Time is ticking – managing delay and extensions of time in construction contracts

The importance of time for completion and the project programme

Most construction contracts will contain a contractual provision requiring the completion of the works by a particular date – often termed the Time for Completion. The contractor will be required to build a programme for the project which will meet the Time for Completion. The programme is an essential planning and management tool for the project, not only to ensure completion occurs, but also to manage costs, identify potential disputes and assess allocation of resources (such as funds, materials or labour).

To keep a project on track, proactive management of the programme is vital. Best practice involves:

• having clear mechanisms for the programme to be updated and issued;

• ensuring changes in the programme are reported to key stakeholders; and

• the employer or project manager actively monitoring the programme and sending notices when the contractor has not kept the programme up to date. It is not uncommon to see an employer failing to take an active role in chasing updated programmes given most construction contracts place the onus on the contractor to update the programme and notify the employer of any delays. However, active monitoring reduces the chances of disputes over EOT and variation entitlements.

These steps help to ensure that critical activities are regularly and diligently monitored, reduce potential slippages, and assist in identifying causes of delay as they occur.

Additionally, updated programmes allow the parties to accurately evaluate if acceleration measures can be economically deployed to recover delay.

The purpose of an EOT

If something happens on the project that will cause delay to the existing programme and Time for Completion, the contractor may be entitled to an EOT. The principal purpose of an EOT is eloquently set out in the SCL Protocol, Second Edition:

"The benefit to the Contractor of an EOT is to relieve the Contractor of liability for damages for delay (usually LDs) for any period prior to the extended contract completion date and allows for reprogramming of the works to completion. The benefit of an EOT for the Employer is that it establishes a new contract completion date, prevents time for completion of the works becoming ‘at large’ and allows for coordination / planning of its own activities."

When is an EOT available?

Most construction contracts contain express provisions allowing for an extension to the completion date to be made in certain circumstances. The burden is on the contractor to establish its entitlement to an EOT. It will need to prove:

1. The delay is a delay to the critical path (Critical Delay); and
2. The Critical Delay was caused by an event for which the employer is responsible.

There may be certain additional requirements regarding a duty to mitigate and the consequence of concurrent delay (which is discussed later).

What is Critical Delay? – Ideally Critical Delay should be clearly defined in the construction contract as delay to the critical path, i.e. delays that will impact on the project completion as opposed to delays to activities that are merely supplemental to the project competition. By way of example, on an industrial project, laying the foundation for a building would likely be on the critical path, but landscaping is unlikely to be on the critical path.

What is the Critical Path? – It is the longest sequence of activities in a project which must be completed on time to complete the project by the Time for Completion.

Risk allocation – During contract negotiations, various risks to the project will be allocated as the contractor’s risks or the employer’s risks. For example, typical employers’ risks include force majeure, design-related issues, unforeseen site conditions, delays in providing information, changes in legislation, approvals, permits, and site access. Whereas typical contractors’ risks relate to quality and workmanship, site safety, subcontractor issues, construction-related delays, and defects or rectifications. This risk allocation is usually set out in the construction contract. Therefore, it is important for parties to analyse delay events to establish whether the cause of the delay arose from risks undertaken by the contractor or employer. If the cause of the delay is a contractor risk, then there is likely to be no EOT.

In summary, if the contractor is able to demonstrate that there was Critical Delay, the construction contract permits an EOT for the type of Critical Delay claimed, and that the Critical Delay was caused by the employer, the contractor is likely to be entitled to an EOT.

Methodologies for calculating delay

When an event causes delay to a project, it is important to assess its impact and the length of the delay. There are different methodologies for carrying out a delay analysis – the most appropriate methodology will depend on a number of factors such as: the terms of the contract, the level and quality of available project records, the robustness of the baseline programme and subsequent updates, when the delay was suffered, if the effect of the delay event has ended, and the time and funds available.

Some methodologies are prospective in nature, such as Impacted As-Planned Analysis and Time Impact Analysis. They identify the causes of delay and then estimate the effect. Some are retrospective in nature, such as Time Slice Windows Analysis and As-Planned versus As-Built Windows Analysis. These identify the effect first and then consider the causes of the delay. An arbitral tribunal will generally prefer a retrospective analysis, in particular, the As Planned versus As Built method.

