LexisNexis

Delays in construction projects: relevant concepts and (too many?) approaches

Construction Law International homepage  »  March 2020

 


Credit: Lightspring/Shutterstock

 

Alexandre Arlota
Mattos Filho Advogados, Rio de Janeiro
 
Marc-Henrik Werner
Mattos Filho Advogados, Rio de Janeiro

 

Introduction

Widely used in several jurisdictions, engineering, procurement and construction (EPC) contracts tend to be a common structure of contracting to develop complex and large engineering projects, being the factor of complexity present in both the contract wording itself and performance of the contract parties’ obligations. Since under the very concept of EPC contracts the contractor is held as a single point of responsibility towards the owner, this type of contract has become an overall industry preference, especially in projects being financed.

Complexity in such contracts is unavoidable, since the object of an EPC contract will generally consist in the implementation of a project of considerable dimensions demanding large-scale investment. In their turn, the execution and planning of the necessary works will depend on interactions between various fields of knowledge,1 such as engineering, architecture, economy, financial planning, legal framework and fiscal structuring, as well as between the owner and the contractor. Consequently, there is a need to allocate risks appropriately among the parties, so that that each is protected from events beyond its respective scope. In some cases, where the wider project is split into various phases or sub-scopes demanding integration, consistency between the respective time schedules may be necessary.2

Due to their intrinsic interdependency, failed (or delayed) activities may result in delays in completion, leading to controversies at several levels, many of which related to whether or not a contractor will be entitled to an extension of time (and prolongation costs), and, in respect to the owner, if liquidated damages stipulated for late completion will be recoverable. The necessary task, therefore, is determining the party responsible for the delay, which may seem a simple undertaking at first sight, but gains in complexity in cases in which both parties contributed to the delay.

With this paper, the authors aim to present some of the main aspects concerning delays they have encountered in complex construction contracts, and to outline certain approaches in Brazil, England and the United States that are used to conceptualise and deal with delays. 


Each party will seek appropriate protection from acts and events under the other party’s responsibility.


General notes on delays

The analysis of delay can be carried out using different methods, each considering certain aspects when defining delay. Identifying causation of delay and the party responsible does often reveal itself as a difficult task. 

In most projects, delays are likely to happen, given the inherent complexity of the works and possible interfaces and interactions between the owner and, at least, one contractor. Delays will result from one or more causes, which may be attributable to one or more of the involved players, or even from external factors beyond any such players’ control (eg, force majeure events). The occurrence of concurrent causes of delay is an issue repeatedly faced in the construction industry as it is rarely the case of a single event attributable exclusively to one contracting party causing a delay. Whatever the case may be, each party will seek appropriate protection from acts and events under the other party’s responsibility.

Contractor-caused delays 

Most infrastructure projects are implemented in order to meet specific market demands; for instance, a power generation plant is developed to supply energy in accordance with the increase of a market’s industrial activities. Hence, punctual completion is of the essence, as is the capability of the facility to generate the amount of power to which supply the owner has committed itself by means of power purchase agreements, in the given example. Although not comprised within the scope of this paper, the authors note the desirability of including express fitness for purpose provisions so as to mitigate potential controversies in this regard.

Non-compliance (or late compliance) with commitments undertaken towards third-party off-takers (such as power purchasers) under the relevant offtake agreements will expose the owner to losses under these contracts, and owners (and their advisers) will have to carefully address such risk when preparing and negotiating the construction contracts.

According to the authors’ experience, there is a set of potential protection mechanisms complex construction contracts may provide for, which may include the ones described below. 

Back-to-back provisions

The ideal protection mechanism from effects of project completion delays (and, therefore, from the risk of exposure under offtake agreements) consists in reflecting, to the largest extent commercially feasible,3 the sums payable by the owner to its off-takers for breach of the supply commitments in the amount of liquidated damages payable by the contractor to the owner for untimely completion. Such provision aims at securing strict alignment of schedule and cost exposure under the interrelated EPC and offtake contracts.

However, the authors note that in Brazil it is fairly uncommon (or even entirely unusual) to include back-to-back clauses in construction contracts of many industry sectors, as such would imply in the transfer of the project developer’s business risks and exposures under the owner’s offtake agreements but not their inherent benefits to the contractor.

