Time at large
Whenever there is delay in a construction project, parties immediately look to the liquidated damages clause. This is understandable, as the Contractor carries the risk of delay resulting from events for which it is responsible, and that risk is usually quantified by the provision of liquidated damages.
However, where such events are caused by an act or omission by the Employer, the Employer bears the risk. In such event, unless there is a clear mechanism for extending the time for completion, the Employer’s right to levy liquidated damages will fall away.
It is for this reason that most standard form contracts usually provide for an extension of time mechanism which allows for the time for completion to be extended upon an event of prevention or impediment by the Employer. The purpose is primarily to enable the Employer to protect its right to potential liquidated damages in the event of its own default.
What happens then? If there is no workable contractual mechanism to set a new completion date following a delay caused by the Employer, time will be said to be ‘at large’. The effect of time being at large under most common law systems (including under Indian law) is that completion must occur within a reasonable time. But a ‘reasonable time’ is not certain enough a date to enable liquidated damages to be levied if there is delay beyond that date; therefore, the Employer will lose his right to levy liquidated damages and must prove his losses arising from any delay that can be attributable to the Contractor as ‘general damages’.
It is for this reason that Contractors like time at large arguments. It is often difficult for Employers to prove how much damage it has suffered – particularly on infrastructure or public works contracts. Liquidated damages are therefore an attractive proposition for Employers in such contracts.
However, it is not easy to demonstrate that time has been set at large and Contractors should be aware of the important distinction between cases where the contract has failed to provide for a proper mechanism for extending time and where the mechanism provided has not properly been operated.
Failure of the contractual mechanism
The Australian case of Gaymark Investments Pty Ltd v Walter Construction Group dealt with a situation where the Contractor failed to comply with the notice provisions for requesting an extension of time. The requirement for notice was stated to be a condition precedent to the Employer’s ability to grant an extension of time.
As a result of the Contractor’s failure to give such notice, the Employer was unable to extend the time for completion and thereby preserve his right to liquidated damages.
Gaymark is an odd decision, and it is doubtful whether it represents the law in other common law jurisdictions. Generally the principle setting time at large applies only if the contract fails to provide for a workable mechanism for time to be extended for acts of prevention by the Employer. In contrast, if the contract provides for such a mechanism but the Contractor fails to operate it (by properly requesting an extension of time), it does not amount to a failure of the contractual machinery and therefore, liquidated damages should still be recoverable by the Employer.
In the English case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) the Contractor failed to comply with the condition precedent notice requirement for an extension of time and it was argued that, as a result, time had been put at large. Rejecting that argument, the judge observed that if this was the case, the Contractor would have the option to put time at large by simply disregarding any provision making notice a condition precedent to an extension of time. This could not be correct.
Delay in granting extensions of time
What if an extension of time request is correctly submitted by the Contractor but the Engineer fails to grant it within a reasonable time duration?
The Supreme Court of British Columbia in the case of Hawlmac Construction v Campbell River Co held that where the Engineer had failed to carry out his obligation to consider an extension of time application prior to the expiry of the original time for completion, there was no longer a specific date within which the contract was to be completed or from which penalties could run.
In circumstances when the Employer fails to deal with an extension of time request, the Contractor will be in a quandry. He can continue to work on the basis that an extension of time will be granted, and risk liquidated damages being levied if it is not. Or he can assume that an extension of time will not be granted and accelerate in order to finish the works by the completion date, to avoid or mitigate against the risk of liquidated damages. However, the latter course of action carries the attendant risk that the additional cost of such acceleration may not be recoverable absent clear instruction to accelerate from the Engineer.
This takes us into the realm of ‘constructive acceleration’. A concept most advanced under US law, claims for constructive acceleration costs are most likely to be successful in practice if there has been an express refusal or a continued failure to deal promptly with an extension of time request, rather than where there is merely a single failure to deal promptly or where there is a mistaken view that no extension of time is due.
However, as a decision by the Contractor to accelerate in these circumstances carries with it a risk that the Contractor will ultimately not be able to recover the costs, Contractors should seek to either consult with the Engineer prior to taking the decision to accelerate, and, if possible, to get an express instruction to accelerate from the Engineer, or set out its intention to accelerate clearly and give the Employer an opportunity to respond.
The author is a Partner in the international law firm Pinsent Masons LLP. He wishes to thank Ms Laura Wilson of Pinsent Masons LLP for her assistance with this article. The author can be reached at email@example.com