ENBU820

Law for Construction

Management

The legal framework and

issues
in practice

Block 1B
Presented by Jordan Oldham
 BLOCK 1

• Legal framework – legislation, common law and contract

law
• Overview of the statutory framework
• The contract process
• Procurement
• Concept stage
• Practical exercise: Procurement / delivery models
• Time in Construction Contracts
• Extension of time (incl liquidated damages)
• Variations
• Valuation of variations
• Conditions precedent / notice provisions

What will the

paper cover?
BLOCK 2

• Liabilities
• Standard of work
• Price and payment
• Suspension and termination
Time in
constructio
n contracts
Time for performance of work
• Express or implied obligation on the Contractor to complete the
works within a certain period
• Time for completion of the work is the expressly stated time or, if no
time is stated, a reasonable time
• Time for completion can be altered via an extension of time provision
Time for performance of work
• Principal can impose liquidated damages on the Contractor if
works are not performed by the agreed time for completion
• Some contracts provide for sectional completion for a portion
of the works (called “Separable Portions”) by an earlier date
than time for completion
• Usual for extension of time provisions and liquidated damages
provisions to apply to each individual section of work as well
as to the works as a whole
Time for performance of work -
example
Extension
of time
(EOT)
Extension of time (EOT)
• EOT regime allows for extension of the completion date
• Why? Benefits both the Principal and Contractor:
• Re-fixes the original completion date and preserves principal’s right
to liquidated damages beyond that revised date
• Relieves the contractor from liability for liquidated damages where
original completion date is no longer workable
Extension of time (EOT)
Assessment of an EOT claim
• Clause 10.3 3910 / 3916 deals with EOT claims
• Typically a 4-step assessment
• Did a delay event occur?
• Is the delay an entitling event either under the contract or at common
law?
• Is there a condition precedent to claiming an EOT and was this pre-
condition satisfied?
• Did the event in fact cause delay and impact on completion date?
Was there concurrent delay?
1) Did a delay event occur?
• Did a delay event occur?
• Depends on the contract and context
• Standard delay events include failure by one party to deliver
materials or give essential instructions, a force majeure event or
strike
2) Is the delay an entitling event?
• Is it an entitling event under the contract?
• Clause 10.3.1 includes
• net effect of any variation
• inclement weather
• strike, lockout, other industrial action
• loss or damage to contract works or materials,
• flood, volcanic or seismic events
• any circumstances not reasonably foreseeable by an experienced contractor at the time
of tendering
• Default by the Principal which is not a variation
• Is it an entitling event at common law?
• In the absence of clear drafting to the contrary, the prevention principle may be triggered (and time
rendered “at large”)
2) Is the delay an entitling event
cont’d?
• A party to a contract cannot benefit from a delay that the party itself has
caused – this is called the prevention principle
• The prevention principle holds that if the Principal prevents the timely
completion of the project in any way, it loses the right to claim liquidated
damages from the Contractor
• The Principal also loses the right to demand the original completion date
and time is said to be “at large” (the obligation on the Contractor to
complete within a reasonable time)
3) Is there a condition precedent to claiming an
EOT?
• Is there a condition precedent to claiming an EOT?
• Notice requirements are typical pre-conditions to EOT claims
• The contractor must notify the principal of a delay event, usually in writing, before it becomes
entitled to an extension of time
• Contractors are usually only required to give notice in respect of events that have already happened,
not future anticipated events
• Depends on the wording. See for example:
“The Contractor must provide its claim for an extension of time within 10 working days of the date that
it has been delayed and if it fails to do so it shall not be entitled to any extension of time” [time/claim
bar]
vs.
“The Engineer shall not be bound to grant an extension of time unless:
a) The Contractor notifies the Engineer that it claims an extension and states the grounds for
the extension;
b) The notice is given within 20 Working Days after the circumstances arise which are relied on
as the grounds for extension, or as soon as practicable thereafter; and
c) The notice either gives details of the period of extension sought or is followed within a
reasonable time by a further notice giving such details”
4) Did the event in fact cause a delay?
• Did the event cause delay?
• Traditional “but for” test of causation
• But for the delay event, would the party claiming the EOT have suffered any loss?
• If the party claiming an EOT provides no evidence of the actual impact of the delay events
upon the critical path of the project, then the party may not in fact require an extension
of time
Acceleration
• If the Contractor is not granted an EOT, any extra cost it expends in
accelerating the work to make up for lost time is not usually recoverable
• Alternatively, some contracts confer on the Engineer specific power to
either request or direct the Contractor to accelerate the work, and
permit the Contractor to recover extra costs incurred
Concurrent delay
• Definition: a period of project overrun which is caused by two or more effective causes
of delay
• True concurrent delay:

