Blog: Time Bar Clauses
by Mark Woodward-Smith, Group Managing Director -
Time bar clauses are commonly seen as being of benefit to the employer, however they do provide benefits for contractors too
Construction contracts commonly contain provisions that allow the contractor to extend the project completion date (called an extension of time or EoT) and claim for additional payment for the costs incurred for specific events (e.g. NEC refers to ‘compensation events’ and JCT ‘relevant events’) that are out of the contractor’s control. An example of these events might be a client instructed variation, exceptionally adverse weather, changes in statutory requirements and delay in providing the contractor with access to the site.
In addition, the clauses for claiming additional time or money also specify a time period in which the contractor must notify the client of any intended claim, effectively setting a deadline for the submission of a claim.
A time bar clause (or condition precedent) provides that if the contractor fails to serve the required notice (itself compliant with the requirements of the contract) within the specified period, they are prevented from claiming an extension of time or additional payment. For example, under NEC4 clause 61.3, if the contractor does not give notice within eight weeks of becoming aware of the event, the Prices, Completion Date or a Key Date are not changed (unless the Project Manager gave an instruction or notification, issued a certificate or changed an earlier decision).
In contrast with NEC and FIDIC, the JCT suite of contracts state that the contractor must serve notice of a delay to the employer when it becomes ‘reasonably apparent that the progress of the Works or any Section is being or is likely to be delayed…’, but there are no specific time limits for submitting the notice and there is no clear stated loss of right in the event of failing to notify the employer.
Time bar clauses are often considered onerous for the contractor. However, they may be beneficial to the client, and even to the contractor if adhered to.
The following points illustrate certain benefits of time bar clauses:
- they are designed to improve the administration and management of construction contracts;;
- they set a deadline for the contractor to ensure that the employer is notified at an early stage of a claim, which provides the employer with time to evaluate the claim and take steps to reduce the delay and/or cost;
- time bar clauses should stop a build-up of claims during a project which should help to avoid expensive legal disputes between the employer and the contractor and lead to more accurate financial forecasting for both parties; and
- they encourage contractors and employers to operate with transparency and tackle issues quickly and efficiently.
The English law position
The issue of compliance with time bars was considered in Obrascon Huarte Lain v Gibraltar, in which the court considered the contractor’s compliance with the time bar in clause 20.1 of the FIDIC Yellow Book 1999 in relation to a claim for an extension of time. The parties had contracted to carry out works to construct a road tunnel at Gibraltar airport. The employer terminated the contract when the contractor was almost two years in delay. The contractor claimed that it was entitled to an extension of time due to ground contamination that it discovered and asserted that the termination of the contract was unlawful. The court confirmed that compliance with the notice requirements in clause 20.1 is a condition precedent to the ability to bring any claims by the contractor.
However, the court construed the requirements of clause 20.1 broadly due to the serious effect it could have on what could otherwise be a good claim, rather than construing it strictly against the contractor. The court read the claims provisions in clause 20.1 in conjunction with the entitlement to extensions of time provisions in clause 8.4 of the contract:
“The Contractor shall be entitled subject to Sub-Clause 20.1…to an extension of the Time for completion if and to the extent that the completion for the purposes of Sub Clause 10.1…is or will be delayed by any of the following causes…”
The court concluded that the period for the giving of notice for a claim for an extension of time (28 days under clause 20.1) could start to run either when it is clear that a delay to completion will occur (the court described this as ‘prospective delay’), or in the alternative, when the delay has actually started to be incurred (which the court described as ‘retrospective delay’). The contractor appealed against the court’s decision that termination of the contract by the employer was lawful. However, the Court of Appeal gave no further consideration to issue about the operation of the time bar in clause 20.1.
The position in other jurisdictions
It should be noted, however, that other jurisdictions have significantly diverged from the English law position, as demonstrated by a case in Australia, CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] . In 2005, BHP Bilton Iron Ore Pty Ltd (BHP), acting on behalf of a joint venture, engaged John Holland PTY Ltd to carry out an upgrade and extend a wharf at Finucane Island in Australia. During the works, John Holland subcontracted the demolition scope to CMA Assets Pty Ltd with the intention that they would follow behind CMA with the construction of the new wharf.
Whilst carrying out the demolition works, CMA claimed that they were delayed for several reasons, notably delays from John Holland granting them access to structures they were to demolish, delays from John Holland in moving a ship loader that was preventing the work and that the berthing dolphins were reinforced above what was defined within the contract. Subsequent to these delays, CMA made variations and delay claims against John Holland, however they did not issue the required notices of delay in accordance with the contract. The contract stated that:
- written notice of the likelihood of a delay occurring immediately upon becoming aware of the likelihood of that delay;
- written notice of its intention to claim the EoT for the delay within 7 days after the occurrence of the cause of the delay;
- a detailed written claim for an EoT within 14 days after the commencement of the delay; and
- further detailed written claims for EoT every 5 days after the first occurrence of the delay until the delay ceases.
In failing to adhere to these conditions of the contract, a ‘time bar’ was effectively applied and CMA lost their right to make an EoT claim. In response to this, CMA argued that they weren’t in a position to provide the information required by the notice requirements, a failure to give notice does not defeat a claim in its entirety, strict compliance with the contract was ‘absurd and harsh’, and that John Holland was already aware of the delay and no further notice was required.
Even though the court accepted that John Holland had indeed delayed CMA, it denied their claim on the grounds that CMA hadn’t fulfilled that requirements of the contracts in providing the notices, and as such it would not depart from a strict interpretation of the contract even though the application of the clauses were ‘harsh’.
This case highlights the importance of ensuring strict compliance with any time bar required from the contract, even in the instance where they may seem ‘harsh’ and the contractor would otherwise be entitled to an EoT.
Benefits for both parties?
For the employer, the usefulness of implementing time bar clauses is the improvement of the administration and management of a project and ensuring certainty and transparency of time and cost. This is likely to remain a prominent feature of most major construction contracts.
From the contractor’s perspective, it is important that its obligations regarding time bars are fully understood and followed closely. However, this should not prove too onerous an obligation provided that they are alive to the requirements of the relevant clauses. As discussed above, time bar clauses can work to contractors’ benefit by promoting efficient management and a proactive approach to agreeing the time and money effect of change as and when it occurs.
If time bar clauses are embraced by both the contractor and the employer, it can benefit both parties by ensuring the early notification of circumstances giving rise to claims and will be conducive to a cooperative approach between the two parties.