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Chapter
LIQUIDATED DAMAGES AND EXTENSIONS OF TIME
EXTENSION OF TIME CLAUSES
14.18 In order to enable the employer to perpetrate acts of prevention yet still maintain a fixed completion date and with it an
entitlement to deduct liquidated damages, the employer may extend time for completion for specified events for which the employer
would otherwise be liable. Accordingly, the inclusion in a well-drafted contract of an extension of time clause is important in order to
protect the employer's entitlement to levy liquidated damages, since in most cases the contractor can argue that some part of the delay
is attributable to matters for which the employer is contractually responsible.
14.19 The terms of such clauses vary, but all have in common the intent of making the liquidated damages regime workable.
1
A
number of problems arise on a recurrent basis.
14.20 Typically the extension of time clause will place the power to grant an extension of time in the hands of a supervising officer,
usually the architect or the engineer named in the contract. In this form of contract the contract specifies a representative of the
employer (for example the architect in the JCT Standard Form of Building Contract or the engineer in the ICE Standard Conditions of
Contract) who is to grant extensions of time. It was held that under a predecessor of the current JCT Form of Contract in granting an
extension of time the architect acted quasi-arbitrally, and had a duty to act fairly, lawfully, rationally and logically.
2
Under clause 2(8)
of the ICE Conditions the engineer is required to act impartially. In a case concerning the role of a construction manager, Jackson J
held that the construction manager had a duty to act in a manner that was independent, impartial, fair and honest.
3
Such a duty is
probably also imposed upon the project manager under the NEC forms of contract.
4
14.21 Each extension of time clause falls to be construed on its own terms: such clauses may be construed as only empowering the
grant of an extension of time before completion of the project in accordance with the original contract date or an extended completion
date which had been fixed previously.
5
However most standard form contracts will permit an extension of time to be granted
retrospectively.
6
Commenting upon an argument that the true construction of the then current JCT Standard Form of Contract did not
permit an architect to grant an extension of time retrospectively, Colman J said:
7
It was common ground that if the contract failed to provide for power to grant an extension of time on account of delays caused by
an act of prevention, the effect of the act of prevention was to prevent the employer relying on the completion date/liquidated
damages provisions in the contract. The obligation to complete the works was to be performed within a reasonable time, there could
be no extensions on account of relevant events and the employer's only hope of compensation would be to recover unliquidated
damages for delay: see Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd The remarkable consequences of the
application of this principle could therefore be that if, as in the present case, the contractor fell well behind the clock and overshot the
completion date and was unlikely to achieve practical completion until far into the future, if the architect then gave an instruction for
the most trivial variation, representing perhaps only a day's extra work, the employer would thereby lose all right to liquidated
damages for the entire delay right up to practical completion or, at best, on the respondents' submission, the employer's right to
liquidated damages would be confined to the period up to the act of prevention. For the rest of the delay he would have to establish
unliquidated damages. What might be a trivial variation instruction would on this argument destroy the whole liquidated damages
regime for all subsequent purposes.
8
So extreme a consequence for the future operation of the contract would hardly reflect the common intention, particularly having
regard to the very specific distribution of risk provisions which are agreed to be applicable in respect of relevant events occurring
before the completion date. It is certainly a construction which is most improbable in the absence of some other express provision
supporting it.
14.22 Another argument which recurs was also considered by Colman J in the Balfour Beatty case
9
(and touched upon in the passage
just cited). The question was, assuming that a variation was granted late in a contract when the contractor was already much delayed,
how was an extension of time to be calculated? To give an example, assume that a contract required completion by 1 April, the
contractor having been given possession on 1 January. Thus the contract period was three calendar months, but the contractor was
dilatory so that as at 31 May the works were only nearing completion, but completion would be achieved the following day, 1June,
two calendar months late. If on 31 May the employer issued an instruction with the effect that the works could not be completed until
1 July, what extension should be granted? The court had to decide between two rival approaches: (1) what was described as the
gross method said that as the contractor would not be able to complete before 1 July he was entitled to an extension of time to that
date, effectively a three-month extension wiping out the contractor's liability to liquidated damages arising from the contractor's
earlier delays; and (2) what was described as the net method would grant him an extension of one month, that being the additional
delay caused by the employer's exercise of his right to issue a variation. The judge held that the net method was the correct method on
the terms of the contract before him. The effect of this decision was summarised by Dyson J as follows:
10
[T]he completion date as adjusted was not the date by which the contractor ought to have achieved practical completion, but the end
of the total number of working days starting from the date of possession within which the contractor ought fairly and reasonably to
have completed the works.
