If a project falls behind programme, proving or disproving liability for delay can be a complex and contentious subject for the contracting parties to resolve. Most construction contracts contain provisions for how completion dates can be extended if entitlement can be proven by the contractor. Subsequent extensions of time will be awarded by the client to the contractor and corresponding loss and expense claims valued and agreed.
For a contractor, entitlement is generally proven through demonstration of the impact of client instructed change event, force majeure or via a contractor notified and accepted change event.
However, should the contractor have no entitlement and the contractual date for completion has passed, but the project is still not complete, then this period of delay is known as culpable delay, also referred to by some as ‘contractor delay’ on the basis it is entirely the fault of the contractor. If such a situation is proven, the contractor will not be granted an extension of time, will not be awarded loss and expense for the period of delay, and will likely find themselves liable for delay damages levied by the client at a rate set down in the contract agreement or, where no rate is stipulated, a claim for general damages.
There is another situation that commonly arises where corresponding delays of both the contractor and client overlap one another, which is known as concurrent delay. This is a complex situation where the parties will be seeking to understand how the delaying events are intertwined in order to establish any entitlement due to the contractor and therefore relief from damages.
One of the key points with a culpable delay is the client can insist on the contractor completing the works by the contract completion date, whereas with an accepted extension of time claim or a situation of concurrent delay the general view could be that time is ‘at large’ and the contractor is therefore to complete the works within a ‘reasonable’ timeframe.
How does it differ from an extension of time?
If an extension of time is granted, the contractor will be protected from the client’s ability to levy delay damages against them. A culpable delay is one whereby the contractor will have to pick up their own costs plus any damages claim from the client. If the latter occurs, the contractor will likely seek to pass these costs through to their own supply chain if it is proven a subcontractor has liability for culpable delay.
However, for a main contractor or management contractor, the supply chain may not have accepted unlimited liability contracts or may simply be too small an organisation to absorb significant losses. This is why it is crucial to ensure liabilities in the main contract are backed off in subcontracts or else the contractor retains too much risk.
If a contractor wishes to seek an extension of time then, under most contracts, it is a condition precedent that they must notify a delay and state their intention to make a claim within a certain timeframe. Failure to do so can result in losing any entitlement. The logic here is that, if notified within time, the client has the opportunity to decide what mitigation options are available, whereas if the project is delivered late followed by a retrospective claim for an extension of time with full loss and expense, it’s unreasonable to expect the client to pay the full effect when they have not been afforded the opportunity to reduce the costs.
If a contractor is time barred from entitlement to claim an extension, this would arguably become culpable delay by default. If such a situation occurs it’s easy to see how a dispute can arise.
In situations where a concurrent delay event occurs there is contrasting legal background on how to treat and award extensions of time e.g. in the case of Henry Boot vs Malmaison Hotel Ltd (2000) the parties agreed a concurrent delay existed and that the contractor should be afforded time relief via an extension of time including the period of culpable delay. However, in the case of Royal Brumpton v Hammond (2000), a TCC case ruling, once a concurrent delay was established the contractor was not entitled to an extension of time.
How is the affected party compensated for a culpable delay?
As a client, looking at the effect of the project finishing late, you should consider what are the direct costs you will incur should the project be completed late e.g. your staff plus general business overheads. You may also employ architects, structural engineers and other professionals whose contracts will need to be extended. Notwithstanding this, you should consider the in-direct costs such as loss of profit of not using the development plus compensating third parties. A good example of this is student accommodation that must be completed by the time term commences. A failure to do so may require students being compensated and other temporary accommodation being sourced and paid for during the period of delay and the client’s costs for arranging and facilitating the temporary requirements.
This information could be added together to form a rate per day for liquidated damages and added to the contract. Note that it is important this is representative of a genuine pre-estimate of loss or the contractor may seek to have the rate declared null and void on the basis it is punitive as opposed to compensatory.
Alternatively, you can include wording as to the contractor’s liability in the event of delay and then seek costs later. However, as you will need to substantiate any losses this can be cumbersome and legally time consuming, hence the preference for some to include a pre-agreed rate in the contract.
As a contractor, you will need to consider your liability for culpable delay and then step this down, plus your own running costs, into your subcontracts. This can lead to a disproportionate amount included in the subcontract compared to the actual value of their works. A balance will need to be struck between the main contractor and client that is acceptable and manageable for the main contractor to spread their liability.
