Essential protection against
damages and main contractor’s set-off
Liquidated
damages
Most contracts provide for the contractor to pay the employer liquidated damages at a weekly or daily rate if the project over-runs the completion date. On major projects, they can be substantial. If the contractor suffers liquidated damages as a direct result of the sub-contractor's default, then he will usually be entitled to recover them from the offending sub-contractor by set-of, together with the costs of his own site establishment and staff. So it is vital that the sub-contractor protects himself by securing a formal extension of time to cover any delay to completion.
Sub-contract conditions usually require
the sub-contractor to give written notice of each delay, stating cause, effect
upon progress and estimate of any effect upon
completion. The notice is
commonly required to be served “forthwith”.
If the sub-contractor delays in giving notice, then he risks forfeiting
his entitlements. As and when the
sub-contractor considers the original completion date to be unachievable, he
should request an extension of his original period.
The matters giving entitlement to
extension of time are usually listed in the sub-contract documents, and are
often termed "relevant events".
The events most commonly encountered may be split into two groups (ie
“reimbursable” events which come under
the control of the client or contractor, and “neutral” events which fall
outside the control of the parties, and bring no reimbursement).
The “reimbursable” events usually
include : late issue of instructions and information, effect of variations,
delays caused by the client/employer or by his direct contractors and/or
suppliers. A further reimbursable
source of entitlement arises from default on the part of the contractor and/or
his other sub-contractors (ie delayed availability of workfaces, lack of
weatherproofing etc). These latter delays
are usually classed as “act, omission or default”. If a sub-contractor is delayed due to one or more of these
events, he may be entitled to reimbursement of his “prolongation” costs (ie
weekly costs of site establishment, supervision, engineering and off site
overheads). If the sub-contractor
wishes to claim such costs, he must give written notice as soon as the
likelihood becomes apparent. Provision of a budget figure at this stage will
also help.
The most common “neutral” events
include: force majeure (ie circumstances totally beyond the control of the
parties), exceptionally adverse weather, strikes and civil commotion, delay by
statutory authorities . Since these
carry no reimbursement, most sub-contractors prefer, if practicable, to concentrate on the “reimbursable” events.
What makes a good delay notice?
·
As to the format of
a good delay notice, the following check list may help:
·
State the area and
location of the problem
·
State the exact
circumstances causing the delay or disturbance
(ie identify the precise "cause" of the problem).
·
Identify "Relevant
event" in sub-contract conditions and clause if possible
(eg architect’s instructions, late
information, delay caused by the employer, lack of access and/or building
progress etc).
·
Give the expected effect
on programme/progress (ie state which sub-contract activities are affected and
how).
·
State what action is
required from other parties in order to avoid or reduce the effect of the delay
(eg remove scaffolding, pump out water, provide information etc).
· If overall completion date is likely to be
affected, give an estimate of the delay and the revised completion date.
·
Give notice of any cost
effects, with details if appropriate.
·
Update the notice as
necessary, if the delay continues.
·
Don't forget to record
when the delay has ceased, and the final effect.
If early warning is given, it may be possible
to “nip the problem” in the bud. That will be better for everyone. Indeed, the sub-contractor should always
take a proactive approach and be ready
to suggest solutions. However, these solutions should not be provided at his
own expense, nor should they be allowed to endanger his protection.
Proving the
sub-contractor’s entitlements
All too often, the contractor will react with a challenge for the
sub-contractor to prove his entitlement by “cause and effect”. This can be achieved by preparing a delay
schedule with accompanying charts to show the timing of the delay events in
relation to the original programme, the duration of the individual delays and
the impact upon completion. However, this will not be possible unless the
sub-contractor has maintained good site records (ie site diary, labour
allocation register, progress reports, requests for information, confirmation
of instructions, daywork sheets, photographs
etc).
If the sub-contractor carries out these
obligations from day one, and providing he uses his best endeavours on site, then
he should be able to obtain an extension of time and, most importantly,
protection from damages and set-off.
John Russell
Contracts and
Training Consultant
Cheshire CW4 7DP
Tel: 07770 986444
Email: swsubbie@globalnet.co.uk
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