• Concurrent effect of sequential delays

Concurrent delay – Malmaison approach

• The Malmaison test is Contractor-friendly because it entitles the Contractor to an

extension of time for the full period of the delay attributable to the Employer-risk
event (despite the concurrent effect of the other event)
• The rationale for the Malmaison approach and relaxation of the “but for” test of
causation is two-fold:
(a) Avoids time being at large as a result of the prevention principle
(b) Aligns with what the parties intended by allowing for an extension of time in their
contract
• Leading academics suggest that it is likely that the New Zealand courts will follow
the Malmaison approach
Time-related cost: when are they
available?

• Under clause 10.3.7 of NZS 3910, time-related costs only available where an EOT is:
• the net effect of any Variation
• Default by the Principal, or any other Person for whose acts or omissions the
Principal is responsible, which is not a Variation
• What does this cover?
• What should ‘time-related Costs’ rates include?
Assessment of an EOT claim
• Clause 10.3 3910 / 3916 deals with EOT claims
• Typically a 4-step assessment
• Did a delay event occur?
• Is the delay an entitling event either under the contract or at common
law?
• Is there a condition precedent to claiming an EOT and was this pre-
condition satisfied?
• Did the event in fact cause delay and impact on completion date?
Was there concurrent delay?
Variations
Variations
• Three types of variations:
(1) Variations to the terms of the contract
(2) Variations to the scope of works
(3) Deemed variations
Variation to the terms of a
contract
• A variation to the terms of a contract requires:
• Agreement between the parties (unilateral agreement will not
suffice)
• Consideration (or execution of the agreement in deed form)
• Varying a term of the contract is distinct from varying the
scope of works under a variation provision
• Contracts normally require such variations to be evidenced in
writing
Variation to the scope of works
• Utilised when the Principal requires the Contractor to provide different
work and materials from those originally described in the contract
Variation to the scope of works
continued
• Cannot vary the scope of works unless permitted by the
contract
• Varying the contract works under a variation provision
requires:
• an order made by a Principal or their representative (Engineer), under
an express term in the contract, permitting a change in the scope of
works under the contract
• Nature, extent and timing of the variation must be within the
scope of the variation provision
Orders to
vary
works
must be:
1) Within the scope
of the Principal’s
power to vary
Orders to vary works must be:
2) Issued in accordance with procedural requirements

NZS 3910:2013 cl 9.2.1

The Contactor shall not vary the Contract Works without an order in writing from the Engineer.

