Extension of Time for Contractors
Published on 20 April 2020 by Khong Jo Ee
As Covid-19 spreads and the enforcement of the Movement Control Order (“the MCO”) in full force, it is unavoidable that contractors and sub-contractors will face delayed deadlines and difficulties in completing ongoing projects.
We have compiled some of the key issues contractors and sub-contractors may face as a result of the Covid-19 pandemic and enforcement of the MCO on non-essential services as follows:
- Construction Delay
The question for construction delays would be “who is responsible for the delay?”. The chain of causation test propounded in the case of Daya CMT Sdn Bhd v Yuk Tung Construction Sdn Bhd  1 LNS 920 stipulates a (3) three-part chain of causation is effective to prove the causes for the delay.
- Extension of Time
The outbreak of COVID-19 and enforcement of the MCO are reasons for applying for an extension of time. It is imperative for contractors and sub-Contractors to know the terms providing for an extension of time in their respective construction contracts.
- Pandemic and Enforcement of MCO As Reasons for Extension Of Time?
Covid-19 and implementation of the MCO will result in delays to completion of construction projects beyond the agreed completion date. The force majeure clause in a contract could be helpful in an application for an extension of time.
- Termination of Contract Due to Pandemic and MCO
In the absence of an express force majeure clause in the contract, parties may resort to the doctrine of frustration of contract to terminate a contract when an event occurs unexpectedly, beyond the control of the parties and makes performance impossible
- What Should I Do If My Counterparty Claims Frustration/Force Majeure?
Contractors and developers will have to check whether the contract has a force majeure clause and check on the causal link between the force majeure or frustrating event or non-performance. You should also write to your counterparty and request evidence and explanations for such party’s claims.
- Loss and Expenses
Contractors concerned about delays, increased costs or losses due to the Covid-19 outbreak should consider whether they have any express or implied relief provisions in their contracts.
- The Way Forward
At this juncture, contractors and sub-contractors are still entitled to apply for payment and to claim for ongoing preliminaries, such as the cost of site welfare, insurance, site security, etc. The contractors and sub-contractors may also consider doing the following:
Enter into a vesting agreement to protect them from the risk of insolvency.
Start a conversation with their employer and sub-contractors to agree on a way to deal with the impact of shutdown due to the MCO.
Consider whether their contracts contain a notice requirement to the other party in the event of a possible force majeure claim.
Prepare a detailed log showing how and when the project was impacted due to Covid-19 outbreak should they wish to make a force majeure or impossibility/impracticability claim.
Parties in the midst of negotiation of contracts and in the future, ensure that the force majeure provisions expressly address the subject of pandemics or epidemics.
Construction delay is considered as one of the most recurring problems in the construction industry and often adversely affects project success in terms of time, cost and quality. The issue would be “who is responsible for the delay?”. The case of Daya CMT Sdn Bhd v Yuk Tung Construction Sdn Bhd  1 LNS 920 referred to the text "Delay and Disruption in Construction Contracts" 4th Edition” which propounded a methodology of a 3-part chain of causation to prove the “Relevant Event” in order to show effective causes for the delay. A mere happening of an event is not a good or automatic excuse and the contractor must be able to show the link between the relevant event and the delay. The 3-part chain of causation is as follows:-
Part 1- The Primary Causation- this is the occurrence of the relevant event itself and the following issues are to be identified for the relevant event:-
- nature of the relevant event;
- the "Initiation Date"; and
- the initiation of the chain of causation arising from it.
Part 2- The Secondary Causation- this is to establish that the relevant event caused or resulted in the delay to the progress of works by:-
- identifying the intention to start or finish the work within a fixed point of time; and
- examining the state and progress of work at the Initiation Date.
Part 3- The Tertiary Causation- this is to establish the delay in the progress of works which caused the delay to the completion of the works.
