Extension of Time, Loss & Expense and Its Notice Requirements - If You Fail to Plan, You Plan to Fail
by Naveen Sri Kantha ~ 9 May 2020
Naveen Sri Kantha (Associate)
Tel: 603-6201 5678 / Fax: 603-6203 5678
Max Abrahamson, an internationally recognized expert in construction law famously quoted that:
“A party to a dispute, particularly if there is arbitration, will learn three lessons (often too late): the importance of records, the importance of records and the importance of records…and not forgetting the importance of notices, the importance of notices and the importance of notices.”
In view of the Movement Control Order dated 16.03.2020 (“MCO”), physical works on site may have come to a halt, however what remains to be a live issue will be the critical timeline that contractors will now face to prepare an application for extension of time (“EOT”) and loss & expense (whenever applicable) (“L&E”).
In my last article, I concluded that in view of the global pandemic, being COVID-19 and the MCO, applications for EOT and L&E (whenever applicable) should be allowed under the The Agreement and Conditions of the PAM Contract 2006/2018 (“PAM Contract”), the AIAC Standard Form of Building Contract (2019 Edition) (“AIAC Contract”) and the Malaysian Public Works Department’s standard form of contract with quantities (P.W.D. Form 203A (Rev. 2010) (“PWD Contract”).
In an application for EOT and L&E, there is normally a requirement to serve a written notice within a stipulated time as condition precedent to such entitlement. The principle purpose of strict time bar clauses is intended to improve and facilitate the proper administration of construction contracts to ensure smooth progress and timely completion. A timeous notice of delay would help project consultants to make an informed decision as to how the instruction is to be given or to be mitigated to reduce the effect of an event of delay or even to withdraw the instruction altogether.
In this article, I will elaborate on the importance of complying with this condition precedent for any application for an EOT and L&E, especially considering the adversities faced by contractors in view of the current global atrocity.
The article will primarily focus on the condition precedents envisaged under the following standard form contracts:
- PAM Contract 2006/2018;
- The AIAC Standard Form of Building Contract (2019 Edition) Red Book; and
- Malaysian Public Works Department’s standard form of contract with quantities (P.W.D. Form 203A (Rev. 2010).
NOTICE REQUIREMENTS UNDER THE PAM/AIAC/PWD CONTRACTS
PAM CONTRACT 2006/2018:
Extension of Time
“If the Contractor is of the opinion that the completion of the Works is or will be delayed beyond the Completion Date by any of the Relevant Events stated in Clause 23.8, he may apply for an extension of time provided always that:
23.1(a) the contractor shall give written notice to the Architect his intention to claim for such extension of time together with an initial estimate of the extension of time he may require supported with all particulars of the cause of delay. Such notice must be given within twenty-eight (28) days from the date of the AI, giving of such written notice shall be a condition precedent to an entitlement of extension of time; and
23.1(b) within twenty-eight (28) days of the end of cause of delay, the Contractor shall send to the Architect his final claim for extension of time duly supported with all particulars to enable the Architect to assess any extension of time to be granted. If the Contractor fails to submit such particulars within the stated time (or within such longer period as may be agreed in writing by the Architect), it shall be deemed that the Contractor has assessed that such Relevant Event will not delay the completion of the Works beyond the Completion Date.”
Loss & Expense
Where the regular progress of the Works or any section of the Works has been or is likely to be materially affected by any of the matters expressly referred to in Clause 24.3, and the Contractor has incurred or is likely to incur loss and/or expense which could not be reimbursed by a payment made under any other provision in the Contract, the Contractor may make a claim for such loss and/expense provided always that:
24.1(a) the contractor shall give written notice to the Architect of his intention to claim for such loss and/or expense together with an initial estimate of his claim duly supported with all necessary calculations. Such notice must be given within twenty-eight (28) days from the date of the AI, CAI or the start of the occurrence of the matters referred in to in Clause 24.3, whichever is earlier. The giving of such written notice shall be a condition precedent to any entitlement to loss and/or expense that the Contractor may have under the Contract and/or Common Law; and
24.1(b) within twenty-eight (28) Days after the matters referred to in Clause 24.3 have ended, the Contractor shall send to the Architect, complete particulars of his claim for loss and/or expense together with all necessary calculations to substantiate his claims. If the Contractor fails to submit the required particulars within the stated time (or within such longer period as may be agreed in writing by the Architect), it shall be deemed that the Contractor has waived his rights for loss and/or expense
AIAC The Standard Form of Building Contract 2019 Edition (Red Book):
Extension of Time
“Application for EOT- Clause 23.1
23.1(b) As soon as practicable, but not later than twenty-eight (28) Days after the Contractor became aware, or should have become aware of the regular progress of the Works having been delayed by such Time Impact Events, the Contractor shall give written notice to the CA indicating his intention to claim for an EOT and describing the Time Impact Events giving rise to an EOT.
