Construction contracts are awash with disputes about the responsibility for delays and liability for damages. The decision in the matter of City Inn v Shepherd Construction caused much debate among commentators.
In that case the Scottish court decided an “apportionment” approach, or sharing the allocation of delays between the employer and the contractor, was the correct thing to do when deciding on extensions of time. This caused consternation as it appeared fly in the face of previous decisions.
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Things have now moved on again. Although not a dispute concerning a construction contract, the recent TCC decision in De Beers UK v Atos Origin IT Services UK has reaffirmed the general position which would apply in construction contracts where there are concurrent delays by contractor and employer.
In 2007, De Beers commissioned Atos to undertake the development and installation of a large software system to upgrade and unify a number of different management computer systems used in its diamond handling operations.
As with many software projects, the project fell behind schedule, due in part to additional works ordered by De Beers and in part due to matters for which Atos was responsible. With shades of the disputes between Multiplex Construction (UK) and Cleveland Bridge (UK), the parties fell out with one another (in this case Atos claiming further payment which was not paid and De Beers claiming damages for breach of contract by Atos’s failure to complete the work).
De Beers’ contract with Atos contained an extension of time clause allowing a reasonable additional time for delay caused by acts or omissions of De Beers or any other cause beyond Atos’s reasonable control. The contract also allowed Atos to recover delay costs in the event that time was extended for such matters.
The court found that both the Atos and the De Beers delays were equally critical and operated concurrently. That is to say, a delay by either party was sufficient, on its own, to delay completion. In those circumstances, the court applied
a “general rule in construction and engineering cases … that where there is concurrent delay to completion caused by matters for which both employer and contractor are responsible, the contractor is entitled to an extension of time but they
cannot recover any loss caused by the delay”.
In other words, the contractor is entitled to an extension of time because the employer has delayed the work, but is not entitled to any extra cost recovery because they are partly to blame for the delay.
The court did not analyse the extension of time clauses. This tells us that the problems of allocating time and concurrency can be addressed without worrying about the precise wording in the contract. The general principle applied by courts is called the “prevention principle”, which can be applied to all construction contracts with liquidated damages provisions.
Paul Lomas-Clarke’s analysis
Under the “prevention principle” a contractor must have time and duration to complete their work. If the contractor does not initially allow enough time in the contract, that is their risk.
However, if the contractor is late completing work because they are delayed (or prevented) by the employer, there needs to be clauses in the contract to extend the duration of the works. We call them extension of time (EOT) clauses. If the contract did not have such clauses when the employer delayed the works and then deducted damages, it would amount to a penalty. But penalty clauses are not allowed in contracts!
To avoid allegations of a penalty, in most construction contracts the employer’s agent is given the power to grant extensions of time. These EOT clauses would include dealing with, at the very least, problems caused by delays (or acts of prevention) which are the employer’s fault. Thus, applying the prevention principle, any delay caused by the employer must entitle the contractor to an extension of time, regardless of any concurrency.
Paul Lomas-Clarke is an executive director at construction claims and contracts consultancy Knowles
