Shifting Risk and Liability in Concurrent Delay

Shifting Risk and Liability in Concurrent Delay

If my 33 years' experience of construction projects and receding hairlines has taught me anything, it is that it is rare for a construction project to finish on its planned completion date. Late completion invariably means that both the Employer and the Contractor will incur additional costs and neither will be happy.

The Parties’ contract will usually have a pre-agreed level of compensation (“liquidated and ascertained damages”) that the Contractor agrees to pay the Employer when a project finishes late and it is the Contractor that is at fault. When the Employer is responsible for delaying completion of the project then the Contractor is entitled to recover its additional costs.

The standard forms of contract contain provisions to allocate risk and responsibility for delay. The forms also contain mechanisms that will allow for the fixing of a later date for completion when the delay is due to an event for which the Employer has assumed responsibility under the terms of the Contact. These mechanisms are often referred to as extension of time (“EOT”) provisions. The EOT provisions are very important to both the Employer and Contractor.

In the absence of an EOT mechanism, any act of prevention by the Employer which has or will cause a delay to the project would cause time to become “at large”, replacing the obligation on the Contractor to complete the project by a fixed date, with a new obligation to complete the project within a reasonable period – which, to you and me, means that the Employer has lost the right to levy liquidated damages against the Contractor for late completion.

The EOT mechanism is important to the Contractor because the right to an extension of time gives the Contractor relief from having to pay liquidated damages to the Employer and is often expressly or by implication linked to the right to recover either damages, loss and expense or additional costs, depending on what label is used to describe the compensation payable by the Employer to the Contractor for late completion.

So far, so good. But what happens when both the Employer and the Contractor cause a delay to the project completion date at the same time?

The short answer is that it depends on what your contract says.

My long-held view (shared by many) is that where there is concurrent delay by both Contractor and Employer which leads to a delay in completion, the general position is that an extension of time should be awarded to the Contractor to provide relief from liquidated damages but the Contractor should not receive any recovery of damages, loss and expense or additional costs for the concurrent period of delay. This approach is not only equitable and reasonable but a reasonable and balanced allocation of risk and liability between the parties in such circumstances.

Now we all know that very clever lawyers are paid large sums of money by Employers to re-distribute the risk in a Construction Contract for the benefit of the Employer. Such an example of this can be found in the reported case of North Midland Building Limited v Cyden Homes Limited [2017] EWHC 2414 (TCC).

The case concerns the building of a large residential property in Lincolnshire with North Midland appointed as Contractor under a JCT Design and Build Contract 2005 edition with amendments.

In this case, lawyers acting for Cyden introduced an amendment to the extension of time provision where North Midland had given notice of a delay.

 “2.25.1 …

  1. any of the events which are stated to be cause of delay is a Relevant Event; and
  2. completion of the Works or of any Section has been or is likely to be delayed thereby beyond the relevant Completion Date,
  3. and provided that

(a) the Contractor has made reasonable and proper efforts to mitigate such delay; and

(b) any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account

then, save where these Conditions expressly provide otherwise, the Employer shall give an extension of time by fixing such later date as the Completion Date for the Works or Section as he then estimates to be fair and reasonable.”

During the course of construction, the project was delayed by weather, for which the Employer had assumed responsibility under the Parties’ contract, but at the same time the project was also suffering delay due to various workmanship and materials issues for which North Midland had assumed responsibility under the contract.  

As you have probably guessed, Cyden refused to grant North Midland an extension of time and North Midland applied to the High Court for two declarations in Part 8 Proceedings as follows;

(i) that the effect of Clause 2.25.1.3(b) is to make time at large where the claimant has a claim to an extension of time for a delay caused by a Relevant Event where that delay is concurrent with another delay for which the claimant is responsible; and

(ii) in such circumstances, the claimant must complete within a reasonable time and liquidated damages are void.

The basis of North Midland’s argument before the Court was that Cyden could not, in law, enforce an obligation on North Midland to complete the works by the original date for completion and thus deny North Midland an extension of time when it (Cyden) had prevented North Midland from performing its obligations under the Parties' contract. It was on this basis that North Midland sought a declaration that time had become at large.

The Honourable Mr Justice Fraser has little sympathy with North Midland’s case, in effect finding that any act of prevention by Cyden was a Relevant Event and that the precise wording of the amended clause allowed Cyden to deny North Midland an extension of time for any period in which North Midland was in default, regardless of whether or not there was concurrent delay by Cyden impacting on the same period of delay.

Perhaps not unsurprisingly, North Midland appealed the TCC judgement and in North Midland Building Limited v Cyden Homes Limited [2018] EWCA Civ 1744 the Court of Appeal rejected North Midland’s appeal, finding that the amended clause relied upon by Cyden did not deny North Midland an extension of time in circumstances where Cyden only was preventing North Midland from completing its obligations. Time was not therefore at large and, in any event, an express provision such as the one relied upon by Cyden could be incorporated into a contract to override the prevention principle.  

Comment

Under English law parties generally have the freedom to contract on whatever terms they wish. Parliament only interferes when it considers it is in the wider public interest to do so. As a result of this TCC and Court of Appeal judgement, there is no doubt in my mind that we will now see a rush of clever lawyers seeking to amend the standard forms of contract in order to deny a Contractor a right to an extension of time where the Contractor is also in concurrent delay.  Is this in the wider public interest? In my view, the answer is no but I don’t expect to see the introduction of new legislation to prohibit this sort of abuse any time soon. Contractors reading this article, please watch out for these sorts of amendments and, if you wish to avoid damaging your wealth, resist them at all costs.  

 

Peter Vinden is a practising Adjudicator, Arbitrator and Mediator. He is also the Chief Executive Officer of The Vinden Partnership and can be contacted by email at pvinden@vinden.co.uk. For similar articles visit vinden.co.uk

Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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