As a main contractor, your running costs will peak and then drop off towards the end of the programme, therefore you will need to consider any rate you are planning on entering into subcontracts is representative of your real costs or else you could face legal challenge in the same way as above in that rates stipulated are not representatives of actual loss.
In terms of the actual payment mechanism, if the contractor is running late and the delay is culpable, the client should invoke delay damages against the contractor’s application for payment which is generally done by applying the rate per day against the number of days, to that point, the project is past the completion date.
How does a client or Main Contractor prove a culpable delay?
In the first instance it may be apparent. For example, the project has passed the completion date but it is not finished and there are no extension of time claims from the contractor on the table. In the absence of any further information you may be safe to assume a culpable delay has occurred.
However, in pro-active forms of contract such as NEC ECC, the Project Manager is equally able to acknowledge and issue changes. The point being that if the contractor can prove the client knew about a change event but is refusing to acknowledge whilst still applying delay damages, this is unreasonable and is likely to lead to a dispute.
However, establishing liability is easier said than done due to burden of proof approach. This means the contractor must demonstrate all causes of delay including their own and the clients. If there are both it is a decision for the contractor how to best present this and for the client to review and accept or reject the claim. Even if the client issues a change event, the burden of proof will still be on the contractor to demonstrate the value of entitlement.
In terms of demonstrating a delay to programme and the critical path, there are a number of different techniques that are readily used by clients and contractors alike such a ‘First Past the Post’ – where concurrent delays have occurred, all of which are owned by the same party but one has driven out the completion date. Other techniques include ‘Impacted As-Planned’ where the latest accepted programme is impacted with change events and any impacts are used to establish loss and expense claims for time and cost.
However, for impacted as-planned, the criticism from clients is that as-planned does not recognise actual progress at the point of modelling the delay i.e. there may an impact due to a change event but was the contractor or client ready at that point? An example being the client has delayed access to the works but the contractor did not have their subcontractors procured in any event and therefore was not ready to start. This is why other techniques such as ‘As-planned versus as-built’ are also used as they recognise actual progress before impacting changes. This does not always work in favour of the client. If the contractor can prove they were ahead of programme at the point of impacting change, they will want this advantage to be included in any loss and expense claim, but this generally becomes a point of contention.
How does a contractor protect or defend itself from accusation of culpable delay?
To protect itself, the contractor should adequately plan and execute the works so as to maintain progress in a workmanlike fashion. If there are delay events that affect this progress, they should notify them in accordance with the contract, ensuring they submit regular programme updates at the intervals stated in the contract, with actual progress clearly demonstrated.
If a situation should arise whereby a client believes culpable delay has occurred, or is likely to occur if the contractor maintains the current rate of progress, there are a few options:
- Re-sequence the programme to take the delayed works off the critical path to mitigate the delay
- Consider any change events that have delayed the works and are owned by the client before seeking to make a case whereby these impacts must prevent the contractor from becoming liable for non-culpable delays. If the contractual completion date becomes at large as a result, the contractor will only be obliged to complete the works within a reasonable time
- If there are no change events and resequencing the programme does not mitigate the delay entirely, then ensure you have made provision for the damages that will follow
- If the delay is attributable to a subcontractor, make sure the relevant notices are served as it would be between a client and contractor
Interesting case law
If the client/contractor wishes to issue instructions for works post the original completion date when a project is in delay, then on the basis the contractor/subcontractor cannot be held liable for client/contractor delay, the client must award an extension of time claim to cover the instructed works. This would mean the client/contractor is no longer liable for culpable delay, which for clients is unpalatable.
In 2016, Carillion Construction Ltd. v Woods Bagot Europe Ltd. and others (2016), the TCC reviewed a case whereby this very situation occurred but Carillion contested it. They believed the culpable delay period should be preserved and only the period applicable to the change event subject to relief from delay damages. In this case the TCC did not find in favour of Carillion’s interpretation meaning the subcontractor’s culpability for delay was effectively removed once Carillion had instructed further works post completion.
Such a situation defies logic and seems unreasonable but is arguably how some contracts are drafted and therefore careful choice of contract or subcontract is required. If a standard form of contract is chosen then appropriate amendments should be considered.