Construction Law/Associated Cost for Extension of Time
QUESTION: Dear Sir,
I have one question. My question relates to time related cost.
At the beginning because of delay in provision of alignment and surveying data, extension of time was granted. But the contractor could not complete the project within the extended time. He claimed for further extension of time on other grounds but it was not accepted.
The Contractor also claimed time related cost for the extension of time he was granted previously.
The relevant provision in the contract says:
“If a Compensation Event would cause additional cost or would prevent the work being completed before the Intended Completion Date, the Contract Price shall be increased and/or the Intended Completion Date shall be extended. The Engineer shall decide whether and by how much the Contract Price shall be increased and whether and by how much the Intended Completion Date shall be extended.”
The Employer raised about CONCURRENCY stating that during no time the Contractor was able to progress as he planned and that he was in CONCURRENT delay.
Can the Employer raise an issue of CONCURRENCY or simply he is obliged to pay for time related cost as per the above provision, as the event based on which the extension of time was given [failure to give alignment and surveying date] is listed as one of the Compensation Events in the provision before what I quoted above?
I am deeply indebted in advance to hearing your expert advice.
ANSWER: Dear Alemu,
Thanks for your sensible question.
I assume that you are working with or as Engineer / Engineer’s Representative dealing with a Bid and Build Contract between the Employer and the Contractor.
I understand that the dominant cause of the delay is the delay in provision of alignment and surveying data by the Engineer, preventing the Contractor to progress the Works.
Was the issue of concurrency ever been raised by the Employer during the determination of extension of time?
… then it should have been considered in the granted extension of time. Meaning, the extension of time granted to the Contractor was the net effect between the delay caused by the Employer/Engineer or its representative and the delay caused by the Contractor.
Therefore, if the Contractor can demonstrate, by providing evidences and supporting documents, that such delay caused additional cost to the Contractor, he shall be entitled for an additional cost he suffered due to such delay.
… then the Employer is just making presumption (as there was no clear reason provided) of concurrent delay in order to avoid his obligation for the cost associated with extension of time.
To give the Employer the benefit of the doubt, if he can demonstrate concurrent delay on the part of the Contractor, the same shall be taken into consideration in the determination of time related cost (i.e. evaluating the net effect). Since the dominant cause of the delay is the delay caused by the Engineer/Engineer's Representative, it is safe to assume that there will be additional cost to be granted to the Contractor after considering concurrent delay. In other cases, if the concurrent delay is minor, then it can be disregarded, as if there was no concurrent delay occurred.
Based on the relevant provision of contract provided, the Contractor shall be entitled for extension of time (granted) and the cost associated with the “Delay caused by others” it in light with proper justification and evidences that such delay actually incurred additional cost to the Contractor.
I hope the above advice clarifies your concern.
---------- FOLLOW-UP ----------
QUESTION: Dear Sir,
I am satisfied with the manner you address my questions. Indeed, I am getting the benefit of your knowledge.
My questions today are as follows:
What does the following statement relating to the application of price adjustment mean?
“Pn is a price adjustment factor to be applied to the amount of the work carried out in the subject month, determined in accordance with Sub-Clause 42.1, where such variations and day works are not otherwise subject to adjustment”
1. Does it exclude variations and day works from being adjusted? Does it mean that variations and day works are not subject to adjustment unless valued in accordance with Sub-Clause 42.1?
But to be valued in accordance with Sub-Clause 42.1 is it not required to bring the varied rates to base date rates for instance by dividing the varied rates with price adjustment factor at the time of the Variation?
Clause 42 taken together says:
42 Payment Certificates
42.1 The Contractor shall submit to the Engineer monthly statements of the estimated value of the work executed less the cumulative amount certified previously.
42.2 The Engineer shall check the Contractor’s monthly statement and certify the amount to be paid to the Contractor.
42.3 The value of work executed shall be determined by the Engineer.
42.4 The value of work executed shall comprise the value of:
(a) The quantities of the items in the Bill of Quantities completed in the case of Admeasurements Contracts; or
(b) Completed activities in the Activity Schedule in the case of lump Sum Contracts.
42.5 The value of work executed shall include the valuation of Variations and Compensation Events.
42.6 The Engineer may exclude any items certified in a previous certificate or reduce the proportion of any item previously certified in any certificate in the light of later information.
If I may add one more question:
2. When there is no provision in the contract for granting interim extension of time, the Engineer when he failed to get the determination done and approval of the Employer on time, he granted interim extension of time.
Can he give interim extension of time when the contract has no provision for granting interim extension of time? What would be the implication?
As usual, I am deeply indebted in advance to hearing your expert advice.
Thank you for providing copy of relevant General Conditions of Contract.
Answer to Q1:
Let me note that the definition of "Pn" in the provided document is not matching with the definition you have provided earlier.
We may refer to the provisions of Clause 40 [Payment for Variations] and 53 [Day Works] of Conditions of Contract.
For Variations, we may use Quotations, BOQ Rate, Engineer's Own Forecast as basis of assessment or shall be treated as Compensation Event [Clause 44], provided however that BOQ Rate shall only be applicable for admeasurement contract and if the nature and timing of execution does not affect the cost per unit. If the cost per unit of quantity changes, or if the nature or timing of the work in the Variation does not correspond with items in the Bill of Quantities, the quotation by the Contractor shall be in the form of new rates for the relevant items of work.
Therefore, "Pn" shall not be applied to Variations.
Similarly, if applicable, Day works rates in the Contractor’s Bid shall be used for small additional amounts of work only when the Engineer has given written instructions in advance for additional work to be paid for in that way. Otherwise, it shall be treated as Compensation Event.
Therefore, "Pn" shall also not be applied to Day Works.
Answer to Q2:
Sub-Clause 28.2 states "The Engineer shall decide whether and by how much to extend the Intended Completion Date within 21 days of the Contractor asking the Engineer for a decision upon the effect of a Compensation Event or Variation and submitting full supporting information."
Although it was not explicitly stated in the contract that the Engineer may or may not issue interim extension of time, it does not also provides limitation on the number of issuance of Extension of Time (EOT) during the duration of the Project. Thus, instead of issuance of interim EOT, the Engineer may issue EOT for the minimum period which he considers the Contractor entitled to, and issue another EOT if justified by the Contractor.
The implication is that, most contracts restrict and stop the payment for contractors on the contract completion date if there is no approved extension of time. In the absence of EOT, the Contractor has no basis of extending the insurances and bonds, which are very essential to the Project. Another implication of not granting EOT is that the Project will be considered at-large, wherein the Contractor has no target date to complete the works.
Therefore, it is not fair and reasonable that the Contractor will suffer for the failure of the Engineer to provide his determination within the period as stipulated in the contract. Thus, the Engineer is obliged to issue an EOT in light with of proper justification by the Contractor.
Thanks for your follow up question.
We need to examine the provisions of entire contract to enable to answer your questions more accurately.
Please advise what Conditions of Contract employed in your Project? Is it FIDIC Conditions of Contract for Construction, Multilateral Development Bank Harmonised Edition, May 2005? Please confirm. Otherwise, please email to me at firstname.lastname@example.org the full copy of Conditions of Contract employed in your Project.