Once upon a time

Ever since an act of God interrupted the building of the Tower of Babel, construction projects have been prone to delay. As the tower’s builders were initially unified in language and purpose, it is perhaps unsurprising that there is no record of any extension of time mechanism. EOT mechanisms have become key parts of construction contracts, but how they operate is often as confused as the Tower of Babel’s builders became.

If a contractor completes its works after the contractual completion date, it is liable to compensate its employer, usually for liquidated damages. The contractor avoids this liability insofar as the completion date is extended by an EOT. This position is similar in many software contracts and a recent Technology and Construction Court case on a delayed software system sheds light on how judges approach EOT mechanisms.

In 2007 De Beers engaged Atos to design and supply a software system to support its diamond handling operations. The project fell behind schedule for familiar reasons. It was partly due to De Beers’ changing desires (employer risk events) and partly matters for which Atos was responsible, such as errors in its design (contractor risk events). This produced a common situation: both employer and contractor risk events concurrently delaying the completion of the works.

The judge seemed to place no reliance upon the extension of time clause in the parties’ contract, implying that concurrency issues can be answered without minute contractual analysis

The judge decided Atos’ extension of time entitlement by relying upon “the general rule in construction and engineering cases… that where there is concurrent delay to completion caused by matters for which both employer and contractor are responsible, the contractor is entitled to an [EOT] but he cannot recover in respect of the loss caused by the delay”. The judge seemed to place no reliance upon the EOT clause in the parties’ contract, implying that concurrency issues can be answered without minute contractual analysis (save, perhaps, when the contract is specific). This approach contrasts with the confusion that reigns over JCT-style contracts (which continue to govern the majority of UK construction projects). The English and Scottish courts have, after analysing similar EOT clauses, adopted six different ways of deciding in cases of concurrency if an employer risk event (or “relevant event” as JCT call it) gives rise to an EOT:

1. If it occurred first
2. Insofar as it is fair and reasonable
3. If it has at least equal causative potency
4. If it is the “dominant” cause
5. If it is the dominant cause or, failing that, as a matter of apportionment (given the degree of culpability involved in each of the competing causes of delay and their relative causative potency)
6. If the relevant event, looked at in isolation (ignoring the contractor risk event), would have caused delay.

Wildly varying EOTs result from these approaches, many of which are not easy to apply in practice. Take a situation where a relevant event occurs after a contractor risk event which had already delayed completion by six weeks. The relevant event, looked at in isolation, would have delayed completion by six weeks. Under approach one, the EOT is nil. Under approach six, the EOT is six weeks.

The court’s approach in De Beers (which is consistent with approaches three and six) would also result in a six-week EOT. This adds to a growing body of authority that the majority opinions in last July’s Scottish City Inn case (City Inn vs Shepherd Construction, 22 July 2010) which was resolved using approach five, are not part of English law. It had been hoped that City Inn would go to the Supreme Court. As the case has settled this will not now happen, leaving this important area of law in disarray.

In the meantime, employers and contractors may consider specifying in their contracts how concurrency is to be addressed for EOT purposes. Certifiers can also help by identifying in their EOT awards the approach they are following to address concurrency issues. Finally, disputing parties may ask courts and tribunals to decide early on which approach they will adopt, to avoid having to address the permutations from each approach. While construction delays may (like diamonds) be with us forever, one hopes that this EOT confusion has a shorter lifespan.

Rupert Choat is a partner and solicitor advocate specialising in construction at CMS Cameron McKenna