Completing projects on time
02/07/2002 The Star Articles of Law with
Bhag Singh
COMPLETION dates are important in contracts for the construction of buildings and other structures. A person who has engaged a
contractor to construct a building will want an assurance when the structure will be completed and handed over.
One comes
across situations where time for completion is not stipulated. In other instances, the time may be stipulated but it may not be
possible to complete the work within the stipulated period. Yet there may be situations where the time frame may be extended.
In the building construction industry, it is customary to incorporate provisions for extension of time. Where such a provision
exists and the architect or other designated person grants an extension the effect is to postpone the contractual date for
completion with consequent effect on the liability of the contractor for liquidated damages.
What time frame, if any, must be complied with if the date of completion is not stated? Does it mean the party doing the work
can take its time to complete the work? This would be neither desirable nor practical as it would create uncertainty.
The answer lies in the Contracts Act: “Where, by the contract, a promisor is to perform his promise without application by the
promisee, and no time for performance is specified, the engagement must be performed within a reasonable time.”
This does not fix the deadline for work to be completed, but creates a “formula” for fixing that deadline and operative words
are “reasonable time”.
The next category are contracts where the time for completing the work is fixed. In such contracts there is usually a further
provision to say that time is a very significant element. The time for performance must be strictly observed.
In such instances, not only is the time for performance to be strictly observed but a party must also strictly exercise its
rights when performance fails at the stipulated time. Thus the right of the party that seeks performance to repudiate the contract
must also be strictly exercised.
Failure to do so will result in the right to repudiate the contract or exercise any other right being lost at least for the
time being. If such a right is to be exercised thereafter, reasonable notice must be given for performance to take place.
In building construction contracts, the time for performance is usually exceeded. This happens for a variety of reasons such as
changes required by the employer and other extraneous factors beyond the control of the contractor. When this happens the employer
would seldom exercise the option to end the transaction by either treating the non-compliance as a repudiation or on account of an
express provision which treats such non-completion as repudiation. The employer is more likely to allow the transaction to
continue.
Where in a contract for the execution of specified works it is provided that the works shall be completed by a certain day and
if the deadline is not met, the contractors shall be liable to pay liquidated damages and there is also a provision that if
additional work is ordered which delays the completion of the work, the contractor is exonerated for liability to pay liquidated
damages, unless he has agreed that he will complete the works within the time originally specified.
At the same time it is not desirable to leave the matter hanging. Even more significant is the fact that where liquidated
damages are stipulated there must be a time from which they must begin to run.
Absence of a fixed date destroys the right to liquidated damages. It therefore makes for business efficacy that there be a
mechanism to have this date altered in specified circumstances. This is achieved through the incorporation of extension of time
clauses.
Extension of time clauses are customarily included in one form or another in many contracts and often taken for granted though
they are used with a different measure of effectiveness depending on the parties involved and the circumstances. What is the
rationale for such clauses?
It has been said by a learned author: “It follows, therefore, that if the date in the contract has for some such reason ceased
to be the proper date for the completion of the works, and no contractual provision exists for the substitution of a new date,
there is in such a case no date from which liquidated damages can run and the right to liquidated damages will have gone. This,
rather than solicitude for the contractor, is the reason for the provision, usually known as the extension of time clause.”
All the standard forms of building contracts contain provisions for the granting of extension of time and for payment of
liquidated damages by the contractor in the event of late completion. In the absence of express contractual power to extend the
time, the architect cannot do so. In practice, the relevance of claims for extension of time is in relation to the contractor’s
liability to pay liquidated damages.
Extension of time provisions and liquidated damages clauses are closely linked, and failure by the architect to exercise the
power to extend time properly, where any delay is caused by the employer, relieves the contractor from his liability to pay
liquidated damages and the time for completion may become “at large”. When an extension of time is sought, it can usually only be
granted on the reason expressly set out in the contract. |
