Jacob Austin 00:00:00 Hi all Jacob Austin here from QS.Zone. And welcome to episode 75 of The Subcontractors Blueprint. This feels like something of a landmarkthree quarters of a century. And so thank you to everyone who's stuck with me. And of course, welcome aboard, to anyone tuning in for the first time! The show is all about subcontractors and trying to help you ensure profitability, improve cash flow, and grow your business. Today, we're talking about an all important topic and one that can make the difference between you getting hammered for liquidated damages or perhaps losing out on legitimate claims. But on the flip side, but on the flip side, done well, it can protect your business from those liquidated damages and in certain scenarios can help you get your hands on extra money to cover the time spent on the job. And we'll be covering the purpose of extensions of time clauses and how they can preserve your rights as a subcontractor. The right procedures for applying and granting an extension of time, including notice requirements, relevant events that might entitle you to that EOT concurrency and time at large.
Jacob Austin 00:01:09 Two phrases that you probably don't want to hear. We'll talk about what they're about, and we'll also touch on some critical case law that has helped to shape how these rules get interpreted. And we're basing today's episode on the good old JCT standard building subcontract. But even if you're not working on that subcontract at the moment, do carry on listening because it should have relevant points to everybody. And as ever, I'll do my best to explain everything in a good old, plain English fashion. Unlike reading the actual contract itself. All. Right. So let's dig in. So we're covering here what I call part of the Holy trinity of subcontracts, which is the time, the cost. And of course, what you're doing. And those are the three areas that you need to focus on when you're reading your subcontract. What am I doing? How much am I going to get paid for it, and how long have I got to get it done? And extensions of time fit into that mix because inevitably on construction projects, certain things happen that we weren't expecting.
Jacob Austin 00:02:27 It might be whether it might be a nationwide shortage of materials, it might be Covid 19 or whatever new variant somebody comes up with next. All of these things cause delay to the project, and when we get into a position of delay, it starts costing the employer the ultimate benefactor of the contract, either more money to carry on running the project, or they lose out by having to extend a lease on an existing building, or the revenue isn't achieved from the new building that you're constructing. And so this thing is kicked in called liquidated damages. And what that is, is a pounds and pennies estimate of the loss that they're going to make by not having the use of the building that they've commissioned. And liquidated damages are actually quite useful because it puts a finite answer on what that cost is, so that you can manage the risk accordingly. Of course, then as a subcontractor, if you've genuinely caused a delay, the contractor may then add to that liquidated damages their own cost of delay, which would be actual damages.
Jacob Austin 00:03:31 And the whole reason why the extension of time matters is because if, for whatever reason, something else has impacted your work, you need to be able to protect yourself from those damages kicking in. So let's consider a scenario if a delay happens and part of that delay is the employer's fault. Maybe they forgot to provide some critical drawings. The law says that the employer can't turn around and penalise the contractor with liquidated damages for that delay. That, of course, would be unfair. And if a contract had no procedure to extend the completion date when the employer is at fault, then you'd get this legal situation called time at large. And in that scenario, the contractor is no longer strictly bound by the original completion date, and then the contractor is obligated to finish the building within a reasonable amount of time. But that then asks a further question of what is that reasonable amount of time which inevitably will end up in a third parties hands to come to an answer on. Then you've got the situation where the liquidated damages aren't able to be enforced, and what the employer has to then do is prove what their losses are, and then that sum would be recovered from the contractor.
Jacob Austin 00:04:46 That is, after the reasonable amount of time has elapsed. So it all ends up, up in the air and causes a tremendous risk to everybody, and may leave you as a subcontractor. If you've caused some of the critical delay in the worst position of knowing that there's a potential issue, but not knowing how big that issue is and how much it might end up costing you. So the extension of time procedure and the liquidated damages themselves are there to avoid that messy process and help all parties manage the risk and understand where they stand. And it does that with a framework of rules. And the main idea with those rules is to keep everything fair. If the delay is your fault, you don't get more time and you certainly don't get more money if the delay is a natural event. As in something like the weather or something that is in nobody's control, then you would be entitled to more time, but you wouldn't be paid for the time. And that means that you're sharing the cost you're standing, the cost of you being there, the contractor assuming the events apply to them in the same way they take care of their own costs.
