In any building project, time is a critical element not only for the property owner but also for the builder.
As the saying goes, ‘time is money.’ Blow-outs in time can potentially financially cripple a builder where a large liquidated damages claim or payment results or may be the result.
When there is a delay in completion, one of the first questions is: could the delay have been foreseen. The question then can become who if anyone has to pay, and how much, for those delays.
Luckily for builders, the law provides for extensions of time claims and where the builder claims such an extension, no delay damages or liquidated damages may or will be payable where the project is delayed. The basic idea behind an extension of time is fault based and they are certainly contractually based. That is, if there are circumstances which are foreseeable on a project, and which are beyond the control of the builder, time can extended.
Inclement weather, public holidays, weekends, approval delays, latent conditions, industrial disputes and natural disasters in or around the project area are among the many examples of where time can legitimately be extended, as well as disputes between neighbouring property owners or occupiers where the builder isn’t at fault.
A builder should, as soon as they anticipate that time may be delayed beyond the specified required contractual time, give the owner written notice of the time delay or possible time delay and the reason for the situation. They should also then in writing separately claim an extension of the time by which the project is to be completed, forecasting or estimating as accurately as possible the time extension required, and they should state the reason or reasons for the delay.
If a set time for the delay cannot be set or agreed upon, the law can often allow a reasonable time for completion to be implied. Any other possible procedures for claiming an extension can be set out in the contract and in such a case, those procedures should be strictly complied with. It is strongly recommended that in a given contract, such procedures are indeed placed into the contract.
There is, however, a distinction between notifying the delay and the circumstances surrounding it, and then actually formally making a claim for an extension. This is why it is recommended that a separate communication be sent for the notice, and then the claim. If the contractually mandated procedures are not followed to the letter, the builder can lose the right to claim a valid extension and thus, lose the ‘right’ to avoid paying liquidated damages.
Of course, the owner can dispute the claim and this is a fertile area for disputes. The crux of the issue is often what was or was not the substantial cause of the delay. This is based on the legal principle that a party should not be allowed to take advantage of its own fault to take an advantage or benefit for themselves. This is called the prevention principle.
Generally the party best able to control the particular risk at hand is the party made legally responsible if the risk materialises and time is delayed there from. If the risk is one which is neutral in the sense that it cannot be controlled by either party (such as weather) then it may be that the parties can negotiate the time related consequences resulting. Failing that, there may be a dispute resolution procedure specified in the contract which they can avail themselves of. Failing that, and often as a last resort, there is litigation.
The touchstone for completion in this context (and others not presently relevant) is substantial or practical completion. The reasoning behind such a concept as practical completion is that rarely at the end of a building project are there not at least some minor defects which need attending to, and the idea behind it is that the building is ‘practically complete,’ thus allowing some scope for time to attend to these issues. Of course, the builder is still required to complete the works with due diligence and with expedition and to proceed accordingly throughout.
Where a valid extension of time is made, the owner can be prevented from claiming liquidated damages in the relevant period of the extension. If however, the builder still does not complete within the extended period, the liquidated damages can then re apply to the situation then at hand.
It should be noted that the benefits of accepting a claim in a given situation can be mutual. For an owner it can still be possible to claim damages if the builder doesn’t complete within the extended time, and for the builder, they get the protection of not having to pay damages where the delay is in fact caused by the owner.
This is but an overview or a ‘primer’ on the fertile area of disputes in projects surrounding time and its possible extension and if you are embroiled in a dispute, or if you wish to possibly prevent being involved in a time related dispute, professional advice should be sought.