Interim (or intermediary) milestones 

Contrary to many common law jurisdictions, Brazilian law4 does embrace the possibility to set forth non-compensatory penalties aimed at being coercive in nature,5 and expressly admits a penalty’s preventive character to safeguard a party’s legitimate interest to timely completion as provided under the relevant agreement.6 That means that there is no mandatory assumption that the penalties’ amounts correspond to the damages that the innocent party would likely suffer (as it so happens under the concept of liquidated damages).

In light of such general admission of contractual penalties, and given the general absence of back-to-back provisions in Brazil, it is common practice in Brazil to include in the project schedule certain interim milestones that must be timely achieved by a contractor. Non-compliance with such interim milestones will cause the contractor to pay damages to the owner, which amount is generally stipulated as a percentage of either the contract price or the milestone price. In a more balanced approach, such penalty provisions triggered by an intermediary delay will generally provide that, if the contractor manages to catch up with the original time schedule and to recover its intermediary delay, the amount paid would be reimbursed to the contractor.

Thus, the idea behind such mechanism is not to asphyxiate a contractor’s cash flow – as this could jeopardise the project’s completion itself. The ultimate goal of the interim milestone penalty is to effectively stimulate timely completion of the project, and to provide the owner with an intermediary monitoring mechanism in order to anticipate potential delays of the guaranteed completion date, given the huge exposure under the offtake agreements related to the project which, as already mentioned, are usually not covered by back-to-back provisions.

Moreover, in Brazil, penalties or liquidated damages are not set aside entirely if they are deemed to be excessive. Instead, Article 413 of the Brazilian Civil Code provides for the court’s authority to decrease proportionally the amount of the penalty determined in the contract if it deems it to be excessive considering the case’s circumstances. The court may not, however, avoid its application in whole. It is worth mentioning that in arbitration, which is typically the mechanism for dispute resolution used in such complex contracts, the panel tends to be stricter in considering the pacta sunt servanda principle and the parties’ willingness to abide to the contractual terms. Therefore, reduction of penalties in arbitration procedures governed by Brazilian law tends to be rarer.

The authors point out that this concept would likely be challenged in the common law jurisdictions considered in this article, as punitive damages (ie, penalties) would be considered void because English law traditionally rejects the enforceability of remedies considered punitive in their essence, requiring damages to consist in a genuine pre-estimate of effective losses. It might, however, be thought that the very possibility of not reimbursing the interim milestone penalty in case the delay is not recovered would grant this penalty a true nature of liquidated damage – this discussion should, however, be exploited in more detail at a specific opportunity and exceeds the scope of this paper. 


The ultimate goal of the interim milestone penalty is to effectively stimulate timely completion of the project.


Owner caused delays: acts of prevention

A contractor will typically have budgeted its cost for completion according to the project’s technical specifications and the time for completion as defined by the owner. That means, for instance, that planning of resources to be allocated to the works will be made in accordance with the need of the specific project: the shorter the time for completion, the more resources (manpower and equipment) will be engaged to execute the works in order to deliver the project on time.

Hence, contractors will require protection against owner interferences constituting acts of prevention, as well as from other causes of delay whose risk has been contractually allocated to the owner. In other words, contractors will usually be considered to be entitled to an extension of time for completion in order to not incur in liquidated damages, and recovery of prolongation costs related to the period exceeding the initial completion date.

The prevention principle is an underlying concept of English law doctrine providing that ‘an employer cannot insist on holding the contractor to a completion date if it is the employer itself that has prevented the contractor completing’.7 8 It is therefore designed to protect the contractor from incurring liquidated damages for delays attributable to the employer. The consequence is that the contractor will: (1) no longer be bound to the contractual completion date, since time will be set at large and the contractor will then only be required to complete the works within a reasonable time;9 and (2) not incur liquidated damages.10

However, the consequences of the appliance of the prevention principle will not operate unless the relevant contract provides otherwise: that is, contracts, if well drafted, will provide (and most standard forms do, such as FIDIC and the Joint Contracts Tribunal (JCT) forms) that an act of prevention will entitle the contractor to an extension of time, avoiding time being set at large. If such an extension of time is then granted due to the employer’s prevention act, a new completion date will have been established and completion beyond such date will cause the contractor to incur liquidated damages.

This understanding has been endorsed in North Midland Building Limited v Cyden Homes Limited,11 and in essence provides that although the prevention principle’s application is acknowledged where the contract does not stipulate a specific time extension mechanism, it will not supersede contractual provisions agreed among the parties providing that acts of prevention will entitle the contractor to extension of time: that is, in such cases time will not be set at large. Another effect of that decision is the acknowledgement that allocating the entire risk of concurrent delays to one party it is perfectly feasible and enforceable.

