Can an owner insist on the works being completed where the contractor says he is entitled to an extension of time – but the contract administrator disagrees – and then levy liquidated damages?
The mechanism for determining extensions of time and deducting liquidated damages do not always go hand in hand. The starting point is the contractor’s obligation to complete the works by the completion date. If it fails to do so, and the employer has served a notice to that effect, the employer can deduct liquidated damages.
However, the completion date is a moveable feast. JCT98 allows the contractor to apply for an extension of time when it becomes reasonably apparent that a delay to completion of the works is likely. On receipt of the notice the employer has 12 weeks in which to consider and, if appropriate, fix a new completion date.
If the employer or contract administrator considers that time should be extended, it must notify the contractor and fix a new completion date. The employer, subject to giving notice as above and any withholding notice, is entitled to deduct liquidated damages. This is the same even if the contractor has referred the question of the proper extension of time to adjudication. Unless and until the adjudicator postpones the completion date, the right to deduct liquidated damages remains.
A contractor cannot refuse to complete the works just because it disagrees with the decision by the contract administrator to deduct liquidated damages. A contractor could suspend performance of the works provided it could show the conditions of section 112(1) of Construction Act had been met. But if the employer has served a valid withholding notice then the contractor may not suspend: its only remedy is to persuade an adjudicator to grant more time.