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Your Contractual Questions Answered

Is The Contractor Obliged To Apply For Extension Of Time ?

By the Entrusty Group The Entrusty Group, a multi-disciplinary group of companies, of which, one of their specialisations is in project, commercial and contractual management, has been running a regular contractual question-andanswer section for MBAM members in Master Builders Journal. In this instalment of the series, the Entrusty Group will provide the answer to the frequently asked question above.

onstruction contracts usually have a fixed time frame for the Contractor to complete the works (i.e. time is of the essence time being a fundamental term of the contract). PAM 98 cl 21.1, PAM 69 cl 21 (1), JKR 203/A cl 38 (b), IEM cl 38 (a), CIDB cl 17.1 JKR PWD DB/ T cl.39.2 refer to Possession of Site and Commencement. Consequently, PAM 98 cl 21.1, PAM 69 cl 21(1), JKR 203/A cl 38 (b), IEM cl 38 (a), CIDB cl 17.1 (a) and JKR PWD DB/T cl. 39.2 also specify the Contractors primary obligation to complete the Works by the completion date. If the Contractor fails to complete the Works by the Date for Completion or within the extended time, the Contractor is in breach. Under Section 75 of the Contract Acts 1950 (CA 1950) the Contractor shall bear the damages suffered by the Employer. Purpose Of Extension Of Time Clauses The main provision of EoT clauses is to allow for any alteration to the completion date. It is also to preserve the Employers rights to deduct Liquidated Damages.The two major effects of time extension clause(s) under construction contracts are as follow: (a) The extent to which the Contractor could be made liable for liquidated damages in the event of a delay to the completion of the Works; (b) The fact that extensions of time are granted on account of delays attributable to some act by the Employer may afford a basis for a

claim by the Contractor against the Employer for time related damages and disruption losses. Hudsons Building and Engineering Contracts, 11th Edition, p 624 explains the rationale for such clauses: It has been seen that, for the purpose of treating the contract as repudiated, in the rare cases where time is of the essence, the contract time for completion may cease to be applicable for a variety of reasons, including the ordering of extras or other interference or prevention by the employer. In the case of damages, it is equally obvious that where the reason is some act of the employer or his architect or engineer preventing completion by the due date, it cannot be the intention of the parties that liquidated or other damages should be calculated from that date even if the act, such as ordering extras, is not a breach of contract. Liquidated damages stipulated for at a rate for each day or week of delay in completing the works must begin to run from some definite date. It follows, therefore, that if the date in the contract has for some such reason ceased to be the proper date for the completion of the works, and no contractual provision exists for the substitution of a new date, there is such a case no date from which liquidated damages can run and the right to liquidated damages will have gone. This, rather than solicitude for the contractor, is the reason for the provision usually known as the extension of time clause.
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EoT and liquidated damages clauses are closely linked, and failure by the Architect/ Engineer/S.O/P.D. to properly exercise his power to extend time, where any delay is caused by the Employer (or for which the Employer is responsible in law), relieves the Contractor from his liability to pay liquidated damages. As a result, the courts have consequently ruled that the clause(s) are to be interpreted contra proferentum against the Employer. Contractual Provisions For EoT Generally, the Contractor is to give written notice of delay and cause/s to the Architect/Engineer/S.O/P.D. when it is apparent that the progress of works is delayed for him to assess and grant EoT. PAM cl 23, IEM/JKR cl 43, CIDB cl 24, and JKR PWD DB/T cl. 45.1 are the relevant clauses for EoT. For the Contractor to claim for EoT, the grounds for such claim for EoT must fall within the specific events as listed in the contract. Any event falling outside the listed events does not entitle the Contractor to any EoT. The grounds for EoT applications can be divided into two basic categories: (a) Neutral events, e.g. force majeure, exceptionally inclement weather, civil commotion, strike or lockout, availability of materials not due to the Contractors fault, etc. (b) Defaults by the Employer and/or his agents, e.g. late decision/information of the Architect/Engineer/S.O/P.D.,