• A Contractor may claim for a variation orally, but variation orders should
normally be in writing
Restrictions on variations to the scope of
works
Variation orders may not (without consent):
• Change the “essence” or “fundamental nature” of the original
scope of works
• Omit any work so that work can be carried out by another
contractor
• Be ordered after substantial or practical completion (see NZS
3910:2013 cl 9.1.3)
Restrictions on variations – fundamental
change
• Variations are limited to modifications of the work that would have been
contemplated at the time of making the contract so as to not radically
change the nature or cost of the work or materials required
• If work is instructed which is in fact outside the scope of the variation
clause, the Contractor is entitled to refuse to carry it out
• If the Contractor is wrong, however, it will be in breach of contract for
failing to comply with a valid instruction
Example of a variation that resulted in a
fundamental change to the scope of works
• A Contractor responsible for dredging material from rivers and lakes was
instructed to construct an artificial island from the dredged material
• The Court held that the instruction was not a variation as it was “wholly outside
the scope of the original dredging contract”: Blue Circle Industries PLC v Holland Dredging
Company (UK) Ltd (1987) 37 BLR 40
Restrictions on variations – omitting work
and awarding it to another contractor
• At common law, a Principal is prohibited from issuing a variation to omit works
from a Contractor’s scope of works and allocating it to a third party unless there
is clear and express wording allowing the Principal to do so
• Absent specific provision to that effect, a variation clause only entitles the
Employer to omit work no longer required, not to omit for the purpose of
granting work to another contractor
• No such right under NZS391X:2013
Restrictions on variations –
completion
• At common law, if a variation is ordered after substantial completion of the
original contract work, it will fall outside the scope of the variation clause
• Substantial completion means a state in which the works are practically complete
but for minor defects which may be completed during the maintenance phase or
defects notification period
Deemed variations
• Deemed variations are a mechanism for the allocation of risk
• Deemed variations in NZS 3910:2013 include:
cl 5.11.10 Change in laws
• If after the date of closing of tenders the making of any statute, regulation, or bylaw,
or the imposition by Government or by a local authority of any royalty, fee, or toll
increases or decreases the Cost to the Contractor of performing the Contract, such
increase or decrease not being otherwise provided for in the Contract, the effect
shall be treated as a Variation
cl 5.13.4 Unlocated utilities
• Extra work in physically locating utilities that were not sufficiently indicated from the
outset shall be treated as a variation
Deemed variations continued
cl 5.5.2 Separate Contractors
• Delays due to the activities of separate contractors not provided for in the
contract shall be treated as a variation
cl 6.2.4 Engineer’s failure
• If the Contractor suffers delay by reason of the failure or inability of the Engineer
to carry out properly his or her duties, that failure shall be treated as a variation
cl 9.5 Unforeseen physical conditions
• Where the Contractor encounters physical conditions on the Site that could not
reasonably have been foreseen by an experienced contractor and will
substantially increase the Contractor’s costs, the unforeseen conditions notified
shall be treated as a variation
Valuation
of
variations
Valuation of variations
• How variations are valued is highly fact and contract specific
• The contract may contain a mechanism to value the variation
• In the absence of a schedule of rates, the amount payable would be a
reasonable or fair rate as well as an amount for profit
• What will be reasonable should first be determined with reference to
work that has previously been done and which is of a similar nature
• Courts may also look to what is customary in the industry
Valuation of variations continued
• Standard form variation clauses prescribe how variations are to be
valued – most require an initial adherence to the quoted rates or prices
in the Schedule of prices (see cl 9.3.5 and 9.3.6)
• If no sufficiently similar priced items or units are “directly applicable”
for analogous prices to be derived, usually “reasonable” rates and prices
or valuations are to be used (see cl 9.3.7)
Valuation of variations continued
• Cl 9.3 NZS3910:2013: Valuation of variations
• Wherever practicable Variations shall be valued before the work involved is commenced,
but any failure to do so shall not invalidate the Variation
• The Contractor shall notify the Engineer of the proposed value of any Variation within 1
Month or as soon as practicable following receipt of any variation order under 9.1 or any
confirmation from the Engineer under 9.2.4. The Contractor’s notice shall include sufficient
details to allow the Engineer to assess the value of the Variation.
• Where the valuation of the Variation requires that the work be measured, the Engineer
shall measure the work and shall notify the Contractor of his or her measurement. The
contractor and the Engineer shall exchange their respective calculations and estimates of
the value of the Variation
• Failing agreement, the value shall be determined by the Engineer in accordance with 9.3.
The value of each Variation when determined shall be confirmed or notified to the
Contractor in writing
Valuation of variations continued
• How does a Schedule of Prices apply when valuing Variations? Relevant clauses:
• 9.3.5 – Applies where Contract includes a Schedule of Prices (SoP)
• 9.3.6 – Applies where Contract includes an SoP of prices or rates which are not directly
applicable but have a sufficient relationship for it to be reasonable for new prices or rates
to be derived
• 9.3.7 – Applies where Contract has no SoP, or where there is no applicable item in the SoP
and it would not be reasonable to derive new prices or rates from the SoP
• 9.3.8 – 9.3.10 – Cover how On-site Overheads and Off-site Overheads and Profit are
addressed when valuing variations
• 9.3.11 – Applies where Contractor is entitled to an EOT by reason of the net effect of any
Variation. Clause covers how time-related Cost is calculated
• 9.3.12 – Applies where it would be clearly inequitable to use the nominated percentages or
rate. In this case, a reasonable % or Working Day rate is to be used
• 9.3.13 – Applies where Base Value is a negative figure
Valuation of variations continued
• How does a Schedule of Prices apply when valuing Variations? Relevant clauses:
• 9.3.14 – Applies where by reason of a Variation a part of the Contract Works is
delayed for a period greater than the delay, if any, to the Contract Works as a
whole, and the Contractor incurs time-related Cost = Contractor shall be entitled
to additional compensation
• 9.3.15 – Applies to the cost of processing Variations = where no % is nominated,
then the Contractor shall be entitled to the reasonable Cost of processing
Variations, whether or not they proceed
Consequences of Variations
• Costs
• Performance / labour costs
• Preliminary and general costs e.g. equipment
• Contractor’s margin
• Extensions of time
• Time related costs (acceleration)
Conditions
precedent
/ notice
provisions
Claims for variations and claims
for an extension of time

