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15 January 2018
Extension of time clauses in common law contracts
Grounds for extension of time
Standard for determining extension of time
Methodology for delay analysis
Construction lawyers are frequently called on to draft or interpret extension of time clauses. But the questions of what should be in these clauses, and why they are typically included in construction contracts in the first place, receive little attention.
This update first examines the differences between extension of time clauses in contracts governed by common law and Swiss law. It then turns to a few issues that parties to a Swiss law contract may want to consider when drafting an extension of time clause, namely:
One of the main reasons that common law contracts typically include detailed extension of time clauses is the risk of 'time at large'. This principle sets out that if the employer causes a delay, and the contractor is unable to seek an extension of time for that delay under the contract, the contractual completion date will become unenforceable and the contractor will be granted a reasonable time to complete the works. The employer then loses the right to seek any liquidated damages under the contract, even in respect of delays caused by the contractor. Parties to English law contracts are therefore usually careful to include a detailed extension of time clause to ensure that it covers different types of employer-caused delays.
The time at large problem does not arise in civil law jurisdictions such as Switzerland. Unlike under English law, contractors are entitled to an extension of time in the event of an employer-caused delay (and in certain other circumstances) even if the contract is silent on the matter. In fact, it is not uncommon in some civil law jurisdictions to find construction contracts that do not contain an extension of time clause, although Swiss construction contracts usually do.
Swiss law entitles a contractor to an extension of time in the event of delays that are caused by the employer or delays that are within the employer's sphere of risk. But unlike the laws of other civil jurisdictions, like Germany and France, Swiss law does not entitle a contractor to an extension of time for delays caused by force majeure or unforeseeable events such as strikes or natural events of an abnormal nature. In addition, it can be unclear what falls under the employer's sphere of risk if it is not clearly defined in the contract. For example, commentators suggest that a demonstration preventing the contractor from accessing the site would be within the employer's sphere of risk, but that the contractor could not seek an extension of time for delays caused by a general strike. Determining who is responsible for delays caused by ground conditions on the site can also be tricky.
It is therefore often a good idea to try to define in the contract the grounds for an extension of time and the parties' respective spheres of risk. The most widely used standard form contract for construction projects in Switzerland, the Swiss Institute of Architects' (SIA) Norm 118, does just that. As compared to the default Swiss law, it significantly expands on the delay events that entitle a contractor to an extension of time. For instance, it provides that delays caused by bad weather, strikes, supply problems and acts by public authorities fall under the employer's sphere of risk, although with a twist: the contractor must offer to take acceleration measures to mitigate such delays, albeit at the cost of the employer.
Swiss law, like German law, imposes a strict obligation on a contractor to immediately notify the employer of any delay event, failing which it loses any entitlement to an extension of time. What constitutes 'immediate' notification may depend on the circumstances. However, the requirement is certainly stricter than the requirements in many international construction contracts (eg, the 28-day requirement in the International Federation of Consulting Engineers (FIDIC) Conditions). A contractor may therefore have an interest in setting out a more lenient notification requirement in the contract.
When drafting an extension of time clause, parties may also want to be mindful of the standard under Swiss law for determining the duration of an extension of time, which gives courts and arbitral tribunals a lot of discretion.
Swiss law provides that a contractor has a right to an 'adequate' extension of time. This means that, as a rule, the contractor is entitled to an extension of time of at least the duration of the delay event. However, determining the extension of time is not just a mechanical exercise of determining the duration of the delay. A court or arbitral tribunal must also consider all the circumstances, including:
The doctrine also suggests that if the delay is caused by the employer, a court or tribunal should be generous in determining the extension of time to grant the contractor.
In practice, extensions in Swiss construction contracts are often fixed by agreement of the parties. In fact, SIA Norm 118 imposes an obligation on the parties to negotiate in good faith to agree on an extension of time. Nevertheless, an employer might want to try to rein in a court or tribunal's discretion in determining an extension of time in the contract, even if only to improve its negotiating position.
Like most other laws, Swiss law provides no guidance on the methodology to be used for delay analysis in the event of an extension of time claim. Contracts in certain other jurisdictions (eg, the United States) sometimes specify such a methodology, and it would be open to parties to a Swiss law contract to adopt such an approach. However, doing so may not be advisable. Which methodology is appropriate to apply will often depend on the circumstances at the time an extension of time claim is to be decided on, including what project documentation and programmes are available and the forum or context in which the delay analysis will be conducted.
Unlike under English law, the issue of the impact of concurrency of delays on the contractor's entitlement to an extension of time has received little attention under Swiss law. The Swiss commentators who address the topic propose a number of different approaches, ranging from the English approach of 'time but no cost', to looking at the issue as one of contributory fault. It is therefore difficult to predict how a tribunal or court applying Swiss law would approach concurrency. As a result, if the parties to a contract want clarity on the issue, they need to address it when drafting the extension of time clause. This is precisely the approach that the new suite of FIDIC Conditions will take, which encourages the parties to agree on how to approach concurrency.
Although Swiss law already provides for extensions of time in certain circumstances, even when the contract is silent on the matter, Swiss law construction contracts will usually contain an extension of time clause. When drafting such clauses, parties will want to carefully consider whether and how to address a number of specific issues.
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