A peculiar feature of construction contracts
Published on November 10, 2023 by Matthew Rafferty
The standard construction contract known as AS 2124 (and many other Australian Standards construction contracts) include a clause providing that “Notwithstanding that the contractor is not entitled to an extension of time the superintendent may at any time … extend the time for practical completion for any reason.” Other brands of construction contracts will include a clause of similar effect. Many will also add a qualification along the lines of: “The superintendent is not obliged to exercise this discretion for the benefit of the contractor” or “The superintendent must exercise this discretion for the benefit of the principle (or owner)”. This article will focus on a peculiar feature of construction contracts – the prevention principle.
Why does a construction contract include this clause? Why would a Superintendent grant a contractor an extension of time if they were not entitled to it?
The answer lies in the prevention principle.
In construction contracts, if the client/owner/principal causes a delay in the construction works, this can mean that the contractor is freed from the obligation to complete the works by the date for practical completion – time is at large i.e. because the owner has prevented the contractor from completing on time, the owner cannot then enforce the requirement to complete on time.
When time is at large, not only are the works delayed, but liquidated damages payable by the contractor for delays are not payable. Understandably, owners are keen to prevent time becoming at large. Not only to ensure that the contractor completes on time (subject to delays caused by the owner) but also to preserve the right for payment of liquidated damages for delays that were not caused by the owner.
The prevention principle is dealt with in contracts by allowing the contractor to claim an extension of time for specified reasons, including due to delays caused by the owner/principal. Under a contract that allows an extension of time due to delays caused by the owner, a contractor can still be required to complete work by the date for practical completion even if there have been delays caused by the owner provided the date for practical completion can be extended.
However, sometimes, a contract will make it difficult for a contractor to make a claim for an extension of time. The notice periods will be short and the details and paperwork required is extensive. Sometimes other circumstances contrive to inhibit or delay the contractor from making a claim for an extension of time. There are also situations where a contractor’s extension of time application is rejected by a superintendent.
The construction law cases about extensions of time and the prevention principle are numerous and varied, however, it now seems settled that if the extension of time clause was reasonable then the contractor should not benefit from its failure to claim an extension of time. However, there remains a concern that a contractor who does not claim an extension of time due to delays caused by the owner may later seek to call on the prevention principle to release the contractor from its obligation to complete the works on time (and allow the contractor to avoid paying liquidated damages).
For this reason, contracts allow the superintendent to grant an extension of time, even if the contractor is not entitled to one.
Why do contracts specify that the superintendent is not obliged to exercise this discretion for the benefit of the contractor?
A superintendent will often wear two hats in their role – one as an independent certifier of works completed, and one as an agent of the owner/principal. When a superintendent given a specific power under a construction contract, the contract should clearly specify whether they are acting as an agent for the owner rather than acting in their independent certifier role.
While it might seem that an extension of time is for the benefit of the contractor, a consequence of time being at large is that the contractor will not become liable to pay liquidated damages for finishing the work late. Extending the date for practical completion keeps the liquidated damages clause in play, which is for the benefit of the owner. As such, when deciding whether to grant an extension of time even though the contractor is not entitled to an extension of time, the contract should specify that the superintendent is acting for the owner when they do so.
Please contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page for advice about construction contracts.
