"Delay" in infrastructure projects has become the norm, whereas timely completion of the project has become the exception. During the execution of an infrastructure project, the parties may encounter several events which delay the execution and completion of the Project.
Delay in completion of projects brings with itself a host of questions left to be determined by contract administrators, courts and tribunals. At its core, lies the question - who is responsible for the delay? & consequences thereof!
If the delay is occasioned by any act of the Employer ("Employer's Delay Event"), the Contractor will be entitled to an extension of time and / or compensation for such extended period of works whereas if the delay is attributable to the Contractor ("Contractor's Delay Event"), the Employer is entitled to inter alia recover delay damages (which is usually in the form of liquidated damages).
However, it is often seen that such delay events at the instance of either parties do not occur in isolation and at different times. They are often concurrent in nature. The Indian Contract Act, 1872 ("Contract Act") does not define the term 'Concurrent Delays'. However, the SCL Delay and Disruption Protocol, 2nd Edition1 ("SCL Protocol") provides that "True concurrent delay is the occurrence of two or more delay events at the same time, one an Employer Risk Event, the other a Contractor Risk Event, and the effects of which are felt at the same time."
For instance, a Contract provides that encumbrance free land is to be handed over by the Employer within 30 days from its execution. Within the same time frame of 30 days, the Contractor is required to prepare its layout design and drawings and submit the same with the Employer. Without land, there cannot be commencement of construction works. At the same time, without layout design and drawings also, there cannot be commencement of construction works. Both parties delay the performance of their obligations by 30 days from the due date. Both delay events are critical in nature since they affect the critical path of the project. ('Illustration')
In the above Illustration, land handover is a promise made by the Employer, after which the Contractor can commence the works. However, commencement of works is also dependent upon the performance of the Contractor's obligation to prepare and submit its layout design and drawings. Failure of either parties affects the critical path of the project and result in delay.
The Contract Act is the substantive law governing contracts in India. It is an exhaustive code governing the rights and liabilities of parties arising from their contractual relations.
Section 54 of the Act, which applies with full vigor to the issue of concurrent delays, provides that in a contract consisting of reciprocal promises (1st promise and 2nd promise), such that the 2nd promise cannot be performed unless the 1st promise is performed, and the promisor of 1st promise delays such performance, such a promisor cannot claim the performance of the 2nd promise and must make compensation to the other party for the loss suffered by it due to non-performance of 1st promise.
Although, what is contemplated by Section 54 is the consequence of non-performance of the 1st promise by its promisor, however, the basic public policy principle enshrined under Section 54 is based on the latin maxim nullus commodum capere de sua injuria propria i.e. no one can derive advantage from his own wrong. The party defaulting in performing the 1st promise cannot seek performance of the 2nd promise, because such a defaulting party is the cause for non-performance of the 2nd promise.
Apropos, the 1st promise in the above Illustration consists of two elements to be performed by both parties i.e. land handover and submission of layout drawings and designs and the 2nd promise was commencement and completion of works to be done by the Contractor. Naturally, neither party can complain against the other on account of delay in performance of the 2nd promise since they have themselves failed to perform their own respective parts of the 1st promise. Thus, an anomalous situation is created whereby the parties are at a deadlock insofar as treatment of the delayed period is concerned.
This is where the Act leaves much to be desired. There is presently no provision which effectively deals with the nuances of the issues emerging from the concept of concurrent delays. Suitable provisions ought to be introduced in the Contract Act which may provide a mechanism to determine the entitlement of the parties for extension of time, compensation and delay damages. Since autonomy of the parties to determine and provide for such provisions is pivotal, therefore any such provisions in the Contract Act may be made subject to any agreement between the parties. However, sans any contractual provisions, it would be ideal for the parties to refer to and rely upon the Contract Act for dealing with such issues.
In this regard, reference may be made to the SCL Protocol which deals with the issue of concurrent delays in detail. It provides that "Where Contractor Delay to Completion occurs or has an effect concurrently with Employer Delay to Completion, the Contractor's concurrent delay should not reduce any EOT due." In the same breath, the SCL Protocol also provides that in cases of concurrent delays, compensation can only be paid if the Contractor "is able to separate the additional costs caused by the Employer Delay from those caused by the Contractor Delay. If it would have incurred the additional costs in any event as a result of Contractor Delay, the Contractor will not be entitled to recover those additional costs."
Extension of Time
Essentially, what the SCL Protocol provides is that the Contractor's Delay does not to absolve the Employer from its liability to grant EOT on account of Employer's Delay. This, as per the SCL Protocol itself, is based on the English Law principal namely the 'prevention principle' (which precludes the Employer from taking advantage of the non-fulfilment of a condition, the performance of which the Employer has hindered).
This 'prevention principle', as it applies to India, stands codified inter alia in sections 51 to 55 of the Contract Act.
