Key takeaways
Understand time and money claims clearly
Extensions and disruption costs follow distinct contract rules.
Notification duties are critical to entitlement
Timely updates protect rights under JCT and NEC contracts.
Failure to notify may limit recovery rights
Missing deadlines can undermine entitlement to claims.
When we talk about ‘time’, the majority of building contracts contain a completion date. Linked to this completion date is usually provision for liquidated and ascertained damages (LADs) which are incurred by a contractor for completing after the completion date has passed. In the ‘time’ context we are therefore concerned with claiming for an extension of time to the completion date in order to alleviate LADs. In the ‘money’ context, we are concerned with claiming for the costs associated with the disruption and prolongation caused by a delay. This is commonly referred to as ‘loss and expense’.
The JCT D&B and NEC forms of contract both differ in how they deal with assessing the time and money impact of a delay:
Assessment of delay | ||
Time | Money | |
JCT D&B | In the JCT D&B, extensions of time are granted to the extent the delay is classed as a Relevant Event under clause 2.26. | In the JCT D&B, for entitlement to loss and expense the delay must fall as a Relevant Matter under clause 4.21. |
NEC | Entitlement to time and money in the NEC contract, depends upon whether the delay is a compensation event or not under clause 60.1. Unlike the JCT D&B, the NEC deals with both time and money elements under the heading of one item i.e. a compensation event (and therefore does not distinguish between a circumstance being a Relevant Event and/or a Relevant Matter). | |
Both the JCT D&B and NEC contain certain notification requirements relevant to time and money: | ||
Notification of delay | ||
Time | Money | |
JCT D&B | Contractor’s notification obligations: Clause 2.24 deals with the contractor’s notification obligations. Specifically, under clause 2.24.1 a contractor must give notice when it becomes ‘reasonably apparent that the progress of the Works or any Section is being or is likely to be delayed’. The notice is to be given to the employer. A contractor must also give particulars of the delay in accordance with clause 2.24.2 and provide updates on any material change in estimated delay in accordance with clause 2.24.3. Employer’s obligations: Clause 2.25.2 requires the employer as soon as reasonably practicable (but in any event within 12 weeks of receipt of the contractor’s particulars) to give a decision in relation to an extension of time. If there is less than 12 weeks until the completion date, the employer must endeavour to provide a decision before this period. | Contractor’s notification obligations: Clause 4.20.1 – 4.20.3 deals with the contractor’s obligations to notify the employer of a Relevant Matter. In essence, a contractor is required to: Give notice to the employer pursuant to clause 4.20.1 as soon as the likely effect of a Relevant Matter on regular progress or likely nature of loss/expense becomes apparent Give an initial assessment of loss and expense incurred with information as reasonably necessary to support its entitlement in accordance with clause 4.20.2 Update the assessment on a monthly basis (or other period reasonably required by the employer) in accordance with clause 4.20.3 Employers notification obligations: Under clause 4.20.4 within 28 days of receipt of the initial assessment and information under clause 4.20.2, and within 14 days of each update by the contractor under clause 4.20.3, the employer updates its assessment of loss and expense. |
NEC | The NEC contract contains far more stringent notification obligations: Early warning notices Under clause 15.1 both the contractor and project manager are expected to give early warning notices as soon as they become aware of any matter which might, amongst other things, increase the prices or delay completion (i.e. the ‘money’ and ‘time’ aspects). If a contractor fails to give an early warning notice, it risks potentially its costs i.e. ‘money’ falling as a disallowed cost under the contract to the extent such costs have been incurred only as a result of failing to given an early warning notice. Compensation events Again, beware that clause 61.3 must be adhered to and a compensation event must be given by a contractor within 8 weeks of becoming aware a compensation event has happened. We commonly advise is that when in doubt, issue a compensation event notice (even if the project manager has notified the event to the contractor): ‘The Contractor notifies the Project Manager of an event which has happened or which is expected to happen as a compensation event if: the Contractor believes that the event is a compensation event and the Project Manager has not notified the event to the contractor If the Contractor does not notify a compensation event within eight weeks of becoming aware that the event has happened, the Prices, the Completion Date or a Key Date are not changed unless the event arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision.’ The consequences are potentially draconian for a contractor failing to issue a compensation event notice within eight weeks. Ultimately, by failing to issue within time, the contractor loses entitlement to its claim for ‘time’ and ‘money’. | |
We appreciate that at this time, the issue of hardcopy notices can be problematic given the fact that offices are closed and persons are advised against all but essential travel. What we would recommend, is that:
parties agree a method of communication with the other party and
unless there is clear agreement from the other party, we recommend issuing any notices in the manner specified in the contract
This approach should minimise any subsequent arguments that such notices were invalidly served. The notices referred to in the table above do not have to take a particular form, but we would recommend that, as a minimum, each notice refers to the clause it purports to be given pursuant to and also contains any content (such as supporting information) as required.
With the notification requirements in mind, here are some topics in the format of a 30 second read that we think you will find helpful. We will be primarily focusing on how a claim for ‘time’ and ‘money’ may arise from Covid-19 and under what circumstances. We will also be focusing on rights of termination arising from Covid-19.