Jacob Austin 00:05:52 And the employer has to suffer the cost of not getting that building for however long that delay is. If the delay comes down to the employer, then both you and the contractor would be entitled to additional time and potentially additional cost as well. And when I'm talking about this, I'm assuming that we're working in an unamended contract, because there is possibility for employers to fiddle with the clauses and reduce everybody's entitlements. And that is something that you'll have to read through your own subcontract to work out. There is a fourth and final scenario, which might involve two different events that are competing with each other. And if that happens, or actually if both parties are at fault for different events, then things can get more complicated. But we'll speak about concurrency in a little bit. But when you realize a delay is occurring or likely to occur, you have to give a notice. And that means writing a letter to your contractor. And as it states in the contract, you have to do that forthwith. So don't sit on your hands if something's holding you up or there's a big storm on the horizon.
Jacob Austin 00:06:59 Let your contractor know about it. In writing immediately, the requirement to notify applies, even if you think that the delay might not affect overall completion. And even if the delay isn't the contractor's fault or even the employer's fault. And the reason behind that is that this is, as I've said multiple times on the show, the opportunity to make people aware that something bad is potentially going to happen, to allow them to put measures in place to prevent it. If it can't be prevented, then the contractor has a job to do, which is to investigate and determine whether the delay is a true, relevant event and then whether an extension of time should be granted. This can't happen if you wait till the last minute to raise the alarm. And case law underpins that point, because the courts would say that notices are treated as a condition precedent, meaning if you don't send it, you'll lose your right to that extension of time and to reference particular case between Multiplex Constructions Limited and Honeywell control systems. The court emphasized in this case that the notice serves a valuable purpose.
Jacob Austin 00:08:07 It allows everyone to investigate and take records whilst memories are fresh and the information can be taken down currently. Miss the notice and you can't expect a backdated extension of time. Of course, the notice is just the initial heads up. There is a potential that the delaying event goes away and it doesn't cause any further issue, or that the contractor contacts you. You sit around the table and work your way around it. That doesn't delay the job, but assuming that that couldn't happen in this instance, what you then need to do is follow up with further particulars which detail the circumstances and causes of the delay. The specific relevant events that you believe entitle you to additional time, and an estimate of how these events affect the completion date. And don't skimp on detail here. For example, if you're claiming a delay due to drawings arriving late. Specify the date the drawings were due, the date they arrived, and how many days of site work were impacted by that delay. If you have supporting evidence such as a key date in your subcontract emails, drawing issue sheets and even site diaries, then provide them as evidence.
Jacob Austin 00:09:21 The contractor then might ask for more information, and they often need to do so because information provided by subcontractors is often lacking, and they have a duty to figure out the fairness of your claim. So providing more information rather than less will help you get resolved quicker and hopefully end up in a fairer outcome. You basically want to make it as easy as you can for the contractor to agree with what you are telling them, and then the contract also requires you to update the contractor. If there are any changes to your estimated delay, and then supply with that any further information that they would reasonably require. That means you can't just fire off one letter and call it a day if the situation changes. Maybe there's a partial site handover or another instruction that requires more work. Then inform them promptly that there is further delay. Don't wait until you're finalising the accounts to mention that the period was a month longer than you initially thought. So I mentioned earlier relevant events, and while these are like the heart of the extension of time, they're what your entitlements flow out from and they're the trigger point for you to be able to claim something.
Jacob Austin 00:10:35 And what you'll find if you read your standard building subcontract is a list of relevant events, and these are basically a predefined reason for you to claim more time and sometimes more money as well, albeit that in technical terms these come into play under different clauses known as relevant matters. So I won't cover everything here to encourage you to read the documents for yourself and get to know them. But if you do want further information on relevant events and how they coincide with relevant matters, then I did a detailed episode on this, which was episode 14, which you can track back and have a listen to, but I will highlight a few. So let's start with the discovery of antiquities and we're talking here. Finding, say, dinosaur bones or hidden treasures. If that does happen, you've got to stop and deal with it properly and most likely involving an archaeologist. That, of course, is going to cause delays. So you'll be entitled to an extension of time. You've got suspension of work for non-payment. So if you walk off site because you haven't been paid and critically, you have to have submitted the right notice to be able to do that, then you're entitled to additional time so that you don't get penalised for enforcing your right to get paid.
