A delay that affects the progress of work under a construction contract will be dealt with according to the cause of the delay. A mechanism for dealing with delay should be built into the building contract.
Estimated reading time: 5 minutes
Table of contents
- What is delay?
- When can a delay be claimed?
- When can a building contractor request a time extension due to a delay?
- Delay damages
- How can the risk of delays be mitigated?
- How Gibbs Wright Litigation Lawyers can help
What is delay?
“Delay” in a construction sense means a stoppage that will impact the builder 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.
Some delays are claimable under a building contract.
When can a delay be claimed?
Most standard form contracts used in construction in Australia 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 provided by authorities such as the Queensland Building and Construction Commission (QBCC) and the Housing Industry of Australia (HIA).
When can a building contractor request a time extension due to a delay?
The Queensland Building and Construction Commission Act 1991 (Qld) 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.
If a building contractor seeks to rely on an extension of time without complying with the provisions, they face a maximum fine of $2757 (20 penalty units). The same maximum fine applies if a building contractor does not give a signed copy of the claim for an extension of time to the owner within five days of the owner approving it.
“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.
The Act does not specify a time limit by which the owner must respond to a time extension request.
The HIA standard form contract stipulates a time limit of five working days for the owner to approve to the building contractor’s request for an extension of time, or to dispute the claim and provide reasons.
If an extension of time is disputed, the building contractor has options including to provide evidence (such as correspondence from suppliers) to support the claim, suspend work, or seek mediation services from the QBCC.
Some of the commonly used standard form contracts provide a default amount of damages payable per calendar period when there is no liquidated damages provision.
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 fist 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.
The amount payable by a building contractor to an owner if a delay is not claimable, should be a genuine estimate at the time the contract is signed. 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.
If a contract expressly provides for it, the total amount of liquidated damages may be deducted from the final amount payable by the owner to the building contractor.
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:
- 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 no-obligation, confidential consultation.