Extension Of Time And Loss And Expense Claims In Construction Contracts

1.In dealing with contract claims, it is important to distinguish claims for extensions of time from claims for loss and/or expense. Discuss the reasons for this distinction, using examples from contracts with which you are familiar ?

2.Construction contracts typically contain provisions for a ‘defects liability period’ or a ‘defects correction period’. Explain the purposes and effects of these provisions showing who benefits from them. 

Introduction to Construction Contracts

Claims of extension of time in case of delay and disruption can be distinguished from claims of loss and expense under construction contract. However, it is not easy to arrive at a final approach while evaluating numerous situations regarding contractual construction (Fawzy and El-adaway 2013). In this regard, it is important to provide a brief introduction to the concept of construction contract. A construction contract can be defined as an agreement between the client and the contractor for the purpose of constructing, repairing and renovating something within the prescribed time (Lowry 2014). In this context, a contract is being signed by both the contractor and the client and both of them should follow the guidelines of the contract otherwise they have to face legal consequences (Chappell 2017).

Claims for extension of time and loss and expense:

For the purpose of extension of time, the contractual provision has been considered as an important mechanism while dealing with the extension of time period. The contractor in such cases has to complete the work within the prescribed time period in spite of various factors of delay which are generally out of his control (Thomas and Wright 2016). In such cases the contractor is not accountable to pay liquidated damages. However, after the time has been extended, the contractor is unable to finish his work then in such cases he loses his right to recover the damages (Burr 2016). 

Distinction of claims for extension of time from loss and expense:

The distinction of the claims for extension of time and claims for loss and expense can be emphasized with the help of landmark cases. However, in a contemporary case Walter Lilly & Company Limited v Giles Patrick Cyril MacKay a number of issue relating to extension of time and loss and expense claims has been clarified. The Court in City Inn Limited v Shepherd Construction Limited held that in case of delay on the part of the contractor, it is possible that the architect may divide and allocate such delay. The Court clarified that in England, the contractor holds the right to claim extension of time and for loss and expense.

The case of Walter Lilly & Company Limited v Mackay and DMW Developments Limited provided an utmost decisive judgment by stating the relevant issues that can be faced by the construction industry. These issues have been identifies as:-

• Concurrent delay.
• Analyzing the situation in which the contractor is entitled to an extension of time.
• The entitlement of a contractor to loss and expense.

In Walter Lilly & Company Limited v Mackay and DMW Developments Limited it was observed that Walter Lilly & Company Limited was contracted by Mr. Mackay with the help of his company DMW Developments Limited for the purpose of building a luxury apartment for him in London. It was expected that the estimated project of £15m shall take 18 months to finish. However, Walter Lilly & Company Limited was earlier engaged to a JCT Standard Form of Building Contract 1998 Edition. In this context, it was observed that there were substantial delays to the project work and the completion of the project work was achieved by the end of July 2008. It was found by the Court that despite such delay in construction process, the Walter Lilly & Company Limited cannot be held responsible for such delay. Delay was caused as a result of late decision making and instructions given by the DMW Developments Limited and their architects. In this case, the Walter Lilly & Company limited wished to recover a cost over £2m from both Mr. Mackay and DMW Developments Limited due to the reason of arising delays from such project.

The Mechanisms for Extension of Time

Before the arrival of the decision in the case Walter Lilly & Company Limited v Mackay and DMW Developments Limited there was an uncertainty in the minds of the English Courts that how to make an approach towards such issue regarding extension of time. Extension of time is granted in cases where there occurs concurrent delay on the part of the contractor when he is unable to finish the work within prescribed time period. In this regard, it can be mentioned that Clause 25 of the JCT Standard Form includes the provision regarding extension of time in cases where the architect has caused delay in the construction process. The extension of time clause as depicted in the JCT Standard Form has provided that an extension of time should be granted by the builder or architect and the administrator of contract if it appears before them to be fair and reasonable. In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32 it was decided that an extension of time could be granted if the work has been delayed by one or more architects.

The decision in Walter Lilly & Company Limited v Mackay and DMW Developments Limited has been beneficial in providing guidance on the interpretation of the clauses of loss and expenses. It is noteworthy to mention here that Clause 24 and 26 of the JCT Standard Form deals with the provisions of loss and expenses. However, it is required that in order to seek remedy under the provisions of loss and expense, application should be supported by precedent conditions. Therefore, for this purpose, the following procedure must be taken into account-

• Provide timely application to the administrator of contract and such application must be in writing.
• Provide documents in support of such application related to loss and expenses.

