Extension of Time Disputes - Don't Slip into Liquidated Damages

Three weeks after the nominated date for completion, the owner moves in and takes possession of the work - it could be a new house to live in or a block of apartments to complete pre-sales. The owner then claims liquidated damages from the builder.

Your site condition should be - reasonable extension of time, no liquidated damages.

Law in Point

Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151

A subcontractor obtained Practical Completion 144 days late. The subcontract had a mechanism for extending time which included:

  • Delay caused by variations; and

  • The head contractor being permitted to extend time even though there was no entitlement to or a claim for an extension of time.

The subcontractor made a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 for $2,175,267 which largely included variations directed to be undertaken after the Date for Practical Completion. The claim was also a Notice of Delay and a request for extension of time, but the request referred to the wrong clause in the contract.

In its Payment Schedule the head contractor sought to set off $2,328,988 as liquidated damages calculated by reference to the 144 days delay. The head contractor denied the subcontractor was entitled to any extension of time.

The adjudicator applied the prevention principle - a party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party's non-performance.

The Court of Appeal upheld the decision of the adjudicator. The head contractor was obliged to exercise the reserve power to grant extensions conferred by the contract honestly and fairly having regard to the underlying rationale of the prevention principle or, if necessary, because there is an implied duty of good faith in exercising the discretion conferred.

The EOT Site Condition

Contractors should diligently exercise their contractual entitlement to seek extensions of time, which are to be assessed honestly and fairly.

If a disagreement arises as to what is, or is not, a fair extension of time, the self help dispute procedures in the building contract should be used to resolve the matter before resorting to costly litigation before tribunals and courts.

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