Extensions of time ‘can operate as a shield’ against arbitrary state termination

James Cameron, a dispute resolution expert at Pinsent Masons, said: “The intersection of construction delay analysis and investment treaty arbitration is an area practitioners cannot afford to overlook.”

The issue arises where a state or state-owned employer terminates a contractor on the basis of alleged delay, but subsequent forensic delay analysis indicates that the contractor was entitled to an extension of time (EOT) because the delays were caused, at least in part, by the employer itself.

In those circumstances, contractors are increasingly arguing that the termination was not only wrongful under the contract but also constituted an arbitrary or capricious act under the terms of an applicable bilateral investment treaty (BIT) or other investment protection agreement.

If a contractor can establish that employer-caused delays entitled it to additional time to complete the works, the factual basis for the termination may be undermined. Without a legitimate contractual foundation, the termination may be characterised as arbitrary in the treaty sense, potentially amounting to a breach of fair and equitable treatment (FET) obligations or express prohibitions on arbitrary state conduct commonly found in investment treaties.

The issues may be particularly relevant on large-scale infrastructure, energy and industrial projects involving foreign investors and public sector counterparties, especially where a programme of related contracts exists but only one contractor is singled out for termination.

Cem Kalelioglu, an investment dispute resolution expert at Pinsent Masons, said: “Where a state or state-owned entity terminates a contract on the basis that a contractor has failed to complete on time, but the contractor can show entitlement to an extension of time, the termination may be not just contractually wrongful, it may cross the threshold into a breach of international law.”

Investment treaty tribunals have long scrutinised whether state actions are supported by a rational legal and factual basis when considering claims that measures are arbitrary. Factual findings by delay experts may become central to determining whether a state has complied with its international obligations.

Kalelioglu said: “Treaty tribunals have consistently held that a measure is arbitrary where it lacks a plausible legal or factual basis. A termination premised on delay that was of the employer’s own making is precisely that.”

Cameron said: “The trend highlights the increasingly important role of forensic delay analysis outside conventional construction and engineering disputes. The implications are significant. Delay analysts’ forensic conclusions can become determinative not merely of a contractual claim, but whether a sovereign state has met its obligations under a BIT.”

“The development serves as a reminder that contractual disputes arising on foreign-invested projects can have wider legal implications where treaty protections are available. Contractors facing termination may therefore wish to assess potential treaty rights alongside contractual remedies and engage delay experts as early as possible to preserve evidence and establish entitlements to time relief,” he added.