It is important that both the parties should provide written application in time with supporting documents. These procedures would be beneficial for the contractor for the successful claim for his loss and expense. However in the case of Walter Lilly & Company Limited v Mackay and DMW Developments Limited it was argued by the employer that insufficient information has been provided by the contractor which did not fulfill the criteria of the contract made in relation to the applications for claim for loss and expenses. 

It was held by the Judge it is important that the interpretation of the wordings of the clauses of loss and expenses should be construed in such a way so that it does not entitle the contractor to additional loss and expenses. It was ruled out by the Judge that clauses are not meant to be explained in a rigid manner in order to execute the contractor for the operation of the provisions of loss and expense of the contract.

Distinction Between Claims for Extension of Time and Loss and Expense

In contract, extension of time clause is performed for the purpose of providing preservation of liquidated damages (Chiang and Solum 2013). In this regard, the employer is considered to be the main beneficiary of the extension of time clause. Therefore the provisions regarding liquidated damages shall cease to exist if the delay is caused as a result of the action or deficiency on the part of the employer.

It is noteworthy to mention here that a successful claim regarding extension of time shall not necessarily give rise to successful claim for loss and expense. However, the provisions of Clause 26 have been interpreted separately in a different way from Clause 25 (Chappell 2017). Therefore the claims regarding extension of time and for loss and expense should be applied in different ways.

Conclusion:

It can be concluded that a contract where provision relating to extension of time is not contained then in such cases there would be no mechanism for the justification of the completion date. If the process of delay affects the completion period as set by the employer then in such cases the employer loses his rights to reduce liquidated damages. However, the contract administrator is at the sole authority to determine the fair and reasonable decision regarding grant of extension of time and claims for loss and expense.

In building contract, there is a frequent use of a clause that provides the contractor with the liability to maintain and repair the work within a certain period of time after the completion of the actual work. This period is considered to be the defects liability period. However, the phrase of defects liability period has been replaced by the 2005 Suite of JCT Contracts as the rectification period. The length of the defects liability period has been set out the clause of defects liability. In this regard, it can be stated that the procedures required for the purpose of notifying the contractor with the defects shall be dealt by the defects liability clause. However, the circumstances under which the period of defects liability can be extended shall be informed to the contractor. 

Purposes of Defects Liability Period:

According to the construction contract, the contractor is at the obligation to carry out the nature of the work and complete it according to the standards as depicted in the contract (Eggleston 2015). The purpose of the provision of the defect liability period has been introduced with an intension to complement such liability. The provision of defect liability period provided remedies to defective work that usually becomes apparent during the period of defects liability (Rowlinson 2015). The purpose of the provision of defects liability period is to identify the number of defects arising during the defects liability period in which the contractor is at the responsibility to complete the work within the limited period.

Landmark Cases Clarifying Extension of Time and Loss and Expense Claims

The defects liability period provides the employer with a practical mechanism for the purpose of repairing and making good defects that are not apparent before the completion of the time period (Powell 2016). In such cases, the nature of repairs involved is generally cheaper and efficient compared to the defect compared to the defect repaired by the employer by involving a third party. In this regard, the employer is at the liability to retain a proportion of the sum contained in the contract.

Effects of Defects Liability Period:

The effect of the provisions of defects liability period not only provides liability to the contractor in correcting the defects however it also affords the contractor a right in order to receive notice of defects. It is noteworthy to mention here that such notice has to be served within the prescribed period so that the contractor is entitled with the opportunity to correct such defects out of his own expense (Ndekugri and Rycroft 2014). The defects liability period usually starts after the completion of the works period. However, in reality the actual time period may vary depending upon the essentials of the contract.

In Woodlands Oak Limited v Conwell & Anor it was held by the Court that in order to mitigate the loss, the Conwells failed to take reasonable steps. Therefore there was no express defects liability mechanism available to them. However, it would have been acceptable if the Conwells asked the Woodlands Oak limited for the rectification of defects. If such step was taken by the Conwells, then the work could have been completed by the subcontractors of Woodlands Oak limited. Therefore, in this case it was observed that the Conwells shall not be held liable for the damages according to the decision of the Court.

