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Construction Delays and Extension of time : Legal Implications

One of the main aims of any construction project is to have it completed on time and within budget. However, there are times when construction delays occur, and builders are unable to complete the project by the agreed deadline. In these situations, it is essential for both builders and clients or homeowners understand the legal implications of this.  This article examines construction delays and extensions of time in construction law.

Date for Practical Completion

In any construction contract there is usually a date by which the project must be complete, which is called the ‘Date for Practical Completion’.  Conversely, the date that practical completion is actually achieved is called the ‘Date of Practical Completion’.

The date for practical completion is a critical aspect to all construction projects.  It is the deadline by which the builder must complete the project. The Home Building Act 1989 (NSW) requires the builder to provide the client with a written contract that includes a completion date, and the builder must comply with this deadline unless an extension of time has been granted. 

The date for practical completion needs to be clear and specify the exact date on which the builder must complete the project. 

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When a building project is delayed due to the builder’s cause this is called a delay.  If the delay causes the builder to be late with completion of the project the builder is in breach of the contract. Specifically, in relation to the clause to achieve practical completion by the ‘Date for Practical Completion’.  The client will be entitled to damages for the builder’s breach of contract.  Not all delays will result in the builder being in breach of the contract, some delays may be caused by events that entitle the builder to an extension of time.

Extensions of Time

Sometimes delays occur during the construction process which impacts on the builder’s ability to complete the project on time. In some cases, the delay may be due to factors beyond the builder’s control, such as bad weather, and the builder may be entitled to an extension of time. For instance, if it constantly rains for a week, the builder may be permitted an extension of time equal to one week. In this case, the date for practical completion will be moved back by one week. 

The entitlement to an extension of time will depend on the terms of the contract. The contract should include provisions that outline the circumstances under which the builder may claim an extension of time.  In addition, the contract should state the process for making a claim for an extension of time and any supporting evidence that may be required. Failure to follow the correct claim process may result in the builder being disentitled to an extension of time and being liable for damages resulting from the delay. 

Liquidated Damages

In construction contracts, parties may agree on a fixed amount of damages payable if the completion of the project is delayed. These damages are known as liquidated damages. The purpose of liquidated damages is to provide the parties with certainty and avoid lengthy disputes over the amount of damages payable.

If a builder fails to complete the project by the ‘Date for Practical Completion’, the builder will be liable to pay the liquidated damages to the client. The amount of liquidated damages payable will depend on the terms of the contract. In some construction contracts, the damages are fixed at a certain amount per day or week.  For instance, this may be damages equal to $1,000 per week for every week of delay. This is called liquidated damages because the damages for breach are liquidated, meaning that the amount is set.

Section 11 of the Home Building Act provides that any provision in a residential building contract for liquidated damages must be reasonable and reflect a genuine pre-estimate of the loss likely to be suffered by the client in the event of a breach. If the liquidated damages are disproportionate to the actual loss suffered by the client, the courts may consider them to be a penalty and unenforceable.

Standard form building contracts may include a fixed amount for liquidated damages by default. However, a recent ruling by the NSW Supreme Court has determined that this clause in residential building contracts will not prevent owners from claiming general damages, which refers to the actual damages suffered as a result of the delay.

The effect of Cappello v Hammond & Simonds on Liquidated Damages

The construction law case of Cappello v Hammond & Simonds NSW Pty Ltd involved an HIA building contract in which the liquidated damages clause was set at a default position of $1 per day for delay. The builder completed the project seven months late, without requesting an extension of time.

In this case, a key consideration was whether the liquidated damages clause contravened Section 18B(1)(d) of the Home Building Act, which obligates builders to complete residential building work within the timeframe specified in the contract. Additionally, section 18G voids any contractual provisions that amounts to an attempt to override any statutory warranty.

The Supreme Court determined that the liquidated damages clause did not limit the owner’s ability to claim damages beyond a nominal amount, as this would contravene section 18B(1)(d) and be voided by section 18G. The Court held that the owner could seek general damages for delay in addition to liquidated damages.

The ruling has implications for both builders and homeowners. Homeowners now have the potential to claim damages beyond the nominal liquidated damages amount stated in the residential building contract in cases where the amount nominated for liquidated damages is insufficient. The BSM building and construction lawyers are happy to give further personalised advice to both builders and homeowners.

Why BSM Law?

The building and construction lawyers at Brander Smith McKnight have decades of hands on experience in the construction industry and are well respected throughout the industry.  Our lawyers have been involved in construction projects ranging from multi-million dollar constructions to individuals adding an extension to the family home.  We pride ourselves on our personalised and highly responsive service to all of our clients.  BSM construction lawyers are across all aspects of construction law and have been involved in landmark legal decisions in the construction industry.

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