Granting extensions of time in construction contracts - a duty of good faith may apply
Dado Hrustanpasic
The NSW Court of Appeal’s recent decision in Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151 (Probuild v DDI) considers the prevention principle and finds that a duty of good faith may be applied to the discretion to extend time in construction contracts.
It is a common scenario in the Australian construction industry… The contractual date for completion between a head contractor and a subcontractor comes and goes, without complaint or an extension of time claim. Later, the head contractor orders variations, which are carried out. The subcontractor claims for the variations. For one reason or another, the parties find themselves in a different commercial position and the head contractor seeks to set off liquidated damages for delay. Arguments then ensue about whether an extension of time should have been granted. So then what? The New South Wales Court of Appeal has recently affirmed in Probuild v DDI that in this situation, generally speaking, the head contractor is not entitled to levy liquidated damages in respect of periods of delay it has caused. The head contractor was obliged to grant an extension of time for delays it had caused, despite the subcontractor not having made a timely claim. In doing so, it is the latest court to consider how the prevention principle applies in typical construction contracts. In a new development, however, the court said the obligation to extend time could be based on an implied duty of good faith. The application of extension of time clauses continues to be one of the main sources of uncertainty in the industry. It is common for contracts to place restrictive conditions on the entitlement to claim extensions of time. Most construction contracts do nevertheless provide a power to unilaterally grant an extension of time. The case of Probuild v DDI continues a line of cases requiring this unilateral power be exercised to extend time for delay caused by the owner (or head contractor, as they case may be), where the owner seeks to impose liquidated damages. It is suggested, though, the reference to good faith should not lead to a fundamental change to the contractual risk allocation. The prevention principle and the typical structure of extension of time clauses Almost all standard form contracts (and sophisticated bespoke contracts) include a clause allowing the contractor an extension of time as of right for certain causes of delay, including but often not limited to delay caused by the owner (or head contractor, as the case may be).