REALWorld Law

Construction

Delay

Is it possible for the parties to a construction contract to agree that the time/date for completion of the works is to be fixed? How would delay be dealt with?

Angola

Angola

It is common to impose a time frame for completion of the works and in public works contracts it is mandatory to indicate the time frame for completion.

A delay in completion of the works may lead to the contractor having to pay contractual fines (usually a percentage of the contract price for each day of delay), possibly payment of damages and, ultimately (the worst case scenario), to the contractor being replaced by another contractor or termination of the contract altogether.

Australia

Australia

Construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay what are termed 'liquidated damages' (LDs).

Liquidated damages are damages that are fixed and the amount is agreed by the parties in advance. A typical clause requires the building contractor to pay or allow the employer to deduct liquidated damages at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract.

Contractual provisions for the payment of such sums are common in building contracts and favoured because:

  • In some situations, it can be difficult and costly to ascertain the actual loss suffered by the employer
  • LDs avoid the employer having to prove its loss by claiming general damages and avoid arguments over remoteness of damages
  • The contractor is often keen to fix the level of its liability to the employer for late completion
  • LD provisions save the time and cost of litigating over the amount of such loss

It is important to note that:

  • If included in a contract, liquidated damages will be the only remedy for delay available to the employer.
  • In order to be enforceable, liquidated damages must represent a genuine pre-estimate of the loss likely to be caused to the employer by the contractor's failure to complete on time. If they are not a genuine pre-estimate, then they may amount in law to a penalty and penalties are unenforceable under Australian law.
Belgium

Belgium

It is common to impose in a contract a time frame for completion of the works. Where a date for completion of the works is agreed between the parties but completion does not occur on that agreed date, this will automatically imply a contractual default by the contractor.

In general, a penalty mechanism in case of delay is contractually foreseen and therefore delay is dealt with in the relevant contractual document.

Bosnia-Herzegovina

Bosnia-Herzegovina

Yes, parties can agree on fixed date and provisions which would apply in such cases. Delay would be dealt by either 1) termination of the agreement or 2) an extension of the term which would trigger the application of contractual penalty provisions.

Canada

Canada

Construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay what are termed 'liquidated damages'.

Liquidated damages are damages that are fixed and the amount is agreed by the parties in advance. A typical clause requires the building contractor to pay or allow the employer to deduct liquidated damages at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract.

Contractual provisions for the payment of such sums are common in building contracts and favoured because:

  • In some situations, it can be difficult and costly to ascertain the actual loss suffered by the employer.
  • Liquidated damages avoid the employer having to prove its loss by claiming general damages and avoid arguments over remoteness of damages.
  • The contractor is often keen to fix the level of its liability to the employer for late completion, and
  • Liquidated damages provisions save the time and cost of litigating over the amount of such loss.

It is important to note that:

  • If included in a contract, liquidated damages may be the only remedy for delay available to the employer.
  • In order to be enforceable, liquidated damages must represent a genuine pre-estimate of the loss likely to be caused to the employer by the contractor's failure to complete on time. If they are not a genuine pre-estimate, then they may amount in law to a financial penalty. A penalty will be unenforceable if it is also unconscionable or oppressive.
  • If the party claiming liquidated damages has contributed to the delay, they may be unable to recover liquidated damages.
China

China

Yes, it is common to specify a completion date. Construction agreements normally set out a mechanism for dealing with delays, including specifying liquidated damages as compensation.

Croatia

Croatia

It is possible to agree upon a fixed completion deadline. Usually the contractual parties agree upon a contractual penalty for the delay on a per-day basis.

Czech Republic

Czech Republic

A fixed time and date may be agreed in the contract but, if not, the time for completion would be the appropriate time given the nature of the relevant work. In certain situations a party is entitled to withdraw from the contract but usually there are specific penalties provided for in the contract which deal with this issue. The entitled party can also claim compensation for damage if it suffers damage due to the delay.