i.give such written notice under Clause 23.1(b); or
ii. submit the required particulars within the stipulated twenty-eight (28) Days or such other period as approved by the CA under Clause 23.1(c), the CA is not obliged (until after the Practical Completion of the Works) to assess and grant any EOT in respect of the Contractor’s application for EOT. In that event, subject to the CA’s review under Clause 23.10, the Contractor shall not be entitled to any EOT, and the non-assessment and non-granting of the EOT due to the Contractor’s failure under this Clause shall not be a ground for challenging the validity of the Certificate of Non-Completion (if any) issued by the CA, or any deduction or claim or Liquidated Damaged made by the Employer under Clause 22.0
Loss & Expense
“Application to Ascertain Loss and/or Expense- Clause 24.1
24.1(a) If the regular progress of the Works or any section of the Works has been materially affected by any of the Employer’s Events set out in Clause 23.8(c), and the Contractor has incurred direct loss and/or expense which could not be reimbursed by a payment made under any other provision in the Contract, the Contractor may make a claim for such direct loss and/or expenses subject always to the following provisions:
- the Contractor shall within twenty-eight (28) Days of the occurrence of such event, give a written notice to the CA of his intention to claim for such direct loss and/or expense together with an initial estimate of his claim duly supported with all necessary calculations and particulars; and
- within twenty-eight (28) Days after such event has ended, the Contractor shall send to the CA relevant particulars of his claim for the direct loss and/or expense together with all necessary calculations and particulars to substantiate his claims;
- if the Contractor fails to submit the required written notice in Clause 24.1(a)(i) or the particulars in Clause 24.1(a)(ii), or within such longer period as may be agreed in writing by the CA, it shall be deemed that the Contractor has waived his rights under this Contract and/or the law to any such direct loss and/or expense;
- if the CA is of the opinion that the particulars submitted by the Contractor are insufficient to enable him to decide on the claim for such direct loss and/or expense, the CA shall within fourteen (14) Days from the date of receipt of Contractor’s particulars, inform him of any deficiency in his submission and require the Contractor to provide such further particulars within such period of time as may be stated by the CA in writing. If the Contractor fails to submit the required further particulars within the time as instructed by the CA, the CA may value the Contractor’s claim for such direct loss and/or expenses based on whatever information which is available to them and ascertain the amount (if any) entitled by the Contractor within forty-two (42) Days thereof.”
P.W.D Form 203A (Rev. 2010):
Extension of Time
“Delay and Extension of Time- Clause 43.1
43.1 Upon it becoming reasonably apparent that the progress of the Works is delayed, the Contractor shall forthwith give written notice to the S.O. as to the causes of delay and relevant information with supporting documents enabling the said officer to form an opinion as to the cause and calculation of the length of delay. If the opinion of the S.O. the completion of the Works is likely to be delayed or has been delayed beyond the Date for Completion stated in Appendix 1 or beyond any extended Date for Completion previously fixed under this clause due to any or more of the following events…”
Loss & Expense
“Claim for Loss and Expense- Clause 44
44.1 If at any time during the regular progress of the Works or any part thereof has been materially affected by reason of delays as stated under clause 43.1 (c), (d), (e), (f) and (h) and the Contractor has incurred direct loss and/or expense beyond that reasonably contemplated and for which the Contractor would not be reimbursed by a payment made under any other provision in this Contract, then the Contractor shall within 30 days of the occurrence of such event or circumstances or instructions give notice in writing to the S.O. of his intention to claim for such direct loss or expense together with an estimate of the amount of such loss and/or expense, subject always to clause 44.2 hereof.”
44.2 As soon as is practicable but not later than 90 days after practical completion of the Works, the Contractor shall submit full particulars of all claims for direct loss or expense under clause 44.1 together with all supporting documents, vouchers, explanations and calculations which may be necessary to enable the direct loss or expense to be ascertained by the S.O. The amount of such direct loss or expense ascertained by the S.O. shall be added to the Contract Sum.”
