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The importance of TIME in construction projects
The exact date for completing a building project is rarely known during its planning. Consequently building contracts include safeguards to reduce the risk of a party being in breach due to unforeseen delays.
Whether a development is large or small, a construction contract should contain provisions allowing the parties to plan and protect against certain contingencies.
Time plays a crucial role in these provisions and triggers various actions, obligations and rights between the parties. The timeframe provisions in a construction contract must also be considered and applied in associated documents, such as off-the-plan sales contracts for residential developments.
Practical completion
The completion of the construction of the works under contract triggers the start of the defects liability period and is a critical event for all parties.
The concept of ‘practical completion’ was developed to acknowledge that completion of works can be acknowledged despite there still being minor defects and minor items of incomplete work, provided these do not prevent the works from reasonably being used for their stated purpose. For example, practical completion of a residence may be given despite outstanding rectification items such as fixing paint chips or installing missing cupboard door handles.
Practical completion is determined by the events set out in the contract. For a single dwelling, this may be as basic as the issue of an occupation certificate. Contracts for larger developments generally have a series of milestones that must be satisfied before the works will be certified as complete. These may include certifications by various independent consultants, the handing over of operating manuals, warranties, keys and security devices, the issue of an occupation certificate and / or survey certificate, the testing and commissioning of installed plant and equipment, the removal of rubbish and surplus material or the washing and cleaning of surfaces.
For a purchaser of an off-the-plan, practical completion triggers the time for settlement of the contract. Generally, at about this time, the developer / vendor will provide written notice that settlement is imminent and the purchaser is required to settle the contract in accordance with its terms - usually 14 – 21 days after receiving notice.
Date for practical completion
Unlike the date of completion, the date for completion is the time stipulated in a building contract by which completion of the works must occur.
Given the nature of the construction industry and the delays often experienced, building contracts will include a regime for extending the time required for practical completion and for damages to be paid by the Builder if it is not.
Qualifying causes of delay include variations to the works, inclement weather, changes in legislative requirements, proceedings or disputes with neighbouring owners, industrial action and latent conditions.
Latent conditions are site conditions that are materially different to the conditions that would reasonably have been contemplated notwithstanding a contractor having made all due inspections and investigations of the site.
The contract will require the contractor to give written notice upon being aware of a probable delay and to claim for an ‘extension of time’ for practical completion of the works under contract.
Extension provisions are widely-accepted in off-the-plan sales contracts providing a buffer for the developer / vendor to extend the time for completion without breaching the contract.
Events justifying an extension of time include delays in obtaining development approval, inclement weather or supply issues. A vendor will be required to provide written notice to the purchaser when relying on these provisions.
Time and conditions precedent
Most building contracts and off-the-plan sales contracts contain conditions precedent allowing a range of contingencies to protect a developer from breach if the project fails to get off the ground.
Commonly, contracts are conditional upon development approval or the developer achieving a specified number of pre-sales within a prescribed time. Failing to reach these milestones may give the vendor / developer a right to terminate the contract without penalty.
Progress of works and construction programs
Principals and contractors need a clear understanding of the time required for practical completion of a project. Most contracts require the contractor to provide a construction program setting out the estimated time for various milestones to be achieved throughout the build.
Having a construction program assists in explaining any delays encountered. The program should reflect the main contract, be updated regularly and be distributed to all affected parties.
Conclusion
Time is an important factor of a construction project and must be carefully managed by developers, principal, contractors and subcontractors.
Contracts need to allocate risk appropriately and safeguard the parties from breach for unforeseen events. Agreement must be made at the start of the project as to the type of events that will allow an extension of time, the maximum time allowed and the procedure to be followed.
Whether you are a developer, builder or subcontractor, or an off-the-plan purchaser, an experienced construction lawyer is invaluable when navigating the many technical and legal intricacies of a building project.
If you or someone you know wants more information or needs help or advice, please contact us on (07) 5443 4866 or email brendanb@gwlaw.com.au.
Brendan Bathersby
Partner
(07) 5443 4866