Out-Law Guide | 31 Jul 2020 | 11:19 am | 7 min. read
In April, analysts at Barbour ABI identified 4,253 UK projects with a combined value of £67.7 billion that had been delayed or withdrawn as a result of the pandemic. Although this figure has now fallen as a result of sites re-opening, it illustrates the importance of actively and carefully managing the financial consequences of delay.
This guide is the third in a series from the specialist infrastructure lawyers at Pinsent Masons.
Delay on a construction project is a matter of importance for both the contractor and the employer. A contractor will incur additional costs in maintaining a site presence that might not be recoverable; and an employer will suffer lost revenue from the delayed completion of the asset.
Where a project is delayed, one or other of the parties will have to shoulder the burden of that late completion in financial terms. Depending on the wording of the contract and the jurisdiction, the employer may be entitled to claim liquidated or general damages for delayed completion. The contractor may be entitled to an extension of time to excuse the late performance, and possibly also to its costs associated with that delay.
Not many anticipated the full effects and impact that the Covid-19 pandemic would have on live projects and it remains to be seen how the industry will react to, and deal with, so many late projects.
Having the appropriate project controls and procedures in place to identify the prospect of delay and then manage its effects is essential. The NEC suite of contracts, for example, places the Accepted Programme at its very core and the various associated provisions within those contracts which deal with early warning and risk management have been shown to have a positive effect in identifying and managing the causes and effects of delay.
That said, not many anticipated the full effects and impact that the Covid-19 pandemic would have on live projects and it remains to be seen how the industry will react to, and deal with, so many late projects. Even as things begin to return to normal, projects may continue to be delayed due to the impact of the early shutdown of projects; labour, plant and material supply issues; and the additional burdens of 'new normal' methods of working.
Before considering how the parties to a construction contract might deal with delay or the prospect of delay, it is worth addressing the legal nature of the contractor's obligation to complete the project by the agreed date.
The starting point is that late completion caused by the contractor will amount to a breach of contract giving rise to a possible claim by the employer for damages. If the employer has made the requirement to complete by the agreed date a condition of the contract, late completion would give rise to an entitlement to terminate.
In both common law and civil code jurisdictions, the starting point when determining whether a contractor is entitled to an extension of time for completion – and relief from delay damages - is to check the express terms of the contract.
Where the contractor can establish a contractual ground for the extension then, subject to having given effective notice and being able to demonstrate causation, it ought to be entitled to an extension of time. It may also be entitled to associated loss and expense.
Whether there is a contractual entitlement to extend time for the effects of the pandemic is something that will need to be considered on a case by case basis. This might involve a consideration of the scope of any contractual force majeure provision and whether the specific impacts of the pandemic are caught by the definition. If they are, then performance is generally excused for the duration of the circumstances giving rise to the force majeure.
In common law jurisdictions, force majeure is a creation of contract. If there is no contractual provision for force majeure, the contractor will not be entitled to additional time to complete save for two specific exceptions:
In civil code jurisdictions, applicable codes may contain provisions which justify non-compliance with the contractual completion obligations or provide relief from liquidated damages in certain prescribed circumstances, regardless of the existence of a contractual force majeure provision. For example, the UAE Civil Code expressly provides for relief in the event of force majeure, extraneous events and unforeseeable circumstances. It is always worth checking if the applicable law alters or supplements the contractual position.
Once it is satisfied that the delay is 'excusable' and there is a contractual entitlement to an extension of time, the contractor should:
If the contractor is in culpable delay, the employer should consider:
If the contractor is in excusable delay, consider whether an instruction to accelerate should be given. A careful assessment will need to be made of the additional costs that this will generate compared to the costs of completing late.
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