There is an old joke in the construction sector that says, “All construction projects follow the 3, 2, 1 rule – It takes three times longer than planned, costs twice as much as planned, and you only ever develop property once.” This is obviously an exaggeration, but as is often the case, there is some truth in the joke. In this article, we explore construction projects that are not completed by their deadlines, examining who should be held accountable for this and the additional costs that usually follow.

Understanding liability for project delays

The liability for delay is ultimately determined by the contractual risk matrix that the parties (the contractor and the employer/developer) have agreed to before the project starts. Reading and understanding your construction contract is essential to determine who will stand in for delays and associated costs.

However, given that many construction contracts follow standard-form agreements, we will look at general industry norms in standard-form contracts such as the NEC or FIDIC contracts. For a start, these contracts provide that the party responsible for the delay must (generally) carry the cost of the delay. As an example, if the contractor fails to manage its time frames and sub-contractors properly and this leads to the delay, the contractor will likely be responsible for the increased cost. On the other hand, if the delay is caused by the developer’s refusal to provide access to the construction site to the contractor, the responsibility will most likely fall on the developer, who will have to carry the cost.

External factors and unforeseen delays

These examples are relatively straightforward and sensical, but what happens when neither party is responsible for the delay? A more difficult example would be when the contractor cannot access the construction site due to community protests and can therefore not continue with construction. Generally, it would be difficult to expect the contractor to take responsibility for such completely unforeseen circumstances. It is therefore reasonable to expect that the developer might have to carry the cost of such a delay. Of course, this is not a given and may very well change if the employer can prove that some of the instigators of the protest are employees of the contractor and that the risk should therefore fall to the contractor.

Force majeure and compensation events

Another reality that many projects face is what is termed force majeure events, they may be loosely defined as events that occur outside of the control of the parties to a contract. These may vary greatly, depending on circumstances and your particular contract. An example that may resonate with most South Africans is severe weather events or perhaps even wildfires that can lead to substantial project delays. In such circumstances, the NEC3 Engineering and Construction Contract for example makes provision that a compensation event may be notified by a contractor. The compensation event is then assessed following the provisions of the contract, considering the effect of the delay, the reason for the delay and whether the event could have or should have been foreseen by the contractor.

If the event does constitute a compensation event by meeting all the requirements, an assessment is done of the effect of the compensation event, which then allows for compensation which may include an increase in price, or an increase in time to complete the project, or both. The process can be complex but fortunately, various experts can assist with finding the answers, such as engineers, quantity surveyors and legal experts, who often work as a team to make out the best case possible for their client.

Each of these steps taken by a contractor or developer must be done in accordance with the contract, within certain time frames, in the NEC3 contract discussed above, it is within eight weeks of the event coming to the contractor’s knowledge that the contractor must give notice of the compensation event to the employer, otherwise the contractor loses the claim. The understanding and management of such notifications, time frames and general contract compliance are vital as otherwise, the likelihood of losses increases exponentially.

The importance of contractual awareness and legal preparation

The allocation of risk and the increased cost of delays may be typically borne by the “guilty party”. However, establishing ‘guilt’ or responsibility can be complex and require a full appreciation of not only the factual circumstances surrounding the delay but also the contract that has been signed to determine where liability will fall considering what has been agreed by the parties. In some cases, the parties may have excluded claims for certain types of risks or events, which will then result in the responsibility for loss falling to the agreed party irrespective of fault or responsibility. 

It remains a prudent call to ensure that you understand your construction contract and the risk allocations before you sign. Likewise, when issues start, you must obtain legal advice as soon as possible to determine your contractual and legal position and ensure you are prepared for the rough waters that could be ahead.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 

Author: Herman du Randt, PH Attorneys  

Website: https://www.phinc.co.za/