Jacob Austin 00:11:49 You've got delays caused by statutory undertakers. And these are things like utilities. So water, gas electrical providers. These guys tend to act on their own timescales, turning up when they want, deciding whether they want to do the work, and sometimes clearing off altogether without even lifting a finger. So if you're delayed by them and they're acting independently from you, then you would be due an extension of time. But the key here is whether they are actually independent. If they form part of your contract and you've got to bring them in and manage them, then make sure you do it well because you'll otherwise find yourself on a sticky wicket. You've also got exceptionally adverse weather, and a bit of rain here isn't enough. We're talking truly exceptional storms or conditions that go beyond the norm for the time of year. And in order to justify this, you're likely to need some historic data, like local weather records to prove it. But the couple of hundred pounds that you might lay out for those could save you a fortune in liquidated damages.
Jacob Austin 00:12:53 You have specified perils, which covers fire, lightning, explosions, civil commotion, terrorism. And this even covers the threat of those if it causes physical disruption or action that forces the site to shut down. You've also got strikes, and you should think about these beyond, say, all of your labor walking off site, but also the threat of strikes from people transporting your materials, or even if your materials are coming from abroad. Heaven forbid you've ordered something from France. Should there be another strike over there or in any other country in the world for that matter, if it affects your supply chain or your ability to get your hands on the materials, then you could be entitled to an extension of time. Now, each time one of these events happens, what you have to do is identify that as the cause, but then demonstrate how that cause has had the precise effect that you're claiming on the completion date. So just because you had two days of strike action, for example, it doesn't mean that you automatically get two extra days on the contract.
Jacob Austin 00:13:58 Maybe you had some built in float, or the work that was affected by that strike wasn't critical at that point in time. And then on the flip side, it might be that that strike caused a backlog and it took two weeks, not two days, to work back through that. And for you to get your hands on the goods that you've ordered. The important thing is demonstrating that effect in a way that you contractor can interpret it and agree with what you're saying, or at least come up with their own assessment based on the facts that you present to them. And that leads me on nicely to the response. Now, once you've submitted all of your particulars, your contractor has to respond as soon as is reasonably practicable, but definitely within the timescale set out within your subcontract. Now, I'm going to leave that vague, because this is often one of the areas where the contractor will play with the timescales. So I would urge you to check your own subcontract and see what that timescale actually is. There is also pressure to provide an answer before the completion date arrives, because nobody wants that situation where the contractor and the subcontractor are in limbo.
Jacob Austin 00:15:05 Interestingly, what the contractor is entitled to do also is to revise earlier extensions of time if they find new information or if some work is omitted from the contract. And it might be that they omit something that had an extension of time associated with it. If there was a way to get that done quicker by somebody else, then they can reduce the extension that they've given you. But one thing that they can't do is bring forward your completion dates to an earlier date than they originally gave you. There is also the ability, after the contract is finished, to revisit extensions of time to see if they are correct in hindsight, and during that review, they can even consider relevant events which you might not have brought up. But after the contract is finished, they can't reduce extensions of time unless there's been omitted work. When there is a need for an extension of time, the contractor has got to award something that is fair and reasonable and actually failing to award one where there is actually an extension due could be a breach of contract.
Jacob Austin 00:16:04 But there are also situations where you could be in breach of contract if it's deemed that you don't try hard enough to prevent a delay. So whilst you're being delayed, let's say there was some late information issued. What you're contracted to do is to use reasonable endeavours to prevent the delay. That means you can't just sit back, wait for the project to slow down, and hope to collect more time and more money. You've got to take reasonable steps to mitigate the delay. So that might mean reordering the sequence of some of your work so that elements affected by a delay are moved further back along the critical path. Or you might expedite certain materials if it helps you start a piece of delayed work and get it finished on time. Now, what happens when both sides. Of course some delay. One of the trickiest parts is concurrent delay. So you have two overlapping situations. Let's say one is clearly a contractor's issue. They've issued late design information and it's caused clear delay to your work. And let's say overlapping with that is a delay that you've caused by not organizing the manpower to be there on site.