Section 51 provides that a promisor is not bound to perform its part, unless the promisor of the reciprocal promise is ready and willing to perform its part. Section 52 of the Contract Act provides the Order of performance of reciprocal promises and obligates the parties to follow the contractually mandated order and in absence thereof, they are required to be performed in that order which the nature of the transaction requires. Section 53 entitles the party, which is prevented by the other party from performing its obligations, to rescind the contract and seek compensation from the other party. Section 54 deals with the effect of default as to that promise which should be performed (first), in contract consisting of reciprocal promises. Whereas section 55 deals with the failure to perform within the time so fixed and other alike incidental issues.
Thus, unlike the SCL Protocol, there is no absolute proposition under the Contract Act that in each case of Employer's Delay Event, the Contractor is eligible for an extension of time irrespective of the Contractor's Delay Event. Rather, the facts of each case have to be analyzed in the context of Sections 51 to 55 as well as other provisions governing performance of contractual obligations under the Contract Act.
For instance, in the above Illustration, what could be argued on behalf of the Employer is that since the Contractor failed to submit its layout drawings and designs thereby failing to show its readiness and willingness to perform, the Employer, in terms of Section 51, is not obligated to ensure handing over of land. Consequently, a claim for even EOT would not be maintainable on account of the Employer's Delay Event.
Thus, grant of EOT in cases of concurrent delays would be a matter of determination by the contract administrator, court or tribunal after considering the facts and circumstances of each case and no straight jacket formula can be said to be applicable.
Delay Damages
A natural consequence of the project getting delayed due to Contractor's Delay Event is the simultaneous imposition of delay damages by the Employer. The delay damages are usually in the form of Liquidated Damages recoverable by the Employer. Normally, when an EOT is granted by the Employer, delay damages cannot be imposed.
The SCL Protocol provides that once EOT is granted by the Employer, Delay damages cannot be imposed for such extended period.
The position under the Contract Act may be interpreted to be slightly different since under Section 55, at the time of accepting belated performance, the Employer is entitled to indicate that it intends to impose delay damages. Section 55 read with Section 63 of the Contract Act clearly empowers the Employer to reserve its right to recover delay damages despite granting EOT. However, without indicating such intention, at the time of granting EOT, the Employer would not be entitled to recover delay damages.
Normally, when an EOT is granted by the Employer, it is on account of Employer's Delay Events and no delay damages can be imposed once EOT is granted since the Employer virtually accepts its shortcomings and remedies the situation by granting EOT. However, a situation may arise where the Employer grants an extension, however, at the same time, it also imposes delay damages, keeping in view the Contractor's Delay Events. There is no absolute bar under the Contract Act and such a situation will be governed by the facts and circumstances of each case as well as the contract between the parties.
Compensation
Section 73 of the Contract Act provides for 'Compensation for loss or damage caused by breach of contract'. The party claiming compensation has to establish that the contract has been broken by the other side and as a consequence thereof, the claimant has suffered such loss or damage, which is a natural and usual consequence of such a breach, or which the parties knew at the time of making the contract, to be the likely result of such breach. It specifically excludes indirect and remote losses and provides that the Court has to take into consideration the mitigate measures to be adopted by the Claimant in minimizing the effect of such breach.
Thus, for the Contractor to claim compensation under section 73, it has to prove that the loss or damage suffered by the Contractor is a direct and natural result of the Employer's Delay Event. The words 'party who suffers by such breach is entitled to receive' used in section 73 along with the words 'from the party who has broken the contract' gives a clear legislative indication that the loss or damage suffered should solely be accountable to the breach being complained of. However, at the same time it also cannot have any nexus with the Contractor's Delay Events.
When the loss or damage can also be traced to the Contractor's own breach, notwithstanding the Employer's breach, a claim under section 73 would not be maintainable unless the Contractor is able to segregate the loss or damage arising out of the Employer's breach from that of the Contractor's breach. To this extent, the position under the Contract Act seems to be in consonance with the SCL Protocol which also disentitles the Contractor from claiming compensation on account of Employer's Delay Event which runes concurrently with the Contractor's Delay Event unless the Contractor is able to segregate its compensation claim on account of the losses suffered or costs incurred due to the Employer's Delay Event from the losses and costs incurred by it on account of the Contractor's Delay Event.
Conclusion
Keeping in view the exponential rise in infrastructure projects, there is a need to provide certainty to the parties keeping in view the variety of circumstances which may arise during the execution of a project. Although, the abovementioned provisions of the Indian Contract Act, 1872 may be referred in order to deal with the issue of concurrent delays, it is always advisable for parties to contemplate and incorporate the procedure to be followed while dealing with the issue of concurrent delays and the method to be adopted for assessing its impact. While doing so, the parties must also agree to a contemporaneous evaluation of the EOT claims as and when the delay event triggers and adversely affects the works. In doing so, provisions regarding maintenance of proper project records on a day to day basis may go a long way in assisting the project administrator to assess the delay event and EOT claims and save valuable cost and efforts by the parties in attempting to resolve the disputes through dispute resolution mechanisms.
Footnote
1. SCL_Delay_Protocol_2nd_Edition_Final.pdf (Delay and Disruption Protocol | Society of Construction Law UK (scl.org.uk) )
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