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Dealing with it under construction contracts


Construction projects by their very nature are dependent on several factors and circumstances, both, foreseeable and unforeseeable. Delays in completing construction projects are normal in our country. The majority of construction disputes relate to and arise out of delays in construction projects. The situation has only worsened after the onset of the COVID-19 pandemic.

 

Construction contracts and ‘time of the essence’

In construction contracts, the primary question is whether time is of the essence of the contract. Section 46 and Section 55 of the Indian Contract Act, 1872, deal with the time period in contracts. All construction contracts have a completion date and if no time has been prescribed, the contract has to be performed within a reasonable time. Any extension of time granted in construction contracts, is usually construed as ‘time is not the essence of the contract’. It should be noted that in cases where the construction contracts become voidable, on account of delay, by the affected party and an extension of time was granted by the affected party, damages for delay cannot be claimed, unless a claim for damages has been made at the time of granting an extension of time.

See also: The essential checklist, for building your own house

 

Reasons for delay in construction projects

The delay events can be attributable to either the employer and/or the contractor.

The principal causes of delay committed by the employer are:

  1. Delay in handing over of site;
  2. Delay in appointment of a project management consultant (PMC);
  3. Delay in approval of drawings;
  4. Delay in supplying timely free issue material; and
  5. Insufficiency of funds, to name a few.

The principal causes of delay committed by the contractor are:

  1. Delay in mobilisation and/or inadequate mobilisation;
  2. Delay in procuring plant and machinery;
  3. Delay by sub-contractors;
  4. Labour disputes; and
  5. Delay in obtaining approvals, to name a few.

 

What are concurrent delays and pacing delays?

Delays attributable to both, the employer and the contractor, are known as concurrent delays. Concurrent delays are commonly known as the occurrence of two or more events, concurrently or parallelly during a project, one of which is attributable to the employer and the other to the contractor. Concurrent delays are also where two or more delayed events arise at different times and impact the same work, one of which is attributable to the employer and the other to the contractor.

Pacing delays are when the contractors pace their work to correspond to the delays caused by the employer. Pacing delays occur usually to mitigate the cost escalation on account of idling labour and machinery, to name a few.

 

Compensation for delay and breach of contract

The compensation for breach of contract has to be dealt with, within the provisions of Section 73 of the Indian Contract Act, 1872. Section 73 provides that the party complaining of a breach of contract and claiming damages, would have to prove the loss and damage sustained by such party on account of breach of contract.

See also: Here’s why you should read the builder-buyer agreement thoroughly

 

Dealing with delays caused by the owner / contractor

Generally, in most of the construction contracts, the contractors are provided with additional time, for delays which are for reasons attributable to the owner and additional compensation on account of delay is also provided, in limited cases. However, in the event that the delay is owing to reasons attributable to the contractor, then, the owner in most of the cases is entitled to receive liquidated damages stipulated under the contract and in such event, the contractor is entitled to receive time extension without any additional compensation. However, it is pertinent to highlight that the manner in which the contractor and the owner deal with the different kinds of delays, depends entirely upon the contract agreed between the owner and the contractor. Generally, construction contracts do not cover all kinds of delays (for example, concurrent delays and pacing delays which lead to disputes between the owner and the contractor on most occasions). However, most of the construction contracts generally contain a specific clause regarding timely completion of the works under the contract, wherein it is also stated that time is of the essence, which indicates that the contractor is under an obligation to ensure timely completion of the contract.

 

Force majeure and extension of project timelines during COVID-19

Following the outbreak of the COVID-19 pandemic and imposition of lockdowns across the country, there has been a huge debate in the world of construction law, across territorial boundaries, on the interpretation of the provisions of ‘force majeure’ and ‘change in law’. However, in the present situation of the COVID-19 pandemic continuing for over one-and-a-half years, it can no longer be taken as an excuse to claim extension of time and damages. A prudent contractor ought to have enough knowledge about the practical ground realities of the construction project. While bidding for a new project, the contractor ought to undertake proper due diligence, inspection and independent assessment, to assess the possible hindrances/ failures which would disentitle the contractor from claiming damages and/or additional compensation.

(Yigal Gabriel is a partner and Monika Singh is a senior associate, at Khaitan & Co)

 

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