Generally, parties to a construction contract will negotiate the most favourable terms and try to reduce the risk profile each clause is likely to carry for that party.

Although the types of clauses in the contract will vary from project to project, there are common clauses which are widely used and considered essential, for example an extension of time clause.

EOT Clauses

Extension of time (EOT) clauses are one of the important features of construction contracts that allows the contractors to claim additional time to complete the works if the requirements set out in that clause have been met.

Commonly EOT clauses have:

1. A list of events for which additional time can be claimed including acts, defaults or omissions of a principal;
2. A mechanism to follow to claim additional time together with time bars invalidating claims made out of time; and
3. A unilateral power to extend the date for completion which the principal can exercise at its discretion.

The reason why such features are found is to address the prevention principle. The evolution of these clauses can be ascertained from the evolution of the cases which are discussed below.

Peak Construction (Liverpool) Ltd v McKinney Foundation Ltd

This decision is the leading decision relied on in respect of the “prevention principle”. The prevention principle is that a party cannot enforce liquidated damages where it has caused the contractor’s delay.

In this case, the relevant facts were:

1. the principal engaged Peak who in turn engaged McKinney;
2. the principal delayed in giving instructions to Peak and later sought to recover liquidated damages from Peak;
3. Peak in turn sought to claim liquidated damages from McKinney.

The Court held that Peak was not entitled to recover liquidated damages because the principal was not entitled to recover liquidated damages from Peak. The reason why was that the extension of time clause did not allow Peak to become entitled to an extension of time for delays caused by the principal.

Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) NSWCA 211

The relevant facts were:

1. Abigroup was engaged by Peninsula;
2. The contract:

• had a time bar requiring EOT claims to be made within 28 days of the relevant event;
• gave the superintendent power to extend time for any reason, even where the contractor failed to submit any EOT claim; and
• required the superintendent to act honestly and fairly in exercising functions under the contract;

3. Abigroup failed to make EOT claims.

The Court held:

1. The superintendent’s power to extent time could be exercised for the benefit of both principal and contractor;
2. The superintendent was obliged to act honestly and impartially in deciding whether to exercise this unilateral power; and
3. If the superintendent had difficulty in deciding whether to exercise the power because of the time lapsed since a EOT Claim should have been made, this could be a ground on which the superintendent could refuse an extension.

Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) NSWCA 151

The relevant facts were:

1. Probuild was the head contractor and DDI was a subcontractor;
2. DDI failed to complete on time;
3. DDI claimed it was delayed by reason of variation works, however, had not made claims for extensions of time or complied with notification requirements for variation claims;
4. There was no superintendent under the contract and Probuild had to power to unilaterally extend time. There was also no express obligation on Probuild to act honestly and fairly like there was in the decision of Peninsula and Abigroup.

The Court held:

1. The prevention principle can be modified or excluded by contract. This can be the case where the failure by the contractor to claim an extension of time has negated the prevention by the principal;
2. In this instance, in order to claim liquidated damages, Probuild was required to extend the time for delays it had caused; and
3. This obligation arose from the underlying rationale of an implied duty of good faith in the exercise of the unilateral power to extend time.

Growthbuilt Pty Ltd v Modern Touch Marble & Granite Pty Ltd (2021) NSWSC 290

In this case, Growthbuilt terminated the subcontracts with Modern on the basis that Modern failed to complete the Works by the contracted date for completion.

Modern failed to comply with the EOT clause under the subcontracts, but disputed Growthbuilt’s claim on the basis that:

1. delays were caused by Growthbuilt, therefore they cannot be held to the original date for completion;
2. the subcontracts provided that Growthbuilt had unilateral power to extend the Dates for Completion (despite Modern not having complied with EOT clause under the Subcontracts); and
3. Growthbuilt was obliged, under an implied term, to act reasonably and in good faith in exercising its direction under the EOT clause.

The Court looked at prior case law in Probuild and Peninsula Balmain, however, the Court distinguished Growthbuilt’s case on the basis that Growthbuilt’s subcontracts expressly provided that it had discretionary power to extend the date for completion which was to be exercised in Growthbuilt’s “absolute discretion”.

This case demonstrated that inclusion of the words “absolute discretion” in EOT clause will, subject to the exact terms of the contract, release a principal from the obligation to act reasonably or in good faith.