Residential Construction Delays: How to Deal with a Delay in Construction?

Residential building construction is a complex endeavour that often encounters a multitude of challenges. Among these, delays in construction projects can have significant repercussions, affecting not only the completion date but also the contractual obligations and financial aspects of the parties involved. Delays in construction projects can result from a variety of factors, ranging from material shortages to unforeseen circumstances. In this article, we delve into the intricacies of construction delays in the residential building sector. We explore the contractual aspects, causes, and consequences of these delays, as well as the mechanisms available for addressing and mitigating them. Understanding the intricacies of construction delays is essential for homeowners, builders, and all stakeholders in the construction process to navigate these challenges effectively and ensure the successful completion of residential projects.

Table of Contents

Delays in Residential Building Constructions

Delays in residential building constructions can have significant consequences in construction projects. A delay refers to any setback in the progress of the works that affects the builder’s ability to meet the practical completion date mentioned in the contract. Such delays can arise from various factors, including material shortages and unforeseen circumstances.
Most standard form contracts used for residential building projects, including new homes, renovations, and pool construction, typically contain clauses that allow builders to claim an extension of time to the construction period for ‘claimable delays.’ The definition of a ‘claimable delay’ varies depending on the specific contract terms.

However, it’s crucial to understand that in most jurisdictions, builders can only claim an extension of time if the delay was “not reasonably foreseeable” and was “beyond the reasonable control of the contractor.” This requirement cannot be excluded through contractual agreements.

Date of Practical Completion and Breach of Contract

In every construction contract, there is usually a specified Date for Practical Completion, which represents the deadline by which the project must be completed. The Home Building Act 1989 (NSW) mandates that builders provide clients with a written contract containing a completion date, which they must adhere to unless granted an extension of time.
The clarity of the Date for Practical Completion is essential. It must specify the exact date on which the builder must complete the project to avoid potential disputes.
If such a delay leads to the builder missing the Practical Completion deadline stated in the contract, it constitutes a breach of contract. In such cases, the client may be entitled to seek damages for the builder’s failure to meet their contractual obligations. However, it’s important to recognise that not all delays automatically result in a breach; some delays may entitle the builder to an extension of time, provided they meet the required criteria.

Reasons for Construction Project Delays

Construction projects are often subject to delays, and identifying the specific cause of a delay is essential for effective resolution. Here are some common causes of construction delays and their impact on project timelines:

  • Weather: Extreme weather conditions, such as heavy rain, strong winds, and snow, can significantly impede construction activities, especially outdoor projects. Weather-related delays can vary from a few days to several weeks, depending on the severity of the conditions.
  • Materials: Delays caused by materials can stem from various issues, including delayed deliveries, incorrect specifications, or quality problems. For instance, if the wrong type of material is delivered to the construction site, it may necessitate return and replacement, resulting in substantial delays.
  • Subcontractors: Contractors often rely on subcontractors to handle specific tasks, such as plumbing or electrical work. If a subcontractor fails to deliver on time or faces unexpected challenges, it can disrupt the entire project schedule.
  • Design Changes: Alterations to the original design plans can lead to delays, especially when they require significant modifications to ongoing work. For example, if a homeowner requests a change in room layout, it may entail adjustments to plumbing and electrical systems, causing project delays.

It’s crucial for homeowners and contractors to be aware of these common causes of construction delays to enable proactive measures to prevent or mitigate them.

Costs and Damages for Construction Delays under Common Law

Under common law, there exists no automatic entitlement to delay or disruption costs. Recovery of such costs can only occur when explicitly stipulated within a contract. However, within the realm of common law, the possibility of recovering delay or disruption costs is contingent on establishing that these costs constitute damages resulting from a breach of the contract. In this context, the contractor must demonstrate that the losses incurred naturally arose from the principal’s breach or could reasonably have been anticipated by both parties at the time of entering into the contract. 

Contractual Rights to Delay or Disruption Compensation

The language used in contracts to allow for delay or disruption compensation can yield different outcomes, depending on the specific terms and conditions. Several standard form contracts exemplify this variability:

Delay or Disruption Costs under AS 2124-1992 (Clause 36)

Clause 36 of AS 2124-1992 addresses the recovery of additional costs incurred due to delays resulting from an extension of time. It does not explicitly distinguish between delay costs and disruption costs, although the entitlement may encompass ‘extra costs for delay or disruption.’ By default, the contractor is entitled to extra costs solely for delays caused by the superintendent, the principal, its consultants, agents, or other contractors. Extra costs refer to expenses that are incurred solely because of the delay, excluding costs that would have arisen even in the absence of the delay, such as off-site overheads. It’s essential to note that extra costs are distinct from loss or damage, which may include elements like loss of profit.
For delays caused by other factors, the contractor can claim compensation only if the contract explicitly provides for such entitlement in its annexure or elsewhere within the contract.

