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The Issue of Delay in Construction Contracts

Contents hide

1 Introduction

2 Does delay make a construction contract voidable?

2.1 Construction contracts

2.2 Construction Contracts

2.3 Two conditions need to be satisfy:

3 Does delay give rise to the right to claim compensation?

3.1 Section 73

4 Effect of Extension of Time

5 Conclusion

6 Reference

6.1 Related

Introduction

Construction Contracts- Every contract is a set of reciprocal promises. Most often at one end of these is the obligation on one of the parties to do or get done a certain thing on a specified date or in a specified time period. Failure to adhere to the prescribed time may or

may not be fatal to the entire contract depending on whether the time is of the essence in the contract. Construction contracts being extremely dynamic in nature and dependent on several unforeseeable and

unpredictable circumstances, delay in completing the works is not unusual. However, disputes arising from such delays are also not scarce. The issue of delay in construction contracts has time and

again come before our courts of law, giving rise to varied legal positions.

Does delay make a construction contract voidable?

Section 55 of the Indian Contract Act, 1872 says that When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or

so much of it as has not been perform, becomes voidable

at the option of the promisee, provide the intention of the parties was that time should be of the essence of the contract. Thus the question, in the context of construction contracts, narrows down to whether

the time is generally intend by the parties to be of the essence.

Construction contracts

Most construction contracts will have an agreed-upon date of completion or handover. However, it’s been rule by the courts in a number of cases that this is not by itself imply that time is of the essence in the contract. It was held in Bangalore Development Authority Vs. Syndicate Bank^[1] by the Hon’ble Supreme Court that in a contract involving construction, time is not the essence of the contract but the same was qualified by the words “unless specified”. This was quote with approval by the Punjab State Consumer Disputes Commission in the case of Karam Jeet Singh vs

Emaar Mgf Land Private Limited.^[2]

Even in cases where there was an express stipulation to the effect that time is of the essence, courts have held

that delays may not give rise to voidability of the contract. A general proposition as to this effect was laid down by the Supreme Court in the case of Hind Construction Contractors vs The State Of Maharashtra^{^[1]}.

Construction Contracts

The court while quoting Halsbury’s Laws of England in regard to building and engineering contracts held that

“even where the parties have expressly provided that time of the essence of the contract. Such a stipulation will have to be read along with other provisions of the contract and

such other provisions may, on the construction of the contract; exclude the inference that the completion of the work by a particular date was intend to be fundamental; for instance, if the contract were to include a clause providing for the extension of time in certain contingencies or for payment of fine or

penalty for every day or week the work is undertaken remains unfinish on the expiry of the time provide in the contract

such clause would be construe as rendering ineffective the express provision relating to the time being of the essence of the contract.”

Thus to render a construction contract voidable on account of the delay,

Two conditions need to be satisfy:

i) There must be an express stipulation to the effect that time is of the essence in the contract.

ii) Other contractual provisions, as well as the conduct of the parties, should reflect their intention to make time be of the essence.

Does delay give rise to the right to claim compensation?

Every contract is to be perform on or within the time prescribed. If no time has been prescribed, performance has to be done in a reasonable time^[2]. Therefore, delays in performance always have legal consequences. S.55 of the Contract Act further says that if from the intention of the parties it is clear that time is not of the essence of the contract, the party affected

by the delay is only entitle to compensation for any loss occurring to him

as a result of the delay. Therefore, even in construction contracts where time is not intend to be of the essence, delays are not always excusable.

Section 73

Section 73 of the Contract Act provides that the party who suffers from the breach is entitle to compensation for any loss or

damage caused to him thereby. The right to compensation as well as its quantum will however depend on who is at fault for the delay. In the case where the contractor fails to complete the work on time owing to faults on his part

the employer is entitle to claim damages and vice-versa.

Damages or compensation is payable only for losses which naturally arose in the usual course of things from such breach, or

which the parties knew, when they make the contract, to be likely to result from the breach of it and not for indirect or remote losses.^[1] Claims on account of the mere breach without any damage or actual loss due to the delay are not sustainable.^[2]

In addition to this, the affect party may, according to the terms of the contract, be also be entitle to claim as part of the contract price ‘other costs’ from the party at fault, such as claims for loss of profit on account of the delay, additional charges incurred due to change in market conditions and prices, overhead charges on machinery, etc

provided they stand the test of proximity laid down under Section 73. The costs are payable only to the extent that the same have some nexus with the nature of

the delay caused which attracts the costs and

the amount claimed falls within the definition of the expression costs and not otherwise.^[1]

Effect of Extension of Time

Any extension of time granted in construction contracts leads to a strong inference that time is not the essence of the contract. In cases of contracts becoming voidable on account of delay but the affected party choosing

to go ahead with the contract by granting an extension of time, he cannot claim compensation on account of the delay unless, at

the time of granting the extension, he expressly

declares his intention to make such a claim.^[2]

Clauses in the construction contract prohibiting parties from claiming rightful damages on account of delays after having received an extension of time have time and again been regarded as having no effect on the power of a judicial or arbitral authority to award damages^[3] In Simplex Concrete Piles v. Union of India,^[4] the Delhi High Court also interpreted such clauses to be struck by Section 23 of the Indian Contract Act and hence void ab initio.

Conclusion

Disputes on account of delays constitute a major portion of the disputes emanating from construction contracts. While most of these are settle on the basis of the terms of the contract between the parties, general principles relating to contracts and

damages form the basis on which the contractual provisions are interpret. The judiciary has played a proactive role in laying down propositions on how contractual remedies or

consequences vary according to the nature of the delays.