Extension of Time
There are various reasons for applying for an extension of time but for the purposes of this discussion, the reason of delay due to the outbreak of Covid-19 will be analysed. At the outset, it is important for you to be familiar with the terms for an extension of time for your construction contracts. By way of example, the terms for an extension of time for Construction Contracts in Malaysia such as PAM Contract 2006 (with quantities), PAM Contract 2006 (-without quantities), PAM Contract 2018 (with quantities), PAM Contract 2018 (without quantities) and PAM Sub-Contract 2006 (without quantities) provide as follows:-
PAM 2006 (With Quantities)
PAM 2006 (Without Quantities)
PAM 2018 (With Quantities)
PAM 2018 (Without Quantities)
If the Contractor is of the opinion that the completion of the Works is or will be delayed beyond the Completion Date by any of the Relevant Events stated in Clause 23.8, he may apply for an extension of time….
PAM Sub-Contract 2006 (without quantities)
If the Contractor is of the opinion that the completion of the Works is or will be delayed beyond the Completion Date by any of the Relevant Events stated in Clause 21.4, he may apply for an extension of time….
Epidemic as Reason for Extension of Time?
The Technology and Construction Court in the case of The Royal Brompton Hospital National Health Service Trust v. Hammond & Ors  EWHC 39 discussed the conditions to be satisfied before an extension of time is granted as follows:-
"….it would seem that there are two conditions which need to be satisfied before an extension of time can be granted, namely:-
- That a Relevant Event has occurred; and
- That that Relevant Event is likely to cause completion of the works as a whole to be delayed beyond the Completion Date then fixed under the contract, whether as a result of the original agreement between the contracting parties or as a result of the grant of a previous extension of time.”
The relevant event here would be the outbreak of Covid-19 itself and the implementation of the MCO. Are these events likely to cause completion of the works as a whole to be delayed beyond the Completion Date fixed?
If the answer is yes, the Force Majeure clause in your contract could be helpful for the application for an extension of time. Force Majeure is an event or effect that can be neither anticipated nor controlled. Certain force majeure clauses may provide that a party shall not be liable to the other party for any loss, damage or delay whatsoever and howsoever suffered due to any government action which are not attributable to the default of the party or any other cause which is not reasonably foreseeable by the party, the performance of whose obligations is affected by such government action.
Chitty on Contracts 32nd Edition provides as follows :-
“force majeure clause is normally used to describe a contractual term by which one (or both) of the parties is entitled …[be] excused from performance of the contract, in whole or in part or is entitled to…. Or claim an extension of time for performance, upon the happening of a specified event or events beyond his control…”
Most construction contracts have a force majeure clause but its scope and definition of what constitutes a force majeure event may vary. The party wishing to rely and invoke the force majeure clause carries the burden to prove that such force majeure event renders it unable to perform its part of obligations in the agreement. (See case of Intan Payong Sdn Bhd v Goh Saw Chan Sdn Bhd  1 MLJ 311).
A party who wishes to rely on the reasons of Covid-19 or enforcement of the MCO as a reason
for its application for an extension of time will have to ensure that the same is listed as a force majeure event in its contract. Although rare, a specific reference to “pandemic,” “epidemic” or “diseases” will enable a party to rely on the clause and use force majeure as a reason for the extension.
A more common clause can be seen in PAM Contracts and PAM Sub-Contracts which broadly describes force majeure events as follows:-
“any circumstances beyond the control of the contractor caused by terrorist act, governmental or regulatory action, epidemics and natural disasters.”
However, parties cannot rely on force majeure when it is not stipulated or available in the contract. In the absence of an express force majeure clause in the contract, parties will have to negotiate or resolve the request for an appropriate extension of time amongst themselves within the ambits of the contract.
Application for Extension of Time
Most construction contracts have specific clauses requiring the service of early warning notices or written notices for an application for an extension of time. Parties or contractors seeking an extension of time should ensure the application for extension of time is made in compliance with such requirements prescribed in the terms of the contract.