REMEDIES IN CONSTRUCTION LAW - 1st edition 2010
LIQUIDATED DAMAGES AND EXTENSIONS OF TIME
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14.23 In a perfect world when a delaying event occurs entitling the contractor to an extension of time, the engineer, architect or other
person having the power and duty to extend time would be able to do so and would do so straight away. However in the real world
extensions of time are often not given straight away for a number of reasons it may be that the contractor is late in giving
notification of delay, or gives inadequate information. It may simply be impossible to assess the full consequences of a delaying
event; for example, will it take two weeks or two months to deal with unforeseen ground conditions? In other cases the contractor and
the employer's representative may take different views as to whether the event causing delay is one for which the employer or one for
which the contractor takes the risk.
14.24 This can create a problem for the contractor. Delay on a major project carries the risk of the contractor incurring liquidated
damages, possibly wiping out any profit on the project. If the contractor believes that he is entitled to an extension of time, and has
the courage to stick by his judgment, he can just continue as before in the belief that in due course his view will be vindicated. But if
he is wrong, then he may not obtain an extension of time and may by his inaction be liable for liquidated damages. On the other hand
the contractor might be able to take steps to mitigate the delay, for example by persuading his workforce to work overtime at
enhanced rates, but might incur considerable expense in so doing.
14.25 Where this tension arises, a contractor will often claim that he has been forced to accelerate, that is to say to increase
resources in order to accommodate the effects of an event which would cause delay to completion were such resources not deployed.
Where a contractor deploys such additional resources under the duress created by the prospect of otherwise facing a liability for
liquidated damages, the contractor will often claim that the failure on the part of the employer or the employer's representative to
grant an extension of time amounts to a constructive instruction to accelerate. This concept, although often deployed in claims (and
having found some favour in the US
11
), has not been endorsed in English reported cases, doubtless because many such cases, if not
resolved amicably, are resolved through adjudication or arbitration. However in one case a very experienced judge has awarded
additional expense arising from a contractor's attempts to complete on time in the absence of an extension of time.
12
This is not an
easy area of the law if the delay arises as a consequence of a variation being instructed then acceleration costs may be regarded as
part of the cost associated with the variation. If the failure by the employer's representative arose out of an obstinate refusal to
recognise the contractor's rights, perhaps for commercial reasons, then the recovery of additional costs may be justifiable as damages
for breach of contract, of course subject to any contractual provisions limiting liability for damages. However if the circumstances
giving rise to delay were wholly unforeseeable and the amount of time to which the contractor was entitled was impossible to assess,
then the failure to grant an extension of time may not have been a breach of contract, and the legal basis for recovery by the
contractor of additional costs incurred in mitigating the delay may be somewhat uncertain. This is an area little explored in the
decided cases, but of considerable practical importance to a contractor assessing what to do in the face of an event delaying the
works.
13
14.26 It has been held in some Commonwealth authorities that if the employer or his representative fails to operate the extension of
time machinery at the right time, or at all, this may result in time being set at large, rather than it being found that there has been a
constructive instruction to accelerate. In Anderson v Tupeka County Council,
14
Williams J in the New Zealand Court of Appeal said:
If no date is specified within which the works are to be completed, how is it possible for the contractor to complete the works by a
specified date? Or how can he have broken a contract to complete on a specified date if he did not know beforehand what the date
was on which he was under an obligation to complete? A proviso which was intended to preserve to the contractee the right to
recover penalties in any event which, had it not been for the proviso, would have deprived him of that right, should be expressed in
clear and unambiguous terms. If it had been intended to allow the Engineer to decide ex post facto whether there was a breach of
contract to complete, it should have been very plainly stated.