It is noticeable that judgments involving delay claims by US courts tend to address the essence of the prevention principle and to apply the effects generally attributable to it, without, however, referring to that nomenclature.12 The decision rendered under Corinno Civeta Constr Corp v City of New York13 points at this direction. Corinno Civetta argued to be entitled to delay damages, as it deemed the City was responsible for the contractual delays. The ruling considered that:

‘... plaintiff cannot succeed on this claim because it was responsible for a delay of several months that prevented construction quite independently of any delay resulting from the subsurface conditions. That delay involved an application by plaintiff to change the pipe specifications. Although the contract required mechanical joint pipe, in November 1979 plaintiff attempted to substitute Tyton joint pipe without indicating to the city that the request was for a substitution of materials which differed from the contract requirements. By the time the city learned of the attempted substitution and rejected it, a strike at the plant of plaintiff’s supplier caused further delay in obtaining the joint pipe. By the time proper pipe was delivered, the city had authorized work to proceed on the subsurface conditions [emphasis author’s own].’

The US prestige of contractual language is reinforced in the judgment of Andron Construction Corp v Dormitory Authority of the State of New York (DASNY).14 In summary, where the contract prevents recovery of damages for whatever reason, the contract provision must be upheld.

The Supreme Court of Albany County faced the following issue: Andron Construction had been engaged to erect a building and requested to be compensated for the additional costs it incurred due to delays and acceleration measures taken. The contract provided for a no-damages-for-delay clause, in a manner that no damages would be recoverable whatever the reason causing the delay. Such exculpatory clauses were considered by the Supreme Court to be generally enforceable even if the owner contributed to the delay, unless: (1) the delay is due to bad faith, wilful, malicious or grossly negligent conduct; (2) the delay is uncontemplated; (3) the delay is so unreasonable that it characterises intentional abandonment; or (4) the delay results from breach of a fundamental obligation of the contract. The party seeking recovery is, then, required to evidence any such exception to the general rule.

Careful analysis of contractual risk allocation and precise contract language to reflect the parties’ true intentions is therefore essential. As the Court of Appeals had previously acknowledged, ‘the claims are claims for delay and the exculpatory clause was drafted and included in the contract to bar them.’

Article 47615 of the Brazilian Civil Code essentially provides for the principle of exceptio non adimpleti contractus and is similar, yet not identical, to the English prevention principle, and has been applied in court rulings to reject owners’ claims for damages arising from untimely completion, in case completion on time was prevented by acts of prevention perpetrated by the owner:16

‘Therefore, not having the plaintiffs previously proceeded with the rectification of the meterage of the navy’s estate before the Federal Properties Management Office, which obligation was under their responsibility, having thus contributed to the unfeasibility of the registry and regularization of the incorporated and constructed units, and the granting of the respective public deeds related to the exchange of individual units, article 476 of the Civil Code is perfectly applicable to the case’ [emphasis author’s own].

However, there are two important differences from the foregoing common law jurisdiction understandings.

First, Brazilian scholars consider the concept of prevention set forth in Article 476 to be encompassed within a wider fundamental principle of Brazilian law consisting in objective good faith,17 whereby the contractual parties are bound to the duties of mutual and loyal collaboration, acting in a stable manner and without indulging contradictory behaviour; as such, the parties would not be able to avoid its application even if the contract states otherwise.18 In this sense, Brazilian scholars consider that:

‘As a limit to the exercise of subjective rights, objective good faith reveals itself when the exercise of such rights characterises a conduct that is incompatible with instrumental duties, notably those of loyalty and cooperation. This results in the impossibility of contract termination in case of substantial performance; in the possibility of paralysing a defaulting party’s legal action filed as plaintiff by means of exception to breach of contract (exceptio non adimpleti contractus); and in the argument of tu quoque and venire contra factum proprium etc’ [authors’ translation].19

Second, from a Brazilian perspective, it would be likely to expect that a contractor would be granted the right to the extension of time only proportionally to the impact caused by the owner’s act of prevention, since the duties of perpetrating loyal and collaborative demeanour would not relieve the contractor from the impacts it has caused. 

Concurrent delay

Although an issue often faced in pre-litigation and in court, even the concept of concurrent delay seems to be not entirely clear as there is still no unanimously accepted definition. Notwithstanding, many construction contracts do not address situations of concurrent delay in an adequate manner, or at all. As a result, it is also unclear how to deal with concurrent causes of delay.