By way of an example, PAM Contracts and PAM Sub-Contracts provide that written notice is required for the application of extension of time and the relevant clauses are as follows:-
Contractors and Sub-Contractors ought to also ensure that their applications for extension of time address or specify how exactly the Covid-19 pandemic or MCO caused delays beyond their control.
Termination of Contract Due to Covid-19 And MCO?
In the absence of an express force majeure clause in the contract, parties may also resort to the doctrine of frustration of contract if they no longer wish to be bound by the terms of the contract. Section 57(2) of the Contracts Act 1950 recognizes the concept of frustration of contract, in providing that:-
“a contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”
The Court in Ramli Bin Zakaria & Ors v. Government of Malaysia  CLJ Rep 719 held as follows:-
"The introductory passage in a chapter dealing with frustration in 'The Law of Contract in Malaysia and Singapore - Cases and Commentary' by Visu Sinnadurai at p. 487/8 reads:
"A contract is frustrated when there is a chance in the circumstances which renders a contract legally or physically impossible of performance. According to the House of Lords in the case of Joseph Constantine Steamship Line Ltd v. Imperial Smelting Corpn Ltd  AC 154 the doctrine 'is only a special case of the discharge of contract by an impossiblility of performance arising after the contract was made.'
The doctrine of frustration will operate to terminate a contract when a subsequent event occurs:-
- is beyond the control of the parties; and
- makes performance impossible or renders the relevant obligations radically different from those contemplated by the parties at the time of contracting.
However, the doctrine of frustration must be applied within very narrow limits. A contract is not frustrated merely because it becomes difficult or more expensive to perform now (see Pacific Forest Industries Sdn Bhd v Lin Wen-Chih  6 MLJ 293). Businesses intending to claim frustration of contract in light of Covid-19 or MCO should do so with caution and ensure that the same not only makes it difficult, inconvenient, or onerous to perform a contract, but that it renders the performance of a contract impossible. As to whether the imposition of the MCO which is temporal in nature can satisfy the requirement for the performance of contract to be impossible remains to be seen and tested in Court. It would involve the weighing of a balance between the principle of difficulty of performance as opposed to the principle of performance being unlawful to perform.Though not on point but capable of serving as a guide, Malaysian case laws have held that the 1997 financial crisis did not amount to a frustrating event under the law, not literally, as performance was merely made more onerous to perform or more expensive to perform. (See Tai Kim Yew, Chinaya & Equity Corporation  1 LNS 232)
What Should I Do If My Counterparty Claims Frustration or Force Majeure?
Step 1: Check whether the contract has a force majeure clause.
Step 2: Check whether there is a causal link between the force majeure or frustrating event or non-performance by the party who claims frustration or force majeure.
Step 3: Write to your counterparty and request the following:-
- evidence of the circumstances it relies on;
- a full explanation of why its performance is now physically/legally impossible;
- evidence of steps it is taking to mitigate and efforts to resume performance.
Step 4: If you are satisfied with the response, consider entering into a written variation to the contract.
Step 5: if you are not satisfied with the response, consider escalating to dispute resolution.
Losses and Expenses
Contractors concerned that they could face delays or increased costs or suffer losses as a result of the Covid-19 outbreak would be well advised to consider whether they have any express entitlements to relief under their contract.
For example, a contractor may seek an entitlement to extensions of time and/or additional payment in the event that:
- shortages of labour arise as a result of preventative measures to alleviate the outbreak spreading and/or due to infection, or potential infection, and the resulting quarantine, or self-isolation, required;
- shortages of plant and materials arise due to delays in their importation or transportation;
- the site is closed or access is restricted as a result of measures to contain the Covid-19 outbreak; and/or
- the contractor is not able to carry out the works as a result of action by governments to prevent the spread of the outbreak.
However, PAM Contracts and PAM Sub-Contracts do not provide a provision for the contractors or sub-contractors to claim for loss and expenses due to epidemics.
The contents of this article are not intended to constitute legal advice on any specific matter and should not be relied upon as a substitute for specific legal advice on matters or transactions.
For further information, please contact the author of this article.