Who bears the risk of concurrent delay?
The prevention principle has been part of English law for nearly 200 years. In the construction, offshore and shipbuilding sectors, 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 from the contractor.
The basic rationale 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 has largely informed the view taken by English law towards concurrent delay, which 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 issue was discussed in the recent decision of North Midland Building Limited v Cyden Homes Limited  EWHC 2414 (TCC). The answer is a resounding ‘No’.
THE "TRADITIONAL" APPROACH
The following scenario is well-known in the construction, offshore and shipbuilding sectors:
- The employer fails to provide some key design information to the contractor – the contractor says this failure is causing delay to the progress of its works;
- The contractor fails to mobilise on time – the employer says that the late design information cannot be causing any delay because, even if this information had been provided on time, the contractor did not have sufficient resources to progress its work to complete on time.
Here, the employer is alleging that there are ‘concurrent’ delays occurring, in the sense that the effects of the employer's breaches and the contractor's delays are being felt at the same time.
If the 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), the employer's breaches will entitle the contractor to an extension of the contract completion date. In these circumstances, the contractor will normally be entitled to an extension of time for the period of delay caused by the Employer Risk Event.
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 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 construction and offshore contracts now contain language along the following lines:
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 judge rejected this argument in robust terms. Having agreed how the risk of concurrent delay should be allocated, the judge said that it was not open to the parties to seek to argue otherwise. This is because parties should be 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.
The allocation of responsibility for concurrent delay in any construction project is a commercially significant matter, potentially worth millions of dollars.
Prior to the North Midland Building Limited decision, it was often argued that, under English law, clauses which made the contractor responsible for concurrent delay were not valid because they were contrary to the prevention principle. Those arguments will now fail. 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 court’s approval of such clauses will probably increase their popularity with employers. Where they are used, they will reverse the conventional approach that the contractor should be entitled to an extension of time, despite its own culpable concurrent delay.
In commercial terms, this decision brings the wording of extension of time clauses into sharp focus. Where there is an express allocation of concurrent delay, the contractor will bear the risk of such delays and should price for the work accordingly.