• The Contractor will almost always need to give notice of its “claim” for the EOT or variation
• Notifying the principal of an entitling delay event as grounds for claiming an EOT can be a
condition precedent to the contractor receiving an EOT
• Similarly, notification and written confirmation of a claim for a variation can be a condition
precedent to recovering payment for extra work done
• These require a specific form of notice (usually written) as a pre-condition to a right to
claim for extension of time and/or variation
• Lack of notice can result in the claim being absolutely time-barred unless prejudice can be
shown
Notice pre-condition
• If notice of an extension of time is governed by a clear contractual term, that
contractual term should be given effect - Auckland Regional Authority v Codelfa Construction
Ltd [1981] 2 NZLR 300

• If the words of the notification provision are clear and unambiguous, the
parties to a contract must comply with the contractual procedures and time
frames - H & H Contractors Ltd v Leighton Contractors Ltd & Or [2013] 1 NZHC 2225 at [37] –upholding UK
House of Lords case Photo Productions which is authority for the position that effect should be given to clearly
agreed terms
Notification provisions
Time and Form
Examples
• “The Contractor must provide its claim for an extension of time within
10 working days of the date that it has been delayed” [strict obligation
but not necessarily a time/claim bar]
• “The Contractor must provide its claim for an extension of time within
10 working days of the date that it has been delayed and if it fails to do
so it will not be entitled to any extension of time” [time/claim bar]
Notifying intention to claim
• A Contractor cannot rely on an oral instruction to avoid the subsequent
necessity of giving notice of an intention to claim - Hersent v Burmah Oil [1978] 2 Lloyd’s Rep.
565

• Oral discussion of delay is insufficient because it does not allow the person
receiving the EOT claim to assess the strength of the contractor’s contention
that it will be delayed - Humber Oil Trustees Limited v Hersent Offshore Limited (1981) 20 BLR 16
• In the absence of written orders (or other formalities that are conditions
precedent to payment) the Contractor cannot recover additional payment for
extra work, even if the Principal benefits from the extra work - Keating, 9th edition, [4-
047]
Notice pre-condition continued
• Standard form contracts (both NZS and FIDIC) require the contractor to:
• make an application for an extension within a specified period of
the occurrence
  of the delay event
• state the grounds on which the extension of time is sought
• give details of the period of extension sought or give supporting
details to the application
• But be aware of special conditions