What is delay?
“Delay” in a construction sense means a stoppage or event that will impact the building contractor’s ability to complete the work by the time stated in the contract.
There are various reasons for building delays including weather, a shortage of staff or building materials, or financial difficulties.
When can a delay be claimed?
Most standard form contracts permit a building contractor to claim an extension of time if there is a “claimable delay”.
The definition of “claimable delay” depends on the type of contract used.
Standard form contracts are developed by various industry bodies such as the Queensland Building and Construction Commission (QBCC) and the Housing Industry of Australia (HIA) and the Master Builders Association (MBA). Before executing a contract, it is important that both parties are satisfied that the clauses in respect of delay suit each party’s needs, especially in respect of the definition of claimable delay.
It is important to note that claimable delays can have financial implications for both parties under the contract, not just the consumer.
It is in the consumer’s interest to ensure that the definition does not allow a builder to delay a project for inadequate reasons, unnecessarily, over a significant period, whilst it is in the builder’s interest to ensure that all foreseeable but non-fault delays are included.
Claimable delays are a very good illustration of why parties should always ensure that the contract protects their interests without being overly onerous before entering into it.
When can a building contractor request an extension of time due to a delay?
Where a delay is envisaged, the builder must make a request for an extension of time (EOT).
Regardless of the specific terms of the contract the Act dictates that under a regulated contract, a building contractor may only claim for an extension of time under the contract if:
(a) the delay causing the need for the extension of time was:
(i) not reasonably foreseeable and beyond the reasonable control of the contractor; or
(ii) caused by the building owner; or
(iii) caused by a compliant variation of the contract; and
(b) the claim is made to the building owner in writing; and
(c) the claim is given to the building owner within 10 business days of the building contractor becoming aware of the cause and extent of the delay or when the building contractor reasonably ought to have become aware of the cause and extent of the delay; and
(d) the owner approves the claim in writing.
“Reasonably foreseeable and beyond the reasonable control of the contractor”
A claimable delay includes causes such as:
- a variation requested by the owner;
- a variation requested by the builder if the need for the variation could not have been reasonably foreseen at the date of the contract;
- an act of God, fire, explosion, earthquake or civil commotion;
- an industrial dispute;
- a dispute with residents or owners of adjoining or neighbouring properties;
- anything done or not done by the owner;
- a delay in approvals;
- a delay in the supply of material chosen by the owner;
- the need for a survey or other report related to the site; or
- the industry shutdown over three weeks from about December 22 each year, if work during this Christmas period could not have been reasonably foreseen at the date of the contract.
Owner’s response
The time limits within which a request for an EOT must claimed and the response to such claim is governed by the contract and is strict.
An owner will have five or ten working days to approve to the building contractor’s request for an EOT, or to dispute the claim and provide reasons.
If the Owner fails to give written notice or, gives notice rejecting the whole or any part of the Contractor’s claim for an extension of the Date for Practical Completion, then the dispute arising as a result is to be resolved in accordance with the dispute resolution provisions in the Contract. The dispute resolution options include without prejudice conferencing between the parties to resolve the dispute, referral to QBCC, or legal proceedings
Liquated damages
The amount payable by a building contractor to an owner if a delay is not claimable is called liquidated damages. The amount payable is a genuine pre-estimate at the time the contract is signed of the costs that the owner will incur if the project is not completed by the date for practical completion. The costs or losses commonly include:
- extra rent and storage costs incurred due to the delay;
- lost rent (for an investment property); and
- extra interest and fees payable to a lender.
The right to claim liquidated damages will only accrue once practical completion has been achieved by the builder. The contract will normally provide for a set-off of, the total amount of liquidated damages from the final progress claim payable by the owner to the building contractor.
Delay damages
Some of the commonly used standard form contracts provide a default amount of delay damages payable depending on when the delay is suffered. The difference between delay damages and liquidated damages is:
- it is a claim for the benefit of the builder.
- the right to delay damages accrues and is claimable before practical completion.
For example, under the standard form HIA contract, when commencement is delayed by more than four weeks due to a cause for which the builder is not responsible, the owner must pay the builder the higher of:
- the reasonable costs incurred to be incurred by the builder because of the delay; or
- 0.125% of the contract price for each week or part thereof after the first four weeks of the delay.
After commencement, if work is delayed to a cause for which the owner is responsible, the owner must pay the builder the higher of:
- the costs incurred by the builder because of the delay; or
0.125% of the contract price for each day of the delay.
How can the risk of delays be mitigated?
Both owners and building contactors should ensure they do all they can to avoid or manage delays. Ways to prevent delays include:
- ensuring that all steps required by the owner are completed as soon as possible after signing the Contract.
- ordering supplies early;
- considering substitute materials;
- preparing a contingency plan should a delay occur (such as a COVID-19 management plan); and
- including a force majeure clause in a contract for when it is not possible to source any products.
How Gibbs Wright Litigation Lawyers can help
Gibbs Wright has extensive experience in many areas of building and construction laws, including commercial contract matters. Disputes in the construction industry can be very costly and complex to navigate. If you’re involved in a construction project dispute of any kind, you can discuss your matter during a confidential consultation.