The renowned English commentator and practitioner John Marrin QC20 has offered a narrow but nonetheless precise description of what he considers are situations of concurrency of delays, which is often referred to by English courts:21 a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency’ [emphasis author’s own].

The Society of Construction Law deems concurrent delays to consist in:

‘… the occurrence of two or more delay events at the same time, one an Employer Risk Event, the other a Contractor Risk Event, and the effects of which are felt at the same time. For concurrent delay to exist, each of the Employer Risk Event and the Contractor Risk Event must be an effective cause of Delay to Completion (i.e. the delays must both affect the critical path)’ [emphasis author’s own].22

The attempts to define concurrent delays as per the aforementioned proposals seem to converge, but there is a major difference regarding the timeline of events. The Society of Construction Law suggests that events must happen ‘at the same time’ in order to configure concurrency. The Society of Construction Law’s view on the matter has been endorsed in Royal Brompton Hospital v Hammond and others,23 where it was ruled as follows:

‘However, it is, I think, necessary to be clear what one means by events operating concurrently. It does not mean, in my judgment, a situation in which, work already being delayed, let it be supposed, because the contractor has had difficulty in obtaining sufficient labour, an event occurs which is a relevant event and which, had the contractor not been delayed, would have caused him to be delayed, but which in fact, by reason of the existing delay, made no difference. In such a situation although there is a relevant event, ‘the completion of the Works is [not] likely to be delayed thereby beyond the Completion Date… This situation obviously needs to be distinguished from a situation in which, as it were, the Works are proceeding in a regular fashion and on programme, when two things happen, either of which, had it happened on its own, would have caused delay, and one is a relevant event, while the other is not. In such circumstances there is a real concurrency of causes of delay’ [emphasis author’s own].

The coincidence of two delaying events at the same time has been named ‘true concurrency’ and is deemed to be unlikely to happen from a technical perspective.24 John Marrin QC, on the other hand, offers an approach more likely to reflect reality in the authors’ view: it refers to a scenario in which each of the employer and contractor delays may happen at different moments in time, but do overlap during a certain period.

Different jurisdictions have developed distinctive approaches when conceptualising and defining remedies to concurrent delay. In view of the foregoing, the present topic will outline some of the distinctions and similarities found in the positions adopted by the UK, US and Brazilian jurisdictions over the matter.


Many construction contracts do not address situations of concurrent delay in an adequate manner, or at all.


Approaching concurrency of delays

Further to providing the definition indicated in the preceding topic, the Society of Construction Law Delay and Disruption Protocol also aims at proposing a solution on how to handle a scenario of concurrently operating delays: ‘Where Contractor Delay to Completion occurs or has an effect concurrently with Employer Delay to Completion, the Contractor’s concurrent delay should not reduce any EOT due.’25

The Society of Construction Law hence considers that a contractor shall be entitled to an extension of time in case both contractor and owner have contributed to the same delay, since, notwithstanding its own risk event, it would be entitled to an extension of time due the delaying event under the owner’s risk. It must be noted that although the protocol does not clearly address whether or not the contractor in such case would also be entitled to prolongation costs, it offers a perspective not often considered or misconceived by the construction industry, which is the absence of an ‘absolute linkage between entitlement to an EOT and the entitlement to compensation for the additional time spent on completing the contract’.26

However, since the contractor would incur in such additional costs in any case due to its own delay, and given that the owner will not be able to recover liquidated damages under the Society of Construction Law’s approach and will potentially incur in damages under offtake agreements (therefore undertaking the risk of time), it does seem fair in the authors’ views to allocate the money risk on the contractor.

Malmaison approach

The Society of Construction Law’s approach was followed under the Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd27 case, and has been since endorsed in subsequent rulings under English law, such as in Steria v Sigma Wireless Communications Ltd,28 having become known as the ‘Malmaison approach’.

In that emblematic case related to concurrent delay, the English court granted an extension of time to the contractor for the same duration as the delay caused by the owner (considered to be a ‘relevant event’), despite the concurrent effect of the delay for which the contractor had undertaken responsibility for: 

‘[..] it is agreed that if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. Thus, to take a simple example, if no work is possible on a site for a week not only because of exceptionally inclement weather (a relevant event), but also because the contractor has a shortage of labour (not a relevant event) and if the failure to work during that week is likely to delay the works beyond the completion date by one week, then if he considers it fair and reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour’ [emphasis author’s own].

