Can parties to a construction contract expressly allocate the risk of concurrent delay to the works?

The answer from Mr Justice Fraser in North Midland Building Limited v Cyden Homes Limited [2017] EWHC 2414 (TCC) is a crystal clear “yes”.

Background – the prevention principle and concurrent delay

The interplay between the prevention principle and concurrent delay frequently creates significant uncertainty. Parties are therefore increasingly seeking to overcome this uncertainty by making express provision in their contracts.

The “prevention principle” provides that no party may require the other to comply with a contractual obligation in circumstances where that party has itself prevented such compliance.

If an employer has prevented a contractor from carrying out works by the contractual completion date and there is no effective mechanism in the contract for the time for completion to be extended, the original completion date falls away and time is put “at large”, meaning that the contractor must instead complete the works within a reasonable time and the employer cannot in these circumstances levy liquidated damages for delay.

Concurrent delay” was straightforwardly described by Mr John Marrin QC, a distinguished practitioner and author in this field, as “ … a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency” (Concurrent Delay Revisited, Society of Construction Law paper 179, 2013).

Construction contracts typically provide that contractor delays to completion entitle an employer to liquidated damages. On the other hand, a delay for which an employer is responsible would usually entitle a contractor to an extension of time and prolongation costs because the contract provides a mechanism for extending time or claiming extra costs or by operation of the prevention principle putting time at large. However, situations of concurrent delay are very often not adequately addressed in many construction contracts.

Contractors frequently allege concurrent delay and assert that because an employer itself has delayed the works, its failure to grant an extension of time gives rise to the prevention principle, meaning that time is “at large”. However, the matter is far from clear cut. Not only are cases of true concurrent delay on the facts rare, but the application of the prevention principle to cases of concurrent delay is to be increasingly doubted in light of comments in Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) (a case handled by Ince & Co) and Jerram Halkus Construction Ltd v Fenice Investments Inc (No.4) [2011] EWHC 1935 (TCC). As expressed by Coulson J in Jerram Halkus:

“ … for the prevention principle to apply, the contractor must be able to demonstrate that the employer's acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor's own default, the prevention principle will not apply.”

North Midland Building Limited v Cyden Homes Limited [2017]

Both authorities were cited with strong approval by Fraser J in North Midland Building Limited v Cyden Homes Limited, which has been the most important authority dealing with these matters for some time.

Facts

Cyden Homes Limited (the Employer) engaged North Midland Building Limited (the Contractor) to construct a sizeable property under the JCT Design and Build Contract 2005 edition, as amended.

The parties had amended clause 2.25.1.3, which dealt with the calculation of an extension of time where there was concurrent delay caused by both the Contractor and the Employer, to read: “any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account”. It should be noted that “Relevant Events” included acts of prevention by the Employer.

The Contractor was delayed in completing the works and argued that the Employer had caused a proportion of the delay – i.e. there was concurrent delay.

Argument

The Contractor brought proceedings seeking declarations as to the meaning and effect of clause 2.25, requesting that the court interpret the clause as setting time at large, arguing that the risk allocation regarding concurrent delay under the contract was impermissible because: (i) the contract did not provide for an extension of time where the Employer contributed to the delay, so the prevention principle would be triggered; and (ii) the Employer would receive liquidated damages for a period when the Employer itself had been responsible for the delay.

Decision

Jackson J held that parties are free to allocate risk as they wish. The contract wording was “crystal clear” and the prevention principle simply was not triggered: “ … there is no rule of law of which I am aware that prevents the parties from agreeing that concurrent delay be dealt with in any particular way … ”. The liquidated damages would not fall away as a result of an extension of time having been agreed by the parties to be calculated in a particular way.

Practical implications

The decision is currently under appeal, due to be heard by the Court of Appeal in July 2018. Pending the outcome, contracting parties can feel confident that express contract wording will be given its literal meaning and now have an example of judicially approved wording. We can therefore expect to see an increase in parties, particularly employers, seeking routinely to include express provision in contracts for what should happen in cases of concurrent delay. Contractors should have this in mind as they allocate and assess risk.