The purpose of the defects correction period is to evaluate all the standard forms available in order to provide permission to the contractor to return to the site of construction. The purpose of the provision of defects correction period is to permit the contractor to identify the defects associated by providing required remedies. The provisions of defects correction period provides a right to the contractors in repairing and making good defective works (Powell 2016). It has also been envisaged by the standard forms of contracts that defects might arise during the defects correction period. It can be stated that such defects do not give rise to breach of contract. After receiving the notices for rectifying the defects, the contractor is at the obligation to return to the construction site in order to make good defects (Rowlinson 2015). Failure to make good defects can give rise to breach of contract and the contractor is liable to pay for the damages in order to recover the cost involved in the process of rectification of defects made by others.

Defect Liability Period in Construction Contracts

In Pearce and High Limited v Baxter it was held by the Court that there was a breach of contract and damages arising from such breach of contract was recovered by Baxter in relation to the defect that has arisen. However, in this regard Baxter failed to comply with the nature of the mechanism of contract which in fact limited the amount of the actual damages that could be recovered by Baxter. It was observed that in this case, Baxter was not able to recover more than it would have cost in case of Pearce in rectifying the defect. Finally, it was held by the Court that due to the presence of an explicit clause in such contract can actually override the right to damages in the principles of common law. 

Effects of Defects Correction Period:

It is noteworthy to mention here that the nature of the contractual liability of the contractor is not limited to the duration of the defects correction period (Cooke and Williams 2013). However, the defects correction period shall come into effect after issuing the Certificate of Good Making Defects by the engineer or the contracts administrator. In this regard, it can be stated that from the very beginning the defects correction period is depicted in the contract data which defines the prescribed time period within which the contractor is entitled to provide rectification of a notified defect (Eggleston 2015). However, a contractor is at the obligation to notify every defect that will arise in the way of the contract whether being notified or not.

In case of notification of defects before the completion, the defect correction period begins after the completion. However, in case of defects detected after completion, the notification shall begin. In this regard, defects correction periods can be specified in relation to different kinds of defects. If the defects which are being notified are not adjusted within the defects correction period, then in such cases, the defects shall be rectified by others and the cost shall be deducted from the contractor (Hughes, Champion and Murdoch 2015).

Conclusion:

In the conclusion it can be stated that, though it is beneficial to possess exclusive right in providing remedy to the defects identified during the defects liability period and the defects correction period. However, the costs involved in providing remedy to the employer would be much cheaper than paying the employer with the cost of another constructor or third party performing such work. In this regard, if the contractor possesses the exclusive right in repairing such defects then in such cases the employer has the right to proceed with the remedy. In some cases the employer proceeds with the remedial works without giving opportunity to the contractor to proceed. This can be regarded as a breach of contract. Permission is granted to both the parties in order to identify the nature of the defects that needs to be rectified. However, it is required that the contractor must provide a quotation of reduced prices for the purpose of adjustment made to the works contract.

References:

Cooke, B. and Williams, P., 2013. Construction planning, programming and control. John Wiley & Sons.

Eggleston, B., 2015. The NEC 3 engineering and construction contract: A commentary. John Wiley & Sons.

Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and management. Routledge.

Ndekugri, I. and Rycroft, M., 2014. JCT98 Building Contract: Law and Administration. Routledge.

Powell, G., 2016. Construction Contract Preparation and Management: From Concept to Completion. Palgrave Macmillan.

Rowlinson, M., 2015. Practical guide to the NEC3 engineering and construction contract. John Wiley & Sons.

Burr, A. ed., 2016. Delay and disruption in construction contracts. CRC Press.

Chappell, D., 2017. Understanding JCT standard building contracts. Routledge.

Chiang, T.J. and Solum, L.B., 2013. The Interpretation-Construction Distinction in Patent Law. Yale LJ, 123, p.530.

Fawzy, S.A. and El-adaway, I.H., 2013. Time at large within the common law legal system: Application to standard forms of contract. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 6(1), p.04513002.

Lowry, S., 2014. Tax Deductions for Individuals: A Summary. Congressional Research Service, Washington.

Thomas, R.W. and Wright, M., 2016. Construction contract claims. Palgrave Macmillan.