When £20,000 worth of windows was stolen from a site, the contractor was landed with a six-week delay. So was the delay subject to an extension of time? If not, who was going to pay for the knock-on costs? Our panel of experts ponder the options…
Unfixed external aluminium windows valued at about £20,000 were stolen from site over a weekend. All reasonable steps were taken to secure the site. We, the contractor, are insuring works. The anticipated delay to the contract is six weeks. The responsibility for the security of unfixed materials is the subcontractor’s. My questions are: is the resultant delay subject to an extension of time under the contract, and if so, under which relevant event? If the delay is not subject to an extension of time, are all resultant costs (for example, liquidated damages and additional preliminaries) recoverable from the subcontractor?
You won’t get an extension of time
It would be unusual for this not to be a contractor’s risk, so I doubt whether the contract would allow you an extension of time. You may be able to recover the resultant costs from the subcontractor, depending on the extent of the subcontractor’s responsibility for the security of the materials in question and the steps that the subcontractor had taken to secure them. Your or the subcontractor’s insurance policy may give some cover for consequential costs.
Rachel Barnes, partner at Beale & Company
Your subcontractor may have to pay up
It is pretty clear under JCT Design and Build Contract 2005 that as main contractor you have no entitlement to an extension of time. Theft is not one of the “specified perils” and there is no other relevant ground.
If you are insuring the works then your “all risks” insurance policy should cover theft, so notify your insurers immediately. That will obviously deal with the replacement cost of the windows but I am not sure that it will help you in relation to the delay.
Having paid out, your insurers may want to look to the subcontractor for recovery of the replacement cost since the subcontractor is not a joint named insured in respect of theft.
Assuming that you are using the JCT Design and Build subcontract conditions, the subcontractor is indeed responsible for replacing site materials that are stolen unless you have been in default. You say responsibility for security lies with the subcontractor but did you not undertake to provide site security? If not, then you should be able to recover all resultant costs from the subcontractor. If you have, then the argument will be that your security arrangements were inadequate.
Ann Minogue, partner at Linklaters
Check your ‘all risks’ insurance policy
Your best chance is for you to try to make out your case for an extension of time under the “inability to secure goods and materials” heading, if this is included in your contract. Most employers cross it out and even if it is included, I don’t rate your chances of succeeding as high as if you obviously did obtain the materials – at least to start with.
You will therefore be unable to recover your loss and expense and will be liable to the employer for any liquidated and ascertained damages that it chooses to deduct.
It is unlikely an “all risks” insurance policy will cover more than the cost of replacing the stolen windows. Most “all risks” policies specifically exclude penalties for delay and consequential losses, so you will not be able to recover liquidated damages and loss and expense for the period of the delay. You should check the actual terms of your policy as cover varies between different insurers.
It looks as though your best chance for recovery of the liquidated damages and loss and expense will be from your subcontractor, if it is responsible for the security of unfixed materials. If you have paid for the windows (in other words, they are now your property), you will need to check whether this has any implications as to your responsibility and this will depend on the terms of the contract.
Read the terms in the subcontract
I have assumed that the contract between the employer and the contractor is JCT1998 with contractor’s design and that the subcontract is on the JCT domestic subcontract 2002.
Clause 15.1 of the main contract provides that, in respect of unfixed materials, the contractor is responsible for any loss (which includes theft) or damage.
As regards the delay arising from the theft of the windows, although the main contract provides that the contractor is entitled to an extension of time for loss or damage caused by specified perils, “theft” is not a specified peril. Accordingly, any delay to the completion of the works resulting from loss or damage caused by theft is a contractor risk and the contractor is not entitled to an extension of time.
However, since theft is one of the risks covered by the “all risks” insurance to be effected by the contractor, the consequential loss arising from the theft may be covered under the insurance policy.
There are various provisions of the subcontract which may impose a liability on the subcontractor for resultant losses:
- Clause 6A.2.1 of the subcontract provides that the subcontractor is responsible for the cost of replacing subcontract site materials in specified circumstances.
- Clause 2.12 obliges the subcontractor to pay to the contractor any direct loss and/or expense incurred and caused by the failure of the subcontractor to complete the works on time in circumstances where the subcontractor is not entitled to an extension of time. As under the main contract, although loss or damage caused by specified perils entitles the subcontractor to an extension of time, theft does not.
- Clause 6.3 of the subcontract provides that the subcontractor shall indemnify the contractor against any loss, injury or damage insofar as it arises out of any negligence or breach of statutory duty, or omission or default of the subcontractor.
- In addition clause 1.11.2 of the subcontract imposes a general indemnity on the subcontractor under which its liability could include the contractor’s costs, liquidated damages due to the employer and payments to third parties where the contractor is liable.
Julian Holloway, partner at Berwin Leighton Paisner
Look to your joint names insurance policy
Under clause 22A.1 of JCT1998, the contractor is required to take out and maintain a joint names policy for “all risks” insurance. Such policy is defined in clause 22.2 as providing “cover against any physical loss or damage to work executed and site materials”. This would include theft. The policy should be in the joint names of the employer and contractor.
As a consequence of this, if the theft of the windows was due to any default on your part, the insurer will not seek recovery from you in the event it makes payment to the employer. Some matters to note:
- The joint names policy should have been taken out with insurers approved by the employer.
- The policy should cover the full reinstatement value of the windows.
- You may carry your own “all risks” policy irrespective of this particular job. Provided that such a policy is put in the joint names of you and the employer, it should satisfy the obligation in clause 22A.1. You should have sent the policy to the employer for inspection.
- Once the theft was discovered you should have immediately notified the employer in writing, giving full details of the loss.
Since, as you say, your subcontractor has the responsibility in these circumstances, you will have to look to him to lay off your own liability. You should first, however, check the subcontract to ensure that you are not in breach of any obligations relating to the maintenance of site security.
Rudi Klein, chief executive of the Specialist Engineering Contractors Group
If you have a query, you can submit it via our website www.building.co.uk/legalaidform. Replies are based on information provided and it is essential you consult a solicitor before putting advice into action