Pakatan Harapan and force majeure

Since GE14, there has been a flurry of announcements by the new Pakatan Harapan (PH) government, almost on a daily basis. These announcements have ranged from feel-good measures (live World Cup, yay!) to major policies and even outright cancellation of contracts.

Query: Can any of these announcements lead to a plea of force majeure by a contracting party?

Under the PAM Form, force majeure is a relevant event which entitles the contractor to an extension of time. However, it is not an event which allows the contractor to claim for loss and expense. It is also not an event that is expressly stated to be an event permitting any party to determine the contract.

However, common law generally accepts force majeure to be a good defence to any claim for breach of contract, where the force majeure event renders performance of a contract to be impossible, and that event is unforeseen or unavoidable.

Therefore, a sub-contractor may not be able to insist on performance by the main contractor where the entire contract has been cancelled by the PH government. The sub-contractor may even be hard-pressed to claim for losses incurred in, for example, undertaking preparatory works or procuring supplies for the purpose of the sub-contract.

But the factual matrix of each individual case would clearly differ. Hence, if a contract was negotiated by the BN government on the basis of certain exemptions (eg. no GST), what happens now if SST is imposed instead (and at a higher rate) by the new PH government? What if the costing of the entire contract was predicated on the basis of the savings from the GST exemptions, whereby now the savings may not only be entirely eradicated but in fact the higher-rated SST would lead to losses for the contracting party.

Would that be sufficient to establish force majeure?

Or would the Courts instead follow the case of Trandin Aviation Holdings Ltd v Aero Toy Store LLC to hold that changes in economic/market circumstances affecting the profitability of a contract cannot be regarded as a force majeure event?

But surely a change in governmental policy cannot be equated to a change in economic/market circumstance, all the more so when it is the government that caused the change in the economic/market circumstance in the first place?

Perhaps these would be appropriate circumstances for parties to resort to mediation instead.

Kheng Hoe Advocates is a boutique law firm focused on construction disputes. We assist clients in arbitration, litigation, mediation and CIPAA cases. For queries, contact khenghoe@khenghoe.com. 

Can omissions lead to a reduction of the contract period?

Variations are not only limited to additional or varied works, but oftentimes include omissions as well. When variations in the form of omissions are issued, then the contractor would have enjoyed a savings of time required to complete the works.

Question: Can that savings of time be reflected in a reduced contract period?

Under the PAM Form, it is expressly stipulated that in assessing any extensions of time, the Architect may take into account “the effect or extent of any work omitted under the Contract, provided always that the Architect shall not fix a Completion Date earlier than the Completion Date stated in the Appendix”.

Therefore, it seems clear that:

a. the contract period cannot be reduced notwithstanding omissions; BUT

b. the entitlement to extension of time can be reduced by taking into account any previous omissions (in other words, the float time has increased by reason of the omission and therefore, extensions of time may not be as critical).

How about extensions of time that have already been granted? If a contract period cannot be reduced, can a previous extension of time be reviewed and reduced in light of omissions?

Again, the answer would seem to be no. Whilst the PAM Form is silent on interim reviews, however the PAM Form provides for a final review of the Completion Date, but stipulates that “(no) such final review of extension of time shall result in a decrease in any extension of time already granted by the Architect”.

It would seem therefore that once an extension of time is granted, it is already definite and any review can only enhance the extension of time granted, not decrease it.

Kheng Hoe Advocates is a boutique firm handling CIPAA and construction disputes. Whilst based on KL, we have strategic alliances in Penang, Melaka and Johor to service our clients nationwide. A lot of disputes which we handle relate to issues surrounding time. For queries, e-mail us at khenghoe@khenghoe.com. 

Winning the war for EOTs- the critical path analysis

Delays happen in construction projects.

However, an extension of time is not granted for delays unless it affects the ultimate completion of the work, and not just the particular operation. In the words of the learned judge in Royal Brompton Hospital NHS Trust v Frederick Alexander Hammond and Others, “it is desirable to consider what operations, at the time the event with which one is concerned happens are critical to the forward progress of the work as a whole”.

This means that there must be a clear understanding of the sequence of activities from the start of the project to finish, and durations required for each activity, in order to determine the overall project duration.

The best approach would be, of course, to determine on the basis of an as-built critical path analysis. This means that when a delaying event happens, it is compared to the as-built progress of the works to determine whether that particular delaying event is in fact on the critical path towards completion of the project.

In order to be able to determine such as-built critical path, it is imperative that contractors keep detailed and relevant records. This would include having an updated and revised programme from time to time as and when the original programme needs to be adjusted. It would also include having reasonably particularised daily site reports to determine the actual on-site progress.

At the end of the day, the contractor’s best friend would be its records, records and records. With adequate records, a competent delay analyst can easily work out the critical path, to determine the extension of time required due to delays. Otherwise, it would very much be based on guess-work, in which case, the determination of the critical path would be estimated based on assumptions and parameters determined by the delay analyst.

If that were to happen, then unfortunately, in many instances, it would turn out to be a case of “rubbish in, rubbish out”.

Kheng Hoe Advocates represent main contractors in CIPAA and construction disputes. For queries, e-mail khenghoe@khenghoe.com. 

Is time of the essence in construction contracts?

Lawyers are so used to say that “time is of the essence”, and eventually we grow to believe that time is of the essence in all contracts where time stipulations are found. But what does it mean that “time is of the essence”?

One simple understanding of the phrase is that if time stipulations are not met, then the party not in breach would be entitled to terminate the contract. Hence, if A is supposed to deliver a product to B by X date, then the failure of A to deliver the product can lead to B refusing to accept delivery on a future date.

Once put in these terms, it becomes very apparent that time cannot be of the essence in an ordinary construction contract. A high-rise building that is three-quarters completed cannot simply be demolished. The employer cannot say, “I refuse to accept your works” when the works comprise of bricks and mortar, with foundation properly laid, and built 100m into the sky.

Instead, the construction contract uses other tools like liquidated damages, loss and expense claims and extensions of time as tools to handle the failure to comply with time stipulations. The fact that breaches of time stipulations can be handled by these other measures would be a clear indication that parties never intended for time to be of the essence in the first place (even if that particular phrase appears in the contract due to poor draftsmanship).

But does that time is never the essence in a construction contract?

Of course not. Even when time is not initially of the essence, it can be made of the essence by way of a reasonable notice. Otherwise, a defaulting contractor could take forever and a day to complete its works, and any LAD claims may be futile at the end of the day if that contractor turns out to be insolvent.

Therefore, an inconvenienced party could give clear notice to render time to be of the essence in a construction contract. The inconvenienced party would thereafter be entitled to terminate the contract. After termination, obviously it would be left to the lawyers to determine who would be responsible for what costs.

Kheng Hoe Advocates handle CIPAA claims and construction disputes. For queries, e-mail khenghoe@khenghoe.com.