This decision was followed in the Canadian decision of Hawl-Mac Construction Ltd v Candle River
15
in which Wallace J held that an
engineer's failure to issue his decision before the expiry of the original completion date had the effect of setting time at large so that
no liquidated damages could be claimed by the employer:
The extension clause in the present contract provides that the time for completion shall be extended for the time lost due to the
owner-caused delays and that the engineer, upon receipt of an extension of time, shall fully and fairly consider it and fix the time of
the extension. Having failed to perform this obligation before the time for completion of the contract period, it is my opinion there
was no longer a specified date within which the contract was to be completed or from which penalties could be imposed.
The English case law, referred to at paragraph 14.21 above, suggests that (subject to the precise terms of a particular contract) the
English Courts are not averse to the extension of time even after the end of the contract period, thus taking away the foundation of
these Commonwealth authorities. However in Bernhard's Rugby Landscapes Ltd v Stockley Park Consortium Ltd,
16
HH Judge
Humphrey LLoyd QC suggested that there could come a point at which the extension of time machinery could be said to have broken
down:
A breakdown of the contractual machinery occurs when without material default or interference by a party to the contract, the
machinery is not followed by the person appointed to administer and operate it and, as a result, its purpose is not achieved, and is
either no longer capable of being achieved or is not likely to be achieved. It can for most practical purposes be equated to interference
by a contracting party in the process whereby the other is deprived of a right or benefit, e.g., the failing of an employer to re-appoint
an administrator or certifier on the resignation of a previously appointed person: see Panamena Europea Navigation v Frederick
Leyland & Co Ltd.
17
Non-compliance with the machinery by the administrator is not itself sufficient: the effect must be that either or
both of the parties to the contract do not in consequence of the breakdown truly know their position or cannot or are unlikely to know
REMEDIES IN CONSTRUCTION LAW - 1st edition 2010
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it. Either is then free to have its position established by the appropriate means available: litigation or arbitration (preceded, if the
contract so requires, by recourse to adjudication or the like). If the true position is or can be established by other contractual means
then the breakdown is likely to be immaterial even where the result of the breakdown is that one party does not obtain the contractual
right or benefit which would or might otherwise have been established by the machinery, e.g., the issue of a certificate, provided that
the true position can be restored by the operation of other contractual machinery.
14.27 Thus the position in English law appears to be that if a supervising officer, engineer, architect or other employer's
representative, fails to grant extensions of time during the currency of the contract, it may be that this will be construed as being a
constructive instruction to accelerate or possibly as a breakdown of the extension of time machinery so that time is set at large.
However, given that most construction contracts of any sophistication will contain machinery to enable disputes to be resolved
expeditiously and during the currency of the contract (including statutory rights to go to adjudication) it is more likely that courts or
arbitrators will hold that such dispute resolution machinery negates either of those results.
18
14.28 A difficult and much debated problem arises out of provisions limiting the contractor's right to claim an extension of time in
the event of non-compliance with notice provisions.
19
Most modern construction contracts not only contain extension of time clauses
but also require the contractor to give notice of an alleged right to an extension of time. A much-debated issue is how such provisions
affect or are affected by the application of the prevention principle. To give an example, assume that the giving of notice by the
contractor is a condition precedent to the grant of an extension of time based upon an employer's breach of contract.
20
If the contractor
by oversight fails to give notice, then the employer may be entitled to claim liquidated damages as a result of delay caused by his own
breach of contract. Does the prevention principle operate to stop this unmeritorious right to recover liquidated damages?
14.29 The starting point is that as a liquidated damages clause is usually inserted in contracts for the benefit of the employer who will
seek to rely upon it, such clauses are construed contra proferentem, that is to say that any ambiguities are construed strictly against
the interest of the employer.
21
Even where a time-bar clause appears to be a condition precedent, a court or arbitrator may refuse to
construe it as such if the result would be a commercial nonsense.
