Time isn't money when it comes to the minefield of JCT contracting
The JCT recently published its new building contract for home owners. There are two versions: one for use with a consultant, the other without.
Unusually, the contract is short and easy to read. But the price of brevity is gaps. For example, the time provisions look incomplete. The householder can stipulate the time the works should take. The contract also says that in certain circumstances the working period will be extended. Those circumstances are if the employer varies the work, or if the contractor is delayed by reasons outside his control. What is missing is that familiar bit to fill in that fixes an amount for liquidated damages that will be deducted if the contractor is late finishing. This feels a bit like a three-legged stool with one leg missing, and prompts this short reflection on the general principles of time provisions in construction contracts.
Time and money are different. Looking at time on its own, if a contract does not have a completion date, the contractor is obliged to finish in a reasonable time. That is not much help to the client that needs its new football stadium finished before the World Cup kicks off. So a time limit is fixed that the contractor must meet.
But if the employer stops the contractor from meeting the deadline by issuing a variation, the employer is in the wrong for having prevented the contractor from performing. Under those circumstances, the contractor's obligation to meet the fixed date is replaced by the obligation to finish in a reasonable time, which is precisely the situation the employer was trying to avoid.
So to allow the employer to order variations and still have a fixed end date the contractor is obliged to meet, most contracts include an extension of time provision. In short, the employer admits the delay is their fault, but has the power to fix a new completion date.
So where does money come in? Most contracts allow contractors to claim money they are entitled to, on the back of some extensions of time. The new JCT contract is no exception. To borrow its award-winning plain English, 'The contractor can claim any reasonable costs arising from the working period being extended because of any delay caused by the customer or the consultant.'
The flipside is what happens if the contractor is late finishing because of their own default. It is easy to see that the aggrieved World Cup host might suffer a considerable loss as a result of contractor's delay. In the absence of a liquidated damages clause, the employer would have to prove its loss.
The benefit of writing a sum into the contract at the outset is that having contractually agreed it, and provided the sum was a genuine pre-estimate of the loss that would be suffered if there was delay, it can simply be deducted from amounts otherwise owing to the contractor.
Once this usual basic mechanism is understood, it becomes easier to understand the differing views of time provisions that hail from different sides of the industry. For example, a contractor might describe an extension of time provision, not as a vehicle that tows a loss and expense claim behind it, but as a mechanism to protect the employer's right to liquidated damages. The reasoning is that if the employer cannot extend time to accommodate its default, the fixed end date disappears.
Without an end date, there is nothing to trigger the start of liquidated damages if, further into the contract, the contractor is in culpable delay.
But this particular spin simply does not work with the new JCT contract.There are no liquidated damages to protect. A householder might suffer a loss because of a contractor's late completion, perhaps renting other accommodation for another month. But with this contract that loss would have to be proved. And the built-in incentive for the contractor to finish on time is missing.
The contractor, on the other hand, gets an extension of time if the employer defaults, and is entitled to claim costs flowing from the extension. This looks decidedly lopsided, particularly where a householder is pitted against a seasoned builder. Anyone recommending this contract may want to consider levelling things out before suggesting that their client signs it.