DD03: Comply with the notice provisions in the contract, or else…
Updated: May 6
My first two articles covered why it is necessary to distinguish between delay and disruption and what that distinction is (DD01), and that global claims are almost certain to fail unless certain issues have arisen which makes it impossible and / or impracticable to separate out and particualrise the component parts of the claim (DD02).
The focus of this article is on notification by the contractor where there is, or has been, delay to the progress of the works, and the necessity for a contractor to formally submit the required notice(s) pursuant to the contract.
If critical delay occurs to the progress of the works, and the delay is one which gives the contractor an entitlement to additional time to complete the work, the contractor, on the basis that any required contract requirements are satisfied, will usually be entitled to an extension of time to the date for completion of the works.
Extension of time clauses in construction contracts allow the date (or dates in situations where milestones or sectional completion dates exist) for the completion of the works to be extended where there is likely to be or has been delay to completion of the works caused by an event, or events, for which the employer is liable under the terms of the contract.
There are usually conditions attached to being entitled to an extension of time, the most common of which are notices of delay.
Notices of delay
The nature of the notice of delay to be submitted by the contractor will turn on the wording of the relevant contract provisions.
Many contracts contain provisions which require the contractor to provide the employer notice in writing within a specific time period of the event causing delay, and/or of the start of the delay, or at a time when the effect of the delay is known or ought to have been known.
Further, there may also be a requirement for a contractor to notify the employer on an ongoing basis throughout the period of a delay until the delay ends. In some cases, the notice provisions are a “condition precedent”, and failure to comply will result in the contractor being denied an extension of time. Also, depending on the wording of the contract, the timing of when the notice period starts can often be cause of dispute (notwithstanding the merit of the notice itself). For example, is the requirement to give notice within a certain period from when the contractor knew, or ought to have known, of the events giving rise to the delay, and what does ‘ought to have known’ mean?; is it from the date of the occurrence of the event itself (how is that defined), or is it when the effects became reasonably apparent, or other?
If the notice provision is a condition precedent, then failure to give notice, or give notice within the time and/or in the form prescribed in the contract, may result in the contractor losing its entitlement to additional time.
If the submission of a notice is not a condition precedent to the entitlement of an extension of time, the procedural requirement in the contract will be directory rather than mandatory and may not prevent the contractor from entitlement to an extension of time.
Purpose of notices of delay
By providing a notice of delay, the contractor is advising the employer, or the subcontractor is advising the main contractor, that progress of the works has been, is being, and/or will be impacted. It gives the party to whom notice is provided an opportunity to review, consider, discuss and make informed decisions in an attempt to reduce or avoid the delay.
The court in Multiplex v Honeywell explained that contractual terms requiring a contractor to submit prompt notice of delay serve a valuable purpose in that:
· Notice enables matters to be investigated whilst they are still current; and
· Such notice sometimes gives the employer the opportunity to withdraw instructions when the consequences become apparent.
If a contractor does not provide notice to the employer, the employer may have no way of knowing how or why the progress of the works has been impacted, or indeed that progress has been impacted at all. If notice is provided by the contractor to the employer, then the relevant parties to the construction project will be able to decide on the most appropriate way forward to mitigate or eliminate the effects of any impact. For example, the employer may decide to omit some work scope or resequence some activities.
Not only should the contractor advise the employer of any impact by way of notice, so should the employer advise the contractor.
In CMA Assets v John Holland, CMA was subcontracted by John Holland and was delayed by acts of John Holland that were within John Holland’s knowledge. John Holland rejected CMA’s claims for an extension of time because CMA did not strictly comply with the notice provisions in the contract. The Supreme Court of Western Australia considered that the extension of time provision was harsh and was in favour of John Holland but stressed that the terms of the subcontract were the terms that the parties chose to include, and the parties were therefore bound by them.
A condition precedent to giving notice
Contracting parties may decide to agree to contract provisions which make the provision of a notice a condition precedent to the grant of additional time and/or to payment for loss and/or expense.
In Steria v Sigma, part of the dispute was whether the requirement for the giving of written notice of delay was a condition precedent to Steria’s entitlement to an extension of time. The court considered that the notice requirement in the contract was a condition precedent to being entitled to an extension of time. In the court’s view, the provision in the contract was clear in its meaning but that the real issue was whether the clear words by themselves suffice, or whether the clause also needs to include some express statement to the effect that unless written notice is given within a reasonable time, the subcontractor will not be entitled to an extension of time.
The court considered that a further express statement of this kind was unnecessary. The court’s view was that a notification requirement may, and in this case did, operate as a condition precedent even though it did not contain an express warning as to the consequence of non-compliance.
Take notice: CMA v John Holland
The Western Australian Supreme Court’s judgment in CMA v John Holland concerns the purpose and content of a notice of delay where the giving of notice was a condition precedent to entitlement to an extension of time. CMA was delayed by the acts of John Holland that were within John Holland’s knowledge and control, but CMA’s claims were denied by John Holland and the court due to CMA’s failure to comply with the notice provisions.
CMA was subcontracted by John Holland to demolish and remove structures which formed part of a wharf at Finucane Island at Port Hedland harbour in Western Australia. CMA’s work was delayed by John Holland and there then followed a series of claims and counterclaims. CMA argued, and the court accepted, that CMA was delayed because:
1. John Holland failed to relocate a Shiploader in time to allow CMA’s work to proceed; and
2. Of the extent of reinforcement encountered in the berthing dolphins.
However, under the subcontract CMA was required to:
1. notify John Holland of the likelihood of delay as soon as becoming aware of it;
2. notify John Holland of its intention to claim an extension of time within seven days after the occurrence of the cause of the delay; and
3. lodge a written claim for an extension of time within 14 days after the commencement of the delay.
CMA pleaded that the condition precedent did not constitute the formal giving of notice and that, instead, the condition simply required CMA to inform John Holland of the likelihood of delay (of which John Holland was already aware), and once John Holland knew the relevant facts, no further notice was required. The court considered that if this was the correct interpretation, then John Holland was aware of the delay. However, the court did not accept CMA’s view.
The court considered that the notice provisions read as a whole were not limited to notifying John Holland of the likelihood of delay, or even the cause of delay — in fact in accordance with the contract provisions there were six other matters of which CMA was required to give notice:
1. Intention to apply for an extension of time;
2. An estimate of the length of delay;
3. The steps CMA will take to minimise delay;
4. The facts upon which the claim is based;
5. The number of days’ extension claimed; and
6. The effect on the approved construction program.
Simply making John Holland aware of the cause of the delays did not exhaust the notice requirements of the subcontract. The court said that there was no doubt that the strict application of the notice requirements was harsh, but it was not satisfied that the provisions were without purpose or so absurd that an alternative construction must be given.
Contractors and subcontractors are therefore advised to strictly adhere to the notice provisions of their contracts, especially if those provisions constitute a condition precedent.
If in any doubt, a contractor could always give notice, and, if the event or issue goes away then the notice can be withdrawn. It may be better to do this than suffer the potential consequences of not giving notice at all. Contractors often view this as adversarial, but it is really just simple compliance with a contractual mechanism which the parties to the contract have agreed to. Notices do not have to be confrontational or legalistic. Softer language may be used which will comply with the notification requirements and at the same time maintains good party relations.
The next article in the series will visit the prevention principle and how the principle interrelates with the giving of notice of delay.
Access to articles
This and previously published DD articles on the DD Quantum Expert blog page are:
DD01: Why is it necessary to distinguish between delay and disruption? What’s the distinction?
DD02: A global claim is doomed to fail, unless…
DD03: Comply with the notice provisions in the contract, or else…