Although the contractor will be granted a full extension of time under the Malmaison approach, it will not be entitled to prolongation costs. This is due to the ‘but-for test’, which is relaxed in relation to the time claim, but not the money claim. As Marrin explains,29 ‘in a case of concurrent delay (as defined) the contractor is never in a position to show that he would have completed on time but-for the event relied upon’. Accordingly, it will not be possible to show the causation between time and costs.

Dominant cause approach

The dominant cause approach’s underlying logic suggests that the decision-maker, whether under the relevant contract, a judge or an arbitrator, should identify under the factual scenario which of the concurrently operating events is dominantly responsible for the delay: if an owner risk event, then the contractor would be entitled to an extension of time in accordance with the period of delay caused by the dominant event under the owner’s responsibility. By contrast, a contractor would not be entitled to relief in case the dominant event is under its responsibility. Sir Anthony May stated that:

‘If there are two causes, one the contractual responsibility of the Defendant and the other the contractual responsibility of the Plaintiff, the Plaintiff succeeds if he establishes that the cause for which the Defendant is responsible is the effective, dominant cause. Which cause is dominant is a question of fact, which is not solved by the mere point of order in time, but is to be decided by applying common sense standards’ [emphasis author’s own].30

However, the application of such approach was rejected in H Fairweather & Co Ltd v London Borough of Wandsworth,31 where it was ruled that the relevant decision maker (in that case, the architect) ‘has the task of allocating where the facts require it the extension of time to the various heads. I do not consider that the dominant test is correct’.

As the dominant cause approach implies that there is a set of different events leading to a delay, John Marrin QC pointed out well that ‘there will be cases in which the contractor’s claim for prolongation costs will be met by the employer’s cross claim for liquidated damages in circumstances where, logically, both cannot succeed’.32 The approach does not offer any solution if no dominant cause can be found33 and, further, might conflict with the prevention principle.34


The Plaintiff succeeds if he establishes that the cause for which the Defendant is responsible is the effective, dominant cause. Which cause is dominant is a question of fact...


US approach: time but not money

A compiled description of the ‘time but no money’ approach commonly adopted in the US will provide that where there is an excusable or compensable delay (ie, an owner risk event) operating concurrently with an inexcusable or non-compensable delay (ie, a contractor risk event), then neither party shall be entitled to financial compensation, but the contractor would be granted relief in time. It is therefore thought that this concept has at least some similarities with the proposition made by the Society of Construction Law, in the sense that not all provisions granting time relief will imply in financial compensation, and seems aligned with the aforementioned Malmaison approach.

According to the Global Arbitration Review, in the US, concurrent delay is generally deemed ‘to be excusable but non-compensable… meaning that the contractor is entitled to an extension of time for the full period (thereby extinguishing the employer’s entitlement to liquidated damages), but is not entitled to prolongation costs’.35

Such understanding was endorsed in the judgment of Commerce International, Inc v the United States,36 where the court considered that in a case of concurrent delay the owner could not recover liquidated damages and, on its turn, the contractor would not be entitled to additional costs incurred due to the delay period. It was ruled that ‘we must apply the rule that there can be no recovery where the defendant’s delay is concurrent or intertwined with other delays’. 

Apportionment

Apportionment can be summarised in this way: an allocation among the owner and the contractor of time and money effects arising from the delay caused by concurrently delaying events, according to the causative potency of each of such delaying events.

The Malmaison approach has long prevailed over the apportionment mechanism, which in the UK has not been well received. Notwithstanding, a notable ruling involving the apportionment approach can be found in City Inn Ltd v Shepherd Construction Ltd,37 where the Malmaison approach was effectively challenged and the courts of Scotland held that when not possible to determine the dominant cause of the delay, the time and money effects should be apportioned among the parties in a fair and reasonable manner.

In the US, on the other hand, apportionment appears to have gained better reception.38 In Toombs v United States,39 it was held that: ‘When it is reasonably possible to apportion the delay among the various causes, liquidated damages may be assessed notwithstanding concurrent causes attributable to both parties’.

The same approach was adopted in the judgment of Coath & Gross Inc v United States: ‘Where both parties contribute to the delay, neither can recover damage[s], unless there is proof of a clear apportionment of the delay and expense attributable to each party’.40

Therefore, when apportioning delays, US courts have considered that the recovery of damages is feasible when the proportion of responsibility attributable to each party involved is possible to be identified.