Denmark

Denmark

It is normal practice that construction contracts require works to be completed by a specified date. In the event of a delay the contractor will have the right to an extension if the delay is a result of:

  • Changes in the character or extent of the construction that is ordered by the employer
  • Circumstances attributable to the employer or to other contractors
  • Force majeure
  • Rain, low temperature, strong winds or other extremes of weather if such extremes occur to a significantly greater extent than could have been foreseen taking the season and region into account, or
  • Public regulation or injunctions that are not attributable to the contractor

It is standard practice for construction contracts to contain provisions which require the contractor to pay liquidated damages in the event of delays for which the contractor is responsible.

France

France

It is common to impose a time frame for completion of the works. Where a date for completion of the works is agreed between the parties but completion does not occur on that agreed date, this will automatically imply a contractual default by the contractor.

In general, a penalty mechanism in the event of delay is provided for contractually.

Germany

Germany

In principle, the tender documents contain the deadlines in respect of which observance is of major importance to the principal. Once engaged the contractor is in most cases obliged to provide the principal with a detailed time schedule for execution and control management in accordance with the deadlines set out by the principal.

The contracting rules for the procurement of public works (VOB/B) draw a distinction between binding and non-binding deadlines. Generally a binding deadline must be expressly indicated as a contractual deadline in the construction contract. However, the start and finishing dates for the performance of the works are always contractual deadlines. On the other hand, non-binding deadlines only facilitate the principal in control the building work and monitoring progress.

Whereas a culpable failure to meet a contractual deadline may entitle the principal to claim against the contractor for damages and/or a penalty, failing to observe non-binding deadlines will only give the principal a claim for damages or even a termination right in certain cases. The principal may first ask the contractor to take immediate action if there is a shortage of labour, equipment, scaffolding, materials or elements which are endangering the contractor's ability to observe the performance deadlines.

From a practical standpoint it is important to note that contractors normally try to find justifications for extending the applicable deadlines. They have a right to do so if they can prove that the principal issued instructions which delayed the works or withheld decisions or failed to supply plans in time, etc.

Hong Kong

Hong Kong

Date for completion

Most construction contracts provide a date or stipulate a period for the contractor(s) to complete the works. The failure to achieve completion by the date or within the stipulated period is a breach of contract.

Ways to deal with delay

Extension of time

Clauses for extension of time for completion can be inserted into the contract. Most construction contracts set out a mechanism for the architect to award extensions of tine. Under the Agreement and Schedule of Conditions of Building Contract for Use in Hong Kong – Standard Form of Building Contract (Private Edition) (HKIS), it is for the contractor(s) to first give notice of delay, and then for the architect to assess, in his opinion whether there was any actual delay caused by the events as specified. These events include, inter alia, inclement weather, variations, and late receipt of instructions or drawings.

Claims for damages

An employer may also claim for damages for delay caused by the contractor(s). These are often referred to as liquidated damages and relate to where the parties have pre-determined the amount payable by the contractor to the employer as damages for any delay. This genuine pre-estimate of loss dispenses with the employer's need to prove actual loss which may result in a considerable saving of costs.

Hungary

Hungary

The parties are free to agree on a fixed completion deadline.

If there is a delay in completing the works by the date specified in the construction contract, the employer may bring a claim against the contractor for general damages for late completion. In addition, construction contracts usually include liquidated damages provisions (a liquidated damages clause) in which an amount or a percentage of the contractor’s fee is set forth as applicable for each calendar day of the delay until the maximum amount, also defined in the contract, is reached. It is important to note that excessive liquidated damages may be reduced by the court.

As to late payment by the employer, the contractor may become entitled to late payment interest.

Ireland

Ireland

Standard forms of construction contract in Ireland provide for a fixed completion date. It is also usual for bespoke forms to provide for a fixed date.

In the RIAI form of building agreement, contractor delay can be dealt with either by way of payment of liquidated damages for the delay or can be excusable by way of the occurrence of force majeure events, for example, where exceptionally inclement weather delays performance.

Employer caused delay is a force majeure event under the RIAI form of contract and will lead to an extension of time.

