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Where damages beat the clock

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Legal matters

Many believe that liquidated and ascertained damages (lad) are there for the benefit of the employer and that the contractual provisions for granting extensions of time (eot) are there for the benefit of the contractor. Surely that must be right? lads are payable to the employer in the event of late completion. Although they are intended to be a genuine pre-estimate of the employer's losses, they operate as a penalty for culpable delay by the contractor. Conversely, the contractor is entitled to an eot if he has been prevented from completing by the contractual completion date, through no fault of his own. Extending time for completion saves him from lads.

This is not the whole story, and in fact the opposite can be seen to be the case. The historical origins of the relationship between lad and eot warrant consideration. Traditionally the courts were very hostile to lad. They believed them to be penalties or sticks with which the employer could beat the terrorised contractor. Accordingly, the courts were willing to find any breach by the employer which prevented the contractor from completing on time as 'an act of prevention' which would put the time for completion at large and render the lad clause inoperable. Similarly, the courts were very suspicious of contractual provisions for extending time in the event of an act of prevention, since they saw them as a mechanism by which the employer could avoid the consequences of his own breaches and preserve the completion date, and with it the lads. Accordingly they construed provisions for extending time contra proferentum, against the employer, and held them inoperable, unless they expressly provided for the particular delaying event which occurred. Catch-all provisions such as 'any matter beyond the contractor's control' were not upheld. For example, in Rapid Building v Ealing Family Housing (1984), the works were delayed because the employer was unable to evict squatters from the site. jct 63 did not provide for an eot for failure to give the contractor access to the site. No eot could be granted. Time for completion was put at large, leaving the contractor with an obligation to complete within a reasonable time. The lad clause fell with the completion date and the employer had to prove such losses as were caused by the contractors culpable delay.

lads are now considered by the courts to be a good thing since there is no need to enquire into the actual loss suffered by the employer. lads save the employer the time-consuming job of proving the loss caused by late completion: usually loss of rent, increased interest on borrowings and abortive costs, but particularly difficult in the case of non-revenue producing projects. More importantly, the courts are spared the task of deciding such a claim. eots are considered much more favourably because they avoid time being put at large by acts of prevention by the employer, and therefore preserve the liquidated damages clause.

If the contractor is delayed by an act of prevention by an employer but the provisions for extending time are inoperable - because, for example, they do not provide for the delaying breach - then the time for completion is at large and lads cannot be recovered. The employer should be keen to support the provisions for extending time, since the liquidated damages clause is thereby preserved: the power of an architect to grant an extension of time is actually to the employer's advantage. Similarly, the contractor should prefer the certainty of an identified completion date and readily calculated lads against the unknown factors of 'a reasonable time' and the employer's actual losses.

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