In Brazil, Article 945 of the Civil Code41 may be analogically applied in case of concurrent delay, which provides that the compensation of the aggrieved party will be calculated according to the parties’ degree of culpability, except if the contract has a provision otherwise. In this sense, time and cost reliefs shall be granted in a manner proportional to the degree the owner and contractor contributed to the delay. Essentially, this approach is comparable to apportionment, with the exception that for one party to be held responsible for a delay, it is required that such party’s fault contributed to the delaying event – other jurisdictions may require only contractual responsibility not necessarily linked to fault. It is worth mentioning that Brazilian judges are granted major discretion in the apportioning exercise.

It is important to note that in cases involving breach of contract it is not necessary to evidence the breaching party’s fault, as it is presumed. Scholars wrote that: ‘A relevant aspect when fixing compensation is concurrent or reciprocal fault… if found that both players acted with fault, compensation occurs. It consists on the ascription of fault to the victim that also concurs to the event. Therefore, if the degree of culpability is identical, responsibilities shall be apportioned equally. That is why it is preferable to name it as concurrency of responsibilities or of causes. It is possible that one’s fault [for the occurrence of the event] exceeds the others: in such a case, apportionment shall be proportional. Thus, one agent may respond for two-thirds and another for one-third of the compensation. The code in force is an express provision in this respect, enshrining the case law of many decades [authors’ translation].’42

The Brazilian courts’ benchmark when ruling cases involving delay in construction contracts is to assess the degree of each party’s fault and then their entitlement to compensation. In the judgment of a case that involved alleged breaches of a contract for the construction of a municipal school, the reporting justice held that:

‘I consider, therefore, that the contractual obligations of both parties involved were violated, thus, fault for the breach is joint and reciprocal. It is important to clarify that in cases involving breach of a contractual clause, proof of fault is not necessary since it is presumed… Having recognized that both parties breached the contract, and, therefore, existing the presumption of reciprocal fault, it remains to consider the limits of the ancillary indemnity obligation arising from the breach of the original contractual obligation’ [authors’ translation].43

The same approach was adopted by another state court dealing with a construction dispute, although not specifically related to delays, as follows:

‘In the case, both parties, defendant and plaintiff, impute to the other party the responsibility for having terminated the legal transaction and for the collapse of the precast structures. It is undisputed that both parties shall be held responsible for the entanglement – concurrent fault, not being feasible to consider the plaintiff’s sole fault… Therefore, with the parties’ reciprocal fault over the event, both shall undertake the expenses incurred in reason of the contract’s termination, as set forth in the Civil Code’ [authors’ translation].44

Looking at concurrency of fault from a broader spectrum (ie, not linked to delays), the Brazilian Superior Court of Justice on 3 April 2007 ruled that both the engineer and the contractor engaged (in separated contracts) to erect a building were responsible for its collapsing, being both liable for the resulting damages, which were apportioned.45 Such approach reinforces the discretion of state courts when facing legal actions involving concurrency of fault, and also denotes that interactions between different players within the same project are likely to contribute to the creation of hurdles to a project’s successful execution.

Conclusion

During the performance of any given construction contract of complex nature, such as EPC contracts, project delays are likely to occur – they are unavoidable. The inherent complexity will in many cases lead to interactions between the contractor and the owner, and both parties may cause delays to happen. In this paper, the authors proposed to present the approaches adopted by Brazil, the UK and the US at a glance, so as to point out some similarities and differences.

The many approaches outlined do not represent an attempt to exhaust the issue – there are still others, since many jurisdictions have not been dealt with in this paper – but rather to present the lack of clarity on concepts and approaches that decision-makers and scholars have not yet been able to solve, and will continue to face. There are some prevailing approaches, however: in both the UK and US, present views sustain that in a case of concurrent delay, the contractor would be entitled to time, but not money (Malmaison approach, time-but-no-money approach); in Brazil, due to Article 945 of the Civil Code, both time and money effects will be apportioned. It is, therefore, expected that discussions on delays in general and concurrent delays will still persist for a long time. The need for proper drafting and use of precise wording when contractually allocating risks of delay is evident – but that is not always done. In this sense, as an important landmark, the 2017 FIDIC Red, Yellow and Silver Books now specifically address the issue of concurrency, which is welcomed.46

Also, case law47 clearly demonstrates the prestige of contract language in the UK and US, respectively, where the contract is upheld against general principles of laws – such as the prevention principle. However, the same cannot be verified in Brazil, where acts of prevention might mandatorily excuse the contractor from its delays due to the public interest inherent to the principle of objective good faith, which unfolding reveals the exceptio non adimpleti contractus.48

In any case, balanced allocation of risks and precise contract wording is of the greatest importance for a project to succeed – on time.