22
However, it is then necessary to consider what the result is, if on
its true construction a notice provision is truly a condition precedent, and if on the face of the contract a contractor who does not give
notice in accordance with its terms, will lose his right to an extension of time and thus be exposed to a liability for liquidated
damages.
14.30 An Australian case, Gaymark Investments Pty Ltd v Walter Construction Group Ltd,
23
suggests that the contractor is relieved
of the liability to complete by the stipulated date even if notice has not been given. This view has been supported by the editors of
Keating on Construction Contracts
24
and Professor Jones.
25
On the other hand, there is a formidable body of authority suggesting that
parties should be held to the terms of their agreement.
26
14.31 Less controversially, if the contract contains a condition precedent to the employer's right to recover liquidated damages, that
will be given due effect (and any such clause will be construed against the employer's interest).
27
1 For a helpful review of extension of time clauses to be found in a range of standard form contracts, see Keith Pickavance and Wendy MacLaughlin A Little
of Time at Large: Proof of a Reasonable Time to Complete in the Absence of a Completion Date, October 2005 published by the Society of Construction Law.
2 John Barker Construction Limited v Portman Hotel Limited (1996) 83 BLR 31.
3 Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd [2006] BLR 113 where it was held that these concepts are overlapping but not synonymous.
They connote that the decision-maker must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours
the interests of the employer. See also Amec Civil Engineering Ltd v Secretary of State for Transport [2005] BLR 227.
4 See Costain Limited v Bechtel Limited [2005] EWHC 1018 (TCC); [2005] CILL 2239, but see to the contrary the trenchant views of HH Humphrey LLoyd
QC in Some Thoughts on NEC 3 in [2008] ICLR 468 particularly at 475476.
5 Miller v LCC (1934) 50 TLR 479.
6 See for example Amalgamated Building Contractors Co Ltd v Waltham Holy Cross UDC [1952] 2 All ER 452; Balfour Beatty Building Ltd v Chestermount
Properties Ltd (1993) 62 BLR 1.
7 In Balfour Beatty Building Ltd v Chestermount Properties Ltd (supra) at 27.
8 A similar suggestion was condemned by the Court of Appeal in McAlpine Humberoak Limited v McDermott International Inc (supra) at 35.
9 Supra.
10 In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 ConLR 32 at paragraph 12.
11 See footnote 50 to Geoffrey Smith and James Perry, The Evolution of Global Claims and Laing Management (Scotland) Ltd v John Doyle Construction
Ltd [2005] ICLR 212 at 240.
12 Motherwell Bridge Construction Ltd v Micafil Vakuumtechnik (2002) 81 ConLR 44, a decision of HH Judge Toulmin CMG, QC. It is to be noted that the
delay was caused by the instruction of additional works by the employer (see paragraphs [543][548]). Thus for reasons explained in the text above, the
recovery of additional costs was not difficult conceptually.
13 There is also a further problem discussed in Mellors, Baker, Lavers and Chalmers FIDIC Contracts: Law and Practice at paragraphs 5.189 and 5.190 as to
whether an instruction to accelerate is a permissible instruction in the absence of express power to do so. Usually a power to vary the contract does not include a
power to order the contractor to complete contract works within a shorter period than allowed in the contract, especially where the contractor may contend that
the instruction is impossible. Such an instruction may be extremely unwelcome as it will often require the contractor to divert resources urgently needed on
another project.
14 (1900) 19 NZLR 1.
REMEDIES IN CONSTRUCTION LAW - 1st edition 2010
LIQUIDATED DAMAGES AND EXTENSIONS OF TIME
Roger ter Haar QC; Camilla ter Haar

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15 (1984) 60 BCLR 57.
16 (1997) 82 BLR 39.
17 [1947] AC 428.
18 See in this context Cowan and Bellhouse, Common Law Time at Large Arguments in a Civil Context [2007] Const LJ 598.
19 For one amongst many articles discussing this problem, see Crispin Winser Shutting Pandora's Box: the Prevention Principle after Multiplex v Honeywell
(2007) 23(7) Const LJ 511.