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S/cl 24.7 allows the S.O. to review any previous EoT granted at any time prior to issuance of Final Certificate either to fix a Time for Completion later than that previously granted or confirm that previously fixed. Contractors Obligations For Applying For EoT Generally, there is a duty imposed on the Contractor to notify the Architect/ Engineer/S.O. in writing as soon as the progress is delayed. The objective is to ensure that the Architect/Engineer/S.O. is aware that the completion period may not be met and that the Contractor is prewarned of the triggers off time whether or not the reason of such delay is within one of those grounds or the Contractors own inefficiencies. late site delivery, compliance with the Architect/Engineer/S.O/P.D., delay by the Employers agents, delay by nominated sub-contractors/ suppliers, etc. PAM/IEM/JKR203/A/PWD DB/T requires the Contractor to use his best endeavour to prevent delay in the works and do all that may be reasonably required and satisfaction of the Architect/ Engineer/ S.O/P.D. to proceed with the works. CIDB Form is much more procedural and comprehensive on extension of time provisions: Cl 24.1 Cl 24.2 Cl 24.3 Cl 24.4 Extension of Time Notice of Delay Superintending Officers Decision Interim Decision of Extension of Time Cl 24.5 Superintending Officers Discretion Cl 24.6 Certificate of Extension of Time Cl 24.7 Review of Superintending Officers Decision CIDB s/cl 24.3 requires the S.O. to notify the Contractor in writing within 30 Days of notice receipt or further information, whether in his opinion the delay event is one which in principle entitles to an EoT. Under the CIDB contract, it also allows the S.O. to grant EoT even when he considers that there is insufficient information to decide on the Contractors application. In general, in deciding any EoT, the S.O. shall take into account the following matters: (a) EoT previously granted, if any; (b) The effect/extent of work omitted or decrease in the quantity of any work resulting from re-measurement; (c) Any concurrent delays with the delaying event/s including those due to the Contractors acts or defaults. The CIDB contract under s/cl 24.4 allows the S.O. to make interim decision on EoT where a delaying event has continuing effects and to decide an overall EoT on the event within 30 Days of receipt of final particulars, by reviewing all the circumstances. Whilst s/cl 24.5 allows the S.O. absolute discretion to grant a fair, reasonable and necessary EoT even if the Contractor fails to comply with the EoT provisions. S/cl 24.6 requires the S.O. to notify the Contractor of any decision in granting extension of time in a certificate (Certificate of Extension of Time), copied to the Employer and nominated subcontractors/nominated suppliers. It is desirable that the notice should specify the cause of the delay but even if the notice does not contain sufficient details to enable the Architect/Engineer/S.O. to form an opinion as to whether the cause of delay falls within one of those specified grounds, it is still valid. Thus, the requirement of notice of delay is not a condition precedent to the granting of an extension of time by the Architect/Engineer/S.O. However, this could be taken into account in granting an extension of time. In London Borough of Merton v Stanley Hugh Leach (1985) 32 BLR 51, it was decided that a written notice is not a condition precedent to granting EoT. The Architect is under an independent duty to do so. Mr Justice Vinelott went on to say that failure by the contractor to give notice of delay was itself a breach of contract and this could have some effect on his right to an extension of time. If the architect, because of failure by the contractor to give notice of delay, was unable to avoid or reduce a delay to completion, the contractor should have no greater extension than if he had given notice. The legal principle here is that no one should benefit from his own breach of contract (The Prevention Principle) and is closely allied to the duty to mitigate.

