How to deal with delay in construction contracts

Tim Seal is head of construction at Ridgemont

After long delays, it was recently announced that London Luton Airport had finally submitted revived plans for the construction of a second terminal. The story serves as a reminder that delay is a common feature of construction projects and should always be addressed in construction contracts so that there is a framework for dealing with it.

The Society of Construction Law’s Delay and Disruption Protocol provides useful guidance on some of the common delay and disruption issues that arise on construction projects (see the Introduction). As such, it is valuable reading for anyone who drafts and negotiates construction contracts.

The most common standard form of construction contract in the UK, ie, the JCT suite, deals with delay in the following way: the parties agree a start and a finish date, and the contractor provides a works programme for how it will achieve the latter. If the contractor becomes aware that completion of the works is likely to be delayed, it must notify the architect/contract administrator (ACA) and the ACA may then award an extension of time, thereby extending the completion date and/or award loss and expense to compensate for the delay. If the ACA won’t award an extension of time, the contractor will be liable for damages if it fails to meet the completion date.

Contract essentials

Using the JCT approach, here are some reminders about the key elements of delay that a contract should deal with:

1. Realistic start and finish dates, plus a clear programme of works activities showing the sequence of works, and an obligation on the parties to keep that programme up to date as the project proceeds. This should create clarity and certainty as to expected timescales and hence reduce the risk of a dispute.
2. Whether there will be sectional completion of the works or just one completion date.
3. Notification of delay by the contractor, ie, set out the precise circumstances that trigger the notice requirement for the contractor, how quickly that notice must be served, what information as to delay it must contain and attach, and a requirement on the contractor to update that information should it subsequently change.
4. The ACA’s response to the notice of delay in terms of accepting, partly accepting or rejecting the contractor’s application for more time. So, in particular, address the timetable for the response and what information and level of explanation it needs to contain so that the contractor can fully understand the thinking behind the decision.
5. The grounds for an extension of time must also be clearly listed in the contract, ie, the circumstances in which the ACA is obliged to push the completion date back and relieve the contractor from a liability for damages. In the JCT, these are called ‘relevant events’. In the NEC, they are ‘compensation events’. Well-known examples of relevant events are variations, force majeure and adverse weather conditions. The extent to which COVID-19 was a relevant event attracted a great deal of commentary during the pandemic. Referring back to Luton Airport, deferment of the giving of possession of the site is a relevant event. These should all be things that are outside of the contractor’s control and hence for which it cannot be culpable.
6. The other circumstances in which the ACA can adjust the completion date unilaterally, eg, if work is omitted from the contract, the ACA may seek to bring the completion date forward.
7. The provision of practical completion or non-completion certificates by the ACA, to record the completion of the works or the fact that the contractual date has been missed.
8. If the contractor misses the completion date and is not awarded an extension of time, then its liability in damages for delay should be dealt with in the contract; routinely in construction contracts, liability is agreed at contract stage by way of liquidated (ie, fixed) damages (LADs), so £x per week, for example. This prior agreement removes the need to then prove loss and achieves certainty around an acceptable level of liability. If, however, the level of LADs could be open to a subsequent accusation by the contractor that it is unreasonably high and hence unenforceable as a penalty, the calculation by which the LADs are agreed should be recorded and retained to demonstrate its rationale. A penalty is a punishment exerting undue pressure on a party to comply with the contract. The long-established test for a penalty has in recent years moved beyond simply whether or not it is a so-called ‘genuine pre-estimate of loss’.

If a contract deals with these things at least, it will go a long way to putting in place a workable structure for dealing with delay to the works.