20 For examples of such clauses in widely used standard forms, see clause 61.3 of the NEC3 form and clause 20.1 of each of the FIDIC 1999 standard forms
of contract, both of which require the contractor to give notice at peril of losing a right to claim an extension of time if notice is not given. For a discussion of
the practical effect of these clauses, see Ronan Champion, Variations, Time Limits and Unanticipated Consequences, SCL Paper No 138.
21 See the passage from the judgment of Salmon LJ cited at paragraph 14.13 above.
22 This expression comes from the judgment of Chadwick LJ in Chiemgauer Membran- und Zeltbau GmbH (formerly Koch Hightex GmbH) v New
Millennium Experience Co Ltd (formerly Millennium Central Ltd) (No 1) [1999] CILL 1595 at 1597. Similarly, if extension of time provisions are poorly
drafted so that they are inherently uncertain or unworkable, they may be held to fail altogether. See Bramall and Ogden Ltd v Sheffield City Council (1985) 29
BLR 73 and Arnold and Co Ltd v Attorney-General of Hong Kong (1989) 47 BLR 129.
23 (2000) 16 BCL 449.
24 8th edition at paragraph 9025.
25 In the article already cited above, Can Prevention be Cured by Time Bars? [2009] ICLR 57. See also the carefully thought through contribution of Tony
Marshall in Delay, Progress and Programming [2010] ICLR 137 and Mathew Stulic Prevention and the Allocation of the Risk of Project Delays: Evolution or
Revolution? SCL Paper No 163, May 2010.
26 Turner Corporation v Austotel Pty Ltd (1994) 13 BCL 378; Turner Corporation Ltd (In Provisional Liquidation) v Co-Ordinated Industries Pty Ltd
(1994) BCL 202; City Inn Ltd v Shepherd Construction Ltd [2003] BLR 468 at paragraph 23 construing a time-bar clause as giving a contractor an option
whether to apply for an extension of time; Beckhaus v Brewarrina No. 2 [2004] NEWSC 1160; Dcor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No. 2)
[2005] SASC 483; [2006] CILL 2311; Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC); [2007] BLR 195; Steria
Ltd v Sigma Wireless Communications Ltd [2008] BLR 79. Commentaries suggesting that Gaymark is wrong include Ian Duncan Wallace, Liquidated Damages
Down Under: Prevention by Whom? (2002) 7:2 Construction and Engineering Law 23, and Prevention and Liquidated Damages: A Theory Too Far? (2002) 18
BCL 82; Baker, Bremen and Lavers, The Development of the Prevention Principle in English and Australian Jurisdictions [2005] ICLR 197; Dr Hamish Lal,
The Rise and Rise of Time-Bar Clauses for Contractors' Claims: Issues for Construction Arbitrators SCL Paper No 142, September 2007. The two Australian
Turner cases referred to above were affirmed by the New South Wales Court of Appeal in Peninsula Balmain Pty Ltd v Abigail Contractors Pty Ltd [2002]
NSWCA 211; (2002) 18 BCL 322: this decision needs to be considered with some care: it has been suggested that it lends support to Gaymark, but appears to
turn upon the specific power conferred upon the supervising officer to unilaterally extend time a power exercised by the referee in the dispute resolution
process. Thus in the result the contractor was relieved to an extent of a liability for liquidated damages despite not having served notice timeously. Thus the
contractor lost its entitlement to an extension of time but was granted a discretionary extension of time. We would suggest that the judgment of Hodgson JA is
supportive of the approach supported by the authorities referred to in this footnote rather than the Gaymark approach.
27 Token Construction Co Ltd v Charlton Estates Ltd (1976) 1 BLR 48; Pyrok Industries Ltd v Chee Tak Engineering Co Ltd (1988) 41 BLR 124; JF
Finnegan Ltd v Community Housing Association Ltd (1993) 65 BLR 103 at p. 113 and 77 BLR 22, and W Hing Construction Co Ltd v Boost Investments Ltd
[2009] BLR 339 paragraphs 131 and 149.
REMEDIES IN CONSTRUCTION LAW - 1st edition 2010
LIQUIDATED DAMAGES AND EXTENSIONS OF TIME
Roger ter Haar QC; Camilla ter Haar