Delay Damages under AS 4902-2000 (Clause 34.9)

In contrast, clause 34.9 of AS 4902-2000 stipulates that when an extension of time is granted, the contractor is entitled to ‘delay damages’ for each day falling within the extension of time period due to a ‘compensable cause.’ Here, the contractor’s right to recover costs is linked to the prior granting of an extension of time and is subject to the occurrence of a ‘compensable cause.’
A ‘compensable cause’ encompasses acts, defaults, or omissions by the superintendent, the principal, its consultants, agents, or other contractors (not employed by the contractor). This implies that, in some cases, the contractor may claim damages even in the absence of a breach by the principal, provided the contract permits it. The interpretation of ‘damages’ in this context, outside the scope of breach of contract, may include elements such as loss of profit and fixed overheads.

Fixed Rates of Delay Costs and Damages under Construction Contracts

It is common for contracting parties to reach agreements on fixed rates for delay costs or delay damages, called liquidated damages. Often, multiple rates are defined to account for varying levels of expense, such as when certain equipment, like a crane, is on-site for part of the project duration.
Caution is advised when it comes to the precise language and practical application of these agreed-upon rates. They may produce unintended consequences for both parties. For instance, they could exempt a head contractor from bearing the cost of damages to a subcontractor when the head contractor’s breach was caused by the principal. Furthermore, the language used can sometimes operate as liability caps.

Liquidated Damages are in Addition to General Damages

Section 11 of the Home Building Act stipulates that any provision for liquidated damages in a residential building contract must be reasonable and represent a genuine estimate of the loss the client is likely to incur due to a breach. If the liquidated damages are found to be disproportionate to the actual loss suffered by the client, the courts may deem them to be a penalty and unenforceable. While standard form building contracts may contain default provisions specifying a fixed amount for liquidated damages, this clause in residential building contracts will not prevent owners from seeking general damages—actual damages stemming from delays.
An illustrative case in this context is Cappello v Hammond & Simonds NSW Pty Ltd, which involved an HIA building contract featuring a liquidated damages clause set at a nominal rate of $1 per day for delays. The builder in question completed the project seven months behind schedule, without requesting an extension of time. A pivotal aspect of this case was whether the liquidated damages clause violated Section 18B(1)(d) of the Home Building Act, which mandates builders to complete residential building work within the specified contract timeframe. The Supreme Court concluded that the liquidated damages clause did not limit the owner’s ability to claim damages beyond a nominal amount. Consequently, the owner retained the right to seek general damages for delays, in addition to the liquidated damages.
This ruling has ramifications for both builders and homeowners, as it implies that homeowners can potentially claim damages exceeding the nominal liquidated damages amount specified in the residential building contract in situations where the nominated liquidated damages are insufficient.

Extension of Time as a Consequence of Unexpected Delays

Most residential building contracts used by home builders are standard forms issued by organisations like the Housing Industry Association (HIA), the Master Builders Association (MBA), or the Department of Fair Trading, collectively known as Standard Form Contracts. Each of these Standard Form Contracts automatically grants builders a reasonable extension of time for project delays caused by various factors. These factors include inclement weather, owner-initiated variations to the works, actions or inactions by the owner, delays in approvals, material supply delays as chosen by the owner, contract-compliant work suspensions, disputes with neighbors, and other unforeseen events beyond the builder’s control.
In the case of HIA and Fair Trading Contracts, builders must notify the owner in writing about the cause and estimated duration of the delay within ten business days of the triggering event to claim an extension. Failure to do so may forfeit the entitlement.

However, the MBA Contract does not impose timing restrictions on extension notifications, allowing owners to consider various events when evaluating reasonable adjustments to the Building Period.
Delays can occur during construction, impacting the builder’s ability to meet project deadlines. If these delays result from uncontrollable factors like adverse weather, builders may be eligible for an extension of time. For example, continuous rain causing a week of work disruption may lead to a one-week extension of the Date for Practical Completion. 

The entitlement to an extension of time depends on the contract terms, including provisions specifying the circumstances, the claim process, and supporting evidence requirements. Failure to follow the correct procedure may result in the builder losing the extension entitlement and potential liability for delay-related damages.

How to Issue a Notice of Extension of Time

To request an extension of time, it is essential to follow the specific requirements and procedures outlined in the extension of time clause of your contract. Typically, an extension of time claim should be made in writing and must be accepted by the principal.

  • Notice of Delay and Intention to Claim: In most cases, you will need to provide a preliminary notice of delay and your intention to claim an EOT. This notice serves as an early warning to the principal about potential delays in the project’s timeline.
  • Formal Extension of Time Claim: Following the notice of delay, a formal extension of time claim is usually required. This claim should outline the reasons for the delay, the impact it has on the project schedule, and the requested extension duration.
  • Understanding Contractual Notification Requirements: It’s critical to thoroughly understand the notification process specified in your contract. Failure to adhere to these requirements can jeopardise your right to claim an EOT.

