When entering into any contract, but in particular a residential or commercial construction contract, one of the major factors to consider is time.
The ultimate ticking time bomb is practical completion, but multiple factors can influence the time needed to reach practical completion which can require attention along the way, such as variations, weather, material or labour delays, as well as delays caused by the parties and third parties.
Unfortunately, it often isn’t until the date for practical completion is looming (or has passed) that parties often start to take a proper look at the time requirements under their contract and approach the other about needing more time.
Most standard form contracts allow contractors to request an extension of time based on a variety of delays that are outside the control of the parties, are caused by the other party, or for changes to the contract. Often eligibility for such extensions is premised, amongst other things, on the request being made within a time stipulated under the Contract.
Many contracts also allow one party to terminate the contract early if a time stipulation isn’t met, either as an alternative to an extension of time, or as the only remedy to the delay. Commonly such clauses include things such as approvals, finance or access to site.
Failure to exercise rights associated with these clauses can prevent a party from excercising rights associated with them, such as terminating the contract, an extension of time to practical completion, or an increase to the contract sum.
Commonly delays under construction contracts include:
- Starting the Work. Including waiting on finance or for the granting of possession of the site. These delays can commonly be caused by parties, or by third parties (such as banks).
- Time for approvals. Including statutory approvals by local or state governments (such as planning) or approvals by a Principal or Owner (such as design). Delays can be commonly caused by parties failing to progress the matter, or by third parties (such as planners/Council/Architects).
- These include discussions with a Principal or Owner about possible variations, and any delay to current works whilst those discussions are ongoing (a common issue with residential matters).
- Material and Labour Delays. These delays have been increasingly common since March 2020 (Covid) and can be unpredictable.
- Location, season, and climate of the site can significantly change the delay from weather.
Solutions and Resolutions
Most construction contracts require the contractor to send some form of notice in connection with a delay, usually within a specified time of the delay occurring, or the contractor becoming aware of the delay. These notices can include:
- A notice of delay, which is simply to notify the owner of a probable or likely delay; and
- An Extension of Time claim, being a document claiming an extension to the time for completion of the work, and where possible, delay costs.
Other methods of increasing the time for practical completion include by agreement in variations, or by agreement of the parties, often in lieu of exercising another right such as termination.
Whilst most contracts often have general terms regarding possible delays, template contracts, including Australian Standard contracts, can often:
- Fail to recognise the likely challenges of the particular job. For example, materials which may be required to be ordered with significant lead times.
- Fail to record the needs of the party who is to receive the benefit of the work. Common examples can include owners with expiring tenancy agreements needing to move, work at schools to critical infrastructure, or fit outs for businesses, where the costs of delay can be significant, greatly begin to outweigh the cost of the works, or simply not be an option at all.
- Require the rights to be exercised within a short period of time, or not at all.
- Be confusing, refer to external documents, or be contingent on some other right being granted. Commonly this occurs in commercial construction contracts, where an extension of time might only be granted if a corresponding extension is also granted in a “higher up” contract.
Before any project, whether residential or commercial, the principal, contractor and owner alike should carefully consider what the biggest risks to the project not being completed on time are, discuss those risks with their trust advisors, and ensure that there are appropriate mechanisms in their chosen contract for dealing with those risks.
Failing to do so can lead to late, expensive, or incomplete projects, and the all the problems that follow.
If you would like to know more, or if you need assistance in a residential or commercial construction matter, please contact us on 4046 1111 today.