Too little too late – When will price increase notices and requests for extension of time be valid under a “fixed price” or “lump sum” building contract - PART TWO

Too little too late – When will price increase notices and requests for extension of time be valid under a “fixed price” or “lump sum” building contract – the State Administrative Tribunal provides clarification in the case of Vadakkumkaraputhaveedu v Kulowall Construction Pty Ltd [2023] WASAT 29 (Kulowall).

PART TWO

Key Takeaways:

1. When a builder issues a claim for an extension of time, there must be a demonstrable link between the extension claimed and the delay faced with respect to the specific works in question.
2. It is unlikely that a builder can or will be able to satisfy the above requirement/s by simply referring to “COVID-19” as a reason for the delay.

In Part One of this series, we introduced the case of Kulowall and discussed the implications of this decision on the ability to levy and defend price increase notices issued under a fixed price contract.

In addition to the matter of price increase notices, the Tribunal in Kulowall also had need to consider and make determinations as to the validity of four notices of extensions of time (EOT notices) levied by Kulowall Construction Pty Ltd (K Construction) against Mr and Mrs Vadakkumkaraputhaveedu (the Owners).

The spike in the number of EOT notices off the back of delays in the wake of increase construction activity in Western Australia has been well documented in the media in recent months, however, the case of Kulowall may put an end to builders baldly relying on COVID-19 to claim extensions of time to justify extensive and lengthy delays.

Before looking at how the Tribunal dealt with the matter, let us first restate the facts which the Tribunal were faced with:

The builder, Kulowall Construction Pty Ltd (K Construction) and the owners, Mr and Mrs Vadakkumkaraputhaveedu (the Owners) entered into a lump sum building contract on 18 November 2020 (contract):

1. providing K Construction with 320 working days to complete the contracted works.
2. over the course of the Works, K Construction issued four EOT notices to the Owners, the combined effect of which was to increase the time to complete the Works to 555-working days.
3. the four EOT notices provided various reasons in support of the extensions of time claimed, including, COVID-19 related disruption and associated delay in delivery of labour and materials.

K Constructions attempted to justify the four EOT notices on the basis of delay created by boarder closures, COVID-19, rain, supply delays, increased cost of labour and materials and unavailability of labour. All EOT notices issued by K Construction were rejected by the Tribunal.

In making the above determination, the Tribunal relevantly held:

1. the EOT notices were unsupported by adequate evidence to demonstrate both the cause and the extent of the delay and extension of time claimed;
2. K Construction could not satisfactorily link back the extension claimed with any actual delay faced and was considered to simply rely on COVID-19 as an event causing disruption to the State of Western Australia as whole to justify its EOT notices.

Most importantly, the Tribunal confirmed that it was incumbent upon a builder who seeks an extension of time, to provide to the owner/s cogent evidence of the link between the general state of the building industry and actual delays that affect the dwelling in question.

K Construction was held not to be able to rely on the “general situation” of the building industry without addressing the specifics of how the contractual relationship between the builder and the owner is affected by those circumstances.

Conclusions:

As previously discussed, the case of Kulowall provided some much needed guidance as to when and how EOTS may be claimed and presents important lessons for both builders and owners alike.

If you are a builder who is constructing works which have been adversely affected by COVID-19, it is imperative to “get it right” when issuing EOT notices and the failure to do so may create exposure to liability for delay damages suffered by the owner.

If you as a builder need to issue an EOT notice, Kulowall establishes that documentary evidence is key. It is imperative that you: (a) obtain, as far as possible, written confirmation from your suppliers, labourers or contractors as to the extent of the delay and, where possible, reduce that to a number of days; (b) as far as weather-related extensions are concerned, keep an accurate record of the “rainy days” confirm the precise works which are effected by the inclement weather which result in the need to claim a delay; and (c) provide sufficient documentation and specificity to demonstrate the impact of COVID-19 on the specific works you are dealing with. A lack of specificity may result in the Tribunal declaring your EOT notice invalid.

If you are an owner who has just received an EOT notice: (a) ensure that there is a sufficient connection between the amount of time claimed and event alleged to be the cause of the delay; (b) as far as COVID-19 related delay is concerned, ensure that the builder has properly explained how COVID19 has specifically impacted your build; and (c) ensure that the EOT notice is supported by adequate evidence.

At Vogt Legal, we have extensive experience acting for both owners and builders defending or prosecuting EOT notices.

For a confidential and detailed discussion as to how you may be affected by Kulowall, do not hesitate to reach out and contact Will Vogt.