How to Mitigate Construction Delays – Contractual Considerations

Efficient project management and risk allocation within construction contracts can significantly contribute to the prevention of construction delays. Key contractual considerations include:

Extension of Time Clause

To mitigate construction delays, it is crucial to explicitly outline the circumstances under which a contractor is entitled to an extension of time within the contract. These circumstances may encompass events like government-imposed site closures, delays in the delivery of materials from overseas, or issues arising from situations such as COVID-19.
Additionally, it is essential to determine which party, either the contractor or the principal, benefits from float time. Float time represents the extra time built into the project schedule to accommodate unforeseen delays.

Clause for Damages

Given that construction projects are susceptible to delays, a critical contractual consideration is how damages related to delays are managed. Principals often seek to cap the amount of delay damages payable under the contract. This cap may come with a set of exclusions and conditions designed to protect the principal’s interests. By doing so, the principal can effectively manage its risk without being exposed to excessive damages.
When calculating liquidated damages, meticulous consideration must be given to ensure that the calculated amount aligns with the project’s value and potential financial losses. This enables the principal to manage risk effectively without imposing caps on liquidated damages.
On the other hand, contractors may aim to limit their liability by seeking caps on liquidated damages or negotiating lower daily rates. Additionally, they may resist any attempts to impose caps on delay damages to safeguard their interests.

Dispute Resolution Clause

One critical aspect of construction contracts is the inclusion of a well-defined dispute resolution clause. This clause establishes the procedures and mechanisms for resolving disputes that may arise during the construction process.
By having a clear and agreed-upon dispute resolution mechanism in place, construction parties can avoid protracted and expensive litigation. Instead, they can address conflicts efficiently and collaboratively, promoting smoother project execution and dispute resolution.

Effective Construction Project Management: Practical Ways to Deal with Delays

Delays and timeframes are common challenges in residential construction projects, and effective management is crucial to prevent problems. Here are some strategies for managing delays and timeframes in residential construction projects:

  • Creating Realistic and Flexible Timelines: One of the first steps is to establish realistic and flexible timelines. Builders should consider potential delays and build flexibility into the schedule. This allows for adjustments and accommodates unexpected circumstances while keeping the project on track.
  • Establishing Clear Communication Channels: Clear communication channels among the builder, homeowner, and other project stakeholders are paramount. This ensures that everyone involved understands the project’s scope, timeline, and budget. Effective communication helps prevent misunderstandings and keeps everyone aligned with project goals.
  • Conducting Regular Progress Inspections: Regular progress inspections play a crucial role in identifying potential issues early on. Builders should schedule inspections at key project milestones, both before and after completing significant phases. Early identification allows for swift resolution and prevents delays from escalating.
  • Establishing Contingency Plans: Having contingency plans in place is essential to mitigate the impact of delays and unforeseen circumstances. Builders should develop backup strategies for potential delays, such as alternative material suppliers or subcontractors. These contingency plans help maintain project momentum.
  • Resolving Disputes through Mediation or Arbitration: Disputes can arise during any construction project, and having a plan for dispute resolution is important. Mediation or arbitration can be effective methods for resolving disputes without resorting to costly and time-consuming legal proceedings. Implementing these processes helps maintain project progress.

By implementing these strategies, builders and owners can effectively manage delays and timeframes in residential construction projects. This approach ensures that projects stay on course and results in a satisfactory outcome for all parties involved.

In managing construction delays, it’s crucial for all parties involved, from homeowners to builders, to take a proactive stance. Understanding the root causes of delays can empower homeowners to safeguard their interests and investments. Builders benefit from well-structured contracts, effective communication, and robust project management to minimise delay risks. Our firm, PBL Law Group, is dedicated to delivering high-quality and timely residential construction projects. If you’re facing construction delays, our experienced team can offer essential guidance in dispute resolution, timeline management, and navigating the residential construction landscape. Don’t let delays hinder your projects; contact us for professional assistance!

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Authored by

Raea Khan

Director Lawyer

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Raea Khan Circle
Director Lawyer
Raea Khan

Raea is Managing Director and Principal Lawyer for PBl Law Group. Raea assists clients with major projects, property developments, construction and strata law.

He has worked in Western Australia and Queensland assisting with expansion projects in the energy and resource sector and now predominately advises clients in Strata and Community Association matters.

He is a member of the Australian College of Strata Lawyers where majority of his work is advising developers and owners corporations with dispute related minor and major defects, strata governance and common property litigation. He is proficient at leading negotiations and meetings.

Raea has a particular interest in the commercial aspect of any dispute and always tries to weigh up the risk, reward and benefit of legal proceedings at each different stage.

Raea enjoys all forms of competitive sport, including Crossfit and actively participates in Triathlons, representing Australia as an age group athlete. He was a member of Red Head Surf Lifesaving club.

  • Strata Law
  • Construction & Major Projects
  • Commercial and Business Law
  • Planning & Environment Law