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.
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