Extensions of Time
What is Extension of Time (EOT)?
Extension of Time (EOT) is a delay which could not be reasonably foreseen at the time of contract signing. The granting of an Extension of Time relieves the contractor from liability of damages such as Liquidated Damages from the original date of contract completion for the period of the claim.
It has been concluded by several studies that EOT claims are among the most disputed issues in the construction industry due to lack, misunderstanding, or wrong application of relevant contract provisions.
In the case of escalation to litigation path, the UAE Law will be the framework upon which the ruling will be based. This will also be another potential area of further dispute as the concept and mechanism of EOT claim evaluation is not clearly identified in the UAE Law.
The claim deals with the subject matter in the main narrative. In practice, particularly for complex claims dealing with many issues, more use would be made of appendices. Copies of relevant correspondence, supporting documents, particulars and detailed calculations would also normally be given in an appendix. This example does not contain such appendices but it is assumed that they are submitted.
Construction Industry & the Standard Form of Contract
The construction sector plays a key role in the United Arab Emirates (UAE). The UAE construction industry directly supports much of the UAE economic growth.
The UAE construction industry accounts for 70% of all ongoing infrastructure projects listed in the ABiQ database, as of May 2022. The UAE construction industry is stimated to be worth $90 billion USD.
According to (GLOBE NEWSWIRE ) UAE’s construction industry to expand by 4.2% in real terms this year, compared with an estimated growth of 4.4% in 2021.
The ongoing Expo 2020 event (1st October 2021 to 31st March 2022) has provided assistance to the industry, while low base effects and pent-up demand spurred the industry’s growth in 2021. Activity in the commercial and tourism sector also showed an indication of recovery, with the hotel occupancy rate in Dubai reaching 62% in the first nine months of 2021 – up from 51% recorded during 2020 – and a total of nine million visitor arrivals in the first three months of Expo 2020 (October to December 2021).
The report forecasts the construction industry to register an annual growth of 3.7% during the period of 2023-2026. However, rising Coronavirus (COVID-19) cases in early 2022 could stifle the industry’s growth over the short term. Overall, construction output in the UAE is expected to remain below 2019 levels until 2023.
For the past decade and a half, the contracting parties used to refer to the UAE Federal Law No. 05 of 1985 – The Civil Transaction as the code (the Muqawala chapter) for dispute resolution, the contracting parties started adopting standard forms of contracts as a replacement of normal ( the Arabic standard form of contract ) contracts especially for mid-size or mega projects. Different types of standard form of contracts have been developed worldwide in order to regulate construction projects’ contractual relationship. Most of the standard forms of contracts were aiming at providing a more balanced risk allocation among the contract parties in comparison to standard contracts.
The construction sector in UAE is widely adopted the use of the Federation Internationale des Ingenieurs Conseils (hereafter FIDIC) as a standard form of contract in most of the mega or even mid-size construction projects.
The first suit of FIDIC contracts was released in 1987 and the second in 1999. While both are being used in the construction projects in UAE, it is clearly noticed that the employers and contractors are trending toward the use of FIDIC 1999.
In spite of the use of FIDIC standard forms to draft construction contracts, disputes were still being observed with greater number being reported in the past two years.
One of the main reasons for construction disputes as reported was related to construction claims, the contract parties’ lack of understanding of their contractual obligations and rights and the imbalanced risk allocation in the contract. As a result, contractual entitlements such as the Extension of Time (hereafter EOT) will be the subject of disputes.
Delay in Construction
The success of any construction project will be measured by the degree of which the project is meeting its triple constraints of time, cost and scope.
In order to improve the chances of this success, a baseline programme should be well established and coordinated among the different construction trades at the earliest stage of the project.
Extension of Time Under UAE Civil Law
All civil transactions in UAE are governed and regulated by Law No. 5 of December 1985 known as UAE CTC. Being a civil transaction, construction contracts are governed by a special chapter in the CTC known as the Muqawala chapter Article 875 of the CTC clearly indicates that time is of the essence in Muqawala contracts as it requires the contract to specifically provide the “period over which it is to be performed and the consideration must be specified”.