 

Notes

1 Fábio Coutinho de Alcântara Gil, A Onerosidade Excessiva em Contratos de Engineering, 146 f PhD, thesis (doctor of jurisprudence candidate), Law School, Universidade de São Paulo (2007), p 33.

2 ‘Schedules are highly interrelated because building construction needs to proceed sequentially – a delay on the part of one subcontractor or supplier can have domino effect through the project’: Patrick Bajari and Steven Tadelis,  Incentives versus transaction costs: a theory of procurement contracts, p 389. apud. Lie Uema do Carmo, Contratos de Construção de Grandes Obras 279 f PhD thesis (doctor of jurisprudence candidate), Law School, Universidade de São Paulo (2012), p 242.

3 Depending on the industry sector, a full back-to-back provision might cause the contractor to include huge contingencies to its pricing that would cause the project’s economics to be commercially unfeasible from owner’s perspective.

4 Brazilian Civil Code, Art 411:’ When a penalty clause is stipulated for delayed performance, or as special security for another certain clause, the creditor may, at his discretion, demand satisfaction of the penalty imposed, together with performance of the primary obligation’ [author’s translation].

5 Thiago Moreira, Caio Gabra, ‘Penalty Clauses under Brazilian Law: Is there a common ground with the criteria set forth by Cavendish Square v Makdessi?’ Construction law International (December 2017), Vol 12, Iss 4, p 39.

6 Ibid, p 42

7 Ian Yule, ‘It ain’t put your feet up time’, 15 February 2018 www.building.co.uk/communities/it-aint-put-your-feet-up-time/5092107.article accessed 26 June 2019.

8 Or, in Mr Justice Fraser’s words, in North Midland Building Limited v Cyden Homes Ltd (‘Cyden’)[2017] EWHC 2414 (TCC): ‘Essentially the prevention principle is something that arises where something occurs, for which it is said the employer is responsible, that prevents the contractor from complying with his obligations, usually the obligation to complete the works by the completion date.’

9 In Mr Justice Fraser’s words, in Cyden: ‘The concept of “time at largeW does not mean that the contractor has an indefinite time to complete the works. If the completion date in the contract, and the mechanism for having that extended by means of awarding so many weeks to an originally agreed completion date, are inoperable or for some other reason no longer applicable, in general terms the contractor’s obligation becomes one to complete the works within a reasonable time. That is what the shorthand expression ‘time at large’ is usually understood to mean.’

10 Holme v Guppy (1838) 3 M&W 387: ‘… if the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default… It is clear, therefore, that the plaintiffs were excused from performing the agreement contained in the original contract… The plaintiffs were therefore left at large; and consequently they are not forfeit anything for the delay.’

11 Cyden.

12 John Livengood, Comparison of English and U.S. Law on Concurrent Delay (2014), pp 3, 5.

13 Corinno Civeta Constr Corp v City of New York 67 NY 2d 297, 493 NE 2d 905, 502 NYS 2d 681.

14 Andron Constr Corp v Dormitory Auth of State (‘Andron’), 38 NYS 3d 830 (NY Sup Ct 2016).

15 Brazilian Civil Code, Art 476: ‘In bilateral contracts, neither of the contracting party may require fulfillment of the other party’s obligation prior to having complied with its own’ [authors’ translation].

16 Court of Justice of the State of Santa Catarina, Civil Appeal No 00042419120138240139 Porto Belo 0004241-91.2013.8.24.0139, 4th Chamber of Civil Law, Reporting Justice Joel Figueira Júnior, judgment date 27 June 2019.

17 Silvio de Salvo Venosa, Código Civil: Teoria Geral das Obrigações e Teoria Geral dos Contratos (14th ed) Vol 2 (São Paulo: Editora Atlas SA, 2014), p 433.

18 Brazilian Superior Court of Justice. Interlocutory Appeal in the Special Appeal No 833224/DF, Reporting Justice Maria Isabel Galotti, judgment date 23 April 2018.

