Extensions of time in construction projects: prospective or retrospective delay analysis?

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White & Case LLPContractors' extension of time (EOT) entitlements and associated financial rights are always to be assessed pursuant to the applicable contract mechanism. A recurring question is whether EOT entitlements are to be determined prospectively, or with the benefit of hindsight. Two recent Australian cases highlight the conflicting positions which may arise.

Prospective vs. retrospective delay analysis – why does it matter?

The method of delay analysis used for an EOT claim may be significant, because different results may ensue. For example, if varied work is instructed to a contractor which will clearly cause delay:

  • Using a prospective analysis with computer-based CPM modelling and Time-Impact Analysis, the contractor may predict that the variation will cause 30 days of critical delay, and therefore a 30 day EOT will be claimed; however
  • Looking at the delay retrospectively, once its impact has been felt in full, it may turn out that the contractor was only delayed by 20 days, as it was able to re-sequence certain activities and otherwise mitigate the possible delay.

Is the contractor entitled to a 20 day or a 30 day EOT? The difference can be significant, particularly if it means the difference between having to pay, and not having to pay, liquidated damages for delay.

The issue becomes more complicated and nuanced when it arises in an after-the-event forum, such as adjudication, arbitration or in court, when the effect of events is known. The argument then becomes: why consider a prediction of a period of delay when we know how long the works were actually delayed?

Case 1: Built Qld Pty Ltd v Pro-Invest Hospitality Opportunity (ST) Pty Ltd [2021] QSC 224

The dispute arose out of a contract between the contractor, Built, and the employer, Pro-Invest, for the design and construction of a hotel in Spring Hill (the "Contract"). In considering Built's claim for an EOT, the Supreme Court of Queensland was required to consider the appropriateness of the different methodologies adopted by the parties.

Clause 34.3 of the Contract provided that:

"The Contractor shall be entitled to such EOT for carrying out WUC (including reaching practical completion) as the Superintendent assesses, if:

(a)     the Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay." (emphasis added)

Built argued that the use of the words, "is or will be delayed", refers to current or ongoing delay that required prospective analysis. It further relied upon clause 34.5 of the contract, which provided that the contract administrator was to assess the contractor's EOT claim within 14 days of receipt; otherwise there would be a deemed assessment of the EOT claimed. On the basis that EOT claims were required to be made within 14 days of the contractor reasonably becoming aware of a qualifying delay, Built submitted that any delay longer than 28 days therefore required a prospective analysis, because there would be a future element to the EOT claim.

Pro-Invest submitted that it was open to the court to use either methodology, but that a retrospective methodology should be preferred. It further argued that the "current exercise", i.e. determining Built's EOT entitlement in court proceedings well after the expiration of both the alleged delay event and practical completion, was "totally different" from the exercise contemplated by Clause 34.5. On this basis, Pro-Invest submitted that Clause 34.5 cannot operate to place the Court in the "shoes of the superintendent at the time of assessment" to now determine the EOT.

The Court agreed with Pro-Invest, holding that the Contract permitted the use of either a prospective or a retrospective methodology to determine an extension of time.

Case 2: John Holland Pty Ltd v The Minister for Works [2021] WASC 312

In a dispute over the design and delivery of a new hospital in Perth, John Holland, the contractor, argued that its entitlement to an EOT should be considered prospectively. The State submitted that the "particulars of the appropriate methodology or methodologies … [would be determined] by way of exchange [of] expert evidence", but fell short of specifying whether prospective or retrospective analysis would be undertaken.

The Supreme Court of Western Australia concluded that the correct methodology is "dictated by and depends on the proper construction of the Contract", and is not a matter for expert evidence. Accordingly, the court held that the State was required to plead its position as to whether the Contract requires a prospective analysis, a retrospective analysis or combination of the two. It considered that the State's failure to do so would pose a "real risk" to John Holland's preparation for trial.

However, the court drew the line at requiring the State to provide particulars as to the methodology by which the extension is to be assessed: the methodology to be employed was considered to be properly an area for expert evidence.

Commercial Implications

Both of these Australian cases indicate that:

  • The law is not prescriptive as to the method of delay analysis used in making and reviewing an EOT claim (i.e. prospective, retrospective, or a combination of the two). The contract terms are paramount.
  • Expert evidence on delay cannot be used to interpret, let alone override, the EOT provisions of a contract.

There is some variation between the approaches taken by construction contracts to EOT issues:

  • Under the NEC form, the philosophy is for EOT claims to be made and addressed at the time, based upon known information and predictions as to the impact of events, and without later revising the EOT assessment based on the actual delay suffered. This suggests that a purely prospective approach should be taken, not only during the project, but in adjudication, arbitration or court. However, there is authority from Northern Ireland indicating that later-acquired information can be relied upon (i.e. a retrospective analysis could be used).1
  • The JCT form takes a two-stage, hybrid approach under which an EOT is to be claimed and assessed based on actual and expected delay to completion, however at the end of the project the Contract Administrator may review its EOT assessments and increase them if it believes more time was fairly due to the contractor based on the events subsequently occurring on the project.
  • The FIDIC form also takes a hybrid approach, in that it requires the Engineer to grant an EOT for particular causes if completion "is or will be delayed" – suggesting that a prognostication of delay may be needed. But the EOT clause also permits the Engineer to review previous EOT assessments and to increase them, if appropriate, which contemplates the use of a retrospective analysis.

Where the tension between a prospective delay analysis and a retrospective delay analysis becomes acute, is in after-the-event dispute-resolution forums, such as adjudication, arbitration or in court. A tribunal may, for illustrative purposes, find it artificial to conclude that a contractor was due a 30 day EOT (based on a prospective delay analysis) when it was actually delayed by only 20 days. Yet there may be circumstances in which such a conclusion is justified, i.e. where the contract calls for EOTs to be assessed on a prospective basis, and there is evidence of the contractor mitigating the delay, or even accelerating its works. Ultimately, the issue is contract and fact sensitive.

1 Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited [2017] NIQB 43.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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