Don’t let demands for more time hit your pocket too
Building contracts often provide that a contractor shall not be entitled to an extension of time if it does not give the contract administrator written notice of the event that it claims is, or is likely to, delay the works within a certain time of that event occurring.
These types of clause can promote good project management: they should result in problems being quickly identified and give the contractor and consultants an opportunity to act to mitigate delay. The courts have made it clear they will enforce such clauses.
Loss recovery
When a time extension is awarded the employer must usually pay the contractor any additional costs it has incurred but is unable to claim liquidated damages from it for the delay. The financial impact on the employer can, therefore, be substantial. The employer may seek to recover its losses from the contract administrator if it grants an extension of time or acts in a manner that prevents the employer from relying on the contractor’s failure to give notification of the event causing a delay within required timescales.
There are a number of steps which architects who act as contract administrators should take to minimise the chances of these circumstances arising.
First, they should ensure they know the circumstances in which a contractor is required to provide notification of an event and the relevant timescales. For example, the contract may require the contractor to notify the architect of an event as soon as it becomes reasonably apparent that the works are likely to be delayed or may only require the contractor to notify the architect of an event when it is actually delaying the works.
The judge robustly rejected the contractor’s argument that progress reports constituted notices under the terms of the contract
Secondly, the architect should give the contractor no indication that it will not strictly apply the time limits for notification set out in the contract because this may waive the employer’s right to rely on those limits.
Thirdly, the architect should not grant an extension of time where notification has been provided outside the time limits set out in the contract. If the employer wishes to grant an extension, despite the late notification, it should be made clear to the contractor that the concession relates only to the notice in question, and that the employer requires all further notices to be submitted on time.
Know your contract details
Finally, where contractors have failed to formally notify an event that they claim has delayed the works, they sometimes argue that, for example, meeting minutes and progress reports making reference to the event constitute the written notice. It is important to carefully consider whether such documents comply with all the requirements for the notice set out in the contract. The contract may, for example, require that the notice describes the event and makes it clear that the contractor is seeking an extension. The courts are unlikely to take a sympathetic approach to contractors who fail to provide formal notices and then argue that other documents should be taken to constitute notices. In the recent case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar, the judge robustly rejected the contractor’s argument that progress reports constituted notices under the terms of the contract.
If architects take the steps set out above, they should find the notice provisions relating to delay in contracts to be a helpful project management tool while avoiding exposing themselves to risks of liability to employers.
Douglas Wass is with Macfarlanes LLP