Jacob Austin 00:17:11 How do you figure out what the extension of time should be? Logically, you might say, well, both sides are messed up. Let's split the difference. But the widely accepted principle, often cited as the Malmaison approach, is that if an employer cause delay, overlaps with a contractor caused delay of equal effect, then the contractor still gets a full extension of time for the period of concurrency. Because if the employer is at fault, then they shouldn't be able to benefit from charging you liquidated damages for that period. But what is unlikely to happen is that you get any money for additional prelims for the same period. There is also a Scottish case called citizen versus Shepherd construction, and that approach had a more apportioned settlement, splitting the delay between the two parties. Some contractors and clients consider that that was a fairer way to approach it. But in English courts, even more recent cases than that have continued to follow. The Malmaison approach, which I didn't mention earlier, was taken from a case between Henry Boot Construction and Malmaison Hotel in Manchester.
Jacob Austin 00:18:19 From a subcontractors perspective, concurrency might be your friend. If you can show that either the contractor or the employer had some kind of hand in a delay. But concurrency is really difficult to prove, and it is also genuinely quite rare for there to be two overlapping events with equal effects that run genuinely concurrently. So if you find yourself in that situation, be sure to gather your all important records. Be that site diaries, programs, or critical path analysis to show how each delay impacted the progress of your critical path. The phrase I mentioned earlier was time at large. That is something that you need to know about, but it is something pretty rare in today's day and age. And that is because modern building contracts all have a valid extension of time mechanism. So time at large will only really happen if your contractor refuses to operate that mechanism. In that scenario, then your time becomes at large and you're not bound by the original completion date. Instead, you must complete with a reasonable period of time. Now, as I said earlier, that can leave you in a worse place because who's to decide, really what a reasonable period of time is? The employer also loses the right to liquidated damages, which causes them a real headache, improving actual damages to recover their costs.
Jacob Austin 00:19:43 This will inevitably involve a third party settlement because of the complexity in working it all out. As I mentioned, modern contracts avoid time at large by having prescriptive and robust procedures for Aots, but it can still happen if the contractor fails to operate that clause, or even perhaps if they've tinkered with it so much that it becomes flawed and it can't be used properly. If you suspect that the time is at large, then I would be really careful and probably consult a specialist solicitor. And it's not an ideal situation to be in because nobody really understands where they stand. Now that I think I've covered all the bases, I'm going to leave you with some practical tips for dealing with yourself. And it's got to start with tip number one reading your subcontract. Don't assume the same terms from the main contract flow down to you, and don't rely on the standard form being in place, because the contractor will likely have his schedule of amendments amendment which might tinker with some of the relevant events, or it might have. Tighter deadlines for giving notice.
Jacob Austin 00:20:50 I can't tell you what those might be, so you need to read it for yourself to find out next. Keep records. Sometimes it's not clear when something is going to cause you a delay. So one of those records ought to be a log of potential delays. Even those that you think might not matter. That might include dates, what it is, who's responsible, why it happened and how it might impact critical path activities. You also want to make sure that you've got copies of email threads, dates that drawings were revised, site instructions, and access to various different bits of work. This kind of evidence will be your best friend if you need to prove a delay. And as ever, you can only collect that information whilst it's happening after the fact and after a couple of pints on a Friday afternoon. It can be very hard to create those records and you just don't know what you might need down the line. Keep a program and keep it updated. Certainly update it every time a relevant event occurs.
Jacob Austin 00:21:51 Demonstrate how that event shifts tasks on on the critical path. That visualization can be the difference between a successful claim and one that you fail to prove. Next, make sure to serve notice as soon as you can. If you think something's going to delay you, as I said earlier, this offers the contractor something to do about it. You don't have to go on to claim an extension of time or even additional money. And in an ideal world, the contractor takes preventative action and everyone finishes on time. We all go away happy. If you don't submit a notice, then you likely lose your ability to claim. So protect yourself and communicate the issues. And that leads me on to communication in general. This is a vital part of a successful construction project. How you word your notice and how you deliver it is key to being successful here. You don't want to just go straight in there and throw in a claim. Treat it like it's an early warning. Treat it like you're trying to help and work with each other to get to a successful outcome.
Jacob Austin 00:22:56 And that's where I'm going to wrap up for today. My mission with this podcast is to help the million SMEs working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd share the show and pass that value on to somebody else who'd benefit from hearing it. And of course, subscribe yourself if you haven't already. And thanks for tuning in. If you like what you've heard and you want to learn more, then please do find us at www.QS.Zone for more information. Thanks again. I've been Jacob Austin and you've been awesome.
