In a construction project, delays often lead to major costs for both the contractor and the client. The contractor needs to pay their employees, pay for equipment and start their next project, while the client wants to occupy the building on the agreed completion date. Delayed progress can also affect other stakeholders on the project, who suffer waiting time and lost revenue/additional costs.
How the bill and risk should be distributed is handled through the delay rules, which should always be regulated by the agreement between the parties. Normally, a delayed contractor will be responsible for paying a daily penalty to the client, while a delayed client must grant an extension of the construction period and adjust the payment to which the contractor is entitled.
But when can a project be said to be delayed, and how do you know who is responsible for the delay? This question is often disputed and subject to court proceedings.
Determining when the project should be completed may seem simple, as this should be regulated in the agreement between the contractor and the client. However, questions may arise as to what has been agreed, particularly where the date for the final deadline or interim deadlines is formulated in a way that leaves room for interpretation.
This can typically happen where the agreement states that the contractor "expects" completion on a specific date, or other, more open formulations. There may also be discrepancies between the wording in the construction contract and the dates in the progress plans. In such cases, it will be necessary to interpret which date the parties intended to commit to, based on what is stated in the contract and how the parties have otherwise acted.
In construction projects, the contractor often creates a progress plan for the project. It is important to note that the dates in a progress plan are not normally decisive when assessing whether a project is delayed or not, unless it follows from the actual agreement between the parties that the progress plan should be relevant to the question of delays.
For some projects, no specific date for completion has been agreed. In such cases, principles from the NS contracts can provide guidance, and the starting point is that a contractor should start the agreed work as soon as possible, with reasonable progress and without unnecessary delay. These are elements that can quickly present major interpretation challenges and lead to complicated assessments of the parties' specific circumstances. For this reason, we strongly urge that clear deadlines are clearly agreed and that good mechanisms are in place to regulate any delays.
Also read: 7 potential pitfalls of a construction contract in Norway
Where a final deadline has been agreed and circumstances arise that mean that this is likely to be exceeded, the question will arise as to whether the contractor is entitled to an extended deadline for delivery.
For a contractor to be entitled to an extended deadline, he must normally be prevented from completing the project as a result of changes from what was originally agreed, lack of facilitation or cooperation from the developer or other circumstances for which the developer must take the risk.
It is also crucial that the contractor is actually prevented from completing the project within the specified time. Minor circumstances that are inconvenient but can be overcome within the deadline do not entitle the contractor to an extension of the deadline.
When assessing whether a change entitles the contractor to more time, the starting point is that the contractor has the manpower and equipment adapted to what was originally stated in the contract. If the client requests changes that require extra people or larger machines to maintain the same progress, the contractor will normally be entitled to a time extension.
Also read: Strict notification deadlines in NS 8405 and NS 8407
Where it is necessary for the contractor to do work beyond what was originally agreed as a result of circumstances for which the contractor is not responsible, it is also natural for the contractor to be paid for this. How the remuneration is to be adjusted must be decided on a case-by-case basis, but normally the contractor should be paid for both direct and indirect costs incurred.
Different agreements and Norwegian Standard (“NS”) contracts have different requirements for when and how to give notice that the project cannot be completed as originally anticipated.
If the contractor believes that a delay has occurred for which he is not responsible and which entitles him to an extension of time and an adjustment of the remuneration, he must submit a neutral notice. If this is not done without undue delay (NS8405/15 and NS8407/17), he risks losing the opportunity to make a claim against the client.
The NS contracts provide no clear guidance on what a neutral notice must contain, but it should as a minimum be made clear whether the contractor requires an extension of the deadline and/or an adjustment of the remuneration, and what circumstances make this relevant. Furthermore, there is a requirement that notice must be given in writing and to the other party's stated representative.
Once the consequences of a delay have been clarified, the contractor must specify and justify the claim to the client. Here, the contractor is expected to be specific, and a poor description of the circumstances may result in the contractor losing its right to remuneration adjustment and/or deadline extension in whole or in part.
Once the specified and reasoned notice has been received by the client, he in turn is obliged to consider the claim made. If the client does not act when the specified notice is received, he may be prevented from asserting his claims.
If you use certain NS contracts such as NS8405/15 and NS8407/17, there are short deadlines for notifying the other party, both when it comes to the neutral and specified notice from the contractor, and to the client's response. It is not normally possible to set any fixed time frames for when notice must be given, and this will depend on a specific assessment of the circumstances. The starting point is that notice must be given "without undue delay", which in practice means that if you use more than one working week, you must have a good reason.
Also read: Choose the right construction contract type for your project
Delays in construction projects are expensive - both for the contractor and the client. That's why it's crucial to have clear agreements on when the project should be completed and how to deal with delays. If the client creates extra work or obstacles, the contractor can get both more time and extra payment. But this must be notified promptly and in writing - otherwise the claims will be lost. In other words, it pays to have clear deadlines, good procedures for notification and clear agreements. This avoids expensive conflicts and keeps the project on track.