44.3 If the Contractor fails to comply with clauses 44.1 and 44.2 above, he shall not be entitled to such claim and the Government shall be discharged from all liability in connection with the claim.”
WHAT IS A CONDITION PRECEDENT?
A condition precedent is a provision which stipulates that a party has the mandatory obligation to comply with specified procedures to avail himself of other contractual provisions. Thus, if a contractor (or sub-contractor) does not comply with certain specified procedures expressly provided for under the contract, he is deemed to have waived his rights under the contract, or at law, to the remedies, which would otherwise have been available to him.
WHAT CONSTITUTES A CONDITION PRECEDENT?
Before delving further, it is imperative to understand when a notice requirement under your contract is regarded as a condition precedent. Notice provision should be construed as a condition precedent if:
- There is express language that the notice requirement is a condition precedent; or
- It states the precise time within which the notice is to be served upon the occurrence of the delay event under your contract and further states that failure to comply with the said notice will render the application fatal. (Mandatory language employed!)
- Is the notice requirement under Clauses 23 and 24 of PAM 2006/2008 a condition precedent?
Yes. This is because the notice requirements under Clauses 23 and 24 of PAM are expressly regarded as a condition precedent.
- Is the notice requirement under Clauses 23 and 24 of AIAC Contract a condition precedent?
Yes. This is because the notice requirement clearly uses mandatory language.
Clauses 23 and 24 of AIAC Contract clearly obligates issuance of a written notice within a prescribed period of time from the occurrence of the delay event, failing which, the application for EOT and L&E will be fatal.
- Is the notice requirement under Clauses 43 of P.W.D. Form 203A (Rev. 2010) a condition precedent?
No. This is because there is no timeline stipulated for the issuance of a notice within the date of the delay event. Further, there is nothing to suggest that failure to issue such notice would render the application fatal.
Therefore, the notice requirement under Clause 43 of the PWD Contract is merely directory and not mandatory.
- Is the notice requirement under Clauses 44 of P.W.D. Form 203A (Rev. 2010) a condition precedent
Yes. This is because the notice requirement clearly employs mandatory language.
Clause 44 of the PWD Contract clearly states that there is an obligation to issue written notice within a prescribed period from the occurrence of the delay event, failing which the application for L&E will be fatal.
DIRECTORY vs MANDATORY/CONDITION PRECEDENT
As mentioned earlier, when applying for an EOT and L&E, it is imperative from the onset to decipher whether the notice requirement stipulated under your construction contract is a condition precedent.
If the requirement for notice is interpreted as mandatory and not merely directory in nature, the contractor may have difficulties in succeeding in a claim for EOT or L&E if it fails to comply with the notice requirement. Conversely, if it is interpreted as directory, the failure to comply with the said notice requirement may not be the end of the road for the contractor and the contractor may still be successful in claiming for EOT or L&E.
The position in Malaysia generally is that notice requirements in construction contracts are directory, not mandatory, and that a contractor may not lose its entitlement to a claim, unless the contract expressly states that the notice requirement is a condition precedent or if it is couched in the mandatory language. This position mirrors the view adopted in the UK.
CAN THE NOTICE REQUIREMENT BE CIRCUMVENTED?
Yes, there are ways to circumvent a condition precedent. They are as follows:
- The equitable principle of waiver
In the construction industry, circumstances of each factual situation must be considered. The general principle is that a failure to comply with a condition precedent will effectively preclude a party from making a claim for EOT and L&E. However, there are equitable principles such as estoppel and waiver that may operate, in certain circumstances, to circumvent the requirement of the fulfilment of such condition precedent.
If Employer B waives his right under a contract and contractor A relies upon this waiver to his detriment, contractor B is thereby estopped or precluded insisting on his contractual right.
Examples of scenarios which may be described as a waiver are:
- Architect expressly indicates that there is no need to issue the written notice (Express waiver);
- Albeit the failure to issue the respective written notice, the Architect subsequently replies to seek for further particulars in the application for EOT and L&E (Implied waiver);
- Albeit the failure to issue the respective written notice, Architect proceeds to assess the EOT and L&E application (Implied waiver); and
- Albeit the failure to issue the respective written notice, Architect proceeds to invite an application for EOT and L&E (Implied waiver).
Therefore, based on the above, the conduct of an architect in making the aforesaid positive responses has led to an understanding that the Architect will not insist on his strict legal rights i.e which is to rely on the notice requirements. He cannot afterwards go back on it.
