– a brief note on recent developments concerning extensions of time

Extension of time claims in construction contracts are often contentious.

The recent Court of Appeal decision of Carillion Construction Ltd v Emcor Engineering Services Ltd [2017] EWCA Civ 65 ironically concerned delays to the construction of the new TCC Court buildings. Carillion was appointed as the main contractor, who in turn engaged Emcor to carry out certain M+E works as a sub-contractor.

The works were delayed and Carillion was liable for substantial liquidated damages under the main contract. Carillion argued that Emcor was partly responsible for the 182-day delay and sought to recover damages.

The basis of Carillion’s claim was that if Emcor was allowed contiguous extensions of time (i.e. added on to the end of the contractual date for completion) for events post dating the contractual date for completion, then it would lose recourse against Emcor for the initial period of delay.

For example, if a 30 day extension of time was added to the contract period due to a variation occurring 20 days after the contractual date for completion, Emcor would have been in breach for the initial 20 days after the contractual date for completion, but by virtue of the extension would be absolved of its liability for that 20 day period.    

The Court considered whether any extension of time should:

- Run contiguously from the end of the current period for completion to provide an aggregate period within which Emcor’s works should be completed; or

- Fix further periods in which Emcor could undertake their works, which were not necessarily contiguous but reflected the period for which it had been delayed

The relevant clause of the DOM/2 sub-contract provides:

11.3     If, on receipt of any notice, particulars and estimate under clause 11.2, the Contractor properly considers that:

11.3.1   any of the causes of the delay is an act, omission or default of the Contractor, his servants or agents or his sub-contractors, their servants or agents (other than the Sub-Contractor, his servants or agents) or is the occurrence of a Relevant Event; and

11.3.2   the completion of the Sub-Contract Works is likely to be delayed thereby beyond the period or periods stated in the Appendix, part 4, or any revised such period or periods, then the Contractor shall, in writing, give an extension of time to the Sub-Contractor by fixing such revised or further revised period or periods for the completion of the Sub-Contract Works as the Contractor then estimates to be reasonable.

The Court’s Decision

The Court, agreeing with the earlier TCC’s decision, held that the natural meaning of the words was that any period of extension granted will be added contiguously to the end of the current period within which the sub-contractor is required to complete its works. The Court accepted that there may be situations in which the clause may lead to an unsatisfactory result (such as the example given above), though it was considered by the Court to be “practicable, workable and accorded with commercial common sense”.

What does this mean?

The Court’s decision poses a significant potential concern for parties to construction contracts which allow claims for unliquidated damages in relation to delay. An entitlement to an extension of time after the contractual date for completion may result in delay related losses being irrecoverable.

The Court noted the potential outcomes, but found that the wording of the extension of time provision did not permit any special allowance to be made for such cases.

Sub-contracts usually include the right for the main contractor to claim general damages rather than LADs. This is because the main contractor may incur additional losses over and above the main contract LADs and also because a sub-contractor may not be wholly culpable for a period of delay. Consequently, seeking to step-down the full amount of main contract LADs is unlikely to be workable. On the other hand, imposing a reduced level of LADs carries the risk of under-compensating the main contractor where a sub-contractor is the sole cause of a specific period of delay.

The easiest option, and the approach adopted by the JCT suite of sub-contracts, is to allow the main contractor to recover unliquidated damages for delay, though this does mean that the main contractor is required to prove its losses. Contractors and sub-contractors should therefore be aware of the potential pitfalls and consider whether special drafting is needed in order to deal with such an eventuality.