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There is also an obligation imposed on the Contractor to constantly use his best endeavour to prevent delay. The Contractor shall also do all that may reasonably be required to the satisfaction of the Architect/Engineer/ S.O. to proceed with the work. There are two issues to be considered when deal with timing for granting extension of time: (a) EoT must not be granted too late to be effective in keeping liquidated damages provisions alive; and (b) EoT must not be granted too late to allow the contractor to reprogramme his work. In the case of Miller v LCC (1934) 151 Lt 425, the contract provided for the whole of the work to be completed by 15 November 1931. There was a provision for the Engineer to grant extension of time retrospectively. Work was completed on 25 July 1932. On 17 Nov 1932 Engineer issued Certificate granting extension to 7 February 1932. It was held that the phrase to assign such other time for completion contemplated exercise of the power within a reasonable time of the delay and a retrospective extension came too late to be effective. A power to extend the time had therefore not been exercised within the time limited by the contract, the building owner has lost the benefit of the clause, i.e. there was no date from which penalties could run and no liquidated damages could be recovered. In Amalgamated Building Contractors v Waltham (1952) 2 AER 452, Lord Justice Denning declined to follow Miller which he said turned on its particular wording of the clause and the time fixed for completion of work had been validly extended. In the relatively recent case of City Inn Ltd v Shepherd Construction Ltd, Outer House [2001], 2001 Greens Weekly Digest 26-999, it was held that any EoT must be condition on the Contractor putting in the relevant application notice.

The contract was the Joint Contracts Tribunal (JCT) Standard Form of Building Contract Private Edition with Quantities 1980 edition (PAM form of contract is based on JCT 63), with a schedule of amendments appended. This schedule inserted into the conditions an additional clause 13.8. The most relevant part of the clause, clause 13.8.5 stated: If the Contractor fails to comply with one or more of the provisions of Clause 13.8.1, where the Architect has not dispensed with such compliance under Clause 13.8.4, the Contractor shall not be entitled to any extension of time under Clause 25.3. Lord MacFadyen said: For present purposes, what is significant is that the clause 13.8.5 clearly states that the consequence of failure on the part of the Contractor to comply with any one or more of the provisions of clause 13.8.1 is loss of entitlement to an extension of time. Further, he stated: I am therefore of the opinion that failure on the part of the Contractor to

comply with one or more of the provisions of clause 13.8.1 is probably to be regarded as a breach of contract on his part. Conclusion Generally, the Contractor ought to submit to the S.O./Engineer/Architect /P.D. the relevant notices to inform about the delaying event(s) and that the Contractor will be seeking the corresponding EoT within the timeframe set down under the relevant contract. A failure to do so on the part of the Contractor may deprive (dependent on the wording of the relevant clauses for EoT under the contract) the Contractor of any EoT. The advice to any Contractor is to ensure that the notice of delay is submitted within the timeframe to avoid being in a situation where due to his not compliance will be considered a breach of contract and therefore the Contractor is disallowed for EoT for such a breach. If in the unfortunate event that the Contractor failed to submit in the relevant notice of delay, the only obvious possible argument for getting the appropriate EoT is to raise the Prevention Principle where the Employer cannot take advantage of its own wrong in enforcing a contract. MBJ

In the next issue of the MBAM journal the article will answer the question on Is the Contractor still entitle to Extension of Time when there is concurrent delay?

The Entrusty Group includes Entrusty Consultancy Sdn Bhd (formerly known as J.D. Kingsfield (M) Sdn Bhd), BK Burns & Ong Sdn Bhd (a member of the Asia wide group BK Asia Pacific) , Pro-Value Management, Proforce Management Services Sdn Bhd/Agensi Pekerjaan Proforce Sdn Bhd and International Master Trainers Sdn Bhd. Apart from project, commercial and contractual management services, the group also provides risk, resources, quality and value management, recruitment consultancy services and corporate training programmes to various industries, particularly in construction and petrochemical, both locally and internationally. Entrusty Group will provide 30 minutes of free consultancy with prior appointment to MBAM members on their contractual questions. The Group also provides both in-house and public seminars/workshops in its various areas of expertise. For further details, please visit website: www.entrusty.com. or contact HT Ong or Wing Ho at 22-1& 2 Jalan 2/109E, Desa Business Park, Taman Desa, 58100 Kuala Lumpur, Malaysia. Tel: 6(03)-7982 2123 Fax: 6(03)-7982 3122 Email: enquiry@entrusty.com.my

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