Italy

Italy

In cases of material delays to the project by the contractor, both legislative and contractual remedies apply.

Legislation

The client can generally be compensated for damage caused by the delay in it being unable to use the project, and this is without prejudice to the client’s right to terminate the contract due to a contractor’s default. The damages must include the client’s loss and the loss of profit, to the extent that they are a direct consequence of the delay.

Contract

Parties commonly agree on the penalties in cases of material delay. Typically, parties agree that both:

  • a certain amount must be paid by the contractor for any day or week of delay past the completion date, and
  • the penalty is owed to the client (who does not have to prove that it suffered damage)

These agreements do not exclude the right of the client to be compensated for any further damage, but this must be expressly stated in the agreement. If the amount of the penalty is too high and is contested by the contractor, a court can reduce it. The penalty must be a fair evaluation of the damage.

Japan

Japan

Yes. It is common to specify a completion date (subject to force majeure events) in construction contracts. Construction contracts normally set out a provision for dealing with delays, including liquidated damages as compensation or termination right.

Netherlands

Netherlands

The parties to a construction contract usually agree on a fixed date for completion as well as the number of working days on which work is possible. The delivery date can also be postponed after mutual consultation. A contractor can be held liable for delayed delivery of the works if the delay is attributable to it. In that case, a penalty may be payable for each day that the delay continues if the parties agreed on such a clause. Such a penalty can replace the actual damages incurred by the client. If a penalty is not agreed on, the contractor may be liable for the damages incurred as a result of the delay.

Nigeria

Nigeria

Construction contracts generally specify the duration of the contract and the date of completion of the contract and the contractor is expected to comply with this provision failing which he will be deemed to be in default except where the delay is caused by the employer or by a force majeure event in which case the contractor is excluded from liability.

Where the delay is caused by the employer, invariably the contractor should be entitled to an extension of time for completion. In the event that the delay is caused by the contractor, the employer is entitled to claim for extra costs and inconveniences arising therefrom against the contractor.

Construction contracts usually make provision for liquidated damages which are a means of compensating the employer when the contractor does not complete his works within a stipulated time agreed. Any extra time required to complete the project will result in a deduction at a predetermined rate under the contract calculated per day, week or month that the works are delayed beyond the agreed completion date. There is a limit to the amount that can be claimed as liquidated damages and usually not exceeding a specific percentage of the total contract price.

Norway

Norway

Construction contracts normally require the works to be completed by a specific date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the contractor, it is standard for the contractor to be required to pay daily penalties.

Daily penalties are damages that are fixed and the amount is agreed by the parties in advance. A typical clause requires the contractor to pay 1% of the total contract price for each day of delay up to the completion of the works.

The contractor's total liability to pay daily penalties is often limited to 10% of the contract sum. This limitation of liability does not apply if the delay was caused by wilful intent or gross negligence on the part of the contractor.

Poland

Poland

Construction contracts require the works to be completed by a specified date. The aggrieved party may bring a claim for general damages (compensation) for late completion of the works by the building contractor or parties may also include in the construction agreement contractual penalty provisions in the case of any delay in completion of the works.

Portugal

Portugal

The time frame within which the construction works have to be carried out and completed has to be specified in the construction contract. A delay in completion of the works may lead to the contractor having to pay contractual fines and possibly indemnities and, ultimately (the worst case scenario), to the contractor being replaced by another contractor or termination of the contract altogether. Completion of the works may, however, be delayed as a resulty of causes attributable to the employer, notably a delay in or lack of payment of the construction price or any instalment. In this case, the contractor may terminate the construction contract, request the overdue payments due to it and retain the building up to the date on which the employer meets its contractual obligations.

Romania

Romania

A construction contract always includes the date for completion of the works, even if it is determined by reference to a future event.

Any delay in handing over the works involves penalties being paid by the contractor. Usually, the amount of these penalties is pre-defined by the parties in the construction agreement and represents a reasonable pre-estimate of the employer's loss in the event of delay.

