Have you noticed the time?

In the bad old days before Latham and Egan, when most of those in the construction industry thought that "partnering" had something to do with dating agencies, contractors used to bombard project managers with faxes containing notices of delay at the first hint of any problem. This was done simply as a protective measure to avoid any argument that lack of notice deprived them of their right to an extension of time.

The climate is supposed to be different now. However, some contracts, particularly lender-driven ones, place stringent conditions on the contractor that must be satisfied before an extension of time can be awarded. These tend to encourage the old-style behaviour. They may even contain legal difficulties that could backfire on the employer (read on). Here are two examples from standard forms.

Under the FIDIC EPC turnkey contract (which Robert Akenhead has criticised for its anti-contractor bias) the contractor must notify any delay within 28 days of the date when it should have become aware of a delaying event. Nothing wrong with that, you may think. However, the contractor might not be aware of the consequences of the event, as opposed to the event itself, until much later. And even if it is aware, and simply fails to give notice, the penalty is harsh - it loses its extension altogether.

The JCT provisions are fairer. If the contractor does not serve a notice, it is in breach – and therefore may pay damages. Nevertheless, the right to an extension is preserved, since the architect has an independent obligation to review time after practical completion.

A second example is the standard clause in the Treasury taskforce guidance for PFI contracts. Here, the contractor must give notice within 14 days after it becomes aware that any relief event is likely to cause delay, and must follow this up with full details within seven days. Fine, but again this is a condition precedent to getting the extension itself. There is worse to come. The contractor must also demonstrate (to the authority's reasonable satisfaction) that any time lost could not reasonably have been mitigated, and that it is using reasonable endeavours to perform its obligations under the contract. Despite a number of "reasonables" in there, these obligations are onerous. Reading the clause literally would mean the contractor going through every obligation in the contract and proving to the authority, in each case, that it is using reasonable endeavours to comply.

Leaving aside issues of fairness, there is an important legal point that may represent a hidden trap for the employer. It is well established that if the employer causes delay, and if the contract does not allow it to grant an extension of time for that delay, time is put "at large" and the liquidated damages (LAD) clause will be unenforceable. The rule dates back to a time when the courts viewed LAD clauses with suspicion. It is for this reason that contracts typically contain a clause giving the employer the right to extend time, irrespective of notice, where the delaying event is the employer's own breach or that of its agent.

A bold contractor, deprived of its extension of time because of a clause similar to those above, might therefore challenge any claim for LADs. It would argue that the employer has, by attaching conditions to the grant of an extension (which have not been fulfilled), inadvertently prevented itself from extending time for its own defaults. Employers will respond that they should not lose out because of a contractor failing to comply with a condition. But that argument could fail, since the courts have construed these clauses strictly against employers. For example, in one case it was held that a clause allowing the employer to extend time for "other causes beyond the contractor's control" did not cover the employer's own defaults. In a case such as the above, the contractor would simply say that the employer cannot deduct LADs when it is its own fault that the completion date has not been met.

The outcome of any such challenge by a contractor is not certain, as the law stands. In the meantime, perhaps considerations as to risk allocation and fairness need to be revisited. No contract manager really wants to be in the position of finding that a delay notice is its most used document.