Tuesday 6 May 2008

The Time is Right

When claiming an extension of time for completion, the contractor is usually obliged to serve a formal notice of delay. The purpose of the notice is simply to warn the client of the situation, who in turn can take remedial action.

In many delay situations however contractors adopt a ‘wait and see’ attitude. A contractor’s failure to deal promptly, or at all, with extension of time provisions can have devastating financial effects. Failure to give notice would technically be a breach of contract, and allow the client to take the breach into account in making the extension of time.

A notice may well be interpreted as a condition precedent to the grant of an extension of time, so that failure to give notice means the contractor loses any entitlement. This issue came before the courts in the case of Steria Limited v Sigma Wireless Communications Limited (2007).

A Fiery Customer

Steria entered into a heavily revised version of the standard MF/1 form of contract with Sigma to install a computer aided dispatch system for the fire and ambulance services in the Republic of Ireland.

Sigma, in paying the final sums due under the contract to Steria, withheld monies by way of damages for delay in completing the contract works. There was a substantial dispute between the parties as to the proper meaning of the extension of time provision, and in particular, whether or not the requirement for giving written notice of delay was a condition precedent to Steria’s entitlement to an extension of time.

Provisional Licence

Steria argued that all that was required of the provision was for it to notify Sigma that particular relevant events had caused delay.

Sigma disagreed with this and argued that (a) the notice must make it clear that it was a request for an extension of time under the provision; (b) the notice must explain how and why the relevant circumstances have caused delay; (c) the notice must estimate the delay.

Judge Davies agreed with Steria. He said that Sigma’s case would involve reading into the provision words that were not there. It was simply necessary for Steria to notify Sigma that relevant events have occurred, and that those events have caused a delay to the execution of the contract works.

The judge also said that the written notice must actually come from Steria. So, for example, an entry in a minute of a meeting which recorded that there had been a delay, by itself, would not amount to a valid notice under the provision. This is an important point to note because, in many instances, contractors report delays in site meetings under the misapprehension that it serves as proper notice of delay.

Provided for

Steria argued that clear words were required to make the notice provision a condition precedent. It said that the provision did not make it clear that, unless it complied with the provision, Steria would lose its right to an extension of time.

Sigma again disagreed. It said that the use of the word ‘provided’ imposed a clear and unqualified condition precedent, the purpose of which was as to enable it to take appropriate action to alleviate any delay.

This time Judge Davies agreed with Sigma. He said the wording of the provision was clear in its meaning. What Steria was required to do was give written notice within a reasonable period. He considered that the notification requirement was as a condition precedent, even though it did not contain any warning as to the consequence if Steria failed to comply with it.

Extend your Knowledge

This case highlights that it is import for the contractor to understand the meaning of extension of time provisions and to comply with them. Failure to give notice in time or at all could prevent it from being able to obtain an extension of time, even in circumstances where a contractor is not responsible for the delay.

This could leave a contractor open to a claim for damages from a client.