Russia

Russia

Under Russian law the timescale for completion of construction works is a material condition of a construction contract. As a general rule, if the timescale is not specified the construction contract is deemed not to have been concluded.

In addition to the general timescale for completion of the works a construction contract may also specify interim dates for the completion of certain elements of the works. These dates may be altered (either brought forward or pushed back) in circumstances agreed by the parties in the contract.

If there are delays in the completion of a development project, the contractor will be liable to the client for damages arising as a result of the delay, as well as the contractual fines and penalties set out in the construction contract. The client may also choose to unilaterally terminate the contract if the delay is such that it no longer wishes to see the project through to completion.

Slovak Republic

Slovak Republic

Generally, under the provisions of the Commercial Code, the contractor executes and completes the works within the agreed time period or if the period is not stipulated in the contract, within a reasonable time period with regard to the nature of the works. Unless the contract or the nature of the works provides otherwise, the contractor may complete the works prior to the agreed time. Completion of the works will result in the handing over of the object of the works to the client at the agreed place. The parties may agree a fixed date for completion of the works in the contract for work.

In compliance with the provisions of the Commercial Code, in the event of delay by the contractor, the client is entitled to withhold performance of its obligations (eg payment of the price). If completion of the works is delayed by the contractor, the client may withdraw from the contract. If the client does not use his right to withdraw from the contract, the contractor may complete the works and will therefore have fulfilled his obligation under the contract. However, the delay of the contractor in meeting his contractual obligation to complete the works shall not affect any right of the client for damages. The client may therefore claim for damages and also for a possible contractual penalty, if agreed in the contract, against the contractor even if he has not exercised the right to withdraw from the contract.

The delay also affects the transfer of the liability for damage.

Spain

Spain

Construction contracts always require the works to be completed by a specified date. Contracts often include a specific penalty for delay, usually a certain amount per day of delay. These penalties replace claims for losses or damage unless otherwise agreed by the parties. The application of such penalties is always construed restrictively under Spanish law and the amount may be always limited by the relevant judge.

The payment of such penalties is normally secured by a completion guarantee delivered by the contractor when the construction contract is entered into.

Sweden

Sweden

The parties to a construction contract can normally agree that the completion of the works must be achieved by a specific date. Under the General Conditions for Contracts - AB 04 and ABT 06 - the contractor is entitled to any necessary extension of the contract period if he is prevented from completing the contract works within the contract period by circumstances caused by the employer or by any circumstances of force majeure.

Under the General Conditions for Contracts - AB 04 and ABT 06 - the contractor must pay liquidated damages in accordance with the stipulations in the contract document for each week or part of week by which the contractor exceeds the contract period unless circumstances of force majeure apply. 

Thailand

Thailand

Yes. The construction contract will usually set out the specific date for completion of the works. If the contractor fails to meet the deadline, a default or breach of contract will occur. The employer subsequently is entitled to claim for any damages for late completion.

In addition, the contract will generally fix the penalty for late completion at a specific amount on a daily basis, and if the limitations on such penalties are reached, the employer is entitled to terminate the construction contract and claim any damages incurred due to the termination of the construction contract.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

There is no statutory prohibition in Abu Dhabi on requiring a fixed time for completion of the works. Practically, all construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay ‘liquidated damages’ (LDs).

LDs are damages that are fixed and the quantum is agreed by the parties in advance. There is no prohibition in Abu Dhabi law on penalties and no requirement that LDs be a genuine pre-estimate of loss. A typical clause requires the building contractor to pay or allow the employer to deduct LDs at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract. Under the Civil Code, a judge (and possibly an arbitrator) at his/her discretion can adjust the LDs to reflect the actual loss suffered.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

There is no statutory prohibition in Dubai on requiring a fixed time for completion of the works. Practically, all construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay 'liquidated damages' (LDs).

LDs are damages that are fixed and the quantum is agreed by the parties in advance. There is no express prohibition in Dubai law on penalties and no requirement that LDs be a genuine pre-estimate of loss. A typical clause requires the building contractor to pay or allow the employer to deduct LDs at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract.

