Legally Bound

Jordan ... fairness should be the focus.

Jordan ... fairness should be the focus.

Deciding on outcomes in concurrent delays

December 2018

Concurrent delay remains one of the most controversial topics in our industry. The questions people ask most often are:

“Can a contractor get an extension of time for an employer-risk delay if the contractor is going to complete late anyway, due to his own fault?”

Or to put it the other way round:

“Can an employer take delay liquidated damages from a contractor when the employer himself has delayed completion?”

Both questions imply a lack of fairness in the outcomes they describe, hence the controversy. In fact, neither of these questions necessarily involves actual concurrent delay – of which there is no agreed definition. Instead of dissecting those definitions, let’s look at three scenarios:

Scenario One: An employer-risk event and a contractor (culpable) delay event happen at exactly the same time and their effects are felt at the same time. This is “true concurrency”, the narrowest definition and it is a rare occurrence.

Scenario Two: An employer-risk event and a contractor delay event happen sequentially but their effects are felt (wholly or in part) at the same time. This is the broader understanding of concurrency.

Scenario Three: An employer-risk event and a contractor delay event happen sequentially and their effects are felt at different times. This is not concurrency at all but both parties have still contributed to delaying completion.

Almost all construction contracts begin with the premise that a contractor will be entitled to an extension of time (EOT) for works completion when an employer-risk event would cause completion to be delayed beyond the completion date which prevailed at the time when that event occurred. Beyond that, standard contracts are poor at providing for clear outcomes when there are competing causes of delay. So, to improve clarity, we might amend or write a contract to provide for particular outcomes such as:

• The contractor will get an EOT for the full period of employer delay in true concurrency – Scenario One;

• The contractor will get an EOT for the period of overlapping delays in Scenario Two;

• Or, the contractor will get an EOT in Scenario Two only if the employer delay was an act of breach or prevention, and not a neutral event such as bad weather;

• Or, in all scenarios, the EOT shall depend on the relative contributions of both delays to the total delay.

These provisions reflect common views about the “correct way” to approach concurrency. All except the last one are influenced by the English Law position, which largely directs the administration of EOTs based only on the relationship between the employer-risk delay and the required completion date, so ignoring any contractor delay. This is clear enough but it runs into the enduring tension between certainty and fairness.

And that takes us to our real question: will such provisions be enforceable in the Gulf?

Speaking (as always) as only a foreign observer of Gulf legal principles, there seem to be some obvious problems with accommodating the English Law approach. All Gulf jurisdictions, of course, recognise freedom of contract but legal principles might still displace the agreed position.

We start with the basic principle of ‘good faith’ which is underpinned in civil codes across the Gulf and might defeat an outcome whereby a party’s own delay is ignored when assessing entitlement to an extension of time. That said, when we examine the “pro-contractor” English Law position, we have to recognise that culpable contractor delay isn’t usually wilful, so it might be argued that this isn’t a ‘good faith’ issue.

Good faith is, perhaps, more likely to affect the opposite position in which a contractor gets no extension at all in situations of concurrency – which is, by far, the more common contractual position. Here, the act of refusing an extension of time in the face of employer-risk delay might be more obviously viewed as a lack of good faith.

Perhaps the more applicable legal principle is the objective of fairness or equality of outcome between parties. This is reflected in many parts of Gulf law, including UAE Civil Code Article 290 which allows a court to reduce compensation where the person seeking it has played a part in the damage – in this case, the delay. This is followed by Article 291, which directs the apportionment of liability between parties, according to their share of responsibility for a “harmful act”.

Both of these principles point us towards an outcome based on apportionment rather than “winner takes all” for one party. That may not be enough to displace the clearly-stated intention of the parties but we need to note that we can’t necessarily take these points as read.

 

* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.  




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