19 Paulo Sérgio Velten Pereira, ‘A Exceção do Contrato Não Cumprido Fundada na Violação de Dever Lateral nos Compromissos de Compra e Venda de Bens Imóveis’ in Alexandre Guerra, Marcelo Benacchio, Direito Imobiliário Brasileiro (São Paulo: Editora Quartier Latin do Brasil 2011), p 552.

20 John Marrin QC, ‘Concurrent Delay Revisited’, Society of Construction Law paper 179, 2013.

21 Eg, as ruled in Cyden and in Saga Cruises BDF Limited, Saga Cruises Limited v Fincantieri SPA [2016] EWHC 1875 (Comm).

22 Society of Construction Law Delay and Disruption Protocol (2nd edn, 2017), p 6 www.scl.org.uk/resources/delay-disruption-protocol accessed 24 July 2019.

23 Royal Brompton Hospital NHS Trust v Hammond and others [2002] UKHL 14.

24 Stephen Furst and Vivian Ramsey, Keating on Construction Contracts (10th ed, Sweet & Maxwell, 2016), [8-025] apud. Robert Gemmell and Matthew Caswell, Conquering Concurrency, Part 1: What is concurrent delay? (2018), p 2.

25 See n 22 above.

26 Ibid, pp 37–38.

27 Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32.

28 Steria v Sigma Wireless Communications Ltd [2007] EWHC 3454 (TCC): ‘Furthermore, the rationale suggested by the editors of Keating appears to me, with respect, to be compelling, and to apply as much to this case as it does to the particular clause in the Henry Boot case and indeed to extension of time clauses generally. Accordingly, I propose to adopt that approach as correctly representing the proper approach to extensions of time under clause 6.1 of the sub-contract.’

29 See n 20 above, p 16.

30 Keating (5th edn, Sweet & Maxwell 1991), p 195.

31 H Fairweather & Co Ltd v London Borough of Wandsworth (1987) 39 BLR 106 (OR).

32 See n 20 above, p 13.

33 Ibid, p 14.

34 Ibid.

35 Erin Miller Rankin, Kim Rosenberg, Sarah-Jane Fick, ‘Comparative Approaches to Concurrent Delay’ in The Guide to Construction Arbitration (2nd edn Global Arbitration Review) https://globalarbitrationreview.com/chapter/1175332/comparative-approaches-to-concurrent-delay accessed 28 August 2019.

36 Commerce International, Inc v United States 338 F.2d 81 (Ct Cl 1964).

37 City Inn Ltd v Shepherd Construction Ltd [2010] BLR 473, [2010] CILL 2889, InnerHouse, Ct of Session.

38 Richard J Long, ‘Analysis of Concurrent Delay on Construction Claims’ www.long-intl.com/articles/Long_Intl_Analysis_of_Concurrent_Delay_on_Construction_Claims.pdf accessed 5 July 2019.

39 Toombs v United States 4 Cl Ct 535 (1984).

40 Coath & Gross Inc v United States 101 Ct. C1.702, 714–715 (1944).

41 Brazilian Civil Code, Art 945: ‘If the victim contributed to the damaging event due to its fault, the degree of fault in comparison with that of the person causing the damage shall be taken into account when fixing the indemnification’ [authors’ translation].

42 Silvio de Salvo Venosa, Código Civil Interpretado (2010 São Paulo: Editora Atlas SA), pp 897–898.

43 Court of Justice of the State of Minas Gerais, Appeal No 0005568-55.2012.8.13.0481, 7th Civil Law Chamber, Reporting Justice Alice Birchal, judgment date 28 March 2017.

44 Court of Justice of the State of Goiás, Interlocutory Appeal to the Civil Appeal No 0580212-88.2008.8.09.0051, 2nd Civil Chamber, Reporting Justice Carlos Alberto Franca, judgment date 7 July 2016.

45 Brazilian Superior Court of Justice, Special Appeal No 650603/MG, Reporting Justice Nancy Andrighi, judgment date 3 April 2007.

46 Clause 8.5 (Extension of Time) in the 2017 FIDIC Red, Yellow and Silver standard forms.

47 Such as Cyden and Andron.

48 Ie, ‘exception to breach of contract’ [authors’ translation].

 

Alexandre Arlota is a senior associate at Mattos Filho Advogados. He can be contacted at alexandre.arlota@mattosfilho.com.br.

Marc-Henrik Werner is an associate at Mattos Filho Advogados. He can be contacted at marc.werner@mattosfilho.com.br.

 

Back to top