Any standard industry contract and most home grown contracts have extension of time (EOT) contractual provisions.
Regardless of whether you are a builder or a subby, if you don’t lodge your EOTs, it will cost you. How much will it cost will be determined by the contract.
Time extension contractual procedures
Most building contracts have elaborate contractual conditions that map out the time extension procedure. Typically the contract will require the builder or the subby to lodge a written EOT request as soon as a time impact event materialises. The contract will state the grounds upon which an EOT can be claimed. The grounds range from inclement weather to variations, third party intervention, industrial action, or the intervention of statutory offices.
Once the event occurs, the contract will require the claimant to lodge a claim in writing in accordance with the procedure set out in the contract and the recipient will then be given a number of days to respond likewise in writing. The response may be in the affirmative or the negative, depending upon the legitimacy of the request and or the bona fides of the client. Client bona fides aside, always – yes always – lodge your EOTs to ensure that you discharge your end of the contractual requirements.
Beware the “deemer” – the guillotine as it were
It can often be fatal for the claimant to neglect to file the EOT within the stipulated time, particularly when the contract states that failure to lodge an EOT within a contactually stipulated period of time will result in the inability to ever revisit the claim. Hence the term guillotine, to illustrate the fact that a lackadaisical approach to contract admin can “amputate” a contractual entitlement. This may appear very unfair, but in a court of law the judge will look to the contract, read what it says and will then ordinarily strictly interpret and apply the wording of the contract to the letter.
The consequences of failing to lodge an EOT
The consequences of failing to lodge an EOT can be diabolical, especially if the completion date is not extended, because the client can then visit damages upon the contractor and the damages can be frighteningly large.
There are two types of damages – liquidated damages (LDs) and general damages.
LDs are damages that are negotiated and agreed upon before the parties enter into the contract. Once agreed upon, the amount of LDs are then entered into the delay cost section of the contract schedule. LDs by law are supposed to represent a genuine estimate of the loss that will be sustained if the building is completed late. Delay costs calibrate with the loss of rent in the case of a residential project but could be far more heinous if, for instance, a subcontractor’s delays are such that they will impact upon the completion date of the head contract or the overall project. LDs cannot, however, have a penalty component in that the amount that is agreed upon cannot be punitive or excessive. It has to be based upon real, not hypothetical cost scenarios.
General damages, by contrast, are damages that are not liquidated. Unlike LDs, they are not negotiated and agreed upon before the contract is signed. Rather, they are damages that give the client the ability to claim the actual costs that flow from the delays if and when the crystallise.
If you lodge your EOTs, you too may be able to claim damages. Most building contracts give contractors the ability to claim LDs or delay costs if the client causes defaults. So, do yourself a favour and get your EOTs lodged. Then you too can claw back your delay costs.
The building industry is starting to turn litigious again, so listen up. If your paperwork isn’t up to scratch, you may be in a for a very big surprise. If you haven’t applied the contract to the letter, the bloke who was once your accommodating client may well go cold and hit you with LDs. It’s no good saying “but we had an understanding” or “I thought he was a top bloke” or recounting that he said “it’s all good, mate.” Mark my words, if it ain’t in writing you’ll cop it. I’m not waxing lyrical when I say that we see builders and subbies cop it all the time because they take their eye off the ball when dealing with what they consider to be the mundane: their paperwork.