Building projects experience a delay for one reason or another. Under the construction contract, a contractor may be entitled to an extension of time to complete the works provided they did not cause the delay themselves. Determining whether an extension of time is necessary depends on whether the delay is one which prevents the contractor from practically completing the work by the set date and whether there is any additional time in reserve to allow for such a delay. Below, we explore a contractor’s rights to an extension of time, what happens when a contractor relies on an extension of time clause in their contract and the impact of this on the obligations of the parties.
Requesting an Extension of Time
If the client causes the delay, the contractor can apply for an extension of time. Once the delay occurs, the contractor usually has a specified period to make the request and must follow the notification requirements outlined in their agreement. If there has been a delay caused by the client that the contractor doesn’t know about, the client or another such responsible party has a duty to inform the contractor of this fact and to grant an appropriate extension of time.
If the contract doesn’t set out the procedures for an extension of time in the circumstances of delay caused by the client, the date for completion of the works is automatically changed to an obligation on the contractor to complete the project within a reasonable time. The client is also prevented from claiming liquidated damages in the reasonable time given to the contractor to achieve practical completion of the works. Only if the contractor does not complete the works within the reasonable period specified will the client be able to claim for actual damage.
In other words, the client loses some of their rights under the contract when they have caused delay or otherwise breached the contract. This reflects an established principle in construction law known as the ‘Peak’ or ‘prevention’ principle. This principle sets out that a party is not able to gain benefit from a contract by relying on its own breach of the contract.
The Peak Principle
This principle comes from the English case of Peak Constructions (Liverpool) Ltd v McKinney Foundation Ltd (1970) 1 BLR 111. In this case, Peak, the contractor, was hired to build a 14-storey apartment block for Liverpool Corporation. Peak subcontracted to McKinney to do the piling of the site. The completion date for the contract was 17 February 1966. The piling was completed in July 1964. By chance, in October 1964, it was discovered that McKinney’s piling work was defective. Peak asked Liverpool for instructions on how it wanted it to fix the defective work. Liverpool did not provide Peak with instructions until August 1965. Upon receiving instructions, McKinney began work immediately but did not fully complete the rectification works until 58 weeks from the discovery of the fault and suspension of the construction.
Liverpool then claimed liquidated damages against Peak who claimed against McKinney. Liquidated damages are the amount payable to the client when a contractor fails to complete the works by practical completion, which is a particular date specified in the contract. Liquidated damages are calculated as a genuine pre-estimate of the loss which the client would suffer as a result of the default by the contractor.
Despite Liverpool being primarily responsible for the delay in completion, nothing in the contract provided a process for Peak to have an extension of time due to Liverpool’s delay. The Court held that it would be unreasonable to hold McKinney liable for the entire 58-week delay as there was no extension of time clause for Liverpool’s breach of contract that set a substitute date for practical completion.
The completion date could then only be for McKinney to finish the works within a reasonable timeframe. The outcome of this was that Liverpool was not entitled to any liquidated damages because there was no date from which they could measure liquidated damages and so none were payable.
The above case clearly demonstrates that it is important for both clients and contractors to have specific procedures in their contracts for what is to happen in the event of a delay by either party. Implementing an extension of time clause can be beneficial for both sides, as it relieves contractors from liability for the delay caused by the client, and also helps the client recover any damages if the contractor doesn’t complete work before the substituted completion date.
If you have any questions about your obligations under a construction date or need assistance with your dispute, get in touch with our specialist building and construction lawyers on 1300 544 755.