Owner/Builder – Claims for Delay in Completion of Building Works

18/02/2020

Building Contracts usually specify a date for Practical Completion.  Often the date for Practical Completion is a set period from the date of commencement of work as determined by reference to a Building Contract.

If there is no specific date stated, the law implies a term that the works have to be completed within a reasonable period of time.  Often there are disputes as to what constitutes a reasonable period of time in a given set of circumstances.

Delays in building projects are common, and can come about from a variety of reasons.

One needs to consider the contractual terms to consider the rights and obligations of each of the Owner and the Builder.

Some delays can be the foundation of an application by the Builder for extension of time for completion of the Contract Works.

One such clause recently considered by us is as follows:

“The Builder is entitled to a reasonable extension of the building period if the building works are delayed by the Builder suspending the building works under Clause 25 or from a cause beyond the sole control of the Builder including:

(a)    a variation or a request for a variation by the Owner;

(b)    an act of God, fire, explosion, earthquake or civil commotion;

(c)    adverse weather;

(d)    an industrial dispute;

(e)    a dispute with adjoining or neighbouring residents or Owners;

(f)     anything done or not done by the Owner;

(g)    delays in getting any approvals;

(h)    a delay in the supply of materials selected by the Owner;

(I)     the need for a survey of or other report in relation to the site; or

(j)     the industry shutdown being a 3 week period commencing on or about 22 December in each year if construction during the Christmas period could not have been reasonably foreseen at the date of this Contract.”

The extension of the building period is often motivated by the Builder’s desire to avoid having to pay damages to the Owner for failure to complete the building works on time. This obligation is often expressed as an obligation to pay liquidated damages in terms similar to the following:

“If the building works do not reach Practical Completion by the end of the building period the Owner is entitled to liquidated damages in the sum of $100 for each working day after the end of the building period to and including the earlier of:

1. date of Practical Completion;
2. the date this Contract is ended; or
3. the date the Owner takes possession of the site or any part of the site.”

Generally, Building Contracts provide that a Builder’s entitlement to an extension of time is dependent upon service of a Notice within a stipulated time of an event causing delay.

One such clause recently considered by us is as follows:

“The Builder is to give the Owner written Notice of an entitlement to an extension of time detailing both:

(a)       the cause of the delay; and

(b)       the extension of time,

within 10 working days after becoming aware of both the cause and the extent of the delay.”

In such cases, there is often a tension between whether the Court or New South Wales Civil & Administrative Tribunal (NCAT) will construe the requirements as to the form and content of the Notice strictly (often finding them as conditions precedent to the making of any claim), or more broadly (tending to find them more procedural in nature).

In relation to the clause above for example, what is the consequence of Notice being given more than 10 working days after the Builder becomes aware of both the cause and the extent of the delay? Is it fatal to an extension of the Contract or not?

Often the Court or NCAT tend to be disinclined to construe the requirements as to form and content strictly unless the language of the clause clearly requires them to be. However, where there is clear identification of the required content of the Notice, it is likely to be construed as a condition precedent to the extension of time under the Contract.

Hence, there is a need for legal advice to be obtained as to the effect of a given clause on given facts.

Another issue that often arises is whether the Builder can make a claim for delay damages or prolongation costs associated with an extended Contract period in which to complete the works.  Does there first have to be an extension of the time for completion under the Contract?

Again, it depends on the specific wording of the clause in question.

A recent clause on this point is as follows:

“For every day the subject of an extension of time caused by an act, default or omission of the Owner, delay damages, being the total of the actual increase in cost to the Builder to carry out the building works plus the Builder's margin applied to that cost is due and payable to the Builder on demand.”

With such clauses, do they only operate in respect of periods of time after the original Contract completion date? Or do they apply regardless?

Hence, the need for a Builder to have a clear understanding of any right it has to seek an extension of time, as well as to act promptly to assert such a right.

If a right to delay damages only applies if there is an extension of time, then if there has been no application by the Builder within time for an extension of time of the building works, then there can be no basis for a claim for delay damages by the Builder against the Owner under such clause.

However, even if there has been an application by the Builder within time for an extension of time of the building works, then under the clause in question it is usually necessary for the Builder to demonstrate that particular days of delay within the time extension period in question have been caused by the Owner and if so, that this has caused the Builder an increase in its costs of carrying out the building works.

Often that is a difficult matter for a Builder to establish.

If the Builder does not complete the Works within the time allowed under the Contract as extended, the Owner may be entitled to damages for delay.  This may be at a particular rate referred to as “Liquidated Damages”.

The Owner’s and Builder’s rights depend upon the terms of the Contract.

If you are seeking to enter into a Building Contract, it is important to seek advice before you enter into a Contract.  Unfortunately the Contract presented to you as Owner is most unlikely to be in the Owner’s favour even if it is a “standard form”.  Similarly, a “standard form” Contract may not give protection to either the Owner or Builder in particular circumstances.

If you are involved or likely to be involved in any building and construction Contract, please contact Richard Watson Accredited Specialist Building & Construction or his Personal Assistant Shereen DaGloria to discuss your matter and seek appropriate timely advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.