In an Adjudication Application, a Head Contractor invariably seeks to rely upon liquidated damages when responding to a payment claim, by offsetting a liquidated damages claim against an amount claimed by a Subcontractor.
Below are some ways that Subcontractors can limit the application of liquidated damages by a Contractor in an Adjudication Application.
All standard Construction Contracts have clauses allowing for a Subcontractor to claim an Extension of Time (“EOT”) for delays caused by events beyond the control of a Subcontractor. The Construction Contract will provide for strict time limits for a notice of claim to be made for an EOT, together with the information to be provided in a claim for an EOT. Subcontractors should ensure that they strictly comply with the contractual requirements when seeking an EOT for delay. A failure to strictly comply with the requirements for seeking an EOT may disentitle a Subcontractor to an EOT and thereby exposing the Subcontractor to a claim for liquidated damages.
What do you do if you are refused an EOT after making a claim for an EOT under a Construction Contract? A standard Construction Contract usually has provisions enabling a Subcontractor to refer a dispute about an EOT to an independent Mediator. Negotiations between the parties may result in a satisfactory resolution being reached in respect of an EOT claim and a Subcontractor thereby avoiding a liquidated damages claim for delay.
It’s vitally important that Subcontractors ensure that communications in respect of claim for an EOT are in writing, so the written communications can be used to support the Subcontractors position in response to a claim for liquidated damages in an Adjudication Application. Even if a Contractor refuses to allow an EOT claim a Subcontractor can still argue in an Adjudication Application that it’s not liable for liquidated damages on the basis that the delay was caused by the conduct of the Contractor. Subcontractors should ensure that delays caused by acts and omissions of the Contractor are properly documented in writing by either emails and site notes so these can be produced and relied upon in an Adjudication Application.
What happens if you have failed to comply with the Contract in making a claim for an EOT or have simply failed to claim an EOT and thereby exposing yourself to a liquidated damages claim in an Adjudication Application? Depending upon the terms of your Construction Contact a Subcontractor may still be able to defeat a claim for liquidated damages, in circumstances where, the Subcontractor is not entitled to an EOT or has not made a claim for an EOT.
Firstly, the Construction Contract may provide the Contractor with a residual power to grant an EOT for any reason and at any time, notwithstanding that a Subcontractor has not claimed an EOT or is not entitled to one. A Subcontractor in such circumstances, can argue that the obligation of good faith requires the Contractor to exercise the residual power in its favour and grant an EOT, particularly if the Contractor has, by its own conduct, caused or contributed to the delay.
Secondly, the amount claimed by a Contractor for liquidated damages may be a penalty and not enforceable at law against a Subcontractor in which case it cannot be offset against an amount claimed by a Subcontractor pursuant to a payment claim in an Adjudication Application.
Thirdly, subject to the terms of the Construction Contract, the Contractor may not have a contractual right to set off a liquidated damages claim against a claim for payment for work done by the Subcontractor in a Payment Claim, in an Adjudication Application.
Are you embroiled in a dispute regarding variation claims? It is a constant battle for Subcontractors to be paid for variations done. Stay tuned for our next bulletin that will discuss ways to assist Subcontractors with variation claims in an Adjudication Application.
If you require further information please contact Justin Mathews of our office on 07 5574 0111 or via email at firstname.lastname@example.org.