Hence, there will be also a need for EOT provisions under UAE law which the CTC does not properly address. Articles such as 247 of the CTC35 might be considered as way of addressing the EOT issue in which it states:
“In contracts binding upon both parties, if the mutual obligations are due for the performance, each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to do”
Article 247 could be projected on the project completion date as contractual binding obligation of the contractor to the employer and thus provide the contractor the ground to refuse meeting such obligation if the Employer was found to be defaulted in adhering to his contractual obligation to contractor. Similarly, article such as but not limited to, 414, 472, 287 and 249 of the CTC provides the same basis to establish a delaying event and their impact on the project completion.
In Muqawala contracts specifically, Article 894 of the CTC provide the same basis of EOT as it relieves the contractor from LDs and provides the ground to claim the prolongation cost to compensate the contractor time-related damages.
Article 894 states: “If the contractor commences to perform the work and then becomes incapable of completing it for a cause in which he played no part, he shall be entitled to the value of the work which he has completed and expenses he has incurred in the performance thereof up to the amount of the benefit the employer has derived therefrom”.
A main element of distinction under UAE CTC is that it provides the judge with the power of varying an unfair terms of the contract, whether it is related to performance of work or recovery of damages. For example, article 248 gives the judge the authority to provide a waiver for any unfair contract terms made under adhesion. Likewise, article 390 provides the judge with authority of varying a pre-agreed rate of compensation for damages to match the actual losses.
Identification of Construction Delay
In the construction industry, the term “delay” is understood as the occurrence of an event that is linked with one or more of the project’s activities causing these activities not to be started or completed as planned in the project baseline programme.
In most of the standard forms of contracts and statutory rules, a provision will be found granting the contractor the right for EOT as a result of the Employer’s related delay. This category will encompass delays related to employer’s act or employer representative (i.e. the Engineer) acts, which in return includes but not limited to:
- Delaying site possession.
- Delaying required design information
- Major changes (i.e. variations) in the scope of work or earlier identified and agreed upon quantities.
- A consequent result of certain instructions that could imply suspension or addition of work.
- Delay in required Engineer instructions, material selections, nominations of sub-contractors and its relevant work.
- Delay in Payments.
It should be noted that the above delay events, especially delayed payments, are subject to the contract provisions being used. There are numerous case law indicating the contractor’s right for an EOT when the above delays have occurred.
The contractor may lose its right to be granted an EOT due to many reasons, such as but not limited to:
- Delay caused by contractor’s performance due to lack of required resources or poor project planning.
- Delaying required submissions by the contractor.
- Contractor’s deliberate suspension of work or reduction of the rate of progress.
- Other causes of delay not clearly stated in the contract provisions or country’s statutory law in which it could be thought of as the contractor’s responsibility.
It should be noted that depending on the type of contract or standard form being adopted and the stated terms for performance and payment, contractor’s deliberate suspensions of work as a result of breach of contract, as in the case of non-payment, might be entitling the contractor for an extension of time if it is properly notified.
Third Party or Force Majeure Delay
The delay in site work could be also a result of a third party factor such as but not limited to:
- Unforeseeable underground or other physical conditions.
- Exceptionally and unforecastable extreme weather conditions.
- Delay caused by authorities, new regulations or change of governments.
- Delay due to other factors of civil wars, natural disasters, or strikes.
- Unexpected financial hardship.
Entitlement Based Classification
If the delay event was associated with any critical activity, it will result in not only impacting the activities planned dates but also the entire project completion date in which a dispute may arise about the accountability of such contractual default. Such dispute will not be resolved without proving a relationship between the “cause” of the delay event and the “impact” of the delay event, which is what is defined as “forensic delay analysis” or simply “delay analysis”