It is important that the appropriate methodology is used but also that it is correctly implemented. Whilst contractors tend to favour the use of the Time Impact Analysis, it must be recognised that should matters escalate to litigation or arbitration, a tribunal or court will require an As-Planned v As-Built analysis.

Concurrent Delay

“Concurrent delay” occurs where delay is caused by two events at the same time – one being an event for which it is the employer’s responsibility under the construction contract and the other for which it is the contractor’s responsibility under the construction contract. Typically, a construction contract will provide that in the event of concurrent delay the contractor is only entitled to an EOT, but not entitled to any associated costs or an adjustment to the contract price. This is on the basis that the contractor should not be compensated for prolongation if they contributed to the delay. However, where the contract does not expressly deal with concurrent delay, the consequences of concurrent delay will be determined in accordance with the governing law of the contract.

Different approaches

(a) English Law

Whilst there has been a discrepancy between how the Scottish and English courts have dealt with concurrent delay, the leading authority on concurrency in England and Wales is the 2005 case of Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd, which established that a contractor was entitled to an EOT (though no costs associated with the EOT) where the delay was caused by a relevant event notwithstanding the concurrent effect of another event.

In this sense, concurrent delay, at least from an EOT perspective, essentially becomes the employer’s risk. However, the 2018 case of North Midland Building Ltd v Cyden Homes Ltd held that parties could explicitly allocate the risk of concurrent delay to the contractor (i.e. the parties could include a clause noting that in the event of concurrent delay the contractor would not be entitled to an EOT).

There remains discussion on the role and impact of the ‘but for’ test and prevention principle in the context of concurrent delay and it is likely that cases will continue to test these principles and further develop this area of law.

(b) Onshore UAE law

The concept of concurrent delays under UAE law is still developing and there is limited guidance. However, Article 290 of the Federal Law No. (5) of 1985 concerning the issuance of the civil transactions law of the United Arab Emirates (Civil Code) provides that a judge may reduce the level of culpability where the person suffering harm participated in their own act to bring about or aggravate the relevant damage. The Civil Code then outlines in Article 291 that where a number of people are responsible for a harmful act, each of them shall be liable in proportion to their level of responsibility. This position is supported by:

1. the good faith requirements outlined in Article 246(1) of the Civil Code;
2. Article 106 of the Civil Code which prevents a party from unlawfully exercising their rights; and
3. Article 318 of the Civil Code regarding unjust enrichment.

However, the Civil Code stops short of providing any further guidance in relation to the apportionment of delays or costs where a concurrent delay has occurred. It is therefore advisable that parties expressly provide how concurrent delay will be dealt with in their contract.

(c) KSA Law

Similar to the UAE law position, concurrency is still a developing concept under the laws of the Kingdom of Saudi Arabia. However, the Civil Transactions Law, which was enacted by virtue of Royal Decree No. M/191, provides increased guidance for those conducting projects in the Kingdom. Namely, the Civil Transactions Law has adopted an apportionment approach (as set out in Articles 128 and 172 of the Civil Transactions Law) similar to that of Article 290 of the UAE Civil Code, which will likely be applied in the event of a concurrent delay.

Separately, nothing in the Civil Transactions Law explicitly prevents parties from setting out in their contract how concurrent delay should be dealt with. Whilst the courts may still examine these types of clauses and evaluate them in the context of other requirements set out in the Civil Transactions Law (i.e. operating in good faith), this is a proactive step open to parties to help reduce potential disputes.

Conclusion

EOTs are powerful tools for employers and contractors alike, but if they are not managed correctly by both parties, they can lead to long and costly disputes. It is important for parties to take the time to draft robust EOT clauses in the construction contract and treat the programme as a living document during the life of the project. Doing so reduces the likelihood of disputes, helps the parties understand their rights and obligations, and assists parties in managing delays and successfully completing projects. Parties are best advised to comply with notice requirements and take steps to ensure that they carefully maintain all project records. Such project records will be key in establishing whether a compensable critical delay has occurred.