or supplier.
- Delay on the part of the owner, for example, the supply of materials and goods which the owner has undertaken to supply.
- Government intervention.
- Contractor’s inability to secure labour or materials beyond the control of the contractor.
- Work by local authorities or statutory undertakers.
- Failure by the owner to give access or delayed access to the site.
- Deferment by the owner of possession of the site.
- Where approximate quantities do not constitute a reasonable forecast of work required.
- Where there is a change in statutory requirements.
- Use or threat of terrorism.
- Compliance or non-compliance by the owner in relation to relevant laws, building code, development consent, construction certificate and the like.
- Delay arising from a lawful suspension by the contractor.
Acceleration
Where the owner wants the work completed prior to the completion date, a contractor may claim for acceleration of the works. However, contractor’s may claim that express or implied instructions from the owner or his representative has ordered acceleration. This is known as constructive acceleration.
Right to suspend work
At common law, there is no right to suspend works. A contractor may suspend works only if suspension of works is provided for within their construction contract. In NSW the security of payment legislation allows for the suspension of works by a contractor for non-payment by an owner once notice of the intention to suspend is given. The contractor will also be entitled to any loss or expense due to the suspension of the work.
Liquidated damages
Often in building and commercial contracts the parties expressly agree to the amount of damages to be paid in the case of certain breaches of contract. These are called liquidated damages and are advantageous for two reasons:
- it reduces the possibility of a dispute by having to identify the loss and quantify it; and
- it allows the parties to cost a contract more accurately since they are aware of the limitations of their potential losses.
Liquidated damages are common in building contracts where pre-agreed damages arise for the failure to:
- complete by a specified date (by far the most common);
- pay by a certain date; or
- provide a plant which gives the required output.
In order for these clauses to be valid and enforceable they must be a genuine pre-estimate of damages and not a penalty clause.
A genuine pre-estimate includes the likely losses that will flow from the breach in question. The damages stipulated in the clause will be recoverable irrespective of the fact that the actual loss might be more or less than claimed if it is necessary to protect the innocent party’s interests.
If the clause is not a genuine attempt at a pre-estimate, it will be a penalty and will be unenforceable. The test is one of proportionality to protect the legitimate interests of the innocent party where the value is not extravagant and unconscionable.
Completion
Building contracts use the terms “practical completion” and “substantial completion”. Construction contracts and the courts have tried to define these terms and found that completion is usually when an owner is able to take possession of the works and allow for the contractor to leave the site.
Sometimes before completion there need to be tests, or the issue of a certificate by the engineer or architect to comply with the contract but these do not mean that the contractor’s obligations are finalised under the contract. Apparent completion is not affected by the existence of latent defects and once completion is determined it marks the start of the maintenance or defects liability period.
The contents of this article is intended to provide a general guide to the subject matter and does not constitute legal advice. Ferrer Lawyers always recommend that you obtain legal advice prior to selecting a builder or entering into any contract. No matter who you are, if you’re having contract issues on site or require representation call (02) 8823 3588 or email us with your enquiry at This email address is being protected from spambots. You need JavaScript enabled to view it. for further information, guidance or assistance.