A local court may reject the agreed LDs. If the court feels the loss is less or more than the fixed amount, the court can reduce or increase the LDs to equate to the loss.

UK - England and Wales UK - England and Wales

UK - England and Wales

Construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay what are termed ‘liquidated and ascertained damages’ (LADs) or, more simply, ‘liquidated damages’ (LDs).

LADs are damages that are fixed and the quantum is agreed by the parties in advance. A typical clause requires the building contractor to pay or allow the employer to deduct LADs at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract.

Contractual provisions for the payment of such sums are common in building contracts and favoured because:

  • in some situations, it can be difficult and costly to ascertain the actual loss suffered by the employer;
  • LADs avoid the employer having to prove his loss by claiming general damages and avoid arguments over remoteness of damages;
  • the contractor is often keen to fix the level of his liability to the employer for late completion; and
  • LADs provisions save the courts’ time.

It is important to note that, (1) if included in a contract, LADs will be the only remedy for delay available to the employer, and (2) in order to be enforceable, LADs must represent a genuine pre-estimate of the loss likely to be caused to the employer by the contractor’s failure to complete on time. If they are not a genuine pre-estimate, then they may amount in law to a penalty unless there is a commercial justification for the level of damages used – penalties are unenforceable under English law.

UK - Scotland

UK - Scotland

Construction contracts require the works to be completed by a specified date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the building contractor, it is standard for the contractor to be required to pay what are termed 'liquidated and ascertained damages' (LADs) or, more simply, 'liquidated damages' (LDs).

LADs are damages that are fixed and the amount is agreed by the parties in advance. A typical clause requires the building contractor to pay or allow the employer to deduct LADs at a rate per day or week of delay in the completion of the works. The rate is usually set out in an appendix to the construction contract.

Contractual provisions for the payment of such sums are common in building contracts and are favoured because:

  • In some situations, it can be difficult and costly to ascertain the actual loss suffered by the employer
  • LADs avoid the employer having to prove his loss by claiming general damages and avoid arguments over remoteness of damages
  • The contractor is often keen to fix the level of his liability to the employer for late completion
  • LADs provisions save the courts' time.

It is important to note that, (1) if included in a contract, LADs will be the only remedy for delay available to the employer, and (2) in order to avoid challenge, it is advisable for the rate of  LADs  to represent a genuine pre‑estimate of the loss likely to be caused to the employer by the contractor's failure to complete on time. If they are not a genuine pre‑estimate, then they may amount in law to a penalty unless there is a commercial justification for the level of damages used – penalties / punitive damages are unenforceable under Scots law.

Ukraine

Ukraine

Under Ukrainian law, the parties may agree a fixed time/date for completion of works as well as agree on the responsibility and consequences of a breach in a construction contract.

United States

United States

Yes, parties to a construction contract can fix the time/date to complete the entire project. In addition, they can agree to the time/date when a portion or portions of the project must be completed, including fixed time/dates for both substantial completion and final completion.

A common method of dealing with delays is to provide for liquidated damages, often referred to as ‘LDs’. If the parties decide upon LDs, the contractor agrees to pay a certain sum for each day (or some other increment) of delay for each portion of the project and/or for the entire project not completed on time. Liquidated damages are often used where the amount of actual damages would be difficult to calculate and prove.

The sum determined by the parties should be an estimate of actual damages, not a penalty – a penalty is not enforceable under US law. As a result, it is important for the owner to perform the exercise of attempting to calculate what its damages will be if the project or any portion of the project is not finished on time (even if difficult or speculative). In addition, the liquidated damages must be the sole remedy available to the owner for delay, ie the owner cannot have the choice of demanding payment of liquidated damages or pursuing the actual cost of delay through litigation.

Zimbabwe

Zimbabwe

It is very common to agree on a fixed date for completion of the works. Penalties are usually imposed before the contract is signed, so that both parties are aware of possible repercussions.