Who bears the risk of concurrent delay?

A recent decision of the English Court has endorsed a decision by parties to “contract out” of responsibility for concurrent delay. This decision is important because, where parties agree to “contract out” of this responsibility, contractors may not be able to rely on the prevention principle as grounds for obtaining an extension of time for delay in construction contracts.

The prevention principle has been part of English construction law for nearly 200 years. It is normally taken to mean that, where the employer has prevented the contractor from completing its work by the contract completion date, the employer cannot deduct liquidated damages for delay from the contractor.

The rationale for this is that the employer should not be able to take advantage of the non-fulfilment of the completion date, where the employer has prevented the contractor from ­fulfilling that date. The prevention ­principle can be summarised as follows:
“Where “Employer Risk Events” and “Contractor Risk Events” occur sequentially but have concurrent effects, any “Contractor Delay” should not reduce the extension of time to which the contractor is entitled as a result of the “Employer Delay”.”

But what happens if the parties agree upon an extension of time clause which “contracts out” of the prevention principle by expressly making the contractor responsible for concurrent delay? Will the contractor be able to rely upon the prevention principle as grounds for obtaining an extension of time?

This was the issue discussed in the recent decision of North Midland Building Limited v Cyden Homes Limited [2017] EWHC 2414 (TCC) and the answer is a resounding “No”.

The “traditional” approach

If a construction contract contains a ‘traditional’ extension of time clause (such as, for example, the one found in Clause 8.4 of the FIDIC Conditions of Contract), any breaches by the employer will typically entitle the contractor to an extension of time for the period of delay caused by the Employer Risk Event.

Parties are free to agree whatever contractual terms they wish to agree

In such cases it will not be open to the employer to argue that it does not have to grant an extension of time because the contractor would have missed the ­contract completion date because of its own delays. This is because, if the employer deducted liquidated ­damages for delay in these circumstances, this would contravene the “prevention principle”. To put it another way, the em­ployer prevented the contractor from completing its work by the completion date, so cannot benefit from its act of prevention by deducting liquidated damages. 

Contracting out of concurrent delay

Many extension of time provisions in offshore construction and shipbuilding contracts now contain provisions such as this:
“When assessing an extension of time, any delay caused by an “Employer Risk Event” which is concurrent with any delay caused by a “Contractor Risk Event”, shall not be taken into account.”

Another formulation would be as follows:
“The completion date shall not be extended to the extent that the delay would nevertheless have been experienced because of concurrent delays for which the ­contractor is responsible.”

This is sometimes called a concurrent delay “carve-out” which makes the contractor responsible for concurrent delay.

In North Midland Building Limited, the contract contained a similar clause. The contractor argued that the clause was ineffective. This is because making the contractor liable for concurrent delays would be contrary to the prevention principle and thereby “not permitted”.

The Court rejected this argument and said that, having agreed how ­concurrent delay would be dealt with in the ­contract, it was not open to the parties to seek to argue otherwise. Parties are free to agree whatever contractual terms they wish to agree, save for illegality or statutory restrictions. There is no of rule of law which prevents parties from agreeing how to treat concurrent delay.

The judge also referred back to ­previous authorities analysing the ­relationship between concurrent delay and the ­prevention principle. He agreed with the view expressed in those authorities that concurrent delay does not ­trigger the prevention ­principle. This is because the contractor will not be able to show that the employer’s ­conduct made it impossible to complete by the ­contractual ­completion date. The ­existence of a delay for which the ­contractor is responsible, covering the same period of delay which was caused by an act of prevention, would mean that the employer had not prevented actual completion.

Comment

The decision in North Midland Building Limited makes it clear that there is no rule of law preventing parties from agreeing how to allocate responsi­bility for concurrent delay. The commercial significance of this decision is that where there is a concurrent delay carve out, the contractor will bear the risk of concurrent delay.

In light of this decision contractors should carry out an “audit” of their extension of time clauses. Where there is a concurrent delay carve-out, contractors should proceed with caution. In terms of future projects, where there is an express allocation of concurrent delay, the contractor should try to price for this risk accordingly.

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