- Notice that has been given through other form of documentation/reports
While the law caters for an idealistic construction practice which contemplates efficient paper trail, the construction industry however is normally in chaos as claims can be very easily overlooked amid a mass of claims and ongoing discussions. Usually, there will be correspondence, site reports, meeting reports, technical meetings minutes which have clearly shown or indicated a party’s intention to claim for either EOT or L&E as a result of specific events of delay contemplated under the contract. While they may not be in the specific form as required under the contract, courts may still be very willing to infer that such contemporaneous document may just satisfy the notice requirement.
The jurisprudence in the UK seems to suggest that one should construe it as a valid notice if it is recognizable as a “claim”. Therefore, for the condition precedent to bite, the notice must refer to the specific event of delay which will have time and costs implications.
One should not be too strict when interpreting the written notice requirement, unless what amounts to notice is clearly defined under the contract. Parties may not have issued written notices as specifically contemplated under the contract, but there may be other form of contemporaneous document to illustrate a party’s intention to claim for EOT and L&E.
- Contracts that do not contain a non-compliance of condition precedent clause
As illustrated earlier, the courts may not be too keen in enforcing a condition precedent unless the contract expressly states that non-compliance of such condition precedent, i.e notice requirements will disentitle the contractor from claiming EOT & L&E.
Hence, if your contract does not have such express stipulation, it is arguable to shift the court’s focus to the actual merit of the EOT or L&E application itself as opposed to delving on its pre-requisites.
CAN THE PREVENTION PRINCIPLE OVERRIDE THE NOTICE REQUIREMENT?
The general idea of the prevention principle is that if the Employer has substantially delayed the progress the work, and the contract does not contain a mechanism for a contractor to claim EOT, time would automatically be set at large, and the contractor will be given a reasonable period of time to complete the works.
In Australia, the court in the case of Gaymark Investment Pty Ltd v Walter Construction Group Ltd  NTSC 143, held that if the delay was caused by the employer, the failure to comply with the notice requirement will not automatically render the application fatal even if the notice requirement was regarded as a condition precedent. This is because, allowing the employer to impose liquidated damages would ultimately mean that the employer is benefitting from its own breach, which is prohibited.
However, Malaysia, UK and even Australian authorities (post Gaymark) have refused to follow the principles in Gaymark and correspondingly held that contractual terms requiring a contractor to give prompt notice of delay serves a valuable purpose as such notice enables matters to be investigated while they are still current.
If Gaymark Investments is good law, then a contractor could disregard with impunity any provision making proper notice a condition precedent! At his option, the contractor could set time at large. It was clear that in the Gaymark case, the contractor had the entitlement to apply for EOT to begin with, but failed to comply with the notice requirement. Hence, the contractor should not be relieved of its mandatory contractual obligation.
It remains to be seen if the position of law in Gaymark Investments will be accepted in Malaysia as an acceptable principle of law albeit its criticism from the court of first instance.
CONCLUSION: DO NOT BE THE AUTHOR OF YOUR OWN MISFORTUNE
As it stands, the Malaysian authorities tend to follow the jurisprudence of the UK, which clearly demonstrates that the courts generally uphold the freedom of contract and the sanctity of such contract, and refuse to rewrite the contracts irrespective of whether the terms of the contract are unfavourable or unduly onerous to one of the contracting parties.
In today’s commercial arena, if a customer wishes to buy a product or obtain services, he must accept the terms and conditions of a standard contract prepared by the other party. The same applies to the construction industry. There is always an inequality in bargaining power between the players in the construction industry as parties seldom deal on equal terms.
Parties are at liberty to amend the terms prior to executing the same if they are perceived to be unduly harsh or even unfair. Further, contractors are not contractually obliged to tender for the Project nor agree to execute the aforesaid standard form contracts if they are not comfortable with the terms. At the end of the day, it boils down to proper contract management where the contract officer or project manager would have to be alert on all time-based notices. While in this article, I have demonstrated that there may be ways around the notice requirements, those are merely damage limitations or panadol solutions to problems which need not arise from the very inception.
As reality beckons and the MCO possibly coming to a close, the construction industry will naturally be taking a hit as a result of EOT and L&E applications. It is therefore prudent for the construction players to wake up and realise that while EOT and L&E entitlements are attainable, it may very well disappear if the said construction firm does not cultivate a prudent project management system to comply with the necessary notice requirements.