In the realm of construction and engineering, it is not unusual for project completion to be delayed. This can be a consequence of many things, such as disruptions in the supply chain, shortages of materials or even political interference. Project delays can be extremely problematic for both parties, and once they arise, it begs the question – who is responsible?
Delay damages are the damages to which an employer is entitled in the event of delay to the completion date, for which the contractor is responsible.
Let us consider a case study, Project X, to understand what to avoid when applying delay damages.
Project X had an original completion date of 18 months, with delay damages capped at 10% of the project cost. Project X encompassed many key challenges; notably, the geotechnical report provided by the Employer during the tendering process which proved to be inaccurate, leading to a 300% increase in rock excavation quantities, and encountering significantly harder rock material than anticipated. To avoid future delay, the contractor used explosives to extract the rock. An additional delay stemmed from the local authority who consistently refused to provide the necessary permits and licence to the contractor. Consequently, the contractor was unable to plan and execute his works as per his tender. The project overran for more than 3 years. The contractor claimed for an extension of time but this was rejected by the Employer.
During the dispute resolution hearing, the contractor argued that the contractual procedure for deducting and applying delay damages was not followed, as there was no consultation with the contractor. Additionally, it was found that the Engineer, who has the authority to grant extensions of time, delegated this role to another party. However, this delegation was not consistent with the contract, as consent should have been sought from the contractor and this was not done.
Accordingly, the dispute board decided that the engineer's determination on delay damages was invalid. However, the dispute board concluded that it was not authorised to decide on the respondent's right to payment. Nonetheless, there were important lessons to be learnt from this case.
Lessons learnt for the Employer and Contractor:
- Legality – Both the employer and contractor must follow
and comply with the contractual terms and conditions.
- If the employer decides to change the Particular Conditions, it must understand the impact of those changes on other parties.
- The contractor should be aware of its liability and obligations within the contract and they should consider whether this could be limited to offer some protection.
- The contractor should be proactive and deal with problems in a timely manner, for instance providing or dealing with notices as soon as possible, instead of waiting to see the outcome.
Guided by Revenge was discussed in 'What to avoid when applying delay damages and Mediation v Expert Determination – essential or desirable?' webinar with Dusan Cvetkovic and Thais Fernandes Chebatt. To view the webinar and detailed notes click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.